“Bihar has many inherent strengths. A largely young population with over 70 per cent people under 34 years of age, fertile alluvial soil, abundant water, talented and cost effective labor pool and a rich cultural tradition. What the state requires is adroit management of its resources to create an enabling environment, in which farmers, traders, businessmen and their spirit of enterprise can flourish-----to achieve this, major steps are required with a focus on improvement in basic infrastructure and improved marketing and distribution networks; better governance through increased transparency-----and facilitate and enhance the role of private investment in key areas such as power agri-business, technical training and educational institutes and ancillary health services etc.”, the chief minister of Bihar, in one of his recent pronouncements, is quoted to have outlined the development plans for the state and bring it into the folds of otherwise growing global India( Business World, December, 2007).

The progress and the state of affairs on ground, particularly, in recent years, do raise hopes in the minds of people. Construction of roads (773 km of national highways renovated/renewed in 2006-07, up gradation of 2035 kms of state highways in progress), capacity generation of power (hydro, renewable sources, electrification of villages by 2009), efforts in building an investor friendly environment and talks of investments from outside state (108 proposals sanctioned involving an investment of Rs. 38,590 crs), activities in real estate sector, a growth model built around better agriculture and industry, social empowerment through health care(health for all with right mix of public health approaches during 11th plan, planned), education(focusing primary, secondary and higher education ) and job opportunities( rural development and works under different schemes) are few areas where progress has been noticed.

The spectrum of regional inequalities in India is very wide with Punjab and Bihar having per capita income of Rs 25,048 and Rs 5,466 respectively at the opposite ends. In 1965, Punjab's per capita income at Rs 562 was just 1.7 times that of Bihar's Rs 332. Since then, Punjab's per capita income has grown 45 times and is now almost five times Bihar's. The latter State's per capita income, in contrast, grew by just 16 times. In the same period, the national per capita grew from Rs 490 to Rs 16,707 or by 34 times. Quite clearly, Bihar has been growing at a much slower pace than the rest of the country, while Punjab has been growing faster (Mohan Guruswami, 2004 )

The unique challenges faced by states like Bihar, according to the study by CII-Ernst & Young (2004), range from huge infrastructural requirements and socio-economic backwardness to law and order, over-population and poverty eradication. Bihar, accounting for a seventh of the country's population below the poverty line, faces severe challenges such as low investment rates, weak transport system, lack of water management and fragmentation of land holdings.

While the development model and progress above speaks of logic, the bigger question is, how to create an enabling environment for enterprise to flourish, taking them out of shackles.The objective of attracting investments would much need the market forces rather than mere invitation from the government.

A quick assessment on state’s potential suggest farming, industries such as, agri-products, dairy, fisheries, art and handicrafts, silk, sugar, cement, paper, engineering goods and machine tools etc having hidden potential. The patenting of Madhubani paintings under geographic indications, similar application for lichi and katarni chura (beaten rice) can be seen as unfolding of such potentials. Large projects in power generation, railway manufacturing plants and other infrastructure related projects are identified as other growth propelling opportunities. Tourism, hospitality and food sector with few of its ethnic delicacies are other high potential sectors(www.gov.bih.nic.in)

Explaining business possibilities in emerging markets,(Khanna and Palepu, HBR 2005), highlight the role of information asymmetries and incentive conflicts between buyers and sellers which paralyze the markets from operating effectively. The concept of ‘institutional voids’ arising out of such information asymmetries or for other reasons discussed here, appropriately help explaining the situation of the state. For instance, a farmer in Bihar may not know or doesn’t have the opportunity to know the price he must get for his produce. Similarly, a marketer in ITC or Hindustan Lever or Godrej may not have an interest or an opportunity to assess or understand the quality or worth of this farmer’s produce in presence of better alternatives or because of lack of information or lack of easier access. While the marketers still thrive in other places, the farmers in Bihar suffer and so suffers the sector and the economy.

Advanced economies have devised many such institutions to make their markets work well. In Indian context, ITC developed e-Choupal model which not only mitigated information asymmetry, but also created a model which connects the value chain of farmers’ produce to markets(www.echoupal.com). Incidentally, it is only the states like Madhya Pradesh, Andhra Pradesh and few others which benefited and Bihar still remains eluded. Similar problem are witnessed in other sectors as well.

Advanced economies in their quest to mitigate high transaction costs have developed several complementary solutions: credible information disclosure, enforceable contracts, market intermediaries and market regulation. Disclosure of high quality and credible information reduces information asymmetries. Enforceable contracts ensure that buyers can be confident that sellers will not behave opportunistic. Market intermediaries help buyers and sellers come together to conduct transactions efficiently, by providing aggregation, certification analysis and advice. Market regulation ensures fair play by all parties by defining and enforcing a clear set of rules. All of these mechanisms rely on extensive soft and hard infrastructure. This infrastructure includes physical infrastructure for low cost movement of goods from producers to retailers. In the labour market, educational institutions not only help develop human capital but also certify its quality through graduation requirements. Placement agencies and headhunters allow employers to find talent. In emerging markets like Bihar, many of the above institutions are either under developed or are entirely missing. Many challenges and opportunities for investing and managing in emerging markets like Bihar arise out of the ‘institutional voids’ because the above are absent.

