Building and sustaining organizations, such as firms, which function efficiently demands trust and a common sense of purpose, i.e., social capital. Social Capital Benefits Firms Social Capital Reduces Transaction Costs Firms benefit from social capital because it facilitates cooperation and coordination which minimize transaction costs, such as negotiation and enforcement, imperfect information and layers of unnecessary bureaucracy.
Social capital helps firms protect themselves against such risks in a cost-efficient manner.
Social Capital Provides a Competitive Edge Efficiency gains in time and information allow more resources to be devoted to producing and marketing a better product at a higher volume. Teamwork can enhance efficiency and quality in small companies as well as multinational corporations. Among Firms Trust is the foundation for cooperation between enterprises. Businesses banding together in a joint effort are able to establish deeper relationships with one another which can be accessed in the future for other business projects beyond the scope of the original group. For example, research and design costs can be shared when there is a collaborative agreement between otherwise rivalrous firms.