Networks are crucial to both large and small enterprises in Ghana. They provide access to information about new technologies and markets, they facilitate co-operative ventures, and thirdly help enforce informal trade, credit, and insurance contracts and arrangements. But what are the effects on business productivity of networks designed to perform these different functions? Which types of enterprise build which types of networks? And which type of network should small-scale entrepreneurs be encouraged to build to improve their competitiveness in a globalising market? Research from the UK Centre for the Study of African Economies (CSAE) addresses these questions whilst considering the effects of networking on large and small enterprises in Ghana.

Large-scale entrepreneurs, with good access to formal credit, insurance, and the courts, network to find out about new technologies and markets. They build large, diverse and far-reaching networks that enhance their bridging and linking social capital. These networks yield high returns to individual entrepreneurs, helping them to compete successfully in national and international markets.

Small-scale entrepreneurs, on the other hand, with poor access to formal credit, insurance, and the courts, network in a way that helps them enforce informal trade, credit and insurance arrangements. They maintain smaller, more cohesive networks that enhance their bonding social capital by building trust. These networks do not yield high returns in terms of productivity, competitiveness and success, but do provide groups of small-scale entrepreneurs with a shared basis for reducing the risks they face. Three questions emerge:

• Should small-scale entrepreneurs be encouraged to build larger, more diverse, far-reaching networks to reap greater returns?
• Would backing small, cohesive networks be more beneficial to those entrepreneurs?
• Or should entrepreneurs be left to maintain the networks they view as best, given their circumstances?

Ghanaian entrepreneurs consciously value their networks. The link between network expansion and business success is recognised by both large- and small-scale entrepreneurs. However, the importance of small, cohesive networks to day-to-day survival of small businesses is critical. To focus on network expansion, while spending less time maintaining their small, dense, local networks could leave small-scale entrepreneurs vulnerable to dishonest and incompetent behaviour by trading partners, creditors, and debtors. Findings suggest that:

• entrepreneurs need assistance with improving their institutional environment rather than with their networking activities
• given access to formal or semi-formal credit and insurance, alongside the development of a more efficient means of enforcing contracts, entrepreneurs could expand their networks as they see fit.

Yet, improving the formal institutional environment is no easy task. Formal credit and insurance markets must solve the problem of information asymmetries just like their informal counterparts. If networks are not going to perform this function, other means must be found. Business registries and credit bureaux perform this function in Europe and they may be a solution in Ghana. However, identifying an appropriate institutional design for Ghana is beyond the scope of this article. The crucial message is: whilst striving to discover the ideal institutional design, care must be taken not to disrupt the small, cohesive networks that we seek, at least in part, to replace.

Source(s):
Insights 34 Full document.
Collective Action and Bilateral Interaction in Ghanaian Entrepreneurial Networks World Institute for Development Economics Research, WP by Abigail Barr (August 2000)
Social Capital and Technical Information Flows in the Ghanaian Manufacturing Sector, Oxford Economic Papers by Abigail Barr (July 2000)

Funded by: Department for International Development (ESCOR)

id21 Research Highlight: 14 September 2000

Further Information:
Abigail Barr
Centre for the Study of African Economies
University of Oxford
Oxford OX1 3UQ
UK

Tel: +44 (0)1865 281 443
Fax: +44 (0)1865 281 447
Contact the contributor: abigail.barr@economics.oxford.ac.uk

Centre for the Study of African Economies (CSAE), UK

Other related links:
Search Eldis for sources on social capital