Emergence of Informal Sector Firms in International Business

Abstract

This paper highlights the emergence of Informal Sector Firms (ISFs) in international business. Due to increasing size and significance of the informal economy in the global context (particularly emerging markets), we attempt to understand the characteristics and relevance of the ISFs. The globally distributed diamond industry thrives in the atmosphere of secrecy and informality that envelops the diamond trade and has for long been labeled as an unorganized sector of the world economy. However, it resembles a close-knit community, composed of thousands of informal sector firms (ISFs) which exports cut and polished diamonds worth USD 20 billion annually while the collective output of ISFs in an emerging economy (India) enjoys a 95 percent market share of net global exports. It is suggested that due to lack of formal systems, ISFs may be largely influenced by their societal cultures which in turn plays a role in the internationalization of ISFs.