Strategic networking and small firm growth in an emerging economy

Abstract

The purpose of this paper is to explore the sources and use of social capital on small firm growth in an emerging economy. The study also examines the relationship between small firms’ human capital, internal resources and strategy on social capital sources used, and their impact on small firms’ growth in employment. The study uses logistics regression and structural equation modelling to analyse data gathered from 441 small firms located in six regions of Ghana where approximately 81 per cent of all businesses are found. Among the 16 sources of social capital examined, customers were found to be the most used source and the only social capital source that showed significant statistical association with firm growth in employment. Also, the study revealed that human capital, firm resources and strategy variables such as educational level of the owner-manager, firm size, location, firm involvement in internalisation and innovation are statistically significant with social capital sources such as accountants, banks, solicitors, business associates and chamber of commerce. The findings of the study have implications for policy and practice in situations where government and private sector institutions mandated to support enterprise development appear to be the least social capital sources used by small firms. The findings also provide a better understanding of the use and impact of social capital sources on small firm growth in an emerging economy in Africa. This study appears to be the first known research on small firms’ social capital that has examined 16 different social capital sources and shown how human capital, internal resources and firm strategy have influenced the use of social capital sources by small firms in an emerging economy.