Review on social capital
There are a number of definitions for social capital. Nahapiet & Ghoshal (1998) defined social capital as assets that may be mobilized through a network. According to Robbins & Pettinicchio (2012), social capital is defined as the objective associations of a particular type among individuals that foster collective action. Barker (1990) viewed social capital as a resource that actors have derived from a specific social structure and then use to pursue their interests. Pennar (1997) defined social capital as a web of social relationships that influence individual behaviour and thereby affect economic growth. Porte (1998) saw social capital as the ability of actors to secure benefits by virtue of their membership in a social network or other types of social structures. In this study, we have defined social capital as a resource that actors in the shipping industry derive from the shipping related network to enhance economic performance of a region.
The concept of social capital has been popularly used in a variety of research to answer a range of questions. Social capital is useful for explaining a number of situations that range from the level of the firm to the national level. The breadth of the concept of social capital demonstrates that social ties of one kind (e.g., shipping and transport operations in a region) can be used for different purposes (e.g., influence location decision at the firm level and enhance economic performance at the national level). Adler & Kwon (2002) used the “validity challenge” to conceptualize a framework that integrates various streams of social capital research, which stimulated dialogue across various perspectives and defined social capital as “the goodwill available to groups or individuals”. Social capital stems from the social structure where actors are located, and available to them by virtue of ties that have been already established. The key features of TCEs include the presence of: (1) clusters of linked industries, and (2) a set of identifiable and stable business relations among actors that are engaged in shipping and trading activities. A typical TCE, e.g., Hong Kong, comprises various firms, such as traders, logistics service providers, shipping firms, terminal operators, truckers, feeder operators, and other related commercial agents. These firms are from linked industries (e.g., trading and transport) that engage in related activities. These inter-organizational relations are primarily developed in terms of trading links. The patterns of such trading transactions govern the decisions of business enterprises as to where to locate.
The operations of international businesses have become very much linked. These linkages are related to international trade activities as goods are produced in one country and consumed in another country. Shipping and trading centres are located in TCEs. Connectivity, which measures the extent to which the components of a network are connected to one another, is a key factor that affects the importance of TCEs. The strategic importance of TCEs is affected by the factors of location, accessibility, and infrastructure (Lun et al. 2010). A TCE comprises a set of transport infrastructures that take advantage of their corresponding geographical location to provide a high level of accessibility for connecting with trading partners. Accessibility, which refers to the extent to which a user can obtain the required resources at the time that they are needed, is the cornerstone of the competitiveness of TCEs. For instance, a TCE needs to access water to provide sea transport services. Connection with the hinterland, which is “the area where the demand for cargo movement is generated” and foreland, which is “the cargo destinations that are connected by shipping services from the cargo sources” (Rodrigue & Notteboom 2010) is also essential for nurturing the development of TCEs.
In international business operations, production and consumption activities are spanning national borders. Goods move along a network of shipping nodes and links (Lun & Browne 2009). The nodes are physical locations (e.g., container terminals and distribution centres) where goods are handled and transferred from one transport mode to another (Lun & Cariou 2009). The links between nodes are connected by infrastructure components on which various transport modes operate. Along the shipping chain, actors involved in upstream and downstream activities work with each other (Lun et al. 2013a). For a trading region, actors (e.g., traders, logistics service providers, terminal operators, and shipping lines) in the network conduct business activities (Lun et al. 2013b). TCEs are a phenomenon that explains why traders and transport service providers are located in the same area. The success of a TCE is closely linked to the level of competition from rivals. A TCE contributes to regional competitiveness in several important ways. First, the geographical concentration of TCE users allows close linkages with business partners and related specialized resources. As users can access a well-established pool of resources, a TCE allows new entrances into the industry and reduces barriers to conducting shipping and trade related activities. Furthermore, the concentration of an industry facilitates knowledge transfer and market information spill overs among users in the TCE, hence facilitating industrial growth in the region. With vibrant inter-firm activities, ideas are quickly spread among neighbouring firms.
