Informal Networks in International Business

The rise of emerging markets such as China, Brazil, Russia, and the Middle East has led to an increase in interest in understanding the nature and working mechanisms of informal networks (guanxi, yongo, wasta, blat/svyazi, etc.), which are instrumental in international business (IB) activities in these markets. Unlike Chinese informal networks, which have been researched extensively, studies on several other important informal networks remain sporadic and peripheral. From a theoretical point of view, it can be argued that the typical characteristics and behavioral ideals implied by social network theory do not fully reflect the networking ideals and practices in many non-Western countries. At the same time, international business practitioners may not have a thorough understanding of how to engage effectively in informal networking abroad or of how local managers actually network. Motivated by the wish to close this knowledge gap and work toward an inclusive and integrative theory of informal networks in international business studies, this paper suggests treating informal networks as an important type of social capital and informal institution of the respective business environment at the same time. As such, researching informal networks can be regarded a distinct research area positioned at the intersection of social capital, social network and (informal) institution theory. Finally, emerging theories are presented that indicate a path for developing informal network theory further in international business studies.

In the absence of well-developed, formal institutional frameworks, informal network-based strategies have been argued to be especially viable in emerging economies. However, some empirical research has challenged these earlier theoretical arguments. In light of new evidence, this chapter develops a contingency perspective differentiating firms' networks as strong ties and weak ties. It suggests that while strong-tie networks are typically found during the early phase of institutional transitions, weak-tie networks are more likely to be developed and leveraged during the late phase of transitions. The upshot is that as the performance benefits of strong ties decline during institutional transitions, emerging weak ties' impact on firm performance is likely to increase.

This chapter discusses how firms can accrue unique advantages from their foreign status in the host country, with a particular focus on informal networks. Drawing on the literature on the liability and asset of foreignness, this chapter argues that foreign firms can be in a better position to balance between the bright and dark side of informal networks than local firms. Foreign firms can deviate from local isomorphic pressures to minimize potential involvement in negative sides. Moreover, they can build more instrumental informal networks in which the dark side of informal networking is better controlled and regulated without losing social cohesion, flexibility, and other benefits of the bright side. This chapter contributes to our understanding of how foreign firms can turn foreignness into assets from liabilities when managing their informal networks in the host country.

This chapter contributes to the study of social capital in international business from a perspective of diaspora networks. Previously secure within the domains of academic fields of history and sociology, diaspora is now an essential concept across business disciplines influencing economic development policy. Diaspora networks are argued to be the first movers carrying a promise of robust entrepreneurial activity, potentially transferring unique skills and knowledge by way of formal and informal engagements with their ancestral lands. Stitching global value chains into the development structures of weaker economies, diaspora networks are hypothesized to be strengthening homeland's competitive advantage and macroeconomic resilience. With much enthusiasm for the strong potential of diaspora networks, this study calls for a realistic caution and against mechanistic interpretation of the phenomenon. Three key elements formulate a diaspora network operational sustainability requiring deeper reflection in the business literature: identity, trust, and engagement infrastructure. Such triangularity of diaspora networks is in parallel with the three dimensions of social capital: bonds, bridges, and linkages. Connecting with the literature and informed by a unique survey, this contribution also sketches an analytical framework for future research and meaningful policy approach.

The procedures and rules the insurance industry writes in the polices it sells amount to a form of private legislation enforced by the state. Such authority creates a powerful lever for social change, from easing the diffusion to new technologies to slowing climate change. What maintains a sense of fairness in the way insurance firms shape society is an informal but stable network that interconnects them around the globe. A handful of specialist firms occupy key notes in maintaining this network. While these specialists aggressively compete over market share and profits, they also prioritize long-term relationships with their clients and competitors.

This chapter presents systematic evidence on the persistent power of guanxi, the Chinese phrase for informal social relations and networks, in transitional China. I draw heavily on my previous publications reporting findings from a series of probability sample surveys of the Job-Search Network (thereafter JSNET) project in Chinese cities, and job histories of the survey respondents combined cover a span of 37 years from 1978, the beginning year of China's market-oriented reforms, to 2014, the year of last JSNET survey completed.

While guanxi is by far the most prominent network construct in international business research, the literature on other informal network constructs (wasta, sifarish, svyazi, yongo, etc.) is emerging. Though guanxi research suggests that the influence of informal networks in business may recede with increasing levels of economic growth and institutional effectiveness, this hypothesis remains to be tested in different contexts using varied network constructs in order to come to general conclusions. Assuming that informal networks are culturally rather than institutionally driven, we elaborate on the developmental dynamics of informal networks in Korea, namely yongo and inmaek, arguing that yongo persists and adjusts to changes in the sociocultural environment. While we define traditional yongo based on three in-group ties (family, university, and regional ties), today we see workplace-related ties and networks becoming an increasingly important yongo base, which we call yongo 2.0. Societal trends reflected in the so-called spoon-class theory and N-po generation debate mirror the ambivalence of traditional yongo and the reliance on yongo 2.0. Hence, we assume that yongo will not recede but remain an important in-group tie that foreign business expatriates need to understand and learn to access in order to manage business effectively and integrate into society.

