Social Enterprise Development Partnerships, Inc.

Reconceptualizing the Nano-Enterprise: A Transaction Cost View of the Smallest Business Enterprise

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by

SEDPI
in , , , ,

Roberto Nolan Galang and Mariel Vincent Rapisura

(Presented at the Academy of Management on July 9, 2024 in Chicago Illinois.)

ABSTRACT

This exploratory study characterizes the nano-enterprise — or the single-person enterprise — as a distinct category of firms that constitutes a significant pillar for economic activity and poverty alleviation in many parts of the world, especially in emerging markets.  Because of their founders’ resource constraints, nano-enterprises focus less on increasing profitability and growing the business, but more on ensuring their own survival. Using the lens of transaction cost economics, this paper theorizes the genesis of nano-enterprises with a focus on the impact of institutional and technological change on firm survival.  We apply a mixed-methods procedure leveraging on global survey data and a case study from the Philippines collected at the height of the Covid-19 pandemic to further theorize on the main characteristics that support nano-enterprise survival during times of crisis.

Keywords:

Nano-enterprise, transaction costs, firm survival, entrepreneurship, emerging markets

Reconceptualizing the Nano-Enterprise:

A Transaction Cost View of the Smallest Business Enterprise

Across the developing world, one cannot overlook the proliferation of small-scale enterprises that constitute a significant proportion of the economy (Carlson, 2023; Iwasaki, Kočenda, and Shida, 2021).  In India, for example, small scale kirana stores constitute up to 90 percent of the US$1.2 trillion retail market (Kapuria & Nalawade, 2021).  This story is oft-repeated across many emerging markets, where communities are dependent on Indonesian warung or Filipino sari-sari stores that run the gamut of selling instant noodles, shampoos in sachets, telecommunication services, and even financial products (Gui, Tang & Yin, 2020).  This intricate tapestry of economic activity composed of microenterprises (Berrone, et. al 2014; Sharma, 2014), informal firms (McGahan, 2012; Medina & Schneider, 2018; Narula, 2020), and gig economy jobs (Cameron, 2022; Vallas & Schor, 2020) holds tremendous potential for generating the entrepreneurial energy needed to promote poverty alleviation and socio-economic mobility (Sutter, Burton & Chen, 2019).  However, their nature makes them highly vulnerable to various shocks, leaving them vulnerable to shutdown and bankruptcy.

Indeed, the management literature has looked closely into these forms of economic organization through studies on micro-entrepreneurship (e.g. Thapa, 2015), gig work (e.g. Burtch, Carnahan & Greenwood, 2018) and informal firms (e.g De Castro, Khavul and Bruton, 2014).  These studies have helped us more accurately understand the applicability of management theories such as entrepreneurial conditions (Thapa, 2015), differentiation (Carlson, 2023) or innovation (Roper & Hewitt-Dundas, 2017). They have also helped us better understand the boundary conditions as to when the resource constraints posed by these small enterprises require different forms of theorization on areas such as motivation (Alvarez & Barney, 2014;  Dencker, Bacq, Gruber, & Haas, 2021; Kimmit, Munoz & Newbery, 2020), business models (Seelos & Mair, 2005), and survival (Iwasaki, et al, 2021).    

Yet among these types of enterprises, the nano-enterprises — the smallest economic units — have not been properly studied in the literature (Alvarado Lagunas, 2021).  Nano-enterprises are defined as the subset of private organizations with zero employees, mostly unregistered, and maintains a limited among of assets, if any (Mashhour, 2022).  Nano-enterprises operate livelihoods possibly with the help of unpaid family members, and unlike microenterprises, most nano-entrepreneurs have no intention of growing their businesses but are instead focused on their own survival (McKeown & Philips, 2014).  Due to limitations to human capital, finance and property rights, nano-entrepreneurs primarily operate their businesses out of necessity (O’Donnell, Leger, O’Gorman, & Clinton, 2023), rather than to discover market creation opportunities (Alvarez & Barney, 2014).

Given their lack of capability to grow, why should nano-entrepreneurs be studied in the management literature?  First, the economic importance of non-employing businesses is due to their sheer numbers especially in emerging markets, where they are highly visible as small holder farmers, food stall owners, or ambulant vendors. In Nigeria alone, there are estimated to be a staggering 32.8 million of such businesses (Olagboye, Obembe, and Okafor, 2021).  In many developing countries, the formal distribution networks do not reach large segments of consumers, making the use of nano-enterprises to distribute goods essential to complete last-mile delivery (Sodhi & Tang, 2016). Similarly, working with nano-producers, such as small-holder farmers or traditional handicraft makers, requires the use of innovative business models in the consolidation of orders and the achievement of quality standards (Prahalad & Hart, 2002).

Second, like the study of informal firms and gig economy participants, theorizing about a large existing phenomenon can help us better understand the applicability of management theory across multiple contexts. For our work as scholars to gain greater relevance beyond academia, it is important for us to investigate contexts that go beyond multinationals and large conglomerates.  When people operate what is essentially a “business of one” this blurs the distinction between what we have considered as employment, self-employment, gig economy, small business operations, and entrepreneurship (McKeown & Philips, 2014).  A more precise theorization can help us better understand the seeds of management, and create finer conceptual categorization among employees, employers, firms, and entrepreneurs.

Finally, theorizing about nano-enterprises as a distinct phenomenon has tremendous managerial and public policy implications. The management literature on the bottom of the pyramid has long demonstrated the challenges and opportunities of working with nano-enterprises (Prahalad & Hart, 2002), but this literature has focused on the role of the anchor multinational or large domestic firm, rather than helping the nano-enterprises they support survive (Basu, Munjal, Malik, & Vrontis, 2021; Dembek, Sivasubramaniam, & Chmielewski, 2020). There are existing calls in different countries, such as Australia (McKeown & Philips, 2014), Nigeria (Olagboye, et al 2021), and Saudi Arabia (Mashhour, 2022) to recognize the differential government support requirements for nano-enterprises compared to their self-employed or microentrepreneurial counterparts. The lack of a separate legal category of nano-enterprises as neither employees nor corporations has implications for protection of workers or their contractual agreements, including such integral distinctions as to whether these enterprises are subject to commercial laws or industrial relations laws (McKeown & Philips, 2014).

This paper is hoped to be a stepping stone to understanding these nano-enterprises’ multi-layered complexities, and how to make them more resilient especially in the context of emerging markets. Despite the mammoth scale of nano-enterprises, their nuanced understanding remains a challenge due to the prevalent practice of grouping them under the microenterprise umbrella, which renders them statistically invisible (Olagboye, et al, 2021).  Distinguishing nano-enterprises from their larger counterparts, coupled with a nuanced understanding of the role of the larger firms that work with them, can unlock a more inclusive economic paradigm for management scholars to promote.

