Volume 3, Issue 1, March 2018, Page: 1-10
Effect of Social Capital on Mitigating Transaction Uncertainty of Small Enterprises in Sri Lanka
H. M. S. Priyanath, Department of Economics and Statistics, Sabaragamuwa University of Sri Lanka, Belihuloya, Sri Lanka
S. P. Premaratne, Department of Economics, University of Colombo, Colombo, Sri Lanka
Received: Oct. 5, 2017;       Accepted: Oct. 16, 2017;       Published: Dec. 14, 2017
DOI: 10.11648/j.jbed.20180301.11      View  1518      Downloads  63
Small Enterprises (SEs) do not have capacity to collect and evaluate information to predict future behavior of business environment on one hand and they fail to avoid the hazards from opportunism of exchange partners on the other hand due to the lack of information. SEs develop informal and personal relationships with different members of the network expecting supports in order to overcome their limitation of information. The network relationships lead to build Social Capital (SC) (values of social relationships; i.e. inter-personal trusts, relational norms, flexibility, integrity, common understand etc.) and thereby facilitate access to information which have an influence on mitigating Transaction Uncertainty (TU). Therefore, the study attempted to explore how different dimensions of SC affect the mitigation of TU of SEs in Sri Lanka. The study mainly employed the survey method to gather data using quantitative methodological approach. The data were collected from 373 SEs located in nine districts representing all Provinces in Sri Lanka, conducting face-to-face interviews with the respondents. The data were analysed using Partial Least Squares-Structural Equation Modelling. The results revealed that different dimensions of SC (structural, relational and cognitive) have a significant impact on mitigating TU of SEs in Sri Lanka. Thus, the study has provided sufficient evidences to conclude that SC has a significant impact on mitigating TU of SEs. The study contributes to theoretical knowledge by synthesizing all the dimensions of SC and TU into a new framework and testing it empirically which extends the transaction cost economics in the context of SEs in Sri Lanka. The study contributes to the methodology quantifying SC of SEs using a multi-dimensional conceptual model. The study provides important insights for policy makers to focus their strategies to new direction rather than conventional supporting approaches to develop SEs.
Small Enterprises, Social Capital, Transaction Uncertainty
To cite this article
H. M. S. Priyanath, S. P. Premaratne, Effect of Social Capital on Mitigating Transaction Uncertainty of Small Enterprises in Sri Lanka, Journal of Business and Economic Development. Vol. 3, No. 1, 2018, pp. 1-10. doi: 10.11648/j.jbed.20180301.11
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Ahmad, N. H. and Seet, P. S. (2009). Dissecting behaviors associated with business failure: A qualitative study of SME owners in Malaysia and Australia. Asian Social Science, 5(9), 98-104.
Nooteboom, B. (1993). Firm size effect on transaction cost, Small Business Economics, 5, 283-295.
Zaheer, A., McEvily, B. and Perrone, V. (1998). Does trust matter? Exploring the effects of Inter-organizational and inter-personal trust on performance. Organization Science, 9(2), 141-159.
Carmel, E., and Nicholson, B. (2005). Small firms and offshore software outsourcing: high transaction costs and their mitigation. Journal of Global Information Management, 13(3), 33-54.
Agwu, M. O. and Emeti, C. I. (2014). Issues, Challenges and Prospects of Small and Medium Scale Enterprises (SMEs) in Port-Harcourt City in Nigeria. European Journal of Sustainable Development, 3(1), 101-114.
Fatoki, O. (2011). The impact of human, social and financial capital on the performance of small and medium-sized enterprises (SMEs) in South Africa. Journal of Social Science, 29(3), 193-204.
Lu, H. (2007). The role of guanxi in buyer-seller relationships in China, PhD thesis, Wageningen University, China.
Priyanath, H. H. S. and Premaratne, S. P. (2015). Effect of social capital on transaction cost: a case study of small enterprises in Sri Lanka, International Journal of Arts and Commerce, 4(4), 127 – 140.
Bhagavatula, S. (2009). Weaving social networks performance of small rural firms in India as an outcome of entrepreneurs’ social and human capital. PhD Dissertation, Visakhapatnam University, India.
