Study and Workshop to Understand the Role of Digital Connectivity in the Formalization Process of Informal Businesses
Flores, A., Heredia, J., & Rubiños, C. (2025). Study and Workshop to Understand the Role of Digital Connectivity in the Formalization Process of Informal Businesses. APEC Small and Medium Enterprises Working Group. https://cechap.up.edu.pe/wp-content/uploads/225_sme_role-of-digital-connectivity-in-the-formalization-process-of-informal-businesses.pdf
The formalization of businesses operating informally has garnered considerable attention in academic, political, and governmental spheres. Economic informality, with its significant impact on production, poses complex and multidisciplinary challenges. On the other hand, the evolution of business activities in a 5G environment, increased access to the internet, proliferation of artificial intelligence, and greater digital inclusion in social, financial, and governmental domains have transformed the way business is conducted globally, in both developed and developing economies.
Despite this evident business development and growth, there is no objective evidence on how companies transition from informal to formal status, and on what role digital transformation plays in various economies.
This study addresses the following question: What is the mechanism by which digital transformation can affect and promote business formalization? It also aims to provide a framework for the formulation of public policy guidelines aimed at promoting business formalization in Asia-Pacific Economic Cooperation (APEC) economies.
To this end, we conducted a survey of small and medium-sized enterprises. In addition, we employed a mixed methodological approach using (i) partial least-squares structural equation modeling (PLS-SEM) and (ii) content analysis of semi-structured interviews, from a strategic tripod perspective (taking into account Resources and Capacities, Industry, and Institutions variables).
The findings show that digitalization has the potential to influence business formalization positively, primarily through heightened productivity and business motivation. In addition, increased e-government services and the mitigation of institutional voids were seen to contribute to this formalization process. The study underscores a direct and favorable correlation between digital transformation and both productivity and business motivation. This connection is further emphasized by enhancements in public service provision and the government’s capacity to regulate businesses, which in turn boosts formalization. Notably, the variable of business cooperation does not exhibit a significant impact on formalization. It is also important to note that the results demonstrate contextual variations.
