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The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making
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The Importance of Social Capital for Small Business Owners: An Entrepreneurial Marketing Approach for Decision Making

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  • 1. THE IMPORTANCE OF SOCIAL CAPITAL FOR SMALL BUSINESS OWNERS: AN ENTREPRENEURIAL MARKETING APPROACH FOR DECISION MAKING Cristiano Tossulino Machado MARKETING EMPREENDEDOR cristiano@marketingempreendedor.com.br Business Consultant and Professor Ponta Grossa – Brazil Paper presented at the 26th Global Symposium on Marketing and Entrepreneurship. Boston – August 2013 ABSTRACT The purpose of this paper is an investigation on how small business owners rely on their “social capital” to seek information to decision making on marketing issues. The methodology used was bibliographical research and in-depth interview with two small IT (Information Technology) companies. The study showed that social capital is critical to build “market intelligence” and to decision making about marketing, especially in the small business environment. Key words: social capital, decision-making, entrepreneurial marketing, Small Businesses.
  • 2. INTRODUCTION Small businesses have scarce resources, whether financial, personnel or marketing. Companies’ needs to find trusted information about the markets that they work, about pricing, consumer preferences and habits, logistics, how to promote products and services and so on. It is known that small businesses have scarce resources and with this, they cannot use marketing tools or marketing systems like big corporations do. Analysis of previous studies showed that social capital may be an important decision making tool for small business owners. Social capital is now viewed as crucial to offsetting the liabilities that small and medium enterprises face, and they are increasingly using it to overcome the problems of limited resources, experiences and credibility (Lu and Beamish, 2001). According to Rodrigues and Child 2012, social capital may be defined as social relationships that confer actual or potential benefits. It can therefore be understood as a particular type of resource. LITERATURE RIVIEW Researches frequently find that entrepreneurial marketing is practiced by entrepreneurial firms such as small firms and young firms (Kilenthong et. al., 2011). Networks, relationships and alliances are critical to small firms as a marketing tool to seek information about their business and as a tool for decision-making.
  • 3. Entrepreneurial Marketing and Decision-Making in small business As it is already known, small businesses have scarce resources, and they usually cannot use traditional marketing tools. Competition is increasing worldwide and the globalization increases the competition in local markets. With fierce competition and increasingly demanding customers, firms have a limited ability to forecast and define their market boundaries (Day and Montgomery, 1999). Traditional marketing may not be adequate for small firms to compete in this new business environment. Small firms are considered more entrepreneurial than large firms because of several characteristics. First, small firms have restricted resources and capabilities. Compared to large firms, small firms have less financial and human resource. As a result, they cannot perform the same kind of marketing activities that large firms can. Second, small firms do not have normal organizational structures or formal systems of communication. Their marketing planning is intuitive, loose and unconstructed. Third, small firms have a simple and ad hoc marketing decision-making process. Small firms can develop an irregular change in their decision-making pattern during their business engagement. Fourth, small firms have fewer dominating decision makers than large firms. Marketing decisions in small firms can be linked directly to specific personal goals of owners/managers. Lastly, small firms can quickly response to their customers because they have flatter organization structure than large firms. They are closer to customer and can access customer information better than large firms. These characteristics suggest that entrepreneurial marketing behaviors should be more prevalent in small firms than in large firms.
  • 4. Entrepreneurial marketing behavior is categorized into six dimensions including value creation through relationships and alliances, two-way contacts with customer, growth orientation, opportunity orientation, informal marketing, and market immersion (Kilenthong et. al., 2011). In entrepreneurial marketing organization, entrepreneurship and marketing permeates all areas and levels of the organization, with the organization being focused on recognizing and exploiting opportunities. Successful entrepreneurs tend to have a long-term orientation to opportunity creation and exploitation that is focused on meeting all the customer’s needs by employing creativity and innovation (Collingson and Shaw 2001) Entrepreneurial Marketing in Small IT Companies As is known, the phenomenon of globalization affects various business sectors. But especially in the IT sector, the competition is really global. A company in Brazil could be competing with a competitor in India and the opposite is also true. Small technology firms approach marketing with a customer centric approach, focusing on the development of long term customer relationships. Companies tend to rely on WOM (Word of Mouth) recommendation for building trust and confidence in the company and in the purchase decision. This requires very close participation between the software company and the customer, which meant that co-creation of products, was often a key feature of the development of new products and services. The software technology industry sector is a particularly challenging sector for micro and small firms. Small firms in this sector rely on providing superior levels of service together with innovative
  • 5. practice to create quality bespoke software. Limitations for these companies include: lack of financial resource and technical employee resource; a lack of a specialized and experienced marketing and sales resource, particularly in micro-sized firms and; difficulties in balancing R&D and high levels of service (Jones, 2011). These companies rely on networks and relationships to generate knowledge from customers, suppliers, employees and their partners. Entrepreneurs should actively engage in information acquisition as an aid to effective marketing strategy formulation. More importantly, proactive use of such information allows entrepreneurs to predict oncoming trends and enact strategies, supporting the best use of acquired information. Information utilization enables small firms to gain competitive advantage and maintain a stronger position relative to the competition. The information may unveil latent needs, which exist and are unmet but are not apparent to competitors. Being the first to uncover such latent needs provides impetus to develop the marketing capabilities accordingly. To enhance marketing capabilities, continued investment in market research, pricing, product development, promotions, channels, and market planning and market management capabilities is important. Findings further suggest that market management (ability to segment and target market, to manage the marketing programs, the ability to coordinate various departments and groups to respond to market conditions), market research and promotion are the most important marketing capabilities for small technology companies (Qureshi and Kratzer, 2011).
