162
UNIVERSAL SOCIAL CAPITAL
ARIZONA STATE UNIVERSITY
ENT 305 - PRINCIPLES OF ENTREPRENEURSHIP
WEEK 6
12.1 INTRODUCTION:
The concept of "universal social capital" refers to resources that are available to all
individuals in society regardless of their social, economic or cultural background. This
includes fair and equal access for all people to basic services such as education, healthcare,
employment, and social justice. Universal social capital aims to create greater equality within
society, ensuring that all people have equal opportunities to thrive and participate fully in
social and economic life. It is an underlying principle of many social welfare systems and
efforts to create equality in different countries. Sources of value creation in organizations are
usually separated into three types: financial capital (money, bank reserves, credit lines);
human capital (natural qualities such as intelligence and good health combined with skills
acquired through formal education in professional fields); and social capital - relationships
with colleagues, friends or contacts that open up opportunities to use financial and human
capital (Burt 1992). In the management literature, the concept of social capital has received
significant attention over the past few years. The underlying foundation of social capital
theory rests on the idea that social networks are fundamental resources for doing business
(Burt 1992; Nahapiet and Ghoshal 1998). These networks enable entrepreneurs to expand
their field of action, become more efficient and access exclusive opportunities (Batjargal
2003). Similarly, for some workers, their social capabilities allow them to get good jobs or get
better jobs (Granovetter 1973; Ibarra 1995; Lin and Dumin 1986). Social capital can bring
professional success to middle or top-level managers by reinforcing their level of power and
status (Belliveau et al., 1996; Burt 1992, 1997; Leana and Van Buren 1999).
An important question posed in this study is "How can social capital be a competitive
tool for entrepreneurs". The answer lies in showing how their networks can provide the value
and competitiveness that entrepreneurs need for their business projects. This chapter is
organized as follows: First, an overview of the concept of social capital is presented.
Secondly, the sources, types and levels of social capital are discussed from different
approaches, as well as different ways to measure social capital with the aim to relate different
163
levels of social capital to the performance of entrepreneurial projects. The chapter ends with a
series of proposals and conclusions.
12.2 WHAT IS SOCIAL CAPITAL?
The term "entrepreneurial social capital" can refer to a number of concepts depending
on the context. Below are some possible interpretations of the term:
1. Social and Support Networks: Entrepreneurial social capital can refer to social
networks or support from family, friends, mentors and business partners who can
provide help, advice or resources to an entrepreneur. These social networks can be
instrumental in helping entrepreneurs overcome challenges and expand their
opportunities.
2. Social Policy and Business Environment: Entrepreneurial social capital can also
refer to the social policy framework and business environment that support the growth
and development of small and medium-sized enterprises (SMEs). This can include
economic empowerment policies, entrepreneurship training, and infrastructure that
supports business development.
3. Social Value in Entrepreneurship: Entrepreneurial social capital can also refer to
social sustainability and ethical values in business activities. Entrepreneurs who
understand and apply the principles of sustainability, social responsibility and ethics in
their business operations can be considered to have entrepreneurial social capital.
4. Community Involvement: Active involvement and contribution in the community
can also be considered entrepreneurial social capital. Entrepreneurs who act as leaders
or agents of positive change in their communities can build social capital that supports
their business development.
5. Collaboration and Partnerships: Entrepreneurial social capital also includes the
ability to form beneficial partnerships and collaborations. Entrepreneurs who can work
with various parties, including governments, corporations and non-profit
organizations, can access social capital that can enhance their business opportunities.
In essence, entrepreneurial social capital includes social aspects that can support and
strengthen entrepreneurial activities, whether in terms of human resources, network support,
social values, or collaboration with related parties.
Through relationships within the community, entrepreneurs can access resources,
information and business opportunities that may not be accessible individually.
1. Business Collaboration: In business, social capital facilitates more effective
164
collaboration between companies, business partners and other stakeholders. Trusting
relationships and good cooperation between these parties can result in synergies that
are beneficial to all parties involved.
2. Strengthening the entrepreneurial community: Social capital also plays a role in
strengthening the entrepreneurial community. With a sense of community and
supportive social norms, entrepreneurs can empower each other, share experiences and
overcome challenges together.
3. Local Economic Empowerment: Universal social capital can be a driving force for
local economic empowerment. By building relationships that strong in the community,
entrepreneurs and businesses can contribute to sustainable economic development at the local
level.
4. Access to Financial and Non-financial Resources: Through social capital networks,
entrepreneurs can more easily access financial resources such as investment capital
and loans. In addition, they can also access non-financial resources such as industry
knowledge, mentorship and emotional support.
5. Public Trust: Social capital plays a key role in building public trust in entrepreneurs
and businesses. When the public feels that businesses operate with integrity and social
responsibility, this can enhance the company's reputation and support long-term
growth.
6. Co-innovation: In a competitive business environment, social capital can support co-
innovation. Through collaboration and the exchange of ideas, businesses can create
new products and services that are more relevant to market needs.
