The institutional context in which businesses develop have a decisive influence on their growth. For example, a lack or underdevelopment of institutional mechanisms increases transactional costs for companies—because of the absence of specialized intermediaries, regulatory systems, or mechanisms to guarantee that contracts are complied with—, and thus limits their reach and growth. Even though there has been ample research on how multinationals face these “institutional vacuums” in Less Developed Countries (LDC), there is not much literature the effect on local entrepreneurs in these countries.
The paper “Entrepreneurship Amid Concurrent Institutional Constraints in Less Developed Countries,” co-written with Dr. Theodore A. Khoury, from Portland State University, addresses how to overcome institutional limitations faced by entrepreneurs in LDCs.
Understanding entrepreneurship under extreme conditions
The article delves into how institutional limitations are a challenge for local entrepreneurs and illustrates how these entrepreneurs survive thanks to cultural entrepreneurship strategies and “DIY” (a concept that is used in the filed of entrepreneurship to refer to “doing the right thing with the available resources to create a new product or market opportunity”).
Sometimes entrepreneurs in LDCs work in extreme conditions, because they not only lack functional formal institutions but also their informal institutions have serious limitations. To illustrate this point, the authors analyzed the case of olive-oil company Canaan Fair Trade, which has operated in Palestine’s West Bank since 2004. The limitations that his company faces, mostly derived from occupied territories, include access to resources and jobs, limits on mobility, a lack of authority to implement policies or enforce the law, and judicial uncertainty regarding property rights, among others.
In this adverse context, the company has managed to minimize risks such as land expropriation or late-arriving transportation services that result from military controls, taking advantage of exploitation created in cooperatives, which are smaller and spread about the territory; still, this strategy may entail not taking advantage of economies of scale.
Despite the limitations, which undoubtedly affect Canaan Fair Trade’s efficiency and volume of production, the company was able to export more than 350 tons of oil to North America and Europe during its first four years.
With the increase in world instability over the last decade—warfare, a global financial crisis, political agitation, and influence from social movements—, we think a better understanding of the dynamics of entrepreneurship under severe limitations is vital. Survival and competitiveness are possible thanks to entrepreneurial creativity and persistence.
