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Social capital of managers and firm operational performance of SMEs in Ho Chi Minh City






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Abstract

Operational efficiency, a dominant concern for businesses, is always an issue for the researchers to find the solutions for helping the businesses enhance their corporate performance. In previous studies on the performance of enterprises in general and small and medium-sized enterprises in particular, most of the studies focused on financial factors, but did not pay much attention to nonfinancial factors. Operational efficiency depends on financial and non-financial factors, of which, non-financial factors are diverse (human capital, social capital, psychological capital, non-financial risk, management efficiency, etc.). theory, applied science, etc). Social capital is a new area of research in Vietnam, which is closely related to the economic field. In Vietnam, interdisciplinary theoretical applied research is a new research trend (economic theory combined with social theory), which this study follows. The study applies the social capital theory ``The strength of weak ties'' of Granovetter, theory ``The network Structure: of Burt and ``A Network theory of social capital'' of Lin to examine the influence of social capital on firm performance. The research model comprises 5 factions of independent variables representing social capital (Relational (REH), Cognitive (CSC), Social Interaction Ties (SIT), Trust (TRU) and Structural (SSC) and a group of dependent variables (Firn Operational Performance). Structural Equation Modeling was used to analyze data collected from a survey of 378 SME managers in Ho Chi Minh City based on a convenient method. The analysis results demonstrate that all aspects of social capital have positive effects on business operational performance, of which Structural Social Capital (SSC) and trust (TRU) are the two most influential groups. The research results help business administrators better understand social capital's importance, thereby improving business performance through maintaining and developing managers' social capital.

Introduction

Social capital (SC) is a special kind of capital that can bring many intangible benefits to the individual who owns it. Recent studies have shown that SC can help businesses maximize profits, improve the efficiency of operations 1 , or financial performance of the company 2 , or bring other advantages to businesses 3 . The manager plays a leading role, having a convincing influence on the performance of the organization 4 and influencing the performance of the firm 5 , 6 , corporate culture, innovation ability 7 , employee working capacity 5 .

Research on SC's impact on corporate performance has been of great interest to researchers in recent years. However, most studies focus on the effects of SC through intermediate variables such as knowledge sharing 8 , 2 , 9 ; human capital 10 , 11 ; entrepreneurship 12 , 13 ; access to information 14 , 15 ; the ability to innovate businesses 16 , 17 , 18 ; corporate social responsibility 19 , 20 ; collaborative capacity 21 , among others. Although studies on the direct impact of SC on corporate operations are various, SC's main study is intended to complement previous studies related to SC and FOP.

Manager's SC is a new and important concept in the recent management literature 22 . Compared with other sorts of capital such as financial capital, economic capital, human capital, intellectual capital, SC has not been thoroughly studied. Therefore, the manager's SC study is still promising for researchers.

Based on literature review, the topic found that SC of the board of directors or business managers has been carried out by many studies in developed and developing countries such as: research by Hillman, 2005 23 ; Lester et al, 2008 24 ; Kor & Sundaramurthy, 2009 25 ; Devos, Prevost & Puthenpurackal, 2009 26 . Although Vietnam is known as a developing country having numerous development opportunities in the future, studies on the relationship between SC and FOP are not popular.

This study aims to fill the previous gap by finding an answer to the question “How does SC affect FOP?”. Therefore, this study is expected to contribute to both academic research and management implications for businesses in Vietnam. According to Kwon & Adler (2014) 27 , research on SC can continue to usefully expand on specific aspects and mechanisms as they are related to specific topics. Therefore, this study will focus on determining the direct relationship between the five SC dimensions of SME managers and FOP. After the introduction, the first main part of the article will review the literature related to the research topic and propose research hypotheses, followed by research methodology. After the results of quantitative research are demonstrated, the last section discusses research results, conclusions and recommendations.

Theoretical background and hypotheses development

Venkatraman and Ramanujam's (1986) 28 present a number of indicators of company performance, including: (i) financial aspects: return on investment (ROI), return on assets (ROA), return on equity (ROE), profit margins, growth of sales…;(ii) non-financial aspects: the company's market share, product quality, employee or customer satisfaction, achievement of pre-set goals which are related to the company's competitors 29 , 28 , 30 . As for this study, Firm operational Performance will be measured using non-financial parameters. We will concentrate on non-financial (perceived) parameters that consist of customers’ satisfaction, development of quality, the productivity of the business compared to major competitors 31 , 30 .

