ABSTRACT
This study aimed at establishing the influence of social capital on finance and performance of SME‟s in Kaduna Metropolis County. Descriptive research design was used. The target population consisted of all SME‟s operating in the Kaduna Metropolis with a sample of 100 taken. Respondents were CEO‟s or persons in charge of finance department. A questionnaire was used to collect data. The response rate represented 57% of the overall study. In the analysis, growth indicators of profitability, number of employees and sales turnover were used as the dependent variables. Trust, Civic engagement and culture were the variables used to measure social capital. Correlation and regression analysis were used to analyse the relationships. The study found out that social capital affects the growth of SME‟s. However, the nature of the relationships differed with each growth indicator and each social capital variable. A further research can be undertaken to understand why culture and civic engagement variables have negative effects on the growth of SME‟s. A study can be developed and tested to understand the relationship in a better way.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Worldwide, Small and Medium Size Enterprises (SMEs) are recognized as engines of growth and development. They are the backbone of economy in many developed nations all over the world. The enterprises cut across every sector of the economy. They include general trade like wholesale and retail, services, farm activities and manufacturing. They have emerged as a vibrant and dynamic component of the economy by virtue of their significant contribution to GDP, industrial production and exports (Dunne and Hughes, 2003).
Social capital and growth are two concepts that impact many other aspects of small and medium enterprises. Studies on the interaction between social capital and growth are of interest due to their associated strategic implications regarding SMEs. In order to build new dynamic capabilities to cope with turbulent and unpredictable markets, SMEs need to leverage their network relationships that provide access to information. These dynamic capabilities may in turn positively influence on growth (Carlos, 2011).
Researchers have been investigating the effects of social capital on the performance of institutions (Carlos, 2011). Different studies have been carried out on the interactions between social capital and growth whereby many authors have suggested that SMEs need to carry greater leverage in order to maximize value of the firm. According to Paul et al (2009), social capital played a significant role in innovation. It positively influenced incremental and radical innovative capabilities.
1.1.1 Social Capital
Social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society's social interactions (Musimba, 2012). Social capital is about the value of social networks, bonding similar people and bridging between diverse people, with norms of reciprocity (Dekker & Uslaner, 2001). A narrow view of social capital, according to the World Bank (1998), can be seen as a set of horizontal associations between people, consisting of social networks and associated norms that have an effect on organizations productivity and well-being. Social networks can increase productivity by reducing the costs of doing business. Social capital facilitates coordination and cooperation.
A broader understanding of social capital accounts for both the positive and negative aspects. It includes vertical as well as horizontal associations between people, and behavior within and among organizations, such as firms. This view reckons that horizontal ties are needed to give organizations a sense of identity and common purpose, but also stresses that without "bridging" ties that transcend various social divides like religion, ethnicity, socio-economic status, horizontal ties can become a basis for the pursuit of narrow interests, and can actively preclude access to information and material resources that would otherwise be of great assistance to the organization (World Bank, 1998). Social capital can have a negative effect on a firm‟s value (Portes and Landholt 1996). Communities, groups or networks which are isolated, parochial, or working at cross-purposes to society's collective interests can actually hinder economic and social development.
Measuring social capital may be difficult, but it is not impossible, and several studies have identified useful proxies for social capital. It can be measured using trust, customer capital, civic engagement or as a function of longevity. Owing to its external nature, knowledge embedded in customer capital is the most difficult to codify. One manifestation of customer capital that can be leveraged from customers is often referred to as “market orientation”. Hsiu-Yueh (2006) indicate that market orientation involves market intelligence pertaining to current and future needs of customers, dissemination of intelligence horizontally and vertically within the organization, and organization wide action or responsiveness to market intelligence.
Once it has been decided which how social capital is to be measured, for example by measuring civic engagement through household surveys, cultural factors may be taken into account in designing the survey instrument. Newspaper readership may be a better indicator of civic engagement in countries where the literacy level is high (Putnam, 1993).
Knack & Keefer (1997) used indicators of trust and civic norms from the World Values Survey for a sample of 29 market economies to measure social capital. They used these measures as proxies for the strength of civic associations in order to test two different propositions on the effects of social capital on economic growth, the "Olson effects" and "Putnam effects". The Olson effects suggest that associations stifle growth through rent-seeking while the Putnam effects suggest that associations facilitate growth by increasing trust.