For anyone interested in emerging markets, spotting institutional voids is a key first step. In Bihar, besides information asymmetries and absence of professional intermediaries, investors may identify such voids out of reasons in political and social system, openness, product markets, labour markets etc. Questions concerning articulate laws and private property protection; religious, linguistic, regional and caste groups’ peaceful coexistence; tolerance for corruption in business and government and trust to honour a contract define voids emerging out of political and social system. Are the government, media and people receptive to foreign investment; whether citizens trust companies and individuals from outside state, gestation time taken to start a new venture in the state and how cumbersome are the government’s procedures for permitting the launch of a wholly foreign – owned business, these help to understand the voids. In product markets, questions those help in identifying voids concern available reliable data on consumer tastes and purchase behaviours, understanding, if cultural barriers to market research exist and if world class market research firms operate in the state or no. Whether consumers easily obtain unbiased information on the quality of goods and services they want to buy and if companies can access raw materials and components of good quality. If a deeper network of suppliers exist or no and whether, there are firms that assess suppliers’ quality and reliability. Can companies enforce contracts with suppliers and if there are strong logistics and transportation infrastructures? Have logistics companies set up local operations? Is it difficult for companies to collect receivables from local retailers? Similarly, in labour markets, few of the relevant questions those highlighted to identify voids are, how strong is the education infrastructure, especially for technical and management training? Does it have a good elementary and secondary education system as well? Do people study and do business in English or in another international language or do they speak a local language. Are data available to help sort out the quality of the educational institutions? What are the major post recruitment training needs of the people that companies hire locally? (Khanna and Palepu, HBR 2005)

Instances are suggested, where companies have converted these voids into opportunities by reducing information asymmetries and guaranteeing contracts – in markets for products, talent, capital and ideas. Firms configure and coordinate individual activities in response to institutional voids. For instance, Nike, whose operations are global in nature, designs its products in the United States, uses production facilities in emerging markets such as Indonesia, China and India and sells to customers all over the world, especially to those in developed countries with high disposable incomes. This multinational has built up a model filling the voids, as it brings together, the low cost shoe producers in emerging markets with the affluent consumers in western markets. Nike performs the following functions; access to market research and product design talent; access to brand development capabilities; access to advanced capital markets that are willing to finance firms with intangible assets and risky prospects; access to demand forecasting as well as logistics and distribution capabilities; access to sources of high –quality raw materials at low costs; access to retailer channel relationships. Nike is able to provide these relationships; it is able to add value to fragmented low-cost emerging market shoe producers and to customers in advanced economies who seek to buy high quality branded shoes at affordable prices(Khanna and Palepu, HBR 2003).

Nike example has a message for firms - home country firms or multinationals, who must see such voids in the state economy and come forward to convert these voids into opportunities. Firms can well create value for themselves by stepping into either of these following roles (Khanna and Palepu, HBR 2003). Presently, around half of the migrants to outside states work as casual labours on a piece rate basis of Rs 2000/- to Rs 4000/- depending on the skill and the amount of work done ( Overseas Development institute, London Report, 2006) As credibility enhancers (third party certification of the claims by suppliers or customers) as the state lies very low in terms of credibility certification. As information analyzers and advisors(collect and analyze information on producers and consumers in a give market), whether it is the silk industry or lichi growers. As aggregators and distributors (provide low cost matching and other value added services for suppliers and customers through expertise and economies of scale) in area of processed agro products, ethnic food items, better packaging, brand building and promotion. As transaction facilitators (provide a platform for exchange of information, goods and services, provide support for consummating transactions)for retail outlets, e-commerce, image enhancing transaction platforms in national or international fairs etc.

The government or the chambers of commerce and trade bodies, on their side, must address their concerns towards the following issues, which an investor would normally ask for spotting institutional voids. It may not always be feasible for the investor to convert these voids into opportunities or identify intermediary institutions to fill up these voids enabling the market economy to function in a matured manner.

In conclusion, it is the business and corporates who have to innovate and experiment new business models and initiatives to create opportunities out of the existing voids. Also, the state must focus on building voids for the market forces to mature so that the enterprise can flourish. Growth models planned for the economy is important but nothing less is important to build the markets stronger if that is to be integrated well with rest of the markets within and outside the country.

*Associate Professor,International Business & Strategic Management, IMT Ghaziabad, rthakur@imt.edu

Comments...

Enjoyed Reading. Infact, many can post ideas or business models which can create wonders like Nike !

Bhargavi Thakur

bhargaviidol@yahoo.co.in