Latin American governments have launched different initiatives to promote the formalization of over 130 million estimated jobs in the informal sector, hoping in that way to improve both working conditions and tax collection. However, much of this well-meaning effort could be in vain if the social motivations behind the informal sector are not taken into account.

This is one of the findings of our research, in which we used unstructured interviews, questionnaires, and multivariate analysis to study the motivations of street vendors in Mexico City, regarding whether they remain in the informal sector or move into the formal sector.

In the article “Mexico City Street Vendors and the Stickiness of Institutional Contexts:  Implications for Strategy in Emerging Markets” we apply the concept of “stickiness” to different institutional contexts to explain the reluctance or slowness to move from the informal to the formal sector; we found greater than anticipated “stickiness” in the informal sector, which challenges common suppositions about growth and development in emerging markets.

Strategy in emerging markets is often based on assuming that the middle class is going to grow, following a logic and trajectory witnessed in more developed markets, but this paper on street vendors finds that not everyone buys into the middle-class dream, and social reasons can trump strictly economic motivations.

The study offers three main conclusions:

• A large number of street vendors prefer the grind of illegal street vending for micro-level social reasons—working with family members and having greater autonomy, among others—to the relative comfort of a job in the formal sector and the associated economic benefits.
• A significant number of street vendors assign a material positive monetary value to the non-economic net advantages of street vending over a formal wage job. In other words, they would not move into the formal sector for a similar wage but would require a higher wage to make up for these non-economic advantages lost by moving out of street vending.
• Street vendors who could move more easily to the formal sector, younger, better-educated people, are more likely to remain in the informal sector because they value their autonomy more and demand higher compensation to offset the loss of non-economic advantages.

International business research makes rational, linear assumptions about a customary narrative that underpins strategy in emerging markets: continued middle-class growth. But as uncovered in this paper, macro-level assumptions about institutional context, based mostly on economic rather than social motivations, may result in an incomplete view of institutional context.

Ultimately, organizations should take these findings into account and adapt their strategy in emerging markets to local variations.

Latin American governments have launched different initiatives to promote the formalization of over 130 million estimated jobs in the informal sector, hoping in that way to improve both working conditions and tax collection. However, much of this well-meaning effort could be in vain if the social motivations behind the informal sector are not taken into account.

This is one of the findings of our research, in which we used unstructured interviews, questionnaires, and multivariate analysis to study the motivations of street vendors in Mexico City, regarding whether they remain in the informal sector or move into the formal sector.

In the article “Mexico City Street Vendors and the Stickiness of Institutional Contexts:  Implications for Strategy in Emerging Markets” we apply the concept of “stickiness” to different institutional contexts to explain the reluctance or slowness to move from the informal to the formal sector; we found greater than anticipated “stickiness” in the informal sector, which challenges common suppositions about growth and development in emerging markets.

Strategy in emerging markets is often based on assuming that the middle class is going to grow, following a logic and trajectory witnessed in more developed markets, but this paper on street vendors finds that not everyone buys into the middle-class dream, and social reasons can trump strictly economic motivations.

The study offers three main conclusions:

• A large number of street vendors prefer the grind of illegal street vending for micro-level social reasons—working with family members and having greater autonomy, among others—to the relative comfort of a job in the formal sector and the associated economic benefits.
• A significant number of street vendors assign a material positive monetary value to the non-economic net advantages of street vending over a formal wage job. In other words, they would not move into the formal sector for a similar wage but would require a higher wage to make up for these non-economic advantages lost by moving out of street vending.
• Street vendors who could move more easily to the formal sector, younger, better-educated people, are more likely to remain in the informal sector because they value their autonomy more and demand higher compensation to offset the loss of non-economic advantages.

International business research makes rational, linear assumptions about a customary narrative that underpins strategy in emerging markets: continued middle-class growth. But as uncovered in this paper, macro-level assumptions about institutional context, based mostly on economic rather than social motivations, may result in an incomplete view of institutional context.

Ultimately, organizations should take these findings into account and adapt their strategy in emerging markets to local variations.