7. Community Involvement: Entrepreneurs with strong social capital tend to be more
involved in social activities and corporate social responsibility. This creates a broader
positive impact within the community.
8. Adaptation to Change: Social capital also plays a role in helping entrepreneurs and
businesses to adapt to external changes. With extensive networks, they can get
information faster and respond more flexibly to market or regulatory changes.
9. Positive Impact on the Environment: Entrepreneurs and businesses that build
positive social capital can have a positive impact on the surrounding environment.
This can include reducing social disparities, improving education, and providing
sustainable employment.
10. Responsive to Market Needs: By understanding customer needs and expectations
through social capital, businesses can be more responsive to changing market
165
preferences. This enables more effective adaptation of products and marketing
strategies.
11. Facilitation of Problem Solving: Social capital networks can be a source of problem-
solving for entrepreneurs. By sharing knowledge and experiences, they can overcome
obstacles and find creative solutions to their business challenges.
12. Skill and Competency Development: In a supportive business community, social
capital can be a means for entrepreneurs and business people to continuously develop
their skills and competencies. Collaboration with people who have different expertise
can enhance individual and corporate capabilities.
13. Operational Sustainability: Social capital can help ensure the sustainability of
business operations by assisting in the search for new opportunities, forging
sustainable partnerships, and strengthening customer relationships.
14. Productive Creativity and Innovation: In an atmosphere where ideas can flow
freely, social capital creates conditions for creativity and productive innovation. This
can result in unique and profitable products or services.
15. Conflict Resolution Skills: In business and entrepreneurship, conflict is inevitable.
Good social capital allows the parties involved to resolve conflicts in a constructive
way, promoting stronger relationships.
16. Expanding Market and Reach: By utilizing social capital networks, businesses can
more easily expand their market and reach. This can involve new partnerships,
geographical expansion, or product diversification.
The topic of social capital has represented a very interesting line of research for economists,
political scientists and sociologists in recent years. The ever-increasing number of research
articles, book chapters, entire books, citations, and Internet sites in the last 10 years testifies to
this fact, although this growth has not been matched by greater clarity of the concept. As
Paldam puts it, "social capital is almost a concept common to all branches of science" (2000,
p. 631).
The term social capital was first used in research conducted by Hanifan in 1916. He
argued that performance in rural schools could be attributed to "the real substance that matters
to most people in everyday life: goodwill, commitment, kindness, and social interaction
between individuals and families that make up a social unit" (1916, p. 130). However,
undoubtedly, one of the main pioneers is James Coleman (1988, 1990) with his important
works "Social capital in the creation of human capital" and "Foundations of social theory". In
his approach, the social context is characterized by the organization of relationships between
166
actors, in other words, social structures. This structure acquires resources that constitute social
capital. For Coleman, capital does not derive from a decision that seeks to obtain future
benefits, but rather from other activities, thus making it more of an external factor that enables
individual action (1988, p. 118).
The clearest example given by Coleman is the way the diamond market in New Cork
functions. This example contains all the elements of Coleman's perception of social capital:
the existence of benefits that are more easily obtained through interactions based on trust (the
economics of transaction costs), relatively closed communities, relationships that are strong
enough that opportunistic behavior can be resisted and diffused, and unwritten rules of
honesty associated with strong enough sanctions, such as ostracism from the community. This
example contains all the elements of Coleman's perception of social capital: there are
advantages to be gained from interactions based on trust (transaction cost economics), the
community is relatively closed, relationships are strong enough that opportunistic behavior
can be resisted and spread, and unwritten rules about honesty are associated with strong
sanctions, such as ostracism from the community.
Although Coleman did not contribute to the development of the concept, his works are
considered pioneering. One of the pioneers of this topic of social capital is Robert Putman. A
Harvard politician, and a good public speaker, he had the ability to relate the concept of social
capital to more current public policy issues, and became one of the authors who contributed
most to the spread of the concept. Among his many contributions, the first book of his
"Making Democracy Work", in 1993 (Putman et al., 1993), is an important study of the
conditions under which political institutions perform. In his study, he presented the results of
1970s research on institutional performance in 20 Italian regions.
In 1995, in his study "Bowling alone: America's declining social capital", Putman
addressed three important ideas: mapping the symptoms of social capital decline,
demonstrating the benefits associated with having high levels of social capital, and taking
actions that would encourage research on social capital to continue. The conceptualization
underlying his work can be summarized in the following sentence: "social capital refers to
characteristics of social organization such as networks, social norms and trust that enable
coordination and communication, enhance reputation and thereby allow collective dilemmas
to be resolved.Ultimately, dense networks of interaction develop in participants a sense of
self, developing the 'I' in 'we', leading participants to perceive collective benefits" (1995, p.
67).
In his work "Bowling Alone: the Collapse and Revival of American Community"
167
(2000), Putman proposes a different definition from the one that appeared in the 1993 study,
as he applies the same ideas but in reverse order, thus eliminating a direct reference to their
beneficial effects: Just as physical capital or human capital can increase (individual and
collective) productivity, social contacts can also affect individual and group productivity"
(2000, p. 18).
