Business Success through Social Networks? A Comment on Social Networks and Business Success
Egbert, Henrik, The American Journal of Economics and Sociology
KRISTIANSEN (2004) FOCUSES ON the influence of social and cultural aspects on entrepreneurial success. He refers to the concepts of social network and social capital in order to elucidate the idea that those entrepreneurs who can activate more resources through social networks are more successful than those who cannot. He concentrates on an African context, in particular on entrepreneurs with an African and Asian background in the Tanzanian city of Tanga. His empirical data were collected in 1999 and consist of 12 qualitative case studies on businessmen, all active in the wood business. From the empirical findings he draws conclusions and makes suggestions about possible political measures.
In 1997, I conducted a six-month field research on entrepreneurship in the city of Tanga. I sought to answer the question of whether the social networks of entrepreneurs can be considered a resource or a constraint for their enterprises; in other words, I focused on a research question very similar to that of Kristiansen. The entrepreneurs who I interviewed were the owners of private companies, active mainly in the production sector. The companies were both small (5 to 19 employees) and medium (20 to 150 employees), and their owners were of African, Asian, and Arabic ethnic origin. The data were collected by employing half-standardized questionnaires as well as in-depth interviews, open interviews, and case studies, thus combining quantitative and qualitative methods. Interviews with state authorities and managers of parastatal companies provided additional information. A total of 131 entrepreneurs were interviewed. The results are presented in several papers (for
an overview, see Egbert 2004; for complete results, see Egbert 2001). The topics are the influence of the entrepreneur's religious community on business success (Egbert 1998), the effects of the entrepreneur's family on business success (Egbert 1999a), and the impact of organizational networks on business success in the wood and timber sector (Egbert 1999b).
The fact that two social scientists focus on almost the same research question and conduct research at the same place, (1) unaware of each other's efforts, prompted me to an open response and to discuss research findings critically. In what follows, I draw on my quantitative and qualitative data collected in 1997 to comment on Kristiansen's article. The perspective I choose is that social networks can be considered institutions and that institutions are not cost-free. Concerning Tanzania, transaction costs related to networks are likely to be lower than those of markets. Taking account of this, I follow a new institutional economics perspective on social networks (see also Egbert 2006). Before I proceed with the comment on selected aspects of Kristiansen's research, I would like to emphasize that I agree with many of the points he makes. However, three aspects do deserve more attention, to my mind. They are: (1) social networks as constraints to entrepreneurial success, (2) human capital and social networks, and, (3) generalizations and political recommendations regarding social networks. I focus on these aspects below.
Social Networks and Entrepreneurship
A. Social Networks as Constraints to Entrepreneurial Success
The statement I make that social networks (2) of an entrepreneur can be considered constraints as much as they can be considered resources requires a few notes on the term "success." Indicators for business success of a company are the number of employees, profit, turnover, working capital, capacity utilization, and the years of operation of a company, to mention but some prominent ones. Additionally, the temporal development of the indicators provides further insights, and correlations between indicators also can be helpful to validate the data. For measuring the success of an enterprise I use the following indicators in my quantitative analysis: the level of capacity utilization, the development of capacity utilization and of the number of employees over the last years, and the company profits. …