Social Capital and Economic Performance of SME's: A Case Study from Turkey

Abstract

Perceived as a factor that influences the efficiency and effectiveness of key production factors in the process of economic development, social capital is defined in this study as the set of social relations that enable entrepreneurs to gain access to economic resources. The study presents findings from a sample survey carried among owners or managers of manufacturing small and medium sized enterprises (SME's) in Sivas, a province located in a rather less developed region of Turkey. In the World Value's Studies, Turkey is generally portrayed as one of the countries with a relatively low general trust. Given that there are almost no attempts to analyse its consequences at national and regional level, this study attempts to fill in this gap. Trying to find out what role social capital plays in SME's performance and which form of social capital (bonding or bridging) is much more relevant, particular focus is on how trust and business networks play a part in this performance enhancement process. In accordance with the above mentioned conceptual framework on social capital, we have used two sets of variables the first one aiming at measuring the tendencies of trusting behaviour among entrepreneurs, namely trust levels, norms and network, which we called the "potential social capital". On the other hand, the second set of variables which represents the economic effects of social capital and is called as "actual social capital" aims to measure what entrepreneurs actually do in terms of investing in networks or cooperate. These include positive benefits such as reduction in transaction costs, the extent of collective action and learning spin-offs. Trust levels are found to be generally low, institutional trust being the lowest, although most of the trust-supporting social mechanisms (such as norms and sanctions relating to cheating, business reputation etc.) do exist. In their economic transactions most of the entrepreneurs seem to be not depending on their close and strong ties. Most of the firms exhibit high transaction costs, low levels of cooperation with other firms in the industry, and rarely benefit from contributions of others including governmental supporting bodies and business associations. Our findings suggest that firms that enjoy higher levels of collective action and learning also perform better.