Academic journal article Review of Social Economy

Social Capital, Embeddedness, and Market Interactions: An Analysis of Firm Performance in UK Regions

Academic journal article Review of Social Economy

Social Capital, Embeddedness, and Market Interactions: An Analysis of Firm Performance in UK Regions

Article excerpt

Abstract This article presents results of a research project examining the effects of social capital on small and medium-sized enterprise (SME) performance. The first main part of the article is a review of literature of relevance to the study. The second part reports the main quantitative results of research on the role of social capital in SME markets in the UK. It compares SME performance and social capital usage across UK regions, with samples stratified according to degrees of knowledge intensiveness of firms and economic status of their area. It shows, perhaps surprisingly, that for many SMEs the "market" is more or less wholly constituted by social capital. The third main part of the article investigates in depth a number of representative and illustrative cases of SMEs deploying social capital in distinctive ways within markets. It shows that without social networks most firms cannot function in markets. It shows high performance firms to be the most intensive users of social capital. This research on social capital underlines the distorted nature of mainstream (neoclassical) economic theory by demonstrating "relational embeddedness" to be an important indicator of SME performance.

Keywords: social capital, embeddedness, firm performance, SME, regions, UK

INTRODUCTION

In the UK, small and medium-sized enterprises (SMEs) provide more employment and business turnover than large firms and public organizations together. This has profound regional scientific implications because, as is well known, less-favoured regions rely on larger employers, tend to lack abundant populations of SMEs, and the appropriate economic business environments (Porter et al. 2000). Furthermore, whereas large firms may operate with special departments to look after innovation, marketing and training needs, small firms lack these resources. This can be a barrier to expansion. However, by collaborating with other SMEs on certain business functions, or by sharing non-confidential knowledge, they can, together, overcome barriers caused by small size in a relatively costless manner. This is known as exploiting "social capital". This concept has begun to move from urban studies, where, in modern times, Jane Jacobs (1961) first articulated it to sociology of education, where it was first used operationally in studies of pupil performance (Coleman 1988; Schuller and Field 1998), to regional political economy (Putnam 1993), business studies (Nahapiet and Ghoshal 1998), development studies (Woolcock 1998), innovation studies (Fountain 1998; Cooke and Wills 1999) and policy studies (Inkeles 2000). (1) It has become, from scant origins, a protean concept for defining "the missing ingredient" in successful practice that economics cannot explain. Social capital is defined as the application or exercise of social norms of reciprocity, trust and exchange for political or economic purposes. (2) It is argued to be highly valuable in communities ranging from ethnic sub-communities to professional associations. But it came to attention across the social sciences because of the rise to prominence of network structures in socio-economic life and theorizations of embeddedness that sought to restore the social dimension to economic analysis (Granovetter 1992; Cooke and Morgan 1993, 1998).

The first main section of this article is a literature review of the main positions adopted by social capital theorists, showing how these were operationalized and informed the research here reported upon. The second main section of the article reports the quantitative results of a large-scale survey into the role of social capital in the entrepreneurial performance of SMEs in the UK. The third main section offers a qualitative analysis of the distinctive kinds of social capital deployed by economic actors in market activities. This is based on face-to face interviews with a representative sample of firms that utilized distinctive kinds of social capital in their business activities. …

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