Another important figure at the forefront of research on social capital is Francis
Fukuyama (1995), who put forward a very simple theory: the capacity of a nation to develop
the institutions that will drive its progress depends on its population's propensity to trust, the
origins of which may lie in the values inherent in the nation's culture. For Fukuyama, social
capital is defined as "...an asset born of the dominance of trust in a society or in certain sectors
of society... Social capital differs from other forms of capital in that it is usually created and
transmitted through cultural mechanisms such as religion, tradition or past behavior" (1995, p.
36). Fukuyama's work basically focuses on dividing the countries of the world into two types
of countries: high trust countries and a group of countries with a majority of family or small
state-owned businesses, which are labeled as low trust countries.
The pioneering authors basically refer to macro-level analyses, i.e. analyses that
address the social capital that shapes the structure of relationships in society, and on the one
hand leaves out systems of trust, institutions, norms, and social networks, and, on the other
hand, organizations that shape the interaction of agents in social contexts. All these factors are
assets for the individual and collective production of social welfare.
However, social capital should also be attributed to other levels of analysis, for which
its composition is crucial: first, within the framework of firms and organizations, where a
certain composition of social capital can optimize growth; and second, for individual social
capital and, in our particular case, for entrepreneurial social capital. When talking about social
capital at the organizational level, we mean the capital generated in the relationships built by
members of the organization for collective action and observable at the individual level
between companies, between and within units and companies.
A pioneering study of intracompany organizational social capital was conducted
by Nahapiet and Ghoshal (1998), who analyze the advantages for organizations that have the
capacity to create and share knowledge. For these authors, social capital enables the creation
of new intellectual capital organizations. Depending on their ability to build denser social
capital, they will be able to gain an advantage over other firms in terms of creating and
sharing intellectual capital. This study is a suitable framework for understanding value
creation in networks within a firm. Social capital thus considers networks and the assets that
168
can be mobilized through them (Bourdieu 1986; Burt 1992).
Tsai and Ghoshal (1998) later applied the framework developed by Nahapiet and
Ghoshal to apply to multinational electronic companies. They analyzed the relationships
between 15 multinational business units, investigating four resources generated by the
network: information, products, staff, and support services. Social interaction, which is a
manifestation of the structural dimension of social capital, and trust, which is a manifestation
of its relational dimension, are positively related to the degree of exchange of the resources
concerned, which has a significant effect on product innovation.
Figure 12.1 synthesizes the conceptual model applied by the authors in their research.
Leana and Van Buren (1999) studied social capital among companies, particularly in terms of
employment practices. They introduced the term organizational social capital, while at the
same time developing a model of its components and consequences.
The various schools analyzing the concept of social capital can be grouped into two
groups: (a) those who define it as a public value, whose benefits arise from the social structure
itself (Coleman 1988; Fukuyama 1995; Putman 1993); (b) those who consider it as a private
value whose outcomes benefit the owners of the social capital (Burt 1992; Lin et al., 1981).
Leana and Van Buren define organizational social capital as "...organizational
attributes..." (1999, p. 540), i.e. as an asset that can benefit the organization and its members.
Despite the fact that these authors also contemplate the costs associated with creating and
maintaining social capital, this aspect is not analyzed through empirical studies.
Among the more well-known research on organizational social capital at the inter-firm
level, it is important to mention the work of Uzzi (1997), who developed a systematic
understanding of network articulation in organizations. Uzzi conducted an ethnographic study
by analyzing 23 entrepreneurial firms in the women's clothing market in New York, where
competition is very high, there are thousands of firms, and there are relatively few barriers to
entering the sector. The conclusions of this study suggest that relationships have three main
components that govern expectations and exchange behavior between different parties: trust,
detailed information transfer and joint problem solving. Table 12.1 summarizes some research
on social capital value creation within an organizational framework.
In contrast to the approaches mentioned above, other studies have tried to analyze
individuals' motivations in using social capital and investing in its use. From an individual's
perspective, the emphasis lies on the potential benefits that individuals can derive from a
network of formal and informal ties with others.
The main author of this research is Ronald Burt (1992), starting with his study
169
"Structural holes, the social structure of competition". In his study, he considered social
capital to be a private value owned by each individual. The study conducted by Burt (1992)
also clearly shows the role played by certain nodes in a network when creating competitive
advantage. These are points where nodes and their inhabitants encounter information that is
impossible to access in any other way. They represent valuable capital for those in certain
structural positions. Burt's (1992) study explains why an actor who occupies a point in the
network with an appropriate set of contacts, may have a competitive advantage over other
actors, thus obtaining a better return on their investment. Agency thus "illustrates the way in
which social structures generate imperfect competencies, creating entrepreneurial
opportunities for certain actors and not for others" (1992, p. 8).
In short, social capital appears as a metaphor of advantage (Burt 2001). When certain
individuals, or groups of individuals, obtain better returns on their efforts, it can be assumed
that the gap is due to the fact that those people are more skilled or more qualified. The social
capital approach suggests that an individual, or a group of individuals, has more connections
than others (Burt 2001). In this case, social capital becomes a contextual complement to
human capital.
