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Transitioning entrepreneurs from informal to formal markets

Author

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  • Sutter, Christopher
  • Webb, Justin
  • Kistruck, Geoff
  • Ketchen, David J.
  • Ireland, R. Duane

Abstract

Informal markets encompass economic activity that occurs outside of formal regulations and is rather guided by informal norms, values, and understandings. A growing stream of research explores the transition of entrepreneurs from informal to formal markets. Past research appears to portray the transition to formality as a strategic choice made by entrepreneurs and to center on regulatory concerns, such as acquiring licenses, registering the business, and paying taxes. Such an approach to studying formalization, however, may not adequately account for the influence of informal institutions on such a transition, and ignores the facilitating role often played by institutional intermediaries, a type of institutional entrepreneur. Thus, the purpose of this study is to explore a more comprehensive view of formalization in which an institutional intermediary seeks to help small producers transition from selling their goods in informal markets (where formal regulations and infrastructures do not exist or are severely underdeveloped) to formal markets (where developed formal regulations and infrastructures have engendered stronger competition and heightened quality and efficiency standards). More specifically, we examined the process by which an NGO attempted to transition approximately 1,800 dairy farmers in rural Nicaragua from informal to formal markets. Our results suggest that the success of formalization efforts by institutional intermediaries hinges on a series of inter-related tactics aimed at providing “institutional scaffolding” to encourage and facilitate informal entrepreneurs' participation in formal markets.

Suggested Citation

  • Sutter, Christopher & Webb, Justin & Kistruck, Geoff & Ketchen, David J. & Ireland, R. Duane, 2017. "Transitioning entrepreneurs from informal to formal markets," Journal of Business Venturing, Elsevier, vol. 32(4), pages 420-442.
  • Handle: RePEc:eee:jbvent:v:32:y:2017:i:4:p:420-442
    DOI: 10.1016/j.jbusvent.2017.03.002
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    References listed on IDEAS

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    3. Colin C. Williams & Brunilda Kosta, 2019. "Evaluating Institutional Theories Of Informal Sector Entrepreneurship: Some Lessons From Albania," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 24(02), pages 1-17, June.
    4. Colin C. Williams & Abbi M. Kedir, 2019. "Explaining cross-country variations in the prevalence of informal sector competitors: lessons from the World Bank Enterprise Survey," International Entrepreneurship and Management Journal, Springer, vol. 15(3), pages 677-696, September.
    5. Kimmitt, Jonathan & Muñoz, Pablo & Newbery, Robert, 2020. "Poverty and the varieties of entrepreneurship in the pursuit of prosperity," Journal of Business Venturing, Elsevier, vol. 35(4).
    6. Colin C. Williams & Kwame Adom & Ioana Alexandra Horodnic, 2020. "Determinants Of The Level Of Informalization Of Enterprises: Some Evidence From Accra, Ghana," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 25(01), pages 1-24, March.
    7. Colin C. Williams & Abbi Kedir, 2018. "Explaining Cross-National Variations In The Prevalence Of Informal Sector Entrepreneurship: Lessons From A Survey Of 142 Countries," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 23(01), pages 1-22, March.
    8. Sutter, Christopher & Bruton, Garry D. & Chen, Juanyi, 2019. "Entrepreneurship as a solution to extreme poverty: A review and future research directions," Journal of Business Venturing, Elsevier, vol. 34(1), pages 197-214.
    9. Conger, Michael & McMullen, Jeffery S. & Bergman, Brian J. & York, Jeffrey G., 2018. "Category membership, identity control, and the reevaluation of prosocial opportunities," Journal of Business Venturing, Elsevier, vol. 33(2), pages 179-206.
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    11. Colin C. Williams & Besnik Krasniqi, 2018. "Explaining Informal Sector Entrepreneurship In Kosovo: An Institutionalist Perspective," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 23(02), pages 1-20, June.

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