To examine the drivers that create social capital, Adler & Kwon (2002) proposed an “opportunity-motivation-ability” framework. The network of social ties of an actor creates opportunities for social capital transactions. External ties to others give actors in a particular region the opportunity to gain access to new markets, reduce operating costs, and generate greater profits. Coleman (1998) argued that the extent to which actors are connected or interact affect the strength of social capital. The motivating factors for actors to join together and develop social ties are trust and associability. Social capital transforms actors from taking individual action to collective action to achieve common benefits. Trust is essential for actors to work closely together to take collective action. In addition, associability (Leana & Van Buren 1999), which is defined as “the willingness and ability of actors to define collective goals that are then enacted collectively”, is important for social capital. From the perspective of social capital, ability refers to “competencies at the nodes of the network”. Associability comprises “the motivation and ability of a collectivity to define and enact its goals”. The abilities of actors in a network are complements to social capital (Poetes 1998). In the context of trade facilitation, ties to the shipping industry provide valuable opportunities for traders to rapidly obtain information on shipping operations to provide better services to transport goods. In the context of TCEs, the ability of logistics service providers to provide high quality and low cost logistics services is important for traders to conduct their trading activities in a specific location. Social capital is the resource that facilitates the development of TCEs and associated with economic performance.
Hypotheses development
Trade facilitation
The concept of social capital is useful for explaining the application of location strategy. When selecting a location to conduct trading related activities, business firms tend to select a region with resources that allow them to reduce their trade cost. At the regional or national level, policy makers have developed measures to attract business operators to invest in a certain location by improving the shipping networks to reduce trade cost so as to enhance economic performance. The two dimensions of location are place and space. According to Beugelsdijk & Mudambi (2012), place is a “geographical unit of analysis” and space is spatial variation which is “any characteristic that generates variation among places”. Spatial variation can be viewed at both the macro and micro levels of economic activities. In a highly competitive economy, policy makers play an important role in developing trade facilitation measures to boost trade related activities at the macro level (Loannou & Serafeim 2012). For instance, the efficiency of customs and border management clearance is an effective measure that traders use to gauge the transport goods for international trade. To enhance transport related activities to provide logistics services that enhance the efficiency of trade related activities, it is desirable to provide high quality trade and transport infrastructures. The availability of TF-MA is therefore important for actors in their decision of selecting a location to conduct their business activities.
According to the World Bank, the Logistics Performance Index (LPI) consists of six items (source: http://lpi.worldbank.org). Two of the items can be categorized as TF-MA. The other four items are adapted from firms that conduct business operations in a region. These four items can therefore be classified as TF-MI. According to the opportunity-motivation-ability framework (Adler & Kwon 2002), the network of social ties of an actor creates the opportunity to enhance trading and related business transactions. This opportunity can be the motivation for actors to create social ties (Coleman 1998). Hence, actors in a region are willing to take action for collective action to achieve common benefits (Leana & Van Buren 1999). As a result, actors in a region are competent in conducting their business operations and possess the ability to provide services that facilitate trading and related activities (Poetes 1998).
In addition to TF-MA, the availability of TF-MI resources plays an essential role when actors are selecting a location to conduct their business activities. The need for resources to perform trade related activities drive actors to collaborate beyond their organizational boundaries to attain cost and service advantages from TF-MI (Lun et al. 2011b). TCEs with better performance in trade facilitation operations attract more actors to select their location to conduct operations. As a result, both TF-MA at the macro level and TF-MI at the micro level are essential components of TCEs. These two variables are associated. Hence, the following hypothesis is proposed:
Hypothesis 1: TF-MA and TF-MI are positively associated.
Trade cost
Social capital facilitates the access of information and updates on the latest operations in the field to enhance business operations (Coleman 1998). Information transfer among actors in the industry who are located in the same region facilitates firms to better understand industry requirements and provide better services to serve their customers (Uzzi 1997). Effective information flow among the actors in the trade and logistics industries can also enhance their ability to adopt technology that would provide track and trace services. Traders can benefit from the logistics network to obtain high quality logistics services. With the existing logistical networks, traders can easily coordinate with shipping lines and logistics service providers to arrange shipments at competitive prices. Social capital bridges disconnected actors in the industry which allows them to connect with others (Burt 1997). When traders support the operations of a TCE with sufficient cargo volume, service providers in the industry can provide high sailing frequencies so that shipments reach destinations within the expected delivery times.
