CIAO DATE: 11/02

Creating an Environment: Developing Venture Capital in India

Abstract

In the last decade, one of the most admired institutions among industrialists and economic policymakers around the world has been the U.S. venture capital industry. A recent OECD (2000) report identified venture capital as a critical component for the success of entrepreneurial high-technology firms and recommended that all nations consider strategies for encouraging the availability of venture capital. With such admiration and encouragement from prestigious international organizations has come various attempts to create an indigenous venture capital industry. This article examines the efforts to create a venture capital industry in India.

The possibility and ease of cross-national transference of institutions has been a subject of debate among scholars, policymakers, and industrialists during the entire twentieth century, if not earlier (e.g., Kogut 1998). National economies have particular path-dependent trajectories, as do their national systems of innovation (NIS). The forces arrayed against transfer are numerous and include cultural factors, legal systems, entrenched institutions, and even lack of adequately trained personnel. Failure to transfer is probably the most frequent outcome, as institutional inertia is usually the default option.In the transfer process, there is a matrix of possible interactions between the transferred institution and the environment. There are four possible outcomes: A) The institution can be successfully transferred with no significant changes to either the institution or the environment. B) The institutional transfer can fail. C) The institution can be modified or hybridized so that it is able to integrate into the new environment. D) The institution can modify the new environment. Though A and B are exclusionary, it is possible for transfer to yield a combination of C and D.

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