SOCIAL CAPITAL AND SME PERFORMANCE

Abstract

In this paper conceptually discussed how social capital has an effect on the performance of small and medium-sized enterprises (SME). Networks, trust, reciprocity, common norms and collaborative relationships within social capital have become an important intangible asset determining the growth and competitiveness of firms. The paper assesses the role of the bonding, bridging, and linking social capital in enhancing access to information, markets, financial resources, innovation opportunities, and strategic partnerships by using the social network theory and the resource-based view as the underlying theory. The conceptual and empirical reviews show that good interpersonal relations and network embeddedness are beneficial in increasing the capacity of the SMEs to gain knowledge, withstand uncertainty, gain legitimacy, and achieve better working and financial results. However, the article identifies some general weaknesses such as inadequate theorization of the various dimensions of social capital, inconclusive results on its direct impact on performance, and inadequate studies in resource-deprived and institutionally weak settings. The paper highlights the importance of contextual and multidimensional analysis of social capital. It ends with providing implications on SME managers and policymakers by giving their attention to how to build stronger business networks, to create highly trusted forms of collaborations, and to use institutional support systems to improve the performance of SMEs.