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Vojislav Babic, Ekonomski fakultet, Univerzitet u Beogradu, Management and Trust During the GEC: The Case of Serbia

Vojislav Babic, Ekonomski fakultet, Univerzitet u Beogradu, Management and Trust During the GEC: The Case of Serbia

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Published by Vera Todorovic
Vojislav Babic, Ekonomski fakultet, Univerzitet u Beogradu.
Vojislav Babic, Ekonomski fakultet, Univerzitet u Beogradu.

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Categories:Types, Business/Law
Published by: Vera Todorovic on Aug 14, 2013
Copyright:Attribution Non-commercial


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Professor Sinisa ZARIC, PhD
University of Belgrade, Faculty of Economics
Kamenicka 6, 11000 Belgrade
Professor Vojislav BABIC, PhD
University of Belgrade, Faculty of Economics
Kamenicka 6, 11000 Belgrade
 ISR Belgrade
The paper analyzes the trust influence on management and business indicators of Belgrade entrepreneurs during the global economic crisis. The first chapter points out thatentrepreneurs are exposed to significant non-market risks in countries with underdevelopedinstitutional infrastructure. Due to that fact, creation of business strategies is more difficult.Under the conditions of economic crisis, large number of decisions are made by theinstitutions that influence on the behavior of entrepreneurs, in order to seek answers for thecrisis disturbances. In such conditions, solid stocks of social capital are of great importancefor the stability of the economy and individual agents.In chapter 2 it was defined the term,structure and functions of social capital. Besides, it was considered the influence of socialcapital on the micro-economic sector. In chapter 3, it was measured institutional, financialand stakeholders’ trust of entrepreneurs and its impact on the investment trend, the volumeof business and real salaries of micro and small enterprises. Based on empirical data, it wasshown that low trust stocks have the negative influence on business indicators anddevelopment of firms.
Economic crisis, Serbian entrepreneurs, social capital, trust, business parameters;
JEL Classification: 
G01, O43, L26, D22, A13
Economic agents are performing within the business environment. David Baron(Baron, 2010) makes a distinction between the market and the non-market environment.Operating within the non-market environment, the entrepreneurs are facing the problem of formulating so-called non-market strategies. It is of significant interest to get knowing howfavorable the non-market environment is for business. In the same time, having in mind thecharacter and the structure of the non-market environment, the economic agents have to be prepared for answering to the impulses coming from the government non-marketenvironment. Many of the elements of the non-market environment (the network of institutions) are, in the same time, the factors of creating social capital. The social capital,definitely recognized as one of the kinds of capital - besides physical and the human one isnot only having a positive impact on entrepreneurial activities, but is a capital in which one
could invest. The role of entrepreneurship in creating inclusive forms of social capital ,considering it as a production factor (Svensend, G.L.H. and Svensend, G.T., 2005).An entrepreneur is in a situation in which the stocks of social character and thecharacter of relations within this specific “glue” of society (The World Bank 1998)influence his/her economic behaviour. An entrepreneur can participate in the governmentarena by building coalitions, lobbying and trying to limit the dangers that come from thoseinstitutions which significantly influence his/her non-market behaviour. In the time of global economic crisis, an entrepreneur faces dramatic or less dramatic changes in the fieldof market environment. Experiences of countries such as the peripheral European countries(Serbia), demonstrates that entrepreneurs have difficulties in anticipating the changescoming from the range of non-market environment. Generally speaking, in countries withinsufficiently developed institutional infrastructure entrepreneurs are exposed to great non-market risks, in other words, they have difficulties in successfully creating their non-marketstrategies. Good networking (Kim,P., and Aldrich,H., 2005), solid stocks of social capital,as well as trust in other agents and institutions, will prove to be the factors of highestsignificance for the stability of economy and individual agents. The crisis incites making agreater number of decisions by institutions which influence on the entrepreneurs’ behaviour, with the objective to seek answers to crisis disturbances. In a situation with lowtrust in this segment of non-market environment actors, the low level of social capitaldisables adequate adjustment of actions in the entrepreneurial structure to the newlydeveloped circumstances.
2. Social Capital Theory Approach
A starting framework of this study relies on a social capital theory. The socialcapital represents an investment into social relations with an expected refund on a market.Wealthy social environment, which allows frequent acquaintances and business contracts, presents a suitable ground for exchange of social norms, trust and reciprocity. The socialcapital includes information which are available to
