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International Journal of Business, Social Sciences and Education/ Ijbsse.org




Lucy Wairimu Kibe, PhD Finalist

Jomo Kenyatta University of Agriculture and Technology.

Prof. G. S Namusonge, PhD

Jomo Kenyatta University of Agriculture and Technology.

DR. Iravo M. A,.PhD Jomo Kenyatta University of Agriculture and Technology.

CITATION: Kibe L.W, Namusonge G.S (PhD) & Iravo M.A (PhD) (February, 2016), Effect of

relational social capital on the performance of social enterprises in Nairobi city county, Kenya:

International Journal of Economics & Finance VOLUME 2 (II), 87-101. ISSN 2105 6008.

87 | P a g e www.ijbsse.org/ International Journal of Economics & Finance/IJEF International Journal of Business, Social Sciences and Education/ Ijbsse.org ABSTRACT.

The scale of current economic and social change, the process of globalization, the rapid transition to a knowledge-based society are all challenges, which demand a new approach to organizational recourses existing in that enterprise in a form of capital. In recent years, traditionally there were three main types of capital, which together constituted the basis for economic development and performance such as natural, physical and human capitals. But nowadays, scholars have started to understand that those capitals can only partly determine the process of economic growth. That is why they started to talk about relational social capital as a missing link in the development of economic life. The concept of relational social capital has been widely used by academics from different scientific backgrounds. Economists, political scientists and sociologists agree that thisconception is ambiguous and has many different connotations. For this reason it is very difficult to create one appropriate definition of relational social capital. Relational social capital builds and maintains networks, which are underpinned by the norms of behavior. On the other hand, emphasizes that relational social capital is the goodwill that is engendered by the fabric of social relations and that can be mobilized to facilitate an action. So, according to those definitions, scholars have realized that relational social capital has a big impact on economic outcomes and enterprise activities.

Keywords: relational social capital, structural dimension, cognitive dimension, relational dimension, relational social capital, social, enterprise’s business processes&Performance Introduction Most scientists agree that relational social capital is a potentially productive factor that has significant influence on the efficiency of enterprise’s activity but also can transform into liability if not properly constructed or used (Mačerinskienė, Vasiliauskaitė 2007). That is why the scientific problem of this paper is how relational social capital can benefit the performance of an enterprise, which uses its social networks for business purposes. The aim of the article is to evaluate relational social capital’s benefits to enterprise’s business processes and distinguish the most relevant of them. The object of this research is benefits of relational social capital. Main objectives: to introduce the relational social capital theory in modern economy; to analyze benefits of relational social capital and its influence on enterprise’s business processes; to create the model of relational social capital’s benefits to enterprise’s business activities and find the 88 | P a g e www.ijbsse.org/ International Journal of Economics & Finance/IJEF International Journal of Business, Social Sciences and Education/ Ijbsse.org most relevant of them. Entrepreneurship and Innovation has received increased attention both in the political and business sphere, and it has become an important factor in determining a nation’s or Company’s competitive advantage. This has been supported by researchers who have found evidence for a strong correlation between a company’s ability to produce new products and their market performance (Bessant, Pavitt and Tidd, 2005).

When searching the literature for success-factors and initiatives for innovation it was identified that the potential for relational social capital as an important asset in the ability to see connections, spot opportunities and to take advantage of them. Recent studies claim that innovation is no longer merely explained by combinations of tangible forms of capital, but also by the combinations of intangible forms like relational social capital. (Landry,Amara and Lamari, 2002). Similarly Nahapiet and Ghoshal (1998) argued that relational social capital is central to the understanding of institutional dynamics, innovation, and value creation. In our thesis we want to explore the underlying factors that can help us explain why the case companies are successful in their innovation processes by focusing on relational social capital theories.

Literature review Relational social capital is a comprehensive concept focusing on different aspects of social interaction between actors, and how the interactions offer potential resources through these relationships. Moreover the concept emphasizes how relationships promote exchanges that would not likely occur without the connection, and how actors gain ‘credit’ from other actors through goodwill and favors. The notion ‘there is no such thing as a free lunch’ represents a commonly held view that in many ways describe the concept of relational social capital.

Many exchanges in the society and in the business world is not immediately returned, resulting in exchanges that brings with it expectations about future obligations and goodwill.However, unlike other forms of capital, relational social capital is a result of interactions and is not owned by a single part. Nahapiet and Ghoshal (2008) e.g. found thatrelational social capitalincreases the efficiency for action and encourage cooperative behavior, accordinglyarguing that the concept is central to the understanding of institutional dynamics,innovation and value creation. “Recent research has applied this concept to a broader range of social phenomena, including relations inside and outside the family (Coleman, 2008), relations within and beyond the firm (Burt, 2012), the organization-market interface (Baker, 2000), and public life in contemporary societies 89 | P a g e www.ijbsse.org/ International Journal of Economics & Finance/IJEF International Journal of Business, Social Sciences and Education/ Ijbsse.org (Putnam, 2003, 2005)” (Tsai and Ghoshal,2008).From another perspective the relational social capital theory has also beensubjected formuch criticism of being poorly defined and conceptualized (Fukuyama, 1995; Portes, 2000; Adler and Kwon, 2002).Isham, Kelly and Ramaswamy (2002) argued (from aneconomist’s perspective) that relational social capital like human capital before is a concept with much appeal and promise, but full of definitional and operational vagueness. In order to deal with these challenges the review will emphasize articles by the main contributors; Bourdieu (1986), Coleman (1988), Granovetter (1973), Burt (1992,

2000) and Putnam (1993, 1995, 2004). Theauthors are central in the development of the concept and are covering different aspects of the relational social capital conceptthat they consider essential to get a proper understandingof the theory. Moreover to give a balanced presentation of the concept we will also include research articles and literature reviews in the field, coveringe.g.Nahapiet and Ghoshal (1998), Portes (1998), and Adler and Kwon (2002) among others.

