Institutional Voids

For my previous blog post I intended to upload a video.So the WordPress site that I use, asked me to upgrade my plan to a premium one.However even after repeated attempts an error kept incurring in the transaction.I had the resources to upgrade my plan and the site was willing to offer me a plan, but due to an error in the net banking,I wasn’t able to complete my action.

There  are many other similar circumstances.You have the money for a taxi ride, and there is a taxi driver that is willing to render the service a little away from your location, but somehow there is no middleman to connect you both or the lack of communication.Those from the busy cities of India will surely be able to connect to this frustration.

Why are consumers put through such difficult situations? Even as globalisation flourishes, why do MNCs shy away from emerging economies such as India and Brazil?

The answer to these questions is simplified by Prof.Tarun Khanna as ‘Institutional voids’.

A situation in which buyers and sellers have trouble coming together for various reasons.Either because they can’t locate each other (due to lack of information or logistics) or cannot complete the transaction (no easy mode of payment) or other forms of legal restrains(policy bottlenecks) .

And these institutional voids are considered a black hole to any economy, and further discourage MNC’s from operating in such countries that lack adequate infrastructure.

For instance,if a company copies a patented design from another company, it can take legal action.However in emerging markets, the legal system doesn’t always function properly. In India they sometimes say that, due to the poor legal system, your children often inherit your arguments.It is really difficult to protect, for example, your intellectual property. These are practical consequences that institutional voids can have. 

Emerging markets are thus characterised by a lot of turbulence and instability.But a land of problems simply translates into a land of opportunities.

Prof.Khanna emphasises that institutional voids are a double edged sword, both a constraint on how you build a business or an organisation and they are an opportunity to be an entrepreneur,and in effect fill the void.

Here are a few examples of innovative entrepreneurship from India itself.

Amul has filled a lot of the institutional voids that prevented individual dairy farmers from credibly reaching individual consumers of milk and milk products.This farmers cooperative has grown miles in ensuring food security in large parts of India.

Dr. Devi Shetty constructed a novel way of implementing heart surgery for underserved sectors of the Indian population. In this example, buyers (patients) could not meet sellers (doctors or hospitals) due to lack of access and lack of monetary resources. Dr. Shetty proposed solution to address this institutional void: a new model of cardiac care provided by the Narayana Heart Hospital. According to this model of care, the hospital should ask the patient what he could afford to pay for the surgery (not demand a fixed price for it). Some patients can pay for the full surgery; other patients can pay nothing. Regardless, everyone in need of surgery receives quality healthcare.This was achieved by harnessing the benefits of economies of scale.

There exists a difficulty of hiring skilled staff in India, mostly because of the imbalance in educational system and the absence of finishing schools.While India produces some of the greatest scientists and CEOs in the world, we widely lack efficient employees for jobs such as job assistants.This was creatively battled by the institution “Aspiring Minds”,who optimised the hiring process for numerous companies(connecting the job seekers to employers).It found that there was no grading mechanism in India for millions of graduates. There was no way the guy from Tier II or III towns could sell himself; they hence provide the credibility to him (if he’s good).They use AI, statistical analysis, and training to fill the gap between company requirements and the graduate qualifications.  

2 comments

  1. Having the desire to pursue economics in the future, I absolutely loved this work because it gave me more clarity on the concept ‘Institutional Voids’ and also being aware about some of the solutions implemented by various organisations in tackling this problem. A big thanks for that😂💓

    Also, I really love the line ‘Your children often inherit your arguments’ 💯

    I love it❤🙌🏼

    Like

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