This exploratory study is thus structured as follows.  The first part of the paper discusses the concept of nano-enterprise and leverages on transaction cost economics to create a theoretical definition. The second section leverages on a unique dataset of more than 40,000 online firms from 25 countries surveyed by Facebook to highlight the shared characteristics of nano-enterprises globally. The third section conducts a deep dive through a case study on nano-enterprise behavior in a developing country, the Philippines, to better understand nano-enterprises not captured by the cross-country data.  The final section discusses the implication of the research and provides a roadmap for future studies. 

NANO-ENTERPRISES DEFINED

Nano-enterprises are small self-contained businesses that are characterized by both individual ownership and operation. Recent scholars defined nano-enterprises as non-employing registered and unregistered businesses operated by a single individual and zero employees, albeit with the possible assistance by family members (Olagboye, et, al, 2021).  This definition originated from work in Spain, Mexico and Venezuela that identified the nano-entrepreneur as a self-employed entrepreneur who independently carries out commercial activities (Lejarriaga, Duran & Miranda, 2005; García & Fernández, 2005; Raydan, 2010; Valdes, 2004).  More recent research in other diverse locations, such as Saudi Arabia and Australia have utilized similar definitions (Mashhour, 2022; McKeown & Philips, 2014).

As a legal concept, few government policymakers, such as the European Observatory for SMEs and the Ministry of Economy and Business of Spain, have classified nano-entrepreneurs as individuals running their own businesses with complete autonomy.  Most countries subsume the nano-enterprise with other microenterprises, conflating the already unclear criteria for micro, small, and medium-sized enterprises, which themselves have been criticized for their lack of uniformity globally (McKeown, 2017; Poole, 2018). The institutionalization of nano-enterprises presents an opportunity to shift the paradigm of enterprise development, enhance their legitimacy, promoting them as legitimate contributors to poverty alleviation, and making them more resilient and longer lasting (Olagboye et al, 2021).

Nano-enterprises often emerge as alternatives for family income generation due to the absence of formal employment opportunities (Alvarado Lagunas, 2021).  Many nano-entrepreneurs are necessity entrepreneurs who opt to start companies not out of choice (O’Donnell, et al, & 2023) but are pushed by a lack of opportunities in the formal sector (Akyol & Athreya, 2009; Dencker, et al, 2021; Gohmann, 2010). Many nano-enterprises have no intention of growing beyond their existing state (McKeown & Philips, 2014), and operate primarily to improve household income (Rodriguez Medina, Alvarado Lagunas & Sanchez Silva 2023).

On the slightly higher end of the spectrum are micro-enterprises. Microenterprises are more established entities that despite their small size, exhibit opportunity-driven entrepreneurship and can contribute significantly to national economies. Microenterprises are seen as the sources of new products and services, and those that survive the perilous startup phases are hoped to become small, medium, if not large enterprises in the future (Van Hoang, Gurau, Lahiani and Seran, 2018).  Micro-enterprise performance is generally assessed based on their capacity to grow their profitability and asset base, much like their larger counterparts (Carlson, 2023; Thapa, 2015). Policymakers and management theorists have proposed solutions to the difficulties faced by microenterprises, such as eliminating regulatory burdens, providing loans, or developing clusters (Iwasaki, et al, 2021; Sharma, 2014).  But these enhancements may not necessarily help majority of the nano-enterprises, whose motivation and capacity can be different from their micro-entrepreneurial cousins. 

Transaction Cost Economics and the Nano-Enterprise

Through the lens of transaction cost economics, this paper posits that the costs associated with the conduct of exchange between parties generate additional costs that make it difficult for nano-enterprise to organize themselves more broadly.  From an organization science perspective, what makes nano-enterprises an interesting field of study is that these “solo”-preneurs operate atomistically – not relying on other people or organizations to function.  While this embeds the organization with extreme flexibility, the limited size of the nano-enterprise makes it difficult for them to operate at scale and hampers their ability to scale up as opportunities arise.

Organizational scholars have used transaction costs economics has been used to explain the existence of hierarchical organizations.  The crux of the transaction cost economic analysis is that economic actors are boundedly rational (Simon, 1991; Kahneman, 2013) and are sometimes prone to opportunism (Williamson, 2005).  Due to this bounded rationality, contracts for organizing market transactions that cover all relevant outcomes are never complete ex ante, as the possibility of opportunistic behavior by either party exposes both parties to ex post holdups. These contractual hazards can become so severe that the transaction costs associated in the productive exchange between independent parties in a market becomes difficult to enact; these exchanges become more cost-effective` when implemented using authority and fiat within an organization rather than in a formal market (Brousseau & Fares, 2000). As transaction costs increase, markets become less efficient than organizations than for governing interparty exchanges, and the presence of larger firms becomes the norm.  This leads to economic actors choosing between conducting transactions within markets, firms, or hybrid organizations, depending on the transaction costs prevalent (David & Han, 2004; Williamson 1997). 

However, the ability to make this calculation assumes that parties have the resources to construct a larger organization.  Williamson (1997) also argued that building the bureaucracy to internalize transactions costs inside a firm can be quite costly.  If parties have no slack resources, then forming even micro-enterprises is not an option, leaving entities at the mercy of markets when creating an organization is the most optimal route.  

In these instances, would be entrepreneurs with limited resources struggle to trust market players for which functions can be outsourced, nor can they afford to hire people into long-term contracts.  The severity of transaction costs limits both market and hierarchical possibilities for resource constrained individuals, limiting them to single-person operations without any formal employees.  These firms end up doing all the functions of a business: marketing, finance, accounting, even when these functions are easier to delegate to contracted employees. If the founder of the enterprise is highly resource constrained, her ability to participate in the economy would be limited by her inability to organize beyond a single-person operation.

Proposition 1:  Nano-enterprises are characterized by having founders with more limited access to resources compared with micro- and small enterprises.

The increased costs of organizing are particularly true in emerging markets, where institutional voids such as limited contract enforcement, poor information availability and missing infrastructure, can exacerbate costs for creating a hierarchy (Khanna & Palepu, 1997; Prahalad & Hart, 2002).  Transaction costs are strongly affected by the institutions that surround it (North, 2000).  Government institutions make it easier for individuals and enterprises to transact with one another (Williamson, 1997) by creating credible assurances of external contract enforcement (Arruñada & Casari, 2007) and defining the boundaries of legitimate behavior of actors undertaking exchange transactions (Fligstein, 1990). When institutions function well, both ex-ante search and bargaining costs and ex post enforcement costs become lower, making organizing less costly and allowing more entrepreneurs to expand into micro-entrepreneurship (Iwasaki, et al, 2021; Gohmann, 2012).  Poorly functioning institutions make contracting expensive, leading to the rise of single-person enterprises. 

