مقاله سال ۲۰۱۶

Developing countries are characterized by institutional, cultural and other contextual factors that impose an effective constraint on the activities of firms (Michalopoulos and Papaioannou, 2015; Zhou and Peng, 2012). In particular, the presence of a large informal sector (Lewis, 1954; Webb et al., 2009) which sometimes actually introduces a divide that gives rise to a dual economy (Huber, 1985), largely conditions formal firms’ strategies. The International Labor Organization defines “informal economy” as “all economic activities by workers and economic units that are –in law or in practice– not covered or insufficiently covered by formal arrangements” (Williams and Lansky, 2013).

Although so far relatively unexplored, the study of the consequences of informal economic activity arises as a new frontier in the field of Management, see for instance McGahan (2012), Webb et al. (2013), Bruton et al. (2012), Birkinshaw et al. (2014), or Godfrey (2011) for recent contributions to the discussion of this topic. Specifically, McGahan (2012) argues that formal and informal firms should be studied together, since they compete for the same customer and resources. In fact, the OECD Global Forum on Competition (OECD, 2009) claims that informal firms, while being less efficient than formal firms, usually fail to comply with economic regulations and tax obligations, allowing them to steal market share from formal firms. Furthermore, the study of informal activity yields important insights in areas such as the boundaries of the firm, diversification, dynamic capabilities, absorptive capacity, the resource-based view, property rights, governance, stakeholder theory, organizational legitimacy, disruptive technology, and innovation (McGahan, 2012).

Thus, the inclusion of informality challenges established theoretical frameworks with empirical implications that are yet to be discussed. The presence of informal firms conditions the traditional view in business strategy regarding the building of barriers to competition, constraining the creation of sustained competitive advantages. This study precisely explores the impact of informality on formal firms’ resource allocation in innovation activities, a factor that is largely recognized as a crucial component of a competitive advantage (Danneels, 2002; Porter, 1990). Using The World Bank’s Enterprise Survey data, we test whether competitive pressure from informal producers indeed affects the likelihood of formal firms introducing new products and processes, and we discuss the potential implications of these results for the design of business strategy and public policy. We find evidence of a decreasing marginal effect on innovation of the intensity of competitive pressure from informal firms, consistent with the inverted-U relationship between competitive pressure and innovation in Aghion et al. (2005). We go beyond their analysis by showing that the effect of informality is present even after controlling by the overall degree of competition, as well as observable firm characteristics. Hence, the presence of an informal sector constitutes a relevant contextual factor shaping innovation strategy, effectively altering the potential payoff from innovation and thus, formal firms’ incentives to introduce new products and processes.