Christopher Foster, Mark Graham, Laura Mann,
Timothy Waema, Nicolas Friederici

Digital control in value chains: challenges
of connectivity for East African firms
Article (Accepted version)(Refereed)

Original citation:
Foster, Christopher and Graham, Mark and Mann, Laura and Waema, Timothy and Friederici,
Nicolas (2017) Digital control in value chains: challenges of connectivity for East African
firms. Economic Geography, 94 (1). pp. 68-86. ISSN 0013-0095
DOI: 10.1080/00130095.2017.1350104© 2017 The Authors
This version available at: http://eprints.lse.ac.uk/85041/
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Digital Control in Value Chains: Challenges of Connectivity for East African Firms
This is an Accepted Manuscript of an article to be published by Taylor & Francis in
Economic Geography
Christopher Foster
Information School
University of Sheffield
Sheffield, S1 4DPUK
christopher.foster@sheffield.ac.uk

Mark Graham
Oxford Internet Institute
University of Oxford
Oxford OX1 3JS
UK
mark.graham@oii.ox.ac.uk

Laura Mann
Department of International Development
London School of Economics
London, WC2A 2AE
UK
l.e.mann@lse.ac.uk

Timothy Waema
School of Computing and Informatics
University of Nairobi
NairobiKenyawaema@uonbi.ac.ke

Nicolas Friederici1Oxford Internet Institute
University of Oxford
Oxford OX1 3JS
UK
nicolas.friederici@oii.ox.ac.uk

Keywords: Internet, global value chains, connectivity, East Africa, development
Abstract
In recent years, Internet connectivity has greatly improved across the African continent. This
article examines the consequences that this shift has had for East African firms that are partof global value chains (GVCs). Prior work yielded contradictory expectations: firms might
benefit from connectivity through increased efficiencies and improved access to markets,
although they might also be further marginalized through increasing control of lead firms.
Drawing on extensive qualitative research in Kenya and Rwanda, including 264 interviews,
we examine three sectors (tea, tourism, and business process outsourcing) exploringoverarching, cross-cutting themes. The findings support more pessimistic expectations: small
African producers are only thinly digitally integrated in GVCs. Moreover, shifting modes ofvalue chain governance, supported by lead firms and facilitated by digital information
platforms and data standards are leading to new challenges for firms looking to digitally
integrate. Nevertheless, we also find examples in these sectors of opportunities where small
firms are able to cater to emerging niche customers, and local or regional markets. Overall,
the study shows that improving connectivity does not inherently benefit African firms in
GVCs without support for complementary capacity and competitive advantages.

2

3

The last decade has seen a significant growth in Internet infrastructure in Africa. At
the turn of the millennium, the continent was virtually disconnected from high-speed fiberoptic networks, with firms having to use expensive and low-speed satellite links. Since thenwe have seen a concerted set of initiatives to provide fiber-optic infrastructure to thecontinent, including the landing of eight new cables at an estimated cost of $3.9 billion (Song2014).
The anticipation, leading up to and following the construction of these cables has been
palpable. International donor support was predicated on the belief that information andcommunication technology (ICT) infrastructure “strongly affects a country’s growthprospects” (World Bank 2005, 13). Given a perceived disconnect of East Africa from global
economies, there has been a particular emphasis from donors, the media, and politicians on
how Internet connectivity would overcome limitations of remoteness and distance (Grahamand Mann 2013; Graham 2015) (Authors 2013; Authors 2015). Donors and governments
identified East African–based firms as important beneficiaries of changing connectivity,
claiming that they would be able to overcome distance and better integrate with international
markets and trade (Graham, Andersen, and Mann 2015).
Global value chains (GVCs) are a key medium through which export-oriented
production is operationalized in a globalized world (Gereffi 2014), and GVC literatureprovides a base for critically exploring how East African producers and services providers
integrate into global markets. Yet, there has been little systematic evidence of how Internet
connectivity in lower-income countries impacts GVCs (Foster & Graham 2017). Thisabsence is particularly pronounced in relation to small and medium-sized enterprises (SMEs),
whose integration into global economies has been articulated as a key benefit of changing
digital connectivity. Given the significant financial and political capital involved insupporting the expansion of connectivity and building complementary policy, it is crucial to4

take stock and ensure that ongoing policy and practice lead to maximum impact. Thus, welook to answer the following questions: How is changing Internet connectivity in East Africa
affecting the forms of GVCs in the region? Does Internet connectivity offer new opportunities
or challenges for East African firms looking to link into GVCs?
The article is structured as follows. In the next section, we explore literature on
GVCs, describing how the literature conceptualizes interaction of East African firms with
export markets. Given the relative neglect of research exploring the impact of Internet
connectivity in low-income countries, we also examine empirical literature dealing with theimpacts of more established forms of connectivity such as mobile phone use. This work
outlines some key processes by which Internet connectivity is likely to impact firms.
Our analysis of changing connectivity draws on cross-sectoral and cross-country
research conducted in Kenya and Rwanda, which is provided in the section that follows. Thisextensive research draws on 264 qualitative interviews and 7 focus groups in three sectors:
business process outsourcing (BPO), tourism, and tea production. Following that is a
discussion of our key empirical findings.
The penultimate section details a cross-sectoral analysis. Overall, our findings showthat connectivity is driving a reorientation of value chains toward standardized flexible
networks in East Africa. Digitization, digital platforms, and systems integration are creating
new risks for export-orientated firms related to more dynamic and competitive networks.
Further, the new demands around digital integration may serve to exclude smaller firms fromparticipation in GVCs. Improved Internet connectivity has allowed smaller firms andentrepreneurs to become more networked and efficient, but has often enabled only limited
thin integration with moderate improvements in some processes but without significantly
upgrading their roles in value chains. The final section concludes.

