'S Informal Economy: Schumpeter 1934 Kirzner 1974 1997

Journal of Developmental Entrepreneurship
Vol. 22, No. 1 (2017) 1750007 (22 pages)

World Scientic Publishing Company
DOI: 10.1142/S1084946717500078
THE PERFORMANCE OF SUBSISTENCE ENTREPRENEURS

IN TANZANIAS INFORMAL ECONOMY
EMIEL L. EIJDENBERG*
Institute of Marketing and Management
Department of Management, esp. Corporate Sustainability
J. Dev. Entrepreneurship Downloaded from www.worldscientific.com
by IOWA STATE UNIVERSITY on 04/17/17. For personal use only.
University of Hohenheim
Schloss Osthof-Ost 570 G
Schwerzstrae 42, 70599 Stuttgart, Germany
el.eijdenberg@uni-hohenheim.de
KATHRIN BORNER
Institute of Marketing and Management
Department of Management, esp. Corporate Sustainability
University of Hohenheim, Schloss Osthof-Ost 570 G
Schwerzstrae 42, 70599 Stuttgart, Germany
Received November 2016

Revised February 2017
Published April 2017
Many scholars have found difculties with the applicability of Western entrepreneurship typologies in
non-Western contexts. Hence, this paper takes a step back by revealing what does apply as opposed
to what does not apply. First, this paper investigates what the performance of subsistence entrepre-
neurs in Tanzanias informal economy consists of. Second, it examines which demographic and social
factors predict that performance. Based on a literature review and a pre-study, a main study with
questionnaires was completed by 152 informal food vendors that is, subsistence entrepreneurs, in
southern Tanzania. Next, correlation, factor, reliability and regression analyses were performed to test
the hypotheses. Based on a factor analysis, a distinction is made between basic performance and
advanced performance. The results show that advanced performance is positively inuenced by
experience and age; but other factors, such as the subsistence entrepreneurs gender, education and
support from family, have no effect.
Keywords: Small business; entrepreneurship; personal wealth; Africa.
1. Introduction
Although entrepreneurs often are perceived as economic actors and their operations as the
drivers of economic development (Schumpeter, 1934; Kirzner, 1974, 1997), still much of
this development occurs in the informal economy. The informal economy contributes a
large share to the Gross Domestic Product (GDP) in Sub-Saharan Africa (Schneider, 2002;

Corresponding author.
1750007-1
E. L. Eijdenberg & K. Borner
International Labour Organization, 2002), which is the region with the majority of the
worlds Least Developed Countries (LDCs) (United Nations, 2016). Approximately 72
percent of the GDP in North and Sub-Saharan Africa has its roots in the informal economy
(International Labour Organization, 2002). From the 48 LDCs in total, 34 are on the
African continent (United Nations, 2016). Therefore, it makes sense to assume that a large
group of entrepreneurs the so-called subsistence entrepreneurs operate in the
informal economy. These individuals run one or multiple micro and small enterprises
(MSEs) to survive.
The informal economy has received increasingly more attention in the last few years
(e.g., De Castro et al., 2008; Webb et al., 2009). However, still a large gap exists between
the signicant importance of the informal economy to commerce around the world and the
small amount of informal economy research with which entrepreneurship and strategic
management scholars have been involved (Webb et al., 2014). Given the girth of the
informal economy in African LDCs, informal entrepreneurship is one of the means used to
ght poverty because it affects economic performance at all levels of society (see, for
example, Cragg and King, 1988). In addition to the rm and environmental levels, the
individual level is important to investigate to make a possible change, because knowing
the individual aspects that determine subsistence entrepreneurs performance helps us
develop better theoretical and practical implications accordingly.
In the literature, the performance of entrepreneurs in African LDCs is debated fre-
quently. All sorts of performance determinants have been revealed that stem from the
individual, rm and environment levels (see, for example, Hernndez et al., 2007; Nichter
and Goldmark, 2005, 2009). However, many of these studies are quite unequivocal
concerning their units of analysis (i.e., [the type of] respondents who are subjects of the
study). Sometimes they involve the owner-managers of MSEs, which are generally one-
person operations, poorly managed, sometimes temporary, less productive, and under-
capitalized (Kiggundu, 2002); and sometimes they involve the owner-managers of small
and medium-sized enterprises (SMEs), which are generally more formal, larger and better
organized than MSEs. However, although the literature might prescribe clear descriptions
of both types of businesses, collecting data in contexts such as African LDCs is difcult
(Kolk and Van Tulder, 2010; Kriauciunas et al., 2011). Once on location, researchers nd
out there is no clear-cut borderline between the formal (i.e., usually more SMEs than
MSEs) and informal economy (i.e., usually more MSEs than SMEs), and many subsis-
tence entrepreneurs seem to operate exactly on that borderline. Additionally, certain ty-
pologies from Western1 literature have recently been applied in the African LDC context,
such as entrepreneurial motivation (e.g., Eijdenberg and Masurel, 2013; Eijdenberg et al.,
2015) and entrepreneurial orientation (Eijdenberg, 2016; Frese et al., 2002). Up to now,
the applicability of these Western typologies in the African LDC context has proven
debatable. Besides the mentioned difculty with collecting data in African LDCs, other
1
In this paper, the term Western refers to the developed, industrialized countries, such as countries from
Western Europe, the United States, or highly developed Asian countries (e.g., Japan, Singapore, South Korea). As
opposed to Western, non-Western refers to the less developed countries, such as Tanzania, which is an LDC
on the African continent.
1750007-2
The Performance of Subsistence Entrepreneurs in Tanzanias Informal Economy
possible reasons why research on entrepreneurship in the informal economy is largely

