Informal entrepreneurs and formalisation: insights from a role identity transition lens

Dr Manto Gotsi from the Department of Management is exploring the barriers to entrepreneurship in developing economies. She explains her findings from research into the formalisation of waste pickers in Cali, Colombia.Entrepreneurship in Colombia

Entrepreneurial development is viewed as an engine for economic growth in developing economies. However, these same economies are faced with high numbers of informal entrepreneurs: choosing entrepreneurship out of necessity rather than opportunity, these individuals operate on a small scale, are low-skilled and often marginalised.

In many developing economies, informal entrepreneurship, that is, monetary transactions not declared to the state for tax benefit and/or labour law purposes, but which are legal in all other respects, accounts for up to 60% of GDP. Informal entrepreneurs are viewed as unfair competition to formalised entrepreneurs, with the risk of stifling economic growth. These workers also face a lack of protection and are at risk of exploitation, since they are operating outside of the law.

However, despite growing efforts to influence formalisation, informal entrepreneurs are exceptionally persistent. Alongside my colleagues Dr Maria Granados and Dr Ainurul Rosli, I wanted to find out why this is the case.

This missing micro focus

Prior to our research, studies on formalisation have focused predominantly on institutions; aiming to stimulate entrepreneurs to formalise through direct controls on their actions, alongside education and appeals to raise awareness of the benefits for the individual.

Formalisation has typically been conceived of as a destination rather than a journey (Burton, Sørensen and Dobrev, 2016). We took an alternative view, understanding the process as a continuum, whereby an informal entrepreneur undergoes a role identity transition.

For this transition to take place, an individual must adopt new skills, attitudes, behaviour and patterns of interpersonal interactions, while maintaining some sense of self-continuity. They may require external resource and validation from their peers in order to legitimize their position. A successful role identity transition will result in internalization of this new identity; an alternative outcome is role abandonment.

Our research

Our research took us to Cali, Colombia, where informal waste pickers have been carrying out recycling activities for over one hundred years. For the past thirty, they’ve been relying on the Navarro landfill; collecting recyclable materials to transport and sell to intermediary informal warehouses. When Navarro was closed due to environmental concerns, a new law prohibited waste pickers from working in sanitary landfills and from recuperating recyclables from trash bags and transporting them in non-motorized vehicles. Following an intervention from CIVISOL Foundation, the Colombian Constitutional Court recognized the marginalized status of these waste pickers and granted them formal entrepreneur status.

Surprisingly, despite this change in the law, by no means all waste pickers became and stayed formal entrepreneurs. Some became paid workers instead of entrepreneurs, while others chose to continue as renegades outside of the system. There was also evidence of individuals moving back and forth between these options, with many entry and exit points on the road to formal entrepreneurship.

Through our interviews with waste pickers in Cali, we found that those who had successfully transitioned to formal entrepreneurs in what we see as a ‘virtuous cycle’ had in common a high sense of calling that enabled them to adopt the formal entrepreneurial identity. In addition, they were comparatively less concerned about receiving validation from their peers and wider society.

Those who became renegade waste pickers also did not feel a strong need for external recognition, however they didn’t feel the same calling, so didn’t adopt the formal entrepreneur identity. Similarly, although those who became paid workers had access to information and resources, they couldn’t see themselves in the role of formal entrepreneur.

How to encourage virtuous cycles

Our research tells us that granting formal status to marginalized workers is necessary, but not sufficient for sustained formalisation. It is essential to take into consideration the norms, values, beliefs and struggles of informal entrepreneurs, and encourage role identity development through information initiatives and social network support. People who felt a calling and could visualise themselves in the role were more likely to remain in formalised status.

In order to create more external support, there should also be campaigns to motivate local government, local business communities and broader civil society to recognize and support the formalisation journey.

All this needs to take place before, during and after role transition to ensure more people stay in formalised roles.

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Unpacking the Triple Helix: Universities, industry and government

This blog was contributed by Helen Lawton Smith, Professor of Entrepreneurship, Director, Centre for Innovation Management Research, Department of Management, Birkbeck.

Nearly 300 people — academics, policymakers and business practitioners — from 35 countries attended the beginning of the 2013 Triple Helix International Conference yesterday.

Why did they travel from across the globe to the three-day event hosted in Bloomsbury by the Big Innovation Centre, Birkbeck and UCL?