  • 6. Social Capital Social capital refers to the resources available in and through personal and business networks. These resources include information, ideas, leads, business opportunities, financial capital, power and influence, emotional support, even goodwill, trust and cooperation. The “social” in social capital emphasizes that these resources are not personal assets; the resources reside in networks of relationships (Baker, 2000). According to Sander and Lowney 2006, social capital focuses on the social networks that exist between us, literally who knows whom and the character of those networks, the strength of the ties, and the extent to which those networks foster trust and reciprocity. The core concept of social capital is that social networks matter, both for those in the networks as well sometimes for bystanders as well. At the core of social capital is trust. People engage in reciprocity, doing for others not with any immediate expectation of repayment. There is hard evidence that social capital boosts business performance. Individuals who build and use social capital get better jobs, better pay, fast promotions, and are more influential and effective, compared with peers who are unable or unwilling to tap the power of social capital. Organizations with rich social capital enjoy accesses to venture capital and financing, improved organizational learning, the power of word-of- mouth marketing, the ability to create strategic alliances, and resources to defend against hostile takeovers (Baker, 2000). Social capital is essential for small business success. The accumulation of social capital helps businesses grow through word-of-mouth. Social capital cultivates goodwill and
  • 7. creates collaborative opportunities with competitors and within a supplier chain. Social capital can facilitate cross-pollination of ideas between entrepreneurs and produces positive personal influence on local market politics. In short, building social capital offers opportunities to connect to others with varying degrees of intensity and allows for the interchange of ideas and commerce that offer mutual benefits. Consciously developing social capital also ensures that owners ask customers and suppliers for referral to potential buyers. In the smallest of businesses, building social capital can have more positive impact than advertising (Start-Up USA Cultivating Social Capital). A striking development in recent research is the discussion of social capital in companies’ relations, especially relations between firms and their suppliers. This stands in sharp contrast to the traditional perspective of economics in which the enterprise is a non- cooperative monolith that buys its input from suppliers and sells its output to customers. According to this view, the production-related networks of an enterprise are technical and economic, and exist only to fulfill the input and the output services. This simplified view is today sometimes referred to as production relations of the “Fordist” of manufacturing- industrial age, but is not a correct description. Social networks, even the actors of production, are not san invention of the knowledge economy. There are however arguments saying that they have become more important in the knowledge economy (Westlund 2003). In knowledge–based economy the perhaps most significant rent originates from the way in which the easy exchange of knowledge, only partly understood, between and among
  • 8. constantly changing configuration of firms within the community dramatically enhances their innovative capabilities. Reducing your development to commercialization time is often worth virtually whatever you have to pay and social capital contributes by cutting the expenses and reducing time needed to benefit from knowledge residing elsewhere. As innovative capabilities become increasingly important so does social capital (Maskell, 2000). Social, non-formalized links, between a firm (and its co-workers) and firms with which it has production relations, increase the flows of knowledge and information between the firms. Feedback, from the firm to its suppliers and to the firm from its customers, is increased and speeded up. These links of acquaintance and trust are of obvious importance to R&D-projects, aimed at developing new products or production methods. They are probably also essential in the small, invisible development processes that take place in companies everyday, which constitute the base for new innovations. A firm’s cost for, among other things, knowledge and information are influenced by social capital through the degree of trust and the climate of cooperation prevailing both in individual workplaces and between firms and actors in a region. By creating relationships with customers in diverse ways (advertising, personal contact, servicing contracts, etc.), a firm attempts to shut out competitor from the network it has established. It can build similar networks with suppliers. An established firm with strong customer and supplier networks can use these to shut out competitors, which perhaps have newer and more productive physical and human capital, from the market (Westlund 2003).
  • 9. The social capital of an organization is an intangible asset critical to innovation in organizations of XXI century. The quality of relationships within and between the organizations and the capacity to build social capital to promote the cooperation needed to sustain innovation processes within the organization, becomes a distinctive competence in the new competitive scenarios, and therefore should be sustained by an organizational strategy clearly defined. METHODOLOGY A case study approach was chosen as it was considered the most effective method with which to obtain rich and meaningful insights (Carson et al., 2005), and in-depth interview to collect the data to be analyzed. Two small IT companies were interviewed. Firms were chosen on the basis of 4 criterions: Firm size, small companies with under R$ 3.600,00 of gross sales per year, firm age (over 3 years old), operating in the same industry sector (IT – Information Technology) and based in the same geographic area (Center of Paraná State Brazil). The owner-manager was chosen as the unit of analysis on the basis that in small firms the owner-manager is a significant influence on the way that firm is operated and managed (Carson et al., 1995).