absent could be the lack of success stories and examples of top performers (Bureau and
Fendt, 2011; Khavul et al., 2009; Webb et al., 2009, 2014). Also, Africas GDP contri-
bution to the world, which amounts only to 0.6 percent despite the fact that Africans make
up 11.2 percent of the worlds population (Cuervo-Cazurra and Genc, 2008), might be
considered by scholars as not worth paying attention to.
Given the ambiguity in the units of analysis and the (non)applicability of Western
typologies in the context of African LDCs, a research gap can be identied. What has
largely been ignored in the literature is taking the scholars and practitioners by the hand
and bringing them back to (1) one very typical, homogeneous group of subsistence
entrepreneurs in the informal economy of an African LDC and (2) unraveling the possible
determinants of their performance as indicated by the subsistence entrepreneurs com-
munity in the African LDC. In the current study, this brings us to (1) the informal
economy in southern Tanzania, an East African LDC and (2) the demographic and social
factors of the subsistence entrepreneurs in that informal economy (the importance of these
two types of factors are discussed extensively in the next section). The following research
question (RQ) will be answered based on an empirical study: To what extent do demo-
graphic and social factors inuence the performance of subsistence entrepreneurs in the
informal economy of Tanzania?
This paper focuses on a unique group of 152 subsistence entrepreneurs in an East
African LDC: the informal food vendors in southern Tanzania. To detect which from the
above briey described demographic and social factors inuence the performance of the
subsistence entrepreneurs in Tanzania, ve hypotheses are developed in the next section,
which is the Literature review. Subsequently, there is a section on the methodologies
applied in this study. After a description of the methods used, the hypotheses are tested
based on different analyses in the Results section. The paper closes with a discussion and a
conclusion.
2. Literature Review
2.1. Context of the study: Tanzania, one of the East African LDCs
In Sub-Saharan Africa, most countries have experienced increased poverty in the last 30
years (Collier, 2008). Generally, African countries (from which the majority are LDCs) are
distinguished by a lack of infrastructure, great poverty, relatively low life expectancy and
government and market failure (Organization for Economic Co-operation and Develop-
ment, 2016; Rivera-Santos et al., 2015). These resource-constrained LDC economies pave
the way for low market entry and exit barriers (Khavul et al., 2009), which is a circum-
stance that creates opportunities for creative and innovative entrepreneurs (Rivera-Santos
et al., 2015). Within Africa, the East African Community (EAC) an intergovernmental
organization enabling free movement of goods, people, labor, services and capital with the
aim of economic development (East African Community, 2016) is one of the fastest
growing regions, with an average growth rate of 6.3 percent in 2015 (East African
Community, 2016; Organization for Economic Co-operation and Development, 2016).
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Member states of the EAC are Burundi, Kenya, Rwanda, Tanzania and Uganda. One of
the worlds recently formed countries, South Sudan, entered the EAC on April 15, 2016
(East African Community, 2016). Within the EAC, the largest economic powers are
Kenya, Tanzania and Uganda (Gigineishvili et al., 2014).
Tanzanias population involves more than 53 million people, of which 68 percent live
below the poverty line (Central Intelligence Agency, 2016; World Bank, 2016). Between
1985 and 2014, Tanzanias Human Development Index increased from 0.371 to 0.521, and
life expectancy and expected years of schooling increased while, at the same time, infant
mortality decreased (Organization for Economic Co-operation and Development, 2016).
More than 60 percent of the population is 24 years old or younger, with a median age of
17.5 and a population growth rate of 2.8 percent (Central Intelligence Agency, 2016).
Although the majority of children have access to primary school, higher level education is
generally not accessible for many people (Lyatuu et al., 2015).
2.2. Subsistence entrepreneurs and the informal economy

