Managing and emerging out of institutional voids
By Vaibhav Aggarwal
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Emerging markets have often been identified as growing economies which have been opened by globalization and liberalization. At times they have also been defined as emerging competitors of the developed markets. Tarun Khanna, however, has a different perspective of these markets in his book- Winning in Emerging Markets. Khanna and co-author Palepu define emerging markets as those economies where there exists inefficiency in proper interaction between buyers and sellers which hampers effective trade. This inefficiency occurs due to the presence of institutional voids in these markets.

Institutional voids have been referred to as absence in emerging markets of things that are taken for granted. The authors emphasize that there is no market which is absolutely free of institutional voids, though their presence can be felt on a larger scale in the emerging markets.

These voids result in increased transaction costs and heightened operational challenges. Every company has to face these challenges while entering emerging markets but once the voids have been identified, a company can figure out ways to overcome them.

Multinational companies entering the local markets for the first time often enter into partnership or joint venture agreements with the local players in fear of lack of local know-how. Local players benefit from these partnerships as they are able to gain global expertise from their foreign partners.

A company whether a MNC or a local player can try to bring up a business to fill the void after deciding on the cost of the void. Executing pre existent models of the developed markets in emerging markets is a challenge. Thus uniqueness in idea which has been given core emphasis in the book finds implication here in a way which could fill such voids.

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