10/04/2021
Institutional Void
copyright (@) Professor Tarun Khanna, Harvard Business School
An institutional void is a term used to refer to an absence of intermediaries between buyers and sellers in a given market. If a country's infrastructure is intact (which is often the case in the developed nations), it is a relatively simple matter for a buyer to meet a seller and obtain a desired item, good, or service. However, in emerging economies, a transaction between buyer and seller is not always this straightforward. If the country's infrastructure is missing or faulty, it prevents buyers and sellers from consummating a potential transaction (either effectively and efficiently). The missing infrastructure might be of the conventional kind – "hard" infrastructure like roads and telecommunication services for example – or of the so-called "soft" kind – intellectual property rights, reliable information in the financial markets and in the media, assurances created by competent and predictable regulators – each of which can bedevil a transaction. We characterize this phenomenon of missing infrastructure, soft and hard, through a taxonomy of institutional voids. Without an understanding of what institutional voids are and how to overcome them, a well-meaning entrepreneurial intervention in a given country might be fruitless. Think about the institutional voids that may effect your business and look for ways to overcome them.