Richard Cantillon (1755) shaped entrepreneurship as a research eld by discovering that
small innovations were made by entrepreneurs on the supply side to determine prices.
According to Schumpeter (1934), entrepreneurs are the key gure in the economy and
have the ability to create Schopferische Zerst orung that is, creative destruction: they
force innovations and can create growth. Entrepreneurs are characterized as dealing with
high uncertainties and risks as well as being opportunistic, proactive, self-motivated and
innovative (Burns, 2010). Among other classications, entrepreneurs can be divided into
four types: whereas the hero entrepreneurs create personal and simultaneously economic
wealth for society, robber enterprises develop only personal prosperity, catalyst
enterprises push societal progress by introducing new ideas and failed enterprises
contribute neither to personal nor economic wealth (Davidsson and Wiklund, 2001).
Sometimes entrepreneurs simply happen to solve challenges in their close environment
(Rindova et al., 2009), and this is most likely where the subsistence entrepreneurs tap in.
Entrepreneurship is not limited to Western countries; it also plays an important role in
countries such as those in Africa (Koveos, 2014), where subsistence entrepreneurs are
mainly the owner-managers of MSEs. MSEs mainly operate in the informal economy,
where they sell everyday goods and strongly rely on relationships to family, vendors and
customers (Khavul et al., 2009; Organization for Economic Co-operation and Develop-
ment, 2005; Viswanathan et al., 2014). The informal economy involves the paid pro-
duction and sale of goods and services that are legitimate in all respects besides the
fact they are unregistered by, or hidden from the state for tax and/or benet purposes
(Williams and Nadin, 2010). Frequently seen as the forlorn hope, MSEs are helping the
poor to help themselves (Ssendi and Anderson, 2009); they generate income and em-
ployment, increase diversity in the industry sector and contribute to the development of the
private sector toward a market economy. The informal economy consists of businesses that
are unregistered, untaxed and unregulated (Spring, 2009; Williams and Nadin, 2010).
Moreover, property rights are rarely determined; and laws, courts and rules largely do not
1750007-4
exist (Webb et al., 2014). Also, formal contracts seem non-essential; instead, informal
norms play a crucial role (Williams and Vorley, 2015), which are unspoken, adjustable and
adhered to between individuals (Bureau and Fendt, 2011; Viswanathan et al., 2014). The
informal economy clearly differs from the illegal economy. Williams and Nadin (2010)
describe the only illegal activities within the informal economy as transactions that are
not declared to the authorities when they should be declared. A business in the informal
economy can be started at any time because there is no administrative paperwork to
complete (Mfaume and Leonard, 2004; Otoo et al., 2012). Additionally, only little start-up
capital is needed, which is important for subsistence entrepreneurs because they usually do
not have access to capital through the formal channels (Otoo et al., 2012). Instead, they
depend on their own savings, or on their relatives and friends from their personal network
(Spring, 2009).
Nevertheless, in East African LDCs such as Tanzania, the informal economy is ideal
for offering people in resource-constrained environments employment, income at a low
organizational level and small-scale production with little or no differentiation between the
input factors of capital and labor (International Labour Organization, 1993). Hence, the
informal economy has created many new jobs over the past few years and serves as a last
resort in times of economic recession (Bureau and Fendt, 2011; Lyons et al., 2014). These
are reasons enough that the informal economy counts about 2.47 billion people, on a
global scale, who live under extreme poverty conditions and earn less than two U.S.
dollars per day (Bruton et al., 2013; Viswanathan et al., 2014).
2.3. Subsistence entrepreneurs characteristics

The subsistence entrepreneurs characteristics shape their decision making, which highly
inuences the strategies of the MSEs and consequently their entrepreneurial success
(Baluku et al., 2016; Baum et al., 2001). Investigating demographic and other social
factors helps to understand the performance of these subsistence entrepreneurs (Gedajlovic
et al., 2013). This section discusses the demographic factors in terms of gender and age as
well as other social factors, namely education, experience and family support in terms of
providing nance and new customers. Based on the literature review, ve hypotheses are
developed.
2.3.1. Demographic factors: Gender and age

Gender is one of the most prominent demographic factors to research. In general, much of
the literature agrees upon the phenomenon that female entrepreneurs show a lower level of
performance than their male counterparts do (e.g., Lee and Marvel, 2014; Lyons et al.,
2014; Marlow and McAdam, 2013; Morris et al., 2006). Nevertheless, women can con-
tribute signicantly to a countrys economic development and poverty reduction because
they invest their income most likely in food, clothing and the education of their children
(Hahn and Zamantili Nayir, 2013).
On one hand, external explanatory approaches point to differences in rms available
resources, location and sector choice being responsible for the performance differences
1750007-5
(see, for example, Lee and Marvel, 2014). Women have less access to employment
opportunities and nancing options than men in Sub-Saharan Africa (Aterido et al., 2013;
Carter et al., 2007; Ssendi and Anderson, 2009). In addition, women focus more on low-
prot sectors and are particularly familiar with sectors such as food, while men mainly
operate in industries with potentially high margins (Lee and Marvel, 2014; Morris et al.,
2006; Smith, 2009).
On the other hand, internal explanatory approaches indicate personal characteristics as
being responsible for the performance differences; women often focus on non-economic
goals and might have fewer entrepreneurial qualications (see, for example, Dobbs and
Hamilton, 2007; Lee and Marvel, 2014; Marlow and McAdam, 2013; Morris et al., 2006).
Many women have less start-up and management experience compared to men (Morris
et al., 2006) and show less exibility. Consequently, they react less to changes, which may
restrict their business (Smith, 2009). Furthermore, women often act risk-averse; mainly
operate within small enterprises (Aterido et al., 2013); exploit fewer opportunities
(Marlow and McAdam, 2013; Smith, 2009); and target lower growth rates than their male
counterparts, who focus more on nancial success (Lee and Marvel, 2014; Morris et al.,
2006). In sum, previous research suggests developing the hypothesis on gender as follows:
Hypothesis 1 (H1): Female subsistence entrepreneurs show a lower level of performance
than their male counterparts do in the informal economy of Tanzania.
The age of the (subsistence) entrepreneur is the second most important demographic
factor. A number of scholars have found that younger entrepreneurs are more successful
than their older counterparts because of higher overall motivation, willingness to work
overtime (Levesque and Minniti, 2006), pursuance of protability goals (Gorgievski et al.,
2011) and more opportunity exploitation (Gielnik et al., 2012). However, others claim that
older entrepreneurs must be more successful because they have accumulated more capital,
more experience (Isaga, 2015) and more skills (Headd, 2003). Combining these two
observations, Verheul and Van Stel (2010) nd that older entrepreneurs are more suc-
cessful in less developed countries while younger entrepreneurs show higher performance
levels in higher developed countries. However, a few other studies have revealed that age
does not directly impact performance (see, for example, Bosma et al., 2004) or that
middle-aged entrepreneurs, as a specic group, tend to be the most successful ones
(Kiggundu, 2002). Nevertheless, it is widely assumed and conrmed that older entre-
preneurs in LDCs have overall performance advantages compared to younger ones
(Nichter and Goldmark, 2009), which leads to the following hypothesis:
Hypothesis 2 (H2): Older subsistence entrepreneurs show a higher performance level than
their younger counterparts do in the informal economy of Tanzania.
2.3.2. Social factors: Education, experience and support from the family
Human capital is knowledge embodied in people (Becker et al., 1994). Knowledge is a
result of formal education (e.g., school), informal education (e.g., practical experience),
1750007-6
non-formal education (e.g., training courses for adults) (Davidsson and Honig, 2003),
or experience (Bosma et al., 2004; Otoo et al., 2012; Rauch and Rijsdijk, 2013).
Knowledge is crucial for discovering opportunities (Shane, 2000) and it can lead to higher
productivity or more innovations. Thus, knowledge can increase the performance of
entrepreneurs (Adusei, 2016; Becker et al., 1994; Dobbs and Hamilton, 2007).
The rst-mentioned element of knowledge education (whether formal, informal, or
non-formal) improves the individuals abilities to nd solutions that may lead to more
exible reactions to change (Rauch and Rijsdijk, 2013). It enlarges the individuals skills,
knowledge and work quality; consequently, it improves products, prots, competitiveness,
market share and overall business performance (see, for example, Baker and Sinkula,
2009; Naud et al., 2008). For entrepreneurs in many of the LDCs in Sub-Saharan Africa,
education can show the way out of poverty (Batana, 2013). Therefore, regarding subsis-
tence entrepreneurs in East African LDCs, the following hypothesis is developed:

