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When institutions fail, the normal response of business is to stay away. Looked at another way however, the void may be an opportunity
For multinational companies, doing business in emerging economies often involves overcoming hurdles created by the weakness or complete absence of institutions that support markets. These institutions, whose presence is usually taken for granted in developed economies, range from intermediaries that facilitate transactions and broker information to bodies that govern regulation and adjudication, enforcing contracts, property rights and the rule of law. When these supporting institutions do not exist, there is what is known as an "institutional void".
A favourable institutional environment for markets can lead to economic growth and therefore becomes an important force in poverty reduction. As the World Bank reiterated in its 2002 World Development Report, building institutions that support the development of markets is of paramount importance to poor people's participation in them. Yet little is actually understood about the other side of the coin: what types of institutions enable the poor to access and participate in markets?
A growing number of entrepreneurs - often called "social entrepreneurs" - are finding innovative ways of servicing the world's poorest by recombining resources and institutions. The most prominent example is last year's Nobel Prize winner, Muhammad Yunus, who founded the Grameen Bank to bring microcredit to poor Bangladeshi women. In the context of developing countries, social entrepreneurs can therefore also be seen as "institutional entrepreneurs", channelling their efforts towards creating and transforming institutions that foster both economic and social development and thus help the excluded to participate in the market economy and in broader society.
Institutional voids represent challenges, but they also provide opportunity spaces, especially for those companies that can envision the long-term potential of entering markets in emerging or transition economies. It is probably not feasible for companies to try to fill institutional voids on their own. Rather, partnering and collaborating with social entrepreneurs who are already acting as institutional entrepreneurs may be an excellent way of entering such markets. Traditionally, institutional voids have been found in the developing world, but in Eastern Europe in the aftermath of communism, significant institutional voids now exist. In both cases, partnerships between businesses and social entrepreneurs may have much to offer.