  • 10. FINDINGS According to Thomas & Cross (2009), the analysis and management of internal and external networks can create great value for many organizational processes, promoting revenue growth, greater connectivity with customers and users, cost savings, increased sales force effectiveness, greater integration in the process of re-structuring and fusions, alignment and strategic execution, greater integration of the skills inter and intra- departmental and organizational competencies for managing these projects, the transfer of best practices, lessons learned and points of alerts, and identify barriers and bottlenecks in the flow knowledge necessary to give greater flexibility to the decision making and problem solving. On both interviews, the owner-manager mentioned several times that “who they know”, the networks that they have access is critical to do business in their sector, especially to find new clients, make decisions on pricing, marketing issues and managerial decisions. Below are listed some key findings on the interviews, with some transcribed answers: - “The way I do business have changed a lot after I started to participate in the ASSESPRO (Association of IT Companies) as a President for my region and the National Conferences of my product suppliers. - “Having access to the networks offered by the associations and by the national network of representatives, has enable me exchange clients, acquire new clients, make better managerial decisions inside my company. The experiences that my “peers” live everyday in another regions are a really good way to learn how to do business in our sector”.
  • 11. - “I also got better results on my management and better profitability with exchanging ideas about our business with my peers and other entrepreneurs in the IT sector”. - “I do not use to buy “market research” because is too expensive for my as a small IT company. I rely on my peers to get information about new markets and specially on pricing decisions for my products and services”. - Small IT companies do not have to work alone, associations, networks and who I know is the best way to find new clients, make better management decisions and get better results for my company”. CONCLUSION As Carson et al. 2005 recognizes, the value of marketing activities which are influenced by the entrepreneurial owner-manager is largely intuitive, ad-hoc and instinctive in nature”, this study showed that the decision-making processes in small companies are largely based on networks, relationships; in other words, social capital is crucial to successful decision-making about marketing and management issues. Moreover, the fact that small companies have scarce resources, social capital becomes an important marketing tool and can be used as a tool for market intelligence. Future studies could include for example: observations of competitive activity and analysis of appropriate company records and also use a larger sample of interviews with small businesses in different sectors.
  • 12. REFERENCES Carson, D., Cromie, S., McGowan, P., and Hill, J. (1995). Marketing and Entrepreneurship in SMEs – An Innovative Approach. Essex: Prentice Hall. Collingson, E., and E. Shaw (2001), “Entrepreneurial Marketing: A Historical Perspective on Development and Practice”, Management Decision, 761-766. Day, G. and D. Montgomery (1999). Charting new directions for marketing. The Journal of Marketing, 3-13. Jones, R. (2011). Entrepreneurial Marketing Orientation: A Comparative Study of Small Firms. Global Research Symposium on Marketing and Entrepreneurship Boston. 86-100. Kilenthong, P., G. Hills, C. Hultman, S. Sclove (2011). Entrepreneurial Marketing Practice: Systematic Relationships with firm age, firm size, and operator’s Status. Global Research Symposium on Marketing and Entrepreneurship Boston. 194-202. Lu, J. W. and P. Beamish (2001). The Internationalization And Performance Of SMEs. Strategic Management Journal. 565-586. Maskell, P. (2000). Social Capital, Innovation and Competitiveness, in S. Baron. J. Field and T. Schuller (eds.) Social Capital. Critical Perspectives. Oxford University Press. Qureshi, S. and J. Kratzer (2011). Entrepreneurial Marketing Process: An Empirical Study of Small Technology Based Firms in Germany. Global Research Symposium on Marketing and Entrepreneurship Boston. 160-176.
  • 13. Rodrigues, S.B. and J. Child (2012). Building Social Capital For Internationalization. RAC, Rio de Janeiro, 23-28, Jan/Feb. 2012. Sander, T. and K, Lowney (2006). Social Capital Building Toolkit. Saguaro Seminar: Civic Engagement In America, John F. Kennedy School Of Government, Harvard University. Stoeckicht, I. and C. Soares (2010). A importância do Capital Social Para o Desenvolvimento da Capacidade de Inovar em Empresas Brasileiras. INGEPRO, 23-37, October 2010. Thomas, R. and B. Cross (2009). Redes Sociais – Como Empresários e Executivos de Vanguarda as Utilizam Para Obtenção de Resultados. São Paulo, Editora Gente, 2009. Westlund H. (2003). Implications of Social Capital for Business in the Knowledge Economy: Theoretical Considerations. Presented for the International Forum on Economic Implication of Social Capital. Tokyo 2003. Waine E. B, (2000). Achieving Success Through Social Capital: Tapping The Hidden Resources In Your Personal And Business. Wiley & Sons. Start-Up USA. Cultivating Social Capital. http://www.start-up-usa.biz/ (accessed 13 May 2013).

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