Hypothesis 3 (H3): More highly educated subsistence entrepreneurs show a higher level of
performance than their less educated counterparts do in the informal economy of Tanzania.
The second-mentioned element of knowledge experience includes self-experience
in starting up, managing, or experience in owning a business within the (extended) family.
Experience can enlarge ones personal network and increase ones skills and knowledge
(Brderl et al., 1992; Dobbs and Hamilton, 2007; Rauch and Rijsdijk, 2013). However,
not every entrepreneur learns from experience (Hmieleski and Baron, 2009; Unger et al.,
2011). Regarding subsistence entrepreneurs in East African LDCs, it can be expected that
experience coincides with age. In other words: becoming older. Therefore, older subsis-
tence entrepreneurs have gained more experience than their younger counterparts (Nichter
and Goldmark, 2009).
Among many other possible experience-related items that can predict performance, in
this study previous start-up experience, management experience (i.e., alone or in a team
within a business larger than a startup, for example an SME) and experience from business
ownership within the family are taken as the three experience-related items. The following
hypothesis is developed:
Hypothesis 4 (H4): More experienced subsistence entrepreneurs show a higher perfor-
mance level than their less experienced counterparts do in the informal economy of
Tanzania.
Another important factor besides education and experience is the subsistence entrepre-
neurs social ties: receiving opportunities through friends, colleagues and general con-
tacts. . .to use his or her nancial and human capital (Burt, 1995). In other words, social
ties comprise a network of relationships in which members support each other and the
family is the main source of support outside the professional domain (Edelman et al.,
2016). These networks can increase the efciency of small businesses (Sigu, 2012), such
as in the case of subsistence entrepreneurs in East African LDCs, who operate in a
resource-constrained environment with a weak nancial sector and institutional and or-
ganizational systems (Khavul et al., 2009; Khayesi et al., 2014; Koveos and Randhawa,
1750007-7
2004; Temu and Due, 2000). Besides being of immeasurable nancial value (Viswanathan
et al., 2014), the extended family functions as a safety net for its members (Adler and
Kwon, 2002; Khavul et al., 2009). Extended families in East African LDCs compared to
Western families are usually larger and offer more privileges for their members. Therefore,
the network-effect is very prominent in the extended families in East African LDCs;
family members can help each other by providing and sharing properties and resources as
well as customers if they are not too competitively aggressive with each other and work
together instead (Eijdenberg, 2016; Khayesi et al., 2014; Smith, 2009).
Among other possible family-related items that can predict performance, this study
focuses on the familys support in terms of nance and the provision of customers and the
following hypothesis is developed:
Hypothesis 5 (H5): Support from family is related positively to the performance of sub-
sistence entrepreneurs in the informal economy of Tanzania.
Despite many potential benets, there are also negative aspects to social ties: having strong
ties might be inefcient when more time is needed to complete tasks (Adler and Kwon,
2002). Furthermore, the maintenance of relationships requires investments that cannot be
refunded (Khayesi et al., 2014). Moreover, sharing resources, such as potential customers,
within a network can encourage free riding, which can reduce the individuals work
motivation and input, consequently decreasing performance (Adler and Kwon, 2002).
2.4. Measuring performance

