Social Capital in Rural Family businesses

The phenomenon of family business has received increasing attention during the past three decades. Theoretical knowledge suggests the family system influences the business so much that it becomes a recourse. The resource is an intense form of social capital known as family social capital (FSC). Despite this progress, theoretical clarification is needed to strengthen the premise of the phenomenon.

An exploration of family business by using a grounded theory (GT) technique provided theoretical clarity. The GT began with a pilot study followed by a series of intensive interview with 25 rural family businesses and the relevant stakeholders from the agricultural industry. This led to an integrated theory, tying together systems theory, social capital, and the resource-based view (RBV). The integrated theory is an extension of the bathtub-resource analogy. The analogy illustrates that resources are not instantaneous but gradually emerge from specific inputs, like the level of water in a bathtub gradually increases from the inflow of water.

The resource of FSC experiences phases of cultivation, preservation, or decay. Cultivation is the inflow tap, preservation occurs when a sufficient level of FSC occurs, and decay is the outflow of FSC. The temporality of FSC helps understand how the phenomenon requires time for certain factors to occur. The research proposes for FSC to generate a sustainable competitive advantage (SCA), a family business must be, at least, in a state of preservation.

Furthermore, the temperature of the water in the bathtub is important. This research proposes internal FSC (iFSC) and external FSC (eFSC) as the hot and cold water taps of the bathtub. Like a good bath the temperature must be right, for FSC to achieve SCA a balance of iFSC and eFSC is required. The iFSC considers through the number of family members, the generation number, and the number of active generations. The use of shared language and values helps understand how iFSC generates knowledge contributing to SCA.

The eFSC considers employee relations, customer relations, and the outside experience of family members. This disentangles the cluster of relations surrounding the family connected to the business. The cluster of relations represents the industry, the habitat for structural holes. This perspective recognises how structural holes fill or form over time through technological advances. The implications of theoretical clarification for theory, practice, and policy are included.