Inventario de Atractivos Turísticos

5.3.4.1 Identifying potential export partners

Gathering export information and acquiring export customers are challenging tasks for most SMEs (Moini 1997). Because of their small scale, export marketing resources can be proportionally limited, thus either limiting their exposure to potential markets or increasing their search costs relative to total revenue. In this dilemma, social capital can help reduce search costs by providing filtered and relevant information, including information about potential customers, potential markets, and how firms can access a potential market. It also helps increase perceived reliability and reputation for starting firms: “if a foreign customer is introduced to us by our existing contact then we will surely trust them more” (Participant # 12).

For sixteen existing exporters in the present research, there were only three firms (18.8%) reporting that their first export deals were secured from sources other than by reference from their existing relationships. In contrast, there were ten firms (62.5%) reporting that their first export contracts were signed with either direct or indirect support from references of pre-existing relationships. These relationships can be both personal and commercial. Personal relationships normally support firms by direct references; while for commercial relationships, social capital can create export opportunities in the form of trade fairs or export promotion activities:

“Social capital plays a very crucial role because when we started up, our capital was minimal; participation in overseas trade fairs organized by a trade promotion agency helped us improve our perceived reputation, professionalism and helped us in acquiring new customers.” (Participant #2)

Table 5.4 shows how participating SMEs have found their first export customer or secured their first export contract.

Table 5.4: How SMEs found their first overseas customer

Category Number of firms Percentage

By reference (direct / indirect) 10 62.5%

Not by reference 3 18.8%

Don’t have information 3 18.8%

Page 106 5.3.4.2 Identifying and evaluating potential suppliers

Management of supply chains is often vital for exporting firms worldwide, especially from the cost control perspective (Moini 1997). For the set of sampled SMEs in this research, regardless of whether they are manufacturers or traders, most of these SMEs rely on their own network of contacts to obtain information about potential suppliers and evaluation credibility of suppliers. Even in the case where potential suppliers are from well-known and easily identifiable traditional trade villages, such as the case of traditional handicraft and wood processing products, people still seek references from their contacts. Moreover, since a formal credit rating system has been neither readily available nor reliable17_{, evaluation of a potential supplier’s capability and credibility typically uses}

social networks, as mentioned by a participant: “good reference from a reliable contact can increase (our) credibility and confidence in a business partner from 50% to possibly 80-90%” (Participant #8).

5.3.4.3 Identifying and accessing finance resources

SMEs have many obstacles in reaching international markets. These constraints include lack of experience, know-how, management skills, time and information resources, and shortage of finance capital (Pinho 2011). For many firms from developing countries, shortage of finance capital appears to be one of the most critical limitations (Freeman, Edwards & Schroder 2006), as it blocks firms from investing to untie other constraints.

Nevertheless, evidence from the present research shows that social capital sometimes outweighs financial capital as a factor in success. Social capital not only supports firms in seizing their business opportunities and connecting with potential suppliers and customers, it also assists in identifying and accessing appropriate financial sources. For the case of SMEs, where their collateral assets are quite commonly insufficient to secure loans with formal financial institutions, and while venture capital activities are still very limited, firms’ networks of contacts can be used to identify suitable financial arrangements.

17 _{In Vietnam, domestic credit rating agencies (CRA) were established in the country for the first time} according Decree No. 88/2014/ND-CP, dated 26/09/2014, of the Government on credit rating services. Prior to this, the Credit Information Centre (‘CIC’), under the State Bank of Vietnam, was the sole state provider of credit ratings for enterprises; but the CIC’s database is not up to date: they collect information from voluntarily participating firms only. Banks and other credit institutions provide credit ratings and assessment for their own and internal lending purposes, rather than for external concerns.

Page 107 5.3.4.4 Reducing negotiating and contract costs

Research on social capital argues that it helps firms to strengthen their relationships with suppliers (Adler & Kwon 2002). In particular, in a changing or unpredictable economic and regulatory environment, firms prefer working with frequent partners and are hesitant to seek new ones (Heiman & Nickerson 2002; Sampson 2004; Gary & Spencer 2000; Yang, Ho & Chang 2010).

In the present research, one owner described how the firm had signed an export contract with a foreign partner only to find that their suppliers from a traditional trade village refused to participate, “because they only trade with familiar buyers” (Participant #16). Close ties such as these, then, are a competitive advantage only up to a point: their exclusive nature deflects competitors but can also inhibit agreements with suitable outsiders.

Overall, however, ongoing contacts create social relationships that range from casual friendships to long-term business alliances, contributing to significant reductions in transaction costs, as the need for negotiation and monitoring suppliers is reduced. All surveyed firms, regardless of sub-sector or size, stressed the need to maintain regular, cordial contact with regular suppliers, which gave them control over adequate and consistent quantities of input, prices and quality. In this sense, these SMEs inhabit an economic system that is self-regulating in lieu of regulation by government authorities. This regime, however, has its limitations: for example no mention is made of environmental protection or labour rights. Self-regulation, then, extends only so far as is required to grease the wheels of economic benefit, which it would seem to do quite successfully. Strong tie social capital, which offers “social cohesion and…exchange of finer-grained, high quality information and tacit knowledge” (Peng & Zhou 2005, p. 323), is more likely to be found among individuals interacting frequently and for extended periods of time (Yang, Ho & Chang 2010). These relationships provide an alternative to formal contracts, paradoxically lowering the risks of opportunism by providing a trust- based, social control mechanism (Granovetter 1985; Peng & Zhou 2005; Yang, Ho & Chang 2010). This general view is supported by interview data, for contract negotiation and monitoring procedures can be bypassed:

“I take a risk with the understanding that the bonding level I have with my contact is of great value, just as the deal itself is of great financial value. My contact would

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retain his reputation and ensure the partner he introduced to me would not cause any problem.” (Participant #13)

In addition, social capital reduces the transaction costs of raising finance through both formal (banks and other credit institutions) and informal (‘shop front’ and ‘off the record’ contacts) means. Interviewees reported that the latter is more common at the start- up phase of SMEs, when collateral assets might not satisfy requirements for formal bank loans. Informal credit is mostly derived from personal networks of contacts, again illustrating the importance of social capital in engendering – and relying on – trust for economic development. Strong ties are more likely in these transactions, in particular amongst extended family. Indeed, strong ties allow firms to avoid the black market altogether, offering better rates and more flexible collateral assets. This fits with arguments that, worldwide, because of the high level of bonding and trust between creditors and firms, procedures of due diligence and contract negotiation can be simplified, minimising costs of transaction, compliance, monitoring and enforcement (Manolova, Manev & Gyoshev 2014). Firms believed that the execution of contracts was actually more likely when dealing with personal networks based on familiarity and trust, where reputations stand or fall: “I have never been defrauded since I started my business” (Respondent # 16).

However, respondents reported that social capital works for access to formal credit as well, spreading information about good rates and conditions along the ‘grapevine’. The more people that can be accessed, the more options there are.