This study has intention to examine the direct impact of social capital and moderating impact of marketing capability on firms’ competitive advantage. This study proposes a structural equation model and tests the hypothesis through generalized structured component analysis with random survey on small medium enterprises in Indonesia. The approach allows to analysis the ellement of social capital: network, trust and cognitive as well as the ellements of marketing capability: pricing capability, product development, and marketing communication. The result indicates the effect both social capital and marketing capability provide complement to the firm performance. The result indicates that social capital is a unique resource, that enable organization to gain competitive advantage.
Keywords: Social capitalperformancenetworktrustcognitive
The role of social capital on the firm competitiveness has long been an interest to entrepreneurial studies. However the transformation process from social capital to firm performance has raised debates. Major literatures argue that social capital plays pivotal role on firm competitiveness through providing valuable information access (Kwon and Adler, 2014) a high level of mutual of trust (Li, Maggitti, Smith, Tesluk, and Katila, 2013). Previous studies also confirm that social capital has a significant impact on innovation and supply channel (Alguezaui and Fillieri, 2010), work environment (Duffy, Scott, Shaw, Tepper, and Aquino, 2012) and value creation (Afuah, 2013).
On the other hand, some other studies argue that social capital does not have significant impact on firm performance for some reasons, e.g. the age of firm (Pirolo and Presutti, 2010), organizational capacity (Jansen, Curseu, Vermeulen, Geurts, and Gibcus, 2011), and institutional context (Stam, Arzalanian, and Elfiring, 2014). There is also spillover effect of social enterprise that comes from homophile solidarities, which express similarities (Kwon and Adler, 2014). This article has intention to fill the gap by investigating the impact of social capital (SC) on performance of small medium enterprises. To understand the complex relationship, this study involves marketing capability (MC) as a mediating variable. In addition, this study has intention to understand the impact of each element of SC and MC through generalized structured component analysis (GeSCA).
Social Capital and Competitive Advantage
The concept of social capital mainly springs from social network theory, which becomes valuable resources to gain competitive advantage. The measures of networks lay on cohesion and structural relationship of the actors. The concept of social capital has been emerging from social to individual perspective with Bourdie and Coleman as founders. Bourdie ponders profitability of social capital as a private good, which springs from trust among group members along with stable relationship with honor and reputation, while Coleman considers social capital as a public good which becomes an element of social structure (Häuberer, 2011). This simultaneous process brings about productivity improvement with high competitiveness level (Denrell, Fang, and Zhao, 2013).
The performance of firms has been enhanced through the concept of competitive advantage that involves value creating strategy of the firms, which greater than their competitor (Barney, 1991). This concept of competitive advantages embraces resource-based theory (RBT) that higlights the role of valuable resource on organizational transformation in small medium enterprises, which characterized by lack of resource (Bradley, Wiklund, and Shepherd, 2011). The posible performance measures have been developed with various interest, such as sales performance that indicates reward of sales staffs as well as performance in marketing management (Homburg, Artz, and Wieseke, 2012). On the other hand, the business owners consider firm performance is essential to monitor the outcomes of their organizations in order to gain more profit (Garg, 2013).
Hypothesis 2: Marketing capability provides mediating effect that may strengthen effect of social capital (SC) on firm performance (FP). It is essential to business organization to invest on social networks to boost their performance, however it does not always the case.. Marketing capability can provide mediating effect to explain the relationship between structural social capital and marketing performance (Parra-Requena, Ruiz-Ortega, and Garcia-Villaverde, 2011). However, the dense and cohesive social networks can generate redundancy in the information exchange and call for marketing capacity as mediator to drive performance (Rouziés, Hulland, and Barclay, 2010). In addition, Duffy et al. (2012) identify a risk of moral disengagement, such as condemnation and loathing, due to cognitive justification. A cognitive brings a constraint to utilize social capital due to exponentially level of social capital (Oldroyd and Morris, 2012). Another example is strong cohesive work group bring about dominant voice and views, which affected inferior group, such as woman in workplace (Broadbridge, 2010).