5This work thus makes an important contribution to the economic geography literature.
It documents well-established trends toward fragmentation of global value chains in the
Global South and highlights the role of digital technology in facilitating these processes. The
article particularly highlights the growing centrality of information flows and data in newforms of standardized and monitored products and processes, and their emergence as a key
source of value in flexible GVCs. However, digital components should not be seen as purelyreflecting the will of large firms, for they offer the potential for more creative and innovative
uses as well.

Global Value Chains and Changing Connectivity
The Evolution of GVCs in East Africa
In order to answer the research questions, we first build a clear picture of thecontemporary structures of globalized production and the role that globally linked East
African firms play in them. As Gereffi (2014, 10) describes, the global economy increasingly
consists “of complex and dynamic economic networks made up of inter-firm and intra-firm
relationships” making the GVC concept a particularly useful perspective to investigate ourquestions around globally linked firms. GVC perspectives explore the increasingly
fragmented nature of production by focusing on linkages, processes, and the trajectories ofindividual enterprises and products in a globalized economy. It does so by focusing on twoelements—value and governance. The notion of value refers to an economic-focused analysis
exploring where benefits are captured in fragmented processes of production (Kaplinsky andMorris 2001). The ability to capture value is seen as relational and linked to the governanceof value chains—the ways that production activity is guided by lead firm(s), which influence
production patterns even without directly managing all value chain elements (Gereffi 1994;
Gereffi, Humphrey, and Sturgeon 2005).
6

With respect to firms involved in value chains in East Africa, the GVC literature has
documented the changing nature of governance in GVCs and highlights evolving challenges.
Important challenges particularly emerge from new modes of governance that simultaneously
facilitate more geographically dispersed value chains, and more granular coordination andcontrol of GVC by lead firms (Gereffi 2014).
Granular coordination and control throughout the chain is becoming increasingly
embedded in requirements on products and processes, guided by lead firms in the value
chain. In many GVCs, requirements come in the form of specification of standardized
components (Sturgeon 2002). In addition, in sectors, such as agriculture, quality andstandards imply not only tight control of products but also of processes (Ponte and Gibbon
2005; Ouma 2010). Product and process requirements are often exclusionary, since they canbe complex and difficult for smaller firms to meet, limiting their GVC participation (Dolan2010).
Lead firms have also expanded flexibility of GVCs through the move toward moreagile and shifting networks. The terminology of turn-key networks was first used in theelectronics sector to describe new divisions of labor in GVCs—between retail-oriented firms
who innovate and interact with customers; firms whose job it is to assemble products
according to strict specifications; and the range of smaller firms producing standardized
components (Sturgeon 2002). Similar flexible networks have been observed in a wider set of
sectors, and indicate trends in GVCs toward customer-facing actors disengaging from thecomplexities of value chains and rapidly changing networks of producers driven bystandardized outputs or services (Fold 2001; Neilson and Pritchard 2011; Lee, Gereffi, andBeauvais 2012). For smaller producers of standardized products, which are likely to be firms
in lower-income countries, these shifting relationships present new risks. Inconsistent
demand linked to just-in-time production and the ability for lead firms to rapidly reconfigure
7

networks when conditions become unfavorable threaten to destabilize smaller firms (Neilson
and Pritchard 2011).
Although customers and markets can be distant to producers in East Africa, GVC
governance and subsequent patterns of value capture are still impacted by changing consumer
preferences and orientations. Innovation and demand at the retail end of value chains may
entail new standards or induce new conditionalities on production. For example, new valueadded products, such as food products that require cold chain storage and goods with ethicalmarks, have led to integrated strategies and new processes in GVCs (Ponte 2002; Fold andGough 2008). Lead firms with financial and organizational power tend to take the lead incoordinating such changes, often working with a limited set of well-connected firms in the
GVC. Thus, as well as standards and quality, new customer requirements can introduce new
constraints and require new investments, thereby marginalizing smaller firms that cannot
comply (Fold and Gough 2008).
In sum, the literature on GVCs articulates new opportunities and challenges for firms
in East Africa. Dispersed GVCs appear to offer opportunities for East African firms toparticipate in value chains, but trends in standards and specification, flexible GVCs, andshifting customer demands all pose risks and high demands for firms that are part of them.
Digital Connectivity and Firms
Where the Internet has been brought into models of globalized production ineconomic geography or development studies, it is often discussed in a very general sense,
describing how ICTs and connectivity are important factors in supporting the fragmentationof production but without much detail (Castells 2000; Henderson et al. 2002; Malecki andMoriset 2007; Dicken 2011). Where Internet connectivity has been discussed more explicitly,
it has generally been analyzed for its impacts closer to the consumer. For example, Gereffi

