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GSLC STRATEGIC MANAGEMENT

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GSLC STRATEGIC MANAGEMENT
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   QUESTION 1.   What are the implications of the informal economy for firms that operate only in the formal economy? 2.   When firms consider analyzing their competition, should they include firms in the informal economy? Please explain why or why not. 3.   What opportunities does the informal economy present to firms operating in the formal economy? 4.   What threats does the informal economy present to firms operating in the formal economy? 5.   How do firms operating in the formal economy identify and analyze the parts of the informal economy relevant to their strategies? ANSWER 1.   Solution In a formal economy the firms have a formal contract with its workers, with everything about the pay, incentive plan and retirement benefits jotted down There are predefined work conditions and also they are endowed with particular job responsibilities and expectations which motivate them to stretch and achieve what is expected out of them and grow with the expansion and success of the company. The have a decent and a fixed salary, that they are sure to get at the end of the month and it gives them job stability and anything exceeding that work earns them incentives. They are also expected to work in the given duration of time and hence they are free to plan for their personal life accordingly. Everything about formal working is organized, concrete and disciplined Whereas in informal economy system it is exactly opposite where there are not everything clear, there is a scope of ambiguity as no rules or obligations, responsibilities are written down or conveyed. There is no systematic understanding and there is no outlined timing of work and so on. This kind ofjob would not provide the same amount of motivation or strategy to perform better as there are no planned incentives or stability promised to them. The hours of work are not fixed and hence it becomes difficult to plan for their personal lives, and this kind of would create a certain level of stress and frustration. KELOMPOK 5 : - Inara Detry A / 2101726433 - Ajeng Aisyah / 2101648072 - Fresty Yolanda P / 2101724996 - Yolanda Rahmani / 2101679544 - Sayid Achmad Alatas / 2101709515  2.   Firms should include firms operating in the informal economy while analyzing their competition since they operate in the same geographic and product/service market. This would be especially applicable in case of developing economies where there are a large number of informal businesses. Although these firms may have low productivity, they however have a significant cost advantage by avoiding taxes and other regulatory costs. Moreover, these firms generally operate in markets where there is low entry cost and will therefore compete directly for the market share with firms operating in the formal economy. 3.   In an informal economy, the firms will have a cost advantage and therefore be able to earn more profits as compared to the formal economy. The formal economy is regulated by a lot of rules and regulations and has to file various returns in order to be operational whereas, the informal economy does not go through this regulation which lowers the cost of production and minimizes time lag. A formal economic firm also has to hire workers and set and contribute to their welfare as per set guidelines whereas, in the informal economy, the firm can give low salaries and provide fewer benefits as the workers are not protected through the set laws, therefore, the firm will maximize its profits. In the formal economy, the firms have to pay a huge amount of tax whereas, in the informal economy, a lot of transactions goes unreported and therefore, the firm is able to earn more profits. Informal economy also creates threats for the formal economy in the sense that informal firms may have a cost advantage when competing against formal economy firms because they do not pay taxes or incur the costs of regulations 4.   In an informal economy, the firms will have a cost advantage and therefore be able to earn more profits as compared to the formal economy. The formal economy is regulated by a lot of rules and regulations and has to file various returns in order to be operational whereas, the informal economy does not go through this regulation which lowers the cost of production and minimizes time lag. A formal economic firm also has to hire workers and set and contribute to their welfare as per set guidelines whereas, in the informal economy, the firm can give low salaries and provide fewer benefits as the workers are not protected through the set laws, therefore, the firm will maximize its profits. In the formal economy, the firms have to pay a huge amount of tax whereas, in the informal economy, a lot of transactions goes unreported and therefore, the firm is able to earn more profits. - Informal firms provide opportunities to the firms that operate in the formal economy. Fomal firms try to understand the needs of the costumers that informal firms are fulfiling and find better ways to satisfy the needs of their customers. - Informal fims also provide the opportunities capital to the firms in the informal economy. to attract the high skilled human.  5.   Usually firms prepare and design strategies as part of their business. Based on these plans and strategies, they proceed regular business activities. In this they consider the expected things happen in the economy over a period of time. They consider some of the issues like economy level growth aspects income levels of people business to their product/service competiton existed and expected demand to the products and so on some of the informal activities like establishement of small business units, creation of  jobs in unorganized sector, and self employment opportunities and so on They also considere their wages, economic positions, and so on. In some developing and undeveloped nations, informal economy is also running parallel with formal economy and economic activities. The busienss units or people who estimate these, can plan well to capture market than those who completely focused on formal economy.
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