Does Social Capital Always Create Value for Firm Internationalization?

Abstract

An increasing number of firms from emerging markets are joining the global competition for consumers. To understand how these emerging-market firms compete for global consumers given their inherent disadvantages in brand recognition, proprietary technology and international management capabilities, existing studies have emphasized the positive role of social capital in their internationalization process. The literature on firm internationalization generally holds that social capital has a positive influence on firms’ international expansion, especially for emerging-market firms with weaker firm-specific core competencies. The study featured in this chapter argues that social capital as a firm resource does not have an ongoing positive influence. Beyond a certain point, the continuous over-reliance on social capital after the initial foreign entry might negatively affect the marketing of emerging-market firms’ products overseas. Based on a case study of independent private Chinese automakers’ dramatic rise and fall in the Russian market over the 2004–2009 period, this study demonstrates that while social capital in the form of business ties played a crucial role in facilitating Chinese automakers’ initial entry into the Russian market, the over-reliance on the same business ties also contributed significantly to the subsequent failure of these firms’ products in, and (in some cases) the eventual withdraw from, the Russian market.