8(2001), in his exploration of the effect of theInternet on GVCs, tracks the rise of retail-facing
intermediaries and services, and their potential to become influential lead firms in orienting
value chains. He also outlines how customer facing firms drive customization of goods andservices through online platforms and thus demonstrates how changing customer demands
imply shifts in value chain governance.
However, with respect to actors in low-income countries, there has only been limited
literature that has explored the role that Internet connectivity has played in production (e.g.
Graham 2015; Murphy and Carmody 2015). This lack of attention is not surprising given that
Internet access has up until recently been quite costly and only accessible to a few, meaningthat extensive use of connectivity has tended to occur only in parts of the value chain closer
to the customer (Humphrey et al. 2003; Moodley 2003). Given the relatively recent
expansion of Internet connectivity into East Africa, literature is limited, and thus we draw on
studies examining other forms of digital connectivity (particularly mobile phone
connectivity) to supplement our review. This older literature helps to identify a number ofpotential benefits and challenges of connectivity and to consider the possible role that theInternet may play in value chains.
Firm Benefits of Digital Connectivity. In low-income countries, economists andgeographers have observed that small and microfirms tend to have low levels of productivity(Liedholm and Mead 1999). However, existing research has documented how ICTs can play
an important role in improving their efficiency (Aker 2010). At its simplest, efficiency gains
arise due to the reduced need for physical journeys to clients or customers. ICT-enabled
information flows also allow firms the ability to better monitor and manage key assets andworkers (Donner 2004; Esselaar et al. 2007).
Beyond such internal efficiency improvements, improved access to knowledge
resources and information can be significant. Examples include improved awareness of9

government support, or access to new types of information, tools, and customer knowledge tosupport market activity in specific sectors (Eggleston, Jensen, and Zeckhauser 2002). Smallerfirms may struggle to find relevant online knowledge or struggle to interpret it correctly.
Thus, knowledge and information are often transmitted through direct communications suchas through private mobile and email messages, which complement and strengthen existing
face-to-face interactions (Donner and Escobari 2010). As these information flows becomericher and as firms build stronger networks among themselves, ICTs can enable new creativeand innovative activities among clusters of firms (Foster and Heeks 2013).
Another important strand of literature relates to how digital connectivity alters theinteraction of small firms with markets, potentially improving access, efficiency, andcoordination. For instance, mobile phone use has provided small firms with greater access tomarkets and market information, enhancing their ability to select new markets, findcustomers online, and integrate their businesses onto online platforms (Sarkar, Butler, andSteinfield 1995; Dangi and Singh 2010). Thus, digital platforms and marketplaces might
potentially disintermediate previous market gatekeepers, and enable new types of businessmodel and innovation at scale online (World Bank 2016a).
While such research provides insight, its weakness lies in the fact that it is often
focused on decontextualized firm-to-firm or firm-to-customer interactions and typically uses
transaction cost models. This approach can neglect the overall structure of the value chain,and particularly the role that power relations play in governance, and therefore paint an
incomplete picture of the impact of connectivity.

10

Exclusionary Aspects of Digital Connectivity. Due to improving connectivity andlowering costs, small firms are willing to invest in ICTs and Internet access (Esselaar et al.
2007). However, as highlighted in the digital divide literature, marginal individuals and firms
may still use the Internet only in quite limited ways (James 2013). Limitations emerge from a
range of factors, including lack of human or financial resources, poor digital skills, and costs
to full online engagement (Jung, Qiu, and Kim 2001); social inequalities that amplify online
inequality (Warschauer 2003); and the fact that applications and platforms do not fit theneeds of marginal groups (Van Dijk 2005). In recent studies on smaller firms in lowerincome countries, these additional aspects of the digital divide that move beyond access havebeen seen as crucial ( Graham 2014; Kumar 2014).
Implicit in a number of these more critical studies on the digital divide is the idea thatthe impact of digital connectivity may not benefit all, but rather ICTs can become a source ofpower and control between different types of firms (Foster, Graham and Waema
Forthcoming). More powerful firms may restrict digital access to smaller firms, or digitalsystems may be created in a way that they are only useful for certain actors or processes(Carmody 2012; Murphy and Carmody 2015). While connectivity enables links between
firms, weaker firms can also be pulled into subservient relationships in such networks and be
subject to economic downgrading and de-skilling rather than to digital empowerment (Molla
and Heeks 2007; Murphy, Carmody, and Surborg 2014).
In sum, critical literature on digital connectivity in lower-income countries suggeststhat connectivity does not necessarily solve digital exclusions. Moreover, more connectivity
might empower stronger firms in relation to weaker ones and might therefore be
exclusionary (Foster & Graham 2017).

11

Summary
The literature review has highlighted that lead firms in GVCs are moving toward
stricter requirements and flexible networks. Thus, a key focus will be to explore the role that
digital information flows play in these processes. We have identified trends that arepotentially leading to more exclusionary conditions for small producers in lower-income
countries. Improved Internet connectivity might potentially accelerate exclusions, but it mightalso provide a means to overcome some of the barriers traditionally associated with
exclusion. The goal is to make a cross-sectoral analysis of Internet connectivity that will
move beyond previous sporadic studies of Internet impact within firms to provide moregeneralized insights for practice and policy.

