A new challenge business model is confronted with

Dumitru-MironThe huge diversification of business methods puts an impressive pressure on regulators to adapt these new manners of doing business to cope with consumers’ needs, existing frameworks for labor and taxation, new partnership relations between undertakings and a sensitive mix of geo-politics and geo-economics. The important spread of cross-border trade transactions, rapid growth of every economic flow, increasing speed of emerging new products and services and modern business tools, also divides experts: these are seen by many as threats for working conditions, and by others as incredible opportunities.

The political economy of business environment is made even more interesting by the fact that the technology isdeveloping faster than the regulation. The main challenge for decision makers and for national legislators is to refrain from regulating too much or too early and to take the time to understand how new methods of doing business for new and innovative products or services behave and their dynamic equilibrium. We are witnessing a process of

crossing from a knowledge based society towards a creative one. One of the most important challenge international organizations, national public bodies and decision makers from the company level need to cope with is a new mean to relate between societal actors. Such a business new mean, „on-demand economy”, is a concept which is very difficult to be inserted and explained in the economic dictionaries. Besides the terms such as the “sharing economy”, the “gig-economy” and the “X company-economy” have been employed. Frenken describe the phenomenon as „one in which consumers grant other consumers temporary access to underutilized assets (possibly for money). Frenken therefore relax these three main elements – namely consumers, temporary access and underutilized assets – to distinguish the concept from other types of services that are platformbased. If one discards the idea of temporary access, the second-hand economy emerges in which goods are sold between consumers.The notion of underutilized assets can also be expanded to include the provision of services from one consumer to another via contests or auctions. A magic word in this respect is platform which is pushing us towards a 3.1 stile business model.

mallAccording to few analysts from academic environment and some business practitioners is used the concept ondemand economy as the overarching framework which is composed of three subgroups. The first is the true sharing economy, what Frenken define as temporary access to underutilized assets between consumers. The second is the set of platforms where one can conduct an auction or a contest in order to receive a service. The third group is the product – service economy, which is a business-to consumer relationship. The potential for development of this new branch of modern business is impressive if undertakings will perceive and internalize opportunities offered by it. Additionally, this type of new business can produce an impressive package of economic and social effects. PWC (2015) estimates that the five key sectors – travel, car-sharing, finance, staffing and entertainment – have the potential to increase global revenues from roughly $15 billion today to around $335 billion by 2025.This implies that defining a measure will become increasingly urgent as on-demand activities replace or add to existing economic activities. On-demand economy could become

an arbitrageur between huge companies and small and medium size firms. One must acknowledge that for every big corporation involved in this type of business there are thousands of small platforms and initiatives that do not reach a size that is sufficient to provide a full-time income to their workers. Even more platforms never reach this stage or cease to exist after a short period of time. This makes it extremely difficult to determine whether the sector deserves the attention it has attracted or whether it is just a fad.

An important issue are the implications of the ondemand economy for labor. In this regard, a first question to investigate is the number of jobs being created by the sharing economy. A very sensitive question to be answered is who are the on-demand workers and how does their

work differ from others? Different studies are contradictory from each other in terms of the professional status and the employment status of the workers, the work mode, the place of work and the final client. Some analyst’s findings are particularly valuable, because they challenge some of the assumptions that many researchers have traditionally held about production and value chains, outsourcing and globalization.

Another sensitive problem the on-demand economy need to cope with is the appropriate trade-off between individual’s involvement in the process and the level of the wages which can be obtained. Many analysts are in doubt with supply of workers time despite their low wages? A first hypothesis is a cognition flaw: given the new format, it can take time before workers are able to estimate their returns on the tasks performed via the platform. Indeed, there is a learning curve to be followed before one can learn how to optimize one’s time supplied on a company platform, before clients are able to calculate when or how long they have to work to increase their revenues. Maselli & Fabo point to a complementary hypothesis and argue that supplying time on a platform makes sense even in a developed economy for workers who have no alternative, for instance because there is insufficient demand for their

work in the region, or who have little experience and need to build up a portfolio.

Another driver behind on-demand economy is globalization of tasks process which works in two directions: not only for a contractor to find someone to perform a task in another country, but also for a worker to capture the demand outside his/her region.

leaderApart from wages, an additional challenge for a company involved in this new type of business are the working conditions for tasks outsourced via platforms. The organizational principle behind working on a platform is that it is purely on-demand (client driven). The ability to perform on a platform combined with the availability of a large pool of workers makes the timing of this type of outsourcing extremely scarce. The consequence is that the system transfers the stress and pressure to the freelance workers on the other side of the screen. Such stress has springs not only in the high competition and the short-term deadlines, but also in the unpredictability of the demand, the need to keep skills extremely up-todate,

the need to constantly engage in self-promotion and the uncertainty of the remuneration. For those who participate but do not win, there is no pecuniary remuneration. In some cases, points are awarded to the losing participants to enhance their profile. Moreover, it is possible that no one will be rewarded for the work done if the client does not like any of the submissions and does not select a winner. Reputations and rating systems, however, are not organized in the same way across different platforms.

Some analysts asks themselves if on-demand economy will turn us all into self-employed workers. Kuttner speaks of „a dystopia where regular careers are vanishing, every worker is a freelancer, every labor transaction is a onenight stand, and we collude with one another to cut our wages”.