Priyanath, H. H. S. and Premaratne, S. P. (2017). Power of social capital on mitigating transaction cost of small enterprises in Sri Lanka: An Empirical Investigation, International Journal of Arts and Commerce, 6(4), 17 – 35.
Nahapiet, J. and Ghoshal, S. (1998). Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23(2), 242-266.
Adler, P. S. and Kwon, S. W. (2002). Social capital: prospects for a new concept. The Academy of Management Review, 27(1), 17-40.
Burt, R. (1992). Structural Holes: The Social Structure of Competition, Harvard University Press: Cambridge, Massachusetts.
Granovetter, M. (1983). The strength of weak ties: a network theory revisited. Sociological Theory, 1(2), 201-233.
Bwalya, R., Mugisha, J., and Hyuha, T. (2013). Transaction costs and smallholder household access to maize markets in Zambia. Journal of Development and Agricultural Economics, 8(9), 328-336.
Priyanto, E., Mazkie, M., and Khusaini, M. (2014). Effects of asymmetric information, transaction cost to corporate governance, and public organization performance. IOSR Journal of Business and Management, 15(6), 14-27.
Henningsen, G. A. and Henning, C. H. C. A. (2013). Networks and transaction costs. American Journal of Agricultural Economics, 94(2), 377-385.
Richman, B. D. (2006). How community institutions create economic advantage: Jewish Diamond merchants in New York. Law and Social Inquiry, 31(2), 383-420.
Lohtia, R. and Krapfel, R. E. (1994). The impact of transaction specific investment on buyer - seller relationship. Journal of Business and Industrial Marketing. 9(1), 6-16.
Paswan, A. K. and Young, A. (1999). An exploratory examination of the relationship between channel support mechanisms and relational norms in an international context. Journal of Business & Industrial Marketing, 14(5), 445-455.
Misztal, B. (1996) Trust in Modern Societies. Cambridge: Polity Press.
Arrow, K. J. (1974). The Limits of Organization. Norton and Company, New York, NY.
Williamson, O. E. (1991). Comparative economic organization: the analysis of discrete structural alternatives. Administrative Science Quarterly, 36, 269 - 296.
Noordewier, T. G., John, G and Nevin, J. R. (1990). Performance outcomes of purchasing arrangements in industrial buyer vendor relationships. Journal of Marketing, 54(4), 80-93.
Carey, S. and Lawson, B. (2011). Governance and social capital formation in buyer-supplier relationships. Journal of Manufacturing Technology Management, 22(2), 152-170.
Li, S., and Lin, B. (2006). Accessing information sharing and information quality in supply chain management. Decision Support Systems, 42(3), 1641-1656.
Wernerfelt, B., and Karnani, A. (1987). Competitive strategy under uncertainty. Strategic Management Journal, 8(2), 187-194.
Artz, K. W. and Brush, T. H. (2000). Asset specificity, uncertainty and relational norms: an examination of coordination costs in collaborative strategic alliances, Journal of Economic Behavior and Organization, 42(4), 337-362.
John, G. and Weitz, B. A. (1988). Forward integration into distribution: an empirical test of transaction cost analysis. Journal of Law, Economics, & Organization, 4(2), 337-355.
Yenidogan, T. G. (2013). The impact of transaction attributes and trust on ex-post opportunism. International Journal of Management Sciences and Business Research, 2(6), 39-44.
Chen, H. and Chen, T. J. (2003). Governance structures in strategic alliances: transaction cost versus resource based perspective. Journal of World Business, 38(5), 1-14.
Wu, W. P. and Choi, W. L. (2005). Transaction cost, social capital and firms' synergy creation in Chinese business networks: an integrative approach. Asia Pacific Journal of Management, 21(3), 325-343.
Williamson, O. E. (1981). The economics of organization: transaction costs approach. American Journal of Social, 87(3), 548-577.
Priyanath, H. M. S. (2017). Effect of network structure on transaction costs of small enterprises in Sri Lanka: An empirical study. Journal of Small Business and Entrepreneurship Development, 5(1), 19-34.
Priyanath, H. M. S. and Premaratne, S. P. (2017). Impact of Information Accessed through Social Capital on Rational Ability of Owner Manager Small Enterprises in Sri Lanka. European Business & Management. 3(4): 65-75.