Approach
As shown in the literature review, impacts of connectivity are likely to be shaped by
the characteristics of the specific sectoral value chain in which firms participate. We thus takethe global value chain as the scope of the study, comparing and contrasting across different
sectors. However, critiques suggest GVC studies often underplay the richness that backward
linkages, policy, and local conditions play in value chain activity (Coe, Dicken, and Hess
2008). Intuitively, such considerations are likely to be especially important with regards tosmall enterprises and producers, where the intersection of firm activity, Internet connectivity,and value chain participation is more complex (Fold 2014). Thus, this article particularly
emphasizes the local institutional and policy contexts and their alignment with GVCs. Thisapproach complements others that draw on notions such as regional coupling, embeddedness,disarticulations, and social upgrading, which have been used to more richly explore theactivities of marginal actors and firms in studies of GVCs (Bair and Werner 2011; Barrientos,
Gereffi, and Rossi 2011; Fold 2014; Murphy and Carmody 2015).
12

We draw on extensive research undertaken in East Africa over the period 2010–2014
in two countries: Kenya and Rwanda. The duration of the research coincided with the period
following the landing of the first three submarine fiber-optic cables in the region, andconsequently there was a significant change in the availability, cost, and quality of digitalconnectivity (Sprague et al. 2014). In Kenya, Internet access1 rose from 10 percent in 2009 to
43.4 percent in 2014 (World Bank 2016b). In Rwanda, official figures of growth have been
more modest moving from 7.7 percent in 2009 to 10.6 percent in 2014 (World Bank 2016b),
but access may be significantly higher in reality.2 In addition to their similar experiences withchanged connectivity, Kenya and Rwanda are both countries where Internet connectivity was
explicitly part of core government economic transformation strategies (Government of Kenya
2007; Government of Rwanda 2009).
In these countries, we selected three economic sectors to explore. We focused onexport-orientated sectors that make (or are predicted to make) significant contributions tonational economies to ensure that we were researching sectors relevant to the country’s
economies. Sector selection additionally aimed to explore sectors with contrasting value
chains in order to support more generalized conclusions.
We chose to include two established sectors: tea production, the biggest commodity
source of export income in both countries with a well-established GVC; and tourism, aservice sector that is a significant source of jobs and income, and seen as a growth area for
the future. As can be seen in Table 1, both sectors make a large contribution to exports inEast Africa and are thus considered key sectors in the two countries. Moreover, given the

1 Access data includes those who have access to Internet directly and indirectly (i.e. through family members and cybercafés),based on national household surveys (World Bank 2016b).

2 Discussions with Rwandan policy makers reveals that access data has not been officially collected since 2010, and thus new

growth has not been factored in, as highlighted by a recent estimate of Internet users by one Rwanda mobile operators at 19
percent (National Institute of Statistics Rwanda 2014)13

comparative low global share in these sectors, small changes in global share could havesignificant impacts. In addition to tea and tourism, we also chose to examine a new sector: thebusiness process outsourcing and information technology (IT) enabled services sector(BPO/ITES), a sector that has been actively promoted by both governments related to the
expansion of regional connectivity.

Table 1
Share of National and Global Exports.
Kenya

RwandaSectoral Share of
National Exports(%)

Sectoral Share of
Global Market (%)

Sectoral Share of
National Exports(%)

Sectoral Share of
Global market (%)

Tea sector (by $sales)

23

16.1

17

0.8

Tourism sector (byreceipts)

19

2.4

28

0.8

BPO/ITES sector

Not collected< 0.1%

Not collected< 0.1%

Source: Based on Federal Agriculture Organization (2013); UN Comtrade (2017); World Travel and Tourism
Council (2013).3

In each sector, we mapped actors in each network and selected a sample ofinterviewees that would allow us to understand the perspective of different actors in eachvalue chain and thus help us to build a substantive picture of activities and interconnectedness(see Figures 1–3 in our analysis). As detailed above, we weighted our interview samples
toward SMEs and entrepreneurs in Kenya and Rwanda (such as tea farming groups andfactories, local tour operators, and local BPO firms) in order to more clearly understand those

3 Figures based on 2013 reporting. Tourism exports denote tourism receipts that are classed as an export in world trade statistics.

BPO/ITES data is not collected as yet in these countries, but as an emerging industry is likely to be a small contribution atpresent.

14

smaller and emerging indigenous firms. We also included local sectoral support, policy
makers, and key institutions in our sample. This sample was supported with an analysis of theintermediaries, buyers, or retailers in consuming countries in GVCs that could be traced backto East Africa.
The research was based on 264 qualitative semistructured interviews which are
broken down by sector and country in Table 2. Interviews were in depth and looked toqualitatively understand the sometimes subtle nature of power and control in GVCs.
Interviews focused on core themes4 but were open-ended to allow flexibility. We also
undertook eleven focus groups at two stages (midproject and end of the project) to verify ourfindings with interviewees and sectoral experts. Consequently, through intensive, crosssectoral research, our research provides a substantive qualitative description of the changes ineach sector, where the selection and sampling approach supports generalizability.
Table 2
Interviews (and Focus Groups in Parentheses), Broken Down by Sector, Country, and Role in Value Chain
SectorKenya

