The Nature of Institutional Voids in Emerging Markets: Why Markets Fail and How to Make Them Work

Conventional wisdom holds that the best way to select an emerging market to exploit is to evaluate its size and growth potential. Not so, according to the authors-two leading experts on the subject. The primary exploitable characteristic of an emerging market is actually the lack of institutions (like credit card systems, intellectual property adjudication, and data research firms) that facilitate efficient business operations. But while such institutional voids present challenges, they also provide enormous opportunities for entrepreneurial foreign or domestic companies to build businesses based on filling these voids. In this chapter, the authors highlight the myriad institutions required to support market transactions and show why the absence of these institutions is the real culprit of market failures in developing economies. This chapter was originally published as Chapter 1 of "Winning in Emerging Markets: A Road Map for Strategy and Execution."