The SC concept is not consistent among researchers. SC is the sum of available or potential resources and is derived from 'social ties' 32 . Coleman (1988) 33 stated that SC is the structure of the relationship between individuals in society. According to Putnam (1995a) 34 , the main aspects of SC are obligations, ethical norms, social values ​​(in which the belief is strong), and social networks (primarily voluntary associations). SC includes relationships, trustworthiness, and mutual support among network members 35 , 36 . SC is considered on three aspects: structure, cognitive and relational 36 , 37 . SC manifests itself in trust, compliance (customs, regulations, rules), organizational networks, and relationships 38 , 22 .

Social capital is a new, multifaceted concept. Social capital researchers mostly consider social capital in terms of structure and cognition 2 . According to Granovetter (1973) 38 , Bourdieu (1986) 39 and Coleman (1988) 33 , in terms of structure, social capital is reflected in relationships and the structure of relationships (individuals, organizations, authorities, communities, etc.) and social interaction. Cognitive social capital is expressed in trust, reciprocity, support or mutual assistance in work or life 39 , 33 , 40 . Thus, SC is shown in relationships, structure, interactions, cognition, and trust.

Relationships include attachment, bridging, linking relationships 40 or strong and weak relationships 38 . Managers in a business can have internal relationships (with co-workers, subordinates, senior leaders) and external relationships, including customers, partners, suppliers 41 , 31 . Relationships with colleagues, partners, and customers are the main ones that show the relationship structure in a business 42 . These relationships indirectly influence firm performance 22 , 43 , 42 , 2 . Individuals in an organization regularly interact with each other during working time. The intimacy, chatting time, sharing experiences and knowledge among colleagues facilitate the working process, creating cohesion and mutual support, thereby helping family members increase work efficiency and the efficiency of businesses 44 , 45 .

Cognitive SC is expressed in mutual understanding with common aims and vision among internal employees in the business 36 , 37 , which affects business performance 44 . Relationships are built on trust. Trust is the basis of relational SC, promoting cohesion, cooperation, and sharing of resources among individuals in society 38 , 46 , 22 . Trust helps to better access internal and external resources of the enterprise, enhance the competitiveness and operational efficiency of enterprises 47 , 48 , 49 .

Relational and Firm operational performance

Business managers attach great importance to their relationships with their participants 50 . With Relational Social Capital's support, employees can handle jobs more efficiently by using the resources provided by relationships: experience, information, mutual consent 3 . Relationships with customers or partners can help businesses improve, innovate business activities 51 , 52 . Companies can rapidly enhance quality, reduce costs, improve responsiveness, and better manage assets through new insights from the Relational SC of managers 53 .

Relational SC is considered an asset of the company 54 . Granovetter (1983) 55 proposed that relationships create reciprocity between individuals. Organizational performance is highly effective with internal and external individuals 56 . SC relationship and the growth or performance of companies correlate 53 , 57 , primarily Relational SC of senior leaders 58 , 43 , 59 . According to Wang, Wang & Liang (2014) 31 , relationships with colleagues, customers, shareholders, suppliers, and strategic partners greatly influence business performance. Therefore, the study proposes the following hypothesis:

H 1 : Relational (REL) has a positive impact on FOP.

Cognitive social capital and Firm operational performance

Cognitive SC refers to mutual understanding among people and knowledge, shared vision, shared goals, and shared opportunities among people within the company and others 36 , 60 , 46 , 44 , 48 . Cognitive SC refers to the shared vision, mutual learning 2 , shared goals, and a common approach to organizational tasks 61 , 62 . Cognitive SC provides a shared vision for everyone, which helps achieve a common goal in the future 56 . The CSC promotes organizational value creation activities that positively impact their performance 60 . The CSC has a positive and significant influence on employee's and leaders' performance in the enterprise 63 , 59 . SC awareness plays an essential role in gaining business advantage to doing business over competitors and generate revenues and overall business performance 44 , 49 . Therefore, the study proposes the following hypothesis:

H 2 : Cognitive social capital (CSC) has a positive impact on FOP.

Social Interaction Ties and Firm Operational Performance

SIT shows the level of intimacy, regular contact, understanding, and sympathy between managers and other subjects in the network 44 . SIT describes personal relationships created through previous relationships 64 , closeness to others that facilitate the transfer of knowledge 65 , increasing willingness to exchange information 66 . SIT refers to mutual understanding among people in the company and others 36 .

