Building Trust!

Fear swept across China in 2008 as six babies died. About 300,000 others got sick from drinking infant formula sprinkled with melamine, an industrial chemical used in plastics and fertilizers that can cause kidney failure.

The tainted milk scandal spurred dairy farm entrepreneur Charles Shao to double down on quality control in the developing country. He harnessed technology to improve the processing of his herd's milk, going far beyond what Chinese regulations required.

Today, all melamine traces in the baby formula may be gone, but cleaning up China's milk hasn't erased a broader problem. The scare made Chinese consumers so skittish that people are still paying significantly six years later more for foreign milk they feel safer about drinking.

So Shao can't focus merely on selling milk. Instead, he and other entrepreneurs must take steps toward rebuilding a broken bond of trust between the Chinese people and the country's dairy industry, says Tarun Khanna, the Jorge Lemann Professor at Harvard Business School.

"Systemwide change is needed," writes Khanna, who has studied entrepreneurs in developing countries and launched ventures across Asia. That will come from relentless experimentation, an understanding of the specific origins of mistrust in the Chinese food system, and, of course, plenty of time to sort out which experiments will have a truly lasting impact. It falls to entrepreneurs like Shao to weave and maintain a web of trust between consumers, producers, regulators, and the public at large.

In his book, Khanna chronicles Shao and other entrepreneurs' challenges when trying to blaze a productive trail in places like Brazil, China, India, and Mexico. While consumer confidence in developed countries like the United States bolsters by enforceable contracts, an impartial legal system, and strict regulations, none of that is a given in the developing world.

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