9.1 Introduction
Africa has achieved considerable economic growth during the past two decades and currently entrepreneurs, investors and businesses, regard the continent as an emerging market destination for businesses to invest and grow (George et al. 2016; Delloitte 2014; Accenture 2010). Hence, entrepreneurs, investors, corporate executives and politicians are showing a keen interest in building networks and relationships with customers and businesses in the continent (BBC News 2018). Yet, despite the huge interest, potential entrepreneurs, investors, and corporate executives are frightened by the lack of trust in doing business in Africa due to numerous weak institutional structures that are highlighted in the literature and reports in the West (World Bank 2018; The Economist 2016; Bruton et al. 2010). These sources emphasise that in African economies transaction costs are higher and trust to invest and engage in entrepreneurship is low due to weak state and market institutions. Yet, these assertions do not fully reflect the nature and role of institutions in entrepreneurship in Africa and in other emerging economies (Peng et al. 2008; Welter and Smallbone 2011). In Africa and other emerging economies, entrepreneurs as actors do not necessarily yield to state and market institutional barriers but instead draw on cultural institutions to develop trust in order to do business (Welter and Smallbone 2011; Amoako and Lyon 2014). In emerging economies like Africa, the weak formal institutions are often replaced by indigenous cultural institutions to enhance trust development in entrepreneurship. Estrin and Pervezer’s (2011) study in Brazil, Russia, India, and China show that in emerging economies cultural institutions replace ineffective state and market institutions leading to enhanced domestic and foreign investment. Unfortunately, there is a lack of knowledge about how entrepreneurs in Africa draw on indigenous cultural institutions that run parallel to institutions of the modern African states (Jackson et al. 2008; Amoako and Lyon 2014; George et al. 2016).
The main aim of this book is to offer an understanding about how entrepreneurs owning and managing small and medium-sized enterprises (SMEs) in Africa draw on local cultural institutions to develop trust in entrepreneurial relationships in the absence of strong state and market institutions. The author uses an abductive approach to combine literature with empirical findings from observations and semi-structured interviews with 50 entrepreneurs owning and managing SMEs in Africa in order to refine or generate theory. The level of analysis is the entrepreneur who owns an SME in Africa. SMEs dominate the economies of African countries, and reflect the impact of local institutions on trust development better than larger organisations. The discussions focus on trust development in entrepreneurial relationships and how the processes are influenced by logics of state and market institutions, cultural institutions, networks, relationships, industry, and markets. Based on the discussions, the author offers novel theoretical and empirical frameworks and elaborations that become the basis of a continued development of these themes regarding entrepreneurship in Africa and other emerging economies.
9.1.1 Trust, Institutions, and Managing Entrepreneurial Relationships
Entrepreneurial behaviour originates from a complex relationship between entrepreneurs as individuals and the environment in which they operate (Schumpeter 1942; Chell 2007). However, traditionally, entrepreneurship scholars have been divided into two streams of studies: one emphasises rational choice perspectives to focus on the individualistic entrepreneurial agent; the other emphasises the macrostructures that influence the entrepreneurial process. Yet, neither of these two perspectives can fully portray the complex processes of entrepreneurship.
The rational choice perspective emphasises that entrepreneurship encompasses discovery, creation, and exploitation of opportunities, and the traditional entrepreneurship literature primarily ascribes the success or failure of these activities to the individual heroic entrepreneur (see Gartner 1988; Shane and Venkataraman 2000). The traditional approach to the study of trust in entrepreneurship therefore focuses on agency and the internal cognitions of individuals as trustors or trustees in terms of their attributes. Thus, trust is seen as rational and calculative with actors primarily focused on their own benefits. However, the rational perspective underestimates the context or institutions (e.g. Gambetta 1988; Williamson 1993).
Hence, critics argue that entrepreneurs are not atomistic but are embedded in institutions and particularly social relations from which they develop trust in order to draw resources to create new firms (North 1990; Granovetter 1985; Chell 2000). By focusing only on the entrepreneur and ignoring institutional forces, the rational or agency approach risks basing entrepreneurship and trust development on the false idea of the atomistic, sometimes maverick, individual. This may lead scholars and would-be entrepreneurs to undervalue the significance of networking and social capital that are very important to the entrepreneurial process, particularly for SMEs (Drakopoulou Dodd and Anderson 2007; Ellis 2000).