To determine the impact of demographic and social factors on the performance of sub-
sistence entrepreneurs, it is important to use the appropriate measures. The performance of
subsistence entrepreneurs in East African LDCs may be difcult to capture with monetary
measures (Amolo and Migiro, 2014). Also, there may be difculties with rm-level
measures frequently used in Western countries, such as sales, growth rate, prot margin,
the number of innovations, product quality, or product range (see, for example, Wiklund
and Shepherd, 2003). Many subsistence entrepreneurs do not keep track of their accounts
or, if they do, it is on a low-quality basis, which makes it difcult for researchers to assess
their performance (Batana, 2013; Young, 2012). Therefore, certain proxies must be used to
capture their performance on an alternative basis. A widely accepted alternative form of
measuring performance in African LDCs is the use of asset indicators (Harttgen et al.,
2013), such as the ability to obtain housing (Eijdenberg, 2016). Besides assets, consumer
durables can also be appropriate proxies for performance under extreme poverty. The
literature on development economics provides possible proxies that often are generated
based on large, national household surveys. Examples of these proxies include having a
television, radio, refrigerator, electricity for lighting and a motor scooter as well as high-
quality materials used in the home, such as the type of ooring (see, for example, Booysen
et al., 2008; Pouw and Elbers, 2012).
Because indicators from Western literature might be not an optimal solution for de-
termining the performance of subsistence entrepreneurs, this study relies on very context-
1750007-8
dependent proxies that were developed in the pre-study. These performance proxies entail
the pursuit of (life) goals in terms of, for example, income, housing, the obtainment of
education and health care (Alkire and Foster, 2011; Frese and Fay, 2001). The pre-study is
described in the next section.
3. Methodology
3.1. The pre-study
The pre-study and the main study both took place in February and March 2014. A similar
research approach was used by, amongst others in non-Western contexts: Eijdenberg et al.
(2017). Before the main study, a pre-study of 27 discussions was conducted in Iringa,
southern Tanzania. The aim of the pre-study was to develop the dependent variables (i.e.
the proxies to measure the performance) according to the context of Iringa. The inde-
pendent variables, followed from the hypotheses (e.g. age, gender, the support from the
family), were formulated as straightforward and comprehensible as possible to measure
what was supposed to be measured. The discussions were semi-structured and conducted
according to the snowball sampling technique (Saunders et al., 2009). The participants
were representatives from nancial institutions and non-governmental organizations,
academics from the University of Iringa, local government ofcials and experienced
entrepreneurs. An interpreter helped with the translation to English when the conversation
was conducted in Kiswahili. The most appropriate proxies to measure the performance of
subsistence entrepreneurs in the Iringa region were discussed with each of the participants.
These discussions led to the following four proxies for performance:
(i) How has your net income, concerning the food that you need to buy on a daily basis,
changed over the last three years of operation? (hereafter abbreviated as food);
(ii) Over the last three years, I have managed to obtain a house for myself (hereafter
abbreviated as housing);
(iii) Over the last three years, I have been able to put my children in school (hereafter
abbreviated as education); and
(iv) Over the last three years, I have managed to obtain health care for myself (hereafter
abbreviated as health care). These proxies are similar to those used in the study by
Eijdenberg (2016) which also took place in southern Tanzania.
At the end of the discussions, the participants were asked what would be the most
appropriate sample for testing the performance proxies. The participants suggested
approaching the subsistence entrepreneurs in the town center and on the outskirts of Iringa.
These subsistence entrepreneurs are mainly food vendors who sell low-priced, self-made
meals or beverages.
3.2. The main study

A paper-based questionnaire was developed and translated from English to Kiswahili.
Before the main study commenced, a pilot study with ten respondents was conducted to
1750007-9
Table 1. The questionnaire: The variable type, the number of the item (#), the item, and the scale.
Variable Type # Item Scale

