TRUST: Creating the foundation for Enterpreneurship in Developing Countries

By A Staff Writer

Entrepreneurs in developing countries who assume they will have the same legal, governmental and institutional protections as their counterparts in the West will fail. To succeed, they need to build trust within the existing structures–and in Trust: Creating the Foundation for Entrepreneurship in Developing Countries (Published by Penguin, Rs 499) Tarun Khanna shows how it’s done.

Entrepreneurial ventures often fail in the developing world because of the lack of something taken for granted in the developed world: trust. Over centuries, the developed world has built customs and institutions such as enforceable contracts, an impartial legal system and credible regulatory bodies–and even unofficial but respected sources of information such as Yelp and Consumer Reports–that have created a high level of what scholar and entrepreneur Tarun Khanna calls “ambient trust.”

This is not the case in the developing world. But Khanna shows that rather than become casualties of mistrust, smart entrepreneurs can adopt the mindset that, like it or not, it’s up to them to weave their own independent web of trust–with their employees, their partners, their clients, their customers and society as a whole. This can be challenging and it requires innovative approaches in places where the level of societal mistrust is so high that an official certification of quality simply arouses suspicion–and lowers sales! Using vivid examples from Brazil, China, India, Mexico and elsewhere, Khanna’s stories show how entrepreneurs can build on existing customs and practices instead of trying to push against them. He highlights the role new technologies can play (but cautions that these are not panaceas) and explains how entrepreneurs can find dependable partners in national and local governments to create impact at scale.

As far back as the 18th century, Adam Smith recognized trust as what Khanna calls “the hidden engine of economic progress.” “Frankness and openness conciliate confidence,” Smith wrote. “We trust the man who seems willing to trust us.” That kind of confidence is critical to entrepreneurial success, but in the developing world entrepreneurs have to establish it through their own efforts. As Khanna puts it, “The entrepreneur must not just create; she must create the conditions to create.”

About the Author: Tarun Khanna is the Jorge Paulo Lemann Professor at the Harvard Business School, where he has sought for two decades to study the drivers of entrepreneurship in emerging markets as a means of economic and social development.

In 2007, he was nominated Young Global Leader (under 40) by the World Economic Forum; and in 2009, elected as a Fellow of the Academy of International Business. In 2015, he was named by the Government of India to chair the national commission to help shape the fabric of India’s entrepreneurial ecosystem. In 2016, the Academy of Management recognized him as Eminent Scholar for Lifetime Achievement in the field of International Management. In 2018, the Government of India named him to its commission to help select India’s Institutes of Eminence, the project to enhance India’s leading Universities for the future.

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