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The theory isn't one way. The third world has tiny average firm size, and the theory correctly predicts that in the developing world firms will get larger rath

The theory isn't one way. The third world has tiny average firm size, and the theory correctly predicts that in the developing world firms will get larger rather than smaller. Consider the small proprietor in a third world who spends tons of time bargaining with vendors and customers. As people's time becomes more valuable and more products become available, the cost of bargaining increases, and larger stores replace vendors because it reduces total negotiation costs.

rdl 15y ago
The third world has tiny companies and huge (often state-owned) companies; it mostly is missing stuff in the middle. The huge state owned companies are the main ones which contribute to international trade (with the exception of agriculture, and even there, the farmers are organized into various kinds of reseller/cooperative/buyer arrangements.) I think international trade usually ignores the domestic markets of these countries, so only their primary exporters are counted. Third world isn't really the right term; it's more like "mostly undeveloped" vs. "developing" -- China (at least the urbanized parts) has more in common in firm size with the US, Japan, and Europe than it does with Nigeria.
- malandrew 15y ago
  Brazil FWIW is estimated to have approximately 5 million businesses with fewer than 100 employees according to the IBGE. That's like 99.5%+ of the businesses in country or something like that. The developing world has an extreme power law distribution curve. Almost all the large businesses are capital intensive. Things are probably more skewed in Brazil than in other countries due to a risk-free rate of ~11%, meaning that any business with high working capital can't rely on outside capital if it doesn't want to end up handing over all its revenue to the banks. Firm size in Brazil is probably more related to capital costs than transaction costs. High capital costs "hollows out" the middle. Capital is often used to reduce rising transaction costs within a firm once the firm size surpasses approximately Dunbar's number. However those businesses at that are mid-sized instead of large don't have enough scale to justify the investment of capital to reduce transaction costs. Many smaller mid-sized companies will hobble along with high internal transaction costs as a result, much higher than would be tolerated in the US. Because of this, SaaS products are likely to have a transformative effect on Brazilian businesses. There is a lot of unmet demand because traditional transaction cost reducing solutions have required too much capital to implement.
  - rumcajz 15y ago
    A lot of small businesses doesn't necessarily mean there's a lot of independent subcontractors, as we know it in the west. In South Korea there's a lot of independent "software consultants", however, these are employed by a single firm. It makes it easier for the firm to pay them less and be able to fire them at will.
    - malandrew 15y ago
      True, but independent contractors like this are a target market just like any other. Look at any successful software developer in the US and you'll find that they pay a couple of hundred to one or two thousand in SaaS services each year.
  - nandemo 15y ago
    Andrew, interesting comment. I wonder why we don't see more Brazilian startups targeting international markets. Is there a Brazilian HN, or otherwise a forum or mailing list?
    - malandrew 15y ago
      No. Stick to HN. Trust me. Most domestic portuguese language forums are inevitably full of bike shedders. Most of those that want a higher level of discourse stick to HN and IRC channels for their respective technology. This results in a vicious cycle of brain drain in the domestic forums, suppressing the level of discussion further. My suggestion is to stick to HN and intl technology channels on IRC and Github and keep an eye out for telltale signs of a Brazilian by the name or other identifying info and reach out to them one by one. You may want to try out HackerNewsers to seed the network initially. http://hackernewsers.com/ http://hackernewsers.com/ Also, get in contact with Diego Remus of Startupi and Diego Gomes of EverWrite.

rdl 15y ago

The third world has tiny companies and huge (often state-owned) companies; it mostly is missing stuff in the middle. The huge state owned companies are the main ones which contribute to international trade (with the exception of agriculture, and even there, the farmers are organized into various kinds of reseller/cooperative/buyer arrangements.) I think international trade usually ignores the domestic markets of these countries, so only their primary exporters are counted. Third world isn't really the right term; it's more like "mostly undeveloped" vs. "developing" -- China (at least the urbanized parts) has more in common in firm size with the US, Japan, and Europe than it does with Nigeria.

malandrew 15y ago
Brazil FWIW is estimated to have approximately 5 million businesses with fewer than 100 employees according to the IBGE. That's like 99.5%+ of the businesses in country or something like that. The developing world has an extreme power law distribution curve. Almost all the large businesses are capital intensive. Things are probably more skewed in Brazil than in other countries due to a risk-free rate of ~11%, meaning that any business with high working capital can't rely on outside capital if it doesn't want to end up handing over all its revenue to the banks. Firm size in Brazil is probably more related to capital costs than transaction costs. High capital costs "hollows out" the middle. Capital is often used to reduce rising transaction costs within a firm once the firm size surpasses approximately Dunbar's number. However those businesses at that are mid-sized instead of large don't have enough scale to justify the investment of capital to reduce transaction costs. Many smaller mid-sized companies will hobble along with high internal transaction costs as a result, much higher than would be tolerated in the US. Because of this, SaaS products are likely to have a transformative effect on Brazilian businesses. There is a lot of unmet demand because traditional transaction cost reducing solutions have required too much capital to implement.
- rumcajz 15y ago
  A lot of small businesses doesn't necessarily mean there's a lot of independent subcontractors, as we know it in the west. In South Korea there's a lot of independent "software consultants", however, these are employed by a single firm. It makes it easier for the firm to pay them less and be able to fire them at will.
  - malandrew 15y ago
    True, but independent contractors like this are a target market just like any other. Look at any successful software developer in the US and you'll find that they pay a couple of hundred to one or two thousand in SaaS services each year.
- nandemo 15y ago
  Andrew, interesting comment. I wonder why we don't see more Brazilian startups targeting international markets. Is there a Brazilian HN, or otherwise a forum or mailing list?
  - malandrew 15y ago
    No. Stick to HN. Trust me. Most domestic portuguese language forums are inevitably full of bike shedders. Most of those that want a higher level of discourse stick to HN and IRC channels for their respective technology. This results in a vicious cycle of brain drain in the domestic forums, suppressing the level of discussion further. My suggestion is to stick to HN and intl technology channels on IRC and Github and keep an eye out for telltale signs of a Brazilian by the name or other identifying info and reach out to them one by one. You may want to try out HackerNewsers to seed the network initially. http://hackernewsers.com/ http://hackernewsers.com/ Also, get in contact with Diego Remus of Startupi and Diego Gomes of EverWrite.