Heide, J. B. and John, G. (1992). Do norms matter in marketing relationships? The Journal of Marketing, 56(2), 32-44.
Kale, P., Singh, H. and Perlmutter, H. (2000). Learning and protection of proprietary assets in strategic alliances: building relational capital. Strategic Management Journal, 21(3), 217-237.
Coleman. J. S. (1990). Foundations of Social Theory, London: Harvard University Press.
Putnam, R. D. (1995). Making democracy work: civic traditions in modern Italy. Princeton: Princeton University Press.
Babaei, H., Ahmad, N. and Gill, S. S. (2012). Bonding, bridging and linking social capital and empowerment among squatter settlements in Teheran, Iran. World Applied Sciences Journal, 17(1), 119-126.
Dyer, J. H. and Chu, W. J. (2003). The role of trustworthiness in reducing transaction costs and improving performance: empirical evidence from the United States, Japan, and Korea. Organization Science, 14(1), 57-68.
Rokkan, A. I., Heide, J. B. and Wathne, K. H. (2003). Specific investments in marketing relationships: expropriation and bonding effects. Journal of Marketing, 40(2), 210-224.
Chen, H. and Chen, T. J. (2008). Governance structures in strategic alliances: transaction cost versus resource based perspective. Journal of World Business, 38(5), 1-14.
Tsai, W. and Ghoshal, S. (1998). Social capital and value creation: the role of intra firm networks. The Academy of Management Journal, 41(4), 464-476.
Kitapci, I. (2016). Cognitive social capital as an interdisciplinary concept. International Journal of Economic Studies, 2(3), 13 – 23.
Liao, J. and Welsch, H. (2005). Roles of social capital in venture creation: key dimensions and research implication. Journal of Small Business Management, 43(4), 345-362.
Rindfleisch, A. and Heide, J. B. (1997). Transaction cost analysis: past, present and future applications. Journal of Marketing, 61(4), 30-54.
Shin, H. D. (2003). The role of uncertainty in transaction cost and resource-based theories of the firm, PhD Dissertation, Graduate School of the Ohio State University, Ohio.
Bromiley, P. and Cumming, L. L. (1995). Transaction costs in organizations with trust. Research on Negotiation in Organizations, 5(2), 219-247.
Carey, S. and Lawson, B. (2011). Governance and social capital formation in buyer-supplier relationships. Journal of Manufacturing Technology Management, 22(2), 152-170.
Ivens, B. S. and Blois, K. J. (2004). Relational exchange norms in marketing: a critical review of Macneil’s contribution. Marketing Theory Articles, 4(3), 239-263.
Dwyer, F. R. and Gassenheimer, J. B. (1992). Relational roles and triangle dramas: effects on power play and sentiments in industrial channels. Marketing Letters, 3(2), 187-200.
Silkoset, R. (2013). Negative and positive effects of social capital on co-located firms’ withholding efforts. European Journal of Marketing. 47(2), 174-197.
Lu, H., Feng, S., Trienekens, J. H. and Omta, S. W. F. (2012). Network strength, transaction-specific investments, inter-personal trust, and relationship satisfaction in Chinese Agri-food SMEs. China Agricultural Economic Review, 4(3), 363-378.
Ganesan, S. (1994). Determinants of long-term orientation in buyer-seller relationships. Journal of Marketing, 58(2), 1-19.
Doucette, W. R. (1996). The influence of relational norms and trust on customer satisfaction in inter firm exchange relationship. Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, 9(5), 95-103.
Miller, N. J., Besser, T. L. and Weber, S. S. (2010). Networking as marketing strategy: a case study of small community businesses. Qualitative Market Research: An International Journal, 13(3), 253-270.
Bstieler, L. (2005). The moderating effect of environmental uncertainty on new product development and time efficiency, Journal of Product Innovative Management, 22(4), 267-284.
Boyle, B., Dwyer, F. R., Robicheaux, R. A. and Simpson, J. T. (1992). Influence strategies in marketing channels: Measures and use in different relationship structures. Journal of Marketing Research, 29(4), 462-473. I73.
Browse journals by subject