Academic journal article Academy of Strategic Management Journal

Nexus between Informal Networks and Risk-Taking: Implications for Improving the Performance of Small and Medium Enterprises (Smes) in Nigeria

Academic journal article Academy of Strategic Management Journal

Nexus between Informal Networks and Risk-Taking: Implications for Improving the Performance of Small and Medium Enterprises (Smes) in Nigeria

Article excerpt

INTRODUCTION

SMEs perform crucial role and are adjudged to be one of the major driving forces in the socio-economic development of both developed and developing modern economies (Turyakira & Mbidde, 2015). It has being a long-standing believe in entrepreneurial, managerial and economics literature that membership of a network is beneficial to entrepreneurial firms (including SMEs), assisting small firms in the acquisition of information and advice (Birley, 1985). Today's market conditions are also compelling businesses to adapt to changes in order to survive, grow and be competitive. Such changes include interpersonal and inter- business cooperation and networks, which provide room for innovation and competition in a dynamic environment.

In the pursuit of innovation, venturing efforts and strategic renewal as component of SMEs growth strategies, SME managers may trail the risk-taking path by forming decisions and taking actions in the circumstance of uncertainty as well as effecting substantial resource commitments without being privy to the consequences of their decisions/behaviors (Schott & Jesen, 2016). In developed and transition economies, Wang & Poutziouris (2010) noted that risk taking, as a firm-level strategic orientation, constitutes a potential source of competitive advantage with positive and long-term effect on growth and financial performance of SMEs. According to Lin & Lin (2016) networking can sustain performance of SMEs through a number of avenues including the reduction in the cost of transactions, supplying resources in a more flexible manner and at reduced cost, facilitating the flow of knowledge and technological improvements (Vanhaverbeke et al., 2009).

A number of research approaches have provided insight into networks and networking dimensions of entrepreneurs and the small firm as well as entrepreneurial orientations. The diversity of research approaches include risk taking and performance of firms on Nigeria Stock Exchange (Olaniyan et al., 2016), risk taking in agro-processing SMEs (Wambugu et al., 2015), entrepreneurial orientation and network ties (Gunawan, Jacob & Duysters, 2013) and entrepreneurial orientation and performance with social networking moderating (Kiprotick et al., 2015). These studies examined the influence of risk taking propensity on performance on one hand and informal networks on the other hand in isolated contextual situation without considering the institutional framework that take cognizance of the informal structures and risk-taking propensity. Our paper contributes to the literature on SMEs and entrepreneurial orientation by integrating studies that stress the significance of entrepreneurs' networks (particularly informal networks) and those that emphasize the importance of risk-taking dimension of entrepreneurial orientation, under the theoretical canopy of the resource based view. To the best of our knowledge, this is the first work that examines the role of risk-taking and informal networks in relation to the performance of SMEs in developing settings like Nigeria. Thus, objectives of the study are as follows: (1) to examine the effects of risk-taking on SMEs performance; (2) to investigate the influence of informal networks on SMEs performance.

LITERATURE REVIEW

Theoretical Literature

Jack (2010) considers network research in entrepreneurship from the standpoint of Resource-Based Theory. This examines how a number of tangible and intangible resources (derivable from business and social relations of entrepreneurs) foster new venture formation and growth. Within this perspective, successive growth and survival of new business is achieved through utilizing both internal resources as well building external contacts (Lechner & Dowling, 2003). The large bundle of resources that networks produce can increase the ability of the firm to generate new blends of knowledge, thereby boosting its competitive advantage (Wernerfelt, 1984). …

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