Saturday, May 8, 2010

Surviving ‘institutional voids’

The most important feature of any market is the ease with which buyers and sellers can come together to do business, note Tarun Khanna and Krishna G. Palepu in ‘Winning in Emerging Markets: A road map for strategy and execution’ ( “In developed markets, a range of specialised intermediaries provide the requisite information and contract enforcement needed to consummate transactions. Most developing markets fall short on this count,” they add.

To some extent such ‘institutional voids’ may be mitigated by functional substitutes in the form of informal institutions. But these often exist on an uneven playing field, accessible only to certain local players, the authors observe. “A local loan provider might seem like a substitute for a venture capital industry, but only if the loan provider evaluates applicants on their merits or business plan. Seldom are informal market intermediaries truly open to all market participants.”

Full report here Hindu

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