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The role of entrepreneurial ventures is important in any economy due to the provision of compatible goods and services and employment to large segments of society. These small and medium entrepreneurial businesses give stimulating competition to local and foreign large businesses and provide substitute products and services. Another important role of entrepreneurs is to provide visionary progress to their business through establishing social and intellectual relationship with the internal and external stakeholders of the businesses (Hormiga et al 2011). Relationships are important to these businesses to assist in providing consumers more choices and quality alternatives to stay competitive. According toOkafor (2011), relationalcapital is an important component of firms ‘intangible assets and consists of specific asset that shows the relationship of the entrepreneurial venture with its environment. Hence, this relational capital is comprised on the external and internal communication networks of the company to develop long term relationships with all stakeholders. This paper is based on the critical review of current literature on importance of relational capital in an entrepreneurial business.
The aim is to determine the role of relational capital in success of entrepreneurial ventures for SMEs. Therefore, the relevant past studies were searched on Google Scholar, Elsevier, Science Direct, and other online databases of scholarly journal articles. The selection of journal was primarily based on the inclusion in ABS list and major peer reviewed journals of entrepreneurship and small business was included. The article selection was based on the relevance to the main topic, publication period (2010 and forward), and the variety of areas connected with the implications of relational capital in entrepreneurial ventures.
In view of Okafor (2011) study, the relational capital is part of the intellectual capital and rose with the influence of internal and external relationships. The external relationships are established with suppliers, customers, and even with competitors. Also, relationships in social circle, family, external bodies like government institutions, regulatory authorities, and other community stakeholders are also significant. These external linkages established a reputation for firm and entrepreneur and help in developing the company at faster rate. On the other hand, internal relationships are comprised on the relationships with employees, internal stakeholders, and the partners of the firm.
In another study, Okafar (2012) evaluated the impact of relational capital on the success of small and medium enterprises (SMEs) in Nigeria. This study has extended the findings of a previous research of Okafor (2011) that linkages with the groups and institutions like government authorities, credit institutions, specialized bodies, town authorities, and other reputed firms and individuals provide information, knowledge and other important resources to the SMEs. Another view of de Castro et al (2004) is also available in this regard that relational capital is termed as a non-exclusive asset of any company that provide internal linkages with good employees, access to knowledge, and venture capital, knowledge, and other resources in the external markets. The article is also based on the assumptions of Ordonez de Pables (2003) that the information collected from conferences and the devised policies by authorities and independent institutions also plays an important role in the progress of SMEs.
In research method, Okafar (2012) selected 20 SMEs in two main cities of Nigeria and conducted Face to face personal interviews either from firms’owners or designated managers as a responsible personnel in making strategic decisions for these companies. The data analysis techniques used for collected quantitative data based o interview questionnaires was multiple regression analysis, selected due to simultaneous relationship evaluation of five independent and one dependent variables. The dependent variable was company’s success and the independent variables were informal relations, suppliers/customers’ relations, reputation, location, and relationships. The results of regression test showed two significant relationships of success with suppliers/customers’ relations (t=7.549), and relations with external bodies (t=5.107). The regression coefficient was R2 =.534, indicated the dependence of success on the independent variable slightly more than 50%. The recommendation of the paper include need of more future research to determine measures for more factors that contribute companies success with respect to relational capita. These study results are in accordance with a study of Walker et al (1997) that firms cannot operate in isolation and their success greatly depends on the relationship with the stakeholders present in external and internal environment.
Entrepreneurs strive to gain resources and information from the environment to stay competitive in a rapidly changing business environment. Therefore, in order to access the resources which the business not currently possessed, materialization of the formal and informal relationships is very important. According to Nunamaker et al. (2002), relationships with environment are prompted more with collaboration and negotiation as compared to a competition. The role of relational capital in establishing the collaboration with other firms and individuals helps to move forward and better coordinated with work. Also, Franco (2008) declared that partnerships, strategic alliances, and collaborative networks form productive inter-organizational collaborations, but argued that the entrepreneurial businesses due to their financial and managerial restrictions, normally fail to establish relationships with all stakeholders in an institutionalized way. Hence, relational capital linked with this relatively new field of study for SMEs which is though flourishing at a higher rate as digital revolution and increase in telecommunication resources, SMEs are quickly transforming ideas in business realities(Miles et al. 2006). So, relational capital cap play the vital role of a key player to build social interaction in collaborative networks.
