Informal sellers and formal markets: a habitus gap

Abstract

PurposeIn developing economies, 30% of the gross domestic product on average is undertaken by unregistered businesses. The informal economy leads to high opportunity costs by preventing gains from trade with strangers. To overcome this obstacle, sellers who usually operate in the informal economy should strive to move to formal markets. Current theories are drawn from a view of markets as institutions governed by formal and informal rules. In a nutshell, informal-formal market transitions must be met with a regulative solution. However, the overall results have been disappointing. This failure invites a re-diagnosis of the problem that informal sellers face to act in formal markets and suggesting novel solutions. This paper aims to address this gap.Design/methodology/approachThis is a conceptual paper. The authors adopt MacInnis’s (2011) framework to characterize the approach to theory development.FindingsThe authors argue that extant views of formal/informal markets differences address only one of Scott’s (2014) three pillars (regulative, normative and cultural-cognitive). By drawing on Bourdieu’s legacy, the authors propose a cultural-cognitive reading of institutions and suggest it offers a lens to understand the problem as an access challenge, and thus a marketing problem. This perspective allows us to conceptualize informal/formal markets as two distinct institutional fields and argues that all individuals inhabit a particular habitus and contend that moving between markets requires a habitus shift. Thus, acting in formal markets involves bridging a habitus gap. Finally, the authors argue the need for a market-facing intermediary that takes on a market habitus bridging role.Research limitations/implicationsThe authors suggest future research efforts could benefit from this new conceptual lens as a means of re-diagnosing other forms of market access that have produced disappointing results.Practical implicationsBy looking at differences between formal and informal markets as a habitus gap, the allocation of public funds to support transitions can be better targeted and spent.Social implicationsThe concept of market-facing intermediaries suggests that the beneficiary (e.g. informal seller) and target populations can be different. This insight could catalyze social innovation and trigger novel perspectives to design systemic solutions.Originality/valueConceptualizing the formal-informal market transition as a habitus gap suggests new directions to resolve access challenges and a new mediator solution.