Burt's (1997) theory, supported by a recent article by Bolino et al. (2002), provides that
contingent value contribution to social capital. In other words, decisions made by individuals
have a fundamental impact on the development of social capital and the behavior of members
in an organization based on honesty, obedience and social participation and their contribution
to the development of the organization.
Therefore, from the review of scientific literature on social capital, studies can be
classified into three levels: (1) some studies focus on the macro level, relating to society,
country or region (2) the second group relates to the meso or organizational level (3) finally,
the third grouping adopts the individual or micro level to analyze social capital. The graphic
below (Figure 12.2) is a synthesis of these groups of studies, characterized according to their
classification of levels of analysis. In addition, it is worth mentioning that, in recent years, a
number of studies have emerged that seek to explore the possible negative or undesirable
impacts caused by certain forms of social capital.
12.3 SOCIAL CAPITAL AS A TYPE OF CAPITAL?
In Indonesia, entrepreneurial social capital includes a number of factors that reflect the
social networks, support and business environment that can influence the success and
development of entrepreneurs. Some aspects relevant to entrepreneurial social capital in
170
Indonesia include:
1. Social Networks: Social networks play an important role in supporting
entrepreneurial success in Indonesia. Connections with family, friends, mentors and
the business community can provide the resources, information and support needed to
overcome challenges and leverage business opportunities.
2. Government Policy: Government policies have a major impact on the business and
entrepreneurial environment in Indonesia. Economic empowerment programs,
entrepreneurship training, and incentives and support for small and medium
enterprises (SMEs) can shape the social capital of entrepreneurs.
3. Entrepreneurial Culture: The entrepreneurial culture that develops in a society is
also part of social capital. The more people who have an entrepreneurial spirit and see
self-employment as a viable career option, the greater the positive impact on the
business ecosystem.
4. Entrepreneurship Support Organizations: The existence of organizations and
institutions that support entrepreneurship, such as business incubators, training
centers, and business idea exchange forums, are also part of an entrepreneur's social
capital.
5. Collaboration and Partnerships: Entrepreneurs who can form partnerships and
collaborations with relevant parties, including governments, large companies, and non-
profit organizations, can leverage social capital to increase business opportunities and
solve common problems.
6. Social Values and Sustainability: Awareness of social values and sustainability is
increasingly important in entrepreneurship at Indonesia. Entrepreneurs who
integrate sustainability principles in their business models can gain support from
society and greater social credibility. In order to build and capitalize on the social
capital of entrepreneurs In Indonesia, collaboration between the government, private
sector and the community is necessary. Through joint efforts, communities can create
a supportive, inclusive and innovative environment for business growth and
entrepreneurship.
Different views can be found with respect to this question. Indeed, some prestigious
economists view the concept of social capital with some skepticism, for example Arrow
(2000), Dasgupta (2000) or Solow (2000).
Solow (2000) is critical of the concept and the way it is used; not only does he state
that the concept of social capital is not applicable to economics, but also that, to date, only
171
vague ideas and occasional empirical studies have been produced. In general, "capital" is an
action resulting from factors of production that can be expected to yield productive returns
over a period of time, it cannot be said to be social capital, and thus its conceptualization as
capital is a poor analogy. Solow claims that "...in relation to social capital, trust...there are
gains in terms of increased productivity. But can we think of social capital as a type of
capital? How does an accountant measure and accumulate this capital? I have never asked so
many rhetorical questions in my life" (2000, p. 19). Arrow (2000) states that the metaphor of
capital should be abandoned in the context of the notion of "social capital", as the term
"capital" implies three aspects: time horizon; deliberate sacrifices made in the present for
future gains; and alienation, The latter concept cannot be applied to social capital. He also
believes that social networks are essentially formed for reasons other than economic ones,
apart from the value that their participation in such networks might represent (2000,
p. 17).
Some researchers suggest that social capital can be invested with the expectation that it
will yield future benefits, just like other types of capital, although perhaps with a more
uncertain rate of return (Putman 1995). Moreover, as is the case with other types of capital,
social capital can be appropriated (Coleman 1988) and converted (Bourdieu 1986), for
example, in cases where social capital can be transformed into other types of capital thanks to
the position it holds within a particular network that provides advantages both economic and
otherwise. Of course, it is less liquid than other forms of capital, but just like other types of
capital, social capital can substitute or complement other resources (e.g., reducing transaction
costs).
Similar to human capital (although not economic capital), social capital requires
maintenance and has no indication of depreciation. Social capital can become devalued due to
both overuse and underuse, and in some cases, social capital can become obsolete due to
influential contextual changes (Adler and Kwon 2002).
However, other researchers have a favorable view of social capital as another type of
capital (Glaeser et al., 2000; Knack and Keefer 1997). As Grootaert and Van Bastelaer (2002)
point out "it is the only form of capital that cannot exist at the heart of a Robinson Crusoe-
style economy, at least until his arrival on the island".
