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WHAT WORKS: VIA SEBRAE'S E-COMMERCE SOLUTION FOR SMALL BUSINESSES


EXECUTIVE SUMMARY


There are approximately 4.5 million recognized small and micro enterprises (SMEs) operating in Brazil. Another 13.5 small million businesses operate informally. It is no surprise that a large majority of these businesses does not have access to digital technologies, specifically Internet tools.

ViaSebrae is an e-commerce platform developed through a joint venture between a for-profit software company-Paradigma-and a non-profit organization-Sebrae/SC, the Santa Catarina unit of the Brazilian Association of Small and Micro Businesses (Sebrae).

ViaSebrae is at a delicate crossroads: without expansion to achieve economies of scale, the initiative will not survive. The solution to expand nationally has proven to be a slow and difficult process.

BUSINESS MODEL
ViaSebrae's e-commerce model subsidizes the business-to-consumer (B2C) segment with revenues from the more profitable business-to-business (B2B) segment. The model serves social objectives by enabling companies operating in the B2C segment to participate in e-commerce initiatives they could not otherwise afford. The pricing model is determined by Sebrae/SC and is undeniably affordable, even for small businesses.

INFRASTRUCTURE
Deregulation and privatization of the telecommunications sector over the last 10 years have prompted vast improvements to the infrastructure supporting e-commerce activities. In 1990, for example, there were 10.3 million fixed lines in Brazil, an average of 7.1 lines for every 100 inhabitants. By 2000, the number of fixed lines had increased to 38.3 million, or 23.1 lines per 100 inhabitants. Penetration is expected to improve even more with further market liberalization in 2002.

Low personal computer (PC) penetration in the home is another obstacle to e-commerce. Despite improvements in recent years, the total number of individual PCs is still low. In 1999, there were just 26.69 PCs per 1,000 people, compared to 53.64 in Argentina, 80.89 in Chile, and more than 400 in the U.S (1).

HUMAN CAPACITY
The ViaSebrae solution addresses one of the biggest barriers to e-commerce in a developing nation: human capacity constraints. The system is feature-rich and easy to use, even for participants unfamiliar with digital technologies. From an operational standpoint, the joint venture between Paradigma and Sebrae/SC ensured a qualified stream of people with the proper skill sets to manage the project. Paradigma is now fully responsible for ViaSebrae operations, a task it has managed well, even if the company has failed to raise the capital to fund the expansion needed to achieve sustainability.

Brazil has not yet developed a culture of technology, even among its entrepreneurial community. In a country in which entrepreneurship is seen as a way to escape unemployment, small business connectivity is far from adequate. Research has shown that only 27% of small businesses in São Paulo—the richest state of the nation—had access to the Internet in 1998 (2).
The situation is expected to improve. Numerous government initiatives have been launched, funded by a national directive stipulating that 1% of telecommunications revenues be reinvested in digital education programs.

POLICY
The telecommunications sector has been deregulated and privatized and is unlikely to present significant policy constraints in the future.

The nature of the Sebrae organization represents the biggest policy issue for ViaSebrae. Although considered a private organization, Sebrae was public until 1990 and its organizational structure retains characteristics of the public sector in Brazil: it is big (around 4,500 employees) and bureaucratic. Sebrae still operates under the Lei das Licitações or Bid Law, for example, which requires all of its units to solicit bids from multiple vendors before acquiring any product or service. The nature of the agreement between Paradigma and Sebrae National-if the relationship proceeds-will determine the degree of bureaucracy involved in the future. If Sebrae elects to retain full ownership of the portal and contract a solution provider, Paradigma will have to compete against other vendors in a formal bidding process. If a partner model is followed, Paradigma will bear all investment costs, and the bidding process will be avoided.

ENTERPRISE
ViaSebrae proves that the private sector can play a decisive role in social initiatives. Sebrae/SC brings brand recognition, small business expertise, and a national distribution network to the ViaSebrae project. Paradigma brings technological expertise. The objectives for each organization are different (social orientation versus profit orientation), but the partnership works.

Although Sebrae state units (including Santa Catarina) operate autonomously, they follow a single e-commerce directive from the national office because they need interconnectivity that can only be achieved through national coordination and standardization. The national directive, and a lack of funds, has prevented Sebrae/SC from expanding ViaSebrae outside of Santa Catarina.

CONTENT
As an e-commerce platform for small businesses, the ViaSebrae portal offers not content per se, but rather transactional tools (and some banners). However, ViaSebrae does link to Sebrae state unit Web pages featuring content related to small businesses.

KEY LESSONS
Although ViaSebrae is an effective tool and the business model is sound, the sustainability of the portal is questionable. ViaSebrae requires scale to be self-sustaining. Such scale is not possible when restricted to the state level.

Mr. Schmitt from Paradigma estimates that ViaSebrae would break even with 2,000 companies operating on the portal. But break-even points can vary by country, depending on factors like cost structure (hosting, labor, telecom fees) and transaction volume.

ViaSebrae has shown that joint ventures between SME organizations and the private sector (solution providers) are not only viable but ought to be a preferred method for bridging the digital divide in developing countries.

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End Notes 1. Economist Intelligence Unit.

2. Green Book, Information Society - Brazil.