New ventures need resources to survive, let alone thrive. In emerging markets, their survival also depends on their ability to deal with what academics call the “institutional void” — the lack of strong market intermediaries ensuring the smooth flow of business. In this void, where rules are loosely interpreted, and information hard to come by, fledgling companies can struggle to find a firm footing in the ecosystem.
Research: How Political Connections Help (and Hurt) Chinese Startups
Connections boost credibility but scare away some customers.
August 16, 2019
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Summary.
New research finds that in China, having strong political ties can be a double-edged sword for new B2B ventures. While political connection can boost a startup’s credibility and access to resources — helping it win suppliers — it can also increase its bargaining power, putting off business customers who would prefer dealing with a weaker partner. In these supply chains, buyers typically want to control startups in order to demand lower prices, better delivery terms, and favors such as risky product co-development. Politically connected startups can be viewed as difficult to control and turn away potential buyers. Startups should thus carefully weigh the pros and cons of political connection. Although the study was set in China, a similar environment would exist in many emerging markets, such as Russia, Brazil, India and certain countries in the Middle East where market institutions remain weak and the state plays an important role in the economy.