In his latest study, "Social Capital, a theory of social Structure and Action", Lin
(2001), places social capital in the group of capital theories (classical and neo-classical
theories). The evolution of capital theory in the last four decades has paved the way for the
emergence of a new theory called neocapital theory, which includes human, social and
172
cultural capital. "Human capital, which assumes that capital can rest on individual labor, dates
back to the time of Adam Smith, who included all the acquired and useful abilities in a
country's population as part of its capital (1937)" Lin (2001, p. 9). Table 12.2 shows some of
the differences between economic capital and non-economic capital, including social capital.
In conclusion, this section can be summarized by stating that, in our opinion, based on
the review conducted, social capital does belong to a heterogeneous group of capital types
(Arrow 2000). Whether or not this assumption is correct, the specificity of this capital requires
the development of "ad hoc" methodologies for measurement and analysis.
12.4 SOCIAL CAPITAL MEASUREMENT:
The concept of social capital has undergone significant evolution, largely due to
empirical verification linking the presence of large amounts of social capital to positive and
diverse social and economic outcomes. Paradoxically, however, there is no consensus of
opinion on how to conduct such assessments, a difficulty similar to that experienced by the
field of social sciences.
The measurement of social capital has turned out to be a challenge of late, leading the
OECD and the World Bank to initiate an international working group with the aim of reaching
consensus on a set of indicators that would allow them to obtain homogeneous measurements.
Such a task is hampered by the multidimensional nature of the concept, which encompasses
different levels and units of analysis, as well as the fact that the nature and form of social
capital varies over time.
Nonetheless, several studies have addressed this issue. On a macro-level analysis,
Putman's (2000) research, with respect to observed differences in social capital in the US, is
based on a longitudinal and transversal approach. His measurement of social capital is based
on an index consisting of various elements: the level of participation in organizations and
civic life, participation in public or voluntary life, informality, social ties, and the level of
subjective trust between individuals.
The World Bank has attempted to measure this using surveys.
For example, Narayan and Pritchet (1997) designed the measurement instrument used in an
empirical study conducted in rural Tanzania from data obtained on capital and poverty
(SCPS). Another way to evaluate variations in social capital is to measure the absence of
social cooperation. Fukujama (1995) attempted to do this through the evolution of certain
indirect indicators. These studies lack clarity and, moreover, sometimes risk confusing their
origins and consequences.
173
One of the instruments that has had the greatest impact on the measurement of social
capital is the World Values Survey, conducted by Ronald Inglehart, which collected data from
43 different societies to understand the role of cultural and political factors in economic
development. Some social capital researchers, such as Knack and Keefer (1997) show a
strong relationship between general levels of trust and investment levels in 29 countries.
Another measurement instrument is the New South Wales Study, developed by Onyx
and Bullen (1997). It is a practical measurement tool applied in the state of New South Wales
(Australia) that analyzes eight fundamental factors when analyzing the increase of social
capital: participation in the community, activeness in the social context, and feelings of trust
and security, relationships with neighbors, family/friends and co-workers, tolerance for
diversity and appreciation of life. Focusing on an individual's social capital score, the authors
predict which region the individual belongs to.
The Barometer of Social Capital (BARCAS), designed by John Sudarsky (1999),
largely based on the WVS and applied in an empirical study in Colombia, functions in two
dimensions: social capital and trust in information sources. Using factorial analysis, he found
eight dimensions included in the social capital factor: institutional trust, civic participation,
reciprocity, horizontal relationships, hierarchy, social control civic republicanism, and
political participation.
Figure 12.3 shows the key variables considered in studies of the dimensions that make
up the social capital construct. There are also studies that attempt to take measurements at the
organizational and individual levels. Network analysis studies the structural aspects of social
relationships. According to network researchers, the individual is the focus of attention and
the point of reference. Among the most frequently used methods for this estimation are
saturation methods and surveys based on name, position or job title. Saturation-based
approaches can only be used in brief or very limited case studies, as the researcher must be
thoroughly familiar with the relationship plan. With regard to large networks, individuals
represent a reference point from which a variety of personal relationships can be assessed. In
the use of the name-based survey technique, individuals are asked to describe their
interpersonal ties and relationships, which provides the researcher with an overview of their
personal relationships information about the resources available in the network. The position-
based survey technique consists of asking individuals whether they know people who occupy
certain positions or predefined job titles, which are considered important for accessing certain
resources in a given context.
174
Defenders of network analysis argue that these estimates are the only way to measure.
As Lin puts it, "without an approximation of social capital to social networks and their
attendant resources, the concept is in danger of evaporating" (2001, p. 23). Detractors state
that the field of interest in network analysis is limited and ignores the qualitative and
contextual dimensions that are important for understanding and explaining social phenomena.
An area where important progress has been made, thanks to the work of Glaeser et al.
(2001), is assessing the individual investment required for social capital. Researchers analyze
the formation of social capital using mathematical models that allow individual investment
decisions to be optimized. Several proposals were put forward in their study (rational
investment in social capital is higher in occupations that require greater social skills); social
capital decreases according to the possibility of mobility; people who invest in human capital
usually also invest in social capital, etc.).
