The core reason I lean toward founding new firms is that incumbents in low-productivity equilibria are usually too comfortable within them. They have built local market positions, political relationships, and cost structures around serving captive domestic demand or rent-seeking arrangements with government. Asking those firms to reorient toward globally competitive export production is theoretically possible, but without proof points for why this would be a superior position it is unlikely to be seriously considered. The ambition required to build a globally competitive business is fundamentally a different kind of operator.
On infrastructure: I agree that an outsider parachuting into a country with no enabling environment and trying to build roads, ports, and energy generation is not a viable approach. That is not the model I suggest. The right path is to look strategically at where the ingredients for commercially viable export already exist or are close enough to pull in, and focus pioneering there.
This connects to Dercon’s model of elite bargains: The goal of pioneer firms is not to be the entire industry. The goal is to generate the demonstration effects that shift the elite bargain to crowd-in to building positive-sum industries. This happens once an export pioneer is visibly succeeding: employing workers, paying taxes, earning foreign exchange, returning capital to investors. Exporting and selling to global markets becomes demonstrably viable and hopefully more attractive option than continuing to extract from captive local customers. The firms that broke out in Bangladesh, Vietnam, and Indonesia did not get there through consulting engagements with their pre-existing private sectors. They got there because pioneer firms (often foreign-led, like Daewoo’s Desh joint venture in Bangladesh) demonstrated that globally competitive export production was possible, and the local ecosystem then reorganized around that evidence.
Thanks Truman.
The core reason I lean toward founding new firms is that incumbents in low-productivity equilibria are usually too comfortable within them. They have built local market positions, political relationships, and cost structures around serving captive domestic demand or rent-seeking arrangements with government. Asking those firms to reorient toward globally competitive export production is theoretically possible, but without proof points for why this would be a superior position it is unlikely to be seriously considered. The ambition required to build a globally competitive business is fundamentally a different kind of operator.
On infrastructure: I agree that an outsider parachuting into a country with no enabling environment and trying to build roads, ports, and energy generation is not a viable approach. That is not the model I suggest. The right path is to look strategically at where the ingredients for commercially viable export already exist or are close enough to pull in, and focus pioneering there.
This connects to Dercon’s model of elite bargains: The goal of pioneer firms is not to be the entire industry. The goal is to generate the demonstration effects that shift the elite bargain to crowd-in to building positive-sum industries. This happens once an export pioneer is visibly succeeding: employing workers, paying taxes, earning foreign exchange, returning capital to investors. Exporting and selling to global markets becomes demonstrably viable and hopefully more attractive option than continuing to extract from captive local customers. The firms that broke out in Bangladesh, Vietnam, and Indonesia did not get there through consulting engagements with their pre-existing private sectors. They got there because pioneer firms (often foreign-led, like Daewoo’s Desh joint venture in Bangladesh) demonstrated that globally competitive export production was possible, and the local ecosystem then reorganized around that evidence.