An empirical study into the informal sector: The link between entrepreneurial activity and firm performance

Abstract

Orientation: Within an emerging market context, the informal sector’s role was deemed critical towards achieving ideals of a developmental state. Given this perceived importance, there was a need to continually study informal sector entrepreneurial activity and its ramifications on firm performance.

Research Purpose: This study aimed to understand the link between informal sector entrepreneurial activities and firm performance using a sample of firms operating in Durban, South Africa.

Motivation of the study: Exploring those entrepreneurial activities that either enhanced or impeded the informal sector was deemed critical in the effectual and efficient operation of the sector. In driving the firm performance agenda ascertaining the role of factors such as (1) entrepreneurial culture, (2) entrepreneurial education and skills, (3) government and incubation support and finally, (4) access to finance can enhance the informal sector through the provision of evidence-based interventions.

Research approach/design/method: A quantitative survey research approach was used to collect data from 152 informal sector businesses operating in the city of Durban in South Africa. A convenience sampling technique was used to access the respondents. Data were analysed using the Statistical Package for Social Sciences (SPSS) programme version 23 using correlation and regression tests.

Main findings: The findings revealed the adoption of an entrepreneurship culture, including access to entrepreneurship education and skills to predict a firm’s financial and non-financial performance significantly. Furthermore, it was found that government and incubation support predicted a firm’s financial performance. However, it was also established that government and incubation support had no unique contribution to non-financial performance.

Practical/managerial implications: Suggestions were made based on the findings that entrepreneurial activities have a bearing on informal sector business performance. These findings became a helpful intervention towards enhancing the performance of informal businesses.

Contribution/value-add: This study contributed to understanding entrepreneurial activities that either enhanced or impeded informal businesses’ performance.