Overcoming Institutional Voids in Emerging Software Markets

Product markets, labor markets, and capital markets fundamentally underpin any business strategy. When making choices about these markets during business strategy development, organizations will need to choose between emerging vs. developed markets. Operating in an emerging market is fundamentally different from developed market operation in that the emerging markets will have institutional voids.

Institutional voids are an absence of some key infrastructure. Hard infrastructure voids are an absence of a tangible infrastructure, such as roads or the facilities/equipment for cold chain distribution systems for food. For organizations involved with software systems, the primary hard infrastructure might be broadband internet infrastructure. On the other hand, soft infrastructure voids are intangible, such as credit rating agencies and media outlets. For software organizations, key soft infrastructure systems include education systems and intellectual property protection.

Despite software organizations being a relatively recent phenomenon, the sources of failure in emerging markets are similar to those of firms in more traditional industries. These include:

  1. Non-existent or poor sources of market information
  2. Unreliable regulatory environment
  3. Ineffectual or inefficient judicial systems
  4. Lack of the necessary physical infrastructure

Software industry examples include, respectively:

  1. A misunderstanding about local attitudes towards technology, or how tech-savvy a local population is
  2. Inconsistent, dynamic, and/or overly complex regulation of data privacy
  3. Difficulty or inefficiency of litigation efforts over intellectual property theft
  4. Low broadband penetration

These institutional voids are not inherently bad. Rather, for consultants inside and outside of the organization, these difficulties present an opportunity. Being able to anticipate problems and successfully navigate the local environment can provide a strong competitive advantage. For example, those who possess a deeper understanding of local conditions and opportunities may gain access to a relatively untapped pool of local engineering talent, or take advantage of first-mover benefits for a new product market.

Gaining the knowledge necessary to navigate or fill institutional voids may require partnership, either formal or informal, with entities within that local environment. If the goals and culture of those entities align with your organization, that is a good start. Additionally, complementarity of skills and knowledge will result in more value from the partnership.