Formal and informal institutions
In the article “Institutions, power and policy”, Hyden describes the difference between formal and informal institutions and how the difference between these two can result in dysfunctional institutions and policies in Africa.
A formal institution is impersonal: Everyone gets the same treatment, independent of whom they know or where they’re from. The rules are set according to the law, they are written down and can’t be changed easily. Helmke and Levitsky (2004) define the distinction as follows: ‘formal institutions are openly codified, in the sense that they are established and communicated through channels that are widely accepted as official. Informal institutions are socially shared rules, usually unwritten, that are created, communicated, and enforced outside of officially sanctioned channels’.  Formal institutions are much more personal: This often includes face-to-face interactions with authorities. This may seem more effective since communication doesn’t have to go past so many different bureaucratic stages. However, this particularistic approach can end up being unfair to those who don’t happen to have a connection with the authorities. Also, actions taken by informal institutions can be less effective because they are often vague and unofficial. Also, these types of institutions often don’t act in a way that is driven by the organization goal, that should be beneficial to society in general, but by personal gain.
These characteristics described by Hyden in relation to African society, can very much be seen in Indian society as well: “In India, the informal institutions for corporate governance are largely substitutive in that they compensate for ineffective formal corporate governance institutions but the goals are not in conflict with those of the formal institutions”. 
In our project, we will probably encounter this when working with local businessmen; that they will tend to make agreements that are not on paper. In order to be sure of the cooperation, we should make sure to build mutual trust and understanding, so we know we’re on the same page. In order not to get wound up in a corrupt situation, it is important to make clear deals that are backed up by contracts.
Shame as a facilitator of corruption
As mentioned above, Indian society has many informal institutions, which can lead to corruption. In ‘A moral economy of corruption in Africa?’, Sardan analyses additional reasons behind corruption, ones that go beyond institutions and into the morals and psychology of Africans. He explains how shame can enforce corruption instead of decrease it. Instead of being ashamed for being involved in corruption, many Africans would rather be ashamed not to if that would mean to refuse a favour to a person of power or to refuse a gift in turn for help.
The same applies to Indian society: Shame is a very powerful means of social control and people would do anything rather than placing shame on their family or heritage. Thus, people would rather not denounce a relative guilty of embezzlement, for example, or engage in corruption in order to stay in good terms with someone that is close to the family.
In our project, we could run into this as well. We need to understand that locals would do anything to avoid shame and thus make sure that we, in any way, put them in a position where doing the right thing could cause shame for them.
The goal of our project is to produce lemongrass oil that can be sold to provide an income for the local population. The finalized product can be sold in different markets. For example, the choice can be made between selling it locally, in cities like Coimbatore, of it can be sold internationally. As Hansen discusses in his article, internationalization can be done in two ways: upstream and downstream. In upstream internationalization foreign technologies and skills are the base for internationalization. In ‘Upstream and Downstream Processes of Internationalisation: Some Ghanaian Evidence’, Kuada explains, “in downstream internationalization you expand into foreign markets. In these (upstream) suppliers provide the exporting firms (downstream) with not only higher quality technology and components but also managerial skills and information about foreign market opportunities. Upstream and downstream internationalisation processes are therefore mutually reinforcing and jointly help developing countries to be integrated into the world economy.” 
Where downstream internationalization mostly is done based on a strong home-market position, there is also a possibility to do it from a weak or non-existent home-market position. Vicky Fish is an example of the latter form of downstream internationalization. Vicky Fish started directly with the export of frozen fish to European and Asian markets, without bringing any products on the Tanzanian market. We think this is also the way to go with the lemongrass oil. Lemongrass oil is a luxury product. The local population doesn’t have a large income and thus we think there won’t be a large market for a product such as lemongrass oil. So instead of selling the oil locally the example set by Vicky Fish can be followed. The oil can be exported to more wealthy parts of the world such as Asia or Europe, where there is a higher demand for luxury products. So from a weak home-market positions, the lemongrass oil can be sold in other, more luxurious markets.
Value chain integration
By definition, a value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. 
Where contemporary managements argue that a company should focus on their core competencies, the lemongrass oil ‘company’ should follow the example of the Tanzanian companies. Hansen gives the example of two Tanzanian dairy enterprises, ‘Tandairies’ and ‘Tanga Fresh’. These companies spend considerable time and resources on developing their supply base. The strategic focus was diverted toward tasks related to distribution and sales. In other words, the Tanzanian companies diversify along their value chain.
With the lemongrass oil the focus can also be on the sales part, and not only concentrated on the core competency. Local people that work under good working conditions produce the oil. Besides that, the whole distillation unit works on solar power. If the oil will be packaged in an environment friendly package, the oil can be sold in European and Asian markets as a totally green product. Then the focus is not on the excellence of the lemongrass oil, but on the fact that it is environment friendly.
The main reasons for a company to chose this strategy over the specializing strategy, is the lack of linkages along the value chain. Additionally, the transaction costs of external contractual relations high along the chain, so in the end it is more cost efficient to provide all the services yourself.
 Helmke G, Levitsky S. Informal institutions and comparative politics: a research agenda. Perspect. Polit. 2004;4:725-740
1) W. Hansen, T. Langevang, L. Rutashobya & G. Urassa, 2015. Coping with the African Business Environment: Strategic Response under Market and Institutional Uncertainty in the Tanzanian Food Processing Industry. CBDS Working Paper Series, No. 24. http://openarchive.cbs.dk/bitstream/handle/10398/9200/Hansen_et_al._coping_with_the_african_business_environment_no_24_working_paper_2015.pdf?sequence=1
2) Hyden, 2008. Institutions, Power and Policy Outcomes in Africa. Discussion Paper
3) P. Olivier de Sardan. A Moral Economy of Corruption in Africa? In: The Journal of Modern African Studies 37 (1999) 1: 25-52.