A framework for investigating new firm entry: The (limited) overlap between informal-formal and necessity-opportunity entrepreneurship

Saul Estrin, Maribel Guerrero, Tomasz Mickiewicz

Journal of Business Venturing · 2024 · Volume 39 · Issue 4

DOI: 10.1016/j.jbusvent.2024.106404

Abstract

Emerging markets economies have very large informal sectors, and their entrepreneurial entry is often motivated by economic necessity rather than by business opportunity. But neither informal nor necessity entrepreneurship are usually expected to generate the positive benefits for growth and development predicted for formal and opportunity entrepreneurship. We argue that the dominant stream in the literature actually conflates informal and necessity entrepreneurship, both of which have been associated with low human and financial capital and productivity. We propose that the appropriate typology is more complex than this because there are examples of successful and dynamic informal firms. This leads us to identify four categories of entrepreneurial entry: informal-necessity (Type 1), formal-opportunity (Type 2), informal-opportunity (Type 3), and formal-necessity (Type 4). While necessity entrepreneurship has typically been associated with low-income individuals, we propose that formal-necessity entrepreneurship may be an entry path for both low- and high-income individuals, though for different reasons. Informal opportunity entry may likewise be an option for people with low-income as well as high-income.

Keywords

Global entrepreneurship monitor, Necessity, Crisis, Opportunity, Informal entrepreneurship, Chile, Income

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