How entrepreneurs work around institutional voids to create social value in developing countries

Severe institutional voids push entrepreneurs to create social goals and build up formal as well as informal institutions.

In this video, assistant professor Alisa Sydow summarizes one of her latest publications in Entrepreneurship Theory and Practice.

Entrepreneurship in developing economies comes with severe challenges

When we look at entrepreneurship in developing economies such as Kenya, we know that those entrepreneurs are embedded in hostile environments. Why hostile environments? Because usually they are shaped by high corruption rates, weak or absent formal institutions, so all in all less support from the government.

It does not prevent an entrepreneurial zeitgeist

However, what we can see more and more in those countries is an entrepreneurial zeitgeist. So we can see that there is more and more entrepreneurial activity, which is flourishing all over the countries. And this is exactly what we would like to understand in our study. How is it possible that entrepreneurs can still get to their goal, the goal to start their new businesses?

What have we done? We went to Kenya. We have interviewed 47 local entrepreneurs, so we have seen that if the entrepreneurs would like to get to their goal in terms of starting their new businesses, they face severe institutional voids – weak, absent formal institutions, as well as limited intermediary support and unreliable informal institutions, such as family and kinship ties.

Three workaround practices

What we have seen is that entrepreneurs develop three workaround practices in order to achieve their goals:

1. Hybridizing goals: They start with commercial goals in mind, but due to severe institutional voids, entrepreneurs are pushed towards social goal orientation. Moreover, they sense opportunities out of institutional voids.

2. Orchestrating business relationships carefully: Entrepreneurs control employees’ behavior meticulously and if they want to expand new relationships, they do it very, very carefully and selectively.

3. Cross-bracing institutional infrastructure: Entrepreneurs build up new infrastructure by supporting market functioning and development and facilitating market access as well as participation.

By following those three workaround practices, entrepreneurs are able to strengthen their hybridized goal achievement, which is starting their new businesses.

Entrepreneurs become micro-institutional agents

What we have learned as a key takeaway from our study is that due to severe institutional voids, even entrepreneurs with commercial goals in mind need to consider social goals, and by doing so they become micro-institutional agents that cross-brace institutional infrastructure.

If we look at the education sector, we need to train entrepreneurs for this new task. We need to give them the right skills and capabilities to be able to build up new infrastructure. Second, for policy makers we need to support entrepreneurs to build up institutions. We believe that there is a potential of a new way of partnership between the government and those entrepreneurs.