The experience in Hong Kong and Canada

Social network models of overseas Chinese entrepreneurship: The experience in Hong Kong and Canada

Chu, Priscilla

The importance of entrepreneurship to organisational health and national economic growth has been widely acknowledged. Concerned government agencies and economic development boards have tried to encourage entrepreneurship. Academics have spent endless effort looking into the variables associated with entrepreneurship.

The Traditional Approaches to the Study of Entrepreneurship

There have been two main approaches to the study of entrepreneurship. One focuses on psychological aspects, researching traits or behaviours, or both. The other focuses on sociocultural aspects, researching the social and cultural backgrounds of entrepreneurs. In the behavioral (sociocultural) approach to the study of entrepreneurship, an entrepreneur is seen as a set of activities involved in organization creation, while in the trait approach, an entrepreneur is represented by a set of traits and characteristics.

Gartner (1989) has organized the literature on entrepreneurs and entrepreneurship, disclosing a startling number of traits and characteristics that can be attributed to the entrepreneur. It seems that these psychological profiles could fit anyone. Learning from the history of research on leadership, Gartner suggested that it would be more fruitful to focus on the behaviour of the entrepreneurs in order to determine what situational factors affect their behaviour. Carland, Hoy, and Carland (1988) stated that the problems with the trait approach point to the need for improving the methodology. In the infancy of entrepreneurial study, it is not wise to discard this approach entirely, but we should not rely solely on this approach.

Entrepreneurship also can be studied as a function of entrepreneurs’ social and cultural identities. This approach explains entrepreneurship as influenced by membership in certain ethnic, political, or occupational groups. Wong (1988) describes how immigrants from Shanghai, many of them with educational qualifications not recognized by the colonial government, formed their own business in Hong Kong.

These two approaches have been very useful in providing information on different aspects of entrepreneurship. However, the trait approach overgeneralized about individual sources of entrepreneurship. The sociocultural approach stereotyped the ethnic, cultural, or religious group as being the source of the entrepreneurial impetus. Chu and Siu’s (1993) study of Hong Kong female entrepreneurs and Tuan, Won, and Ye’s (1986) study of Chinese entrepreneurship in Hong Kong and Guangzhou were based on traditional approaches to describe the entrepreneurs. They encountered the same problems as the research carried out by their Western counterparts in the U.K. and North America.

The weaknesses of the traditional approaches also include the assumption that resources, one of the key factors contributing to business success, are freely available to those with the right psychological or sociocultural backgrounds. This limitation led researchers to develop a new framework for the study of entrepreneurship, focused on the mechanisms through which the entrepreneurs obtain resources.

The Social Network Approach to the Study of Entrepreneurship

A social network perspective has been suggested (Aldrich & Zimmer, 1985; Johannisson, 1986) to explain why some people are more successful in starting and maintaining businesses, discounting the personal and sociocultural factors. In the case of Chinese entrepreneurship, a social network approach was deemed most appropriate because one’s social network is viewed as a factor crucial to business success in a Chinese society (Redding, 1991). The social network approach suggests that a person’s behaviour is contingent on the nature and structure of his social relationships, which also provides the resources and support required for entrepreneurship. Sociologists, social psychologists, anthropologists, and organizational theorists have used the social network approach to study the relationship between people and organizations. The techniques of social network analysis were refined by sociometric analysts’ use of the methods of graph theory, the 1930s Harvard researchers’ work on patterns of interpersonal relations and the formation of cliques, and the Manchester anthropologists’ modification of both, to study the structure of community relations in tribal and village societies (Scott, 1991).

Limited research has been carried out in the field of entrepreneurship using the social network approach to explain entrepreneurship. Aldrich and Zimmer (1985) stressed the importance of community-wide networks in encouraging and supporting entrepreneurship. Johannisson (1986) emphasized the role of informal ties in entrepreneurs’ personal networks in achieving entrepreneurship.

In the studies of Chinese business, network has been viewed as one of the key factors contributing to the enormous success of Chinese business in Hong Kong and other Asian countries. Hamilton (1991) compares Chinese family firms to their Western counterparts. Unlike Western families, the Chinese families represented networks of people joined together by specific sets of familial relationships. The closer the kinship, the more binding the obligation. Redding (1990) viewed the Chinese as collectivist and group-dominated, their need for a networked society rooted in the insecurity that emerged in a close-to-subsistence-level society, and the lack of trust in the forces of modernization. References to both family and external networks were important. Wong (1992) attributed the growth and the internationalization of Hong Kong and Singapore companies to the strength of the Chinese business networks.

