Which resource acquisition acts drive growth of informal firms? Evidence from Zambia

Abstract

PurposeThe study seeks to differentiate informal firms with high-growth prospects by their resource acquisition acts and to improve identification of growth-oriented informal firms for effective design and targeting of support measures.Design/methodology/approachAn original set of firm-level data was collected using face-to-face survey in Lusaka, Zambia. Six clearly defined criteria were used to sample informal firms, apart from general informal business. Regression analyses were conducted to test the association of different resource acquisition acts with two growth dimensions: number of employees and business earnings of the 325 informal firms sampled.FindingsAccessing clientele beyond local market, linking up with formal businesses and acquiring information and knowledge via online sources were found influential to growth in business earnings. Surprising, acquisition of finance and skills showed no effect. Employment expansion, though widely used, may not be a stable indicator of informal firm growth.Research limitations/implicationsThe study highlights the relevance of the emerging entrepreneurship perspective to understanding the topic. It cautions against pre-setting a size threshold for sampling informal firms and against relying on employment expansion as the sole proxy of growth.Practical implicationsThe findings prompt a rethink of the effectiveness of conventional support programmes to drive growth of informal firms such as funding and training. Directing support measures to target growth-oriented informal firms will lead to creation of decent and sustainable jobs and formalisation.Originality/valueWith an original firm-level dataset, the study challenges a long-held assumption that growth of informal firm is negligible and shows that segments of informal firms are sustainable and could attain significant growth and derives new insights into researching and supporting informal firm growth.

Understanding internationalisation of informal African firms through a network perspective

“…Such interaction enhanced relationships and led to building trust – reflecting work by Berrou and Combarnous’s (2012) regarding trade ties and mutual aid between entrepreneurs. Similarly, Kebede (2020) reports that increased networking activity is associated with higher output among informal entrepreneurs with smaller enterprises and poor access to formal institutions, whilst Tang and Konde (2021) established that networking with formal businesses increased the earnings of informal firms. Meanwhile, we found that trust, faithfulness and loyalty influenced referral decisions from established customers to informal entrepreneurs, This confirms evidence by Amoako and Lyon (2014), Amoako and Matlay (2015) that trust amongst Ghanaian small exporters is tied to both parties having a link to a familiar person, established long-standing trading relationships, and being a member of the same network.…”

“…In line with Omenma and Omeje (in press), the use of ICTs is seen to be a common practice among informal entrepreneurs. Similarly, Tang and Konde (2021) found that informal growth in business earnings is influenced by acquiring information and knowledge via online sources. The use of social media and relevant marketing skills allowed informal firms to reach customers at much lower costs and expand their visibility in the business landscape.…”

“…In contrast, informal firms operate in local networks and leverage local knowledge (see George et al, 2016: 384). Finally, through the growth of global financial markets, rapid technological change in online banking services, waybill systems, transport and telecommunications has tended to stimulate rather than eliminate informal activity (Tang and Konde, 2021). This has enabled informal entrepreneurs to discover and take advantage of business opportunities and establish social and business networks.…”

“…The underlying causes and levels of informality in developing, emerging and developed economies differ (International Labour Organisation, 2018), due in part to the degree of institutional voids and weak formal institutions that undermine the efficiency of market transactions across these contexts (George et al, 2016). Following definitions outlined in extant studies (Siqueira et al, 2016; Tang and Konde, 2021; Webb et al, 2009), an informal firm refers to entrepreneurial activities that occur partially or entirely outside formal institutional boundaries. These firms, however, operate under informal institutional boundaries that reflect social acceptability based on norms, values and beliefs of large groups in society to produce legal goods and services.…”

“…In recognition of this, Cuypers et al (2020) and Coviello and Munro (1995) have demonstrated that access to network relationships is a significant factor in internationalisation. However, networks have been underexplored in the cross-border business activities of legitimate and opportunity-driven informal enterprises despite these being evident in ventures in developing economies (Abdallah, 2017; Grimm et al, 2012; Tang and Konde, 2021). In addressing this gap, this article explores two research questions: First, how and why do informal firms internationalise to foreign markets instead of remaining local?…”