Social Capital Creation and Sustainable Relationship among Stakeholders in Construction Business - Dissertation Example

? Social Capital Creation and Sustainable Relationship among Stakeholder in Construction Business in Thailand Table of Contents Table of Contents 2 Chapter 2: Literature Review 3 2.1 Introduction 3 2.2 The Importance of Social Capital 4 2.3 The Importance of Stakeholder to Business 7 2.4 Business Relationship 8 2.4.1 International Business Relationship 9 2.4.2 Business Relationship in South East Asia 10 2.4.3 Business Relationship in Thailand 11 2.5 Definitions of Social Capital 12 2.6 Definitions of Stakeholder 14 2.7 Definitions of Relationship 16 2.8 Social Capital - Theories 18 References 21 Chapter 2: Literature Review 2.1 Introduction The literature review chapter has been constructed to provide insights to the related literatures available in the context of this research study. All the available studies that are related to this study are included in this section. Since one of the objectives of this study deals with formulation of social capital in the construction business carried on in different organisations located in Thailand, the existing literature related to the importance of social capital and the various kinds of benefits that can be derived from it has been discussed in this section. The other objective of this study is related to the creation of sustainable relationships in between the stakeholders of the organisations operating its business in the construction industrial sector of Thailand. Hence, the previous works related to the importance of such kind of stakeholder relationships in organisations can prove to be very much helpful in conducting the present research study. In addition to this, various kinds of business relationships that can be found in an organisation with special reference to cultural relationship traits found in Southeast Asian nations and Thailand will also be discussed here. This research study will try to build a model related to social capital possessed by companies operating in the construction industry of Thailand which can prove to be advantageous for the related companies in Thailand. Therefore, this literature review will give insights to some of the existing theories and models related to social capital. All these facts will help to attain the research objectives of this study utilizing the literature review as discussed in this section. 2.2 The Importance of Social Capital Many empirical studies have been conducted regarding the importance of social capital and have been mentioned in the existing literature by different authors. A wide range of socio-economic phenomenon related to the importance of social capital can be found in many of the existing literature presented by various authors (Durlauf, 2002, pp. 1-31; Krishna, 2001, pp 71-93). Research on social capital has resulted in various theoretical debates and different empirical investigations being conducted. This again has resulted in giving a stimulus towards reconsidering facts related to human relations, organisational forms for developmental performance and life quality, networks, etc. The importance of theory related to social capital is observable because of the application of the concept of social capital in various fields and its widespread interest amongst different organisations and its stakeholders. The existing studies and literature gives way to ample evidences regarding the political, social and economic implications of social capital. However, according to Halpern et al. (2002), there are ambiguities or misspecifications related to the models or equations that have been utilized to measure the impacts of social capital. Thus, the social and economic outcomes that arise based on the empirical evidence related to the importance and significance of social capital need to be dealt with caution. Without having a rigorous method formulated for the purpose of measuring the importance of social culture, it is not clear as to how those benefits associated with social capital can be tested or ascertained (Halpern, 2001, pp. 236-251). However, it can be found as a surprising fact that the validity related to the said benefits associated with social capital is not opposed or argued by only a few authors in the literature available. It is so even in the midst of all the uncertainties associated with the measurement of social capital as mentioned above. This can be attributed towards two main factors. One is the appeal of the concept related to social capital that is found to be intrinsic in nature. The other factor is the misguided faith and belief in the measurement techniques of social capital. Most of the benefits that have been described in the research studies and the existing literature suggest that they have not been tested empirically and have come into existence because of the theoretical extrapolation taking other concepts as the basis. Social capital is important because of its ability to bring together many of the concepts related to sociological factors like social support, social cohesion, and integration. Rothstein (2003) supports this view point and suggests that the theory related to social capital is important because of its ability to combine the causal mechanisms at micro level with the historical sociological structures at the macro level and this phenomenon is rarely found in social sciences. Social capital is found to be important in the functioning of world economies in this modern era in a more efficient way. Social capital is also beneficial in cases of the establishing stable liberal democracy. It forms an important basis for the creation of cooperation across different sectors. Social capital is found to be important in giving way to regional development. It is social capital which gives rise to various other cultural dimensions like satisfaction, optimism, perceptions regarding various government institutions, involvement politically, etc. Various potential benefits that can be identified associated with social capital includes provision of higher growth levels related to Gross Domestic Product (GDP), facilitation of the functioning of labour markets in a more efficient way, minimizing the crime levels, and increasing the effectiveness of government institutions. Social capital is also found to be an important variable in the fields of attainment of education, public health, economic problems, and community governance and even in production activities carried on by different organisations. Social capital is observed to have its impact on the business and economic performance at the national levels. Social capital is important