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Read the mini-case “The Informal Economy: What It Is and Why It Is Important?” on page 69 in the text. Create an original post with your answer to one of the case discussion questions on page 70. After, respond to at least two other classmate posts applying their concepts to your work environment.

1.Discussion should be 200-250 words.

2.Peer Response should be 100-150 words.

Discussion: Informal Economy
Read the mini case “The Informal Economy: What It Is and Why It Is Important?” on page
69 in the text. Create an original post with your answer to one of the case discussion
questions on page 70. After, respond to at least two other classmate posts applying their
concepts to your work environment.
1. Discussion should be 200-250 words.
2. Peer Response should be 100-150 words.
Peer 1
What threat does the informal economy pose to companies operating in the formal
In terms of cost, the companies in informal economy have lower operation cost than
formal companies, which means informal companies donot need to pay taxs. This let
informal companies can offer lower price products but the quality still remain. This will
have huge impact to formal companies profitability, because comsumers have more
options. In addition, informal companies might threaten formal companies labor source.
According to the article “The Informal Economy Is The Problem With A Minimum Wage
That’s Too High” (Tim, 2015) from Forbes. If informal economy start to offer same wages
as formal economy, people will prefer to work for informal companies. In conclution,
informal economy is indispensable, but it need to be controlled at a reasonable scale.
Tim W (Dec 1, 2015) The Informal Economy Is The Problem With A Minimum Wage That’s
Too High. Retrieved from https://www.forbes.com/sites/timworstall/2015/12/01/theinformal-economy-is-the-problem-with-a-minimum-wage-thats-toohigh/?sh=351062c91cfd
Peer 2
What threats does the informal economy present to firms operating in the formal
An informal economy is an economy in which monetary exercise is now not difficult to
government regulation or taxation. “The casual financial system refers to industrial things
to do that take place at least partly outdoor a governing body’s observation, taxation, and
regulation” (Hitt, Ireland, & Hoskisson, 2016).
There are many threats that casual economies present to companies running in a formal
economy. Businesses running in an informal economy have a cost-benefit over
corporations operating in a formal financial system as they are fending off taxes and do
not have to meet the government’s policies for pay, time off, worker hours, and
employees’ working conditions. Informal economies also drag down the overall country’s
well-known dwelling due to decrease wages being paid to informal economy people
(Farrell, 2019).
There is another danger that if the casual economic system is presenting services/goods
at a decrease fee than the formal economy people will shift from the formal economy to
the casual economic system to save cash (Hitt, Ireland, & Hoskisson 2016).
Farrell, D. (2019, May 21). The hidden dangers of the informal economy. Retrieved
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic Management:
Competitiveness & Globalization. South Melbourne, Victoria: Cengage Learning.
The Informal Economy: What It Is and Why It Is Important?
The informal economy refers to commercial activities
that occur at least partly outside a governing body’s
observation, taxation, and regulation. In slightly differ-
ent words, sociologists Manuel Castells and Alejandro
Portes suggest that the “informal economy is character-
ized by one central feature: it is unregulated by the insti-
tutions of society in a legal and social environment in
which similar activities are regulated” Firms located in
the informal economy are typically thought of as busi-
nesses that are unregistered but that are producing and
selling legal products (that is, they sell many of the same
products you might buy in legal businesses but perhaps
cheaper because they do not pay government fees and
taxes). In contrast to the informal economy, the formal
economy is comprised of commercial activities that a
governing body taxes and monitors for society’s bene-
fit and whose outputs are included in a country’s gross
domestic product.
For some, working in the informal economy is a
choice, such as is the case when individuals decide
to supplement the income they are earning through
employment in the formal economy with a second job in
the informal economy. However, for most people work-
ing in the informal economy is a necessity rather than a
choice—a reality that contributes to the informal econo-
my’s size and significance. Although generalizing about
the quality of informal employment is difficult, evidence
suggests that it typically means poor employment condi-
