Ethnographic Study of the Informal Sector

Ethnographic Study of the Informal Sector INTRODUCTION The informal sector will be understood through an exercise of selling of paper clips as street vendors for a period of seven days. Paper clips are a stationery item used for binding papers together and are used by students, offices, lawyers, and government officials amongst others. However today, the availability of substitutes like staplers (a creation of technology) has challenged the utility of the commodity. The informal sector is that part of the economy which is not taxed, monitored by any form of government or included in any gross national product (GNP), unlike the formal economy. In 1997-98, the informal economy generated nearly 76% of employment and nearly 46% of the income in Mumbai. Despite their physical existence and the millions involved in it, for sheer survival, their ‘official’ ‘invisibility’ makes them ineligible for most statutorily ordained benefits and allowances. PREPARATORY STAGE A pre-sales activity was conducted to understand the potential target group. The interactions revealed that most consumers don’t have a requirement for this product, as staplers are a more reliable paper binding solution. The pre-sales research revealed that paper clips are sold in quantities of 100 clips a box. Based on the findings, a sales model was developed wherein the bulk of 100 clips would be resold 10-12 clips in plastic pouches. This would allow people to purchase small quantities and also convenient selling. The model adopted is similar to wholesaler-retailer supply chain model wherein the retailer makes bulk purchases from a wholesaler and sells smaller quantities to the customer. A similar model is used by street vendors who buy in bulk and retail smaller quantities. A cost-plus pricing strategy was adopted and a profit margin of 200-300% was agreed upon, which would be reduced through the course of the exercise until enough capital was accumulated. In addition to repacking, a packaging strategy was adopted. Zip lock plastics would be used to package the paper clips, thereby adding value to the commodity. Purchases of both the paper and the packaging material were made from the wholesale market in Abdul Rahman Street, Crawford Market where stationery is dealt with in wholesale quantities. Due to capital constraints, stock could not be purchased in bulk, limiting our bargaining power. It was decided that any profits incurred on the first day, would be ploughed-back to maintain a better inventory status. Locations selected for selling activity consisted of areas frequented by office goers, students and children. The objective set for the selling exercise was to cover costs and make profits by adopting a sales maximization approach through the use of strategies like customization, price discrimination, bundling, advertising, and market segmentation. EXECUTION STAGE Due to dearth of capital on the first day of our study, a sufficient stock of paper clips was purchased but did not allow for purchase of packaging materials. Waste packaging materials from the streets of Crawford Market was used as a substitute for the ‘zip lock pouches’. A huge profit margin was targeted on the first day that would generate capital to fund better quality packaging for the remaining days. The entire experience over the 7-day period is illustrated in the table below (refer Appendix I). Day Location Rationale for Location Experience Day 1 Fort, Outside Bombay High Court Potential Buyers: lawyers and office goers.  ·Problem arose because people returning home from work and lunch did not stop to indulge  ·Prices were very high so sales were slow.  ·Selling on the wrong side of the road and changed position to target people going towards the station. Day 2 HR, Jai Hind and KC College. Potential Buyers: Students, who have utility for stationery, especially females using customization and improved packaging material.  ·Customization and product bundling proved to be very effective. -The colored and fancy paper clips were sold out, despite higher price Zip locks used resulted in quick sales  ·Right time for sales (1pm onwards) when most students were done with their lectures. Day 3 Street Vendor Fair, Outside St. Michael’s Church, Mahim To study the variation in the sales of the commodity on a normal day in comparison to ‘special occasions’  ·Relatively easier to sell during a ‘fair’ or during special occasions  ·People are more willing to buy when exposed to multiple commodities within a given space. Day 4 Marine Drive To understand variation sales in a tourist and recreational spot  ·The price was lowered as a larger stock was procured due to profits from the previous day  ·Concentrated on sales promotion strategies by giving off free units to girls who purchased packets  ·Strategy was successful (word-of-mouth marketing played a significant role) Day 5 Trains, Central Line – CST to Dadar (Return) To understand the variation sales in a mode of transport  ·The female partner made large sales in the ladies compartment of the while the other partner was unsuccessful in the general.  ·Women are more approachable on trains which can be attributed to the large number of sellers in the women’s compartments on trains  ·Buying behavior exhibited by women is primarily an outcome of ‘novelty value’ of the products being sold Day 6 Marine Lines Station To sell amongst other street vendors and understand the dynamics of street vending.  ·Holding up a banner to ‘advertise’ the product did not work in the informal sector  ·Other experienced vendors came and interacted with us, passed comments and also ridiculed us. They moved away after they didn’t see a threat to their business  ·Interaction with vendors: On asking about the ‘hafta’ to be paid, they refused to speak to and turned away An unsuccessful sale as it was a Saturday.  ·Interaction with authorities: A BMC truck came to evict the vendors, confiscating their supplies, politely asked us to move Day 7 Republic Day Parade, Marine Drive To understand how national holidays have an impact on sales in the informal sector  ·Stood beside a flag vendor considering people might need clips to put on the flags.  ·No sales took place as people were engaged in watching the Parade EVALUATION STAGE Theory versus reality On engaging with the market on a first hand basis, we came across the following economic concepts while studying various sales strategies to maximize our sales in order to keep earning a profit. :- Monopoly firm: Since we were the only sellers of this product on the streets, we had the liberty to use price discrimination along with product differentiation. We gauged our targets and according to their outlooks and then decided the price to charge them. Price discrimination:-the same products were sold at different prices in different spaces to different consumers. First degree and third degree price discrimination was adopted. Under this the firm charged different prices to different set of consumers. For example while selling in the High Court premises; we sold the small quantity at Rs. 20 a packet to lawyers while we sold the packet to women in trains at Rs.5. In the former case, the entire consumer surplus was converted into the firm’s revenue and profits. The concept of third degree price discrimination was used here where groups having inelastic demand (lawyers/office goers) were charged a higher price compared to the women in trains who had elastic demand for whom the price was comparatively lower. The theory of price discrimination did not work for us as instead of playing with consumer surplus to make profits, we ended up just covering costs per day, neither did it minimize our costs nor did it increase output. Moreo ver the experiment of just 7 days was too short to judge this concept. However, the law of demand was justified wherein there is more demand when there is reduction in price. The elasticity was 1.0195 which is relatively elastic. However, from the interaction in the market we found out that it is inconsequential and hence, nullified. (Refer Appendix II) Product Bundling: The firm offered several products for sale as one combined product. It is a common feature in many imperfectly competitive product markets. The firm used the technique of bundling to create more demand and capture the market. For example- instead of selling big metallic binders, metal U- clips, colored U-clips and fancy clips separately we bundled them together and sold them as a packaged deal at Rs. 20 targeting the college students. This concept worked for us. Sales maximization: was set as possible goal which occurs when the firm sells as much as possible without making a loss. We implied this strategy wherein we after a point where we had covered all our costs, we concentrated on selling as much as we can even if it is at a low profit margin as long as there was no loss. This helped us in earning our revenue and capital for next days. Thus, the application of this theory was successful. We also came to the conclusion that paper clips as such are not a commodity that a street vendor would sell. It is more likely to be found in stationery shops as they serve a market which requires all these goods. Lessons Learnt: Operating in the informal economy showed us that there existsno perfect knowledgewith respect to commodities being sold (in terms of availability and price).Venturing further into the streets of Crawford Market revealed that the commodity sold is much cheaper when compared to the peripheral shops. The procurement exercise highlighted the prevalence ofinformation asymmetry. The presence of street vendors is a menace for commuters but a boon for the working poor by providing goods (sometimes necessities) at a substantially cheaper price. The survey revealed that most street vendors require credit in order to start an enterprise but were often denied access due to lack of collateral but they haven’t applied for any loans due to a variety of reasons. They are not well aware of the government policies and are subjected to constant evictions by the municipal corporations as we observed when the street vendors were made to flee the scene when the BMC truck arrived at Marine Lines station during the course of our study. An important aspect is the self-employment, which is an important component of the informal sector that allows this section of the urban poor to earn income but is also classified into different types of employment like employees, middlemen, and unpaid family members or self-employed. Thus, the informal sector acts a livelihood-sustainin g platform. Interactions with street vendors, it was found out that they suffer from problems like hypertension, hyperacidity migraine attacks and severe backaches. Another aspect revealed was the participation of women. Women form a significant proportion of the informal labor force. (Refer Appendix III for Survey Questionnaire and Appendix IV for results/findings). Policies in place: The National Policy for Urban Street Vendors, 2004 was the first policy that called hawkers as â€Å"vendors† in designated areas called hawker zones and non-hawker zones and to ensure absence of congestion and maintain hygiene in public spaces and streets. Policy of Housing and Urban Poverty Alleviation, 2009: By the National Commission on enterprises in the unorganized sector, this bill has not been introduced so far. It does not focus on natural markets like railway stations, depots, taxi stands, etc. Heavy fines are levied on unregistered sellers and their goods are confiscated. Non perishables are left off with heavy fines; however, fruit and vegetable vendors lose everything. The â€Å"Panchnama† of confiscated goods is not issues by policemen and records are not maintained. National Policy on Urban Street Vendors, 2009: It reports the conditions of work and promotion of livelihoods in the unorganized sector. It provides a constitutional angle to practice any occupation. For example: Right to adequate means of livelihood, Article 14, 19 (1) (g), 38(2), 39(a) and 41. Suggestions:- Registration must be made compulsory for street vendors by issuing licenses to prevent illegal rent seeking activities in the form of â€Å"haftas† from officials and thus, providing them with recognition. Incentive to register can be provided to street vendors by providing subsidized healthcare to registered vendors. Cheap housing and accommodation or slum rehabilitation can be provided to register street vendors as most of them are migrants from all over the country. A mechanism to file a PIL must be established for the street vendors to seek redressal for confiscated goods. Alternate spaces should be allotted for their activities if the area has to be cleared of such activities. For example, the shift of Agra Market during the 2010 Commonwealth Games. Stricter laws and there enforcement is necessary so that illegal hawking is avoided and they do not seem a nuisance to the commuters. In this way, both parts of the society can live in harmony.