Relevance of Social Networks for Ethnic Entrepreneurs - Essay Example

?The Relevance of Social Networks for Ethnic Entrepreneurs Introduction Much of the research on ethnic entrepreneurship has stressed the challenges and opportunities experienced by ethnic entrepreneurs, particularly those associated with resources, capital, and market access. Empirical work is slowly moving towards examining institutional forces, like culture and personal networks, to fully understand differences in the economic development of ethnic entrepreneurs. Social capital, an idea that has received a great deal of attention recently, has seldom been explored in terms of ethnic entrepreneurship. Scholars emphasise evidence that demonstrates the capacity of personal networks or social capital to consolidate important resources for the development of ethnic entrepreneurship (Etemad & Wright, 2003). This essay discusses the relevance of personal networks among ethnic entrepreneurs in the current business environment. The discussion emphasises the significance of social capital in surpassing major challenges to entrepreneurship. Several researchers exploring ethnic enclaves have reported that social capital largely contributes to the business success of ethnic entrepreneurs. These researchers have a tendency to place emphasis on the importance of social capital as an alternative to dealing with established political and financial entities rather than on how dominant development resources and community may work together (Cavinato, 2012). The primary finding is that several ethnic or immigrant groups are quite successful in their use of personal networks to attain economic successes. It is a fact that ethnic entrepreneurs require skills, financial resources, and social support in order to survive and thrive. Personal networks can have favourable economic outcomes by enhancing other community resources. One of the greatest relevance of social capital to ethnic entrepreneurship is in the arena of public policy, policymaking, and political institutions (Cavinato, 2012). For instance, social capital has indirectly influenced development of financial resources by first influencing public policy and political perspective. Social capital can influence development of physical resources. It has the capacity to affect public policies associated with human capital and wages, like livelihood policy (Light & Bonacich, 1991). And it can influence the market policies that oversee business development and entrepreneurial prospects. Beginning with the research on ethnic economies, social scientists and entrepreneurship scholars have placed emphasis on several core variables that seem to partly explain the consolidating attributes of ethnic entrepreneurs and communities into enclaves. In this field, analysis of behaviour unavoidably includes descriptions of personal networks, social embeddedness, and social capital (Saegert, Thompson, & Warren, 2005). Lately there has been heightened emphasis on the importance of exploring the dynamics of ethnic entrepreneurship and how its economic mechanisms are attached to governance, cultural, religious, and social forces that finally determine the characteristic of an ethnic community. Personal Networks, Social Capital, and Ethnic Entrepreneurship Ethnic entrepreneurship emerges today in various societies and cultural contexts. Nowadays, ethnic entrepreneurs are a part of a business environment in almost all nations across the globe, drawing much scholarly interest. Enclaves of ethnic entrepreneurs can be seen in the United Kingdom and other Western countries. Ethnic entrepreneurship is generally regarded an important component in the economic structures of Western countries and the revitalisation of the small business community (Piperopoulos, 2012, p. 84). However, it would be misleading or inaccurate to lay down a single, strict definition of the concept of ‘ethnic entrepreneurship’ or ‘ethnic entrepreneur’. Ethnic entrepreneurs are commonly defined in the literature as “sojourners who work harder, save money, spend less by living frugally, have preferential access to limited, low cost funding from family and community resources and use social networks to find market opportunities as well as cheap labour” (Piperopoulos, 2012, p. 85). In numerous industrialised nations, like the UK, U.S., and Canada, immigrants have problems penetrating the mainstream market or economy. Analysing various immigrant and ethnic communities and trying to determine the reason for the different extent of entrepreneurship among the communities is referred to as ‘ethnic entrepreneurship’ (Co, 2006, p. 313). Ethnic communities can have a considerable effect on the national economy and entrepreneurial activity. Hence it is necessary to recognise aspects that are typical of immigrant and ethnic communities. Waldinger and colleagues (1986 as cited in Volery, 2013, pp. 30-31), in attempting to determine the reason why some members of an ethnic group are more business-minded or entrepreneurial than others, developed four primary assumptions: the situation, the ethnic enclave, structure, and culture. The cultural component refers to the cultural capital or tendencies that may result in business success (Dana, 2007b, p. 18). It is argued that ethnic and personal networks provide human and financial capital to ethnic businesses through the relationships or bonds rooted in obligation and trust. The structural component views ethnic entrepreneurship as a reaction by ethnic groups to the cultural estrangement and discrimination they experience in the host country. The ‘ethnic enclave theory’ claims that the first economic role played by early ethnic groups greatly influences the economic prospects and status of succeeding generations of ethnic groups in the host country (Dana, 2007b, p. 18). The situational component refers to the connection between an ethnic group’s cultural and economic resources and structure of economic prospect (Jones, 2004, p. 81). Personal networks are essential components of the social environment that boost ethnic entrepreneurship. Empirical findings have shown that ethnic entrepreneurs have a broad array of personal networks or informal contacts (Smallbone, Kitching, & Athayde, 2010). According to Portes and Rumbaut (1990), “Ethnic networks provide sources of information about outside employment, sources of jobs inside the community, and sources of credit and support for entrepreneurial ventures” (as cited in Davis, 1996, p. 19). Ethnic entrepreneurs’ training, knowledge, and abilities are usually gained through