SME lnternationalisation:The Relationship Between Social Capital and Entry Mode.

JurisdictionGermany
Date01 Agosto 2020
AuthorMenzies, Jane

1 Introduction

The extant small to medium (SME) internationalisation literature is currently investigating the factors affecting the type, extent and process of SME internationalisation (Lindstrand and Hanell 2017; Presutti et al. 2016; Tian et al. 2018). The factors affecting entry mode are an important part of this investigation as entry mode is a major determinant of the demands placed upon scarce SME resources and can affect the long-term success of international SMEs (Game and Apfelthaler 2016; Gao et al. 2016; Tian et al. 2018). The literature, however, has not considered all of the important factors likely to affect SME entry modes (Game and Apfelthaler 2016). It has also given very limited consideration to their effect in the important context of psychically distant markets (Gao et al. 2016; Presutti et al. 2016), instead focusing primarily on psychically similar markets. In addition, SME entry modes are not usually fixed (Chetty and Agndal 2007; Clarke et al. 2016) and future changes in entry mode can influence other aspects of an SME's internationalisation (Ciravegna et al. 2014). To date, however, SME entry modes have generally been considered as static, rather than dynamic (Kontinen and Ojala 2011; Tian et al. 2018). Subsequently, the dynamic nature of the relationship between SME entry mode and the factors which affect it is an important, but incomplete, area of the literature.

Social capital is important for operations in psychically distant markets and is likely to possess dynamic characteristics (Lew et al. 2013). Whilst the SME social capital literature mainly focusses on the types of social capital adopted by SMEs, it has also found that social capital can affect SME entry mode through serendipity and efficacy (Kontinen and Ojala 2011) and knowledge (Lindstrand et al. 2011), although the mechanisms for this effect are poorly explained in the literature. Social capital, which can be viewed as a resource supporting entry modes (Kwon and Adler 2014), can also be categorised as structural, relational and cognitive (Nahapiet and Ghoshal 1998). Of the six SME social capital studies which have considered entry mode to date, three have considered dynamic interactions--Kontinen and Ojala (2011); Lindstrand et al. (2011); Chetty and Agndal (2007). These studies have not, however, identified the mechanisms behind the dynamic effect of social capital on SME entry mode. Furthermore, the SME social capital literature has only infrequently considered the context of large psychic distances where social capital will have a greater effect (Gao et al. 2016; Ojala 2009). Examining the effect of social capital in the context of large psychic distances has the benefit that the mechanisms behind the effect will be more evident (Kontinen and Ojala 2011). Studies at the intersection of theory from these two literatures are now needed to identify the effect of social capital on entry mode and its related mechanisms from a dynamic perspective. This approach has the potential to explain the mechanisms behind the dynamic relationship between SME social capital and entry mode, significantly extending these literatures.

The extant SME social capital literature has focused on relational social capital, examining the effect of structural and cognitive social capital to a lesser extent. This literature has determined that relational social capital between agents of SMEs internationalising from an emerging to a developed country will increase the likelihood of a high investment commitment entry mode (Lindstrand et al. 2011; Prashantham 2011). In addition, relational social capital with host country businesses has been found to increase the adoption of an export entry mode for SMEs internationalising from emerging to developed economies by increasing trust and learning (Gao et al. 2016; Ibeh and Kasem 2011; Zhang et al. 2012). Even weak tie relational social capital was found to effect entry mode decisions when the countries were psychically similar (Kontinen and Ojala 2011). The most significant contribution to the SME literature examining the intersection between the social capital and entry mode, however, was Chetty and Agndal's (2007) study which determined that weak relational social capital could be an enabler of changes in entry mode for psychically similar countries. They also found that strong relational social capital could become a liability for SMEs that attempted to change entry mode. This study did not consider the mechanisms creating this social capital or the effect of entry mode on future social capital.

