The form and use of social capital among foreign direct investors in their interactions with locals in Northern Laos
Date of Award
Doctor of Philosophy
School Of Business
Faculty of Business and Law
Honorary Professor Alan Brown
Dr Stephen Grainger
The research conducted for this thesis is in the area of international business; it has focused on the emerging market of Laos – and it has in particular sought to identify the form and use of social capital in the northern part of the country. This thesis will present the rationale behind the research, the planning that took place before the fieldwork commenced, and most importantly the findings of the study.
Social capital is a sociological concept that since the early 1990s has gained significant recognition in the literature. While the benefits to holders of economic capital is commonly recognised – the literature argues that other forms of capital exist that, similar to economic capital, can be viewed as an asset that enables holders to reach desired outcomes. At the core of this thesis is the idea that individuals and businesses are embedded in social capital relationships and networks structures - and that these can be viewed as a resource, or strategic asset, which can be cultivated and used to improve business performance.
The benefits of social capital are particularly profound in Asian contexts, where social and exchange relationships have been documented to provide the basis for most business dealings, and where the performance of businesses has been found to correlate with their ability to build and maintain durable networks. Basically, the Western idea of single firms operating autonomously has in the Asian context been proven inadequate; in Asia business success is about relations, social capital, and strategic partnerships. Consequently, it is important for Western businesses expanding into the Asian region to learn and understand how social capital can supplement economic capital in the pursuit of desired outcomes (i.e. returns in the market place). While research has been conducted into social capital in different Asian countries, in particular China, Japan and South Korea, this research has gone beyond the present understanding of social capital by focusing on the Lao context. The study has contributed to the social capital and international business literature – and it will provide investors in Laos with practical guidelines on how to access the resource social capital represents. Considering the unique circumstances of conducting research in one of the last frontiers of the world – a research design was required that could accommodate the flexibility needed in this new territory. For that reason a structured-case methodology, with an interpretive approach, was chosen for this research (as this method is particularly suited for theory that is in its early formative stages). Three case studies, conducted over four fieldtrips, were completed for the study into the phenomenon of Lao social capital.
The structured case methodology is basically an improvement on traditional case study methods that ensures validity through clear links between the research questions, the data collected, and the ultimate conclusions. Furthermore, triangulation enhanced the trustworthiness of the ultimate findings by examining the phenomenon of Lao social capital from many angles; having the same story emerge from a number of cases, respondents, and data sources added to the robustness of conclusions made.
Respondents were carefully selected based on the contribution to theory development they were deemed likely to make. A combination of judgment and snowball sampling was used to identify suitable respondents (given the sensitive nature of social capital this personalised sampling technique enhanced respondents comfort with the research). Respondents were selected from the expatriate community and included a broad range of nationalities (and Lao respondents were included in the study when they formed part of the business networks of the foreign respondents).
During the research it became clear that the importance of social capital for business operations in Laos should not be underestimated. This was emphasised by all respondents involved in the research. In Laos it is not so much about what is in the contract; it is about what is in the relationship. When developed with reputable people, social capital can be viewed as a strategic investment that helps facilitate economic returns in the marketplace. Social capital was found to assist holders to get things done in all aspects of business; to access needed resources and information; to develop local knowhow and expertise; to navigate legal and institutional voids; to gain access to decision-makers; and to form strategic and durable exchange relationships with committed and reliable partners. Lao social capital can basically be viewed as an arrangement that enables holders to pull all the right strings. Lao social capital represents a relationship based around structures (e.g. bonding, bridging and linking) and social norms (e.g. face preservation, trust, reciprocity, and obligatory principles). While bonding social capital was found to be of strong importance among locals – bridging social capital was found to be of particular importance for foreign investors (as they have little networks or social capital upon their initial arrival in the country). Although linking social capital was found to provide substantial benefits (e.g. by speeding up bureaucratic processes) – linking social capital was found to be used less widely among foreign direct investors. Actors operating businesses in grey areas of legislation, or in industries traditionally controlled by the government, were found to have the greatest need for linking social capital.
During the research a number of avenues were identified, which can make the transition from an outsider to an insider take form. The most commonly cited methods include social interactions (ideally with powerful actors), patience and relationship building, repeated business, favour exchanges (and return of these when received), trustworthy operations, humour, intermediaries, as well as modesty and a genuine interest in Lao people and culture. Face, or na, in the form of reputation and goodwill was found to positively influence all aspect of social capital development. Basically, people with abundant face found it easier to bridge the gap into new networks, to access the resource social capital represent, and to reach desired outcomes in business (and life).
During the research it was documented that the distinctive version of social capital that exist in Laos, evolved the way it did to enable people to deal with a set of conditions that has influenced and transformed Lao society. Circumstances that influenced the evolution of Lao social capital include uncertainty and rapid changes, collectivism, high power distance, and limited legal infrastructure.
LCSH Subject Headings
Social capital (Sociology) -- Laos.
Investments, Foreign -- Laos.
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Sorensen, B. (2015). The form and use of social capital among foreign direct investors in their interactions with locals in Northern Laos. Retrieved from http://ro.ecu.edu.au/theses/1762
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