It is thus unsurprising that cross-country studies show a higher level of nano-entrepreneurship and self-employment in less developed countries (Akyol & Athreya, 2009; Gohmann, 2012).  They are home not just to less efficient institutions, but also to more people at the bottom of the pyramid, where individuals do not have the financial resources, human capital nor the access to legal recourse for organizational development (Basu, et al, 2021).  Given the preponderance of nano-enterprises in these countries, scholars should promote greater studies of these phenomena from an emerging markets lens. 

Proposition 2:  Nano-enterprises are more prevalent in countries with a lower quality of government institutions.

In contrast, transaction costs are greatly reduced by technological improvements, particularly via the rise of information technology that lowers the costs of monitoring and that allows individuals to coordinate without the mediation of hierarchies or markets (Benkler, 2002).   The reduction of transaction costs has enabled the creation of peer production, crowdsourcing and other forms of organization that allow entities to operate independently of organizations (Benkler 2017).  This acceleration of technological advancement has led to the diminishing importance of corporations, and the rise of more atomistic forms of production and organization (Davis, 2016).  The acceleration of technological advancement is leading to the creation of more nano-enterprises across the world, as working within the confines of a costly bureaucracy is less necessary for profitability. Occupying an increasingly significant role in today’s economy, many self-employment opportunities have been subsumed in the gig economy where the provision of paid tasks are now mediated by the burgeoning digital platform economy and which increasingly provide flexible income opportunities for millions (Cameron, 2022; Stewart & Stanford, 2017; Vallas & Schor, 2020).

Proposition 3:  Nano-enterprises are more prevalent in countries with a higher level of information technology adoption.

CHARACTERIZING THE NANO-ENTERPRISE GLOBALLY

Previous studies of nano-enterprises have only delved into nano-enterprises at the city or national level (e.g. Mashhour, 2022; Raydán, 2010; Rodríguez Medina, et al, 2023). Because nano-enterprises are not generally captured as a separate category in most censuses of businesses, there are no global comparisons pertaining to their size and characteristics even as they present distinctive characteristics, challenges, and opportunities. This exploratory analysis provides the first global assessment of nano-enterprises as a segment to highlight their unique characteristics.

This characterization relies on a unique global survey conducted on businesses that are present on the social media platform, Facebook.  Facebook has an estimated 80 million active businesses on their portal (Schneider, 2021).  We do note that this characterization does not capture the full corpus of nano-enterprises globally, given that Facebook fails to capture data from nano-enterprises that do not use their platform, particularly the nano-enterprises that have no capacity to participate in the digital economy.

The data to conduct this descriptive study is generated from the State of Small Business (SOSB) survey conducted through the Facebook platform to assess their challenges, opportunities and needs around the world.  The SOSB is an outgrowth of a Future of Business survey program designed at the request of the World Bank and the Organization of Economic Cooperation and Development to run twice-a-year waves to provide information on the perspectives of online businesses in more than 100 countries.  This study uses SOSB data collected by Facebook in January and February 2021, the latest publicly available survey data. Facebook undertook a modified random sample of their 80 million active Facebook business pages and sent out invitations within each country.  The SOSB survey was sent via the Facebook platform directly, with potential respondents receiving an invitation on their Feed that they click through to take the survey.

A total of 181,509 firms started the SOSB February 2021 survey wave.  As this descriptive analysis is focused on the defining the general characteristics of the nano-enterprise, we removed all the respondents that did not fill in the question on the number of employees.  This left us with an initial sample of 84,004 companies.  The Facebook survey methodology was conducted with a deliberate oversample of United States respondents, with 41,152 companies or more than half of the respondents coming from this single country.  There were also 2,077 companies coming from Taiwan, and where political data was not available for the subsequent analyses.   We excluded these two countries for the final study, although their inclusion does not materially change the results.  This left us with final sample of 40,775 survey respondents from 25 developed and developing countries.

TABLE 1
Description of the Sample

CountryNanoMicroSmallMediumLargeTotal
Argentina2603052921271781,162
Australia3904096452764322,152
Belgium1721803192544161,341
Brazil3025544301822841,752
Colombia1443863111652281,234
Egypt2153913581101601,234
France3793204162393991,753
Germany2683636224196732,345
Indonesia64059634878881,750
Ireland1141703102093611,164
Israel2943343531752751,431
India282490404991481,423
Italy3134535182074451,936
Mexico1844724962263421,720
Nigeria408634536119781,775
Philippines2993472421092041,201
Pakistan351459366901211,387
Poland3523956363605652,308
Portugal2834635182633681,895
Russia1262726204184841,920
South Africa2593443171521561,228
Spain3004314552513551,792
Turkiye2275795191771581,660
United Kingdom4213543892244891,877
Viet Nam842254932303031,335
Grand Total70679926109135159771040775

We divided the companies into nano, micro, small, medium, and large enterprises based on the number of employees.  As there are no generally agreed classifications between sizes of companies, we followed certain generally accepted sizes for defining MSMEs, based on a number of scholarly works using cross-country data (De Mel, McKenzie & Woodruff, 2009; Grimm & Paffhausen, 2015).  Nano-enterprises are defined as having zero employees, micro-enterprises are those with between one to four employees, small enterprises have between 5 to 49 employees, medium enterprises have between 50 to 250 employees, with large companies being those with more than 250 employees.

Based on the comparative statistics, we find the following general characteristics of nano-enterprises as being statistically different from their larger firms.  We looked at a number of indicators based on the SOSB survey, including gender, location, industry and the educational attainment of owner.  Survey questions were also asked as to whether they utilize digital tools for the business or generate revenues from digital services.  Finally, the firms were also asked on their expectation that they will survive the next 12 months, given the impact of the Covid-19 pandemic.  Chi-square tests were run across these groupings and variables, as well as just between the results of nano and microenterprises. All of the results indicated a statistically significant difference across the firm-types for each variable up to a p-value < 0.0001, indicating a strongly significant difference in the propensities for each firm-type.