The first answer is that they came to be part of the debate on the conference theme: The triple helix in a context of global change: continuing, mutating or unravelling? The conference engages with the challenges for each of the three component spheres, of the triple helix model — universities, industry and government — as they co-innovate to solve global economic and social challenges. Discussions focused on  different contexts and ways of building an ‘enterprising state.’

The second is that they came to network. This is the best bit of every conference. Who knows who you will sit next to on the river cruise, at the dinner at Lincoln’s Inn or in a parallel session or workshop?

The third answer is that they came to hear outstanding speakers. They came to listen to the originators of the Triple Helix metaphor, Henry Etzkowitz and Loet Leydesdorff, and David Willetts, Minister of State for Universities and Science, and Will Hutton, the political economist and writer. They also wanted to hear from other distinguished keynote speakers from high-profile organisations, including the European Commission, the OECD, Unilever, EDF, GlaxoSmithKline,  about the relevance of the triple helix model to their thinking and practice.

What three things will they have learned?

1.That the triple helix model is continuing to be central to the economic, social and technology policy agenda in many countries of the world, such as Brazil and Russia, and to international bodies, such as the European Commission’s Europe 2020 Smart Specialisation agenda. Alongside this is an increasing interest in how the impact of actions which follow from the agenda can be mapped, measured and evaluated in order to identify baselines for policy decisions.

2.That the model is not so much mutating but changing the forms it takes in the relationships between actors. Its inter-relationships are key to businesses, such as Unilever. In the cloud industry the basis of innovation in the market place is changing and requires a ‘convergence of capabilities’.  Whether this counts as ‘open innovation’ is a debate that will continue long after this conference. An emphasis on the broader role of universities in the economy includes employability, an agenda which links all three of the spheres. This can take the form of entrepreneurship education, both formal through teaching programmes and through student and alumni support such as Birkbeck’s Enterprise Hub, and the mentoring programmes organised by Birkbeck’s Entrepreneur-in-Residence, Andrew Atter,  based in the Centre for Innovation Management Research in the School of Business, Economics and Informatics.  Professor David Latchman, Birkbeck’s Master, is himself an entrepreneur and believes that there should be more entrepreneurship.

Changing forms present challenges including the ever-present need for finance for entrepreneurs and innovation, and for universities to maintain their standards and diversify their activities to be more responsive to society’s needs.

3.The triple helix model is also a political agenda. It takes a variety of meanings depending on context for each of the three spheres in an uncertain world, nationally, regionally and locally. Whether the model will unravel will depend on how mismatches between the institutional arrangements in each of the three spheres are resolved. The coordination problems are considerable.  Moreover, it is an issue of prioritisation. How the different stakeholder interests fit with the increasing pressures on universities to recruit students and  enhance their learning experiences is a question yet to be answered.

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Entrepreneurship in London’s Universities

This Thursday 28 June, as part of the School of Business, Economics and Informatics‘ annual Business Week, Professor Helen Lawton Smith will be holding an event on entrepreneurship.  Prior to the event, Professor Lawton Smith explained to us how university spin-offs in London are faring.

The Coalition government has recognised, in policy announcements and ministerial speeches, that the creation of new jobs and economic growth is key to the recovery of the UK economy. In both the UK and the USA, studies have shown that it is new companies, rather than established firms, which are leading the creation of new employment opportunities.

Universities, with their wealth of knowledge and highly skilled staff, have a lot of potential for commercialising their research through spin-offs. What’s more, London, a global city and home to 42 universities, offers an attractive environment in which to launch new spin-offs. Metropolitan regions, such as London, offer many advantages to the new spin-off: they attract a highly skilled workforce, the high concentration of large and international companies means there is a market for products commercialised by universities, and they provide resources in the form of services companies (offering technical, commercial and marketing know-how), physical infrastructure and strong telecommunications networks. Given that any fresh young company needs a market, a talent pool, and access to financial resources, London appears to be a highly attractive location.

However, Lawton Smith explains, one important factor for new companies is the support of regional knowledge networks. In large cities, including London, although resources may be available they tend to be accessed less by spin-offs than in other regions of the UK. Lawton Smith explains that, despite its obvious advantages, London’s ‘entrepreneurial system’ (networks, research universities, professional services and skilled labour) was not well developed, even by the mid-2000s. It seems that during this period, most London universities were not embedded in any networks, possibly, suggests Lawton Smith, due to the sheer quantity of organisations involved in London’s financial community. In smaller regions these sorts of networks may be more transparent, and easier to tap into.

