An Integrative Approach of Resource-Based View and Transaction Cost Economics - Research Proposal Example

Behind Immigrant Business Performance: An Integrative Approach of Resource-based View and Transaction Cost Economics. By Elly Ho (Research proposal overview doc) PROPOSAL OVERVIEW Rationale and summary Introduction In recent years there has been growing interest in research on immigrant entrepreneur business activities. There are many researches focusing either on the resource-based view (RBV) or on transaction cost economics (TCE) to explain entrepreneur performance on small and medium enterprises. However, there is very little research that exists which integrates both of these with focus on social capital and TCE to explain business performance. There are even fewer studies that have considered their joint effects in explaining entrepreneurship within the context of an immigrant scope or specifically in applying them to immigrant entrepreneur performance. This study presents a new integrated framework that applies theories of RBV with focus on social resources as well as TCE to the phenomenon of immigrant entrepreneurship. Most studies previously done tend to focus only on one type of social capital resource and very few have integrated the different types of social capital resources to explain entrepreneurship, especially immigrant entrepreneurship. This study takes into account various social resources in explaining Chinese immigrant entrepreneurs. It seeks to investigate the relative impact of different social capital factors like personal/ethnic resources and relationships that include business networks and personal guanxi networks on performance of Chinese immigrant businesses. It provides a conceptual framework on how RBV with focus on how social resources facilitate immigrant entrepreneurs in gaining access to certain local advantages, thus reducing transaction costs and enhancing overall business performance. Literature review Sociological explanations of network effectiveness stress the importance of trust, while transaction cost theory emphasises on asset specificity (Wu & Choi, 2004). However, there has been little or no research earlier that has studied specifically the mechanism by which the social networks or social capital per se, leads to an increase in performance. This study assumes that the missing link especially in the case of Chinese immigrant entrepreneurs is the transaction cost reduction. The literature reviewed therefore is aimed at elaborating on the meaning of social resources and transaction costs. It would also present a holistic picture of the resource-based view and transaction cost economy as major theories underlying the theoretical framework of the study. Resource-based view Grounded in the work of Penrose (1959), the resource-based view (RBV) which was first proposed by Wernerfelt (1984) has gained considerable attention during the last decade (Barney et al., 2001). The resource-based view of the firm has emerged as a major paradigm in the strategic management field and has grown significantly as a complement or an alternative to currently accepted theories of strategic management (Frawley & Fahy, 2005). The resource-based view of the firm refers to key resources with advantage-generating characteristics and these resources are divided into different categories which include the following; ethnic, personal, strong and weak business ties as well as direct and indirect guanxi. Over the past decade, resource-based research has placed increasing emphasis on collectively utilizing a firm’s resources in attempting to create and maintain competitive advantages (Turner, Ryman & Clark, 2007). The resource-based view focuses on advantages stemming from internal organizational resources and it is against this background that firms usually compete on the basis of resources that are variously distributed among themselves. Transaction Cost Economics The theory of Transaction Cost Economics (TCE) was first proposed by Coase (1937) in an attempt to explain why organisations exist. Williamson (1975) later built on this theory to help understand the role of TCE in organisations. It categorically states that significant transaction costs are typically incurred by organisations dealing with outside suppliers (Peng & York, 2001). These include costs associated with source selection, periodic competition, contract management, market structure as well as measuring and monitoring performance (Melese et al., 2007).Transaction costs include the costs of searching, negotiating, contracting, monitoring and enforcing a transaction, as well as the costs incurred if the transaction drifts out of alignment with its parameters (Kulkarni & Fiet, 2007). Social Capital Scholars argue that network relationships generate social capital, a resource that is strongly associated with emerging entrepreneurship that enables entrepreneurial growth of firms (Davidson & Honig, 2003). The amount of social capital that is available is usually proportional to the degree of “connectedness” with other individuals in the network as well as the level of obligations and responsibilities at any given time (Sequeir & Rasheed, 2006). Thus, the amount of this social capital in a network is characterized by the number of people in the network, the degree of interconnectedness among the individuals in the network and the frequency of their mutual communication. Implications for theory and practice The integrative framework proposes that personal/ethnic values, strong/weak ties and direct/indirect guanxi relationships are employed by Chinese immigrants to reduce transaction costs in various business operations resulting in enhanced immigrant business performance (Standifird & Marshall, 2000). The researches conducted so far concur that such knowledge makes the immigrant business literature more complete and coherent that it creates a basis for more studies in the area of immigrant business, ethnic entrepreneurs and small business management. However, the theoretical contribution of the research will include filling the gap that exists in literature regarding the integrated approach of social resources and transaction costs towards business performance. The research seeks to contribute richly towards developing a mode of understanding of an integrative framework that brings forth the significant roles that mediating and transaction costs play between social resources and performance. Since most Chinese immigrants are widely dispersed across the world, it is argued that a better understanding of the driving force behind Chinese immigrant business operations and performance may benefit researchers, practitioners and policymakers. In addition to contributing to