Legitimacy building of digital platforms in the informal economy: evidence from Indonesia

Abstract

Purpose This study aims to investigate how digital entrepreneurs develop platforms business models under an unregulated market and what approach they take to address informal economy (IE) activities. Design/methodology/approach The author used a qualitative method by interviewing sixteen respondents, including founders, Chief Executive Officers, and managers of digital-driven start-ups in Indonesia. I then analysed the interviews into several codes and themes for further discussion. Findings This study reveals distinctive approaches performed by startups within three-level institutions, namely, users, market and regulation. Each level represents digital entrepreneurs’ unique behaviour, which the author described as collective, narrative and compliant. Research limitations/implications This paper demonstrates that digital entrepreneurs leveraging informal sectors contribute to the process of formalisation. However, the author emphasise less on how it impacts informality and who receives incentives. Practical implications This study suggests appropriate strategies for entrepreneurs who build and develop a platform beyond immature setting and unveils different directions to comprehend their legitimacy building. Social implications This study also elucidates political implications such as how the dynamics between regulators’ response and entrepreneurs’ reaction shape the new regulative environment. An idea of self-regulate – entrepreneurs as actors instead of a subject of regulation – might be suitable to reflect how they overcome the bottom of the pyramid using technology innovation. Originality/value While previous studies focused primarily on sharing economy, this study provides a different array of discussion on the digitalisation of the informal economy in emerging markets.

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