Innovation support and small‐firm performance in India: A social capital perspective

• Author: Mary Conway Dato‐on,Mousumi Roy,Sharmistha Banerjee
• Date: 01 September 2018
• Published date: 01 September 2018
• DOI: http://doi.org/10.1002/tie.21909

COMPANIES IN THE CIRCULAR ECONOMY

Innovation support and small-firm performance in India:

A social capital perspective

Mary Conway Dato-on

1

| Sharmistha Banerjee

2

| Mousumi Roy

3

1

International Business and Social

Entrepreneurship, Rollins College, Crummer

Graduate School of Business, Winter Park,

Florida

2

Department of Business Management,

University of Calcutta, Kolkata, India

3

Department of Commerce, Savitri Girls’

College, Kolkata, India

Correspondence

Mary Conway Dato-on, International Business

and Social Entrepreneurship, Rollins College,

Crummer Graduate School of Business, 1000

Holt Avenue, Winter Park, FL.

Email: mconwaydatoon@rollins.edu

This article empirically examines the role of network derived innovation support in translating

effects of social capital dimensions on firm performance. Comparison is drawn between small

firms engaged in strategic (e.g., professional associations) and social (e.g., family, informal rela-

tionships) alliances. The study uses multiple regression analysis on a representative sample of

100 small firms in West Bengal, India. Analysis largely supports the hypothesis that social capital

provides innovation support to small firms, which consequently translates into improved firm

performance. For firms embedded in strategic alliances, results were more pronounced, thus

substantiating the advantage for small firms in India to join and activate social capital within

strategic networks to overcome the constraints in generating and developing innovativeness.

Implications for small firms and professional associations are discussed.

KEYWORDS

firm performance, Indian business, innovation support, small firms, social capital

1|INTRODUCTION

One key component in the success of small firms is the extent of their

innovativeness (Klomp & van Leeuwen, 2001; Prajogo, 2006). Innova-

tiveness relates to the firm's capacity to engage in innovation in the

form of introduction of new processes, products, or ideas in the orga-

nization (Gronum, Verreynne, & Kastelle, 2012; Organisation for Eco-

nomic Co-operation and Development [OECD], 2010). This capacity

to innovate is one of the most important factors that impact organiza-

tional learning and ultimately success of small firms (Hurley, Tomas, &

Hult, 1998). However, being innovative is not an easy task for small

firms, as they usually face resource constraints, lacking the financial

strength and specialized expertise that often results in limited

research and development (R&D) activities (Baldwin & Gellatly, 2003).

Small firms may also encounter difficulty in attracting external invest-

ment due to lack of credibility (Voulgaris, Asteriou, & Agiomirgianakis,

2004), thus further impeding innovation and ultimately firm

performance.

To overcome these limitations, small enterprises seek to establish

relationships with other actors in their environment. By entering into

relationships in networks outside their boundaries, small firms can

complement their limited internal R&D with knowledge generated by

external actors and obtain access to external resources that they are

unable to generate on their own. Support for innovative activities is

one of many possible benefits arising from network relationships.

Small firms cultivate these relationships in several ways, including

links to family, friends, and community, commonly known as social alli-

ances. In addition, small firms may also engage in relationships with

other small firms in the same or similar industries by joining business

and trade associations. These later alliances can be classified as strate-

gic because small firms join such associations, in part, to gain tactical

information on the competitive landscape, which may yield perfor-

mance benefits.

Against this backdrop, this study investigates the effect of various

dimensions of social capital derived from strategic and social alliances

of small enterprises on innovative capacity. The inquiry then examines

the influence of such innovation support on firm financial perfor-

mance. In this process, the authors draw comparisons between firms

engaged in different types of alliances (i.e., social and strategic) and

posit recommendations for improved performance.

The research is set among small firms in the state of West Bengal

in the eastern part of India. In order to set the context of the study, it

may be useful to give a brief background of the socioeconomic condi-

tion of the state and characteristics of small businesses in West Ben-

gal. On one hand, West Bengal is one of the least industrialized parts

of the country. It is well documented that in the decade post

DOI: 10.1002/tie.21909

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