Zimbabwean Informal and Formal Sector Small Enterprises and a Sector-Specific Classification of Their Owners
Hypothesis 1: Operating in the formal sector influences employment creation posi- posi-tively
4.2 M ETHOD
4.2.1 S AMPLE
At the time of the first interview (T1), the sample consisted of 122 Black indigenous owner/manager/founders1 of businesses in Zimbabwe who had at least one employee. There is a qualitative difference between one-person enterprises and owners who have at least one em-ployee: The step towards having employees implies a change in responsibility, in one's self-perception and identity as a business person, in the psychological investment into one’s
1 All in one person; for simplification referred to as owners in the following.
reer, and in the necessity of managerial skills (Frese, 2000). Furthermore, we selected only businesses that operated for more than one year in order to ensure that our participants had adequate experiences in their trade to complete our interview and questionnaires. Finally, all our participants were Black because in the course of African indigenization it is especially interesting to understand Black businesses, who are still underrepresented in the Zimbabwean formal sector (Kapoor et al., 1997; van Dijk, 1992).
Indigenous businesses in Zimbabwe are usually clustered in certain areas. In the city, industrial areas (called home industries) are mainly located near high density housing areas.
In rural areas, businesses are concentrated in so-called growth points. Most businesses in home industries and growth points are not registered, do not appear in any listing, nor do they have telephone lines. Therefore, we used a random walk procedure for participant recruit-ment: The interviewers called on the business sites in person and carried out an interview on the spot, asked for an appointment, or came back later if the owner was preoccupied. Busi-nesses typically found in the industrial areas include scrap metal merchants, furniture manu-facturers, bottle stores, tailors, welders, mechanics, and others who provide for their immedi-ate local markets. To include up-market businesses and those locimmedi-ated in urban office buildings (e.g., commodity brokers, travel agencies, advertising agencies, and telecommunication com-panies), we consulted business directories and made appointments. We contacted listed busi-nesses at random and identified Black owners by their family names. Unfortunately, addresses and phone numbers were often incomplete or not up to date.
The T1 sample was drawn between September 1998 and April 1999. The refusal rate of 30% was low. Participants received the equivalent of five US$ as a sign of gratitude and as compensation for their time. We included the two major ethnic groups, Shona (approximately 77% of Zimbabwe’s population) and Ndebele (approximately 18% of Zimbabwe’s popula-tion). Shona as well as Ndebele mainly reside in their regional homelands Mashonaland and Matabeleland respectively. The overall sample size was N=122 (n=98 Shona -- the ethnic majority in Zimbabwe, n=21 Ndebele, and n=3 of other African origin).
The data collection for T2 was carried out between May 2000 and April 2001. The time frame for the second phase of data collection was relatively long because many partici-pants had relocated their businesses. We had to apply extensive search strategies that entailed seeking information from former neighbors, from competitors, from relatives, etc. The lack of phone lines, especially in the informal sector, also hampered the second wave of interviews because we often had to revisit several times before we could meet the owner for an inter-view.
Of the N=122 owners interviewed at T1 we revisited 104 participants. The remaining 18 could either not be found (n=11), rejected to participate again (n=4), or had passed away (n=3). Out of the 104 T2 participants, seven had given up their business. Therefore, the re-sulting sample size for T2 was N=97. For the variables that had been measured at T1, there was no difference (T-tests) between those who participated again and those who dropped out of the sample.
Table 4.1 provides in-depth information on the sample characteristics. At T1 as well as at T2, formal businesses employed significantly more people than informal ones (Mann-Whitney-U tests, p<.01).
Table 4.1:
Sample Description.
T1 T2 Overall
N=122
Informal n=43
Formal n=79
Overall N=97
Informal n=36
Formal n=61 The Owner
Male 101 36 65 81 32 49
Female 21 7 14 16 4 12
Owners’ age (average) 38 35 39 39 35 42 The Business
Year of business establishment
(average) a 1993 1994 1993 1992 1992 1993 Starting capital in US$ (average) 17,066 3,723 24,328 19,286 4,725 26,189 Industry b
Manufacturing 58 31 27 50 28 22 Construction 5 0 5 8 2 6
Trade 38 8 30 44 14 30
Gastronomy 2 0 2 2 0 2
Service 43 12 31 42 8 34
Other 8 0 8 4 2 2
Employment
Average number of employees 8.44 3.81 10.96 10.51 g 2.94 g 14.85 Micro-businesses c 95 42 53 75 35 40 Small scale businesses d 27 1 26 16 0 16 Medium sized businesses e — — — 5 0 5 Province f
Mashonaland 94 37 57 74 31 43 Matabeleland 20 6 14 18 5 13 Note. a Years of establishment ranged from 1971 to 1998. b Multiple answers were possible. c 1-10 employees
(ILO, 1972). d 11-50 employees (ILO, 1972). e 5 Businesses had grown bigger than 50 and up to 130 employees.
f 8 missing data at T1, 5 missing data at T2. g 1 missing data.
4.2.2 PROCEDURE
Main measurement instrument was a structured interview. Confidentiality was repeat-edly assured throughout the interviews. Where appropriate, interviewers used prompts to clarify participants' answers. Interview answers were written down and typed subsequently. It was not possible to use verbatim transcripts of tape recordings because the noise level was too high at most business sites. We used recordings sporadically at random to ensure the quality of the interviews and written protocols. The interviewers took down the participants' state-ments as verbatim as possible. The interviews were carried out by German graduate and post-graduate students of psychology, and by local interviewers (who were especially helpful with participants who felt uncomfortable speaking English).