Research Design

Network analyses can be studied designed to suit the diverse theoretical and practical interests of the researchers. Knoke and Kuklinski (1991) suggested that four elements of a research design particularly shape the measurement and analysis strategies, the sampling units, the form of relations, the relational content, and the level of data analysis.

Since the focus of this study is on the entrepreneurs and the networks that influence their entrepreneurship, individuals rather than organizations are the research unit. The form and content of relations between the individuals (nodes) are studied. Relational content refers to the nature of network linkages. The four key types of relational content to be examined are the transaction relations (individuals exchange control over physical or symbolic media), the communication relations (linkages between actors by which message transmitted), the instrumental relations (individuals contact one another in an effort to secure valuable goods, services, or information), and the sentiment relations (individuals express their feelings to each other). Relational form refers to the properties of the connections between the nodes, independent of specific contents. Aldrich and Zimmer (1985) identified three useful dimensions-density, reachability, and centrality. Networks with higher density provide members with more connections to other members in the network, which increases the likelihood of the opportunity for the entrepreneurs to obtain the necessary resources. Reachability explains the ease with which one member can reach another member in the network, and can be increased by introducing brokers to play the connecting roles. Network members with high centrality have more direct connections with others. Centrality provides access to opportunities and resources. After selecting the sampling units, relational content, and relational forms, there are several different levels of analysis on which the study can focus. For this study, the simplest level, the egocentric network-consisting of an individual node, all others with which it has relations, and the relations among these nodes-will be the focus.

The main question for this study is, “How do members of a network relate and how does a network develop for overseas Chinese entrepreneurs at different entrepreneurial stages?” The dual objectives of this research are to explore the Chinese entrepreneurship network models, and to compare Chinese entrepreneurship in Hong Kong and Canada. Hong Kong is a predominately Chinese society under British management. Canada is a Western society with a large population of Chinese immigrants. By choosing these two areas, we obtain an interesting comparative view of the overseas Chinese entrepreneurship network model.

An interview schedule with questions related to the company background, network members, and relational content and form was designed and tested prior to data collection. The sample for the interview was selected from the Chinese Phone Book and Business Guide for Canada and Directory of Hong Kong Industry for Hong Kong. Due to the limited number of interviews obtained from the Canadian sample, the Hong Kong sample was designed to match the line of business of their Canadian counterparts as closely as possible. Personal structured interviews were then conducted with entrepreneurs in Hong Kong and British Columbia.

Findings

For Chinese business in a collective society, it is natural to use the social network approach to explain entrepreneurship (Redding, 1990). However, applying the social network approach to study and explain Chinese entrepreneurship is relatively new. Only limited research conducted by Redding (1990, 1991) and Wong (1992) have been based on this approach.

The social network models being discussed here are based on personal interviews with Chinese entrepreneurs from 20 manufacturing companies in Hong Kong and 5 in British Columbia, Canada. The discussion is focused on the network members and their relational content, and on the evolutionary models relating to the stage of venture and their relational form.

The Hong Kong Experience

In Hong Kong, as in any other Chinese society, being an entrepreneur and being part of a social network has always been viewed as crucial for success in business, as well as a way of life. It was only natural to look to this approach to explain the relatively high number of entrepreneurs who were about to start their business, the high number who had started their business, and the number of highly successful mature businesses in Hong Kong.

The Network

Depending on the stage of entrepreneurial development, the network member groups changed, as indicated in Table 1. The different stages included the prestart-up, the start-up, and the mature stages. In the prestart-up stage, potential entrepreneurs sought advice, financial resources, and moral support from their families, friends, and business associates. The relational forms tended to be high in centrality, reachability, and density. The relational content concentrated on sentiment and communication relations.

The start-up stage was the period during which the entrepreneurs actually established their companies. During this initial stage, the network extended to partners (if they had any), staff, buyers, and suppliers of the company. This group of members took over the role of the previous group, although some members belonged to both, e.g., the partner might be a family member as well. However, their business-oriented relationship became more important than the more personal one, in this stage. The relational form seemed to be medium in comparison with other stages. The relational content was more related to transaction and communication, and was instrumental in nature.

The mature stage came after the business had survived for more than five years, when the companies were established in their respective fields. The entrepreneurs started to expand their network-to use professional services, professional bodies, and government agencies.

Through these new network members, they generated more business and obtained services or knowledge to improve the operation, building the company image and goodwill. The relationship of the latest group of network members with the entrepreneurs was more distant than the relationship of the other two groups. Nevertheless, they served the essential purpose of solidifying the positions of the companies in their respective industries.