RwandaTotal

Breakdown (see Sectoral GVC Diagrams for Details5)

Tea

38 (2)

37 (2)

75

Coops (17), Processors (25), Private Factory Owners (4),Brokers (5), Warehouses (5), Buyers (6), Sectoral actors(13)

Tourism38 (2)

49 (2)

87

Sights & attractions (7), Local services (8), Hotels (11),Tour operator (inbound) (27), Travel agent (14), Tour
operator (outbound) (12), Sectoral actors (8)BPO/ITES6

49 (2)

53 (1)

102

Policy (7), Local firms (61), Firm Outsourcers (9),Consultants (6), Sectoral support & infrastructure (19)

Total

125

139

264

4 In line with the research questions, our themes looked to explore how digital connectivity had changed firms, if improved

connectivity had changed how firms engaged in production internationally, and how firms interacted with other firms.
5 Some actors can play multiple roles in the value chain. Here we classify them by their principal role.

6 As is outlined in more detail in “Analyzing Changing Connectivity,” we found the BPO sectors to be small, particularly in

Rwanda where only a few firms existed. We thus also interviewed those providing ITES in the countries (such as local bill
payment and application providers). Many of these firms had previously been involved (or have seriously considering entering)
into the BPO space and thus this additional data provided insights into the failures of the sector to have significant impact.

15

The empirical material was analyzed using Nvivo 9 qualitative software for codebased searching and reporting (Gahan and Hannibal 1998; Van Hoven and Poelman 2003). A
predefined set of themes was coded to explicitly explore some of the issues discussed in theliterature review. Additionally, new themes also emerged during the coding process, whichallowed more grounded influence of empirical research on findings. Emerging themes were
subsequently examined in more detail, with some integrated into the core analysis, and others
deemed outside the core scope of research.7 Coding thus followed well-establishedtechniques of content analysis, which allow interpretations of relations between categories
and emergent themes (Lutz and Collins 1993; Slater 1998; Krippendorff 2012).
Elsewhere we have gone into richer detail around the specific outcomes in the threesectors and their sectoral policy implications (Foster & Graham 2015a, Foster & Graham
2015b, Graham & Mann 2013, Mann, Graham and Friederici 2015, Mann & Graham 2016,
Waema & Katua 2014). Here we present summaries of these sectors in order to answer our
broader research question about the cross-sectoral impacts of connectivity on GVCs.
“Analyzing Changing Connectivity” outlines key findings in each sector, with “The Uneven
Impact of Changing Connectivity” subsequently highlighting cross-cutting findings that linkback to the literature.

Analyzing Changing Connectivity
Tea Sector
While the adoption of the Internet was rare among marginal actors in the East African
tea sector (with, for example, very low Internet use among tea growers), we found that key
local firms involved in processing and trade were adopting higher-speed Internet connections

7 For instance, emergent coding of discussions around firms in the tea sector highlighted data access as a crucial element of

inclusion and exclusion that are discussed in more detail in the next section.

16

and were consequently adding to flows of digital data in the value chain. New flows included
data around tea processing (sharing tea quality, weights, batches), tea trading (sharing auction
lots, prices, market information) and tea logistics (sharing location data). However, while
ICTs were increasingly recording and transmitting tea production activities, the benefits
tended to accrue to the larger tea firms that coordinate the value chain.

Figure 1 outlines the value chain of tea in the region; lead firms in the chain are thelarge tea retailers as shown on the right of the diagram. Tea value chains are rapidly evolving
in the region, and control over digital data is increasingly crucial to these changes. First, thetea sector has recently been privatized in Kenya and Rwanda, where private firms are often
owned by subsidiaries of multinational tea firms. With the private-sector focus, there isdemand for data for improved planning and management. Internet connectivity thus enables
tea firms to more efficiently organize logistics and share data about the availability ofprocessed tea to buyers at the retail end of the value chain (as shown on the right in Figure 1).

Figure 1, Processes and actors in the value chain for tea,88 Note that there are some differences between the Kenyan and Rwandan cases, particularly around relationships between

growing/harvesting and tea processing actors. This figure integrates some typical scenarios.

17Second, there is growing demand in the tea retail market for differentiated products—
environmental, fair trade, or quality teas (Ponte 2002). Crucial to the value add of theseproducts is the traceability of tea—the ability to guarantee that tea batches have satisfied
conditions around location, food safety, chemical use, fair labor. Data is thus in demandbecause it is integral to these value-added products.
Therefore, digital data flows have been particularly harnessed by multinationals toallow integrated analysis of tea production across multiple locations, by digitizing tea datafrom smaller and local tea processing sites to the Internet (on the left of Figure 1) andintegrating factory data with auction, shipping, and logistics data through firm information
systems (the intermediary firms in Figure 1). For instance, the manager of a firm in Kigali,
Rwanda, whose firm owned four tea factories, highlighted how reliable Internet has
facilitated new data flows and improved monitoring of tea.
[W]e have been able to achieve a lot of efficiencies, like we have integrated our
ERP [Enterprise Resource Planning System9] . . . so once the factory dispatches . . .
they are able to see it when it reaches Mombasa [port] . . . I think that kind of
integration has brought efficiencies.
Such digital integration has supported the trend of improved control of value chainsby lead firms. Digital flows are also support the movement of innovation away from thefields and processing facilities in rural Rwanda and Kenya toward head offices in Mombasa,
India, and the United States. For example, value-added teas, although embedded in theprocesses and data produced in East Africa, come into being during the blending process. It ishere that standardized components are combined and configured by retail firms, supported byfull chain traceability data.