in the areas of problem solving as well (Sirianni, and Friedland, 1997). According to Guiso, Sapienza, and Zingales (2001), social capital is found to have its impact in the financial development of an organisation as well. Financing can be defined as a process of exchange of money at some time in lieu of a promise or obligation to return that money on a future date along with additional returns associated with it. Now whether such type of exchange will occur or not is subject to various factors including the trust level of the financiers. Hence financial contracts are known to be contracts which are trust intensive in nature and higher trust levels helps in improving the effectiveness and efficiency of financial contracts. This type of trust is again dependent on the level of social capital in an economy (Guiso, Sapienza, and Zingales, 2001, p. 6). In accordance with McGrath and Sparks (2005), Social Capital Interest Group (SCIG) is found to provide a formal definition of social capital and the findings of the SCIG on the research on social capital suggest various inter-organisational benefits associated with it. They can be summed up as follows: Social capital is found to have an impact on the level and terms associated with trade activities carried on in organisations. Friends and family are observed to trade more than the strangers. The external consequences related to the actions taken by one person become importance as a result of social capital. Social capital has its impact on the wide range of services and goods offered by an organisation. Social capital of an organisation gives way to its access of various legal services, public services, housing support, educational services, welfare benefits and employment opportunities. The costs related to entering into an obligation associated with some contractual agreements of an organisation are affected by social capital. The costs associated with the enforcement of a contract agreement are reduced as a result of increased social capital possessed by an organisation (McGrath, and Sparks, 2005, p. 47). 2.3 The Importance of Stakeholder to Business The relationships that exist between the stakeholders and the companies have been studied and present in many of the past literature. The stakeholders' importance has been of prime importance for the organisations recently more because of the different instances related to corporate governance failures in some of the reputed organisations like Enron, WorldCom, Tyco, etc. Greater stress and importance on the stockholders of a company and negligence in the part of other stakeholders of a company have been observed mostly in the cases of these organisational failures. Giving importance to the important stakeholders of a company has been the subject matter of majority of the literature related to strategic management (Alexander, n.d.). The stakeholders of any organisations are identified as those individuals or entities that have an impact on the organisations and vice versa. The stakeholders are of prime importance to any organisation to help them continue their business in future and have a sustainable growth and development in its business activities in the process. Apart from the shareholders of a company who has a share in the ownership of the organisation the other stakeholders are identified as its employees, investors, customers, suppliers, governments, and the community as a whole. All of them are found to have a significant impact on the decision making process in the organisations. The employees of the organisation have the responsibility to carry out business activities performed by the organisations in an effective and efficient way so as to lead to the profitability of the company. Hence, employees in the form of a company are ought to have a significant role in the well being of the company. Stakeholders in the form of investors of a company are important to an organisation because they provide them with valuable resources in the form of investments in the company which are utilized by the company to carry on their business activities and further improve upon their performances that in turn results in generation of higher revenues and profits by the business concern. Shareholders, who are one of the primary stakeholders of a company form an integral part of the company and have their shares in the ownership of the company. The shareholders thus take part in the decision making process of the companies by exercising their voting rights in the organisations. Customers are also of prime importance to the business organisations because the decisions taken by a company regarding the price, quality etc. of the services and products offered by them have a significant impact on the buying behaviours of the customers or the consumers of the organisations. The stakeholders of a company in the form of suppliers have their importance in supplying goods to the companies. The suppliers look for regular orders from the companies and a timely payment for such products. Hence, they are important to the organisation to help them carry on with their production activities in a prospective way. The communities are also found to be of great importance to the business organisations and are affected greatly through the decisions taken by the companies. 2.4 Business Relationship Different nations of the world have different beliefs, values and philosophies. Hence, for doing business successfully in different parts of the world, an organisation needs to identify the cultural traits of the regions and establish a good business relationship with all the concerned stakeholders of the company. In accordance with Zineldin (2007), there has been a significant importance of the changing business environment worldwide. The changes in business environment are mainly contributed towards the changing business relationships. Hence, various literatures have been provided by many authors related to international business relationships worldwide. There has been an increased research on the study of business relationships of emerging Southeast Asian nations like Thailand. 