The relational form was different from the previous two stages-higher on density than reachability or centrality. The relational content of this stage centred on instrumental, communication, and transaction relations, but was very insignificant on sentiment relation.

The Models

By subdividing the entrepreneurial development into three stages, it was revealed that each stage corresponded to different network models, as presented in Figure 1. However, these models are more applicable to the first business venture of the entrepreneurs in forming small to medium organizations. The larger organizations and the existing entrepreneurs starting other businesses are more likely to have a modified version of social network models.

In Stage 1, the prestart-up stage, the group A members, i.e., family, friends, and business friends, were the key network members. The densities of the members in this group were usually very high, as in a Chinese society. These entrepreneurs-to-be tried to test out their entrepreneurial ideas with those who were close to them and could be trusted with their ideas. As soon as the majority or the most influential member of the group was supportive of the idea, the entrepreneurs usually started to solicit financial or nonfinancial support from this group to plan for the start-up of the venture.

In Stage 2, the start-up stage, the group A members usually served as a support group and the group B members served as the more important business group. Very often, there were members who belonged to both groups. Most likely the spouse would be a business partner as well. Sometimes a group A member acted as a broker to introduce the group B members to the entrepreneurs, to increase the reachability of the network. This was different from Birley’s (1985) finding. In her study of Indiana entrepreneurs, the informal networks (family, friends, etc.) appeared to create a barrier to the formal networks (bank, accountant), rather than helping as a broker of network. In this stage, the business-in-operation, the entrepreneurs spent more time with group B, the business-related members who had become more vital to the entrepreneurial success.

In Stage 3, the mature stage, the group A and group B members coexisted with the group C members. If the entrepreneurs could maintain weak ties with the very influential members in group C, the chances of improving the business were greatly enhanced, which is similar to the findings of the Western study (Granovetter, 1973). Group C was the network that enabled the entrepreneurs to raise the status of the company to a level of professional standing and public recognition.

It was very common for Hong Kong entrepreneurs to follow such an evolutionary network model to meet the different needs of different stages of entrepreneurship. Entrepreneurial success was secured by using the network adequately. The entrepreneurs had the tendency to spend more time cultivating and developing relationships with the new group of network members of that particular stage than maintaining the relationship with the existing groups.

The Canadian Experience

Although network members were similar, different evolutionary network models were observed among Chinese immigrant entrepreneurs in British Columbia compared to Chinese entrepreneurs in Hong Kong. In this study, Chinese immigrant entrepreneurs in Canada were mainly from Hong Kong and Taiwan. They had started their first business venture of small to medium size. The majority had had entrepreneurial experience in the countries where they had previously resided.

The Network

Tables 1 and 2 list, for entrepreneurs in Hong Kong and Canada, the key network members at different entrepreneurial stages. The member groups are listed according to their relationship with the entrepreneurs at different stages of the company’s development. From this, the idea emerges of an evolutionary trajectory of entrepreneurial development with corresponding networks. It is clear that two distinct stages, not three, existed for the entrepreneurs in Canada.

In the prestart-up stage, Chinese immigrant entrepreneurs sought the support of group A members. Emotional support, professional advice, and financial help were solicited from immediate family, friends, and past business associates. At this particular stage, the pattern was fairly similar to that of entrepreneurs in Hong Kong, except that group C members were also consulted as the entrepreneurs were unfamiliar with the business environment in Canada. The relational form was high on centrality, reachability, and density. The relational content inclined to be high on sentiment and communication with the group A members, instrumental with the group C members.

Instead of having Stages 2 and 3, only Stage 2 occurred. The immigrant entrepreneurs needed both group B and C members, instead of just group B members, to start up their business. This occurred because they lacked knowledge not only of the business environment, but also of government regulations and the labour situation. It was essential for them to obtain the knowledge of government requirements, the help of professional services, and up-to-date information concerning the trade. All these were unavoidable if the entrepreneurs were to start and maintain their businesses. Unlike their Hong Kong counterparts, the Chinese entrepreneurs in Canada had to include group C members in both prestart-up as well as start-up stage, as knowledge of local regulations regarding industrial products and hiring of employees was crucial to the success of the business. The relational form appeared to be lower in centrality and reachability than the previous stage. The relational content concentrated on transaction, communication, and was instrumental in nature. The Models

Different network models emerged for overseas Chinese in Canada, as presented in Figure 2. By comparison, the Hong Kong entrepreneurs, who were more familiar with the environment and less controlled by government regulations, had to deal less with the group C members. Indeed, in some cases, the involvement with group C was peripheral to the operation of the business.