theory, the research findings are expected to provide direction for further research for exploring the social resources and cost dynamics of other business firms. In the contemporary world where globalization has reduced barriers of trade where multi-ethnic societies are trading in foreign lands, it becomes essential to understand the specific advantages that distinct social resources may provide. Knowledge of social factors that affect immigrant business entrepreneurs enables practitioners to craft better strategies to enhance business operations and business performance. As such, this research would provide the immigrant business CEO’s with insights into how they can effectively harness social resources in order to achieve great results. Identification of research gap The rapid increase in rates of self-employment and the number of immigrant-owned business enterprises in many countries has revitalized research on impacts of ethnic issues on business in the last two decades (Logan, Zhang & Alba, 2002). In particular, recent studies have recognized the success of Chinese immigrants in Western nations such as Australia (Kee, 1994). For instance, taking in approximately 140,000 immigrants each year according to (ABS Migration Australia, 2008), Australia has a relatively large proportion of immigrants. In 2000, 24% of the population was foreign-born and thus Australia is considered an immigrant country (ABS Australian Social Trends, 2001). Chinese immigrants1 represent 4.9% of the entire immigrant population of Australia (ABS Australian Social Trends, 2001) and in 2005–06; China, Taiwan and Hong Kong were among the main sources of immigrants to Australia (ABS Australian Social Trends, 2007). The importance of Chinese business networks has only been recently recognised in Australia. Thus, Collins (2002: 8) suggests that, “the blending of Chinese values and Western practices … encourage flexibility, innovation and assimilation of outsiders.” The new framework proposed in this study is aimed at enhancing better understanding of how RBV has helped the Chinese immigrants become successful entrepreneurs in their host country. More specifically, it aims to find out how transaction cost reductions moderate the effects of distinct social capital resources on performance. Entrepreneurial activities of immigrant populations have become an important topic in the social sciences, as increasing number of new immigrants have taken up small business ownership (Osler, 1996). While a wealth of research on immigrant business can be easily found in various secondary sources such as already published literature, the performance of immigrant entrepreneurship has attracted only limited attention. Bates (1994) believes that this is partly because of lack of awareness among researchers about the widespread immigrant connectedness and their role with reference to entrepreneurship and partly due to the lack of an appropriate theoretical framework for studying it. The objective of this study therefore, is to develop a conceptual framework that integrates the resource-based view and transaction cost economics. The underlying assumption of the study and the basis of the research hypothesis is that transaction costs act as an intermediary between the social resources and performance as well. The rationale for using transaction costs as a part of this study is that significant transaction costs are typically incurred by organisations dealing with outside suppliers (Peng & York, 2001). In the case of immigrant entrepreneurs given their smaller business sizes, the biggest costs are related to dealing with suppliers. This study therefore will deal with supplier transaction costs for immigrant entrepreneur businesses. The study begins with a review of RBV and TCE then proposes a conceptual framework that identifies three types of social factors (personal/ethnic resources, strong/weak business ties and direct/indirect guanxi) that reduce transaction costs to five major types (search cost, negotiation cost, contract cost, monitoring cost and enforcement cost). The effect on immigrant business performance is also examined and this performance is considered from practical perspectives that apply to immigrant entrepreneurs. This study aims to develop a theoretical framework related to immigrant entrepreneurship focusing primarily on Chinese immigrant ethnic enclaves. It is intended to facilitate better understanding of the determinants that create and sustain positive immigrant business performances and to help government policy makers engage with the immigrant business community so as to enhance national economic development. Research Questions The main research question is: “How do the Social Resources of Chinese immigrant entrepreneurs impact on their business performance?” The above research question is further supported by other sub questions that integrate the Resource-based View and Transaction Costs: “How do Transaction costs mediate between social resources and business performance?” For evaluating the above, the study takes the social capital like personal/ethnic resources, strong/weak ties and direct/indirect guanxi relationships. The transaction costs like search cost, negotiation/contract cost and enforcement/monitoring costs will be used. Further, the research also aims at evaluating the relative importance of the different social resources in enhancing business performance. As such, a sub task for the research is: “To rank the ethnic, personal, strong business ties, weak business ties, direct and indirect guanxi in terms of their correlation with business performance.” Significance of study Given the large number of Chinese immigrants and ethnic enclaves in many cities around the world, understanding the determinants of immigrant business performance may help policy makers and enhance the effectiveness of regional economic promotion efforts. Methodology The research will make use of mainly qualitative methods though quantitative methods would also be employed so as to present a more rounded picture of the findings. Qualitative Research Method The qualitative research method would be mainly in the form of interviews where the researcher would ask the respondents to present their opinions on the relative contribution of social resources in lowering transaction costs as well as the overall impact on the business performance. Qualitative research will be conducted using structured interview method and interviewees selected for this study would be comprised of staff responsible for managing immigrant business organisations especially CEOs. The main advantage of these interviews is to solicit first hand information on the implications of social resources with regards to business