Interpersonal and informal ties and networks, known as wasta in the Arab Middle East region, remain a major force in Middle Eastern societies, determining most economic, social and political outcomes. Yet the literature on informal ties and networks is largely characterized by a lack of contributions from the Arab world, despite the adverse effect that lack of understanding of the wasta phenomenon is having on the effectiveness of expatriate managers and subsequently on business performance. This chapter therefore aims to shed light on the meaning, characteristics, structure, and role of wasta in establishing and maintaining successful business relationships. It ends with recommendations for foreign investors and international managers who wish to establish and maintain successful business relationships in the Middle East on how to capitalize on interpersonal networks within this process.

This chapter focuses on the influence of the home government on the internationalization of Russian multinational enterprises (MNEs). It views government involvement and political connectedness as a form of informal connections and networks that seriously impact operations in general and internationalization, in particular in the case of Russian multinationals. Using the literature on MNEs from emerging markets and our familiarity with Russian business and political specificities, we develop a set of five propositions devoted to the subject. We further discuss the research and management implications of our analysis.

Literature has long been discussing indigenous forms of informal practices whose cultural origins are concealed. We first seek to provide a contextualization of the importance of an informal practice that is salient within the Brazilian culture – the Brazilian jeitinho. We then provide a historical background of the jeitinho, as well as an attempt to come up with a definition of the construct, which is by no means a definitive one. We explore how the jeitinho plays a role in the Brazilian organizational scenario, which may be useful for international companies aiming to do business in the country. Finally, we present a set of recommendations as how to deal with jeitinho in organizational-related occasions, drawing on the Brazilian historian Sérgio Buarque de Holanda's “cordial man” concept, which suggests that the roots of Brazilian culture lie in the patriarchal environment of the colonial period. We do not have in this chapter the intention of characterizing the multiplicity of Brazilian business practices, what would be an impossible task to accomplish in light of the enormous diversity of social contexts in Brazil. What we present in the chapter are some concepts and tools for working with and, fundamentally, understanding the organizational and social process the Brazilian context, which we hope may be useful for those interested in doing business in or with Brazil.

Many expatriates have difficulty building a social network that includes locals in Denmark, and they often find themselves in an “expatriate bubble” where they meet mostly with other expatriates. This is unfortunate because much culture learning can be gleaned from interacting with host country nationals, and a lack of contact can negatively influence expatriate well-being and satisfaction. This chapter first focuses on how expatriates build a social network when they are abroad. Interviews with five self-initiated expatriates show key factors that influence the building of a social network, such as attitude and motivation, similarities with the other, location, and cultural differences. Denmark, in particular, seems to be a difficult place to make local friends, compared to many other countries globally. Three main cultural characteristics might explain this difficulty: the homogeneity of Denmark in terms of culture and language, the value of equality that is engrained in Danish mentality, and Denmark being a specific and deal-focused culture. The chapter ends with recommendations for expatriates who do wish to connect with Danes.

Old boy networks are exclusive elite networks of white males that afford inside information, facilitate advancement, and provide support to each other. Understanding old boy networks is important because it represents a culturally specific form of cronyism that has significant negative consequences for international business. As a corrective to more optimistic scholarship on the benefits of social networks in organizations – and in line with critical assessments of other network phenomena, such as guanxi – we explore the generic social processes that give rise to old boy networks in society using Social Closure Theory and consider the consequences of old boy networks in organizations through the lens of Relational Inequality Theory. Specifically, we highlight research on network membership and gender, race, and class inequality in hiring, socialization, and assessment. We conclude by discussing the implications of old boy networks for international business.

Informal networking is generally regarded as an important activity that is available to every manager, which usually results in positive outcomes. However, differences in networking behavior have been less frequently discussed and compared in a global context. We argue that different ideals of informal networking can result in situations where international managers can hardly foresee the potential consequences of their networking behavior, especially when local ideals of networking are not taken into account. Differences in networking behavior caused by differences in underlying values, norms, and ideals can lead to ethical dilemmas. At this junction, we point out the integral role favors and favor exchange play in global networking and suggest a competency framework that is helpful for international managers to navigate informal networking abroad and identify potential ethical dilemmas before they take effect.

Research on informal social networks is gaining momentum. However, there is still much we do not know about these networks and how they impact business practices in the countries in which they operate. This chapter presents the authors' perspectives on the current state of wasta (as a case study of informal social networks) research and the future directions that need to be explored in relation to wasta to further unpack this practice and to capture its complexity in a way that allows both researchers and practitioners to manage it. It is observed that wasta research is currently too reliant on short timeframe case studies which are mostly qualitative. While these have improved in their theoretical, practical and methodological rigor, it is suggested that there is a need for more mixed methods longitudinal and statistical modeling research. We conclude this chapter by suggesting ways in which wasta researchers can “borrow” from other disciplines to enhance our understanding of this practice.