Social Capital Theory

The basic intuition of social capita theory is that social ties including one’s family, friends and associates is an important asset that can be utilized for its own sake, during crisis and as leverage for financial and social growth (Woolcock and Narayan, 2000). The core principle of relational social capital as an asset has been documented through history but the context that is used today was re-invented in 1950’s. Relational social capital is defined as the ability of economic agents to realize benefits by virtue of membership in social networks and structures available in the community. There are two main views used to evaluate relational social capital, the relational view and structural view (Nahapiet and Ghosal 1998).

The relational view is embedded at community level where informal social ties are fostered by trust within the same order or community. On the other hand, structural view refers to formation of vertical and/or formal networks with procedures and collective action. Relationship view focuses on quality of relational social capital while structural view focuses on quantity of direct and indirect networks. Another typology that is used to define relational social capital is bonding, bridging and linking relational social capital. First, the bonding relational social capital is also defined as strong intra-community networks characterized by shared values and norms, strong 90 | P a g e www.ijbsse.org/ International Journal of Economics & Finance/IJEF International Journal of Business, Social Sciences and Education/ Ijbsse.org ties and high level of trust within family members and close-knit groups (Woolcock and Narayan, 2000).

Second, bridging relational social capital refers to extra-community ties characterized by weak and thin trust that connect different groups in one or more communities (Woolcock and Narayan, 2000; Basu, 2012). From social entrepreneurial perspective relational social capital is viewed as network, group ties and institutions that support social entrepreneurial activity and the level of perceived benefits and resources available from social ties (Ernst, 2012). Studies have shown that relational social capital is a strong and consistent asset especially during initial stages of business creation and among micro and small enterprises. Social entrepreneurship intention model explain that high bridging and bonding relational social capital among a society heightens the perceived behavior of control or the probability of succeeding. Relational social capital is viewed as an enabler as it is used as a source of information, frame of reference, access to resources, source of potential suppliers and customers among others. To this end, the degree to which relational social capital acts as an enabler depends on the degree to which social entrepreneurs utilize bridging, bonding and linking relational social capital.

According to (Ali, Saeid, Mohsen, 2012) Relational social capital is a modern concept that is used extensively nowadays in sociology, economy and recently in management and organization.It refers the existing resources inside and among the personal and commercial network.Relational social capital affects economic successes of societies as well as life quality such as joy and happiness, physical and psychological health and individuals' life cycle increase (Ali et al,2012,Baker, 2000).

Baker believes that the term social in relational social capital shows that the existing resources inside business or personal networks are not personal assets and no person is the owner of them alone (Ali et al, 2012).These resources are placed in relationship networks. Combination of these two terms confirms the issue that personal affections, cooperation, integrity, mutual respect and sense of common interest among individuals of an organization produces capital that enhances resources capacity.

According to this, different scholars maintain different approaches to relational social capital. E.

Bueno (2002) in his work “El Capital Social en el Nuevo Enfoque del Capital Intelectual de

lasOrganizaciones”, gives four main theoretical approaches to relational social capital:

91 | P a g e www.ijbsse.org/ International Journal of Economics & Finance/IJEF International Journal of Business, Social Sciences and Education/ Ijbsse.org

1. The economic development theories.

2. The social responsibility and ethics approach.

3. The corporate governance code.

4. The intellectual capital approach.

Table 1. Main conceptual approaches of relational social capital (Source: Buenoetal.


–  –  –

The conception of relational social capital In this turbulent time when the development of the new markets and technologies is rapidly increasing all over the world, every organization and every manager has to know that business is 92 | P a g e www.ijbsse.org/ International Journal of Economics & Finance/IJEF International Journal of Business, Social Sciences and Education/ Ijbsse.org run better when people who work in a company know and trust each other. This leads to productiveness of team working, faster learning and creativity within an organization. As L.

Prusak and D. Cohen (2001) claimed, strong relation-ships between companies’ workers are vital in organizations. So, it is obvious that in recent years, the concept of relational social capital has been widely promoted in different tasks of business activities.

The essence of relational social capital is that network relationships, including family, friends, casual relationships and even contact with strangers, provide a rich resource in terms of knowledge, information and support in individual, organizational and public levels (Taylor et al.

2004). Thus relational social capital can be analyzed in three dif-ferent levels – micro (individuals), mezzo (organizations) and macro (state). In this study we will consider on mezzo level so the analysis of corporate relational social capital will be the core aim of this paper.

The concept of relational social capital is related to “citizen engagement” and describes “features of social life -networks, norms, and trust that enable participants to act together more effectively to pursue shared objectives” (Putnam 1994). Moreover, it can be under-stood as a collective resource in organization, which helps to achieve macro outcomes on the state level.

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