This research uses quantitative method with cross-section design. The information required to answer the research questions refers to quantify relationship among observed variables with family business as unit analysis. This survey is equated with a list of distributed questionnaires through random sampling method. To generalize the result, this research employs a random selection procedure in order to ensure sample representation for the observed population. Data collection was taken in Surabaya Indonesia with random selected respondents. Based on data based published by Directorate General of Trade, Ministry of Trade and Industry, this research randomly selected 800 respondents and send them questionnaires. From 390 respondents who provided contribution, 54% respondents represent single-family ownership, 24% are partnerships, and the rest are limited corporations. There is no respondent with go-public companies.
The goodness of fit testing shows that model is nearly fit. FIT 0.58 shows that the model can explain 58% of the variance in the observed variables. Goodness of Fit Indices (GFI) exceeds 0.90 implies that the model is acceptable. Standardized Root Mean Residual (SRMR) as absolute fit indicator is 0.105, which indicates that model is nearly perfect. A model should have SRMR smaller than 0.08 for a good fit model. Path analysis also indicates that the impact of structure, trust and cognitive on social capital is statistically significant. Similarly, pricing capability, product development and marketing communication provide significant impact on marketing capability variable.
The bootstrap calculation shows that social capital (SC) has significant impact on performance (FP) with t = 7.48 and p<.01. This implies that H1, which explains the relationship between SC and FP is confirmed. The bootstrap also show that relationship between social capital (SC) and marketing capability (MC) has t-test of 14.74 and p<.01. This indicates H2 is accepted and social capital (SC) has significant impact on firm performance (FP). In addition, the impact of SC and FP has significant impact with t-test = 6.18 and p.01. Hence, H3 is accepted, which implies that there is partial indirect effect on social capital (SC) on firm performance (FP). Specifically, the role of MC on the relationship between SC and FP shows complementary mediating effect 0.443x0.641x0.369 = 0.1047 (Zhao, Lynch, and Chen, 2010).
Trust provides abundant contexts in SMEs. While financial slack is considered to be the most challenging issue to small businesses (Bradley, Wiklund, and Shepherd, 2011), the businesses still can seize business opportunities and gain competitive advantage by exploiting social network structure, trust and cognition. While larger networks is not main factor which can attract customers and develop market power (Afuah, 2013), this study shows that trust provide greater contribution to the context of social capital.
This study presents empirical result that explains structural relationship between social capital and competitive advantage in which marketing capability provides mediating effect. Apparently, terms ‘partial’ and ‘full’ are associated with effect size of a mediating effect. Current practices suggest that significant indirect effect can be observed even if c’ is not significant, this research considers that a wide range of indirect effect level (Rucker, Preacher, Tormala, and Petty, 2011). Instead of claiming that the result shows partial mediating effect, this research considers that the effect of marketing capability as mediating variable can be computed by 0.641 x 0.369, which is equivalent to 0.236.
Nurturing small businesses should consider the role of social capital. While the businesses are considered with limited financial resources and out of dated technology, it is important to pay more attention on social capital as intangible resource, which can turn into performance. This refers to the strong relationship among the stakeholders, including employees as well as business partners. This resource can promote knowledge acquisition and innovation (Martínez-Cañas, Sáez-Martínez, and Ruiz-Palomino, 2012) as well as positive work environment (Duffy, Scott, Shaw, Tepper, and Aquino, 2012).
This study confirms the combination between resource-based theory and social capital theory that social capital determines the capacity of firms to control market price over its marginal cost. The result indicates that social capital is a valuable resource, which allows small businesses to gain competitive advantage. As the main ellements of social capital, networks, trust and cognitive allow the firms to gain competitive advantage. Hence, firms performance does not only relies on their marketing capability but also from social capital.
- Afuah, A. (2013). Are network effect really all about size? The role of structure and conduct. Strategic Management Journal , 34, 257-273.
- Alguezaui, S., & Fillieri, R. (2010). Investigating the role of social capital in innovation: sparse versus dense network. Journal of Knowledge Management , 14 (6), 891-909.
- Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management , 17 (1), 99-120.
- Bradley, S., Wiklund, J., & Shepherd, D. (2011). Swinging a double-edged sword: The effect of slack on entrepreneurial management and growth . Journal of Business Venturing , 26 (5), 537-554.
- Bradley, S., Wiklund, J., & Shepherd, D. (2011). Swinging a double-edged sword: The effect of slack on entrepreneurial management and growth. Journal of Business Venturing , 6 (5), 537-554.
- Broadbridge, A. (2010). Social capital, gender and careers: evidence from retail senior managers. Equality, Diversity and Inclusion: An International Journal , 29 (8), 815-834.
