Sustainable Supply Chain Risk Management
December 20, 2020The Role of Relational Capital for Entrepreneurial Firms
December 20, 2020
Introduction
The role of entrepreneurial ventures is important in any economy due to providing compatible goods and services and employment to large segments of society. These small and medium entrepreneurial businesses stimulate competition to be local and foreign large companies and offer substitute products and services. Another important role of entrepreneurs is to provide visionary progress to their business through establishing a social and intellectual relationship with the internal and external stakeholders of the businesses. Relationships are important to these businesses to assist in providing consumers with more choices and quality alternatives to stay competitive. According to Okafor (2011), relational capital 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 of the company's external and internal communication networks to develop long-term relationships with all stakeholders. This paper is based on the critical review of current literature on the importance of relational capital in an entrepreneurial business.
Aim and methodology of the Literature Review
The aim is to determine the role of relational capital in the 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 journals was primarily based on the inclusion in the ABS list, and major peer-reviewed journals on entrepreneurship and small business were 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.
Relational Capital in Entrepreneurship
In view of Okafor's (2011) study, 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 competitors. Also, relationships in social circles, family, and external bodies like government institutions, regulatory authorities, and other community stakeholders are significant. These external linkages established a reputation for the firm and entrepreneur and helped in developing the company at a faster rate. On the other hand, internal relationships comprise relationships with employees, internal stakeholders, and the firm's partners.
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 previous research by Okafor (2011) that linkages with the groups and institutions like government authorities, credit institutions, specialised bodies, town authorities, and other reputed firms and individuals provide information, knowledge and other essential 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 provides 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 the research method, Okafar (2012) selected 20 SMEs in two main cities of Nigeria and conducted Face to face personal interviews either with firms’ owners or designated managers as responsible personnel in making strategic decisions for these companies. The data analysis technique used for collecting quantitative data based o interview questionnaires was multiple regression analysis, selected due to simultaneous relationship evaluation of five independent and one dependent variable. The dependent variable was the company’s success, and the independent variables were informal relations, suppliers/customers’ relations, reputation, location, and relationships. The results of the 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, indicating the dependence of success on the independent variable was slightly more than 50%. The paper's recommendation includes the need for more future research to determine measures for more factors that contribute to companies' success with respect to relational capita. These results are in accordance with a study by Walker et al. et al.) that firms cannot operate in isolation and their success greatly depends on the relationship with the stakeholders in the external and internal environment.
2.2 Relational Capital role in Collaborative Entrepreneurship
Entrepreneurs strive to gain resources and information from the environment to stay competitive in a rapidly changing business environment. Therefore, to access the resources that the business does not currently possess, materialising the formal and informal relationships is very important. According to Nunamaker et al. (2002), relationships with the environment are prompted more by collaboration and negotiation than the competition. The role of relational capital in establishing collaboration with other firms and individuals helps to move forward and better coordinate with work. Also, Franco (2008) declared that partnerships, strategic alliances, and collaborative networks form productive inter-organizational collaborations but argued that entrepreneurial businesses, due to their financial and managerial restrictions, normally fail to establish relationships with all stakeholders in an institutionalised way. Hence, relational capital is linked with this relatively new field of study for SMEs. Though flourishing at a higher rate with the digital revolution and increase in telecommunication resources, SMEs are quickly transforming ideas into business realities (Miles et al. 2006). So, the relational capital cap is a key player in building social interaction in collaborative networks.
Research on collaborative entrepreneurship by Welbourne and Pardo del Val (2013) suggests using a global network of companies to rapidly establish collaborative inter-firm relationships. The study also elaborated on the importance of human capital in establishing relationships for long-term success. For successful networks of SMEs, a continuous innovation strategy is also important to consider. This exploratory study was conducted with the senior leaders at a conference arranged by the Global Staffing Organization. The sample is selected from the attendees of the conference. The total sample size finalised was 382 respondents who completed the full survey, a response rate of 19%. Though high-level executives were present at the conference, the purposive sampling and low response rate 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 significant asset, but the relationships formed by that capital are the most important for a start-up business and SMEs. They also deducted that smaller companies focus more on establishing relational capital to survive in a competitive landscape.
Furthermore, another important discovery of Welbourne and Pardo del Val's (2013) paper was that relational capital is the most important factor in determining the success of small firms. This paper's primary finding and conclusion are that the speculative relational capital and the relationships formed should be in the right direction to complement management efforts. These results were used in several future studies, and this research has played an important fundamental role in determining the direction of studies. The limitation of the research was the inability to generalise any further due to the absence of control measures, lack of quantitative data, and limited selection of samples from a purposive technique. The complex questions could not be asked due to the parsimoniel approach used in data collection.
