Social Capital and Small and Medium-sized Enterprise (SME) Performance, 2000-2002

In the UK, small and medium-sized enterprises (SMEs) now provide more employment and business turnover than large firms and public organisations together. Statistically, firms with under 250 employees in 1998 employed 57% of the workforce and accounted for 54% of turnover. This fits in with government policies to promote small businesses and self-employment more generally. Small size, however, creates problems as well as opportunities. Whereas large firms may operate with special departments to look after innovation, marketing and training needs, for example, small firms lack these resources. This can be a barrier to expansion.<br> However, by collaborating with other SMEs on certain business functions such as joint marketing to get into or extend export markets, or by sharing non-confidential knowledge to enhance innovation capacity, they can together overcome barriers caused by small size in a relatively costless manner.<br> The survey and interviews for this project sought to identify firms that engage in formal and informal partnerships based on mutual trust, exchanging favours, and judging reliability, credibility and reputation to be a safeguard against opportunistic behaviour.<br> The key question asked in this research was whether firms that make use of these kinds of 'social capital' display superior or inferior business performance compared to those that do not, holding everything else as far as possible constant. By exploring different types of social capital, some based on cultural identity, ethnicity or religion, some arising from membership of a specific, perhaps geographically defined economic community or particular industry, the research aimed to show the extent to which social capital may influence economic performance and draw policy lessons accordingly.<br> In order to investigate relationships between SME performance and social capital, operational measures of these two variables were developed and employed. The former were measured by turnover, profitability, employment and innovation performance, the latter by engagement in networks of a business, professional, social, cultural or political nature that had a bearing upon business performance. These were measured using Likert-based scaling measures. An index of area performance was drawn up for the UK to construct a sampling frame for a postal questionnaire survey capable of discriminating by spatial and economic categories of interest.