Social capital and competitive advantages of family businesses

Social capital and competitive advantages of family businesses

Article Type: Editorial From: International Journal of Entrepreneurial Behavior & Research, Volume 21, Issue 6

Introduction

Throughout history, family businesses have been the dominant form of enterprise in economies around the world. The longevity and sustainability of family businesses can be attributed to factors such as the social capital accumulated within and beyond family firms (Sundaramurthy, 2008). In recent years, social capital has been used as a theoretical framework to further understanding of behaviour and performance of family firms (Pearson et al., 2008; Adler and Kwon, 2002; Arregle et al., 2007; Carr et al., 2011). Research shows that social capital may decrease information asymmetries, enable access to broader source of information (Pearson et al., 2008), and encourage cooperative behaviour (Pearson et al., 2008; Leana and Van Buren, 1999).

Family businesses, as a group, differ from non-family businesses (Hoffman et al., 2006). For example, we know that family businesses are less likely to venture overseas (Graves and Thomas, 2004), but financially outperform their non-family counterparts in certain contexts (Graves and Shan, 2014). These differences in behaviour and performance stem from the interaction of the family and business systems (Sirmon and Hitt, 2003). Habbershon and Williams (1999) argue that the interaction of these systems creates “familiness”, which refers to “[…] the idiosyncratic firm level bundle of resources and capabilities” (Habbershon et al., 2003, p. 451). Familiness has been attributed as the source of competitive advantage for family businesses. This may be because familiness has been associated with business characteristics such as trustworthiness (Orth and Green, 2009), low intra-firm and inter-firm transaction costs (Cruz et al., 2010), employee loyalty and commitment (Tagiuri and Davis, 1996), and patient capital (Hoffman et al., 2006). Pearson et al. (2008) argue that social capital theory is particularly relevant to understanding the nature and effect of “familiness” because social capital reflects “the character of social relationships within the organisation, realised through members” levels of collective goal orientation and shared trust (Leana and Van Buren, 1999, p. 540).

To date, little is known about the nature of social capital in the family business context and the extent to which it can be a source of competitive advantage, and in what circumstances it will lead to superior financial performance. As a consequence, the purpose of this special section is to further our understanding of social capital in the family business context. The papers incorporated in this spe6cial section stem from a group of authors who are from varied academic disciplines and adopt a range of theoretical frameworks and research methods. An overview of each of these papers is given below.

Papers in this special section

The special section starts with a conceptual paper from Nordstrom and Steier. By defining the notion of social capital, reviewing its dominant dimensions, and appraising the ways in which social capital has been applied within family business research, the authors develop suggestions of ways in which the concept could be extended, from a symbolic perspective. They argue that both views of social capital, as either enabling or hindering a family firm’s development of competitive advantage, can be substantiated, depending on different circumstances. They believe that dimensions of social capital are not fully outlined. Within the family business field, this may be connected to the over-emphasis on business theories and the desertion of family theories. The paper incorporates a family theory as the consequence, namely symbolic interactionism, which focuses on how individuals via interactions create symbolic worlds and how these worlds in turn influence human behaviour. The authors believe symbolic interaction can provide a new lens for family business researchers and practitioners to understand family firms, social capital, and competitive advantage. On this basis, they suggest that social capital should have a fourth dimension, namely symbolic dimension, beyond the three conventionally stated structural, relational, and cognitive dimensions. This may add to both the family business and the social capital literature. In fact, the symbolic interactionism may extend family business research implemented in the social capital perspective by challenging the underlying assumption that social capital simply lies in the formal structure of the ties. On the other hand, symbolic interactionism may broaden social capital research conducted in the family business context by investigating more novel and idiosyncratic family-related questions.

The second paper by Shi, Shepherd, and Schmidts examines the impact of social capital, in particular, trust as a relational form of social capital, on family businesses in China. By employing an inductive case-based approach, the authors identify the origins of trust in family businesses and the impact of trust on the entrepreneurial development of family businesses. They identify three patterns of trusting relationships in family businesses, namely, goodwill-based, competence-based, and contract-based trust. They recognise while the traditional goodwill-based trust continues to form the foundation of trust, individual competence and contractual commitments are important for trust formation in family businesses, especially those controlled by descendants. This finding is important as it identifies how trusting relationships evolve in the multigenerational family business context and how it differs compared to founder-controlled firms. Further, the authors argue that goodwill-based trust is associated with a greater family orientation and as a result may only lead to incremental innovation. Conversely, those family businesses that rely on contract-based trust are more likely to be market-oriented, and they are more inclined to engage with radical innovation. The study also identifies two “side effects” associated with trust. First, the overreliance on certain individuals as a result of interpersonal trust may lead to negligence of opportunities that could be brought in by others who have weak ties with the family. Second, misplaced trust in the competency of an individual may result in sub-optimal business performance. This finding may encourage owner-managers to reassess the level of trust bestowed to certain individuals in their businesses and the level of decision-making autonomy given to them. Another contribution of the paper is that it explores social capital and trust in the transitional Chinese economy context where family businesses are increasingly accepted in the society, but remain under-researched. The Chinese idiosyncratic social-cultural ground, conducive to social capital cultivation, offers a convincing venue for this study. As such, the findings derived from this research that a subtle difference exists in the structure of trusting relationships and the variation affects the development of family businesses may add to the extant family business literature.