Some scholars, on the other hand, have drawn on institutional theory to highlight the impact of environment on trust development in entrepreneurship. A major strength of institutional theory is its emphasis on macroenvironmental factors in offering an understanding about entrepreneurship and entrepreneurial behaviour (Welter 2002). This theory traditionally draws attention to the embeddedness of entrepreneurial behaviour in both formal and informal institutions. Thus, formal institutions including government and legal systems, and informal cultural institutions like norms, values, and attitudes, all influence trust and entrepreneurship (Welter and Smallbone 2011). For example, legal systems and the courts that enforce legislation and contracts or social norms and codes of conduct influence entrepreneurial behaviour. In developed economies where formal institutions like courts are strong, entrepreneurs have a strong trust to invest and innovate due to lower transaction costs (North 1990). Conversely, in emerging economies with weak formal institutions, entrepreneurs have low trust to invest and innovate due to higher transaction costs. Nonetheless, the author argues that these assertions about institutions, trust, and entrepreneurship mainly draw on advanced Western economy contexts to focus on how state and market institutions must facilitate trust development; thereby ignoring entrepreneurship theory and practices particularly in emerging economies (Peng et al. 2008; Welter and Smallbone 2011; Amoako and Lyon 2014). In emerging economies, entrepreneurs and organisations as agents can improve their competitiveness by turning institutional and resource constraints into incentives and assets (Amankwah-Amoah and Debrah 2017). Yet, reports and research on trust in enterprise and investment in Africa often emphasise the weakness of formal institutions in African economies to justify the lack of entrepreneurship (see e.g. The Economist 2016; World Bank, Business 2018; Bruton et al. 2010). While there may not be strong formal institutions in African economies, there are cultural institutions, networks, relationships, and trust—as well as entrepreneurs.
Thus, the Western context-based rationality of institutions and trust building is criticised and scholars have called for further development of institutional theory to take into account the entrepreneur, the firm, and cognitive foundations of entrepreneurial behaviour (Welter 2002). Examining how cognitive foundations influence entrepreneurship is essential as entrepreneurial behaviour regarding trust development originates from complex ongoing influences of the entrepreneur as an actor, the external institutional factors, and organisational characteristics (see Bachmann et al. 2015).
To address the current gaps in institutional theory regarding trust development in entrepreneurship, the author draws on notions of institutional logics to reject both macrostructural theories and individualistic, rational choice perspectives of entrepreneurship (see Thornton et al. 2011). Thornton et al. (2012, 2) define institutional logics as the ‘socially constructed, historical patterns of cultural symbols and material practices, including assumptions, values, and beliefs by which individuals and organisations provide meaning to their daily activity, organize time and space and reproduce their lives and experiences’. Thornton et al. (2012) suggest seven core societal institutions and their logics: family, religion, state, market, profession, corporation, and community. The institutional logics perspective further assumes that institutions are historically contingent (Friedland and Alford 1991). Thornton et al. (2012) suggest that the logics of the state, the professions, the corporation, and the market, typically influence modern societies. However, the author argues that these logics do not fully apply to African economies, not because they are not modern, but because of the incongruence and weaknesses of state and market institutions and the relative dominance of SMEs compared to corporations in the continent.
Drawing on the institutional logics perspective, the author categorises institutional orders whose logics influence entrepreneurship and trust development in Africa into two main groups, namely logics of state and markets, and logics of indigenous cultural institutions. The logics of state and market focus on state institutions, particularly the government, legal/court systems, and enterprise-facilitating bodies such as banks, while the logics of cultural institutions focus on the traditional judicial system, trade associations, language, family/kinship, religion, gift giving, and punctuality that have been shown to influence entrepreneurial trust development in Africa.
The author draws from state and market, as well as indigenous cultural institutional orders and their logics, to present frameworks and discussions that show how the embedded African entrepreneur often responds in ways to counter constraints and taken-for-granted assumptions associated with institutions (see Amoako and Lyon 2014; Jackson et al. 2008; George et al. 2016). The frameworks show that entrepreneurs in Africa as actors use logics of weak state and market institutions as well as cultural institutions to interpret and make sense of the world, while the logics offer the norms that influence organisational strategy, behaviour including networking, and the development of relationships and trust.
The institutional logic perspective allows for theorising the fragmented and contradicted nature of entrepreneurship and trust in cultural institutions and state and market institutions at different levels of analysis such as individual or organisational and in specific contexts in which individuals operate (see Thornton 2004). Based on the discussions and frameworks the author makes a number of contributions.