Relational Capital in Strategic Alliances
Strategic alliances and networking are essential in entrepreneurial business growth strategies. Liu et al. (2010) study is necessary 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 organisation that keeps high levels of internal and external learning could acquire knowledge from its strategic partners at a higher rate. The conceptual framework of this paper was based on the resource-based view, learning organisation theory, and relational view of intellectual capital. This empirical research has used a large sample of firms in the IT industry to collect quantitative data and then applied statistical tools. The results indicated that the active firms in gaining knowledge are active in information gathering and disseminating strategic alliances and joint ventures.
Relational capital's role in the success of the new venture
The success of a new entrepreneurial venture is one of the most important concerns in SME businesses. The paper of Hormiga et al. (2010) is selected to identify relational capital as an important factor in assuring a new business's success. The evaluation of the most important factors for the entrepreneurial venture is challenging and requires ample information on the environmental forces. The study used 130 new firms’ samples to analyse the intangible assets impact on the success of the new ventures. 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 the initial years.
On the other hand, human capital is closely linked with relational capital. It cannot work in isolation, and the role of knowledge acquisition and transfer is essential in external and internal environments. However, in the case of a project-oriented or team-based organisation, the role of the entrepreneur is shared by the team leaders. Furthermore, the role of relational capital becomes significant in the team-based organisation as a lack of intra-organization communication creates hindrances to the success of projects. The main limitation of the research is generalisations of results to all types of organisations, the impact of other environmental factors, and the role of other intangible assets not considered in the research.
In another research by Stettler and Schweiger (2012), establishing relational capital is 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 compared to the new entrepreneurial companies. In contrast, the article of Stettler and Schweiger (2012) asserted that without defined structures and policies, entrepreneurial teams face difficulty in coping with challenging tasks. The issues with team management and the rapid changes in markets increase the importance of sharing relevant and updated information. This article has used the multiple-case study method and selected the Swiss firms operating in German environment. This article declared relational capital as a necessary requirement to establish a successful complete team-based environment in a new entrepreneurial ventures. The development of the trust-based relationships was also evaluated in the teams of these similar-sized firms with teams’ collaborations of at least six months.
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Discussion of the Reviewed Literature
Okafar (2012) study findings are important for entrepreneurs to evaluate the most important linkages in an external environment to create success in a shorter time. Also, the reputation of the business and entrepreneurs did not develop high relationships with success due to high rates of corruption and bribery in developing countries like Nigeria. Also, the role of relational capital in forming the firm's relationships as an important intangible asset is evident from this study. The limitation of the research is the small sample size, data collection in only two cities, and the interviewees' personal perceptions 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 by Dyer & Hatch (2006) and Uzzi & Lancaster (2003) that draw the links between 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. The satisfaction drawn from the alliances in knowledge processing was found in the study by Norman (2004). On the other hand, these researches failed to remove a comprehensive link between the relational capital and behaviour of learning strategic organisation alliance like in the article of Liu et al. (2010).
Moreover, the findings of Stettler and Schweiger (2012) research demonstrated that contracting practices and team-based community structures are essential for entrepreneurial firms to build and maintain relational capital. In another research by Idowu and Ogundipe (2013), team-based relational capital acquiring approaches are important in female-owned new entrepreneurial firms. The processes and procedures of information sharing and dissemination need to be clear and easy to implement.
Another important are discussed in the 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 previous research account for the importance of respect, personal interaction, trust, and reciprocity in a professional environment. The findings of Welbourne and Pardo del Val (2013) were supported by the study of Thorgren et al. (2012). The social dimension plays an integral part in high-quality inter-firm relationships. Also, the study of Hormiga et al. (2010) supported the link between performance and the use of relational capital to act as a learning organisation. On the other hand, Hatch & Dyer (2004) argued that relational capital could not be built up in the short term, and effective networking and collaboration are required to establish the relationship. Hence, the assumptions of Hormiga et al. (2010) and Welbourne & Pardo-del-Val, (2008) are supported by other research that relational capital is one of the most critical assets and has a vital role in a company’s success.
As relational capital generates value from relationships (Ordonez de Pablos, 2003), both in the external and internal environment of suppliers, customers, employees, and other stakeholders (Boedker et al., 2005), the direction of the establishment of the direction of this relationship is also very important (Marr and Roos, 2005). The outcomes of most of the research 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, and value of the firms, software, and ideas are also important to build trust and long-term relational capital.
Conclusion
In conclusion, relational capital is an important component of the intellectual capital of entrepreneurial businesses. The exchange of essential information with the environment positively impacts the new venture performance. The role of suppliers, customers, and government bodies relationships are found to be most important in building up relational capital. Also, establishing the culture of a learning organisation is important to acquire knowledge in strategies of alliances and perform better in joint ventures. The team-based entrepreneurial business needs this capital to increase the efficiency of the communication process and team procedures.
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