Independent 1 Gender Male/female
2 Age Number
3 Highest level of education completed No education; Primary school; Junior
secondary school; Senior secondary
school; University bachelors degree;
University masters degree; Other
4 I started my business because I had the start-up Strongly disagree; Disagree; Not sure;
experience of previous businesses. Agree; Strongly agree
5 I started my business because I had management
experience in previous businesses.
6 I started my business because I had previous
experience with business ownership within
my family.
7 I started my business because my family pro-
vided me with the start-up capital.
8 I started my business because my family pro-
vided me with customers.
Dependent 9 How has your net income, concerning the daily A lot less of; A little less of; The same
food that you need to buy, changed over the amount of; A little more of; A lot
last three years of operation? (i.e., food) more of
10 Over the last three years, I have managed to
obtain a house for myself (i.e., housing)
11 Over the last three years, I have been able to put
my children in school (i.e., education)
12 Over the last three years, I have managed to
obtain health care for myself (i.e., health
care)
control for the comprehensibility of the items. The pilot study did not raise any issues
regarding miscomprehension among the respondents; therefore, it provided legitimacy
to continue with the main study. Table 1 presents the items of the questionnaire. For
item numbers 4 to 12, ve-point Likert type scales were used with ascending-order answer
possibilities (i.e., Strongly disagree/A lot less of [1] to Strongly agree/A lot more
of [5]).
The main study was conducted with 152 subsistence entrepreneurs who operate within
the informal food sector in Iringa, Tanzania. The data were collected in the town center as
well as in the area just outside town around the Ipogolo bus station along the A104 road.
During the data collection, it was conrmed that each respondent was the owner-manager
of the subsistence business, because occasionally, other people from the extended family
run the business while the real owner-manager is temporarily away. Two assistants helped
with the translation and interpretation of the items in case of any (language) difculties.
Because the study was carried out based on the snowball sampling method (i.e., each
respondent directs the researcher to the next respondent), a high response rate of 98
percent was achieved. Although respondents were ensured their responses were con-
dential, the subsistence entrepreneurs who did not cooperate in the data collection still had
concerns over condentiality. The survey ended after 152 respondents, because at that
1750007-10
point, the study reached more than the minimum number of respondents to ensure sta-
tistical grounds for the analysis (e.g., N > 50 8 m, where m is the number of inde-
pendent variables in the study, see Tabachnick and Fidell, 2007).
The sample of subsistence entrepreneurs shows the typical higher proportion of female
owner-managers in the East African LDCs (Spring, 2009): 67.1 percent. The age of the
subsistence entrepreneurs is normally distributed with a mean of 31.7 years; the youngest
respondent was 18 and the oldest 58 years old. The education levels are generally very
low; 53.3 percent had primary schooling as the highest possible level, 41.5 percent had
secondary schooling as the highest possible level and the remaining stated having either a
university bachelors degree or no education at all.
Concerning the analyses, the following steps were taken: descriptive statistics on the
scores of the performance proxies were calculated; a correlation analysis; a factor analysis;
a reliability analysis; and regression analyses.
4. Results
4.1. The performance scores
Four dependent variables were included in the model examining the performance of the
subsistence entrepreneurs. Concerning the dependent variables, Table 2 shows the per-
formance distribution. From this table, it is evident that housing has primarily decreased,
while the others have largely increased.
4.2. Correlation analysis

The correlation analysis is presented in Table 3. The correlation table includes all variables
in the study. The numbers in Table 3 correspond to those in Table 1. Cohen (1988), as
cited in Eid et al. (2013), classied correlations of 0.1 as weak, 0.3 as medium, and 0.5
as strong. Among the different possible correlations, particularly strong positive correla-
tions are seen between items measuring experience, with the largest Pearson correlation
coefcient (r 0:79, p < 0:01) between the items I started my business because I had
Table 2. The performance scores. The values are percentages.
How has your net Over the last 3 Over the last 3 Over the last 3 years, I
income, concerning years, I have man- years, I have been have managed to ob-
the daily food that aged to obtain a able to put my tain health care for
you need to buy, house for myself. children in school. myself. (i.e., health
changed over the (i.e., housing) (i.e., education) care)
last 3 years of oper-
ation? (i.e., food)
A lot less of 1.3 19.1 8.5 5.9
A little less of 11.8 38.2 30.3 30.3
The same amount of 30.3 26.3 12.5 2.6
A little more of 46.7 16.4 46.7 54.6
A lot more of 9.9 0 2 6.6
Total 100 100 100 100
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Table 3. Means (M), standard deviations (SD), and correlations (r-values) of the items (#).
# M SD 1 2 3 4 5 6 7 8 9 10 11 12
1 1.67 0.47 1
2 31.7 8.61 0.16* 1
3 2.53 0.77 0.17* 0.14 1
4 3.94 1.08 0.07 0.15 0.03 1
5 4.02 0.99 0.06 0.19* 0.04 0.79** 1
6 2.95 1.34 0.03 0.01 0.07 0.51** 0.38** 1
7 2.55 1.27 0.19* 0.14 0.04 0.09 0.11 0.33** 1
8 2.16 1.07 0 0.04 0.09 0.29** 0.17* 0.24** 0.10 1
1750007-12
9 3.52 0.88 0.06 0.05 0.18* 0.12 0.03 0.04 0.07 0.13 1
10 2.4 0.98 0.06 0.24** 0.01 0.17* 0.09 0.17* 0 0.08 0.01 1
11 3.03 1.09 0.20* 0.45** 0.01 0.21** 0.26** 0.12 0.09 0.09 0.13 0.30** 1
12 3.26 1.14 0.06 0.29** 0.08 0.31** 0.29** 0.19* 0.04 0.07 0.32** 0.29** 0.64** 1
*Correlation is signicant at the 0.05 level (2-tailed).
**Correlation is signicant at the 0.01 level (2-tailed).
management experience in previous businesses and I started my business because I had

the start-up experience of previous businesses. None of the measured items showed r
values above 0.9. Therefore, multicollinearity can be excluded.
4.3. Factor analysis

The results of the correlation analysis paved the way to investigate further the underlying
dimensions among the items. To uncover how the proxies proposed by the participants
from the pre-study behaved and whether they showed any communalities, a factor
analysis on dependent variables was conducted (i.e., items 9, 10, 11 and 12). This factor
analysis produced a Kaiser-Meyer-Olkin (KMO) value of 0.58, which is acceptable al-
though a KMO value higher than 0.6 is recommended (see Pallant, 2010). The Bartletts
Test of Sphericity showed high signicance (0.00), with a chi square of 112.07. Two items
with eigenvalues higher than one were identied, which explained a cumulative of 73.6
percent of the variance. Factor one is described as basic performance and consists of the
single-item food (factor loading 0.90). Factor two is named advanced performance,
because this factor clearly showed the higher-order performance types of education
(factor loading 0.82), housing (factor loading 0.73) and health care (factor loading
0.77). Apparently, once the income for daily food has been realized, the other goals such
as housing, education and health care are to be established. All items showed strong
loadings, far above 0.4, which means they could be used as combined constructs in the
further analyses.
A factor analysis on the items numbered 1 through 8 in Table 1 was not conducted. The
reason is twofold: (1) many of these items have considerably different conceptual mean-
ings; and (2) to adhere as closely as possible to the research question, these items were
treated as separate determinants of performance.
4.4. Reliability analysis

