on the Platform

FIGURE 5.5 Sales Statistics, Formal and Informal Firms, First Three Years on the Platform

Sources: Administrative data on transactions and business and entrepreneur characteristics associated with a partner firm website; data at CPhS (Consumer Pyramids household Survey) (dashboard), Consumer Pyramidsdx, Centre for monitoring indian Economy, mumbai, https://consumerpyramidsdx.cmie.com/. Note: The figure shows the average number of sales (panel a) and sales per employee (panel b) by month on the platform among formal and informal businesses.

are not an artifact of greater visibility resulting from a longer presence on the online platform. Although the data suggest that there is no significant difference in sales or sales growth by level of education, it is worth noting that there is not much variation in educational attainment in the sample. Most entrepreneurs in the sample have completed tertiary education. The absence of an education effect in this sample is therefore not evidence of the absence of such an effect in the wider population.

Revenue

The analysis next examines sales revenue, which is the main outcome that can reveal the extent to which online sales support the growth of small, informal businesses. The results, reported in table 5.5, are in line with the results on sales reported in the previous section. The results show that, overall, formal businesses enjoy higher monthly revenue than informal businesses (column 3). In particular, the monthly revenue of formal business is, on average, 71 percent higher than the monthly revenue of informal businesses (p < .001).

Interestingly, however, there are no differences in the growth rate of monthly revenue between formal and informal enterprises (column 6). Figure 5.6, panel a, shows that formal businesses have higher average monthly revenue than informal firms in almost every month, but their monthly revenue does not grow more quickly than that of informal businesses. The results also show that average monthly revenue grows steadily among both formal and informal businesses during their first year on the platform.

When comparing businesses in terms of monthly revenue per employee, however, informal businesses do perform better than formal businesses (see table 5.5, column 9). In particular, monthly revenue per employee in an informal business is approximately double that of a formal business with similar characteristics (p < .001). This result indicates that informal businesses are also more productive if one considers monthly revenue. This suggests that small, informal businesses have proportionally more to gain from using online sales channels relative to larger businesses. This is reasonable, given that online sales allow small businesses to access a larger market without any of the overhead costs, such as networks of local sales agents, that larger businesses may have already incurred.

The results on the relationship between experience on the platform and sales per employee similarly mirror the results on sales transactions. Firms with more experience have, on average, greater monthly revenue and also more monthly revenue per employee (see table 5.5, columns 3 and 9). Businesses with one additional month on the platform are expected to have monthly revenue that is approximately 9.4 percent higher and revenue per employee that is approximately 8.5 percent higher (both with p < .001).

As noted in the previous section, this may be either the result of supply-side factors (learning how to market one’s products more effectively) or demand-side factors (increased likelihood that customers buy from firms with a longer track record on the platform). Additionally, the results show that woman-owned businesses have lower monthly revenue, on average, while younger entrepreneurs have higher monthly revenue, both significant at the 5 percent level (p = .045 and p = .038, respectively).