For Canadian firms, only two stages existed: the prestart-up and start-up/mature stage. During the prestart-up stage, potential entrepreneurs studied the feasibility of their ventures by gathering information and advice from group A members, families and friends, as well as business associates. In contrast to the Hong Kong entrepreneurs’ network, the Canadians’ networks were larger, and group C members were included, to gain the necessary understanding of an unfamiliar environment. The density of the network was less with the group C members, compared to group A members. The role of group C members differed from that of group A members. When group C members were negative about a suggestion or a situation, the entrepreneurs would drop the idea. If group C members were positive about the venture, the entrepreneurs still required positive feedback from group A members to initiate the venture. The influence of group A members was more important in determining the occurence of Stage 2. The reachability of the network was usually improved by group A members. If the entrepreneurs had some group A members with wellestablished connections in Canada, the reachability of the group C members was greatly improved.

In Stage 2, the start-up and mature stage, group A members served as a support group, and group B members served more as the influencing group. Often, group B members would be group A members, or have been introduced by the group A members. This was a usual way of extending the reachability in the network. However, the role of group B members was viewed as being more important and having higher density with the entrepreneurs. Group C members were usually viewed as rather distant. If the entrepreneurs, the group B, or the group A members were able to introduce themselves and maintain the tie with group C members, this would enhance reachability as well as density. With this particular tie, the likelihood of the organization being successful and reaching maturity was much higher.

It was common for Canadian entrepreneurs to have different networks to accommodate different needs of the various stages of entrepreneurship. Canadian entrepreneurs also showed the tendency to spend more time cultivating and developing relationships with the new network of that particular stage, than to maintain the tie with the existing groups. By comparison, density, reachability, and centrality for the Canadian entrepreneurs were lower than for the Hong Kong entrepreneurs. It was not likely that Chinese immigrant entrepreneurs would have a more dense, reachable network in a Canadian society than would the Chinese entrepreneurs in Hong Kong.

Conclusions and Implications

Conclusions

As suggested by Redding (1991), the fundamental source of effectiveness in overseas Chinese business is the strength of network ties. The social network model can be used to explain the success or failure of Chinese entrepreneurship. If entrepreneurs are able to obtain adequate and timely support and resources from their network members, or through their members, the probability of their success increases. During different stages of entrepreneurship, different network groups become more important. By maintaining the existing networks and soliciting new members, members appropriate for different stages join the network, improving the chances for the business to progress. This approach diverges from the majority of the past studies, which have viewed entrepreneurship as a product of personality, personal background, or ethnic or cultural membership. For Chinese, network has always been a very important part of the culture, following Confucianism’s belief in the individual’s inability to survive by himself (King, 1993). It might be fruitful to see if the social network approach can explain the entrepreneurial success that other approaches have so far been inadequate to explain.

One interpretation of the differences between Hong Kong and Canadian patterns is that society and government heavily influence entrepreneurship. For immigrant entrepreneurs, the road to business success involved more group C members at all stages. With various manufacturing experiences from Hong Kong and Taiwan, the immigrant entrepreneurs found it more difficult to move from Stage 1 and gain the confidence to move to Stage 2. Would the need to find and involve group C members be the key reason why fewer immigrants have attempted to think about or actually start up a manufacturing business?

Implications

The research to date has tended to focus on variables which are relatively easy to measure. This may not be the same as focusing on the most important variables (Cooper & Gascon, 1992). The basis of this paper is the study of entrepreneurship in terms of networks, which is one of the most important variables.

This study was qualitative and exploratory in nature. It distinguishes Hong Kong and Canadian network models. They can be used to explain Chinese entrepreneurship in different regions and could also serve as a research framework for future empirical studies. Possible studies would include establishing causal relationships between the dimensions of the networks, and the start-up or performance of the business, related to relational form and content.

From the study of Lever-Tracy, Ip, Kitay, Phillips and Tracy (1991), it was possible to identify another network model, for immigrant entrepreneurs of Chinese origin in Australia. It would appear that the network membership is similar. However, the combination of members, and the density, reachability, and centrality of the network are not the same. It would be interesting to study the factors contributing to differentiation of network models for Chinese in different regions, and how the different models influence the rate and success of entrepreneurship.

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Copyright Administrative Sciences Association of Canada Dec 1996

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