1.1.2 Growth
Growth can be defined as an increase in size as the result of firm growth over a period of time. Here, firm growth is a process while firm size is a state (Penrose, 1995). The growth of a firm can be determined by supply of capital, labour, appropriate management and opportunities for profitable investments. Lumpkin and Dess (1996) point out that it is essential to recognize the multidimensional nature of growth. Thus, research that only considers a single dimension or a narrow range of growth may result in misleading descriptive and normative theory building. Research should include multiple performance measures. Such measures could include traditional accounting measures such as sales growth, market share, and profitability. In addition, factors such as overall satisfaction and non-financial goals of the owners are also very important in evaluating growth, especially among privately held firms. This is consistent with the view of Zahra (1993) that both financial and non-financial measures should be used to assess organizational performance.
Chong (2008) declares that there are four main approaches to measure the performance of organizations. These are the goal approach, system resource approach, stakeholder approach and competitive value approach. The goal approach measures the extent an organization attains its goals while the system resource approach assesses the ability of an organization to obtain its resources. The stakeholder approach and the competitive value approach evaluate performance of an organization based on its ability to meet the needs and expectations of the external stakeholders including the customers, suppliers, competitors. Among these, goal approach is most commonly used method due to its simplicity, understandability and internally focused.
Information is easily accessible by the owners‟ managers for the evaluation process. The goal approach is a better fit for the SMEs where targets are being set internally based on the owners- managers‟ interests and capability to achieve.
According to Richard et al. (2008), the goal approach directs the owners-managers to focus their attentions on the financial and non-financial measures. Financial measures include profits, revenues, returns on investment (ROI), returns on sales and returns on equity, sales growth, and profitability growth. Non-financial measures include overall performance of the firm relative to competitors, employment of additional employees, customer satisfaction, employee satisfaction, customer loyalty, brand awareness and owner‟s satisfaction. Atieno (2009) observes that the financial measures are objective, simple and easy to compute and understand. However, financial measures suffer from being historical and are not readily available in the public domain, especially for SMEs. In addition, profits are subject to manipulations and interpretations. The solution to the limitations of financial measures is to apply the non-financial measures, though subjective in nature, as supplements to the financial measures. The combinations of these two measures help the owners-managers to gain a wider perspective on measuring and comparing their performance. Meilan (2010) agrees that this is a holistic approach and Balanced Scorecard approach to performance evaluation for SMEs.
1.1.3 Relationship between Social Capital and Growth
Arrow (2000) contributes to the discussion about the contribution of Social capital to growth by highlighting the importance of cooperation and trust within the firm. The interdependence between decisions of individual agents and the emergence of externalities and common goods makes cooperation imperative to maximizing social welfare. The superiority of social cooperation has long been documented in economic and social thought. But social capital, as social norms and networks, sustains cooperation by emphasizing its intrinsic value and its pursuit as an end in itself. It is a mixed-motive cooperation, in which collective behavior takes account of its effects on the welfare of others, alongside its own. In this manner, it operates as an internal commitment mechanism to resolving the social dilemma or collective action problems from freeriding and narrow-interested calculation.
Empirical work on social capital, which covers a wide spectrum of social science disciplines, attribute differences between firms in the level and rate of economic and social development to differences in the available stock of social capital. Firms with relatively higher stocks of social capital, in terms of generalized trust and widespread civic engagement, seem to achieve higher levels of growth, compared to firms with low trust (Brown & Ashman, 1996; Heller, 1996; Knack & Keefer,1997; Krishna & Uphoff, 1999; Ostrom, 2000; Uphoff, 2000; Rose, 2000).
According to these studies, social capital contributes to efficiency and growth by facilitating collaboration between individual conflicting interests towards the achievement of increased output and equitable distribution. Additionally, recent literature has focused on the determinants of social capital. This constitutes the first step towards developing a consistent and integrated framework concerning the nature of social capital and its relationship to socioeconomic growth. A number of studies have empirically tested the impact of individual- and aggregate-level factors on the components of social capital, that is, on social trust and group membership (Helliwell, 1996; Brehm & Rahn, 1997; Krishna & Uphoff, 1999; Glaeser et al, 2000; Costa & Kahn, 2001; Rothstein & Stolle, 2001). Some of these tend to emphasize the role of individual factors in determining the incentive of individuals to invest in social capital, such as personal income and education, family and social status; others offer greater weight to the effect of more institutional or systemic factors, such as income inequality, confidence in government, impartiality of policymaking bodies, and prior patterns of cooperation and association amongst individuals in a group.
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Item Type: Project Material | Size: 60 pages | Chapters: 1-5
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