Relational Capital as an Essential Asset of Entrepreneurial Firms - Research Paper Example

The Roles of Relational Capital for Entrepreneurial Firms Introduction From the three main components of intellectual capital, relational capital is the most significant. In addition, it is the value inherent in a company’s relationships with its vendors, customers, among other essential constituencies (Hayton, 2003). There are main theoretical distinctions involving economists from the industrial and regional sectors in their scrutiny on relational capital. Many research studies have been conducted applying econometric, quantitative and empirical modus operandi in the attempt of verifying the relational capital existence and its significance to the novelty activity in organizations. Substitutes are found to correspond to the channels through which facts build up at the local stage; therefore, it is not direct to relational capital (Chung & Gibbons, 1997). This paper will, therefore, analyze the roles of relational capital for entrepreneurial firms. The definition of relational capital can be suggested as all relationships (power relationships, market relationships and cooperation) that have been recognized by people, institutions and firms, which austere from a strong sense of belonging and an extremely developed aptitude of collaboration characteristic of culturally analogous institutions and people. Compared to the past, the business environment of the present time is one that the significance of the change is much higher (Wu, 2008). Improved globalization that has mostly been stimulated by the utilization of corporate and personal technology signifies that there is an open field for competition for small businesses with as much effortlessness, in most cases, like their counterparts from bigger companies. Entrepreneurial firms are now engaging in business competitions and are doing well in them, and as they do that, their counterparts in larger firms are provided with examples of how they are supposed to conduct business if being agile is important to them (Davidsson & Honig, 2003). Since ingenuity, novelty and value creation are the essential aspects for success in today’s swiftly changing and unstable environments, several firms are borrowing ideas from entrepreneurial firms, and as a result, enabling the field to evolve (Ireland, Hitt & Sirmon, 2003). Given that entrepreneurship is regarded as the recognition, utilization and evaluation of opportunities that have not yet been exploited in the external environment, which both bigger and small firms, consider as an ambition, over the years or field of entrepreneurship has moved beyond basically studying small organizations (Javalgi, Radulovich & Scherer, 2012). A number of fields of research, for instance, have built up that expand traditional entrepreneurship keen on areas like corporate intrapreneurship or entrepreneurship, and more newly mutual entrepreneurship. Researches in mutual entrepreneurship anticipate that firms will soon go in for more mutual relationships throughout a global network of firms, pushing for a strategy of nonstop innovation. They dispute that medium and small organizations will act in a more mutual manner for the reason that they do not possess the resources for engaging in endless innovation by themselves and will view the mutual network as an essential means of conducting business (Anderson & Jack, 2002). Nevertheless, arguments have emerged that there is another reason that has played a key role for small firms to build mutual entrepreneurship. Drawing on a body of literature that puts much emphasis on the essence of human capital in portraying lasting success, combining ideas of mutual research with a growing body of work on human capital or human resource management in small and medium entrepreneurs is important (Crook, et al., 2011). Work from the resource-based analysis of the firm puts forward that capital is only one of its kind, incomparable resource that can propel lasting spirited benefit. Nonetheless, it is essential to merge this research with the mutual entrepreneurship work, that is not the human capital that is most essential to achievement for the reason that it is not the human, by itself, that is the bona fide asset although the relationships those humans have been the mist unique and significant capital. From the definition itself, comes an expanded view of the “human” in human capital, where the members of staff are not only the area under discussion but also other humans that are not employees. Consequently, success lies to those organizations that can exceed human capital and come up with a relational capital of high value, for the most part, as the rate of change goes up in business. The small and medium entrepreneurs are hypothesized as the group of firms that are most ready to make the most of relational capital (Markman & Gartner, 2002). Theoretical Framework Early work on the resource-based observation of the firm accredited that entrepreneurship is an intricate part of a framework that is resource based, and there have already been pieces of work that have made the connection between entrepreneurship and theory that is resource based (Hitt et al., 2001). Theory that is resource based affirms that a sustainable competitive benefit of an organization stems from resources