- Denrell, J., Fang, C., & Zhao, Z. (2013). Inferring superior capabilities from sustained superior performance: a bayesian analysis . Strategic Management Journal , 34 (1), 182-195.
- Duffy, M., Scott, K., Shaw, J., Tepper, B., & Aquino, K. (2012). A social context model of envy and social undermining. Academy of Management Journal , 55 (3), 643–666.
- Garg, J. (2013). Venture boards: distinctive monitoring and implications for firm performance. Academy of Management Review , 38 (1), 90-108.
- Häuberer, J. (2011). Social Capital Theory Toward a Methodological Foundation. Prague: Springer Fachmedien Wiesbaden GmbH.
- Jansen, R., Curseu, P., Vermeulen, P., Geurts, J., & Gibcus, P. (2011). Social capital as a decision aid in strategic decision-making in services organization. Management Decision , 49 (5), 734-747.
- Kwon, S.-W., & Adler, P. (2014). Social capital: maturation of a field of research. Academy of Management Review , 39 (4), 412-422.
- Li, Q., Maggitti, P., Smith, K., Tesluk, P., & Katila, R. (2013). Top management attention to innovation: the role of search selection and intensify in new product introduction. Academy of Management Journal , 56 (3), 893-916.
- Lim, C., & Putnam, R. (2010). Religion, social networks and life satisfaction. American Sociological Review , 75 (6), 914-933.
- Ludwig, S., Ruyter, K., Friedman, M., Brüggen, E., Wetzels, M., & Pfann, G. (2013). More than words: the influence of affective content and linguistic style matches in online reviews on conversion rates. Journal of Marketing , 77 (1), 87-103.
- Oldroyd, J., & Morris, S. (2012). Catching falling stars: a human resource response to social capital's detrimental effect of information overload on star employees. Academy of Management Review , 37 (3), 398-418.
- Parra-Requena, G., Ruiz-Ortega, M., & Garcia-Villaverde, P. (2011). Towards pioneering through capabilities in dense and cohesive social networks. Journal of Business & Industrial Marketing , 27 (1), 41-56.
- Pieterse, A., Van Knippenberg, D., & Van Dierendonck, D. (2013). Cultural diversity and team performance: the role of team member goal orientation. Academy of Management Journal , 56 (3), 782-804.
- Pirolo, L., & Presutti, M. (2010). The impact of social capital on the start-ups' performance growth. Journal of Small Business Management , 48 (2), 197-227.
- Pratono, A.H. (2016). Strategic orientation and information technological turbulence: Contingency perspective in SMEs. Business Process Management Journal, 22 (2), 368-382.
- Rouziés, D., Hulland, J., & Barclay, D. (2010). Does marketing and sales integration always pay off? Evidence from a social capital perspective . Stockholm: Handelshögskolan.
- Rucker, D., Preacher, K., Tormala, Z., & Petty, R. (2011). Mediation analysis in social psychology: current practices and new recommendations. Social and Personal Psychology Compass , 5 (6), 359-371.
- Schaubroeck, J., Peng, A., & Hannah, S. (2013). Developing trust with peers and leaders: impacts on organizational identification and performance during entry. Academy of Management Journal , 56 (4), 1148–1168.
- Stam, W., Arzalanian, S., & Elfiring, T. (2014). Social capital of entrepreneurs and small firm performance: A meta-analysis of contextual and methodological moderators. Journal of Business Venturing , 29 (1), 152-173.
- Zhao, X., Lynch, J., & Chen, Q. (2010). Reconsidering Baron and Kenny: myths and truths about mediation analysis. The Journal of Consumer Research , 37 (2), 197-206.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
About this article
22 August 2016
Print ISBN (optional)
Sociology, work, labour, organizational theory, organizational behaviour, social impact, environmental issues
Cite this article as:
Pratono, A. H., Saputra, R. S., & Pudjibudojo, J. K. (2016). The Social Capital, Marketing Capability and Competitive Advantage: Evident from Indonesian SMEs. In & B. Mohamad (Ed.), Challenge of Ensuring Research Rigor in Soft Sciences, vol 14. European Proceedings of Social and Behavioural Sciences (pp. 464-469). Future Academy. https://doi.org/10.15405/epsbs.2016.08.66