Theory, Evidence and Implications
Batten Entrepreneurship series
Edited by Phillip H. Phan, Sankaran Venkataraman and S. Ramakrishna Velamuri
Chapter 10: The Value of Social Capital to Family Enterprises in Indonesia
Michael Carney, Marleen Dieleman and Wladimir Sachs INTRODUCTION We hypothesize that in poorly developed institutional environments family ﬁrms enjoy a competitive advantage over professionally managed ones, as family links and tacit business arrangements provide the means for coping with contextual hostility, lack of trust and imperfect information. Because family ﬁrms with simple organization structures may more readily respond to the exigencies of hostile environments they can outperform non-family ﬁrms that are endowed with greater resources and more sophisticated structures (Mintzberg, 1979). Family ﬁrm owner-managers have greater discretion than professional managers to make ‘risky deals’ (Miller and Breton-Miller, 2005), commit the ﬁrms assets ‘on a handshake’ (Blyler and Coﬀ, 2003), exercise a ‘capacity to trust’ (Redding, 1990) and cultivate ‘guanxi’ (Xin and Pearce, 1996). These arguments suggest that social capital is a key resource and the basis of competitive advantage where formal contracts are otherwise diﬃcult to enforce (Carney, 2005). Social capital may be especially advantageous in transitional and emerging economies due to uncertainties inherent in dynamic and sometimes hostile conditions. However many analysts predict that once that transitional/emergent phase has passed social capital will decrease in value and ﬁrm success will increasingly rely upon the creation of proprietary techno-organizational competencies (Kock and Guillen, 2001; Peng, 2003). Established ﬁrms who are immersed in previous stage conditions will become increasingly out of tune with more codiﬁed institutional contexts (Tan, 2005). Meanwhile newcomer ﬁrms are better attuned to emerging conditions and more willing to invest in competence destroying innovations that will...
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