Question

Watch the TED talk, The Power of the Informal Economy. Discuss what the informal economy is, how it affects the marketplace and formal economy, how it operates and who the players are. 600 words or more

Answer 1

Discuss what the informal economy is, how it affects the marketplace and formal economy, how it operates and who the players are. 600 words or more

Informal economy is the economy that runs within the defined and structured businesses but it in itself is fully non legal, nor registered. It is believed to be the dark market, the underground economy which the structured economy does not directly identify, but it exists in the open and in one way or other accessible to people who are part of it. It is not governed by the same rules which govern the formal and structured markets, it has its own sets of rules and perimeters in which it operates. And today it is a huge share of the global economy, it is believed to have around one third of the global employees working in it, it is supposed to be contributing 10 Trillion dollars of business every year, and is the only space that is growing, hence the scope of its affecting the direct markets and the formal economy is huge.

It is believed that the informal economy would be equivalent to the 2^nd largest economy after the US. As it is growing it would become a potential for each and every formal player to look forward to them, as per current statistics P & G has its largest partner in terms of business volume in Walmart, and it does 15% of its business volume through its stores. But at the same time more than 20% of P & G’s share of business is done by these involved in the informal economy, the ones who run the unregistered kiosks, the illegal shops and flea markets. Which clearly indicates at the opportunity of the business in offer.

There are players who run their business only through these stores, like MTN one of the largest telecom player in whole of Africa, failed to implement the formal economy business but had to adapt to the informal ways of doing business and today it commands a market share like no other and all of it is contributed to the informal markets.

Similarly there are mobile equipment being exported from China, which are not branded, they are clear copies and are very high in demand, all of these are part of the informal economy that is not incorporated, but do affect the whole emerging markets and the demand for all of these is only growing.

These informal economies target a segment which has slightly different need but is not totally separate and that is the reason why big incorporated companies are very much interested, a major Sneaker’s manufacturer for example does its market research through the products sold at the kiosks and determines why Adidas or Puma has the ability to get duplicates but not their product and so on they provide key insights to expanding business.

In most of the emerging economies there is almost one third of the population that is not part of the formal economy in terms of their purchases, but they do influence the formal producers whose products are being sold to them but through a channel that is totally informal. The informal economy does affect the formal economy in several ways, the intermediate players are always at a loss, but there are several producers or manufacturers who are losing some of their revenue as their copies are being sold instead of the real ones but in reality they were never their target market and hence they need to either have a downgraded version for that particular segment and gain out of it or become a part of the informal market to earn some of its share of revenue, which could have a smaller ticket size but compensates fully with the volume.

Hence it can be concluded we can deem it as good or bad but it can not be ignored , because it is going to stay and only get bigger.