9 ERP is a type of information technology system that allows operational management and planning based on production data.

18

Smallholder farmers and their associations10 were demanding more data in the tea
sector. Tea privatization policies and a move to market orientation were leading to demandfor information such as tea auction prices and tea growing knowledge. This information could
allow them to increase prices and yields. Smallholder associations now have mobile Internet
access, and thus they might serve as a conduit for information for farmers. However, many
still struggled to access data: some complained that they did not know where to look (butwere aware that useful information was available online), others complained that other value
chain actors upchain were not sharing access to key information systems with them, andsome found it difficult to search for information in English.
In sum, more reliable and cheaper Internet access has facilitated increased flows ofdigital data. But new digitalization is typically allowing GVCs to be more flexible andstrengthening the management of the value chains. Where data flows integrate smaller firms
in the region, without wider attempts, investments in upgrading (such as improved
cooperatives and control of processing) gains from digital integration are captured elsewhere.
Tourism Sector
In tourism, improved Internet connectivity makes it possible for East African firms tobetter integrate with international tourism sites and services. We found that connectivity wasenabling a number of firms to integrate with online services (e.g., online travel booking,
online payments), to transmit tourism management data (e.g., booking availability, service
information), and to use online resources to improve their visibility to customers (e.g., social
media, websites). Through such resources, East African firms could better reach internationalcustomers and build stronger links up the value chain to international tour operators.
However, there were technical barriers, particularly for small firms in the region. Many local

10 Typically cooperatives that serve to facilitate and support smallholder activities.

19

firms had some form of Internet connection, but improvements were mainly restricted tosmall-scale efficiency gains in everyday communication (e.g., e-mail communication,
sending of photos) and gathering information online (e.g., flights, hotel costs).
In tourism in the region, the service value chain is composed of multiple local tourism
services and sights that are packaged together, often by international tour operators. As
shown in Figure 2 lead firms (on the right), particularly international tour operators (butpotentially also domestic tour operators and travel agents) do the work of packaging a bundleof services together such as hotels, transport, and tours (Doerry 2008; Christian 2012). In
recent years, value chains are changing in that customers or international tour operators are
increasingly seeking to more dynamically package tourss according to needs of specificcustomers.

Figure 2, Processes and actors in the value chain for tourism.

A key driver of this more dynamic packaging is online data flows, which allows
customers or upchain firms to quickly view availability, prices, and facilities and makebookings and payments for a range of sights, services, and accommodation. There has been
growing discussion around how smaller service providers and firms might be integrated into
tourism value chains to support stronger development impacts (Mitchell 2012). One potential
way of supporting this is through integration of East African firms into online tourist websites
and services, which might allow more local service providers (often small firms) the ability to20

better attract international customers. Yet, such integration was found mainly in moreestablished firms and mainly in Kenya.
For domestic firms previously heavily involved in local tourism logistics, the presenceof online integration was pushing them out of GVCs rather than integrating them. With
digitization, international firms can now organize, schedule, or book online from afar, as
described by one UK-based tour operator:[previously to organize a tour] for each one of the places, then someone gets on thephone and books those places. Now obviously with technology that’s changing abit. Sometimes where there is a lot of fiddly stuff for us, a ground handler andDMC [domestic tour firm] works . . . but that’s relatively unusual for us.
For smaller service providers in the tourism sector, digital integration was limited by
the technical skills and managerial requirements of system integration. Although online travel
agents (OTA) (i.e., online booking such as Expedia, Kiyak, Hotels.com) are growing in
popularity in the region, they require firms to adopt internal booking systems and coherent
booking management. Even medium-sized hotels with higher-speed Internet might not haveappropriate systems in place to integrate (for example, booking in such hotels may still bebased on a paper diary or custom Excel spreadsheets). Even in cases when small hotels areable to link with OTAs, they struggle with inconsistent bookings and the demands of being
part of the OTA.
More optimistic findings emerged from cases where local firms focused on nichemarkets or embraced new markets of tourism (e.g., regional tourism, emerging market
tourists). For niche firms, even building basic online resources could provide an importantavenue for discovery by customers when their strategies were novel. For instance, we foundsmall but successful tour operators offering sports, community tourism, niche wildlife, andeco-tourism that were reporting significant proportions of new customers and contacts
through their online presence. Typically customers would gather information about niche
21

