This study developed and empirically tested a multidimensional framework explaining the formalization of informal enterprises in township economies, with a focus on Soweto, South Africa. Drawing on an integrative theoretical foundation combining Institutional Theory, the Resource-Based View (RBV), Entrepreneurship Theory, Stakeholder Theory, and Market Orientation Theory, the paper reconceptualizes formalization as a consumer-driven process rather than a purely regulatory outcome. Using quantitative design and Partial Least Squares Structural Equation Modelling (PLS-SEM) on enterprise-level survey data, the study examined how institutional support, resource capacity, entrepreneurial adaptability, stakeholder engagement, and market orientation influence formalization through key mediators, including access to finance, business capabilities, trust in institutions, and consumer demand amplification. The results indicated that consumer demand amplification is the most powerful mediating mechanism, linking firm-level strategies to formalization and broader inclusive development outcomes. Formalization significantly enhances firm performance and contributes to employment creation and income growth. However, regulatory complexity weakens institutional effects, while social capital strengthens entrepreneurial pathways. The findings challenge conventional supply-side policy approaches and highlight the importance of demand-driven, bottom-up formalization strategies.
Onwioduokit et al. (Thu,) studied this question.