Effect of Social Capital on the Export Performance of Handicrafts Small and Medium Enterprises in Nairobi Central Business District

Abstract

Firms' drive to explore beyond the local market area and extend into the export market so as to boost their operations has contributed to the increasing number of export activities, as described by globalization of business operations and the associated technological advancement. The goal of this study was to see if social capital had an impact on the export performance of small and medium-sized handicrafts businesses in Nairobi's Central Business District. Two theories informed the research: social capital theory and the Institutional Based View. On a population of 87 handicrafts small and medium enterprises in Nairobi's Central Business District, this study employed a descriptive study technique. The study used primary data acquired through semi-structured questionnaires emailed and received via electronic mail to conduct a census survey. In the data analysis, descriptive and inferential statistics were obtained. According to the descriptive findings, majority of respondents believe that the management of handicraft firms encourages employee contact, resulting in improved working standards. Additionally, it was agreed among the respondents that the channels via which information is transmitted inside an organization are defined by network configuration of the organization hence social capital is shared in the process. Based on inferential statistics, the study established that structural dimension positively and significantly affects export performance of handicraft SMEs in Kenya. With an additional unit of structural dimension, there is an increase in export performance by a unit of 0.325 (β=0.325) which was found to be statistically significant (α=0.009<0.05). In regard to the second specific objective, the study established that relational dimension of social capital positively and significantly affects export performance. With an increase in adoption of relational social capital by a unit value, there is an increase in export performance by a factor of 0.276 which was found to be statistically significant (α=0.021<0.05). In an attempt to enhance implementation of relational social capital, the study found that organizational leaders and staff have a high level of trust, which allows them to share sensitive information and encourage collaborative action. Thirdly, the study found a positive and significant relationship between cognitive social capital and export performance. From the regression model, an additional unit of cognitive dimension enhance export performance by a significant (α=0.000) factor of 0.440. The findings imply that cognitive dimension of social capital plays a core role as far as increase in export performance is concerned. Although cultural dimension of social capital plays a significant role in enhancing export performance of SMEs in handicraft businesses in Kenya, the findings found that the positive effect (β=0.045) is insignificant (α=0.618). However, the study found that cultural factors in the organization does not prevent market entry strategies that are put in place and that there is a common language of communication in the organization that fosters performance of employees. Based on the summary model of regression analysis, the study found that cumulatively, cognitive, structural, relational and cultural dimensions of social capital explain 73.7% of the overall export performance. The study recommends that small scale traders with limited resources to conquer the foreign market should consider harnessing the available social capital within the group as it positively affects their export performance. The study results reinforce the importance of communication within an organization and also among the different SMEs in the quest to harness the social capital benefits. It is recommended that an open communication channel within the organization is developed with a view to developing trust and which in turn results in improved sharing of new ideas about available export opportunities. This in turn is expected to result in improved export performance at both individual and alliance level. Similarly, the study also recommends that as far as cognitive dimension of social capital is concerned, business management should encourage unity of purpose towards organization goals for betterment of organizational performance. More of strategies relating to adoption of cognitive social capital should be implemented because it helps to improve language proficiency and communication with international partners dealing in export and import.