‘pte 2 The teal ndonne Opperinies Ts duty Campetion and Comper ras ° {5 How do the five forces of competition in an industry affects proftabilty potential Explain. {6 What isa svategc group? Of what alu i knowledge of the fens statese group in formulating that fers strategy? -Case 2 Whatisthe importance of coleting and interpreting data and information about compettors? What practices should fem use to gather competitor inteligence and why? The Informal Economy: What It Is and Why It Is Important? ‘The informal economy refers to commercial activities that occur at least partly outside 2 governing body's ‘observation, taxation, and regulation. In slightly differ- ent words, sociologists Manuel Castells and Alejandro Portes suggest that the “informal economay is character ‘aed by one central feature: tis unregulated by the insti- tutions of society in a legal and social environment in ‘Which similar activites are regulated” Firms located in the informal economy ate typically thought of as busi neste that are uncegistered 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 axes). In contrast to the informal economy, the formal economy is comprised of commercial activities that @ 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 2 choice, such as is the case when individuals decide to supplement the income they ate earning through ‘employment in the formal economay witha second job in the informal economy. However, for most people work- {ng inthe informal economy is a necessity rather than a choice—a reality that contributes to the informal econo- ay’s size and significance. Although generalizing about the quality of informal employment ie difficult, evidence suggests that typically means poor employment condi- tions and greater poverty for workers, Entimates ofthe informal economy’s size across coun- ‘ties and regions vary. In developing countries, the infor- smal 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 ‘nent in developed countries uch as Finland, Germany, and France (where the informal economy i estimated to account for 183 percent, 633 percent, and 153 percent, respectively, of these nations’ total economic activity) In the United States, recent estimates are thatthe info ‘mal economy is now generating as much as $2 wrillon in ‘economic activity on an annual basis, This is double the size ofthe US. informal economy in 2009. In terms ofthe ‘number of people working in an informal economy, its suggested that "Indias informal economy ... (includes) Ihundreds of millions of shopkeepers, farmers, construc- tion workers, tani drivers, street vendors, ag pickers, tai- lors, epairmen, middlemen, black marketers, and more” "There are various causes ofthe informal economy’ growth, including an inability of a nation’s economic ‘environment (o create a significant number of jabs 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 ina situation ‘of probably violent social unrest” Governments inabi ity to facilitate growth efforts in their nations 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 treats 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- Unites as well For example, formal-economy firms can ‘ry 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.