According to Granovetter (1992) 64 , openness and interpersonal trust of people inside or outside the organization are essential to building new relationships. Strong relationships facilitate quick access to information, increasing businesses' competitive advantage 49 . Understanding, cohesion, and sharing among colleagues within the company create a favorable and effective working environment 67 . Managers play a rather important role 68 . SIT promotes businesses' creativity and development 46 , 69 , 44 . Based on this premise, the study proposes the following hypothesis:

H 3 : Social Interaction Ties (SIT) has a positive impact on FOP.

Trusts and Firm Operational Performance

Relationships are built, strengthened, and developed based on mutual respect, trust and close relationships 22 . Mutual trust between parties facilitated the transfer of knowledge 65 and increased willingness to exchange information 66 . Trust is considered the most critical aspect of SC as the basis for creating and maintaining relationships 70 , 44 . Partners and customers who trust the business increase openness in information sharing and reduce transaction costs 22 . Trust is also an important determinant when companies choose partners for cooperation 71 , 44 . Wu (2008) 72 concluded that trust, network relationships help to improve enterprise competitiveness. Transaction consistency, commitment, and confidence are essential for repeated transactions between partners 73 . A high degree of confidence helps keep customers and partners, reduces transaction costs 38 , 74 , 44 , and increases competitiveness 62 . Accordingly, the hypothesis is built as follows:

H 4 : Trust (TRU) has a positive impact on FOP.

Structural social capital and Firm operational performance

Interpersonal connection helps develop interpersonal trust, and it defines network strength 56 . The SSC is a network of relationships and ties 48 . The SSC is defined as a set of relationships within and outside the organizational network 38 , 36 . Relationships within a business are relationships between colleagues, managers, and employees, and between departments 42 , 75 . Relationships with partners, suppliers, customers, etc. are external network relationships 22 , 41 , 42 . Network relational structure can be measured by quantity and quality 75 , interpersonal interaction 54 , the strength of the network 35 , 36 . Among them, interpersonal interaction is an essential SSC aspect 54 .

SSC is sometimes used to replace financial capital and bring better business performance 76 , 77 , 78 . The SSC promotes the value creation activities of the organization and has a positive impact on its performance. Phusavat et al. (2011) 79 concluded, SSC positively and significantly affects financial performance (ROI, ROA, ROS) and productivity of employees and leaders in enterprises 63 . A firm has a strong relationship structure that enhances competitive advantage and revenue and profit 49 . Therefore, the hypothesis is built as follows:

H 5 : Structural social capital (SSC) has a positive impact on FOP.

Figure 1 . Research model (Source: Author's suggestion)

Figure 1 Research model (Source: Author's suggestion)

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Methodology

The model's observed variables ( Figure 1 ) are developed based on recent studies that are closely related to this study, specifically Relational Social Capital (REL) and Firm operational performance (FOP) adapted from Wang, Wang & Liang (2014) 31 ; Cognitive, social capital (CSC), Social interaction ties (SIT), and Trust (TRU) adapted from Aslam et al. (2013) 44 ; Structure social capital adapted from Chow & Chan (2008) 42 . However, the scales were slightly adjusted according to the discussion of 15 experts (5 lecturers with research on SC, five business directors, and five leaders of Ho Chi Minh City Department of Planning and Investment).

The research investigates SC's direct effects on the performance of SMEs. The database was collected from a survey of 400 managers in SMEs in Ho Chi Minh City during a dialogue between SMEs and the state management agency (Ministry of Finance and the General Department of Taxation in December, 2020). Respondents were quizzed to choose the answers on a 5-level Likert scale (1 – Strongly disagree, 2 - Disagree, 3 - Neither agree nor disagree, 4 - Agree, 5 - Strongly Agree). The number of research samples used was 378, accounting for 94.5% (5.5% of the survey was removed due to the lack of information). CB-SEM model analyzes data and test research hypotheses and pushes the reliability, convergence, and differentiation of the model's factors. According to Anderson & Gerbing (1998) 80 , the process of analyzing Structural Equation Modeling (SEM) consists of 4 steps: (i) Cronbach's Alpha (CR); (ii) EFA; (iii) CFA; and (iv) SEM.