TABLE 2

Primary Characteristics of Nano Enterprises

Number of EmployeesFemale-OwnedCollege Degree  UrbanNo Digital ToolsNo Digital RevenueSurvival Expectation
Nano041.70%39.97%59.30%9.81%29.73%19.90%
Micro1 to 431.70%42.09%64.27%8.41%25.61%21.55%
Small5 to 4933.17%43.96%64.99%7.18%22.77%24.52%
Medium50 to 25038.92%42.80%63.40%7.02%20.12%26.40%
Large> 25039.18%46.19%65.34%6.39%18.03%29.31%

Source: Facebook SoSB Survey

What the Facebook survey data showcases is that nano-enterprises tend to have distinct characteristics compared with larger firms. For one, the gender of the owner tends to skew more strongly female, with close to almost 42% of those surveyed being female, as opposed to less than a third for micro and small enterprises. Second, the educational attainment of nano-entrepreneurs tends to be lower, with less than 40% of them being college degree holders, compared with 42% of SME firm owners.  Third, they are less likely to be located in a city, with less than 60% of nano-enterprises being in a city environment, as opposed to 65% of large firms.  The rural location provides a disadvantage to nano-enterprises as they are not likely to have a complete access to input products and services, as would be available to enterprises in urban areas. Fourth, nano-enterprises have a higher likelihood to not use digital tools for business nor generate revenues from digital services, compared with their larger counterparts. 

The survey also provides a breakdown of the types of industries that nano-enterprises operate in.  Given the sampling frame of only Facebook registered businesses, this initial snapshot is not meant to ascertain the global distribution of nano-enterprises, as many non-digital firms are not part of the survey methodology, especially across the developing world.

TABLE 3
Industry Characteristics of Nano-Enterprises

RetailArtsICTPersonal ServicesHotel & RestaurantConstructionOthers
Nano15.1%9.76%7.51%6.18%4.29%4.46%52.70%
Micro15.5%5.16%6.91%4.89%6.91%7.18%53.45%
Small9.8%3.32%7.98%2.34%7.98%8.69%59.89%
Medium8.1%1.82%8.30%1.57%8.30%7.25%64.66%
Large8.4%1.30%11.23%1.10%11.23%3.66%63.08%

Source: Facebook SoSB Survey

Among the industries, retail is the predominant sector, where more than 15% of the surveyed firms operate.  This figure is similar to that of micro-enterprises.  The other areas where nano-enterprise prevail are in personal services, such as hairdressing and gardening.  There are many nano-enterprises providing ICT, restaurant, and construction services, but these are also areas where larger firms operate.

Finally, nano-enterprises have a higher perceived vulnerability to bankruptcy, with their expectation that the firm will survive the next 12 months is less than 20% whereas almost 30% of large firms believe they will survive the coming year, given the on-going impact of the Covid-19 pandemic at the time of the survey (see Table 1).  The low survival horizon is generated not just by the size of the firm, but also compounded by the characteristics of the nano-enterprise itself, having less human capital, less digital skills, rural location and being female owned.  These characteristics validate the initial theorization of our first proposition on the origin of the nano-enterprises being founders facing extreme resource constraints.

Proposition 4:  Nano-enterprises have a shorter propensity for survival than micro-, small- and medium- or large enterprises.

Understanding Nano-Enterprise Survival

To further conceptualize nano-enterprises, we take the first step in understanding how nano-enterprises respond to challenges, market shifts, and disasters.  Given their nature and prevalence, understanding the factors that impact their resilience and flexibility can be pivotal in determining the survival of nano-enterprises, especially in volatile economic climates common in the developing world.   Leveraging once again on the latest SOSB inter-country data can allow us to obtain some initial insights on the resilience of nano-enterprises around the world. 

Given the data limitations, we make exploratory assessments by testing the impact of company size on survival perceptions, during tail-end of the Covid-19 pandemic.  The multi-variate statistical analyses will allow us to control for other factors that may affect the performance of nano-enterprises.  Our dependent variable is based on converting the responses on whether the respondent felt that the company could survive the next 12 months into a binomial variable where 1 signifies the confidence to survive the year, and zero otherwise.   Given the nature of the dependent variable, we performed a binomial logistic regression using the dependent binary survival variable, against whether the firm were a nano-, micro-, small or medium enterprise. 

To control for other factors, we converted the variables from the earlier analysis to assess whether these variables drive the lower survival perceptions of nano-enterprises or whether it is the specific characteristics of the firms itself that are causing the non-survival perceptions.   These control variables include dummies for female ownership, lack of digital revenue, and college educational attainment.  We excluded the variable on lack of digital tools, as it was highly correlated with the digital revenue variable.  We also controlled for the industry of the companies, as they also impact the risk perceptions of the firms.    

To understand the impact of the institutional and technological environment on nano-enterprise behavior, we added two nation-level variables: GDP per capita as measured by the World Bank, and Regulatory Quality from the World Bank Governance Indicators.  To proxy for the level of information technological sophistication of the country, which also impacts transactions costs, we included a variable for mobile cellular subscriptions per 100 people as measured by the International Telecommunication Union.

We also generated interactions to tease out the impact of being a nano-enterprise and its characteristics.  We created a dummy variable on whether the GDP per capita of the country location is an emerging market, or less than USD12,375, the cutoff of the World Bank for high income countries.   We also created a dummy on whether the entity is located in an area with high mobile phone coverage by utilizing the mean mobile phone per capita level in the sample at 120. We also created a set of interaction variables on the remaining variables, based on whether the company was a nano-enterprises, as well as whether the country was an emerging market.

Three sets of exploratory logistic regressions were run to create propositions.  The first regression included the initial set of data without the interaction terms.  Then another regression was conducted to understand the impact of being a nano-enterprise, and a final regression with interactions based on being located in an emerging market. 

