Social networks and business success: the role of subcultures in an African context

American Journal of Economics and Sociology, The, Nov, 2004 by Stein Kristiansen

I

Introduction

DEVELOPING ECONOMIES TODAY ARE CHARACTERIZED BY dramatic changes in the direction of liberalization and globalization, not least in Africa. Business entrepreneurs have increased opportunities to enact their business environments and develop profitable enterprises with a wide geographical range. Obviously, opportunities are not equal for all, and we see clear tendencies toward increasing social differences with recent economic growth on the African continent. Local and small-scale entrepreneurs are easily marginalized in open competition with "alien" businesspeople (Kilby 1983) or foreign investors. In Sub-Saharan Africa, there are clear indications that enterprises owned by Asians and Europeans are bigger, more innovative, and faster growing than neighboring firms owned by native Africans (Ramachandran and Shah 1999). Also, differences are seen in business performance of entrepreneurs from various domestic ethnic groups.

It is a recognized fact in socioeconomic research that social networks create social capital of importance for business development. Networks represent a means for entrepreneurs to reduce risks and transaction costs and improve access to business ideas, knowledge, and capital. A social network consists of a series of formal and informal ties between the central actor and other actors in a circle of acquaintances. Social networks are channels through which entrepreneurs get access to the necessary resources for business startup, growth, and success. Social capital is defined as an attribute created in the interaction between people, which increases the strength and value of personal qualities such as intelligence and work experience, and represents a resource for collective as well as individual action (Coleman 1988). Social capital is manifested in norms and networks that enable people to act collectively (Woolcock 1998). According to Lin (1999), the value of a person's social capital is determined by qualities of her or his social network. We shall argue that social networks are also determined by an initial basis of social capital.

The national cultures of the East African countries are fragmented, and ethnicity, religion, and class are only three common bases for faction. Culture, in our perspective, may be usefully defined as a collective subjectivity: a shared set of values, norms, and beliefs. Subcultures within national African contexts are probably of vital importance for the development of value systems, trust, and social networks, and thereby also for business success.

In this paper, focus is set on social networks and business success among a sample of small-scale entrepreneurs operating in the wood business in the coastal town of Tanga, Tanzania. The objective of our research is to indicate any correlation between sociocultural contexts, personal relationships, and the ability to enact one's environment and make a success in business. Complementing theoretical perspectives on social embeddedness (Nobria and Gulati 1994), we argue that entrepreneurs also have an opportunity to develop social relations and to modify cultural bonds. Enacting the business environment, however, also needs resources and certain cognitive frames. We adopt a holistic approach and theoretical triangulation when trying to empirically integrate the entrepreneurial process and its context. The aim is a "combination of theoretically creative and empirically grounded" analysis (Zafirovski 1999, p. 588), closer to "story-telling" than the mathematical line of economic sociology. Few studies are made specifically of the role of social networks in African business, and we use a qualitative methodology to expand theory, rather than proving by statistics the existing theory.

The paper is organized in six parts. After this introduction follows a brief presentation of findings on relations between social networks and business success, mostly from Europe and the United States. Section III presents a theoretical discussion of elements constituting the qualities of social networks for business development. In Section IV we look at stages of an entrepreneurial process and specific resources needed in an African context. Our empirical data, in the form of two case studies, are presented in Section V. One entrepreneur is of Asian origin and the other is from an indigenous African ethnic group. The conclusions and policy recommendations bring the article to a close.

II

Networks and Business Success: A Point of Departure

AN ENTREPRENEUR WHO WANTS TO ENTER A SPECIFIC INDUSTRY faces transaction and learning costs depending on technological sophistication and the level of competition in that business line on the given location. Networks are one way in which entrepreneurs reduce transaction costs and risks and improve learning and information-sharing possibilities. In a region where capital markets are rudimentary, financial disclosure limited, and contract law very weak, interpersonal networks are critical to taking risks and moving economic resources. Trust facilitates cooperation between entrepreneurs, which is just as important as competition in achieving efficiency. Also today, in an increasingly competitive world, networks need to be global. Global linkages are critical for the passing of information and ideas and for gaining experience via learning from others.