How relatively easy or difficult is it to transition and move informal entrepreneurs to formal entrepreneurs?
What is required?
What is the best approach, or what approach would you follow?
What forms of education are required?
What is the likely timespan and resources required?
An interesting part (but not formulated) of your question is the existence of entrepreneurs whose status is between informal and formal entrepreneur. We have examples of that in formally independant workers whose activity is provided by the platforms of the gig economy. They are supposed to be independant and should evolve towards a status of formal entrepreneur but they are actually completely dependant of these platforms (Uber, Lyft, Deliveroo, etc.). You will find below two examples of the consequencies of such a situation on their workinf conditions and not for the best...
Conference Paper Regulating the OSH impact on online platform economy (OSHA S...
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As a result of the current global context, respectively the emergence of new factors directly influencing entrepreneurial activity (such as artificial intelligence, information and distribution channels via virtual networks, etc.), we believe that entrepreneurs are becoming increasingly the engine of economies globally, namely the passage of informal entrepreneurs to formal entrepreneurs.
Informal entrepreneurs refers to those starting a business or are the owner/manager of a business who engage in monetary transactions not declared to the state for tax, benefit and/or labour law purposes. In fact, innovators are the types of entrepreneurs who come up with completely new ideas and turn them into viable businesses
Otilia P. Manta , can you elaborate on "the passage of informal entrepreneurs to formal entrepreneurs."
Mahfuz Judeh , no reason why informal entrepreneurs would want to stay informal entrepreneurs. i would think that they would want to advance to formal entrepreneurs. are you saying the 2 are incompatible (to some extent)?
If you are an "informal entrepreneur", it means that you are also a tax evader.
Therefore, the revenue agency of your country will ask you for an account of how much you have escaped before.
After the "regularization" of your business, you will be a "formal entrepreneur" (with all the consequences).
The informal entrepreneur is the one who disseminates elements based on his or her own experience, being willing to formulate positive opinions based on their own activity. Moreover, the informal entrepreneur is the one based on informal learning. At the same time, when training passes from a purely mandatory activity to an exploratory opportunity, employees become more involved in developing their own abilities - leading to deep learning and improved performance in the long run.
For formal entrepreneurs believe we must learn them to develop a structured business plan! Moreover, entrepreneurship education is the tool used by both the informal entrepreneur and the formal entrepreneur, namely educating entrepreneurs so as to become aware of the need for a business plan and personal, financial and business planning necessary for the development of entrepreneurial activity.
The informal entrepreneur could be some one who is at the small scale level of business - free lancer or just at the stage of developing a concept of business. When business is growing it is more likely to become a formal entrepreneur with more formalised stucture, responabilities and requirements.
Another issue is area of business. When environment is more dynamical and flexible it will be more spredead informal entrepreneurship and in case it is more stable entrepreneurship will be more formalised.
If, 10 years ago, we were witnessing an increasing presence of informal entrepreneurs, the transfer of good entrepreneurial practice is now being made by formal entrepreneurs who, besides knowledge, also have the concrete experience of entrepreneurship. Therefore, the presence of formal entrepreneurs creates the premise of the sustainable development of the areas in which they operate.
Informal entrepreneurship is a growing and very interesting research topic. It is concerned with developing countries where many people do businesses which are not officially registered as legal entities or do not pay taxes properly. All those different zones of a so-called bazar economy belong to those phenomena (among others more). However, ones finds informal entrepreneurship also in "advanced" economies, let's say belonging to the club of OECD countries, either in ways of statistical grey zones or a tax avoiders and/or as nascent forms of entrepreneurship where people just test and explore their businesses which may be converted into legal (formal) business after success has proven. There are really many detailed aspects of necessary research topics.
Formality and legality should only be the last step of any market entry.
@Milan, you are arguing that, like with so many other things, the business environment plays a huge role in transitioning informal entrepreneurs to formal entrepreneurs, and government has a major role to play.
The rules of doing business in the country should be such that it is more profitable to be a formal than an informal entrepreneur!
It will be more profitable to be informal entrepreneur then formal. The question is about the risks to be informal entrepreneur and specific costs ( bribery ). Also is a issue of culture, when community has trust in Government and his service or not.
Informal entrepreneurs are largely associated with trainers in entrepreneurial activity and the order in which we can be an informal or formal entrepreneur depends on professional training, entrepreneurial culture, and last but not least on entrepreneurial vocation. All the best!
Roberto - Minadeo , can you elaborate on your answer.
Otilia P. Manta , i think many are forced into informal entrepreneurship too. so, the training aspect may or may not be present
Highly depends on context. Are we talking local entrepreneurs in a western market? ethnic minority/refugee/migrant entrepreneurs? entrepreneurs in a conflict zone? entrepreneurs in a developing country? innovative entrepreneurs or self-employed (replicative) business owners?
I agree. You have to differentiate about which forms of entrepreneurship you are talking and how you define entrepreneurship. Hence, this is the important message, CONTEXT matters !
Lubna Rashid , Dieter Bögenhold ,
meaning what? are you saying some informal entrepreneurs will find it hard, difficult, or impossible to transition to formal entrepreneurs, because of both/ either internal or external factors (context)?
Dieter Bögenhold , i think you are also perhaps suggesting one should differentiate among informal entrepreneurs, those who are truly keen and serious to transition to formal entrepreneurs. how would one do this?
would determination not be enough to negate context?
there is an entrepreneurial dichotomy of helping (holding hand) vs leaving alone (make it yourself). i suppose middle ground is best.
Brian Barnard, I fully agree: One must also look at different forms behind the term of informal entrepreneurship. Too different are those individual phenomena, too different are economic and social rationalities, individual biographies being involved and too different are the linked forms of context, including the economic and legal ones.
I agree with you, Brian, especially with respect to the aspect of training! But I think the choice of being an entrepreneur is influenced by many external factors, which influence you individually according to your needs to choose either formal or informal entrepreneurship. Moreover, I believe that this choice depends greatly on the knowledge element as well as the individual abilities of each. And last but not least, your desire to be an entrepreneur! All the best!
Therefore informal and formal entreneurship in different levels or stages may be more appropriately coined as teaching and exploring entrepreneurship in/of different boxes.
Informal entrepreneurs require training that is tailor made to their specific needs or business, not just any random training. This model is not a one size fits all kinder situation. The training must also be linked to some sort of categorical funding model and monitoring . This will ensure they get their foot in the formal sector (legally so) and to allow one to measure the type of impact this type of training might have. This means policy makers must also drive policies that are specific and implement them correctly.
Agree! In order to have entrepreneurial innovations there must be public policies that support entrepreneurial activity, as well as support programs for formal or informal entrepreneurs! All the best!