TABLE 4

Binomial Logistic Regression Results

 (1) Initial Regression(2) Nano Interactions(3) Emerging Market
Nano                                                                         -4.439e-01*** (4.064e-02)-4.383e-01*** (8.223e-02)-3.893e-01*** (4.953e-02)
Micro                                                                              -3.004e-01*** (3.690e-02)-3.078e-01*** (3.697e-02)-3.185e-01*** (3.705e-02)
Small-1.564e-01*** (3.488e-02)-1.615e-01*** (3.490e-02)-1.728e-01*** (3.497e-02)
Micro                                                                              -1.072e-01** (4.122e-02)-1.101e-01** (4.121e-02)-1.142e-01*** (4.126e-02)
Located in Urban Area                                                                                1.574e-01*** (2.596e-02)1.233e-01*** (2.825e-02)6.311e-02* (3.076e-02)
Female Owned                                                                             -1.099e-01*** (2.562e-02)-1.269e-01*** (2.789e-02)-1.003e-01** (3.151e-02)                                                                           
No Digital Revenues                                                    4.845e-01*** (2.687e-02)4.871e-01*** (2.704e-02)6.409e-01*** (3.342e-02)                                                      
College Degree                                                                             4.021e-01*** (2.460e-02)3.964e-01*** (2.672e-02)3.868e-01*** (3.185e-02)
GDP Per Capita5.732e-06***
(9.871e-07)		5.316e-06*** (9.948e-07)6.270e-06*** (1.021e-06)                              
Regulatory Quality                                                                            7.560e-02** (2.867e-02)7.034e-02*
(2.895e-02)		8.914e-02**
(2.985e-02)                                                   
Mobile Phones Per 100 Persons5.740e-03*** (5.426e-04)6.068e-03*** (5.684e-04)6.417e-03***
(5.952e-04)
Nano X Emerging Market -1.791e-01**
(6.673e-02)		-1.416e-01*
(6.670e-02)
Nano X Hi Mobile Phones per Capita -1.680e-01**
(6.433e-02)		 
Nano X Urban                                                                                 1.966e-01**
(7.028e-02)		 
Nano X Female 7.747e-02 (6.840e-02) 
Nano X No Digital -1.119e-01 (1.028e-01) 
Nano X College 1.377e-02 (6.734e-02) 
Emerging Market X Urban  2.772e-01*** (4.584e-02)
Emerging Market X Female  -3.886e-02 (5.097e-02)
Emerging Market X No Digital  -4.135e-01***
(5.426e-02)
Emerging Market X College  2.857e-02 (4.770e-02)
Intercept-4.326e+00*** (1.721e-01)-4.311e+00*** (1.737e-01)-4.439e+00***
(1.772e-01)
Industry DummiesYesYesYes
Number of Observations40,77540,77540,775

Notes: Dispersion parameter for binomial family taken to be 1)                   
Null deviance: 45072 on 40774  degrees of freedom / Residual deviance: 43155  on 40755  degrees of freedom

AIC: 43195

Standard errors in parentheses: * p < .10; ** p < .05; *** p < .01

From these exploratory analyses, we find support to the higher proposed vulnerability of nano-enterprises, with their coefficient for survival being lower than larger firms across all regressions, and with these results being statistically significant even at p <0.001.  We also find that many of the characteristics that predominate nano-entrepreneurship, such as having a female owner, being in a non-city location, and having no college degree all have a negative and statistically significant impact on the propensity of the owner to expect survival.  The only surprising result is that companies with no digital revenues have a more optimistic outlook, potentially stemming from the old economy nature of their businesses.  On the institutional level, we find that survival perceptions are positively affected by a company being located in a more developed, more technologically savvy, and better regulated country, highlighting the important impact of institutions on all enterprise survival.  The nano-enterprise variable remains positive, with a coefficient higher than those of micro, small and medium enterprises.  These analyses highlight the unique nature of these enterprises beyond the characteristics of their founder, location and industry, which itself generates stronger perceptions on their risks of closure.

            Looking at the interaction terms provide us with additional propositions for understanding the interaction between the institutions and the enterprise itself.  The key outcome of these regression variables is that none of the personal characteristics of the nano-enterprises — gender, digital adoption, or educational levels — has significant coefficients, solidifying our understanding that it is being a nano-enterprise itself rather than its operating characteristics that generate the low survival perceptions.  What is more important to nano-enterprise survival is indeed the institutional surroundings.  The interaction characteristics of the enterprise location show a significant coefficient, albeit not all in straight-forward ways.  Nano-enterprises located in emerging markets are even more prone to having lower survival perceptions, as indicated by the negative and significant interaction term.  Furthermore, nano-enterprises located in urban areas have a higher survival perception than those in rural areas. Surprisingly, nano-enterprises in countries with more IT adoption have higher rather than lower survival perceptions.  This may indicate the analog nature of many nano-enterprises, and the limitations of the efficiencies brought about by information technologies in supporting their welfare, something that is also highlighted in the emerging markets interactions.

Proposition 4a:  Nano-enterprises in emerging markets have a lower propensity for survival than nano-enterprises in developed markets.

Proposition 4b:  Nano-enterprises in urban areas have a higher propensity for survival than nano-enterprises in rural areas.

Proposition 4c:  Nano-enterprises in countries with higher levels of technology adoption have a lower propensity for survival than nano-enterprises in low-tech countries.

CHARACTERIZING THE NANO-ENTERPRISE LOCALLY

To further expound on the insights generated from the global survey, we conduct a case study of nano-enterprise development in the Philippines.  By looking at emerging market nano-enterprises at a more granular level, we are able to obtain new insights from nano-enterprises that do not have the technological sophistication to access the Facebook platform.  The Philippines is an optimal emerging market to study nano-enterprises as a middle-income country whose weak institutional environment has hampered its economic development.  The Philippines was touted as a rising economic dynamo that was expected to achieve industrial development when the country gained independence in 1946, but its Asian neighbors have surpassed its economic development and performance over the years (Hill, Balisacan, & Cruz, 2022; Tuaño & Cruz, 2019). Several global indices (i.e., World Bank, Transparency International, and the United Nations Development Program) have highlighted the weaknesses of the Philippines’ institutional environment, especially its inability to promote effective governance and the rule of law. 

This case study looks at the nano-enterprises from the data collected by the Social Enterprise Development Partnerships, Inc. Group of Social Enterprises (SEDPI Group), which provides microfinance services to nano-enterprises. The Philippines has made significant strides in the field of microfinance, often lauded for its robust policy regulations that foster a conducive environment for microfinance activities in support of enterprise development and financial inclusion (Layaoen & Takahashi, 2022). Microfinance companies have formulated new business models lending to poorer communities by leveraging on social capital and shared liability (Giné & Karlan, 2014).  Despite the microfinance industry’s aim of lifting millions out of poverty using debt as a development tool, the reality after four decades is that millions remain impoverished, with some bearing even more significant debt burdens.  The success of this business model has led to criticisms on its excessive interest rates (Lewis, 2008) and the pursuit of profit over the well-being of its borrowers (Beisland, D’Espallier, & Mersland, 2019). 

SEDPI’s case was selected due to its pioneering work in the field of ethical financing and providing social safety nets for nano-enterprises which has led to reduced default rates, and the successful expansion of its branch network and outreach.  This investigation could assess the impact of nano-enterprises that partner with firms that provide savings mobilization, insurance coverage, investment opportunities, and liberation from straightforward loan products that limit the economic resilience and sustainability of nano-enterprises. 

