Itâs super interestingâand Iâd never heard this take before.
One question I had while reading was: why is this advice to westerners? I.e. if there is money to be made here, why wouldnât people in the countries we are discussing start their own export businesses?
And if the answer is something like âpeople in the west can raise more fundingâ or âpeople in the west have more western connectionsâ would the answer then be to start an organisation to provide these things to entrepreneurs in target countries rather than to start the business yourself?
You write a sentence or two on this but Iâd love to hear more.
My view on the three things outsiders are unusually well-placed to bring, roughly in order of how hard they are to substitute: 1) the ability to cultivate buyer demand in high-income markets, 2) the organizational norms required to run a firm at scale (hiring systems, quality control, non-kin trust, delegation), 3) access to patient risk capital.
The overall answer to âwhy donât locals just do thisâ is that these binding constraints are the things hardest to acquire from inside a low-productivity equilibrium. International buyer relationships and systems-building norms are both learned by doing. Effective pioneer firms should eventually function as transfer nodes where workers and managers carry the practices outward. Bangladeshâs garment industry is the textbook case where a handful of Bangladeshis who previously worked at Korean garment company Daewoo seeded most of the early firms.
To answer your second question, local capacity development over time indeed becomes most of the focus. But in the earliest phase, when no domestic firm has yet demonstrated the model, the bottleneck is having any firm operating at international productivity standards at all. Outsiders (including diaspora, who often have the best of both sides) are over-represented at that stage because they have lower-cost access to the specific scarce inputs.
Another reason having foreigners come in is skill. It can be argued that Bangladeshâ economic development was in parts due to skills transfer from Korean workers to Bangladeshis. So if someone can set up e.g. a 500-person company, with 250 local employees, these will not learn from the 250 foreigners. And like start-ups in the global North, often these will quit and start their own companies where a few of them might move on to become successful.
Knowing Daniel quite well (and this having being my approach to development for years being an exporter in Tanzania), Iâd dare say on the financing side itâs the ârightâ capital thatâs hard to find. There exists already much of the capital around, however itâs all very low risk debt funding and small grants that make it hard to scale. And we arenât talking about VC scalability typically, which again makes it hard to fall in that pigeon hole.
In terms of why is it only Westerners? I think youâll find itâs not, lots and lots of local (and many Chinese) businesses operating, but in the end of the day you need many, many more. And the ones that come from Western founders are possibly higher likelihood of scaling due to the cultural influences that bring systems into companies and allow them to build trust internally outside of family circles.
On paper the absolute perfect people to do this are the diaspora: people who are both sufficiently familiar with local languages and cultural norms and challenges and sufficiently Westernized to be good at dealing with Western consumers and importers and funders.
Obviously some are doing this, just wondering if thereâs much [Western] support infrastructure to help people trying to get into it?
Sure, but I donât think diaspora are better equipped from what Iâve seen over immigrants. Already lots of support for these specific groups, but in general always need more.
Thanks for writing this Daniel!
Itâs super interestingâand Iâd never heard this take before.
One question I had while reading was: why is this advice to westerners? I.e. if there is money to be made here, why wouldnât people in the countries we are discussing start their own export businesses?
And if the answer is something like âpeople in the west can raise more fundingâ or âpeople in the west have more western connectionsâ would the answer then be to start an organisation to provide these things to entrepreneurs in target countries rather than to start the business yourself?
You write a sentence or two on this but Iâd love to hear more.
Thanks Toby.
My view on the three things outsiders are unusually well-placed to bring, roughly in order of how hard they are to substitute: 1) the ability to cultivate buyer demand in high-income markets, 2) the organizational norms required to run a firm at scale (hiring systems, quality control, non-kin trust, delegation), 3) access to patient risk capital.
The overall answer to âwhy donât locals just do thisâ is that these binding constraints are the things hardest to acquire from inside a low-productivity equilibrium. International buyer relationships and systems-building norms are both learned by doing. Effective pioneer firms should eventually function as transfer nodes where workers and managers carry the practices outward. Bangladeshâs garment industry is the textbook case where a handful of Bangladeshis who previously worked at Korean garment company Daewoo seeded most of the early firms.
To answer your second question, local capacity development over time indeed becomes most of the focus. But in the earliest phase, when no domestic firm has yet demonstrated the model, the bottleneck is having any firm operating at international productivity standards at all. Outsiders (including diaspora, who often have the best of both sides) are over-represented at that stage because they have lower-cost access to the specific scarce inputs.
Another reason having foreigners come in is skill. It can be argued that Bangladeshâ economic development was in parts due to skills transfer from Korean workers to Bangladeshis. So if someone can set up e.g. a 500-person company, with 250 local employees, these will not learn from the 250 foreigners. And like start-ups in the global North, often these will quit and start their own companies where a few of them might move on to become successful.
Knowing Daniel quite well (and this having being my approach to development for years being an exporter in Tanzania), Iâd dare say on the financing side itâs the ârightâ capital thatâs hard to find. There exists already much of the capital around, however itâs all very low risk debt funding and small grants that make it hard to scale. And we arenât talking about VC scalability typically, which again makes it hard to fall in that pigeon hole.
In terms of why is it only Westerners? I think youâll find itâs not, lots and lots of local (and many Chinese) businesses operating, but in the end of the day you need many, many more. And the ones that come from Western founders are possibly higher likelihood of scaling due to the cultural influences that bring systems into companies and allow them to build trust internally outside of family circles.
On paper the absolute perfect people to do this are the diaspora: people who are both sufficiently familiar with local languages and cultural norms and challenges and sufficiently Westernized to be good at dealing with Western consumers and importers and funders.
Obviously some are doing this, just wondering if thereâs much [Western] support infrastructure to help people trying to get into it?
Sure, but I donât think diaspora are better equipped from what Iâve seen over immigrants. Already lots of support for these specific groups, but in general always need more.