tions and greater poverty for workers.
Estimates of the informal economy’s size across coun-
tries and regions vary. In developing countries, the infor-
mal economy accounts for as much as three-quarters of
all nonagricultural employment, and perhaps as much
as 90 percent in some countries in South Asia and sub-
Saharan Africa. But the informal economy is also prom-
inent in developed countries such as Finland, Germany,
and France (where the informal economy is estimated to
account for 18.3 percent, 16.3 percent, and 15.3 percent,
respectively, of these nations’ total economic activity).
In the United States, recent estimates are that the infor-
mal economy is now generating as much as $2 trillion in
economic activity on an annual basis. This is double the
size of the U.S. informal economy in 2009. In terms of the
number of people working in an informal economy, it is
suggested that “India’s informal economy (includes)
hundreds of millions of shopkeepers, farmers, construc-
tion workers, taxi drivers, street vendors, rag pickers, tai-
lors, repairmen, middlemen, black marketers, and more.”
There are various causes of the informal economy’s
growth, including an inability of a nation’s economic
environment to create a significant number of jobs rel-
ative to available workers. This has been a particularly
acute problem during the recent global recession. In the
words of a person living in Spain: “Without the under-
ground (informal) economy, we would be in a situation
of probably violent social unrest” Governments’ inabil-
ity to facilitate growth efforts in their nation’s economic
environment is another issue. In this regard, another
Spanish citizen suggests that “what the government
should focus on is reforming the formal economy to
make it more efficient and competitive.”
In a general sense, the informal economy yields
threats and opportunities for formal economy firms.
One threat is that informal businesses may have a cost
advantage when competing against formal economy
firms because they do not pay taxes or incur the costs of
regulations. But the informal economy surfaces oppor-
tunities as well. For example, formal-economy firms can
try to understand the needs of customers that infor-
mal-economy firms are satisfying and then find ways to
better meet their needs. Another valuable opportunity
is to attract some of the informal economy’s talented
human capital to accept positions of employment in
formal economy firms.
Part 1: Strategic Management Inputs
Sources: A. Picchi, 2013, A shadow economy may be keeping the U.S.
afloat, MSN Money, www.msn.com, May 3; 2013, Meeting on informal
economy statistics: Country experience, international recommendations,
and application, United Nations Economic Commission for Africa,
www.uneca.org, April; 2013, About the informal economy, Women in
informal employment: Globalizing and organizing, www.wiego.org, May;
G. Bruton, R. D. Ireland, & D. J. Ketchen, Jr., 2012, Toward a research
agenda on the informal economy, Academy of Management Perspectives,
26(3): 1-11; R. D. Ireland, 2012, 2012 program theme: The informal
economy, Academy of Management, www.meeting.aomonline.org, March;
R. Minder, 2012, In Spain, jobless find a refuge off the books, New York
Times, www.nytimes.com, May 18.
Case Discussion Questions
4. What threats does the informal economy present to firms
operating in the formal economy?
1. What are the implications of the informal economy for firms
that operate only in the formal economy?
2. When firms consider analyzing their competition, should they
include firms in the informal economy? Please explain why or
why not.
5. How do firms operating in the formal economy identify and
analyze the parts of the informal economy relevant to their
3. What opportunities does the informal economy present to
firms operating in the formal economy?
R. Krause, M. Semadeni & A. A. Cannella,
2013, External COO/presidents as expert
directors: A new look at the service of
role of boards, Strategic Management
Journal, 34: 1628–1641; Y. Y. Kor & A. Mesko,
2013, Dynamic managerial capabilities:
Configuration and orchestration of top
executives’ capabilities and the firm’s
Review, 38: 90-108; J. Harrison,
D. Bosse, & R. Phillips, 2010, Managing for
stakeholders, stakeholder utility functions,
and competitive advantage, Strategic
Management Journal, 31: 58–74.
S. C. Schleimer & T. Pedersen, 2013, The
driving forces of subsidiary absorptive
capacity, Journal of Management Studies,
the rise and fall of North Co Automotive,
Academy of Management Journal, 56:
208-230; J. P. Murmann, 2013, The
coevolution of industries and important
features of their environments, Organization
Science, 24: 58-78; G. J. Kilduff, H. A.
Elfenbein, & B. M. Staw, 2010, The psychology
of rivalry: A relationally dependent analysis
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