Trust, Confianza, Vertrauen. & Social Capital
One of the most Business books I have recently read: Francis Fukuyama’s “Trust: The Social Virtues and The Creation of Prosperity”. This book emphasises the importance of trust among the citizens of a country in order to create companies that can reach a large scale, compete on a global level and export successfully.
There are three kinds of societies regarding trust, mostly sharing the same borders with countries and in some cases divided in regions within those.
- High trust: e.g. Japan and Germany.
- Low trust: e.g. Spain and Italy.
- Individualistic yet high associations: e.g. United States.
For a business to succeed in the market, especially in the global market, it needs to create many partnerships. Creating a great product in today’s developed world, where the offer side is crowded, is complex and challenging. We are in a constant technology competition, and any technological product has several components from highly specialised suppliers. Regional and national markets in most cases are not large enough to deemed a large company as successful due to the number of characteristics such as entry barriers and possible unfair access to financing advantages received by governments etc.
Analysis by country
About Japan and Germany and similar countries
Trust is given in advance to other citizens from the country, it is easier to create a partnership and for their enterprises to compete at global level.
- Example of connection in Japan is that they buy shares in each partner’s companies, while in Germany it might stay within a holding or same owner.
- Non explicit contract or country laws for commitments such as life employment once a person's starts to work for a certain company. In Germany all employment relationships are highly regulated by contracts.
- In both countries family companies as they grow tend to let professional managers join them.
About Spain and Italy and similar countries
Trust is hardly given to someone, thus they tend not to associate for business partnerships translating into a small size of businesses rarely competing at global level.
Spain was not carefully analysed in the book, however being my own country I can share some comments. I agree with its grade as low trust, distrust in the other person's intentions is a first approach. The companies created here once achieved relative size and success in their home regions, they do not let external professional managers to family join the company. Or they would not employ people out of the reach of “extended family members”. Endly these companies tend to stay within national levels and neither have the structure and size-volume to be great exporters.
The only good outcome is that some family owned businesses get to export and compete at global level, for highly specialised products. For example northern Italy’s machinery.
About the United States and similar countries
The US is a highly individualistic country well known for their utmost interest in making dollars and having few other concerns about the rest of the society. Then from the Trust point of view how this country has such a great size of companies and successful exporters?
They have many venues where people get to know, clubs, churches - religious groups, sport teams, university etc. Since the country was created it needed associations to be built up. These days meaning association at doing business is much more likely to happen after that common background.
The concept of Social Capital
The ease of partnering then translates into capital available human and monetary for investments in new ventures. Higher society's trust makes it easier to get financed any new business and exploit a potential opportunity assessed. In countries with low trust private financing for a new venture is almost non-existent, and here appears the figure of the State to rearrange - distribute resources into the new industries. To build innovative products that compete at international scale we need human capital, i.e. talented individuals, time and money. Without social capital all major and long term scopes get shrinked into short term and the ambitious goals get crunched staying at lower stages of complexity - innovation.
Lack of trust is a high burden for transactions, it creates the need for more contracts writing, reading, checking, in general more legal expenses and much more time to go through a transaction. With trust you could do a transaction over the phone, no contract and worrying less about the timing of delivery - payments. Everywhere people should be careful when associating with other individuals or enterprises. However this is of an utter need and therefore we must work on. To live in a society and do business, we must place trust in others first, and later at potential miss behaviour we can turn them down or not continue the process or partnership.
Then, what’s the right association formula ? Still it is a very challenging topic depending on your country. A recommendation from Fracis Fukuyama is: to have similar goals with the other party. If you and the other person have the same goals, then you can trust the other person to stay along the path needed to succeed in business.
I have travelled and lived in several countries and I assure you he is much right in this vision! Culture in doing business is much more than manners, gestures, or behaviours, it’s trust.