These empirical, diverse and contradictory solutions clearly indicate certain
weaknesses in the theoretical framework that can lead to a circular way of thinking that
approaches tautology. As Paldam puts it: "The dream of social capital tells us that social
capital is powerful. If social capital were as important as it is, it would be It is better if most of
the different definitions are associated with 'flowering stones', so that they all address the
same aspect of the story" (2000, p. 631).
Such thinking requires us to continually strive to find the tools
a more homogenous measurement. On his website, Putman states, "Why measure social
capital? There are three reasons, the first being that measuring social capital will help make it
more tangible (for those who find it too abstract); it will also allow us to justify investment in
social capital, since models where performance is the main criterion for investment in
resources suggest that social capital performance will increase the interest of potential
investors; and finally, it will show us what actions are worth taking to create more social
capital".
12.5 SOCIAL CAPITAL AND ENTREPRENEUR COMPETITIVENESS:
The debate around the concept of social capital has been a topic of interest among
academics, practitioners and policy makers. Some of the debates that often arise include:
1. Uncertain Definitions: There is debate regarding the exact definition of social capital.
Some see it as social networks and norms-values in society, while others consider it an
asset that can be measured and leveraged for specific purposes.
2. Measurement and Research Methods: The challenge of measuring social capital is a
175
central issue. How to measure it accurately and the validity of the resulting data is
often the subject of debate. Some claim that it is subjective and difficult to measure in
an objective way.
3. Causality Effect: There is debate over the extent to which social capital causes social
change or vice versa. Some argue that social capital is merely a correlate and not a
direct cause of social change.
4. Politics and Power: There is an argument that social capital can be used as a tool of
politics or power control. In some cases, access to social capital can be limited to
certain groups with political or economic power.
5. Universality vs. Contextuality Issue: Some argue that the concept of social capital
has universal value that can be applied across different social and cultural contexts,
while others argue that the value and practice of social capital is highly dependent on
local and cultural contexts.
6. Relationship to Development: There is debate over the extent to which social capital
plays a role in social, economic, and political development. Some believe that it is a
key factor for sustainable growth, while others consider it a secondary factor in social
change.
In terms of the debate on social capital, it is important to see it as a complex and
multidimensional concept. Despite differences of opinion, the development and The
utilization of social capital remains an important focus in efforts to build a more inclusive,
equitable and sustainable society.
Entrepreneurship and Competitiveness:
The study of entrepreneurial functioning and new business creation can be approached
from various theoretical perspectives (economic, psychological, institutional and managerial;
see Figure 12.4) (Veciana 1999). Clearly, this chapter is rooted at the socio-cultural or
institutional level, whose dimensions are close to the micro or individual level, i.e. from the
entrepreneur's point of view.
According to Veciana (1999), the theories that can be included in the socio-cultural or
institutional approach have a strong common core: "the basic assumption that the decision to
run one's own business, and therefore the establishment of new firms, is conditioned by
external or environmental factors. In other words, it is the socio-cultural factors or
institutional framework that determine the entrepreneurial spirit and the creation of new firms
176
in a given place and time". (1999, p. 21). At the individual or micro level, still within the
socio-cultural approach, key researchers mentioned by the author are Birley (1985), Aldrich
and Zimmer (1986), Johannisson (1986), Aldrich et al. (1986) and Aldrich et al. (1987). The
basic idea is that the entrepreneurial function is inserted and developed within a network of
social relationships. New firm creation is reinforced or constrained by a complex maze of
relationships between future entrepreneurs, available resources and opportunities. Therefore,
this approach becomes special attention because it is based more on the idea of cooperation
and trust than competence and mistrust.
As a starting point, self-employment can be understood as individual-owner
entrepreneurship
The venture of an SME that starts a project that stems from an idea that it tries to apply to the
market, driven by strong centralization and personalization through strategic management.
According to Aldrich and Zimmer (1986), the phenomenon of new firm creation should be
understood as a dynamic process, a function of the opportunity structure and the motivation of
entrepreneurs with access to resources. Therefore, firm creation is a "phenomenon embedded
in a continuous network of social relationships" (1986, p. 8) that can enable or hinder the
process of firm creation through the relationship between potential entrepreneurs, resources
and opportunities.
The ubiquitous presence of company management can help explain the fact that the
network of relationships in SMEs originates from the network of entrepreneurs. Thanks to the
relationships that entrepreneurs maintain with the parties involved, the company gains access
to its first customers, acquires important information, gains access to new markets, and seeks
the necessary funding for growth and development. In line with this idea, Aldrich and Davis
(2000) state that "in the competitive conditions of the modern economy, resources controlled
directly by the owner are not sufficient to ensure the survival and growth of small firms.
Consequently, to seize some opportunities, entrepreneurs need to supplement what they
personally control by using social capital" (2000, p. 2).