The observed variables with the item-total correlation being <0.3 will be disqualified and the scale selection criteria of Cronbach's Alpha is ≥ 0.6 (Nunnally & Burnstein, 1994) 81 . According to Hair et al (1998) 82 , FD ≥ 0.3 is considered to be the minimal, FD ≥0.4 is considered important, and FD ≥ 0.5 is considered practical. In this study, FD ≥ 0.5 was selected. KMO is a criterion to consider the appropriateness of EFA, if 0.5≤KMO≤1, factor analysis is appropriate. The Bartlett test considers the hypothesis of the correlation between zero observed variables in the population. If this test is statistically significant (Sig ≤ 0.05), the observed variables are correlated in the overall population 82 and the total variance extracted is ≥ 50% 80 .

The model received values GFI, TLI, CFI being ≥0.9 83 , 84 ; CMIN / df being ≤ 2, in some cases CMIN / df can be ≤ 3 85 ; RMSEA being ≤ 0.08, the case RMSEA being ≤ 0.05 is considered positive 86 ; then the model is considered to be consistent with market data, or compatible with market data. Hair, et al. (1998) 82 contend that TLI and CFI being ≥0.9, CMIN / df being ≤ 2, RMSEA being ≤ 0.08 show that the model is highly consistent with market data. In this study, the SEM model's indicators use the standards of Hair et al. (2014) 83 , namely: GFI, TLI, CFI ≥0.9, CMIN / df ≤ 3, RMSEA ≤ 0.05 to ensure high guarantee reliability, most suitable for market data.

Results

Measurement model

As a result of reliability analysis ( Table 1 ), all observed variables meet the reliability standard. CSC has the lowest KMO of 0.685. However, the KMO coefficient is still guaranteed to be greater than the minimum reliability in the analysis of 0.6 87 . Standardized Loading of all Items is satisfactory, which is of statistical significance and has SMC> 0.3. Alpha and CR coefficients of the factor groups are > 0.8, so it can be said that the scales used in the research ensure reliability 81 , 80 .

Table 1 Constructs and their evaluation items

Reliability analysis: According to Hair et al. (2014), a scale achieves general reliability when the CR index is ≥ 0.7. Checking the test results in Table 2 shows that all Scales have CR> 0.7. Therefore, the Scales achieve general reliability.

Convergence test: Hair et al. (2014) said that for a scale to achieve convergence, the CR must be > AVE and AVE must be > 0.5. Besides, Anderson & Gerbring (1988) argue that the scale achieves convergent value when the normalized weights of the scale are both higher than 0.5 and statistically significant (P <0.05). Table 4 shows that all plates satisfy the conditions given by Hair et al. (2014) 83 and Anderson & Gerbring (1988) 80 . Therefore, all scales reach convergence.

Test of distinction: According to Hair et al. (2014) 83 , the scales achieve differentiation when the MSV index Table 2 shows that the Scales satisfy the above conditions. Therefore, the Scales achieve differentiation.

Table 2 Results of discriminant validity

Bootstrap test ( Table 3 ) results give a minimal absolute CR value compared to 2. The difference is minimal; at the same time, it is not statistically significant at a 95% confidence level 83 , 80 . Thus, it can be concluded that the estimates in the model can be reliable.

Table 3 Bootstrap test results

ML (Maximum Likelihood) and Bootstrap's estimated results in the linear structural model analysis show that all relationships in the research model are statistically significant (P <10%).

After analyzing the affirmative factors, the author performs the theoretical model testing by the method of linear structural model analysis (SEM) to test the causal relationship between the factors in the model. The results from the SEM analysis ( Figure 2 ) show that the test indicators of the model all meet the test standard CFI = 0.931, CMIN / df = 2.839, TLI = 0.915, RMSEA = 0.070. Thus, the research model Suggested rescue is appropriate.

Structural model

Figure 2 . Result of SEM (Source: Author's data analysis results)

Figure 2 Result of SEM (Source: Author's data analysis results)

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Table 4 Hypotheses validated results

Accordingly, the author has tested the causal relationships between the factors in the model, showing that REL & CSC positively impact FOP at the significance level of 10%. SIT has a positive effect on FOP at the 5% significance level. TRU and SSC both have an effect on two FOPs at the 1% significance level. SSC has the strongest influence on FOP (Beta = 0.364), followed by TRU (Beta = 0.213) and SIT (Beta = 0.213) ranked third ( Table 4 ). Two groups of factors, REL and CSC, have not high influence (Beta = 0.098).

