We live in a social world. Many of the ‘facts’ of our everyday lives are social facts. We tend to take these facts for granted. Take money for example. It is likely that you carry out transactions involving money many times each week. Most of these transactions happen without you giving any thought to whether the money you have in your hand or stored electronically in your bank will continue to work. However, money only works so long as the social beliefs and agreements we have about it continue to function. Sociologists call these self-reproducing patterns of belief and behaviour institutions.
Such institutions are fairly stable but they do change. Change can be very rapid where social beliefs in these social facts change. For example, to return to the example of money; one of the underlying causes of the Second World War was the social instability brought about by a collapse of belief in the German currency, brought about by the German government printing additional currency to pay workers, whilst making reparations to the victors of the First World War. A similar process of hyperinflation occurred more recently in Zimbabwe. Below is a short news report from 2008 by NTVKenya on Zimbabwean hyperinflation.
Transcript: Zimbabwean hyperinflation
At the time of writing this course the social institution of money was looking much less stable in Europe as concerns with sovereign debt in several EU states were leading to strong public concerns about the future of the euro as a currency. At times of crisis and transition, formerly taken-for-granted social facts come much more into our awareness as their continuity is threatened.
Another institution which is much in public awareness at the moment is that of marriage. Public debates around the world about the meaning of marriage highlight the ways in which this institution is changing and the ways in which it varies from country to country.
In the box below take a few moments to make your own notes about the ways in which the institution of marriage has changed and is changing in recent decades and ways in which this institution varies between different societies.
Within many countries key ways in which marriage has been changing include social expectations about how long a marriage may last and the ease or difficulty of ending it; the extent to which men and women play different social roles within a marriage; the extent to which society condones sexual relations and the birth of children outside of marriage. A way in which definitions of marriage currently seem fluid in some countries is in moves to extend the definition of marriage to include marriage between two men or two women.
There are also differences between countries in understandings of marriage on all the dimensions listed above, but also on factors such as how many people it is possible to be married to at the same time. Underlying social factors influencing these understandings of marriage include: the dominance of religion or secularism in a society; the dominant religion; and the role of marriage in underpinning other kinds of social and economic arrangements (e.g. kinship networks in subsistence agricultural communities).
You may well have listed other factors.
Just as with marriage, there are multiple interlocking social factors which support and help reproduce the institutions which underpin how businesses and other organisations operate.
In the next activity we look at an example of an institution (guanxi) which underpins business practices in many ethnic Chinese societies.
In this activity you will watch a video clip on business practices in China presented by Dr Jane Henry (an Open University Business School academic). In the box below, make some notes about the key points made in the video clip. Pay particular attention to what is said about guanxi (pronounced kwanshee). The clip is about 10 minutes long.
Transcript: Management in Chinese cultures
Guanxi refers to a Chinese system of doing business on the basis of personal relationships, which is an important factor in many ethnic-Chinese societies. The particularist focus on relationships and networks in China and the wider Chinese diaspora has a significant impact on the way business is conducted and structured in these societies. Guanxi provides a basis for trust, not just because of the individual relationship, but because the network of relationships a counter-party is embedded in provide opportunities for redress should they default on commitments. For example, if your uncle is highly respected in the business community and you default on your obligations to me, I may go to your uncle who will be concerned with how your behaviour reflects on his reputation. Guanxi is most easily established where there is some existing base for the relationship, for example a kinship tie. However, this is not enough in itself, the relationship needs to be built. Yang (1994) describes this process:
Once the correct (target) person for guanxi overtures has been selected, and the familiarity base has been presented, the next concern is to find the most skilful and diplomatic way of signalling to the other person the intention of engaging in exchange. One needs to find out if the person is amenable to granting aid in return for gifts, and what he or she would most appreciate in a gift. These questions must be presented in a subtle and tactful manner so that one receives answers without appearing to ask questions... A skilled transaction is carried out through suggestion and innuendo; direct or outright requests are avoided
Guanxi has significant implications for the way capitalism is practised in these societies. One major issue is the nature of capitalisation of businesses. There is considerable reliance on raising funds through guanxi networks rather than through open capital markets. Good guanxi fosters the development of trust (xinyong). Kiong and Kee (1998) describe the function of such trust in funding businesses:
At a general level, xinyong refers to the integrity, credibility, trustworthiness, or the reputation and character of a person. In business circles, xinyong also refers to a person’s credit rating. Your capital is your xinyong. They trust you, they will do business with you. This is so especially among the Chinese. Not much capital [is] needed to start a business. If you have xinyong, that is enough. People will give you [financial] credit.
Contracts tend to be seen as flexible, a written contract is assumed to be an outline of a business relationship that is conducted within a framework of mutual trust. In contrast in the West, contracts are more typically seen as firmly binding and substituting for trust.
Box 1 Related institutions in the Asia-Pacific region
In societies with a strong ethnic-Chinese influence contracts tend to be seen as flexible, a written contract is assumed to be an outline of a business relationship that is conducted within a framework of mutual trust. However, there are also considerable differences between countries. While the reliance on trust networks within clusters of interlinked firms is often a common feature, this is expressed differently in different countries. For example, in one research study Orru et al. (1991) compared business structures in Japan, South Korea and Taiwan. While these three countries share a common reliance on closely networked and interdependent groups of enterprises, they found the ways in which these enterprise groups are structured to be very different between the three countries. In Japan, enterprise groups (keiretzu) are linked together by the significant cross-ownership of shares between these firms. There is great emphasis on building consensus between group members on important issues and on working together for the benefit of the group of enterprises as a whole. In Korea, by contrast, enterprise groups (known as chaebol) are based on family groups. Chaebol resemble Japanese enterprise groups in their patterns of industrial sector concentration but also have important differences. Rather than being bound together by networks based on mutual business interests and the shares each firm holds in the others’ businesses, chaebol tend to be owned by a single individual or family. Where Japanese enterprise groups tend to meet their supply needs through long-term stable subcontracting arrangements with small firms, chaebol buy or start new firms to cater for their needs. Hence the collaboration between firms in Korean chaebol tends to be rather more centralised than between members of Japanese keiretzu.
In Taiwan, the picture is different again. Here enterprise groups tend to be smaller and based on family businesses. A very high proportion of business capital is raised through family networks and retained earnings. This is in contrast to Japan where there are very active equity and finance markets and to Korea where there is heavy reliance on debt financing. The smaller and more fragmented nature of Taiwanese enterprise groups and the higher proportion of small firms is partly due to the Chinese tradition of inheritance being divided equally between all sons. While these institutionalised forms of organising and doing business are relatively self perpetuating they are also subject to change, from within and without. For example, the role of the chaebol in the Korean economy has been undergoing considerable change with considerable political pressure for reform of the ways in which chaebol operate.
Institutions are not the same as organisations, but they provide the underpinning social structures and mindsets that lead to particular forms of organisation and particular approaches to management. In the next section we move on to consider how such institutions are sustained.