Academic journal article American Academic & Scholarly Research Journal

The Role of Social Capital and Knowledge Management in the Performance of SMEs: An Empirical Investigation in Pakistan

Academic journal article American Academic & Scholarly Research Journal

The Role of Social Capital and Knowledge Management in the Performance of SMEs: An Empirical Investigation in Pakistan

Article excerpt

Abstract. In our present era of the knowledge based economy SMEs face significant challenges of global competition and the free movement of skilled labor. One possible solution is to develop a better understanding of social capital and knowledge management. Social capital and knowledge management reconsidered driving forces behind countries' economic and social development, and are increasingly recognized as significant sources of competitive advantage. For this reason they have become independent, progressive and distinguished business disciplines specifically for SMEs. The primary objective of this research is to explore precisely how social capital and knowledge management enhance the performance of SMEs. Semi-structured interviews were conducted with owner-managers of SMEs from arrange of industries, including manufacturing, trading and services, and the data analyzed thematically. The findings will help policy makers, practitioners and entrepreneurs/owner-mangers in Pakistan in particular and other developing regions in general to devise mechanisms to improve the performance of SMEs.

Keywords: Competitive Advantage, Knowledge Management, Performance, SMEs, Social Capital.

1 INTRODUCTION

Globalization has put competitive pressures on SMEs to improve their performance through social capital (SC) and knowledge management (KM). Moreover, SMEs are currently facing significant challenges from global competition and the free movement of skilled labor. One possible solution to overcoming these challenges is to develop an understanding of SC and KM in SMEs.

During the last few decades SMEs have evolved as an independent, progressive, income generating and distinguish business discipline specifically for developing countries, and due to this fact they have become an important area of research (Beaver & Prince, 2004;Neithammer et al., 2007). This paper is developed from the work of preceding research studies into the role of SC and KM on SMEs' performance in the context of Pakistan. It is evident that the efficient use of SC and KM will ultimately enhance a firm's performance, which will in turn help create an entrepreneurial culture, competitive advantage, and socioeconomic change in the community.

According to Burt (2000) social capital is an intangible resource of a firm from which certain people or groups build mutual trust and interdependency and are obliged to support each other. This metaphor of social capital not only helps firms build relationships within and across the companies, but is also a source of competitive advantage for entrepreneurial firms.

In the knowledge-based economy, firms maintain their competency and competitive advantage on the basis of leading knowledge and their ability to learn more quickly than their competitors (Bell, 1973; Grant, 1996b; Prusak, 2001). The speed with which an organization builds up knowledge-based competencies determines its performance and survival. Apart from conventional factors of production (land, labor and production) leading knowledge also contributes towards earnings and performance (Gold, Malhotra, & Segars, 2001).

SMEs make up a lucrative sector that has made an immense contribution to the economy of Pakistan. They contribute almost 80% of the non-agricultural labor force and account for almost 40% of total GDP (Malik, Khan, Bhutto & Ghouri 2011). This sector makes up 35% of Pakistan's manufacturing sector and has a 25% share in manufactured exports. The role of SMEs becomes more significant because the manufacturing sector makes a direct contribution to Pakistan's economic development (Bhutta et al. 2007). Today, they are widely considered a solution to many economic problems. In Pakistan they are a key source of household income (Perks & Bouncken, 2004; McDade & Spring, 2005) and are considered a great resource for reducing unemployment and poverty. This study will seek to understand KM and SC mechanisms in the context of Pakistan and explain how these mechanisms help the performance of SMEs. …

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