The micro-finance debt burden issue was highlighted by SEDPI’s findings from the early 2000s, revealing that their nano-enterprise clients typically borrowed from an average of 2-3 microfinance institutions, a figure that rose to 4-5 institutions by 2020. This led to a significant shift in SEDPI’s strategy on February 14, 2020, transitioning from conventional microfinance to social microfinance – branded as SEDPI KaNegosyo or commercial partner. The focus shifted away from using loans, debt, or credit as development tools, aiming instead to eradicate debt burdens in low-income households and engage them as real partners in business and development.  This multifaceted approach: nano-financing, social investments, and financial education – work together in alleviating poverty and improving the resilience of Filipino nano-entrepreneurs. By fostering sustainable growth and providing essential resources, these programs contribute to the creation of long-term opportunities and financial stability for marginalized communities in the Philippines.  At the heart of the SEDPI Group’s operations are its core values that drive its initiatives and programs – social solidarity economy, diversity, and inclusion, rewarding performance for social good, honesty and transparency.

The profile of SEDPI’s nano-enterprise clients provide a different profile from those in the SOSB Facebook sample, showcasing the breadth of enterprises not captured by the online data. SEDPI conducted a face-to-face survey of 8,380 of its microfinance clients in June 2021, a similar timeframe with the Facebook SOSB survey.

TABLE 5

Comparative Characteristics of Nano-Enterprises

 Global SOSB DataLocalized SEDPI Data
Female42%83%
College degree40%2%
Location in city59%5%
No digital tools10%56%
No digital revenue30%68%

Source: SOSB, SEDPI

Industry characteristics

 Global SOSB DataLocalized SEDPI Data
Retail15%48%
Arts10%0%
ICT8%0%
Personal services6%5%
Hotel and restaurant4%9%
Construction4%2%
Agriculture–36%

Source: SOSB, SEDPI

The SEDPI nano-enterprise profile, characterized primarily by female ownership, rural-based operations, and limited digital engagement, reflects a broad subset within the nano-enterprise sector.  When juxtaposed with the Facebook data, SEDPI nano-enterprises showcase a considerably higher proportion of female ownership at 83% compared to the FB figure of 42%, primarily due to SEDPI’s targets female nano-entrepreneurs as part of its gender empowerment objective.  In terms of educational attainment, only 2% of nano-enterprise owners hold a college degree, a stark contrast to the 40% reported in the Facebook data. Location-wise, a mere 5% of SEDPI nano-enterprises operate within city limits, as opposed to the 59% of urban-based FB businesses.

Digital tool adoption and revenue generation from digital sources are low among SEDPI nano-enterprises, with 56% not using digital tools and 68% not earning digital revenue, compared to 10% and 30% respectively in the Facebook data.  This is driven by the fact that ownership of digital devices within SEDPI’s nano-enterprise clients is low with only 4% owning a computer, and only 44% have smartphones, with 22% not owning a phone at all.  Industry-wise, while retail dominates both datasets, SEDPI nano-enterprises have a substantial 48% involvement in retail, higher than the 15% in the FB data. The strong representation of agriculture at 36% within SEDPI nano-enterprises underscores the agricultural focus of their economic activities, which is not reflected in the FB data, hinting at the agrarian context of most nano-enterprises globally.

SEDPI’s nano-entrepreneurship support program is itself apart from conventional microfinance institutions with its innovative approach to financial services.  The SEDPI KaNegosyo model operates under six foundational principles – capital infusion (not loans), financial education, profit and risk-sharing, non-profit insurance product, and partnership and cooperation.  The principle of capital infusion rather than loans represents a paradigm shift in supporting nano-enterprises. Unlike the traditional microfinance model which can saddle nano-enterprises with debt, SEDPI’s approach of capital infusion promotes a symbiotic partnership, with a focus on joint ventures.  Through capital infusion, SEDPI forms co-ownership arrangements with nano-enterprises, not as a creditor but as a stakeholder invested in the enterprise’s success. This partnership entails a pre-agreed, non-compounding, and non-accruing cost-plus basis for SEDPI’s capital contribution. Such a structure eliminates the stress of escalating debts from compound interest and punitive charges, which are typical of conventional loans. This is the bedrock of a more equitable form of financial assistance that fosters independence and promotes a robust social and solidarity economy.

SEDPI implements a policy, wherein as the joint venture capital increases, so does the members’ savings. This strategic approach encourages members to cultivate a discipline of saving, which plays a pivotal role in the growth of their nano-enterprises. In subsequent funding cycles, members can partially finance the expansion of their ventures by withdrawing a portion of their accumulated savings, thereby reducing their dependency on external debt.

SEDPI KaNegosyo’s principle of profit and risk sharing establishes a partnership where both profits and risks are equitably shared between SEDPI and the nano-enterprise. This mechanism prioritizes the value of labor and active participation over mere capital contribution, setting it apart from traditional loan systems that place the burden of risk solely on the shoulders of the debtor. In this collaborative model, challenges are met with joint problem-solving, fostering a sense of mutual responsibility and shared fate that is conducive to the long-term success and resilience of the nano-enterprise. Further emphasizing its equitable approach, SEDPI does not impose penalties for late payments. This policy acknowledges that common reasons for delayed repayments—such as sickness, death in the family, or disasters—are often beyond the control of the nano-entrepreneur. By waiving penalties, SEDPI demonstrates understanding and solidarity with its clients in their times of need.

In the distribution of profits within the joint ventures, SEDPI’s policy deviates from conventional models that would typically favor the larger capital contributor. Instead, the income sharing is not predominantly based on the amount of capital infused. Nano-enterprises receive a larger share of the profits, recognizing their significant labor participation and contribution to the venture. SEDPI limits its earnings to a fixed service charge, a practice that further exemplifies its commitment to prioritizing the welfare and success of the nano-enterprises over maximizing its own financial returns.

SEDPI KaNegosyo extends its ethical financial framework to include a non-profit, indigenous insurance scheme locally called “damayan” or solidarity. This scheme is rooted in the principle of protection through solidarity, not as a means of generating income. A fixed membership fee is paid to join the scheme and a fixed operating cost is charged against it. Any surplus from premium payments is not treated as profit but is reinvested to fortify the “damayan” fund, thereby enhancing the collective financial safety net for all members.  Recognizing the vulnerability of nano-enterprises to natural disasters and the growing impact of climate change, the scheme aims to provide a solid foundation of support to help nano-enterprises withstand these challenges and remain operational. Benefits extended allow members to cover basic costs or aid in disaster recovery.

Proposition 5a:  Nano-enterprises with access to private social safety nets, such as financial risk-sharing systems, have a higher propensity to survive.