Entrepreneurial social capital can therefore be defined as the added value that
facilitates a network of relationships for entrepreneurs; the relational relationships that make
up their social network. This social capital can be seen (and therefore measured) at different
moments: at the beginning of the entrepreneurial project or firm (M1), i.e., the ties and
contacts entrepreneurs build before starting the firm, for example, through family or contacts
from school/university, or when the firm is already up and running; while the firm is carrying
out its activities (Mn).
177
The M1 analysis is more closely related to the qualitative aspects of entrepreneurial
functioning, where the success or failure of an entrepreneur does not depend on his or her
psychological or personality traits. The following variables were used by Cuervo (2003) in the
same way when summarizing the most relevant variables to generate entrepreneurial ability:
"personal and group characteristics, family and group environment, values and culture of
society, institutions and their functions, training models used, science and technology system,
state actions and reward system" (2003, p. 57).
How, then, do entrepreneurs actually gain competitive advantage? In an attempt to
answer this question, Burt (1992) analyzes what he calls "structural holes", which arise when
complementary resources can be found in places in the network that have weak or unrelated
connections. Those actors (entrepreneurs) who have a solid position and are able to link
themselves to sites that have weak or unrelated connections are able to gain a competitive
advantage. Others in the network will enjoy a significant competitive advantage, as they are
able to build closer connections, derive synergies from complementary resources, and build
advantages from complementary productivity derived from their position. According to Burt,
these actors have considerable social capital. This is an additional element to the classical
Schumpeterian analysis. Schumpeter (1975) stated that the function of business is to reform or
revolutionize production patterns by exploiting an invention. The more entrepreneurs can act
in an innovative way, the more they can capitalize on structural holes and turn them into
opportunities for their entrepreneurial projects.
There are several theoretical approaches that have been developed to understand
entrepreneurial functions. Here are some of them:
1. Classical Approach: This approach draws on classical economic thought, particularly
the works of classical economists such as Adam Smith. According to this view,
entrepreneurship serves as the engine of economic growth. Entrepreneurs are regarded
as agents that create jobs, increase production efficiency, and create innovations,
which in turn contribute to the welfare of society.
2. Innovative Approach: Focuses on the role of entrepreneurship in creating innovation.
According to this approach, entrepreneurs act as agents of innovation who create and
introduce new products, services or processes. Innovation generated by
entrepreneurship is considered to be the main engine of economic change and
progress.
3. Psychological Approach: Involves a psychological analysis of the entrepreneur's
behavior. This approach examines the motivations, attitudes and psychological
178
characteristics of individuals involved in entrepreneurial activities. Factors such as
self-confidence, resilience, and risk orientation are the main focus in understanding
entrepreneurial behavior.
4. Social Approach: Investigates the role of entrepreneurship in a social context. This
includes analyzing the impact of entrepreneurship on social structure, community
building, and social change. Entrepreneurship is considered as a means to achieve
social goals and improve people's living conditions.
5. Resource Ecology Approach: This approach looks at entrepreneurship from the
perspective of the resources available and used by an individual or organization. These
resources involve aspects such as financial capital, knowledge, social networks and
institutional support. Entrepreneurship is understood as the outcome of the interaction
between these resources.
6. Institutional Approach: Emphasizes the role of institutions and rules in shaping
entrepreneurial behavior. This approach highlights how institutions and social norms
influence entrepreneurs' decisions and actions. This aspect is sometimes referred to as
entrepreneurial social capital.
Each of these approaches provides different insights into the role and function of
entrepreneurship in society. A comprehensive understanding of entrepreneurship often
combines elements from several of these approaches.
The idea that entrepreneurial opportunities (which generally refers to the absence or
excess demand for a particular product) can be found in existing gaps in the market is not a
new one. However, economic theory offers little explanation for the diversity and
performance of individual entrepreneurial projects. For example, why do some people
successfully start and sustain new firms while others fail? In Burt's theory with respect to
structural holes, he puts forward the following explanation: "much of competitive behavior
and its outcomes can be understood in terms of a particular location's access to that hole in the
competitive arena. This is why structural holes represent entrepreneurial opportunities to
access information, coordination and control. Entrepreneurs who manage to gain access to
various social connections may enjoy a higher degree of structural autonomy and competitive
advantage". (1992, p. 12). If we consider three players: A, B, and the entrepreneur, the
entrepreneur will be in a structural hole if the following three conditions are met: (1) A and B
have no direct contact with each other; (2) A and B have different types of information;
(3) The entrepreneur has contact with both A and B. The entrepreneur acts by bringing
demands and preferences into the conflict and constructing value from the dispute (Burt 1992,
179
p. 34).
The role of networks and network formation has also been adopted as a means to
understand entrepreneurial behavior, both at the start-up stage of new firms (Aldrich and
Zimmer 1986), and in their subsequent development and growth. Johannisson (1986)
proposed a paradigm in the network formation and new firm establishment process:
entrepreneurial behavior in building networks is likely to influence the potential success of the
firm.