activities from web searches and social media recommendations. Information gathering could
result in e-mail or telephone conversations, which in turn could lead to customers making
further arrangements, reservations, and/or payments for activities.
In sum, and aligning with another study of ICT and tourism in East Africa (Murphy
and Carmody 2015), all firms felt that Internet connectivity had provided efficiency gains andaccess to more information. However, the expected integration into online platforms was
beyond the ability of many firms. Unlike the tea sector, barriers to entry and upgrading arelower in tourism, and there is room for innovative tourism entrepreneurs to use online
resources to reach international customers, albeit at a relatively modest scale.
BPO/ITES Sector
BPO/ITES has been identified as a potential growth area for the region. In bothcountries, ITES firms had good Internet connectivity, particularly when located in urbanzones with dedicated fiber links designed to support the communication needs of BPO and IT
firms.
However, despite substantial national investment, strong government support, andreams of positive media publicity, we found a small and shrinking number of locally owned,
export-oriented firms in Kenya and virtually no dedicated BPO firms in Rwanda. Many
Kenyan firms were engaged in low-value work, and some were struggling for financial
survival. In Rwanda, only a handful of firms were carrying out export-oriented service
provision but in very niche sectors like computer-aided design engineering or accountancy.
Where firms have survived, they have struggled to build direct relationships withinternational clients and have instead relied on a wide range of different intermediaries toaccess clients as highlighted in the emerging value chain in Figure 3.

22

Figure 3, Value chain relationship in the BPO/ITES sector.11

Historically, BPO work has been facilitated through direct relationships between aninternational client and an outsourcing firm. This relationship is, however, evolving, as large
BPO firms, consultants, and online platforms become lead actors in more extended value
chains, facilitating further outsourcing work to smaller suppliers. Some Kenyan firms havebeen recipients of such outsourcing, particularly in the case of online platforms used by small
firms to access digital work—such as guru.com, eLance, and oDesk. Although firms could
gain access to direct inflows of international work from such platforms, the nature of work
was short term and low value.
Higher-value contracts requiring more interaction with clients tended to occur throughdirect relationships. In Kenya, the main limitation was a lack of management capacity toundertake high-quality outsourcing work, particularly in terms of quality control andsufficient scaling. For example, an interviewee from Kenya who was considering bankruptcy
described his problem in achieving scale:[W]e approached a few people from [established BPO firms] and they told us that[they] have 100 people at daytime and 100 people at night. Here we are trying eightpeople in daytime and four at night . . . We don’t have the scale.
In light of the difficulties of accessing high-value, international work, some BPO
firms have looked toward the local market. In Kenya, most of the interviewed firms were
now mainly dependent on domestic clients. Local work opportunities were particularly

11 RDB is the Rwandan Development Board and ICTB is the Kenyan ICT Board. Both have attracted international clients for

BPO firms.

23

attractive because Kenyan firms had direct interaction with clients and were thus lessdependent on intermediaries. Local relationships with Kenyan firms also made domestic BPO
firms more competitive in relation to foreign incumbents (Mann and Graham 2016).
In sum, on the surface BPO seemed to offer prospects for East African firms. The
digital nature of work and lower labor costs of the region offer the possibility that with fiberconnectivity the East African BPO sector would rapidly emerge, and engage in international
BPO activities. However, in practice, policy makers and firms were struggling to build astrong position for themselves in GVCs, particularly in Rwanda. Kenya was somewhat
successfully integrating into emerging value chains by sourcing low-value work fromplatforms and intermediaries. Yet in the sporadic cases where BPO sector firms have beenable to be more successful, opportunity has come through developing a niche focus such as
local markets and/or software.

The Uneven Impact of Changing Connectivity
Connectivity and Changing Value Chains
Changing connectivity has led to three key trends in value chains. First, digital data is
becoming a crucial aspect in facilitating more discrete, standardized value chains in East
Africa. Second, more dynamic GVCs are particularly supported by online systems andplatforms. Third, customer needs and orientations have had an impact on how value chain
products and processes are constituted, and these are often data led. These trends are detailed
below.
Where East Africa firms are part of value chains, GVCs are marked by a move toward
discrete production into standardized chunks. Digitization of value chains strengthens thesetrends, since legible data allows improved management and monitoring of GVCs (i.e., tea
batches and standards, discrete outsourcing tasks). In East Africa, tighter specification of24