Items 4, 5, 6, 7 and 8 from Table 1 were combined into two separate constructs, because
they have two different conceptual meanings. There is one construct based on items 4, 5
and 6 and another based on items 7 and 8.
The rst combined construct of the social factors related to experience in terms of
previous start-up experience, management experience and experience from business
ownership within the family (i.e., items 4, 5 and 6) has a Cronbachs alpha of 0.77. Values
larger than 0.8 are desirable, but values above 0.7 are acceptable (Gliem and Gliem, 2003).
Hereafter, this combined construct is referred to in the regression model as experience.
The second combined construct concerns the social factors related to support from the
family (i.e., items 7 and 8). The reliability analysis produced a Cronbachs alpha for
these items of 0.41, which is very low. Additionally, the inter-item correlation between
items 8 and 9 is also too low (i.e., 0.09) based on 0.200.40 as the optimal recommended
range in the case of low reliability values from a low number of items (Briggs and Cheek,
1986). Hence, the social factors related to support from the family were treated as two
separate items in the regression analyses.
1750007-13
Table 4. The regression models.
Variable How has your net income, Over the last 3 years, I Over the last 3 years, I Over the last 3 years, I Advance performance
concerning the daily food have managed to obtain a have been able to put my have managed to obtain
that you need to buy, chan- house for myself. (i.e., children in school. (i.e., health care for myself.
ged over the last 3 years of housing) education) (i.e., health care)
operation? (i.e., food)

Gender 0.04 0.10 0.13 0.01 0.02
Age 0.10 0.24** 0.41** 0.26** 0.39**
Highest level of ed- 0.18* 0.03 0.07 0.13 0.10
ucation completed
Experience 0.01 0.14 0.17* 0.30** 0.26**
I started my business 0.07 0.02 0.05 0.07 0.06
because my family
provided me with
1750007-14
the start-up capi-
tal.
I started my business 0.11 0.05 0.06 0 0.04
because my family
provided me with
customers.
Adjusted R 2 0.06 0.09 0.26 0.18 0.26
F (df) 1.45(6,145) 2.48(6,145) 8.25(6,145) 5.33(6,145) 8.38(6,145)
p 0.20 0.03* 0.00** 0.00** 0.00**
*Correlation is signicant at the 0.05 level (2-tailed).
**Correlation is signicant at the 0.01 level (2-tailed).
Finally, the last reliability analysis was performed on the combined construct of ad-
vanced performance (i.e., items 10, 11 and 12). This analysis produced a Cronbachs alpha
of 0.68 with sufcient inter-item correlations between 0.20 and 0.40 (i.e., 0.32, 0.29 and
0.64) (Briggs and Cheek, 1986). Thus, the combined construct of advanced performance
remained for further analyses. The basic performance construct (i.e. food) required no
reliability analysis because it concerned a single item.
4.5. The regression analysis

