UNO July 2015

Collaborative economy: the revolution in global consumption



Over recent years consumption trends have been evolving unexpectedly, in parallel with the expansion of the digital universe through the social networks and as a result of the global crisis that has affected the world over the last decade. One sign of this is the birth of the collaborative economy, a phenomenon that has gradually been gaining a lot of strength and is breaking the paradigms of consumption established to date, with the Millennial generation as its main exponent. Technology is changing traditional business models, focusing the needs of the consumers.

Gone are the days of the ownership society; today the digital revolution is generating new productive relationships and transforming the standards of global consumption. This is how the collaborative economy arose, a system in which goods and services are shared and exchanged through digital platforms with reputation and trust in a better service at the core of the purchase-sale decision. Thanks to these digital platforms, the barriers of mistrust have been reduced through users providing ratings and references and this gives rise to new ways of connecting, exchanging and monetising economic goods in traditional business models.

The main added value of this new tendency for collaboration, as well as economic gains, is the production and development of knowledge

The Internet, geo-location systems, the portability and sociability of the new technologies, crowd-sourcing, the open-source culture, the maker movement and the emergence of a new generation of people with a greater capacity and scope to influence their environment in just one click, are just some of the technical and cultural components that have laid the foundations for the consolidation of a new exchange model that is redefining the way we do business and relate to each other through the exchange of goods and services between people.

Therefore, the main added value of this new tendency for collaboration, in addition to economic gains, is the production and development of knowledge, since the fact that it is shared means that it can be taken as the starting point for new business models.

In this sense, the model of the collaborative economy may bring personal benefits, both financial and in terms of personal and intellectual growth, but it is subject to one limitation: the desire of the individual.

The true potential of this model lies in the integration of several people in the process of generating value, both economic and social. By establishing that each individual can work in a different area of specialisation in this economy, we discover that there is infinite potential in the possibilities for creation, innovation and even financial empowerment in small, medium and large businesses.

The era of the collaborative economy represents a cultural change; it is an economy of access in which we can find anything from private chauffeurs and housekeepers to accommodation and hotel rooms around the world.

The exponential growth of the collaborative economy over recent years, at a global level, would not have been possible without technological development. The evolution of platforms that offer the on-line market systems, together with P2P technologies, are determining factors that have fostered this model, ensuring an ecosystem in which exchanging goods and making on-line transactions is as simple as entering certain personal data and clicking a few times.

Undoubtedly, the development of the digital world has managed to facilitate the communication process, streamlining it and making it accessible to everyone in the same way we saw with the exchange of goods and even with the creation of communities focused on undertaking activities and developing on-line models such as collaborative consumption, which has allowed for their diffusion, turning local initiatives into global ones.

The current panorama

Named by TIME magazine in 2011 as one of the “10 ideas that will change the world”, the collaborative economy is today positioned as a new and increasingly popular financial model. Thanks to a change in customs, we are passing from ownership to accessibility. Specifically, much of its structure is based on the use of new technologies to establish networks for exchange, rental, auctions or communities established to share goods, spaces or services.

The figures for this economic phenomenon are increasingly surprising. Thousands of travellers around the world are staying in the homes of other people using the Airbnb platform; millions of people use the services of Uber to reach their destination and almost half of the world’s population has a Spotify account which allows them to enjoy countless songs on-line.

According to Forbes, last year around 3.5 billion dollars was moved within the global collaborative economy, which represented an increase of 25% compared to the transactions recorded in this sector during 2013.

This model is encompassing more and more areas of society and especially the daily life of the people. Airbnb already operates in 35,000 cities in 192 countries, offering more than 600,000 accommodation spaces ranging from single rooms to European castles. Moreover, Uber is present in more than 100 cities in 45 different countries and is valued at more than 18 billion dollars.

Criticism of the collaborative economy

Many questions have been raised in the light of this boom. While this financial model is expanding and advancing towards consolidation, more critical positions arise that oppose its development because for many traditional business people it represents unfair competition within their industry.