(members of entrepreneur networks), ideas, instructions, business possibilities, easier approach to financial capital,emotional and moral support, trust, cooperation, power and influence (Zaric and Babic2010). The information collected through entrepreneurs networks, are more qualitative because they are: 1. cheaper, 2. more detailed and accurate, 3. the alters, with which theykeep up constant contacts, have economic motivation to be reliable and 4. permanenteconomic relations become coated by social content added to trust expectation andopportunism absence. Increasing the number of business contacts based on trust, it makesan influence on decreasing transactional costs as well as the increase of physical capitaldecreases production costs. The way human, physical and financial capital are productive,the same goes for the social capital, too. Therefore, the social capital can be considered asthe input in a production process. By its use, business can be done, profit can be realized onmarket, and new values can be created. Also, mission can be fulfilled, goals achieved andthe contribution can be given to the world. According to The World Bank 
”The social capital of a society includes the institutions, the relationships, the attitudes and values that  govern interactions among people and contribute to economic and social development.Social capital, however, is not simply the sum of the institutions which underpin society, it is also the glue that holds them together”
(The World Bank 1998:1).
After The WorldBank initiative an upswing of quotations was registered in economic literature, includingterms social capital and social network (Isham et al. 2002). According to Putnam, the socialcapital refers to relations among an individual, a social network, reciprocity norms and trustresulted from them (Putnam 2000). Under the term of social capital, Schiff implicates a
sum of social structural elements which affect interhuman relationships and represent aninput for production or functional utility (Schiff 2002). Portes sees the social capital as theactors` ability to insure benefits through members in social networks (Portes 1998). ToPennar’s definition, the social capital consists of networks of social relationships thatinfluence individual behavior and thus cause economic growth (Pennar 1998). The name”social” in the term social capital, points to the fact that resources are neither personal property nor they are possessed by any single person. They can be only used withininterrelation network. Entrepreneurs’ network is a personal and business network that anentrepreneur builds in order to realize his entrepreneurial ventures. Within businessmanagement, networks are treated as a variable of a social capital that enterprises exploit toovercome limitations related to their size and possible institutional barriers, providingaccess to other resources that can improve business (Curran et al. 1995). In addition to business networks, trust presents a significant input variable of the social capital. Numerousauthors give it the importance of weighted variables and quite a number of them identify itwith the social capital. A trust idea refers to correct expectations about the actions
of other  people that have a bearing on one’s own choice of action when that action must be chosen before one can monitor 
the actions of those others (Dasqupta 1998). The trust can be alsoexplained as a firm belief in the reliability of an individual, company or institutions, i.e. thereliability and the veracity of their claims and statements without being checked before.Trust can have an effect on developing entrepreneurship course, on forming different sortsof enterprises as well as on entrepreneurs’ behavior. In connection with it, low stocks of trust increase transactional costs, limit market entry as well as firm growth andcompetition.It is possible to speak about the positive impact of social capital at the micro-economic, macro-economic and financial sector. Due to the nature of work, the emphasiswill be on analyzing the impact of social capital at the micro-economic sector. Theinfluence of social capital at the micro-economic development can be seen at the level of families, companies and communities. At the family level, social capital is used especiallyamong the poor, to ensure the disease environment, harsh climate and governmentrestrictions. In such cases social capital encourages the pooling of resources such as food,loans, etc.. In addition, good informal relationships enable the poor to start small businessand increase revenue. The influence of social capital on firm level is manifested throughthe dense business networks that encourage economic cooperation and build trust betweeneconomic agents. Social capital positively affects the productivity of firms to exchangevaluable information about products and markets and reduces the cost of contracting,regulation and enforced collection. Repeating business transactions and business reputation promote sides of acting in order to achieve mutual benefits. Social capital, created amongfirms, significantly reduces business risks. It allows the exchange of valuable informationabout products and markets and reduces the cost of contracting, regulation and enforcedcollection. As we know from Coase theory of the firm, one of transaction costs incurred interms of market mechanism are the costs of incomplete contracts (Coase 1937). Signing acontract entails a dose of uncertainties, regarding the future state in which the laws andclauses will be applied. For example, the contract may specify the delivery of certainquantities of inputs at a specified price at some future date, and that no party knows withcertainty if the market prices of inputs and outputs will be produced on that day. A possiblesolution would be to include in the contract each possible pair of market prices of outputsand inputs. This kind of contract is called a complete understanding or agreement.However, in practice contracts are rarely complete for several reasons. The first reason isthe high cost and time used for compiling a list of all possible pairs of unpredictable cases.

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