In a research collaborative entrepreneurship by Welbourne and Pardo del Val (2013), suggests the use of global network of companies for the rapid establishment of collaborative inter-firm relationships. The study also elaborated importance of human capital in establishing relationships for long term success. For successful networks of SMEs, continuous innovation strategy is also important to consider. This exploratory study was conducted with the senior leaders in a conference arranged by the Global Staffing Organization. The sample is selected from the attendees of the conference. The total sample size finalized was 382 respondents, completed the full survey, response rate of 19%. Though, high level executives are present in the conference, but the purposive sampling and low response rate has limited the scope of the research (Saunders et al 2012). The findings of the paper help authors to declare that human capital is not the only important assets but the relationships formed by that capital are the most important for a startup business and for SMEs. They also deducted that smaller companies pay more attention to establish a relational capital in order to survive in a competitive landscape.
Furthermore, another important discovery of Welbourne and Pardo del Val (2013), paper was that he relational capital is the most important factor in determining the success of the small firms. The primary finding and conclusion of this paper is the speculative relational capital and the relationships formed should be in right direction to complement efforts of management. These results were used in several future studies and this research has played an important fundamental role in determine the direction of studies. The limitation of the research was inability to generalize any further due to the absence of control measures, lack of quantitative data, and limited selection of sample from a purposive technique. The complex questions could not be asked due to the parsimoniel approach used in data collection.
Strategic alliances and networking is an important aspect in growth strategies of entrepreneurial businesses. Liu et al (2010) study is found important to examine the impact of relational capital on the success of strategic alliances and the amount of knowledge transfer among the partners. The main proposition of the research was that a learning organization that keeps high levels of internal and external learning can acquire knowledge from the strategic partners at higher rate. The conceptual framework of this paper was based on the resource based view, learning organization theory, and relational view of intellectual capital. This empirical research has used a large sample of firms in IT industry to collect quantitative data and then statistical tools have been applied. The results indicated that the active firms in gaining knowledge are found to be active in information gathering and dissemination in the strategic alliances and joint ventures.
The success of new entrepreneurial venture is one of the most important concerns in SMEs businesses. The paper of Hormiga et al (2010) is selected for the identification of relational capital as one of the important factor in assuring the success of a new business. The evaluation of the most important factors for the entrepreneurial venture is challenging and requires ample information of the environmental forces. The study used 130 new firms’ sample to analyse the intangible assets impact on the success of new venture. The used statistical tool was Multiple Regression to test the stated hypotheses. This descriptive methodology based research found that human capital is the most important aspect of business in initial years. On the other hand, human capital is closely linked with the relational capital and cannot work in isolation and role of knowledge acquisition and transfer is important in external and internal environment. However, in case of project oriented or team based organization, the role of entrepreneur is shared by the team leaders. Furthermore, role of relational capital becomes significant in case of team based organization as lack of intra organization communication created hindrances to success of projects. The main limitation of the research is generalizations of result to all types of organizations and the impact of other environmental factors and role of other intangible assets not considered in the research.
In another research of Stettler and Schweiger (2012), the role of establishing relational capital is found a significant challenge in team based entrepreneurial ventures. Shepherd et al. (2000) added that the teams in established and old businesses have well defined procedures and practices as compared to the new entrepreneurial businesses. In contrast, the article of Stettler and Schweiger (2012) asserted that in absence of definestructures and policies, entrepreneurial teams face difficulty in coping with occurring challenging tasks.The issues with team management and the rapid changes in markets increase the importance of sharing of relevant and update information. This article has used the multiple-case study method and selects the Swiss firms operating in German environment. The development of trust based relationship was also evaluated in the teams of these similar sized firms with teams’ collaborations of at least six months duration. The article of Paoloni and Dumay (2015) also declared relational capital as a necessary requirement to establish a success full team based environment in a new entrepreneurial ventures.
