In many developing countries of the world large scale, effective business development through entrepreneurial activity ‘should not occur’. Some researchers argue that a reform of the business environment could have a positive impact on the growth of some of the poorest countries. They contend that there is a positive relationship between the ‘ease of doing business’ and the human development index.
The problems posed by an adverse business environment can go much deeper than the mere inconvenience and costs of delays caused by regulation. Excessive government regulation and intervention often function as a means of rent extraction by particular groups in society.
In extreme cases, the perception that businesses become successful by exerting influence or bribing officials ‘to do what they ought in any event to do’ undermines both the link between pecuniary reward and business efficiency and trust in the motives and actions of government.
In India, the problem of an adverse business climate is especially acute. India is ranked 116th (out of the 155 countries) in a ranking which shows how difficult it is to do business according to a series of criteria.
The country also ranks 130th in terms of difficulties in trading across borders and 138th for the ease in enforcing of contracts. Indian senior management spent 12.9 per cent of their time dealing with requirements of regulations compared with 6.4 per cent average worldwide.
Indian officials’ interpretations of regulations are highly inconsistent and licensing laws in India have been notoriously difficult to navigate. This paper shows how the Indian software industry achieved its astonishing results despite the adverse conditions facing entrepreneurs. When given the economic opportunity, domestic entrepreneurs developed new world class business models, and started a demonstration effect for other industries to follow.
Results of the study show the following:
there is very little evidence that imitative excessive entry in the software sector has slowed entrepreneurship down
the response to competitive pressures from imitative entry has been to encourage new entrants to search for business models that add to variety
the new start up firms outperformed the advanced multinational corporations and the large local business house subsidiaries in terms of capital efficiency