The third paper from Tata and Prasad examines how social capital enables immigrant family businesses based in the USA to develop and access the advantages from networks and improve their performance. The authors focus on two attributes of social capital, namely, structural and relational social capital. Based on a sample of 170 immigrant family businesses accessed via snowball sampling, the authors find that structural and relational social capital possessed by owner-managers differ in their impact on network benefits (defined as access to information and resources in this study). In particular, relational social capital of owner-managers will influence their access to both information and resources, while structural social capital can only influence access to resources. Moreover, the two attributes of social capital are identified to be able to effect business performance via network benefits, that is, network benefits mediate the social capital attributes-business performance link. This recognition advances family business research as it provides a perspective on the mechanism connecting social capital and performance. It may further explain the conflicting results reflected in the immigrant business literature about the social capital-performance nexus. Beyond the analysis of structural and relational social capital held by owner-managers, the study also examines the role of family ties, immigrant community ties, and immigrant community capacity in influencing performance. Family ties are the second layer social capital credited to the firms, beyond the layer of individual ties, whilst immigrant community ties show how well-embedded immigrant family businesses are in the co-immigrant communities. Findings suggest that family ties affect business performance through network benefits and immigrant community ties only positively influence business performance when the communities have the capacity to provide access to information and resources. The study challenges the conventional single-level approach to social capital examination by inspecting this special set of capital at the individual, family, and community levels. As such, the finding that different levels of social capital have varying effects on network benefit acquisition and subsequent performance furthers our understanding of immigrant entrepreneurship.

The fourth paper from Hadjielias and Poutziouris makes a pioneering exploration by investigating the role of trust in the cooperative relations between family businesses. The case-based study originates from a cooperative association embracing 40 retailing family businesses in Cyprus. Drawing upon an 18-month study with data collected from 16 actors associated with the cooperative association, the authors find that the emergence of cooperative relations is a consequence of a set of critical conditions, including trust, altruism, and collective thinking. They argue that the presence of these conditions creates an environment where stewardship culture can be easily nurtured. Such an environment brings together family members from diverse family firms to collaborate. Moreover, friendship between family leaders and congruence of family values may reinforce these conditions, consequently contribute to the sustainability of the cooperative association. Interestingly trust, at the centre of the cooperative relations, was found to be able to create an altruistic culture and stewardship atmosphere in family firms. These, in turn, may together contribute to the inter-firm cooperation between family constituents. On the other hand it is also recognised that the positive influence of trust on the cooperation between family businesses may be moderated by self-interest and outcomes of critical events. Family business actors are therefore encouraged to relinquish their self-interests if they wish to maintain smooth cooperative relations with other actors and pay attention to major incidents. The study taps into the domain of cooperative inter-organisational relationships by examining the role of trust in enabling family businesses to build up cooperative relations. It is the first empirical investigation of trust and cooperative association in the family business context. As such, research findings arising from the study not only extend the research boundary of cooperative inter-organisational relationships to the family business context, but also offer new perspectives about under what circumstance cooperative associations between family firms may emerge and survive and what role trust can play in these processes.

The fifth paper by Mani and Lakhal analyses the direct impact of social capital on performance of family businesses based in Tunisia, Africa. Similar to the second paper from Tata and Prasad, Mani in this paper treats social capital as a multidimensional construct but uses three components of social capital, i.e. structural, relational, and cognitive social capital, a typology originally suggested by Nahapiet and Ghoshal (1998). The study follows a deductive survey-based approach, and the authors garner data from 114 family businesses. Because family firms often pursue non-economic goals such as maintaining family harmony or upholding the firm’s standing in the community, Mani examines both financial and non-financial firm performance. Research findings suggest that both structural and relational capital can influence financial and non-financial performance of family businesses, while cognitive capital is only associated with financial performance. The finding that social capital may influence the achievement of financial and non-financial objectives is of relevance to the family business literature. It is important to emphasise that the research setting of the study per se is of relevance. Management papers published in the mainstream journals are often related to North America and Europe, whereas Africa is largely ignored due to various reasons, such as lack of data access, business reluctance to collaborate in research, and insufficient institutional support for research. In this context, this study’s findings are of particular value, as it not only enhances our understanding in the under-researched family business social capital field, but also gives us insights of family businesses in an emerging African economy.

Conclusion

Social capital, as a theoretical lens, has the potential to offer compelling analysis of family businesses and provide insights for family business and the broader management disciplines. Since the angle is nascent, there is ample space for further exploration and development. The editors of the special section appreciate the Editor-in-Chief Paul Jones’s support of this special section at International Journal of Entrepreneurial Behaviour and Research. The editors would also thank Rodrigo Basco, Donella Caspersz, Elias Hadjielias, Iiro Jussila, Rania Labaki, and Daniel Pittino for their generous help in the review process.

Yong Wang, Panikkos Poutziouris and Chris Graves

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