While exploring into some of the ways in which business linkages can be developed between formal and informal firms in a previous article, I looked into how both sides of the divide can take advantage of the opportunities within their realms to build symbiotic relationships. In this piece, I will highlight some of the approaches which formal firms should consider when trying to initiate and foster positive networks with the informal sector.
The first and foremost aspect that formal firms should look into is that of the business structure that is present in the informal business that they intend to partner with. The importance of ensuring that they establish this aspect is, among other factors to assist them in better understanding the client profiles of the clients serviced by the informal firm. This will help them come up with tailor made marketing structures around which they can sell their products and services.
The other aspect that is of importance in as far as fostering beneficial relationships relates to the different levels of capacity present in the informal firms. These include, but are not limited to technical and financial skills. Most informal firms primarily under perform due the low levels of the above mentioned. Formal firms can work to improve the level of these skill sets which will go a long way in improving the quality of goods and services that they produce. Mentoring informal firms in this way will enhance their capability to deliver goods and services that are of a higher quality as well as enhance their systems of operation. This will further improve and strengthen the various aspects that are related to the operational systems of formal firms such as their chains of distribution.
Further, the longevity of an informal business should be a point of consideration when looking into partnership opportunities. One of the weaknesses that informal businesses have is that of shutting down after short periods of operation. The Micro Small and Medium Enterprises (MSME) Survey 2016 indicates that 46.3 per cent of the establishments were closed within the first year of operation. The trend in closing rate slowed down with the age of the business which points to the fact that informal businesses stabilized with time. On average, it was observed that the age of establishments at closure was 3.8 years.
Another area that would be worth exploring for formal firms as they seek to establish formidable links with informal businesses is that of targeting businesses that are part of an association. Micro, small and medium sized businesses that are members of associations within their realms of operation tend to be more focused and better organized. This is due to the fact that they draw valuable lessons from each other on best industry practices. These sort of associations provide a pillar of stability for informal businesses for it is through them that they can better interact with government bodies in cases of conflict resolution. Associations also give them financial security for it is through these that they can access loans to grow their businesses.
By looking into the above factors, formal firms can have a better understanding of informal businesses when trying to create partnership opportunities that grow their businesses. Working with the associations that informal businesses are a part of will enhance the capability of formal firms to choose credible businesses through which they can further harness their growth agenda.
Informal Economy Analyst