All interviewers were thoroughly trained in interviewing techniques, and in coding the participants’ answers. After performing in role-play settings, the interviewers practiced in vivo, accompanied by an experienced interviewer.
Each interview was rated by two raters, one of them always being the interviewer.
Ratings were done on the basis of typed protocols and an elaborate coding scheme.2 Ratings were either factual (e.g., number of employees) or nominal (e.g., in/formal).
Additionally, participants filled out a questionnaire that contained items concerning risk-taking and uncertainty avoidance as well as the business practice knowledge question-naire after the interview was completed.
4.2.3 OPERATIONALIZATION
Table 4.2 presents the types of measurements, the number of items, the number of valid longitudinal cases, Cronbach’s alphas, interrater reliabilities, the range, Ms, and SDs of the variables. We used intraclass coefficients (ICC [1,1]) as reliability measures for factual items (Shrout & Fleiss, 1978).
2 See appendix for the complete interview and coding scheme.
Table 4.2:
Characteristics of Variables and Scales.
Source a k
items N α b ICC c Range M SD Business sector
In/formal 1998/99 T1 I 1 97 — 1.00 1—2 — —
In/formal 2000/01 T2 I 1 97 — .98 1—2 — —
Number of employees
Number of employees 1997/98 d T1 I 1 96 — 1.00 0—102.50 7.73 13.75 Number of employees 2000/01 T2 I 1 96 — .87 0—130 10.51 18.92 Independent variables
Years of education T1 I 1 97 — 1.00 4—19 11.74 3.23 Business practice knowledge T2 Q 11 85 .75 — .27—1.00 .81 .20
Risk-taking T2 Q 4 96 .80 — 1—5 3.08 1.18
Uncertainty avoidance T2 Q 6 91 .70 — 1—7 5.17 1.18 Note. a I = interview measure, Q = questionnaire measure. b Cronbach’s Alpha. c Intraclass coefficients.
d Retrospective interview data.
In/formal in 1998/99 (T1) and in 2000/01 (T2) were interview measures. A business was classified as being formal when it was officially registered and enrolled with the tax de-partment. Likewise, the number of employees 1997/98 (retrospective measure at T1) and 2000/01 (T2) were single item interview measures. We choose a time gap of two years to in-vestigate employment creation because the majority of our sample was very small (78% had only 1-10 employees at T1). Thus, taking on one more person is a big step that probably takes longer than the time gap between our two measurement times (cf. Chapter 3). Years of edu-cation also was a single interview item measured at T1. Business practice knowledge was a multiple choice questionnaire (α=.75) measured at T2 (Table 4.3). The questionnaire was developed for the Zimbabwean context in close cooperation with Eric Bloch, a Zimbabwean Chartered Accountant, and David Harrison from our local research partner Human Resources (Pvt.) Ltd. The sample size for the business practice knowledge questionnaire was n=85 (Ta-ble 4.2) because some participants did not want to fill in yet another questionnaire after they had already completed the questionnaire on risk-taking and uncertainty avoidance (cf. Chapter 2, 3, and 5).
Table 4.3:
The Business Practice Knowledge Questionnaire.
Items
1 Profit is determined by: *a) Business income minus expenses. b) Business income minus wages. c) Business income minus advertising costs.
2 Market research is important for: *a) Determining whether or not your products or services will sell. b) Recruiting employees. c) Keeping within the law.
3 Which is the best method of checking on business progress? *a) Inspecting the busi-ness accounts. b) Number of customers. c) Volume of sales.
4 Why is advertising important? *a) The public learns about your product. b) You can be proud of your business. c) It helps you get loans.
5 Business discounts given to friends and family: *a) Need to be recorded. b) Do not need to be recorded.
6
When business is bad: a) All businesses may reduce wages to employees. *b) No businesses may reduce wages to employees without the agreement of employees or application to the Labor Relations Board. c) Only unregistered businesses may reduce wages.
7 If you make an offer to sell a product or service and this offer is accepted by the other party: *a) You are legally bound to provide the product or service as agreed. b) You can change the terms if you feel it necessary.
8 Which of the following is a business expense? a) Donations to charity. *b) Repairs to plumbing on the business premises. c) Payment for tax advice. d) Paying for a party to which customers are invited.
9 A manufacturer must: *a) Replace or repair goods proven to be faulty when pur-chased. b) Does not need to compensate – it is the buyer’s risk.
10 Collateral for a loan is required: *a) To protect the interests of the lender. b) To keep certain people from entering business.
11 Which of the following is a business expense? a) Proprietor pays for a haircut. b) Pro-prietor buys lunch. *c) ProPro-prietor pays for an advertisement of the business.
Note. *Correct answer.
Risk-taking was measured at T2 with a questionnaire of four items by Gomez-Mejia and Balkin (1989; adapted to the entrepreneurial context by Norton & Moore, 1998, α=.80).
Finally, uncertainty avoidance was measured with the organizational uncertainty avoidance values questionnaire by Hanges et al. (2003) that was adapted to the individual entrepreneu-rial context (α=.70; T2).
4.2.4 STATISTICAL ANALYSES
We used lagged hierarchical regression analyses (Cohen & Cohen, 1983) for the clari-fication of causal relationships between operating in the informal sector at T1 and employ-ment creation by T2. For the prediction of business owners who formalize their business, we
employed discriminant function analysis (Klecka, 1980).