20The growth of platforms like Airbnb and Uber has become the subject of controversy around the world. In the case of Uber there have been notable demonstrations and protests by taxi drivers who, from Washington to Mexico City, Bogota to Madrid, demand regulations and even sanctions for this model. However, regardless of the position taken in relation to it, it reveals a generalised and shared desire, by consumers around the world, to find solutions that increase access to goods and services, satisfy the needs of a 21st century society and allow for a horizontal dialogue based on the reputation and trust offered by an exchange structure, where we all have the chance to be both consumers and producers at the same time.

With this panorama, the big challenge faced by the collaborative economy is regulation, because at the moment there is no clear regulatory system and there is a need to create a legal framework that provides security and confidence for those involved. Given this situation, the question of how to do this arises, because too much regulation would harm consumers and the general interest, creating an obstacle to effective competition.

The reputation systems that form a feature of these platforms mean that the users have all the information necessary about the goods or services to which they have access, although this is often not enough. It is necessary to respond with regulations when there are legal and market loopholes that impede the access of operators to the provision of goods and services. The creation of regulations makes sense, in a case like this one, when the market is incapable of reaching a result that efficiently allocates resources.

The changes caused by the collaborative economy

The severity of the global economic crisis, reflected in there being countries on the verge of bankruptcy and high unemployment rates, the growing concern for ecology and the state of the environment have meant that in recent decades people have discovered and promoted collaborative consumption, which prioritises the reuse of objects that nobody else is using, instead of purchasing new items.

Many people in different parts of the world have found the collaborative economy to be the ideal way of obtaining the products and services they require without compromising their financial situation, since this model prioritises the use of the object over its ownership.
This rejuvenated concept has already awakened the creativity of millions of people who demonstrate that we are at a cyclical point in which the collaborative economy may be used in increasingly innovative and socially responsible ways.

Looking towards the future

The future presents many challenges for the collaborative economy, because in addition to the regulation and standardisation of its processes, trust must be strengthened among those involved in order to be able to continue taking firm steps towards its sustainable development.

This model works thanks to empowered people working together, but this collaboration requires the regeneration of trust in the people around us.

The collaborative economy seeks to offer new alternatives to the current system. It suggests learning to value the intangibles generated such as reducing emissions, the connections between people and our constant ability to create. It is the future of solidarity between people. We generate businesses, share resources and obtain profits, knowing the beneficiaries at first hand.

Alejandro Romero
Partner and CEO Americas at LLORENTE & CUENCA.
Ever since 1997 Romero has been at the forefront of the company's expansion processes in Latin America, starting operations in Peru, Argentina, Colombia, Panama, Ecuador, Mexico and recently, Miami. Romero has also recently led the communication processes in three of the ten most important M&A operations in the region: the selling of BellSouth operations to the Telefonica Group; SABMiller's acquisition of the Corporate Group Bavaria and; the selling of the Financial Group Uno to Citibank. In 20 years, Romero has managed to position LLORENTE & CUENCA as the leading communication network in Latin America. @aromerollyc [USA]
Luisa García
Partner and COO for Latin America of LLORENTE & CUENCA
Expert on management of regional accounts and strategic consulting, Luisa is partner and Chief Operating Officer for Latin America of LLORENTE & CUENCA, president of the Chamber of Commerce of Spain in Peru and the chapter chair of the Peruvian chapter of the Young Presidents’ Organization (YPO). She is also member of the Advisory Board of Action Aid and of the advisory committees of Enseña Perú (Teach Peru) and the Asociación para el Progreso de la Dirección (Association for Management Progress) in Peru. Luisa was considered one of the 50 more influent Latin American businesswomen by the magazine Latin Business Chronicle in 2013 and was recognized as the Businesswoman of the Year in Latin America, Businesswoman of the Year in the field of Corporate Services and Woman of the Year in the Communication World at the Stevie Awards for Women in Business. [Peru] @luisagarcia

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