To succeed, entrepreneurs in developing countries need to build trust within the existing structures. Those who assume that they will have the same legal, governmental, and institutional protections as their counterparts in the west, will fail. And Tarun Khanna’s new book Trust shows how it is done.
Here is an excerpt from his book, that talks about rebuilding lost trust.
In 2008, anxious parents in Gansu Province, deep in the Chinese mainland, began visiting hospitals with their ailing infants. Tests found that several domestic brands of dairy-based infant formula powders they were consuming contained melamine, an industrial chemical used in plastics and fertilizers that can cause kidney failure in small children. Ultimately six babies died and approximately 300,000 were affected during what became known as “the
Chinese milk scandal.”
Somewhere along the supply chain, intermediaries had been diluting raw milk with water and then adding melamine to fool quality tests (melamine is high in nitrogen, and most tests only look at nitrogen levels as a proxy for protein levels). In some cases, dairy farmers themselves engaged in this practice, with the tacit approval of big dairy companies like Sanlu, to squeeze out some extra profits in an industry with very low margins.
Despite government efforts to restrict negative media coverage during that summer’s Beijing Olympics, the scandal caused international outrage. Protests and lawsuits followed. The government eventually tried the chairwoman of Sanlu and sentenced her to life in prison. Two wholesalers were convicted of overseeing the dilution and contamination and then selling the contaminated products with full knowledge of the health risks—and they were actually executed in November 2009. These were unusual moves, since the government rarely cracks down so hard on bad actors in the food industry.
Indeed, this milk crisis was hardly the first instance in which food contamination threatened the health of the Chinese. There was the episode a few years back when farmers’ use of chemicals to accelerate growth resulted in a rash of watermelon explosions. Earlier in 2015, authorities found so-called “zombie beef ” in the supply chain. Certain vendors had somehow gotten access to forty-year-old beef that had been thawed and refrozen many times over and were selling it across China.
And then there was the discovery in March 2013 of more than 16,000 dead pigs floating in a tributary of the Huangpu River, a significant source of Shanghai’s drinking water. China Central Television reported that pig farmers in Zhejiang Province were selling pigs that had died of disease or natural causes to black market dealers, who then butchered them and illegally sold the pork. After a few of these malfeasants were sentenced to life in prison, the lucrative illegal trade in dead pigs plummeted, and farmers started dumping them in rivers in droves, instead of paying to discard them in pits. The images of masked and suited sanitation workers hauling the bloated carcasses out of the river with poles and nets repulsed the residents of Shanghai.
Even so, the tainted milk crisis was different. It struck a deeper chord. Why?
That crisis affected mostly young children and infants. Due to China’s long-standing one-child policy, there is an entire generation of parents who have invested all their hopes and energy into their single child. They are thus willing to go to greater lengths and expense to protect him or her: After the news broke, many parents undertook shelf-clearing expeditions to buy and bring back expensive foreign-brand infant formula from New Zealand, Singapore, and Hong Kong. Years later, this pattern continues.
This response neatly captures the net result of the scandal: Many Chinese simply don’t trust their domestic private food sector anymore. A trust vacuum exists.
This trust vacuum creates a vicious cycle, one that’s difficult to break. The problem stems from all sides in the dairy industry. For example, the price-sensitivity of consumers who are mostly not wealthy drives down prices for companies trying to win the market. This dynamic means that dairy farmers get low prices for their raw milk. If they are to make any profit at all, they have to lower their costs. For a small farmer wrapped up in the myriad daily challenges of running a dairy operation, the most expedient thing to do is to cut corners. Even if a farmer tries to take the high road—by investing in higher-quality feed for his cows, for example— and to recoup his costs by selling milk at a higher premium, it won’t pay off easily. Most consumers wouldn’t place any faith in his efforts, at least not for a while. This lack of trust persists because the level of trust in all dairy producers has become so vanishingly small.
In reality, many different players and methods can be involved with rebuilding trust. But rather than waiting for others to solve the problem, the entrepreneur can be the change agent herself. Her solution may be a tech solution. Or it might harness the community. Or both. She will almost certainly have to reimagine the role of talent, to attract it to an industry now perceived as staid and boring.
Trust by Tarun Khanna is now available. For most posts like this, follow Penguin India on Facebook!