This situation is beginning to change. Imperial College has launched a £300 million venture fund – Imperial Innovations – which was listed on the AIM stock exchange in 2006. Imperial Innovations, which already has equity holdings in 80 companies, is now looking to invest in other universities’ spin-offs.

Other promising advances include the London Development Agency’s (LDA) commitment in 2005 to improve the infrastructure to support university spin-offs in the capital; London’s Science and Industry Council now brings together players from industry, academia, finance and the public sector to promote London’s strengths in science, technology and design to a national and international audience; the London Economic Partnership (LEP), established in 2011 will be taking a broader approach to supporting innovation and enterprise; and the Regional Growth Fund (2011 – 2014) is also being directed towards support for entrepreneurs.

It is too early to tell whether these changes will have an effect on the number of university spin-offs which chose to launch and remain in London.  Currently more than a third of London university spin-offs leave London at start-up or a later date. Lawton Smith explains: “Applications of technological advances may take place outside London because of problems of supporting spin-off growth within the city. The regional impact of university spin-offs extends well beyond the metropolitan region.” Indeed, a map showing the location of registered offices of London university spin-offs shows that they are spread well beyond the capital.

In London, as across most of the UK, the number of university spin-offs has been increasing since 1997, and survival rates are increasing. However, the majority remain small. Indeed, 90% are micro enterprises or small enterprises (defined as having less than ten, or between 11 and 50 employees, respectively). In London spin-offs the average number of people per company is 12.7.  Lawton Smith argues that we cannot judge the success of these spin-offs solely on their size. She explains: “There may well be an optimal size of firm for certain types of activity, such as in the creative industries sector. To assess the value of these companies by measuring employment misses their value based on other criteria, such as technological advances.”

However, other success measures aside, if university spin-offs are to play a part in the UK’s economic recovery, the Government’s primary interest lies in their ability to create employment, and it seems that here university spin-offs do not compare favourably with corporate spin-offs, which expand at ten times the rate of their university counterparts.

Looking at the chemical sector (which has the third highest concentration of university spin-offs in the UK after pharmaceuticals and biotechnology, and software and computer services) Lawton Smith suggests that, “many spin-offs are launched as a vehicle on which to focus further research, rather than genuine attempts to set up spin-out companies which take invention to full commercialisation.”  Many of the companies which the Royal Society of Chemists looked at in a 2006 study were based on a single idea or patent, which meant that they had little hope of long-term viability.

Although few of the older spin-offs have reached a substantial size, the Lawton Smith et al study showed that those spin-offs which have shown the highest growth have been those with the most recent origin. 60% of those which achieve high growth do so within five years of incorporation. These companies are known as ‘Gazelles’. Despite this, only a small proportion of the 244 firms identified from 12 London universities in Lawton Smith’s et al’s study achieved high growth.

Although it is clear that there are areas where London’s universities could do more to support spin-offs, and that the capital offers challenges, as well as opportunities, to new companies, Lawton Smith says that there is positive news. High growth university spin-offs outperform other high growth firms by 0.8%. And survival rates are high, particularly for staff start-ups (using IP from the university but without university funding or support).

Lawton Smith concludes: “If the Government, LDA and LEP are truly dedicated to supporting innovation and entrepreneurship in London, then all the evidence shows that they need to provide sustained capacity building for dedicated entrepreneurial support systems. The advantages of co-location with the originating university will be outweighed by the disadvantages of a lack of accessible premises, networks and professional service firms unless the Government can meet the challenges it faces in this area.

“On a positive note, although small in size, London’s recent university spin-offs are showing strong growth and high survival rates. There are some grounds for believing that the future holds prospects for a greater impact of spin-offs on employment.”


This article was based on the research findings in the following papers:

London Higher Study Investigating Spin-offs in Science, Engineering and the Creative Arts among 12 higher education institutions in London by Helen Lawton Smith (Birkbeck), Dave Chapman (UCL) Peter Reid (LTN) Tim Barnes (Lodestone), Peter Wood (UCL), Saverio Romeo (Birkbeck) (March 2007)

Funded by London Higher.


Chapman, D, Lawton Smith, H, Wood, P Barnes, T and Romeo, S (2011) Entrepreneurial Academics and Regional Economic Development: the case of spinoffs from London’s Universities, Industry and Higher Education 25, 6 483-492

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