past experiences with an enterprise of an ethnic fellow. A job in an ethnic company helps co-ethnics gain knowledge of all facets of business and management; skills and knowledge they would not acquire working in a rank-and-file status in a major native-owned enterprise (Smallbone et al., 2010). Portes and Landolt (2000 as cited in Levitte, 2004, p. 44) illustrate how members of an ethnic community provide several of the integral resources for new garment businesses in San Pedro in Guatemala (as cited in Levitte, 2004, p. 44): The expansive social networks that link San Pedro’s microentrepreneurs facilitate the flow of a variety of resources. Apprenticeship in the workshops of family, friends, and acquaintances represents the first step in establishing an independent outfit. Financial assistance for starting a workshop is typically given by kin, and once a workshop is established, friends and family in San Pedro refer the new entrepreneur to the international firms with which they have been working. In San Pedro Sacatepequez both altruistic and instrumental sources of social capital facilitate the sharing of knowledge, capital loans, and business contacts with manufacturing firms. Research on the role of individual in society in relation to other people has usually been the focus of sociological studies. Past research placed emphasis on the relationship of the individual with primary and secondary groups. The primary group comprises members of the family, relatives, or other members of the community who had a significant influence on the person. The secondary group is composed of those with lesser influence on the person (Brinton & Nee, 1998). Recently, another group was introduced. This group comprised all those which a person conferred with on a broad array of issues. These relationships are known as ‘social networks’ (Brinton & Nee, 1998). It is believed that having wide-ranging social networks is a condition for building a thriving business. These social networks offer massive volumes of information associated with starting a business and hence will have a considerable influence on the decision of a potential entrepreneur whether to build an enterprise (Davidson, Fielden, & Omar, 2009). Even though the relevance of social networks has been widely researched in relation to immigration, the relevance of social networks has been inadequately researched in relation to ethnic entrepreneurship. Boyd believes that inadequate attention has been given to the relevance of personal networks among ethnic entrepreneurs in the current business environment. She thinks it would be a crude generalisation to say that these personal networks contribute by building contacts and providing information (Davis, 1996, p. 20). The nature and purposes of these ethnic networks must be explored. Personal networks in an ethnic community can positively contribute to the availability of economic resources and information. Access to and availability of information is very important for entrepreneurs both in the building and the maintenance of their businesses. Entrepreneurs require information on market conditions, potential business sites, price behaviour, and industrial trends (Minniti et al., 2006). They also require information on experts who can offer financing and legal counsel. As argued by Waldinger and colleagues (1990), “much of the information essential to entrepreneurs is gathered through ethnic channels. The ability of an ethnic community to provide the full range of information and services essential to the success of an enterprise depends in part on the size of the community and the length of time it has been established” (as cited in Davis, 1996, pp. 20-21). Categories of information which may be acquired through social networks are potential business types, management needs, trustworthy suppliers or partners, legal policies, and permits. Because of this social network, entrepreneurial opportunities are higher for ethnic members in ethnic businesses than for their counterparts in bigger mainstream ethnic group companies (Cassarino, 1997). Membership in numerous and varied social institutions creates personal networks that, even though may not be associated with business, in due course may encourage entrepreneurship. Afterwards, when numerous businesses are built, organisations surface whose purpose is to endorse businesses through the process of economic and social networking (Davidson et al., 2009). The presence of ethnic organisations is an essential aspect in ethnic entrepreneurship because it is through these institutions that personal networks and social contacts can be created which will consequently bring in future business opportunities. According to Portes (1987), “The hypothesis is that the greater the diversity of institutions and the stronger the participation in them the more likely a group is to develop an entrepreneurial presence” (as cited in Davis, 1996, p. 21). Researchers have discovered solid ethnic social networks among different ethnic entrepreneurs across the globe. Light and Bhachu (1993), in their examination of entrepreneurship among Africans, Japanese, and Chinese before the Second World War, discovered the value of casual social networks. They also discovered the value of social solidarity which is believed to be a valuable component of ethnic entrepreneurship. Solidarity enclaves assembled to help Asian entrepreneurs. Light (1980) reports that “Informal association also channelled business-related values, information, and skills in the Asian communities so that high rates of business activity naturally resulted” (as cited in Davis, 1996, p. 22). Ethnic solidarity is a form of ethnic asset which could be used in the formation of businesses. Portes (1998) discusses the effect that social processes have on economic activities, drawing on immigration studies to demonstrate. Portes (1998) tries to determine the social institutions or processes that encourage or discourage the economic progress of ethnic groups. A crucial component in this is the social capital of ethnic groups for achieving their economic objectives. This social capital arises from and is reliant on social institutions. Portes (1998) and Sensenbrenner place emphasis on two forms of social capital which influence the economic activities of ethnic groups, namely, bounded solidarity and trust. Within the context of bounded solidarity, ethnic groups form an attitude of ‘we-ness’ as a result of discrimination or harsh conditions they face in the host country (Davis, 1996, p. 10). Bounded solidarity influences the economic