The both employers and employees fear that every job will be turned into a freelance activity is legitimate when technology decreases the transaction costs and makes outsourcing more convenient than insourcing. This fear is validated even by statistical figures: in the EU, the share of contingent workers increased from 27.4% in 2002 to 32% in 2014, which, over the 12-yearperiod experienced a boom in half of the time and a downturn in the other half. What is interesting to be mentioned is that this increase is slow but continuous and it was not affected by the recession, signaling that these employment shifts are of a structural rather than a cyclical nature. The trend is likely to continue augmenting due to behavioral, technological, managerial, environmental and socio-cultural shifts. The on-demand economy might have contributed to this trend, but it certainly did not ‘invent’ precariousness. It is reasonable to expect that permanent contracts exist for a variety of reasons. A simple explanation is that hiring someone only when needed entails high transaction costs due to the selection process and the risk that comes with it. Whenever there is the expectation that the demand for a good or service will be stable, it is more convenient to avoid the costs and risks associated with the search. Even when these transaction costs and risks are reduced by the platform technology and the reputation system, they might still be too high to shift the organization of labor entirely towards this system. A sensitive problem that need to be clarified is listing “employee” as the employment statusof the worker.

On the positive side, there is the fact that the on demand economy has a lot of potential. First of all, it transfers transactions that were probably conducted in the shadow economy to the formal sector. One example could be cleaning or delivery services. Platforms can significantly contribute to the combat of the informal sector by sharing their data with tax administrations. Another opportunity created by the on-demand economy is the possibility to complement one’s income, especially in times of crisis and high unemployment. It might not be a coincidence that on-demand platforms ‘exploded’ in the middle of the Great Recession.

The biggest challenge for a more and more turbulent business environment is linked to how should policymakers approach the on-demand economy?

Even throw on-demand economy has been frequently treated in journalistic literature, the academic literature is more than limited. This is largely due to the lack of available data to analyses this new business model. The few academic contributions that do exist are mostly of a descriptive or qualitative nature and often provide only anecdotal evidence. Nevertheless, it is possible to understand and explain the possible semantic lines along which regulation could be improved would be best for all and not a small number of people.

The most advisable attitude is to let the market try first: leaving aside the giants of the sector because many platforms are both young and small. The initial policy approach could be to simply let them grow. For a platform to become capable of generating income for employers

and employees, a certain size in the demand and supply of its services is necessary. Once a platform has passed through the ‘start-up phase’, a regulator could invite its founders to take certain responsibilities vis-à-vis the individuals who supply their work. One could prohibit

exclusivity clauses, which prevent a worker from working simultaneously on two different platforms offering the same service. The possibility to choose the platform(s) on which a worker supplies his/her services can stimulate competition, which can be beneficial for workers. A related idea is to remove anti-cartel protections from individuals participating in the on-demand economy, so that these workers can organize along union lines.

Another question that interests many lawyers and policy-makers is: What would be a proper labour law for the on-demand-economy? Should this type of individuals be categorized as freelancers or as employees? For some of the services outsourced through a platform, it is very difficult to provide a clear-cut delimitation. For example, if one rents out a spare room via this type of platform, does that make that individual an entrepreneur? And if that individual manages three listings, is he/she any different from a hotel manager? These questions can hardly be answered by digital workers themselves. Different analysts which tried to compose a relevant sample of respondents did not received clear answer, helpful to clarify that respondents perceive themselves as entrepreneurs or employees, noticing that an important percentage see themselves as independent contractors. Todolí Signes claim that a possible solution could be the creation of a special status for the workers of the on-demand economy. Their characteristics indeed do not fully comply with either the definition of employees or the self-employed. This confusion is confirmed by the different rulings of different courts on the same issue. Dagnino calls for decoupling benefits and rights from the employment relationship, what means to break the link between welfare benefits and

labour market status. An issue that increase difficulties of policy-making process is that the on-demand economy operating on different levels has a local dimension. Another drivers behind this new model of business is the regionalism. In this respect, at the European Union level is advisable to place on the common regulatory agenda some regulations for the sake of the single market. This would also be advantageous for the business sector as it then would not have to comply with multitude of different rules. A European approach could similarly be valuable from the side of the users, workers and society. This multilevel dimension has also been stressed in a recent opinion issued by the Committee of Regions (2015). It emphasized

that while a sound European framework is crucial in cases of cross-border interest or Single Market relevance, cities should be allowed to promote initiatives that target the specific needs of local communities in strategic fields, such as sustainable mobility and tourism, health and social services.

This very modern subject need to be placed on the Romanian policy-makers institutional and regulatory agenda. The urgency of this challenge is that without access to the data of the different platforms it is difficult to study and understand how the supply and the demand of these services behave and what the equilibrium is. More debates are, both in academic and business environment, needed before one can draw conclusions on how this new sector works. At the same time, is mandatory that different interest groups to put efficient and effective pressure on the policy world to propose legislation, in order to avoid unfair competition from new businesses. The political economy of the sector is made even more interesting by the fact that the technology is emerging faster than the regulation. This calls for a close collaboration between researchers and policy-makers, who should combine forces to obtain access to data and other information that can then be used to further our understanding of the many, many advantages and challenges posed by the on-demand economy.

Prof. Univ. Dr. Dumitru MIRON

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