9.2 Implications for Theory
Chapter 2 provides a theoretical framework that demonstrates a balanced approach to the study of entrepreneurship. The framework recognises the importance of formal and informal institutions, networks, relationships, trust, the entrepreneur, and the firm in entrepreneurship. It therefore refutes assertions in reports and literature that draw on Western models and mainstream economic institutionalist perspectives to suggest that formal institutions are the key to successful entrepreneurship in emerging economies including Africa (e.g. The Economist 2016; World Bank Doing Business Survey; 2018; Bruton et al. 2010). In Africa and other emerging economies, culture plays an important role in entrepreneurship due to its impact on cognition—norms, values, beliefs, network strategies, and trust development (Amoako and Lyon 2014; Wu et al. 2014)—and yet the literature does not pay much attention to the importance of cultural institutions in entrepreneurship in emerging economy contexts.
The author develops in Chap. 3 a holistic theoretical framework to highlight the processes of trust development across the levels of the individual (trustor and trustee), his or her interactions within relationships, and formal and informal institutions that shape the development processes of interorganisational trust. The model suggests that trust originates from a trustor’s propensity to trust and trusting behaviour as well as a trustee’s trustworthiness based on ability, integrity, and benevolence (Mayer et al. 1995; Kim et al. 2004). The model shows further that context, namely the formal and cultural institutions, networks and relationships, and interactions with exchange partners, all influence the development of trust and the processes of violation and repair (Granovetter 1985; Möllering 2006; Zucker 1986; Ren and Gray 2009; Bachmann and Inkpen 2011). This holistic approach is currently lacking in the trust literature (Bachmann et al. 2015; Li 2016).
In Chap. 4, the author presents a framework to show the institutions that influence trust development in entrepreneurial relationships in Africa. The identified institutions are colonialism, weak state and market institutions, traditional justice systems, trade associations, family/kinship, religion, gift giving, and punctuality. The logics of the indigenous institutions often substitute for or complement the logics of weak state and market institutions in entrepreneurship (Estrin and Pervezer 2011). For example, the traditional justice system and trade associations promote trust and trade in domestic and distant markets by resolving conflicts and disputes among entrepreneurs and thereby providing parallel institutional trust that enables entrepreneurs to mitigate some of the risks involved in doing business in local and distant markets (Amoako and Lyon 2014). This is contrary to assumptions that indigenous institutions do not promote arm’s-length exchanges (see Lyon and Porter 2009). Yet, we know very little about these indigenous institutions as most African governments and foreign agencies recognise and support the weak state and market institutions but do not recognise and support the indigenous cultural institutions. This chapter therefore helps to reconceptualise the role of formal and informal institutions in entrepreneurship in Africa.
In Chap. 5 the author develops empirical frameworks that show entrepreneurial customer attraction strategies and the logics of institutions that influence entrepreneurial relationship management in Africa. This chapter explains how entrepreneurs attract customers through networking and referrals, prospecting for business by using information and communication technologies (ICTs) and through promotions. It shows how entrepreneurs draw on the logics of weak state and market institutions and indigenous cultural institutions such as family/kinships, oral contracts, traditional justice systems, trade associations, religion, punctuality, gift giving, reciprocity, commitment, and mutuality inherent in family/kinship and friendship to manage relationships. By doing so, this chapter provides knowledge about how African entrepreneurs as actors draw on indigenous institutions to develop and manage entrepreneurial relationships across cultures.
In Chap. 6 the author presents an empirical framework of trust development and how the logics of institutions influence trust development in an African context. The framework shows a range of cultural institutions that are both the basis of personal/organisational trust and can be seen as forms of institutional trust in themselves. It shows how the norms of language, oral contracts, family/kinship and friendship, religion, punctuality, gift giving, and trade associations confer stronger elements of trust in economic relationships. As a result, socio-cultural institutions underpin the development of trust (Saunders et al. 2010; Li 2016; Chang et al. 2016), and therefore trust can be habitual. Yet, the discussions show that entrepreneurs as actors do not necessarily yield to institutions. For example the use of the traditional justice system, the ability to develop new norms of punctuality or to refuse to work members who are not trustworthy shows how as actors, entrepreneurs reflect and act in ways to counter the constraints and taken-for-granted assumptions prescribed by institutions, contrary to traditional institutionalist assertions about the constraining influences of institutions (North 1990; Scott 2005). This chapter shows further that in the context of SMEs, the distinction between personal/organisational trust remains complex and unclear, but this has not received much attention in the literature.