In contrast to conventional financing methods that often encourage a cycle of borrowing, SEDPI KaNegosyo’s financial education principle focuses on liberating nano-enterprises from unsustainable loan products. Through intensive savings mobilization, the program champions a savings-first approach, thereby fostering a culture of financial resilience and stability. This empowers nano-enterprises to build their capacity and grow sustainably without the burden of increasing debt.  SEDPI’s approach to imparting financial literacy is grounded in practical, community-centric methods, seamlessly extending from its financial education principle.  Additionally, SEDPI places a strong emphasis on the training of its Financial Inclusion Officers. FIOs are equipped to provide sound financial advice, guiding members towards developing robust savings habits and reducing their reliance on debt. This proactive guidance is crucial in shifting the focus from debt-based to savings-led growth.

Proposition 5b:  Nano-enterprises with access to human capital development resources have a higher propensity to survive.

The partnership and cooperation principles of SEDPI KaNegosyo seek to forge alliances with government agencies, facilitating access to basic services for low-income groups. This initiative aims to bridge the gap between marginalized nano-enterprises and the support they require, ensuring a more inclusive reach of governmental programs. Additionally, SEDPI champions collaborative efforts with civil society and other organizations that share the vision of poverty eradication, recognizing that collective action is essential to create significant and sustainable impact in the communities they serve.

SEDPI has established partnerships with key government agencies. These collaborations are aimed at augmenting the social safety nets provided by organizations such as the Philippines Social Security System, and Philippine Health Insurance Corporation. Recognizing the challenges in the speed and adequacy of claims processing by these agencies, SEDPI’s involvement helps bridge these gaps, ensuring that the needs of nano-enterprises are met more efficiently and effectively.

In addition to government collaborations, SEDPI’s programs plays a crucial role in engaging private individuals as social investors. This initiative fosters a broader community of support, tapping into the resources and goodwill of individuals who share a commitment to poverty eradication. By involving social investors, SEDPI broadens its impact, leveraging private resources for public good. This approach not only diversifies the sources of support for nano-enterprises but also cultivates a culture of social responsibility and community involvement among a wider audience.

Proposition 5c:  Nano-enterprises with access to public social safety nets have a higher propensity to survive.

This case study highlights the approach taken by SEDPI’s business model vis-a-vis conventional microfinance companies with its deeper understanding of the survival needs of nano-enterprises. The financial performance of SEDPI, as reflected in the audited figures from 2018 to 2022 and the interim financial statements of 2023, demonstrates a robust growth trajectory in membership. This growth can be attributed to several strategic and operational approaches that have resonated well with the target demographic.

Table 6

SEDPI Financial Performance

 201820192020202120222023
Nano-Enterprise Members4,3887,24410,22111,93014,62719,840
Membership Growth13%65%41%17%23%36%
Portfolio Amount (MM PHP)23.837.243.366.376.0116.5
Portfolio Growth28%56%16%53%15%53%
Portfolio at Risk9.22%6.13%4.39%0.51%0.75%1.20%
Operational Self Sufficiency101%105%53%113%119%125%
Damayan Claims (MM PHP)1.82.42.74.55.87.2

Source: SEDPI

The SEDPI KaNegosyo model’s financial landscape has witnessed a significant upsurge in its portfolio, scaling from PHP 23.8 million in 2018 to PHP 116.5 million in 2023. This growth trajectory encapsulates the robust expansion strategy of SEDPI, underpinned by an increase in membership and the rise in the outstanding portfolio. 

Analyzing the portfolio quality, there is an observable trend of enhanced portfolio at risk (PAR) management. PAR in the microfinance industry is a measure of credit risk, calculated by dividing the balance of loans that are one day past due by the total outstanding loan portfolio. With an industry standard of less than 5%, SEDPI’s PAR figures, even though they have seen a marginal uptick, have remained well within and below this benchmark, peaking at only 1.20% in 2023. This is particularly noteworthy given that the claims under the “damayan” system—SEDPI’s non-profit insurance scheme—intensified during the pandemic. The modest increase in PAR juxtaposed with the rising claims suggests an effective balance between member support and portfolio quality. 

The growth in the portfolio and the sustained quality post-pandemic can be ascribed to several strategic and operational practices. The rise in membership resulted in an increased outstanding portfolio, enhancing the organization’s financial capacity. Furthermore, members have displayed a tendency to prioritize repayments to SEDPI, facilitated by the smaller joint venture capital amounts, which are more manageable and allow for easier renewal processes than larger loans.  SEDPI’s focus on savings over loans as a source of capital has inculcated financial responsibility among members, reducing their reliance on debt and promoting prudent financial management. This shift, combined with policies like non-compounding interests, the absence of penalties, and a moratorium on repayments during calamities, has eased payment processes for members, leading to a lower PAR.  These showcase the enhanced resilience provided to SEDPI’s nano-enterprise clients, thanks to the flexible safety nets provided by the program.

Apart from helping the nano-enterprise, SEDPI’s journey through and beyond the pandemic illuminates a noteworthy pattern of profitability, particularly reflected in the organization’s Operational Self Sufficiency (OSS). This key financial metric, defined as operating income divided by operating expenses, serves as a barometer for gauging the financial viability of an organization. In the microfinance industry, a standard OSS of over 120% is considered healthy, indicative of an organization’s capacity to cover its operating expenses with its operating income.  Post-pandemic, SEDPI’s OSS paints a picture of heightened financial robustness. Notably, the OSS has shown consistent improvement during this period, surpassing the pre-pandemic figures. This suggests that SEDPI has not only weathered the economic storm brought on by the global health crisis but has emerged in a stronger financial position. The OSS for SEDPI stood at 113% in 2021, climbing to 119% in 2022, and further to an admirable 125% in 2023, indicating that the organization’s operating income has been sufficient, and even increasingly so, to cover its operational costs.

The case study of SEDPI KaNegosyo’s financial and operational data shows that the organization’s social safety nets are not merely a member benefit but a definitive competitive advantage. In the landscape of microfinance where the vulnerability of nano-enterprises is often compounded by rigid financial systems, SEDPI has carved out a distinctive niche through its empathetic and member-focused practices.  SEDPI’s robust growth trajectory, particularly in its membership, underscores the appeal of its innovative financial solutions that are tailored to the particular needs of nano-enterprises.  The strategic shift away from traditional debt instruments towards capital infusion and savings mobilization has fostered a supportive ecosystem where members are empowered to grow without the typical stress associated with increasing debt burdens. The absence of compounding interest, penalties, and the provision of automatic moratoriums during calamities has reinforced the perception of SEDPI as a caring and protective organization, further cementing its competitive position in the market.