2.4.1 International Business Relationship A wide range of literature is present related to business relationships in the form of relationship marketing. It covers various fields like, business-to-business (B2B) marketing, strategic alliances, and distribution channels. With the increasing levels of globalisation in various business processes and the greater volume of internationalisation activities followed by different business firms, businesses are getting involved in different types of international relationships (Cavusgil, 1998). As a result of these facts, there has been a greater need for the knowledge and understanding of various kinds of business relationships that come up in an organisation while performing its business activities in various parts of the world, across different nations having different cultural relationships. Exporter-importer relationships are one such kind of business relationships found to be given importance by various international organisations. Organisations get benefited on various fronts as a result of the establishment of a successful business relationship with its foreign counterparts. As a result of the successful development in international business relationships, organisations are found to have increased operational efficiencies, reduced amount of political or commercial risks for the companies, and increased ability of firms to enter into foreign markets. In addition to this because the organisations are also found to be benefited from various opportunities like exploitation of the differential advantages possessed by its partners, opportunity to speed up the process of offering its products in the international markets, etc., it helps the companies in establishing of relationships with its international suppliers, distributers and intermediaries in the business process. Hence, an organisation is ought to get benefited through increased performance levels in the international markets because of the development and establishment of successful international business relationships (Ahmed, 2010, p. 46). According to Cavusgil (1998), most of the companies have realised the need of partnering and forming a relationship with different other international business organisations in order to compete successfully in the market. However, it has also been found that managing these inter-firm business relationships are a cause of concern for the business entities as well. While formulating strategies regarding establishment of international business relationships, the study of cultural characteristics of a particular country is also very important (International Business Publications, USA, 2007, pp. 222-223). 2.4.2 Business Relationship in South East Asia The Chinese culture mainly forms the basis and lays down foundations regarding the study of business relationships as found in Southeast Asia. The business relationships that are found to occur in Southeast Asia are mostly found to have characteristics like harmony, requing, xinyong and guanxi. These cultural characteristics are complex in nature, inter-related and are predominate in Southeast Asian nations (Wang, 2007). Relational harmony is found to be a predominant cultural trait in case of people living in Thailand. It is maintained by the Thai people through the behavioural rules which are characterised of being normative in nature and the position of individual's network forms its basis. Requing on the other hand can be defined as a cultural trait which results from exchange of favours and normative rules form its basis. Out of all these cultural characteristics, most of the existing literature focuses more on guanxi culture and has been considered critical so as to have an access to social capital. 2.4.2.1 Guanxi Relationships Requing forms the basis upon which guanxi culture is built. These types of relationships are found to be formed by individual persons from their business and personal networks. The individuals are then found to make use of guanxi to develop trust, obtain favours and have an access to resources. Hence, guanxi is very much related to social capital from the perspectives of the structural characteristics and the benefits that are obtained through it. However, guanxi differs from social capital in the way these types of relationships are developed using different bases. The guanxi relationships could be developed from bases which are characterised of being obtuse and extremely indirect in nature. Examples of such bases are developing from a particular regional district, people coming from the alumni of a particular university, etc. At present, the literature related to social capital found in western countries; focus mainly on direct relationships, like family and friends. Two other differences between guanxi and social capital concept as found in western nations are observable. They are: a) Guanxi is used deliberately as a part of the strategic plan to help in the improvement of one's network position, and b) The aspects related to insider or outsider in the context of guanxi networks. In case of guanxi culture, the inner guanxi circle is used predominantly (Theingi, Purchase, and Phungphol, 2008, p. 524). 2.4.3 Business Relationship in Thailand In the recent years, the development of Thailand socially and its economic development is relying on investment and international trade. Prior to the Global Financial Crisis (GFC), Thailand was considered to be one of the fastest growing nations in Asia from economical perspective (Wedel, and Rondinelli, 2001, p. 798). A lot of multinational companies are involved in business activities in Thailand. Hence, the business relationships found in Thailand have been one of the major areas of study by many of the researchers. The business relationships observed in Thailand are not characterised of being as formal as some of the nations of the world like Japan, Korea, China, etc. However, the business relationship characteristics of Thailand are not characterised of being that impersonal and relaxed as found in the Western nations as well. The personal relationships that are developed within family circles, friends, office colleagues and the societies as a whole can be considered the foundation stones for the business relationships that are observable in Thailand. Different cultural traits that are found amongst the Thai people also play a significant role in the business relationships found in Thailand. Some of those cultural characteristics of Thai people include having patience and having respect for status. Thailand's culture is characterised of giving significant importance for respect given to elderly people and superiors. Thais do not hurt others easily to others. Thailand's culture is found to be group-oriented. The Thai people give importance to their groups as a whole rather than being individualistic in nature. The Thai people are also found to develop strong personal relationships or bond before closing a business deal with other party. The business relationships that are found in the country exist significantly between the people and not between the organisations. "Saving Face" is a common characteristic found amongst Thai people. In the business culture that can be found in Thailand, people respect others based on their age and status. 