Use of social capital among Russian managers of a new generation

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Abstract

Dynamic changes in the Russian political economy during the 1990s led to a unique combination of low levels of social capital at the general (state) level and very high levels of social capital at the interpersonal level. This research uses the three dimensions of social capital as outlined by Nahapiet and Ghoshal [Nahapiet, J. and Ghoshal, S. (1998) Social capital, intellectual capital and the organizational advantage. Academy of Management Review, 23, 242–266.], to investigate the operation of business networks within Russia. Focusing on a generation of Russian business managers who had minimal exposure to the previous regime and who experienced western education/business practices, this study illustrates one snapshot of social capital in Russia in 2004. Results highlight how this generation of business managers operates and how they conduct their business networks. It is expected that there will be changes in Russian business networks, as formalized legal systems become stronger and the new generation of Russian managers, who have had little exposure to socialist systems and nomenklatura emerge.

Introduction

The ‘renewed’ Russia is the fastest growing economy in Europe, with 6.4% and 7.2% GDP growth in the first three months of 2006, compared to the same period in 2005 and 2004 respectively (Federal State Statistics Service, 2006). Despite previously well publicized failures from the early 1990s (Johnanson, 2003), multinational corporations are actively investing in Russian industries.

Over the last fifteen years, many scholars have discussed Russian business culture and its impact on managerial practices (Ayios, 2005, Hendley et al., 2000, May et al., 2005, Puffer, 1992, Salmi, 1996, Sedaitis, 1998). In some publications during the 1990 s and early 2000s, Russian managers were presented as “robbers” whose success resulted from their Mafia connections, government corruption or ill-prepared entry into a market economy (Hendley et al., 2000, Kets de Vries et al., 2004, May et al., 2005, Puffer and McCarthy, 1997). Yet this perception is becoming dated as a new generation of Russian managers emerge who are able “to learn new ways of doing business” (Salmi, 1996, p. 43) and bring their companies up to international standards (Johnanson, 2003, Kets de Vries et al., 2004).

Russian society represents a unique situation in that there is a lack of trust at the general (state) level and very high levels of trust at the interpersonal level (Batjargal, 2003, Rose-Ackerman, 2001). Historical conditions, the collapse of the communist order during the revolutionary changes in the 1990s, the floating of the ruble and the financial crises in 1998 explain much of the low level of societal-wide social capital (Rose-Ackerman, 2001). Most Russians consider state and public organizations to be unreliable and unpredictable entities that cannot be trusted.

Conversely, high levels of trust are placed in interpersonal networks, with social connections playing an important business role (Butler and Purchase, 2004, Michailova and Worm, 2003, Rehn and Taalas, 2001), especially for information transfer (Batjargal, 2003). Interpersonal networks are important in uncertain and unstable economic environments, as interpersonal trust mitigates risk and reduces the influence of turbulent macro-environmental changes (Batjargal, 2003). Therefore, understanding how interpersonal social capital is developed and used by a new generation of emerging Russian business managers is critical to gaining a better understanding of future developments.

Social capital is an umbrella concept used in a variety of disciplines to describe resources embedded within social networks (Adler & Kwon, 2002). In particular, within business networks, it describes the resources embedded within the social relationships that are used to lubricate network operations and to improve efficiency. Social capital is defined as “the sum of the actual and potential resources embedded within, available through and derived from the network of relationships” (Nahapiet & Ghoshal, 1998, p. 243). This definition broadly includes resources from a variety of sources (internal/external) and whether they currently exist or are likely to develop in the future.

The use of social capital improves a firm's value creation (Tsai & Ghoshal, 1998) and develops an organizational advantage either directly or indirectly (Batjargal, 2003, Nahapiet and Ghoshal, 1998). Although social capital ha s been researched within a variety of different disciplines, there is a lack of research on social capital development within different national and cultural settings (Hitt, Lee, & Yucel, 2002). Social capital has even been touted as the concept which could help to integrate social relations into the discipline of cross-cultural management, emphasizing its importance within different cultural settings.

