Nigeria’s Otigba Computer Village is arguably the biggest information, communications technology (ICT) market in Africa. It started off as a one-man business on a street called “Otigba” in Ikeja, the capital of Lagos State. Within a short time, it grew to a few thousand businesses occupying a vast area in the state. It represents an ICT solution center for Nigeria as well as West Africa.
Three years ago Nigeria’s National Bureau of Statistics estimated that the informal sector had accounted for as much as 41 percent of the country’s economy in 2015. The informal sector in Nigeria continues to grow for numerous reasons. These include:
- the limited ability of the formal economy to absorb surplus labor (largely dominated by people aged between 15 and 50 years);
- barriers to entry into the formal economy by young entrepreneurs who have ideas but little capital to compete with large firms in the formal sector;
- weak government institutions (regulatory bodies); and
- poor economic conditions which are forcing many consumers to demand cheap goods and services.
About 10,500 business transactions are carried out daily at the Computer Village in Lagos. – News Agency of Nigeria
The Otigba cluster is no exception. It remains largely informal despite its size, the volume of economic transactions being done daily and the technical knowledge put to use in the market. Numerous studies have been done to evaluate the size and capacity of the cluster, its evolution, mode of operation, performance, sustainability and constraints.
But before my research, there had been no studies on how businesses within the cluster identified new and useful knowledge and how they applied that knowledge to innovation to increase their performance and profitability by scaling-up their operations.
Research across the world shows that when businesses cluster together there is bound to be an exchange of knowledge. This can be through spillovers or conscious transfers. With more than 4000 businesses, Otigba should be no exception. So, I set out to test this by surveying 200 business units, representing about 5 percent of the size of the cluster. I wanted to understand how knowledge is being identified, acquired, developed, used and diffused in the cluster.
The study also sought to understand how the spread of knowledge within the cluster led to innovation and the scaling of business operations. Innovation here refers to significant technical changes in the product, services, production processes or delivery method.
To measure the scaling up of businesses, the study examined:
- inputs (access to more finances, number of employees),
- activities (sub-contracting, outsourcing and collaborations),
- outputs (turnover, quality, quantity) and
- impacts (compliance to international standard, technology upgrading and net export).
The study used these indicators because they are yardsticks for measuring growth in firms in the formal sector.
Some interesting findings
When businesses operate in close proximity, as they do in clusters, knowledge sharing is inevitable. I found this to be true in Otigba. This is mainly because the daily routine of the businesses involves: rotation of tasks and the regular training of employees (mainly apprentices) by highly skilled technical personnel, usually the owner of the business or someone appointed as a senior manager.
Most businesses didn’t give preference to employees with relevant experience when hiring. Instead, they used the expertise of qualified technicians to train new employees. As a result, apprentices learned on the job.
By and large, it took new employees less than two years to acquire all the necessary knowledge they needed to do the jobs they were hired for. The result is that apprenticeship has become one of the major channels for skills acquisition and knowledge diffusion within the cluster. Apprenticeship involves on-the-job learning by young employees under the supervision of experts. During this period, tacit knowledge is passed on to the apprentices until they become experts themselves. These apprentices thus graduate, ready to start their own businesses or secure employment as technicians in the formal sector.
The other channel for the diffusion of knowledge within the clusters is the trade association and the unions. These have enabled collaborative innovation in the cluster which has made it possible for firms to compete as a cluster against international players. This is because of the monitoring role played by trade association and unions such as the Computer and Allied Product Dealers Association of Nigeria. The union ensures that new knowledge about new technologies (product and process) is made known to all its members. The union facilitates collective importation of expensive equipment as well as sharing tools and technicians among its members.
Because of knowledge sharing in the cluster, the majority of new businesses were able to scale up their operations within the first three years of operation. This is remarkable given that research shows that a third of new small business dies within two years, and half within five years of starting up. Thus knowledge sharing through clustering is organic incubation – one viable way to survive the first three years as a start-up.
Knowledge sharing also enabled most of the enterprises to increase their capital resources within three years of start-up. They did this either through their own generated resources or through loans. The main source of loans came from commercial banks followed by co-operative societies, business angels and micro-credit organizations.
Most enterprises increased their workforce to run their businesses because of good business performance. During the scaling-up period, there was lots of collaboration between firms within the cluster as well as with other businesses, organizations, and institutions outside of the cluster. This facilitated the transfer of knowledge among cooperating firms.
Finally, the effects of scaling-up enhanced the ability of businesses to:
- satisfy customers’ demands;
- comply with Nigerian regulations and standards;
- develop more environmentally friendly products/processes; and
- improve product quality.
Also, knowledge sharing that happened during the scaling up enabled businesses to extend their product range, deal successfully with new competitors abroad, and lower their production costs.
My research found that openness and proximity increased access to information, customers, new domestic markets, tools and technology, suppliers of raw materials and inputs. In addition, all the enterprises that benefited from proximity in the cluster were involved in at least one form of innovation.
In conclusion, the study posits that knowledge need not be protected in clusters or in the informal sector generally. Instead, it should be shared widely so that other businesses can adopt, or adapt, it. This, in turn, spurs further innovation and the rapid development of the sector. Openness will also aid the development of other sectors through knowledge spillovers. This, in turn, will create healthy competition among businesses.
Oluseye Jegede is Senior Researcher at SARCHI Industrial Development Unit at the University of Johannesburg
First appeared in The Conversation.