that are of value, non-substitutable, rare and inimitable, and for that reason, managers are supposed to come up with and utilize the resources of the organization that have these characteristics, human or physical organizational resources. All the entrepreneurship work and resource-based theory are interrelated in numerous ways. For instance, heterogeneity is an ordinary characteristic of the fields of study mutually (Arregle, et al., 2007). At the same time as the resource-based view has tended to put much emphasis on the heterogeneity of resources, the entrepreneurship body of research asserts that entrepreneurial opportunities, primarily exist because different agents have unique beliefs regarding the relative value of resources when a conversion is done to them into inputs from outputs. To be exact, it gives much attention to heterogeneity in beliefs with reference the value of resources. All the same, both theories have no actual divergence if it is acknowledged that the own deliberations on the resources value are resources themselves so that the inconsistencies talked about before are just apparent (Borgatti & Foster, 2003). In addition, where the research body of entrepreneurship asserts that, those who are in a position of recognizing the existence of entrepreneurial opportunities, are the entrepreneurs themselves, and they are expected to determine and utilize them. The entrepreneurs are human resources as well, therefore, realizing their relational capital is also a major aspect of both theories. According to Liao & Welsch (2005), relational view model suggests that the chances that an organization has in the creation of a competitive benefit rely not only on its resources but on its relational assets as well, to be precise, the relationship it has with the other essential firms. Subsequently to the resource-based language, relationships on inter-firms can as well be distinctive and can, therefore, be a source of competitive benefit and relational rents. Moreover, there is a likeliness of path dependence on relational capital and organizations are restricted by the limitations of their set of connections, in the logic that there might be a possibility of them taking advantage of some opportunities because the provision of accessing the appropriate resources has been made impossible by their relationships (De Carolis & Saparito, 2006). For that matter, opportunity costs are as well formed by social capital boundaries. It is conventional that there exists a noteworthy positive relationship of assets intangible in regards to a performance by a business, and along with them, the most valuable is the human capital (Davidsson & Honig, 2003). Although, human capital is not only the knowledge, backgrounds, education, abilities or education in human beings. The kind of relationship that the employees form in the name of the firm, and in general, social capital, is way more of significance. Researchers talk about taking entrepreneurship into account from a point of view that is classically resource based, by asserting that organizations do place more significance on the sources of capital that are oriented as human relations, particularly, relational capital will perform better than their peers (Macpherson & Holt, 2007). The literature on the set of connections takes this topic in hand; from studies that express the usefulness of a social network for sustaining new businesses, those that examine how an efficient set of connections can be sustained for a long period. Without a doubt for the reason that the set of connections may be a way of facilitating the pursuit of opportunities, be creating the capacity of obtaining access to resources widely dispersed through the firm, without the call for installing a rigorous previous procedure of appropriations, the consideration of this literature can be regarded as relevant to cooperate entrepreneurship. Thus, Stam & Elfring (2008) have made a suggestion that will make easier the progress of informal external and internal set of connections to come into view. This will consent to the steady distribution and sharing of resources, thus showing an advanced level of entrepreneurial performance. In collaborative entrepreneurship along the history of defining the field of entrepreneurship, the concept has experienced a substantial evolution (Pena, 2002). At this moment, several researchers have refrained from off-putting the entrepreneurship study just as the starting up of new companies and prefer to define it as the social scholarly of how, by whom, and with what effects opportunities in the coming up with revealing, assessing, and utilizing goods and services of the days to come. In addition, there is no self-limit to the research of internal undertaking in this field of study, but to the capability of corporations to act entrepreneurially as well (De Clercq & Sapienza, 2006). Consequently, entrepreneurship research is much more emphasized in three main fields: sources of opportunities study; the processes of discovery, assessment and utilization of opportunities; and the set of individuals who determine, assess and utilize them. Much emphasis can be directed to the final one, that is to say, the ability of an organization to form a mutual behavior through strong relations, administering and negotiating interfirm linkages accordingly (Dyer & Singh, 1998). To uphold competition and make the most of new entrepreneurial opportunities, entrepreneurs habitually require resources that they do not have currently. This requirement sets off the entrepreneurs to create casual and official relationships with other organizations mutually, to be precise; they are prompted towards collaboration and negotiation. The representation of collaboration can be done as a pecking order (Hormiga, Batista‐Canino & Sánchez‐Medina, 2011). Collaborative capability can be considered to be at its lowest level when the productivity of the resulting set of connection is plainly the collective of individual partners, in other words, collected work. Subsequently, collaboration moves frontward to harmonized work and lastly to connected mutual work, where the performance of any other partner assists the entire set of connection and increases performance on the whole. In contrast, collaborations within a firm can range from tactical coalitions, joint ventures, and networks, to associations within stakeholders under much fewer ways that are institutionalized. With the intention of mitigating why firms have a tendency of working together, Blatt (2009) points out two extensive classes of clarifications. Motives coming from the resource based point of view, incentives of the reflecting organizations or incentives to work in partnership, assert that organizations come up with associations that will get hold of access to assets that are required, gain knowledge of new skills, deal with their reliance upon other organizations, or uphold equality with competitors. A succeeding set of clarifications of forming a set of connection behavior petitions to the opportunities that a company has to act as a team, provided by its position in the preceding set of connection structure, therefore, advocates that the patterns of scrutinized negotiation and collaboration along with institutions imitate the preceding patterns of rapports within a firm (Sambasivan, et al., 2011). So sustaining the reliance path vision of group effort recommended by the resource based scrutiny. Moving a step further in the issue of path dependence, thus going once more into the resource-based view, it is not practical for every company to neither engage in negotiations nor collaborate productively (Gimeno et al., 1997). Even though collaborations within a firm can advance the effectiveness of a partner, the difficulties, and challenges that are faced by associates are unsafe and can result to a letdown. As proposed before, the structure of the present collaboration network within a firm pressures the path of potential linkage structure. If a company has a practice of linkages within a firm, it stands to gain exciting knowledge in administering them. Companies gain knowledge of how they can deal with others, and those that have gained more experience in collaboration have a better chance of engaging in better negotiations (Zahra, 2010). When negotiations take place within parties, they swap information that will be used as a supplementary in the development of strategies for further negotiations. In addition, the regular routines of a company can entrench the indispensable knowledge to bring together the associations and the undertaking of collaboration management can be institutionalized. Firms can fall back on logical assistance that pays heed to how these matters are formed and defined by the parties (Garcia-Morales, Llorens-Montes & Verdú-Jover, 2006). Tools like methods of structuring problems, a family of model-based approaches to group decision and negotiation support can endow with a balanced awareness to the process and the gist of inter-organizational collaboration mutually. Finally, when an organization has an extensive familiarity with linkages, it puts up with less doubt with reference to the course of action and decreases the inertial obstacles to collaboration (Manev, Gyoshev & Manolova, 2005). As a result, collaborative entrepreneurship is a fairly new field of research that is prosperous for the reason that it is considered as a process by which small and medium enterprises can convert designs into profitable business opportunities. Given that collaboration is a consequence of common interaction, relational capital is the main reserve for those firms that engage in collaboration. Conclusions and Limitations This research could be summed up in the notion that relational capital is an essential asset that entrepreneurial firms need and that companies that perform tremendously are those that are competent in conferring with other companies and come up with mutual agreements, thus placing an eminent value in the relational capital. This study has a number of limitations in the provision of it being a descriptive part of a research program taken as a whole. The purpose was to take tap into the minds of the senior executives provided that this type of group is habitually not easy to contact (De Clercq, Dimov & Thongpapanl, 2013). The possible primary conclusions that can be drawn are that the relationships wondered concerning, are holding in the expected directions. Also, the results provide room for coming up with improved measures that can be useful in some studies that can be essential in follow-up situations. 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