To better integrate the SME entry mode literature and social capital literature, research is needed to identify how context affects social capital, how social capital affects entry mode and how these interact dynamically. This study presents the analysis of case data from 35 SMEs which have internationalised in China to answer the question, "What are the dynamic mechanisms through which social capital affects SME entry mode?". Nahapiet and Ghoshal's (1998) three categories of social capital will be used as the theoretical framework for the study. The literature has already indicated a need for further studies of the effect of social capital ties on entry mode (Kontinen and Ojala 2011), the influence of social capital on the speed of entry mode development and long-term studies of the dynamics of entry mode (Meng et al. 2016) and how business networks and social capital are developed during internationalization (Prashantham et al. 2015; Tian et al. 2018).

The literature review following examines the relevant SME social capital literature and SME entry mode literature to further position this study in the extant research. The methodology adopted, the data collection process and the findings are then presented, structured using the theoretical relationships identified in the literature review. The findings and discussion compare the mechanisms involved in the effect of social capital on SME entry mode. These findings are then considered in relation to theory and represented in diagrammatic form. This is followed by an assessment of the limitations of this study, suggestions for future research and a conclusion.

2 Literature Review

Social capital was first defined by Hanifan (1916) as "tangible assets that count most in daily lives of people: namely, goodwill, fellowship, mutual sympathy and social intercourse among a group of individuals and families who make up a social unit..." (p. 130). Later definitions have been more transactional (Bourdieu 1980; Burt 1992), such as: "an investment in social relations with expected returns" (Rodrigues and Child 2012, p. 25). The OECD (2001, p. 41) defined it as "networks together with shared norms, values and understandings that facilitate cooperation with or among groups which enable individuals and groups to trust each other and work together." It is generated by the actors involved and is affected by their location in the network (Burt 1992). Social capital can be formed internally or externally, resulting from internal bonding (network closing) or external bridging (gap spanning) networks (Adler and Kwon 2002; Jimenez et al. 2019). Social capital can be considered to have a relational dimension, which represents the content of relationships (Chetty and Agndal 2007; Nahapiet and Ghoshal 1998); a structural dimension which includes the network of relationships between actors (Coleman 1988), their embeddedness (Granovetter 1985) and breadth of relationships; and a cognitive dimension which represents the creation of shared values through knowledge (Gooderham et al. 2011). organisations with access to a social network's collectively owned capital have been found to perform more strongly than those without (Lin 1999; Nahapiet and Ghoshal 1998) because it provides access to network resources, information and a cooperative business environment (Adler and Kwon 2002; Tsai and Ghoshal 1998). Social capital is regulated by behavioural norms, including values, trust, commitment, reciprocity, reputation and mutual recognition, as well as governance systems (Bourdieu 1986; Coleman 1988; Gooderham et al. 2011). It is affected by complimentary capabilities (Adler and Kwon 2002) and provides the legitimacy (credibility and reputation) necessary to access network resources (Lin 1999).

2.1 Structural Social Capital

The structural dimension of social capital can be defined as the interpersonal network of connections between people or social units, including the presence of network ties between these actors (Nahapiet and Ghoshal 1998). It is affected by context. The context affecting structural social capital is the type and number of actors who become involved (Lindstrand et al. 2011). In the international context, external structural social capital development is influenced by differences in cultural and business systems (Gesthuizen et al. 2013; Presutti et al. 2016). Structural social capital also varies due to internal effects, including the effect of disconnections between individual agents and because ties between actors, including trust-based ties, are not always perceived by other actors in the network (Coleman 1988).

In China, guanxi has a significant contextual effect on structural social capital development and creates differences in structural social capital development to those in western countries. This is because guanxi is connected with Confucian cultural values not present in non-Confucian countries (Chen and Chen 2004). Guanxi is a rule-based process for developing external social capital and is central to China's socio-cultural processes (Li et al. 2008; Yang and Wang 2011). It functions through the exchange of personal information and gift-giving to develop trust (Chen et al. 2013). Interestingly, this means that the state of relationships with one actor in a network affects the relations of other actors in a guanxi network (Avery et al. 2014). By...

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