Social Capital In Entrepreneurship
21st June 2017 Gry Osnes
Gry Osnes describes how family firms, especially immigrant family firms, need to build their ‘social capital’, and showcases a positive example.
Businesses ultimately rely on support from the wider community for legitimacy and success.
Ultimately, any business recruits its employees from communities and its license to trade from relevant institutions. Many business-owning families, with a big stake and interest in being able to pass on a business or businesses to the next generation, are adept at harnessing social capital. It’s not just about being good citizens: the competitive advantage of family firms depends to a large extent on their ability to build, nurture and reshape their social capital, according to a 2008 study by Salvato and Melin . This is also a clear finding of our own more recent research.
More than any type of business-owning family, immigrant families show how significant this is, and how it can mitigate political risk. An OECD report in 2010, Entrepreneurship & Migrants, found that entrepreneurial endeavor tends to be higher than average in immigrant communities; also, that they need to have strong social networks.
It highlighted the role of the extended family and people of the same ethnic background in supporting immigrant entrepreneurs, who may lack close contacts with investors and educational institutions in their new country. The position of immigrant entrepreneurial families, and their rights to ownership, may not be secure, so the capacity to build social capital is crucial.
Social capital has three dimensions: family, internal and external. In the best-run family firms the emotional bonds of a family create bonds of trust, strengthening both internal and external social capital. The most committed family firms become part of the communities in which they operate, leveraging social capital to keep growing in the region and globally. The most enterprising create a cluster of enterprises, generating economic opportunities for local populations.
The bonds of trust and internal cohesion in the family and business are extended externally, building networks of support in the wider community, even where this is difficult owing to politics, language and cultural barriers.
Case Study: family business in Tanzania
An in-depth study of high-performing firms in the new publication Family Capitalism shows how an immigrant family in Tanzania built social capital in all three dimensions: family, internal and external. This not only helped gain support and a loyal workforce, but headed off political and economic risks. The family in question is white British, raising a complication in that Tanzania was a British colony until the 1960s. There has been an understandable political preference since independence to promote indigenous businesses.
Family social capital. The family began a safari tourism business in the 1980s, beginning with the founder couple and expanded by the four children in the second generation. One of the sons runs the marketing operations from the United Kingdom. Eventually it included seven safari camps, a small-plane airline, a farm – primarily to provide fresh food for the ranches – and a beach resort. But the family also invested considerably in philanthropic initiatives, especially in the region close to the original safari lodge. They set up an orphanage, some medical services and a nursery.
Internal social capital. The family had, since its founding, recruited employees from the local community around their farm and, after training them, deployed them to businesses in other parts of the country. They trained people in English, as cooks, to other service functions. Importantly they developed their own guides. This made the connection between employees and the family very strong. As the main employer in this local community, the employees would be shamed outside the business if they did not do a good job.
External social capital - local to national. When the founder husband retired from the business, he significantly expanded the philanthropic activities, creating an exit role for himself. He developed an orphanage in the local area, and later set up health clinics. All these initiatives have helped build support and connections in the local community. They have helped develop the voice of the local communities in regional and national politics, and they have lobbied for laws to protect wildlife and stop poaching.
A particular aspect in the context of Tanzania was of importance for this family. There is no private ownership of land, rather land is available to use on lease. In the case of a “sale”, the price that would gain would be the market value of the value of tangible items such as buildings, forest, and other things built on the land. When they first settled, they received a lease for free, and started building.
For the family, the connection between the family, the business and local community is fundamental. As the founders said: "We could not live here, and be given land and say: 'Now this is my farm, thank you very much.' You have to give something back. I think it is just common sense really. I think any normal person should live like that. If you have received generosity and kindness from a community, from a community that has nothing, you strive to give something back that will be of advantage or benefit to them."
Social capital is not just a ‘nice to have’ extra for business-owning families, especially immigrant families. It can make the difference between success and failure.
The lessons for business-owning families, about an effective strategic approach to social capital, is clear, especially for those operating in a different market to their country of origin. There are implications for policy-makers, too.
Find out more - Family Capitalism: Best Practices in Ownership & Leadership is edited Gry Osnes, with contributions by Olive Yanli Hou, Mona Haug, Liv Hök, Angélica Uribe, Victoria Grady, James Grady. Routledge October 2016. Find out more here