Figure 12.5 shows the three dimensions of network analysis (availability and diversity;
nature; quality of relationships) that an analysis of the literature on this concept clearly
indicates in measuring the extent of the network (Batjargal 2001; Burt 1997; Nahapiet and
Ghoshal 1998; Lai et al., 1998). Researchers have attempted to explain the performance of
entrepreneurial projects from the behavioral point of view of diverse factors (chosen strategy,
sector characteristics, start-up characteristics) but the importance of the role of the
entrepreneur in the survival of the firm. success is also seen from two other points of view;
from individualist and social perspectives (Alizadeh 2000). In addition, March and Sutton
(1997) analyzed different ways of measuring performance (compared to investment growth,
operating margin, or asset reinvestment).
Moreover, several studies on the job market (Granovetter 1973; Lin and Dumin 1986),
show that the larger a person's network of relationships, the greater their professional success
(measured in terms of salary, power, and mobility). Using analogous reasoning, the
possession of an extensive network of relationships can improve firm performance, as
entrepreneurs with many contacts can establish relationships with their customers more easily,
as well as neutralize, to some extent, their customers' negotiating power. The use of large
social networks allows them to reduce transaction costs, especially when accessing
information, in negotiations and decision-making.
Several proposals can be made regarding the work of this theoretical framework
linking the performance of a start-up to the social capabilities of the entrepreneur, two
fundamental questions in the research that support the idea of the use of entrepreneurial social
capital in the functioning and success of the project. Our first proposal is:
"P1: The larger the network an entrepreneur has, the more likely they are to achieve
improved performance in their business projects."
Social network theory also suggests a positive relationship between individuals'
180
professional success and the quality of their social ties. Quality, in this case, refers to the
relationships found in organizations with strong ties (Lin and Dumin 1986). For
entrepreneurs, maintaining quality social ties also allows them to take actions to improve
access to markets and funding, and can even help improve the company's name and image.
Therefore, we can submit a new proposal: "P2: In cases where entrepreneurs have quality social
relationships, i.e. a large number of people occupying important positions, their entrepreneurial
projects will do better."
In any business project, access to external resources is one of the most common
constraints. The accumulation of such resources allows available and productive opportunities
to be exploited in the environment and provides more satisfactory protection against threats
(Yli-Renko et al., 2000). Among the external resources that SMEs can reach, the resources
that are generally the most difficult to reach are access to finance and access to information.
With regard to access to information, external resources are widely recognized as a
determinant of competitiveness in any company, although it is also recognized that for SMEs,
and even more so for the projects they start, they constitute one of the main weaknesses.
In this case, the benefits of social capital to access information have been widely
discussed in the literature on social networks and social capital. As stated by Adler and Kwon,
"...for actors, social capital enables access to a wide range of information sources at lower
costs, providing quality, relevant and timely information". (2002, p. 14). Brüdler and
Preisendörfer state that "...social relationships and social contacts are important channels for
accessing information... information received through relationships established in social
relationships is often more useful, reliable, exclusive and not redundant" (1998, p. 214).
We view an entrepreneur's social network as the most important
Networks are important in providing competitive advantage because they allow entrepreneurs
to access important and privileged information and give it value. We can thus formulate the
following proposal:
"P3: The larger the network of relationships an entrepreneur has, the greater his or her
access to information sources."
Access to information from the entrepreneurs and their social relationships can be
linked to Granovetter's (1973) theory of strong and weak ties. The logic behind this theory is
based on the fact that, when the relationship between two people is strong, (strong ties), it is
181
likely that these people will know the same type of individuals and therefore will have the
same information. On the other hand, weak ties increase the likelihood of a person gaining
access to people with different interests and knowledge. Weak ties pave the way for fresher
and more unique information than strong ties, where information overload is often abundant.
We can therefore make another proposal:
"P4: Entrepreneurs who have better access to information are those who have many weak ties
in their social relationships."
It has been emphasized that the external resources that entrepreneurs need to acquire
are access to information and sources of funding. Entrepreneurs can use social networks to
access these types of resources. Some studies have even shown the beneficial impact for
entrepreneurs of having social relationships with bankers (Uzzi 1997), which could essentially
fall under the umbrella of trust relationships. We can thus propose that:
"P5: Strong ties enable better access to financial resources than weak ties."
Conclusion:
Using the literature review, in this study, we have conducted an extensive analysis of
the concept of social capital. This analysis allowed us to ascertain that social capital can be
viewed from a macro perspective, (within the framework of social structure) down to the
individual level, through the organizational and institutional levels.
This study attempts to make progress in the research stream that considers theoretical
estimates of the value of social capital in management science by using current literature on
social capital and value creation. The results of empirical studies in the field and inter-firm
and intra-firm relationships have also been taken into account.
It can be concluded that the possession of social capital is an essential element when
generating competitive advantages that allow entrepreneurs to realize entrepreneurial projects
with good business performance. This is why the performance of these projects depends not
only on the strategy, the quality of the product, or the gap they will seek to bridge in the
market, but also on the social capital they possess to provide the necessary impetus to the new
enterprise. The entrepreneur's capacity to build a wide and fertile network of social
relationships allows him or her to complement any physical and intellectual capital they may
have.
