Custom Writing Essay Service Paper on Social Capital

Social Capital

Social capital arises from the networks that people build when working together. These networks create a source of knowledge, which provides multinational companies with an advantage that local based companies do not have. This is because the companies employ people from different nationalities who have information and knowledge about their countries and markets that people from other countries may never get to know (Adler & Kwon, 2002). Therefore, the sum of the information that the connected people working for the multinational company have constitutes the social capital of the company. Consequently, these employees share information regarding their nationalities and contribute to the knowledge pool of the company. This knowledge is then applied by the company to make strategies that enable the company grow in a foreign market. This information is crucial because there are cultural differences across geographical boundaries that hamper the growth of a foreign company (Nahapiet & Ghoshal, 1998). Access to this information from people who understand the market enables the company overcome cultural shock and also design marketing strategies customized to fit the needs of that market.

Social capital contributes to multinationals identifying and exploiting foreign market opportunities. They obtain the requisite information necessary for them to identify these opportunities from people who understand the foreign market. Conversely, they are able to develop a plan that will succeed in the new market. This has reduced the number of challenges that multinational organizations have faced when trying to penetrate new markets. Furthermore, social capital has also contributed to sharing of technology (Knack & Keefer, 1997). This arises when the work force is comprised of people who have worked in different countries and in different organizations and in the process have learnt about technologies that other organizations use to ease work and improve their productivity and efficiency. Consequently, the organization has competitive advantage over its rivals which results to success in its new ventures. In addition, social capital contributes to identification of threats and other factors that might derail the success of a foreign investment (Ellison, Steinfield& Lampe, 2007). Consequently, the management is aware of the challenges it will face before it establishes its subsidiaries. It is also able to leverage joint ventures with local partners. This information makes it possible for multinationals to expand their operations and overcome challenges that would in most cases slow down their growth.

Social capital allows international companies to employ a localized approach to their business ventures. This is because they use the information they gain from their social capital to build a business that designed to fit in a certain market. Consequently, the business is set up in a way that makes the local people perceive it like it’s one of their local companies though offering products in a different scale. Localized approach is very important because most countries have cultures that dictate the way business is done. Multinationals that insist on employing a global approach encounter cultural shocks which adversely affects their business. This is because most markets are adamant to accept new cultures (Oberg, 2006). This forces companies that employ a global approach to change their products or risk closing when they realize the market is not willing to change and accept the foreign concept employed. Therefore, applying a localized approach saves the company time and resources that could have been lost as it tried to overcome cultural shock. In addition, it allows a company to introduce a foreign concept gradually until it has a global approach.


Adler, P. S., & Kwon, S. W. (2002). Social capital: Prospects for a new concept. Academy of management review27(1), 17-40.

Ellison, N. B., Steinfield, C., & Lampe, C. (2007). The benefits of Facebook “friends:” Social capital and college students’ use of online social network sites. Journal of Computer‐Mediated Communication12(4), 1143-1168.

Knack, S., & Keefer, P. (1997). Does social capital have an economic payoff? A cross-country investigation. The Quarterly journal of economics, 1251-1288.

Nahapiet, J., &Ghoshal, S. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of management review23(2), 242-266.

Oberg, K. (2006). Cultural shock: Adjustment to new cultural environments.curare29(2), 3.