Discussion, conclusion and implications

Discussion

In a rapidly developing country like Vietnam, the theoretical review shows that surprisingly few researchers pay attention to consider SC and its influence on FOP systematically. In order to occupy this research gap, the study has proposed a model that describes how five different aspects of SC of managers affect FOP in SMEs in Ho Chi Minh City. The empirical findings predominantly support the proposed model by proving that all five SC elements have a positive effect on FOP. The study found that all five aspects of SC, REL, CSC, SIT, TRU & SSC directly impact FOP. Compared to the study of Chow & Chan (2008) 42 , Aslam et al. (2013) 44 , Mahajan & Benson (2013) 88 , and Wang, Wang & Liang (2014) 31 , the results of this study add two new aspects: SIT and TRU. Simultaneously, the results of data analysis have proven that SC has a direct impact on FOP rather than an indirect effect like the results of a previous study.

According to the research results of Chow & Chan (2008) 42 , Aslam et al. (2013) 44 , Mahajan & Benson (2013) 88 and Wang, Wang & Liang (2014) 31 , Nguyen & Ha (2020) 2 , Ha & Nguyen (2020) 9 , REL, CSC, SSC affect FOP through intermediate variables. This study has demonstrated that REL, CSC, SSC have a positive and direct impact on FOP. SSC & TRU are the two groups of factors that have the most decisive influence on FOP. This result is also consistent with the theory of Putnam (2000) 40 , Adler & Kwon (2002) 22 . Similar to the research results of Chow & Chan (2008) 42 , Aslam et al. (2013) 44 , and Mahajan & Benson (2013) 88 , the leader's SC has a significant influence on the FOP of SMEs.

SC relates to relation, cognitive, interaction, trust, and structure aspects, based on studies by Chow & Chan (2008) 42 , Aslam et al. (2013) 44 , Wang, Wang & Liang (2014) 31 to verify the direct relationship. of SC to FOP. Our work fills the research gap by constructing a model to illustrate direct interactions between SC and FOP in SMEs. Therefore, this research odel can be used as a modern theoretical model in other studies to evaluate SC & FOP. Our experimental results have confirmed all the hypotheses. This result means that SC contributes directly to the performance of SMEs.

Conclusion and Implications

The experimental findings largely support the suggested model by proving that all five SC elements have a positive effect on FOP (REL, CSC, SIT, TRU & SSC). Simultaneously, the results of data analysis prove that SC has a direct impact on FOP rather than an indirect effect like the results of a previous study.

According to research results, to increase enterprises' efficiency, managers should raise financial capital, innovate the industry, and invest and develop their own SC. To increase SC, managers need to improve communication, engagement, friendliness, regular communication, and trust with individuals inside and outside the business. Trustful and friendly relationships with stakeholders are an invisible resource that helps companies improve their competitiveness and increase operational efficiency. Cohesion which is about taking the time to exchange, sharing the corporate vision, mission, and shared goals with colleagues will create cohesion, sympathy, and mutual support to go together to the final destination, allowing enterprises to operate effectively and facilitate sustainable growth.

Limitations and further studies

This study's results have supplemented the theory and practice for SC studies that directly affect the business performance of the business. However, this study also entails shortcomings which require thorough considerations so that the following tasks can be completed. Although our outcomes are consistent with our preceding results, the use of the survey design does not allow us to characterize levels of management to research recent issues. Second, the convenient sampling method is limited to representing the population. To confirm this study's results, future research may use random sampling and focus on SC studies with a specific industry's performance.

List of abbreviations

AVE: Average Variance Extracted

CB-SEM: Covariance Base - Structural Equation Modeling

CFA: Confirmatory Factor Analysis

CFI: Comparative Fix Index

CMIN/df: Chi-square/df

CR: Composite reliability

EFA: Explainatory Factor Analysis

FD: Factor Loading

GFI: Goodness of Fix Index

KMO: Kaiser Meyer Olkin

MSV: Maximum Shared Variance

SC: Social capital

SEM: Structural Equation Modeling

SMC: Squared Multiple Correlations

TLI: Tucker Lewis Index

Conflict of Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Author's contribution

The entire content of the article is done by the author.

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Article Details

Issue: Vol 5 No 4 (2021)
Page No.: 1797-1810
Published: Aug 5, 2021
Section: Research article
DOI: https://doi.org/10.32508/stdjelm.v5i4.796

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Copyright: The Authors. This is an open access article distributed under the terms of the Creative Commons Attribution License CC-BY 4.0., which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

 How to Cite
Phuoc, N. (2021). Social capital of managers and firm operational performance of SMEs in Ho Chi Minh City. Science & Technology Development Journal: Economics- Law & Management, 5(4), 1797-1810. https://doi.org/https://doi.org/10.32508/stdjelm.v5i4.796


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