Microenterprise development in Quito, Ecuador: A case study of social, cultural, and environmental factors affecting growth

This dissertation looks at the socio-cultural factors and environmental constraints affecting microenterprise growth in the urban informal sector of Quito, Ecuador. The study explores the internal and external dynamics of enterprises owned by microproducers participating in two credit programs: one financed by the Interamerican Development Bank through a non-governmental organization (Fundacion Ecuatoriana de Desarrollo) and another by a private commercial bank (Banco del Pacifico). The research sample included 130 microproducers. The study focuses primarily on non-monetary factors affecting the stages of the business cycle: input procurement, production, and marketing and their manifestation through high "transaction costs" (i.e., the time and effort involved in obtaining information or implementing intermediate transactions for successful business outcomes). The main finding of the dissertation is that microproducers in the informal sector resort to a combination of short and long-term strategies to cope with high levels of risk and uncertainty resulting from high monetary and non-monetary costs and from general lack of institutional support. Short-term strategies help them deal with day-to-day risks and opportunities; long-term strategies, identified in this dissertation as "anchoring mechanisms," provide a modicum of stability and the potential for growth. These "anchoring mechanisms" are identified by analyzing microenterprises in terms of their work-family organization, their social relations and associative forms, and their processes of resource procurement and allocation. There are three main "anchoring mechanisms:" (1) harnessing nuclear family labor, particularly through husband-wife business partnerships; (2) owning a home; and (3) establishing relationships of trust with other individuals. Ensuring at least one "anchoring mechanism" is a high priority for microenterprises; thus, profit maximization or business expansion is likely to be a secondary priority among informal microproducers. The findings suggest that microenterprise success should be measured not only in terms of business expansion or profit maximization, but in terms of increased standard of living of the household, increased ability of the business owner to provide support to others, or consolidation of the business around the nuclear family. Moreover, microenterprise development programs should focus on the need to reduce transaction costs and facilitate the development of "anchoring mechanisms.".