In Chap. 7, the author provides a holistic framework of trust violations to highlight that entrepreneurs encounter different forms of trust violations in their relationships. Yet, the chapter emphasises that the concept of interorganisational trust violation remains unclear due to contextual factors, particularly culturally specific norms that shape interpretations of trust and trust violations in entrepreneurial relationships. This chapter shows that norms of weak legal institutions, family/kinship, religion, trade associations, and industry shape the perceptions and interpretations of trust violations and the interpretations may differ between associations, sectors, and markets. Based on these influences, at times entrepreneurs ignore or do not acknowledge some blatant incidents of trust violation. This observation shows the challenges of developing and managing trust in entrepreneurial relationships across cultures. Even though the literature acknowledges the potential for differences in interpretations of trust dimensions (e.g. Ren and Gray 2009; Saunders et al. 2010), this chapter extends our knowledge by identifying specific, cultural and other contextual logics that influence interpretations of trust violations in an African context. It also shows that the outcomes of trust violations could have varying negative impacts, not only on businesses but also on entrepreneurs. When exchange partners violate trust, entrepreneurs may suffer financial, psychological, and social costs and disappointment and grief can be profound. Yet the literature has only emphasised how trust violations may adversely impact on business (e.g. Bachmann 2001) while giving no attention to how trust violations may impact entrepreneurs.
In Chap. 8 the author contributes to the literature by providing an empirical framework of trust repair in SME interorganisational relationships (Dirks et al. 2009) and trust across cultural boundaries (Dietz et al. 2010). The framework explains how entrepreneurs draw on the institutional logics of the traditional African justice system embedded in family/kinship, trade associations, communities, and religious bodies to repair trust in relationships. It also shows the trust repair tactics that enable entrepreneurs to repair trust. For example, it confirms that apologies and explanations facilitate trust repair (Lewicki and Bunker 1996; Kim et al. 2004). However, in African contexts, intermediaries play a key role in trust repair. This tactic draws on the traditional chieftaincy and judicial systems in which intermediaries plead for clemency and mediation for the perpetrator of an offence. Hence this chapter provides an understanding of how institutions influence trust repair in an African and emerging economy context as currently the role of institutions in the process of trust repair is not well understood (Bachmann et al. 2015).
9.3 Implications for Practice
This book shows the importance of African indigenous cultural institutions, networks, relationships, and trust in contexts where state and market institutions are weak. It also demonstrates how entrepreneurs in Africa rely on logics of indigenous institutions that substitute for and at times complement logics of weak state and market institutions (Estrin and Pervezer 2011). These indigenous institutions provide ‘parallel institutional trust’ that enables entrepreneurs to develop personal and working relationships in order to access resources (Amoako and Lyon 2014). Thus, entrepreneurs and investors who seek to do business in Africa should endeavour to understand the nature and role of the relevant cultural institutions and how they shape trust development in sectors, industries, and markets, across cultures and over time (Amoako 2012). This is important as the logics of these institutions influence trust development, interpretations, and acceptable levels of trust violation and trust repair tactics in entrepreneurial relationships.
Given the weaknesses of state and market institutions, entrepreneurs and investors who seek to do business in Africa, as actors, should rely on their agency in developing personal and working relationships based on trust to enhance business development and growth. To African entrepreneurs, this book shows that while family/kinship ties may enable the success of some family businesses, in others, family ties may constrain growth due to lack of trust and the obligations of the African family system. Entrepreneurs therefore need to understand how family values relate to business in order not to ruin their family ties or their businesses.
The limited support from state and market institutions renders trust an important strategic tool for entrepreneurs who seek resources such as trade credit from trade partners. This book shows that trustworthiness and trust expectations accruing from the behaviour and actions of the entrepreneur or the key boundary spanner of a firm are key determinants of trust. Thus, honesty, truthfulness, keeping promises, making timely payments for trade credit, capacity to pay, reputation, supplying quality products/service, and being punctual with supply deadlines are important trust expectations that underpin an entrepreneur’s decisions to offer or not to offer trade credit to prospective partners. It is equally important for entrepreneurs to understand the cultural and industry logics that underpin trust development, interpretations of trust violations, and trust repair. This book shows that logics of weak legal institutions, traditional legal systems, family/kinship, religion, trade associations, industry, and the nature of specific relationships shape the perceptions and interpretations of trust violations. Entrepreneurs therefore need to understand the logics and acceptable norms that underpin trust in relationships as this may vary between associations, sectors, and markets and over time (Amoako and Lyon 2011). Entrepreneurs should also be aware that trust violations could have severe costs including loss of resources, termination of relationships, near collapse of businesses (Bachmann 2001), disappointment and grief. Entrepreneurs should also understand trust repair tactics and the logics of institutions that allow trust to be repaired since in contexts like Africa, trust is critically important for entrepreneurs owning and managing SMEs. It is important for entrepreneurs to be aware that trust violations are common and yet trust is repaired in the overwhelming majority of cases by deploying appropriate repair tactics.
