This research study intends to analyze the degree to which businesses rely on social capital as a support network to achieve and maintain business competitiveness and success, then evaluate if such degree of reliance is in response to a weak institutional environment, or if it can be attributed to other potential sources such as local culture, geographical factors, history or natural endowments. I will focus on the different types of social capital that are developed and available to be utilized as part of the management process to improve business performance.
The research will concentrate on a sample of new ventures and small and medium-sized businesses located in the northwestern state of Baja California, Mexico. In sharing a border with California, this specific location provides vivid examples and contrasts about how business is conducted in an economy with inclusive institutions (Robinson, Acemoglu, 2012) that provide incentives to business development (United States). This is compared to an economy where there are many instances and examples of extractive institutions, where the benefits of a successful business may be lost or drained by corruption, incompetence or crime (Mexico). This work will focus on businesses of a smaller size which are susceptible to greater degree from the impact of the external business environment since they usually lack the necessary size and resources which are available to larger companies and which they can bring to bear to protect or guide them through the uncertainty which is usually a result of a weak institutional environment. I’m excluding those businesses that exist on the fringes of the law while in the process of determining the sample type. These businesses work outside the law as unregistered operations of the informal economy and therefore not subject to government business regulations, taxation and constraints. These include hundreds of mom-and-pop shops and family businesses outside the formal legal environment, with no intention of formalizing their activities. Since they don’t experience the decision-making process of choosing between either the formal institutional route or the social capital alternative, they must rely solely on their wits, or by the use of bribes which are common in Mexico’s business environment (1).
One of the objectives of this research is to determine the reliance of managers and founders on formal business procedures as compared to the use of social capital networks. The research will provide insight into managers’ attitudes regarding resource allocation strategies in response to the changing business environment which, given the weakness of Mexico’s formal institutions, creates additional challenges for businesses that are considered part of the standard business operating environment. There is research (Welter, Smallbone, 2011) that analyzed the level of entrepreneurship behavior embeddedness where in the case of Mexico there are forms of adaptation to deal with administrative bureaucracy. The research will also focus on the decision-making process, specifically when considering whether to invest additional resources into social capital to develop stronger business and community ties, or in improving the overall business competitiveness of their operations since social capital appears to be most effective in weak environments; therefore, this option might present a more profitable alternative.
This research will also provide information regarding internal policies and management practices used by small and medium-sized businesses. This may generate guidelines for improved future management performance and challenge the community to demand from their regulating entities the development of more efficient and transparent regulations, and to insist on their proper enforcement from the appropriate government agencies. I argue that this should result in improved institutional development which can serve as a basis for future business and economic
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