2.5 Definitions of Social Capital The term "Social Capital" was first coined in the field of sociology where it is referred to as the opportunities and advantages that get accrued to people with the help of memberships in some of the communities (Bourdieu, 1985, p. 248). According to Coleman (1990), social capital has been described as a resource available to individuals that emerge out of social ties. Hence, the source of this type of capital lies in the people with whom a particular person is related to. However, the question is why some people will be interested to provide others with resources without receiving any type of explicit compensation involved in it. Two primary motivations have been identified by the sociologists regarding this issue. First of all people might resort to such practices because of their feelings that it is one of their obligations to perform such activities. Secondly, there might be some instrumental reasons behind their willingness to make the resources available to others. In such cases, the individual's behaviour is affected through social capital (Portes, 1998, p. 7). Schneider (2004) defines social capital as the social relationships, reciprocal patterns and trusts that are enforceable which enable institutions and people to have an access to various resources like jobs, social services, and government contracts. Social capital is considered the structural aspect related to communities by Schneider which is supposed to be relying on networks of people that are network specific utilised for the purpose of achieving their goals and objectives (Schneider, 2004, p. 8). Any kind of connection is meant as social capital if it is found to include three basic elements. They are: a) Networks, b) Trust associated with that specific network, and c) Network providing an access to the available resources. On the other hand functional social capital composed of two ingredients. They are: a) Relationships with the organisations or people who are having the access to various resources that are trust based, and b) the knowledge and understanding of culture based capital cues which help in providing the indication that an organisation or an individual belongs to a group and must be given the opportunity to have an access to the relationships. This definition of social capital helps to provide a linkage between community culture and social capital. In the recent years, political scientists like Fukuyama (1995) and Putnam (1993) are found to have adapted the social capital concept in a different way. According to their analyses, social capital is not believed to be a property of smaller groups but larger groups and even countries. 2.6 Definitions of Stakeholder Since the concept of stakeholder has been booming in the recent years, many literature have come up which defines the stakeholder concept. As a result of this lot of definitions regarding stakeholder has developed as mentioned on those literature. One narrow and one broad interpretation about the term and concept of stakeholder were given by Freeman and Reed (1983). The wider interpretation of stakeholder defines it as an individual or an identifiable group who have an impact on the organisational achievements related to its set goals and objectives or in other words who are affected by the organisation's achievement of its goals and objectives. In a narrower perspective, stakeholder has been defined by them as an individual or an identifiable group on which the companies depend and relied upon for its sustainable growth and development. Hence, an organisation and its stakeholders are found to have a bilateral relationship amongst each other. Hill and Jones (1992) are found to give another definition of stakeholders. According to them stakeholders are defined as the constituent groups who are found to have certain claims on the business concern that are characterised of being legitimate in nature. The claim of the stakeholders of a company has been justified by them as stakeholders being the provider or suppliers of critical resources to the business firms. Again according to Clarkson (1995), stakeholders are grouped separately as being primary and secondary stakeholders. The shareholders, employees, investors, suppliers, governments, communities and the customers of a company are termed to be as primary stakeholders by them. Secondary stakeholders on the other hand are those who have an impact on the organisation or are affected by the organisation but they are not involved in any kind of transactions with the company and do not form an essential constituent needed for the purpose of the survival of the organisation. Media is one such example of being the secondary stakeholder of a company. Clarkson (1995) also suggested that stakeholders contain three factors fundamentally. They are: a) The organisation, b) Other types of actors, and c) Company-actor relationships and its characteristics. In order to differentiate the types of stakeholders associated with a company, they can be considered to be composed of certain different groups of people whose relationships with the company can be classified differently. Thus, the main groups of stakeholders of an organisation are: a) Employees, b) Customers, c) Distributors and suppliers, d) Local communities, and e) Shareholders of the company. These were the groups of people who were classified as stakeholders in the literature of Friedman (2006). In addition to this, different other groups were also identified by him who can be considered as stakeholders of a company. They are listed as given below: The general public The media Past generations Future generations Business partners Competitors Academics Representatives of stakeholders of a company like the trade unions that we find in an organisation Activists or NGOs The financiers of a company, other than the shareholders like creditors, bondholders, etc. Regulators, governments, and policymakers 2.7 Definitions of Relationship There are ample literatures available based on the studies related to relationships and especially business relationships. Most of the research shows that even after following the best known business practices by an organisation and offering the best products or services to its consumers, the company still needs to have strong relationships in place in order to be successful in the market place. Hence, relationships prove to be a major component for the successful running of a business. Relationships exist between all the stakeholders of a company like the relationship of the organisation with its customers, suppliers, employees, other