Family Entrepreneurship in Venezuela: resilience built from social capital
Does family entrepreneurship flourish or struggle in a hostile environment? One possible answer to this question may be found in Venezuela where entrepreneurs faced a number of hostile external factors: macro-environment difficulties, competitive hostility, radical changes in technology, and market restrictions on operations.
One of the key findings of STEP researchers is the importance of social capital in entrepreneurship, as family companies facing external difficulties were able to use relationships, networks, and other forms of social capital to deal with the challenges they faced.
Social capital includes the prestige and reputation of the family and firm, personal networks cultivated by the founder, and professional networks. Assets such as these help a firm to access good partners and suppliers, reach markets, establish favorable commercial conditions, and access privileged information.
International prestige and reputation
In an environment where there were constant threats to private property rights, such as those during 2000 – 2008 in Venezuela, one successful survival strategy was to form alliances with international partners and suppliers. For example cattle ranches and agribusinesses formed alliances with large global dairy companies. This had the dual benefits of providing borrowed prestige and internationalizing the group’s activities to diversify risk. Another example of a family business that made effective use of reputation and prestige was a photographic wholesale business which the owner was able to attract a leading Japanese company as a supplier – giving it the flexibility to get around restrictive foreign currency rules.
External networks
When the government regulated food prices, a family run pasta producer used its external networks to gain knowledge of the government’s intentions. This prior knowledge enabled it to develop innovative products that would satisfy the government’s requirements.
Good internal relations
A raft of tough new labor regulations created many problems for Venezuelan companies; many faced strikes, were taken over by employees or suffered stiff penalties. However one family company with committed and motivated employees managed to avoid the high cost of the new labor regulations by making some employees shareholders, while others were given franchises.
In summary, entrepreneurial family companies in Venezuela built up social capital by being innovative, risk-taking and proactive. This meant they were able to thrive despite a hostile external environment, gain access to strategic resources under favorable conditions, and win the support of committed and motivated employees.
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