activities of ethnic groups by raising the possibility of the formation of new social relations which raises the possibility of entrepreneurial efforts and increases the odds of success of these efforts. The degree to which the ethnic group builds the ‘we-ness’ attitude relies on different aspects like the extent to which the ethnic group is discernible from the native peoples of the host country in terms of cultural or physical features (Potes, 1998). The more culturally or physically different a group is from the mainstream population, the greater the discrimination it is expected to experience, the greater the formation of a ‘we-ness’ sentiment and the growth of bounded solidarity (Mitchell, 2003). There is another component which is essential for the formation of bounded solidarity, and that is the degree to which the ethnic group has maintained its cultural traditions and practices. Those groups which continue to practice their cultural traditions strengthen the ties of bounded solidarity (Smallbone et al., 2010). As argued by Portes and Sensenbrenner (1993), “Social capital arising out of situational confrontations is strongest when the resulting bounded solidarity is not limited to the actual events but brings about the construction of an alternative definition of the situation based on reenactment of past practices and a common cultural memory” (as cited in Brinton & Nee, 1998, p. 132). The second form of social capital that Portes (1998) talks about is trust. Trust establishes an understood or implicit responsibility to act appropriately or based on established guidelines. This has repercussions for economic activity because if members of a group do not behave as ordered, informal sources of financial capital for business activities may be denied to them. Creation of informal sources of financial capital may involve low interest loans offered by group members who have had a certain extent of business success (Gajigo, 2008). They are informal in the sense that almost no official procedure is needed and trust in repayment is based on the recipient’s reputation and on trust which is made obligatory by an agreement (Gajigo, 2008). This form of social capital is relevant among ethnic entrepreneurs due to the availability of informal sources of financial capital which facilitate business formation. Studies on ethnic entrepreneurship demonstrate how trust and bounded solidarity are crucial for the success of ethnic entrepreneurs as sources of social capital. Bounded solidarity is formed among ethnic investors, employees, and customers because they are seen as foreigners and they have considerable knowledge of the components of shared nationhood (Dana, 2007a). On the other hand, trust is derived from the exclusion of lawbreakers, who are disconnected from sources of financial assets and prospects in the ethnic economy. As sources of social capital, trust and bounded solidarity do not arise from collective value systems, but from the status of ethnic groups within the broader social structure (Dana, 2007a). The social capital embodied by social networks is essential in obtaining financial and human capital needed for entrepreneurial operation and in building ‘protected’ markets for ethnic products and/or services (Volery, 2013). Cultural elements and social networks support the cost-effective acquisition of needed capital and the creation of protected markets for their products and/or services. With regard to investment, the most important factor is the social solidarity of ethnic communities and of families. Support networks, which serve a crucial function in facilitating the assimilation of apprentices, are also important in giving financial support (Social Capital: Does Gender Matter? 2013). Ethnic institutions, like ethnic alliances, community schools, and religious groups, usually facilitate the accumulation of resources and availability of risk capital. Personal and ethnic networks are also valuable in the recruitment and management of employees. Generally, labour suppliers do not have bargaining power due to the informal status and number of members of ethnic groups (Mitchell, 2003). In addition, ethnic entrepreneurs favour recruiting employees from their own ethnic community or family for they are more trustworthy (Etemad & Wright, 2003). Small, family businesses usually acquire their competitive value through greater accessibility for customers and lower wages. This is normally the situation in every small ethnic business which sells domestic and house maintenance services, which are no longer performed by women who are becoming more and more involved in the labour market (Smallbone et al., 2010). In other words, the social capital comprised of ethnic networks is also important in handling customers and in launching product development or innovations through the availability of ethnic products and/or services and creation of ethnic markets. Conclusions This essay analyzed and explored the relevance of personal networks and social capital among ethnic entrepreneurs within the current business environment. Specifically, this essay looked at the role of these personal networks in surmounting challenges to ethnic entrepreneurship. The discussion focused on social capital, ethnic network, bounded solidarity, trust, and the essential components for relationships with wider social networks. Studies demonstrate how solid relationships and networks are valuable in the everyday activities of a business, as a support network for ethnic members who are trying to improve their abilities and knowledge to meet the demands of entrepreneurship. Personal and ethnic networks have a vital function not just as providers of resources, information, and support, but also as major product consumers and as a support group for improvement. In addition, ethnic networks establish the standards, values, and framework where in a business is formed. This essay also emphasised the major function that location fulfils in access to markets, human, financial, and physical resources. Ultimately, the analysis of personal networks and social capital reveals several of the challenges ethnic entrepreneurs should tackle: the demands of local populations from entrepreneurs, the need to continuously develop and innovate, and access to resources. 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Volery, T., (n.d.) “Ethnic Entrepreneurship: A Theoretical Framework [online] Available at: http://www.academia-research.com/filecache/instr/v/o/817010_volery_chapter_03_ethnic_entrepreneurship.pdf> [Accessed 25 March 2013] Read More