Adler and Kwon (2002) describe social capital as operating within three different relationship types: market relationships, social relationships and hierarchical relationships. These types are not independent and resources drawn from within any relationship type can assist other relationships. For example, using social relationships can assist in obtaining employment; i.e. hierarchical relationships (Lin, 1999).

Differentiation between relationship types is blurred within different cultures. In Russia, social relationships (friendships) are linked to market relationships and hierarchical relationships through the concept of blat (Batjargal, 2003, Butler and Purchase, 2004, Michailova and Worm, 2003, Rehn and Taalas, 2001). Similarly, within Chinese, Japanese and Korean networks, social capital is important in the use of guanxi, kankei and inmak (Hitt et al., 2002, Michailova and Worm, 2003).

Within this organic concept of social capital, five dimensions have developed: structural, relational, cognitive, cultural and resource embeddedness (Batjargal, 2003, Bourdieu, 1986, Nahapiet and Ghoshal, 1998, Tsai and Ghoshal, 1998). Structural, relational and cognitive dimensions make up the fundamental base of this research and will be expanded upon later in this paper. Cultural capital is not included, a s it covers similar aspects to cognitive capital. Resource embeddedness is not included, as it is a combination of both structural (ties to powerful actors) and relational (ability to influence relations) capital. The three dimensions chosen for this paper each describe a different type of resource base and have been commonly used within the literature (Nahapiet and Ghoshal, 1998, Tsai and Ghoshal, 1998, Yli-Renko et al., 2001).

The use of social capital as the theoretical basis for this research is useful for the following reasons: (1) social capital integrates different types of relationships into the one concept allowing for the integration of social, market and hierarchical relationships which is pertinent for Russian business networks; (2) social capital has been used in a variety of academic disciplines and is becoming an important avenue for research; and (3) understanding social capital within different cultural contexts needs to be considered in more detail. Our contribution is the analysis of the development of social capital within Russian business networks.

The paper consists of five sections. Firstly, a new generation of Russian managers will be described, followed by the three main dimensions of social capital. The third section outlines the methodology and data analysis undertaken. Finally, the results highlight how Russian managers use social capital. The relationships between the dimensions of social capital and managerial implications conclude the paper.

Section snippets

Emerging Russian business managers

The transformation of the Russian economy began in the early 1990s, with the decline of the old communist system, the emergence of the ‘second economy’ and the rise of private enterprises (Hendley et al., 2000). The chaotic transformation proces s resulted in disorder, with previously strong vertical connections becoming redundant and other connections, such as alumni, becoming more relevant (Kryshtanovskaya & White, 1996). Yeltsin's period was renowned for its lawlessness, political chaos and

Social capital

Social capital is a broad concept, bringing together the social aspects of human interaction and describing a broad accessible resource base. Social capital lubricates or ‘smoothes the way’ for business transactions that would otherwise be costly, risky or difficult to conduct. Social capital allows access to resources embedded within a group (or network) of members as a result of their membership within the group. Since the concept is based on perceptions of participating actors' rather than

Methodology and data analysis

Data was gathered via open-ended in-depth interviews with Russian bu siness leaders from diverse backgrounds and discussions of the results with Russian academics. Eleven respondents were selected through one of Russia's leading bu siness schools — the Institute of Retraining of Specialists (it is the Russian equivalent of a western graduate school of business) at the Ural State Technical University. The Institute of Retraining of Specialists is one of the most prestigious universities in

Structural dimension of social capital

Structural capital is an important dimension and has been shown to have a greater affect on outcomes than the other two dimensions (Tsai and Ghoshal, 1998, Yli-Renko et al., 2001). Key themes that emerged from the results were: central actors and positioning close to central actors; the different types of connections; and that the stability of connections and networks.

People build their networks from their work environment and educational institutions, both internally with work colleagues and

Relationships between the dimensions of social capital

Discussions and stories from the respondents did not separate structural, relational or cognitive capital, but rather outlined how each built on the other. For example, existing intra-organizational structural capital was vital in building cognitive capital, especially in understanding business processes and industry standards, as per the example of the airline industry and Aeroflot.

Relational capital developed during the previous Communist political system was important when developing new

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