goods and processes has occurred alongside shifts from previous intensive regional
coordination (i.e., tea boards in tea or inbound tourism firms) to standardized components orgoods. Digital platforms and information systems were enabling more arm’s-lengthinteraction in value chains, reducing the need for regional coordination.
In hand with digitization, the growing digital information flows have affected thenature of value chain governance. In all three sectors, digital integration through online
platforms and information systems is contributing to greater flexibility for lead firms in the
suppliers of goods and services. In more advanced examples, such as online BPO platforms
and online tourism, this supports lead firms and clients in the ability to rapidly switch acrossequivalent goods or services in different locations aided by digital systems.
New consumer innovations in these sectors, such as customized tourism or ethicalteas, have had impacts on GVCs in East Africa. These innovations often depend on digital
data flows. However, innovation and subsequent value capture tend to accrue to lead firms
who were able to use digital data to support them in building and marketing products far
away from the producers.
In sum, changing Internet connectivity has played an important role in changing thenature of GVCs in East Africa, moving toward flexible networks. Indeed, our evidence
suggests that while ideas of flexible or turn-key networks have been discussed in theliterature, these are only emerging in East Africa as a consequence of connectivity in theregion. As flexible networks become more established, digital integration will no longer be
optional and will rather become a core aspect of value chain integration.
Challenges for Smaller Firms in East Africa
East African firms seeking out international markets and trade have turned to theInternet to aid them. Our research found that connectivity has supported efficiency gains and25enhanced communication in and among firms. Previously marginal firms have begun to use
simple tools, such as e-mail and Excel spreadsheets, and in all sectors, firms wereincreasingly using web searching for information to build knowledge and facilitate online
support among employees. Such activities highlight a rich set of often creative activities thatallow these firms to better integrate into networks of knowledge and improve their practices
over time (Grant 2015). However, in general, though, we argue that findings align with theconcept of thin integration discussed in Murphy and Carmody’s (2015) key work on ICTs in
Africa. Firms in the region do integrate, and make some small gains in terms of improved
communication and productivity, but overall these forms of integration do not significantly
challenge the status quo nor allow for substantive economic transformation. Digital
integration is likely to only be beneficial to firms where it compliments broader investments
and upgrading initiatives.
Indeed, trends toward more standardized products and flexible GVCs were often
exclusionary for small firms. For instance, not all tea producers or BPO producers are able tomeet export standards and requirements, and hence participation in GVCs may not be
possible for them. Our work provides additional insights that digital integration can become
an additional exclusionary barrier to GVC entry. Exclusionary digital barriers were akin to
those from the digital divide literature. Internet access is now viable for small firms, but awider set of capacities (i.e., skills, finance, systems) digitally excludes them from playing amore substantial role in GVCs (Warschauer 2003; Van Dijk 2005).
Even when firms were able to digitally integrate, more flexible GVCs, driven in partby the emergence of platforms and information systems, entailed reduced profits among East
African actors, since their goods and services are more easily replaced. In more flexible
GVCs lead firms might move to alternative suppliers when unfavorable conditions emerged.

26

As outlined previously, in flexible GVCs, innovation often results from the ways inwhich lead firms combine goods or services. In some cases, such as the tourism sector, leadfirms cannot cater to all types of customers and customer needs. Here there was anopportunity for smaller firms. In niche areas (such as niche tourism or local BPO work),
domestic firms could innovate in products and create new informal linkages built on digital
resources. Such innovative activity could allow smaller firms to establish themselves withrelatively novel products or new consumers, where competitive pressures from conventional
GVCs were weaker.

Conclusion
This article has set out to explore the role that changing Internet connectivity has had
on GVCs in East Africa, drawing on work in three sectors of production. Digitalization,
online information systems, and/or platform integration are key drivers of standardized goods
and services, and can enhance the ability for lead firms to implement more flexible turn-key
GVCs involving actors in lower-income countries with management and control from afar.
For East African firms, standardized and flexible GVCs lead to potentially increasing
marginalization and new risks. For those able to connect, online intermediaries—systems
integration and online platform—are accelerating the granular management and dynamic
switching of value chains. In sectors like tourism, this changing form of value chain
governance has led to significant risks for firms in terms of less stable business and higher
competition in broader markets. For smaller firms, barriers to GVC participation described in
the literature, such as standards and product quality, are heightened by digital integration
requirements, beyond the skills and capabilities of such firms.
Thus, the expected core benefits of Internet connectivity—global access to markets
and knowledge—have not greatly benefited firms in East Africa. Improving connectivity has
27generally resulted in thin integration, through which small firms tend to make small
communication and productivity improvements without more substantial upgrading.
Exceptions to this pattern are firms who have been able to develop niches and build novel
markets that conventional GVCs struggle to serve. Such a finding suggests that improved
connectivity works as a complement to creativity and local knowledge (Adelman 1984).
These findings have implications for how the regions’ policy makers consider
opportunities for firms. The impact of connectivity will not come from solely plugging theregion into better connectivity. Connectivity is only one step in achieving economic benefits.
The focus must shift away from seeing connectivity as an end in itself and move toward to abetter understanding about the role that new digital resources plays in reorientating the value
chains that are central to export-oriented activities in East Africa. Barriers for East African
firms come not only in the lack of digital access but also in the digital skills and resources
they have. Moreover, value capture and governance are increasingly entwined with thedigital. It is, therefore, important to also explore who exerts control over the digital and how
governance might change. Thus, researchers must endeavor to give closer consideration toprevalent forms of codification, digitization, and access to digital resources, in order to better
understand the limitations of digital integration and how firms operating on the margins of
the global economy might use digital technologies to capture more value.
Examples of more favorable conditions have also emerged in instances where firms
have been able to access and use the Internet for establishing new competitive advantages andniches. Thus, rather than looking at digital connectivity as the means of competing in alreadyestablished GVCs, East African firms may want to identify their competitive advantages andconsequently rethink how connectivity might enhance these advantages.
For economic geography, this work poses a challenge to better explore changing
relations of economic production in low-income countries. Our work attempts to concentrate28

scholarly attention on who exerts control over the digital in core economic geography debatesaround governance, upgrading, and value in GVC analysis. As ever more people and firms
connect to the Internet, these questions will become more and more important in the years tocome.

Acknowledgements
This paper was based on research funded by the ESRC and DFID. Grant reference (RES-16725-0701) and ESRC reference (ES/I033777/1). Additional work during writing up was
supported by the ERC (Grant reference 335716). The authors would also like to acknowledge
the researchers who supported data collection for this work: Charles Katua, Grace Magambo,
Cyprien Semushi and Felix Akorli
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