9.4 Implications for Policy
This book highlights the weaknesses of state and market institutions and the important role of indigenous African institutions in fostering entrepreneurship in Africa. Accordingly, policy makers in Africa should reform the weak state and market institutions such as legal systems, tax systems, and enterprise support systems to enhance entrepreneurship and economic growth. An understanding of local contexts and the institutional logics that enable trust to develop in entrepreneurship should guard these reforms.
This book also shows the need for African governments, economic development experts and partners, and enterprise education policy makers to consider, recognise, and support local cultural institutions that support entrepreneurship. The case of traditional legal systems and trade associations show the critical importance of such institutions in entrepreneurship and national economic development. Nonetheless, there is a need to reform some aspects of African culture such as attitudes of government officials towards asking for gifts, bribes, and other corrupt practices. It is also important for policy makers to incorporate local institutions and local knowledge into education curricula. By incorporating the local cultural institutions into enterprise education and curriculum development, the education system can enhance the accelerated development of the continent. Currently, African enterprise education is over-reliant on imported models and concepts, most of which are not fit for purpose in African contexts.
Last but not the least, governments, policy makers, donors, and international development agencies should desist from imposing interventions that are devoid of local institutional logics and instead base national and international interventions on relevant local knowledge and practices in order to avoid misplaced development programmes that fail to deliver the expected outcomes.
9.5 Researching Trust, Institutions, and Managing Entrepreneurial Relationships
This study sets the stage for further research into the complex cultural and sub-cultural institutions that influence entrepreneurship across African economies and other emerging economies from an institutionalist and cross-cultural perspective. Yet it has some limitations that form the basis of future research.
Given the comparative-static nature of institutional theory (Welter 2002) used in this study, future research should explore longitudinal studies to analyse the changes in the logics of institutions in entrepreneurship over time as entrepreneurship is a dynamic and process-oriented phenomenon. Such approaches will help unravel how the logics of African institutions may change over time in line with notions of historical contingency proposed by Thornton et al. (2012).
The case studies and purposive sampling approaches may lack a basis for scientific generalisation (Yin 2009). Hence, future studies should focus on testing hypotheses about the role of indigenous institutional logics in African countries and in other emerging economies on a larger sample to identify the most significant institutions that provide the logics for entrepreneurship across the continent.
While the literature shows the impact of trust violations on firms (e.g. Bachmann 2001; Gillespie and Dietz 2009), no attention has been paid to the impact of trust violations on the entrepreneur. This study shows that entrepreneurs may experience serious financial, social, and emotional consequences from trust violations and future investigations are needed to help understand the negative impact of trust violations on entrepreneurs. This may in turn help the development of support interventions for distressed entrepreneurs.
There is also a need to understand the role of the entrepreneur as a victim in trust repair as previous research mainly focused on the role of the perpetrator and less on the role of the victim of trust violations in trust repair.
The role of power in shaping interpretations of trust violations and trust repair in entrepreneurial and SME interorganisational relationships deserve attention as entrepreneurs owning SMEs in emerging economies may often be engaged in asymmetrical power and trust relationships. This will enable a clearer understanding of entrepreneurial and small business perspectives regarding the development of trust, networks, and relationships.
Even though this study contributes to an understanding of the relationship between individual entrepreneurs as actors in relation to institutions based on the institutional logics approach, there is still very little known about how entrepreneurs as actors draw on institutional incentives and constraints in Africa and in other emerging economies. Future studies should continue to investigate how entrepreneurs relate to institutional challenges across African countries and other emerging economies as there may be variations across the different cultural contexts and over time.
Currently, there is very little understanding about how institutions shape trust development, trust violations, and trust repair in entrepreneurship and in international business across different cultural contexts. Hence, future studies should explore trust development, trust violations, and trust repair within entrepreneurial relationships across different cultures.