Finally, to test the hypotheses, a regression analysis was conducted. The results are pre-
sented in Table 4. Model performance is assessed by the Adjusted R 2 , F-test (F) with
degrees of freedom (df) and model signicance (p. The Beta coefcients () show the
values of how the independent variables determine the dependent variables. From this
table, it can be concluded that the majority of the regression models are signicant:
housing has a p value of 0.03, education has a p value of < 0.01, health care has a
p value of < 0.01 and the combined construct of advanced performance has a p value of
< 0.01. The Adjusted R 2 s range between 6 and 26 percent. Generally, age and the
combined construct of experience are strongly signicant across housing, education,
health care and advanced performance. Concerning the hypotheses, the results from
Table 4 imply the following: H1, H3 and H5 are not supported. However, H2, concerning
the effect of the subsistence entrepreneurs age on performance and H4, concerning the
effect of the subsistence entrepreneurs experience on performance, are amply supported.
5. Discussion
A brief answer to the RQ is: while gender, highest level of education completed, and
family support are not relevant, subsistence entrepreneurs age and experience are strong
predictors of their performance.
Concerning the accepted hypotheses (H2 and H4), in line with the expectations from
the literature, subsistence entrepreneurs age and experience positively affect their per-
formance, particularly advanced performance. This means that becoming older and in
doing so gaining experience advances the performance of subsistence entrepreneurs
business in Tanzanias informal economy. Age and experience outweigh the importance of
the other determinants of subsistence entrepreneurs performance because the hypotheses
of the latter are all rejected.
Concerning the rejected hypotheses, a possible reason for the rejection of H1 can be
that gender is not the leading determinant of performance: subsistence entrepreneurs have
various other individual characteristics that can outperform the gender-characteristic
(Morris et al., 2006). Furthermore, womens underestimated performance may result from
the low performance sector in which they operate (Marlow and McAdam, 2013). This
might be the case in this study, namely that the sector of the informal food vendors
performs low overall. Another reason for the non-signicant inuence of gender could be
that the sample was too homogenous (see the section concerning the main study): the
1750007-15
majority were women (67.1%). The few men were possibly not able to affect signicantly
the overall performance of their businesses.
By far, the most obvious reason for the rejection of H3 is that this study deals with
respondents from the informal sector; these people are among the poorest of the world;
therefore, they are most likely not able to have access to any education at all. Conse-
quently, this lack of knowledge might have inuenced the paper-based questionnaires in
this study, which requires reading and writing skills from the participants. A possible
reason for the rejection of H3 could be that higher education is not needed in the sub-
sistence business sector, such as food vending. Therefore, primary school education might
be good enough, which makes people quit school at a young age. Furthermore, a higher
educational degree might not necessarily improve the performance of food vendors; often
they run such a business temporarily until they nd a better job outside the informal
economy. Another reason could be that the education received is too generic; more spe-
cialized, tailor-made education or training might equip nascent entrepreneurs with the
necessary knowledge and skills to start up, manage and develop economically viable
businesses (Matlay, 2006) and hence, improve subsistence entrepreneurs performance.
Finally, H5 appeared to be irrelevant. Neither family support in terms of providing new
customers nor in terms of nances determined the performance of subsistence entrepre-
neurs in Tanzania. It is widely believed that social support is essential in the informal
economy (Berrone et al., 2014; Khavul et al., 2009; Smith, 2009), but a signicant
connection to performance has not been discovered in this study. Additionally, more
family support could come with the duty of caring for other people, which can be at the
expense of time that could be invested in the growth of the business.
6. Conclusion
The answer to this studys RQ coincides with a number of contributions to the literature,
practical implications, study limitations and recommendations for future research.
Regarding contributions to the literature, previous studies have focused particularly on
the (applicability of) Western concepts of entrepreneurial motivation, entrepreneurial
orientation and the competences of subsistence entrepreneurs in the informal economy
(see, for example, Eijdenberg et al., 2015; Eijdenberg and Masurel, 2013; Williams and
Round, 2009). In contrast, this study goes back to the roots of possible performance
determinants in the informal economy: the demographic and social factors. Given that
Western concepts such as the previously mentioned three hardly might be appli-
cable in contexts like Tanzanias informal economy (e.g., Eijdenberg, 2016; Eijdenberg
et al., 2015). Furthermore, because subsistence entrepreneurs are human beings in their
economic, social and emotional dimensions (Toledo-Lpez et al., 2012) like their fellow
entrepreneurs all over the world, this study reveals what is important for their performance
as opposed to what is not. By revealing what matters to predict performance as it is
constructed in the local context of the data collection, this study follows up on the calls
for research to understand better entrepreneurial activity in the informal economy
(e.g., De Castro et al., 2008; Webb et al., 2009). Therefore, this study can be perceived as
1750007-16
another step forward to uncover the Great Unknown of entrepreneurship within the
informal economy.
Several practical implementations can be brought forth by this study. One possible
implication can be that practitioners should encourage young entrepreneurs to follow the
example of an older, more experienced (subsistence) entrepreneur, which can lead to
increased performance. Another implication is that practitioners should focus on one or
more of the signicant performance proxies in this study (i.e. housing, education and
health care); by making these proxies better accessible, opportunities may arise such that
other performance goals, for example luxury consumable goods, are proposed as the
new proxies. As a result, the subsistence entrepreneurs slowly can be carried out of
extreme poverty. A last possible practical implication can be that practitioners should
focus on female entrepreneurs. Although gender is not a signicant determinant, women
do account for the majority of business ownership in the informal economy in this study.
Hence, the empowerment of female entrepreneurship benets the women themselves as
well as the entire informal business community.
Finally, this study could not be conducted without limitations. First, the discussion of
the hypotheses in the previous section can serve as a point of departure for future
researchers. Particularly, the rejected hypotheses should create curiosity within the
scholarly community to investigate further. Second, other researchers are encouraged to
investigate subsistence entrepreneurs in the informal economy by overcoming this studys
limitations in terms of the sample size, the sampling method, the sectors characteristics,
the research methodology, and the time and the location of the data collection.
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Journal of Developmental Entrepreneurship

Vol. 22, No. 1 (2017) 1750007 (22 pages)

THE PERFORMANCE OF SUBSISTENCE ENTREPRENEURS

Received November 2016

Keywords: Small business; entrepreneurship; personal wealth; Africa.

possible reasons why research on entrepreneurship in the informal economy is largely

generally not accessible for many people (Lyatuu et al., 2015).

2.2. Subsistence entrepreneurs and the informal economy

2.3. Subsistence entrepreneurs characteristics

2.3.1. Demographic factors: Gender and age

tence entrepreneurs in East African LDCs, the following hypothesis is developed:

2.4. Measuring performance

3.2. The main study

Variable Type # Item Scale

a reliability analysis; and regression analyses.

4.2. Correlation analysis

Table 2. The performance scores. The values are percentages.

management experience in previous businesses and I started my business because I had

4.3. Factor analysis

4.4. Reliability analysis

Table 4. The regression models.

operation? (i.e., food)

4.5. The regression analysis

East African Community (2016). Overview of East African Community. [www.eac.int/about/over-

International Labour Organization (1993). Resolution Concerning Statistics of Employment in the

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