The importance of Okafar (2012) study findings is for entrepreneurs to evaluate the most important linkages in external environment to create success in shorter time. Also, the reputation of the business and entrepreneurs did not create high relationships with the success die to high rates of corruption and bribery in the developing countries like Nigeria. Also, the role of relational capital in forming the relationships of the firm as an important intangible asset is evident from this study. The limitation of the research are small sample size, data collection in only two cities, and the personal perceptions of the interviewees about the condition and nature of relations also affected the results, therefore, more research on the role of these variables in forming the success and their direction of action is an important area for future research.
The main problem identified in available literature is that it is not systematically aligned in terms of impact of relational capital on the knowledge acquisition and the outcomes of the strategic alliances. The main studies found in this regard are of Dyer & Hatch, (2006) and Uzzi& Lancaster, (2003) that draw the links of knowledge transfer and the development of relationships in strategic alliances. Also, Inkpen & Pien, (2006) highlighted the connection between knowledge sharing and acquisition in joint ventures, and the satisfaction drawn from the alliances in terms of knowledge processing was found in the study of Norman, (2004). On the other hand, these researches were failed to draw a comprehensive link between the relational capital and behaviour of learning organization in strategic alliance like drawn in the article of Liu et al (2010).
Moreover, the findings of Stettler and Schweiger (2012) research demonstrated that the contracting practices and team based community structures are important for entrepreneurial firms in order to build and maintain relational capital. In another research of Idowu and Ogundipe, (2013), the important of team based relational capital acquiring approaches are found important in female owned new entrepreneurial firms. The processes and procedures of information sharing and dissemination need to be made clear and easy to implement.
Another important are discussed in above review is the role of relational capital in building a collaborative network based relationship in entrepreneurial ventures. The findings of Kale et al (2000) in a previous research, account for the importance of respect, personal interaction, trust, and reciprocity in a professional environment. The findings of Welbourneand Pardodel Val (2013), were supported by the study of Thorgren et al., (2012) the social dimension plays an important part I high quality inter firm relationship. Also, the study of Hormiga et al (2010) supported the link between performance and the use of relational capital to act as a learning organization. On the other hand, Hatch & Dyer, (2004) argued that relational capital cannot be built up in short term and effective networking and collaboration is required to establish the relationship. Hence, the assumptions of Hormiga et al (2010) and Welbourne and Pardo-del-Val, (2008) are supported by the other researches that relational capital is one of the most important assets and has vital role in company’s success.
As the relational capital generate the value from relationships (Ordonez de Pablos, 2003), both in external and internal environment of suppliers, customers, employees, and other stakeholders (Boedker et al 2005), the direction of establishment of the direction of this relationship is also very important (Marr and Roos, 2005). The outcomes of most of the researches discussed above have declared the importance of this capital as an asset of the firm, but also argued about the proper measurement and implication of this information sharing from the environment. Apart from the personal relationships, the exchange of knowledge related to the skills, location, value of the firms, software, and ideas are also important to build trust and a long term relationalcapital.
In conclusion, relational capital is an important component of the intellectual capital of the entrepreneurial businesses. The exchange of essential information with the environment has a positive impact on the new venture performance. The role of suppliers, customers, and government bodies relationships are found most important in building up the relational capital. Also, establishing culture of learning organization is also important to acquire knowledge in strategies of alliances and perform better on joint ventures. The team based entrepreneurial business need this capital to increase the efficiency of communication process and team procedures. Furthermore, the role of human interactions and access of knowledge resources are found important in increasing the relational capital of new start ups. Though, entrepreneurs’ main aim is to create rapid success in the new small and medium enterprises but the effective ways of accessing appropriate and current information by using limited resources has always been a great challenge. The limitations of this review are the limited access to extensive literature on relational capital and the use of only recent researches in the review. The future researches with more broad scope and consideration of other factors that affect the gain of relational capital are suggested.
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