Impacts of social capital on export performance: a resource-based perspective

5.3.6.1 Information facilitation, knowledge creation and dynamic capability

Social capital has been added as one of the most recent explanatory factors for the performance of firms. It is argued to be a resource that firms can develop to continuously create competitive advantages to outperform their competitors (Roxas & Chadee 2011). In the internationalization process, social capital is believed to act as a dynamic capabilities that helps SMEs to create new resources needed to cope with an increasingly competitive international market (Pinho 2011; Roxas & Chadee 2011).

In Vietnam, the interviewees suggested that social capital has impacted positively on the export performance of SMEs through facilitating information and creating export knowledge. The majority of respondents learned about exporting opportunities from exchanging information with other members in the relevant trade associations. They also improved their knowledge of export procedures and market regulations, as well as of market preferences, by participating in activities organized by the trade associations. These activities include participating in overseas trade promotion activities to promote their products, and attending training, information sections or workshops on technical requirements for specific products or a specific market. In addition, firms also can gain general export knowledge as well as various aspects of business management, as mentioned by a participant: “The most important role of social capital is that it affects the way we think about our firm’s operation” (Participant #3).

Table 5.5: Types of information and knowledge facilitated by social capital

Category

Number of firms (total 19)

Export opportunities (including promotional opportunities in overseas trade fairs) 17 Export market information (including market preference and regulations) 14 Business partners (including suppliers and finance providers) 16 Policies and procedures (for both export and general policies) 10

General knowledge on business and strategy management 11

Export specific knowledge (terms of trade, integration process of Vietnam) 8 Source: Author’s calculation from interview data

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The present study found that a majority of participants believed that social capital improved their generic export knowledge. They appreciated social capital as a facilitator for long-term intellectual creation and a supporter of a firm’s sustainability. Social capital in the form of contacts within or via trade associations and other weak ties could provide firms with better export market information, including market demand and preferences: “In my opinion, since Vietnam joined the WTO until now, the most important role of social capital is affecting firms’ thinking.” (Participant #13)

“If a firm can utilize its social capital, I believe it will grow. Take a simple example, I will be able to improve sales. And even if it has not increased sales, then it will definitely improve knowledge, which is the foundation for a firm’s sustainable success.” (Participant #1)

Training from the trade associations and knowledge exchange between social contacts can accommodate firms’ needs in export market technical requirements and compliance procedures. Likewise, firms obtain other generic knowledge on internationalization processes, and the participation of Vietnam in those processes, from their connections. For many small firms, this information and knowledge coaching impact is typically useful because it is practical and efficient:

“It means the most important role of social capital is improving knowledge, especially in export business. For example, knowledge about how regulations work, how a certain market performs, which products would be on demand for which market, what the tariff rates are, how a certain entrepreneur works…” (Participant #9)

“I can take a simple example, that through our connection with Vietcraft, I am able to approach many useful training courses. Essentially, if we can utilize those opportunities, we can extend and sustain our knowledge to operate in the international market. Information and training about international regulations, conventions or experience sharing from well-developed enterprises are all very helpful and valuable for firms in the export business.” (Participant #3)

This finding is consistent with the positioning of social capital within the resource- based view, where social capital is considered to support exporting firms’ performance through various knowledge creation mechanisms. Social capital provides experiential

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knowledge about the export market and helps to convert implicit into explicit knowledge (Johanson & Vahlne 1977). As knowledge grows out of experience in foreign markets, new capabilities are acquired, and subsequently the degree of market commitment also increases, facilitating more learning and knowledge spillover (Johanson & Vahlne 1977; Pinho 2011). Furthermore, social networks enable flows of valuable information or knowledge into firms and improve firms’ strategic assets and processes to boost firms’ proactivity and innovativeness (Luo 2003; Walter, Auer & Ritter 2006).

Again, Vietnamese experiences revealed by the interviews fit with the current literature arguing that the knowledge channelled by social capital into the firm may take various forms, such as information and knowhow (Luo 2003; Walter, Auer & Ritter 2006), business opportunities (Peng & Zhou 2005; Walter, Auer & Ritter 2006; Wu & Choi 2004; Yang, Ho & Chang 2010), skills or management capability, and market knowledge (Kale, Singh & Perlmutter 2000; Roxas & Chadee 2011). These help firms to overcome the export barrier of export knowledge shortage (Loane & Bell 2006; Presutti, Boari & Fratocchi 2007). More importantly, firms can create new knowledge, which is the central theme of product development (Luo 2003; Walter, Auer & Ritter 2006) as well as a vital element that leads the internationalization process (Johanson & Vahlne 1977). 5.3.6.2 The limits to social capital

Although the majority of participants acknowledged the positive impact of social capital on export performance via export knowledge creation, it is unclear how such a positive impact has changed over time. The interview data does indicate, however, a two-way causal link between entrepreneurs’ intellectual capital and social capital. While it is established (see, for example, Nahapiet & Ghoshal 1998) that social capital creates intellectual capital, the converse also holds true, that more intellectual capital leads to better social networks (or social capital); and they both lead to better performance of firms.

Nevertheless, the data in the present study also evidence that the importance of social capital in facilitating export knowledge inflow can diminish over time. Diminishing returns for social capital can be explained from two different aspects. Firstly, the interviews provide evidence, in line with observations by Portes (1998), that where knowledge shared is redundant, a negative bonding effect is seen:

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“The information and training that we received from them [trade associations] has been mostly repetitive… topics of [some] conferences are not updated. I decided to lessen my participation.” (Participant #5)

Secondly, diminishing returns from social capital result from firms’ inability to transform resources from social capital into their own dynamic capabilities. It is questionable whether social capital can create opportunities for every firm, or that there exist certain criteria of firms that enable their transformation from network resources into firm-based dynamic capability. That is, while a firm may have the networks, the networks may not develop social capital. In this regard, it is critical that entrepreneurs have the capability of capturing and utilizing resources from social contacts and converting these resources into their own dynamic capabilities for sustaining a competitive advantage. Such capability, in turn, may depend on the intellectual capital and human capital of entrepreneurs. Specifically, the strategic thinking ability, or the ‘soft’ component of entrepreneurs’ intellectual and human capital, defines how firms can exploit information and knowledge from relational resources and capitalize on it to develop their dynamic capability. As one respondent observed, “social capital is very important but I do not appraise it as the most important factor…. intellectual and management principles are vital as well” (Participant #3).

While it is established in the literature that the strategic thinking component of intellectual capital transforms resources from social capital into firms’ dynamic capability, the data in the present study show that the technical knowledge, or the ‘hard’ component of intellectual capital, is believed to be the platform for absorption of information and knowledge. Without an initial knowledge base, entrepreneurs are less likely to capture new information and knowledge from social capital and are thus unable to create new knowledge or transform knowledge into their own dynamic capability. One respondent, indeed, suggested that intellectual capital is a prerequisite for the successful employment of social capital:

“If entrepreneurs don’t have this knowledge threshold, resources from social capital can’t benefit firms in the long run. If an entrepreneur runs an export business but doesn’t have basic command of English, doesn’t have basic financial management skills or market research skills, then he can’t develop his business further…” (Participant #3)

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5.3.7 Transformation of impact channel from rent seeking to transaction cost reduction