The use of social networks in the functioning of household businesses

Various studies suggest that social networks are a key determinant of the performance of enterprises. Social network is defined here as a set of human contacts known to a business owner whom that owner would expect to support a given set of activities. Social networks play a central role in accessing inputs, in conveying information about technologies and market opportunities, in reducing uncertainty regarding reliance on partners or the productivity of prospective employees, and also in enhancing risksharing and informal credit arrangements (Hoang and Antoncic, 2003; Durlauf and Fafchamps, 2005; Ioannides and Loury, 2004). However, little is known in Vietnam about (1) the role played by social networks in the household business and informal sectors, and (2) about the specific effects of the different dimensions of social networks.The first section of this chapter focuses on how household businesses use social networks to access informal and formal credit. It highlights the importance of personal relationships in accessing initial credit, informal loans, trade credit and even formal loans. In the second section, the association between social network and access to physical capital, including premises and equipment, is examined. This section shows that the strength of a tie with one’s landlord is highly associated with the rental conditions and the quality of the premises. As labour is one of the main inputs of household businesses, the third section analyses to what extent a social network releases constraints that household businesses face when looking for trustworthy and productive workers. It concludes that the use of family connections is the main way to release these constraints, but this does not guarantee a worker’s productivity as the recruitment of family members is associated with family obligations and a lack of intermediaries to recruit workers. Section 4 scrutinizes the role of social networks in accessing information. It shows that social networks are not an efficient channel of information for HBs. Information is collected through a social network mostly when a business starts up and from close relatives. Section 5 examines whether HBs can rely on a social network as a way to be less vulnerable, and it stresses that a large tier of the HB sector is excluded from informal risk-sharing mechanisms. Section 6 concludes.