SEDPI’s success in maintaining a PAR well better than the industry standard, coupled with its consistent growth in OSS, points to the resilience and efficacy of its model. SEDPI KaNegosyo’s social safety nets are a testament to the organization’s innovative and empathetic approach to microfinance. These safety nets have served as a bulwark against financial vulnerability for its nano-enterprise clients, enabling them to navigate the uncertainties of entrepreneurship with confidence. As such, these social safety nets have emerged as a pivotal competitive advantage, one that not only defines SEDPI’s unique value proposition but also exemplifies a scalable model for inclusive financial resilience for nano-enterprises.

DISCUSSION AND CONCLUSION

Nano-enterprises play a fundamental role in the global economy by providing essential goods and services for many communities. Despite their small scale, nano-enterprises help foster local economic development by creating income for households that are unable to access formal employment opportunities, and serve as a significant lifeline for local consumers, especially in remote or underserved areas.  For many households, especially in emerging markets, the income the enterprises generate provides a lifeline for their household survival.  Understanding how to ensure nano-enterprise survival can be a key contribution by the management literature to the United Nations Sustainable Development Goals.  

Transaction costs economics plays a key role in explaining the phenomenon of nano-entrepreneurs.  Poorly functioning institutions make employment contracting expensive, leading to the rise of single-person enterprises.  When founders are highly resource constrained, creating a nano-enterprise with no employees provides the only option for participating in the economy.  As institutions improve, firms can expand into more micro-entrepreneurship, as firm survival is enhanced by lower transaction costs (Iwasaki, et al, 2021; Gohmann, 2012).  In similar fashion, the acceleration of nano-enterprise formation through the gig and shared economies has also been theorized to be a function of the lower information, transaction and monitoring costs created by platforms, allowing organizations to save on the costs of creating a governing hierarchy (Drahokoupil & Piasna, 2017).  

Given the low capitalization and revenues generated by nano-enterprises, the presence of transaction costs makes it difficult for them to create the governance structures to create even small hierarchies.  Nano-enterprises thus need to rely on external parties to lower transactions costs sufficiently to allow them to reap the gains of organization. Through the lens of transaction costs, we can see how many of the interventions stated in the literature to promote entrepreneurship cater mainly to microentrepreneurs and gig economy workers, rather than nano-enterprises.  For low revenue nano-enterprises, such interventions may still keep the costs of organizational development beyond their reach.

Therefore, public and private sectors that work with nano entrepreneurs should bear these concerns in mind.  First, interventions need to work with a gender lens, given the propensity of nano-enterprise founders to be female.   Examining these categories from a gender and development perspective reveals that nano-enterprises are predominantly owned and run by women, often catering to the household’s needs. Second, help with management training are essential given the lack of formal educational skills, as well as a lowered perceived level of personal business capacity.  Another compelling area of inquiry concerns the role the private sector can play in fostering coordination and consolidation to enhance market access for both suppliers and buyers. Third, nano-enterprises are mainly located outside cities, requiring interventions beyond urban areas.  Fourth, a one-size fits all program may be difficult to implement given the breadth of nano-enterprises in the world and the industries that they operate in.  However, focusing on a few areas where nano-enterprises cluster, like retail, agriculture, and personal services, can have a stronger impact.  Fifth and most essentially, nano-enterprise support programs need to have built in flexibility and social safety nets, given the short survival horizons of these enterprises in face of external shocks.  Mechanisms that provide risk-sharing and payment adjustments are important for supporting these highly resource constrained entities.

Managerial Implications

There’s a broad opportunity for large corporations to form partnerships with nano-enterprises across multiple levels, such as focusing on local sourcing of raw materials rather than importation.  Nano-enterprises can be integrated into the supply chains of larger corporations, providing a steady and reliable market for their products or services. This can improve their financial stability, encourage growth, and create employment opportunities. Large corporations often possess advanced technologies and technical know-how that can significantly enhance the productivity and efficiency of nano-enterprises. Partnerships between large corporations and nano-enterprises can provide an avenue for technology transfer and capacity building, leading to improved output and competitiveness of nano-enterprises.   But these need to be designed with the particular human and technical capacities that most nano-enterprises operate with.

At the same time, larger corporations could provide much-needed financial support and investment to nano-enterprises. This could be in the form of direct funding, or indirectly through facilitating access to credit and other financial services. Such financial support can be crucial for nano-enterprises to scale up their operations and enter new markets. Our examination of how SEDPI’s model has led to lower default rates and enabled the organization to expand its services form initial ideas on the development of more win-win strategies at both promoting firm profitability and inclusive economic growth.

Further research is needed to understand the most effective ways of fostering these partnerships, the potential barriers and how they can be overcome, and the impact of such partnerships on the economic sustainability of nano-enterprises, given the characteristics detailed by this exploratory study.  Moreover, future studies could also focus on the role of social enterprises and NGOs in bridging the gap between nano-enterprises and large corporations, and how these organizations can collaborate to promote inclusive and sustainable economic growth.

For policymakers, as we delve further into the role and potential of nano-enterprises in socioeconomic development, a pertinent area that warrants in-depth exploration is the provision of social safety nets by governments. While private sector participation is crucial, the foundation of these safety nets must be laid and sustained by the state for several reasons.  State-led safety nets ensure universal access and coverage, particularly for nano-enterprises operating in remote or marginalized areas, or those run by individuals who may otherwise be excluded from private sector services due to factors such as low income or lack of collateral. Governments, unlike private organizations, are obligated to provide services to all constituents, ensuring that the most vulnerable nano-enterprises are not left unprotected.

Most importantly, there should be a keen interest in studying the partnership dynamics between the state and the private sector in providing these safety nets. Such research would shed light on the potential synergies and areas of conflict, enabling a smoother and more effective collaboration between these two important stakeholders in supporting nano-enterprises.  Further research in this area is necessary to not only provide a deeper understanding of the needs and challenges of nano-enterprises but also to inform policy decisions and guide the development of programs aimed at supporting these vital economic entities. An exploration could be undertaken using the example of firm partnerships with government agencies, civil society, and other like-minded organizations. This research could analyze how these partnerships have contributed to the organization’s success, and what lessons can be learned for other organizations.

This paper is designed to provide an overview of nano-enterprises by expounding on their defining features, elaborating on their market and operational factors, gauging their risk resilience, and appraises their potential impact on global commerce.  The study seeks to reveal opportunities for targeted policy interventions and entrepreneurial support programs to bolster these enterprises’ potential to contribute to sustainable development goals and socio-economic betterment. This paper has also demonstrated the increased feasibility for analyzing this understudied concept, particularly with advances in information technology that allow us to rapidly collect data or conduct interviews with nano-enterprises.  Many companies now work with nano-enterprises across borders allowing similar cross-country case studies.  This approach acknowledges and leverages the power of the smallest economic actors to address poverty and promote sustainable development, arguably one of the most formidable challenges of our times.

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