business organisations, governments etc. All the stakeholders of a company are found to have an impact on the performance of a particular company and hence the organisation needs to have a good long term relationship with its stakeholders to help increase its sustainability in performing its business activities successfully. Relationships exist in between the stakeholders of a company as well. Business-to-Business relationships have been studied by many of the researchers and have expressed their viewpoints in different existing literatures. Relationship quality is found to have been given significant importance. Crosby, Evans, and Cowles (1990) are found to have defined relationship quality as a situation which enables customers to trust upon the integrity of a salesperson and have confidence in the salesperson that he will live up to the good performance in future. As regards business purchasing, Smith (1988) gives another definition regarding relationship quality which explains relationship quality as the measurement of the relationship strength and level of extent up to which it is able to meet the expectations and needs of the parties based on past history related to the occurrence of such events. Similarly, various kinds of relationships are found to occur amongst the stakeholders of a company. They can be summarised as given below: Relationship between the stakeholders and the organisation The type of position held by the stakeholder in relation to the company Company’s dependence on the stakeholders of the company The wielding power of the stakeholder and vice versa Stakeholders and company being mutually dependent upon each other Contractual relationships existing between the stakeholders and the company The stakeholders exercising their rights that they have over the company Interest of stakeholders in the company 2.8 Social Capital - Theories Various types of theoretical concepts have been presented by many of the researchers regarding social capital. Some of the research studies by different researchers suggest that social capital is a resource which comprises of three dimensions. They are: a) Structural dimensions, b) Relational dimensions, and c) Cognitive dimensions (Yli-Renko, Autio, and Sapienza, 2001). Each of these dimensions is supposed to measure different kinds of resources bases which can provide various types of benefits. However, these three kinds of dimensions do not correspond to all the important aspects of social capital as mentioned in many other descriptions provided by different authors in their research studies. Adler and Kwon (2002) are found to have proposed a conceptual theoretical framework related to social capital. They have tried to differentiate between the three aspects of social capital, namely the substance, its sources, and its impacts. According to them, social capital is defined as a kind of goodwill possessed by some individuals or groups of people. The source of such goodwill is believed to lie in the content and structure of the social relationships possessed by those individuals or groups. Furthermore, the flow of the effects of social capital takes place through information, impact and solidarity that it makes available for the business organisations. Hence, this theoretical framework of social capital needs proper identification of the sources of social capital. Social relationships of individuals and groups can be regarded as one of the primary source of social capital. Apart from this, market relationships and the hierarchical relationships, which can be considered as the different dimensions of social structure also lead to the generation of social capital. Hence, the sources of social capital can be found in the social structure within which an individual or group of individuals are present. Next, after identification of the sources of social capital, are the types of bonding or relationships that exist between individuals that lead to the development of social capital and the corresponding impacts of such relationships. The effects of such relationships can be found to result in the development of some useful resources like opportunities, motivations and increased ability of such individuals or groups. These three traits are found to be necessary for the activation of social capital in this kind of theoretical framework as proposed by Alder and Kwon (2002). Opportunities for transactions related to social capital are found to result from the social network possessed by an individual or group. Many of the researchers are found to have presented their views regarding social networks between the stakeholders of a company being the source of social capital for the company. However social network is a broad concept and it needs to be narrowed down depending upon the quality of the constituent relationships and the type of relationships posed by the individuals. Motivation is another key factor related to the development of social capital for an organisation. Social capital sources are not limited to the social networks of individuals only. Social capital is found to get activated because of the rules, and trust present within the networks as well. Hence the motivational factors leading to the development of social capital are also needed to be considered as an important factor. Another important factor which leads to the activation of social capital is a person’s ability. Ability refers to the competencies and the resources available at the network nodes. It has not been that well defined in the existing literature about social capital theory. These abilities which are available at the network nodes are found to have been described in different literatures as either acting as a complement to the social capital or as a constituent of the social capital. Now in order to convert social capital from a concept to reality which could be utilized by the business firms for their improvement in performance, these abilities are needed to be given significant importance for the development of its social capital. Thus, the social capital theories can be utilised by different business firms to increase its sustainability and perform better to generate higher revenues and profits for the organisation. References Adler, P. S., and Kwon, S. W., 2002. Social Capital: Prospects for a New Concept. The Academy of Management Review, 27(1), pp. 17-40. Ahmed, F., 2010. The Role of Interpersonal and Firm Factors in International Business Relationships. Asian Academy of Management Journal, 15(1). [Pdf] Available at: [Accessed 17 August 2012]. Alexander, C. S., No Date. How Important are Stakeholder Relationships? [Pdf] Available at: Read More