performance. The qualitative research will therefore develop hypothesis, stating the mediating effects of transaction costs, and the aim of the research will be to prove the validity of the hypothesis. Selection Criteria and Rationale In this study approximately 30 people would be selected for interviews. This would be done in accordance to their countries of origin as shown below. Industry A would comprise of small firms and B would comprise of larger firms. Industry/Country China Hong Kong Taiwan Industry A 5 5 5 Industry B 5 5 5 The respondents would be selected using five selection criteria including the following- number of entrepreneurs/founders, their ethnicity, industry, duration of operation and firm size. The above criteria would ensure that the sample selected has all the firms that are comparable in terms of their size, duration of business, industry for instance. Quantitative Research Method Quantitative data will be collected through a face-to-face survey using a questionnaire. The face-to-face approach is proposed so as to increase the response rate of this study and thus enhance its significance. The questionnaire would be administered to three immigrant entrepreneur businesses (each from China, Hong Kong and Taiwan). The quantitative method will use stratified random sampling from a population of Chinese immigrant entrepreneur firms. A close-ended questionnaire will be used that will contain questions aimed at gauging the business performance, strength of business network ties, and direct and indirect guanxi relationships, and transaction costs (search, negotiation/contract and enforcement/monitoring) of the sample. The findings will be tabulated and used in the hierarchical analysis. Research Design The research design is exploratory in nature, as the research seeks to explore the mediating effect of transaction costs on business performance of Chinese immigrants. The exploratory research is found to be appropriate here as no previous framework exists showing the possible mechanism of transaction costs mediating between social resources and business performance. Sample unit The study will focus on immigrant Chinese entrepreneur businesses that operate in the Brisbane metropolitan area. The unit of analysis in this study is defined as Chinese immigrant entrepreneur firms that operate businesses in the Brisbane metropolitan area. A “Chinese immigrant business” is defined as an immigrant entrepreneur firm run by people from China, Hong Kong or Taiwan currently living in Australia. The “Brisbane metropolitan area” is taken as the area covering Brisbane city and its surrounding suburbs. Brisbane has been chosen because of its large Chinese immigrant population. Brisbane was also chosen for its convenient location for PhD research and the feasibility of a higher survey response rate. Sample Selection Method Qualitative data Collection: simple random sampling within the sample that is selected for quantitative research. Quantitative data collection: stratified random sampling. This will be done after an initial screening via telephone based on the criteria comprising the following features, (number of entrepreneurs/founders, their ethnicity, industry, duration of operation, firm size) has already been performed. Size Qualitative data Collection: approximately 15 immigrant Chinese firms. Quantitative data collection: approximately 600 immigrant Chinese firms. Data Collection Instruments Qualitative data Collection: Structured Interview with the CEOs of the selected firms. The interviews will be conducted with the researcher asking the respondents pre-determined questions, and noting down the detailed responses in a notebook. Quantitative data collection: A close-ended questionnaire will be used for the collection of quantitative data. Analysis Qualitative: The responses of the interviews would be presented as findings and these will be analysed and presented as a comprehensive discussion. Quantitative: Hierarchical linear regression will be used for this study; the purpose is to test for mediation. Transaction costs are the mediator and the resources are the independent variables. This method has been chosen for its appropriateness to the scope of this study and for its feasibility in testing the mediator, dependent and independent variables of this study. Limitations The framework proposed in this paper is limited in scope and focuses on Chinese immigrant entrepreneurs. Other immigrant entrepreneur communities may vary in the types of social capital resources available. In addition, a quantitative study cannot capture the richness, complexity and depth of value-based questions. Surveys rely almost exclusively on reports of behaviour rather than observations of behaviour. Survey research tends to be highly standardised, and is less adaptable than other research approaches in that it is difficult to change the course of the research after the study has begun. An important limitation of the study is also that the sales figures and the employee turnover data will be collected from the CEOs of the firms, not assessed from any written source. The reliability of the data as such is highly dependent on the answers given by the individual CEO’s and owing to the sensitive nature of the data, their answers could be biased. However, maximum effort would be made to make the respondents comfortable by promising absolute confidentiality of the responses. Though the research will employ a qualitative component by introducing the interview method, the responses thus obtained are not coded and are not amenable to technical analysis. A discussion will be presented that is expected to be objective and unbiased. Contributions of this Research This research contributes to the management literature in three ways. First, it contributes towards theory building for immigrant entrepreneurship, a topic rarely addressed by the current body of entrepreneurship literature. This study will develop a new integrated framework that applies the resource-based view (with a focus on social capital) and the transaction cost economics to the phenomenon of immigrant entrepreneurship. As the study takes account of both transaction cost reduction and value, the integrative approach is more balanced than TCE, RBV or social capital alone. Second, the empirical findings will help us better understand how immigrant entrepreneurial firms deploy social capital resources to gain access to comparative advantages and enhance business performance through reducing transaction costs. Finally, this research will evaluate the relative impact of the different types of social capital resources on performance of the Chinese immigrant business. 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