From the perspective of TF-MA, the benefits that social capital can provide include information and influence (Samdefir & Laumann 1988). For instance, effective information improves the efficiency of customs and border clearance. A typical example of the benefit from influence is high quality trade and transport infrastructure which positively influence the efficiency of transport operations. From the perspective of TF-MI, the benefits that social capital can provide originate from four approaches: communitarian, networks, institutional and synergy (Woolcock & Narayan 2000). The communitarian view is measured by the number and density of local groups, and in this context, in terms of frequency, e.g., shipments can reach consignees within expected delivery times because of high sailing frequencies. The network view refers to the relations within and among actors. In the context of TF-MI, a shipping network with actors who closely work with others will better perform cargo tracking and provide accurate and timely information to their customers. The institutional view argues that “the capacity of actors to act in their collective interest depends on the quality of the formal institutions under which they reside” (Adger 2009). The level of service of a TCE is high when all of the actors in the network provide high quality services. Synergy refers to mutually supportive relations and promotion of complementarities. For instance, traders can easily arrange for competitively priced shipments in a TCE when shipping and logistics service providers are supportive in the performing of shipping related activities.
Social capital is an important resource that leads to a number of positive outcomes. According to Portugal-Perez & Wilson (2012), trade facilitation is “the set of policies aiming at reducing export and import costs”. Hence, trade cost is an important variable that needs to be taken into account in TCEs. Trade cost consists of the costs to export and import. Transaction cost, which refers to costs incurred in the performing of trading activities, is useful for examining performance outcomes. The transaction cost for actors is lower if their business operations are located in efficient TCEs. In selecting a location to conduct trading related activities, it is recommended that a strategy-performance relationship is used to make sound inferences (Martin 2013). Brouthers (2002) examined performance outcomes by integrating transaction cost and institutional perspectives. The scope of the institutional explanation extends beyond the level of the firm (Brouthers 2013). Social capital involves TF-MA and TF-MI. When a region has social capital, its trade costs tend to be lower. Hence, the following hypotheses are developed:
Hypothesis 2.1: TF-MA and trade cost are negatively associated.
Hypothesis 2.2: TF-MI and trade cost are negatively associated.
Economic performance
The international integration of trading and related activities has substantially increased in the past decades (Garrett 2009). The increased international integration of goods and services has contributed to economic development. One of the most important benefits of trade liberalization and trade facilitation is economic growth (Winters 2004). The development of TCEs can be a substantial means to enhance the regional competitiveness of a location. Regional competitiveness can be viewed as: (1) the ability of a region to provide integrated trading and related services that meet the needs of traders, and (2) a region that is able to generate relatively high income and high employment levels, while at the same time, face increasingly competitive pressure from their competitors (European Commission 1996).
The subject of performance is receiving increasing interest from both the academia and managers. In examining the contribution of TCEs, it is important to examine performance outcome. The GDP of a country reflects actual economic performance (Rawski 2001), and therefore GDP is commonly used at the regional or national level to examine economic growth and performance (Robbins & Pettinicchio 2012). GDP per capital is a good indicator of economic performance (Chen et al. 2005). The development of TF-MA involves investment in social capital and will lead to the improvement of economic performance. Accordingly, the following hypothesis is proposed.
Hypothesis 3: TF-MA positively affects the economic performance of a country.
GDP is the sum of the gross value added to the economy. As TCEs focus on trading and related services, their share of services in GDP also plays an important role in examining the performance outcome of a country. Increases in the exchange of services through various trading activities may raise the productivity of firms. The competitiveness of firms depends on “the availability, cost and quality of producer services” (Eschenhach & Hoekman 2006). If trade costs in a TCE are lower, the value added from service will be higher. Accordingly, the following hypothesis is suggested.
Hypothesis 4: Trade cost negatively influences the service orientation of a country.
A TCE with a lower operating cost and high level of TF-MI is an attractive place to conduct business operations. The existence of TF-MI reflects the increasing importance of the orientation towards service. Francois (1990) developed a model to illustrate the importance of service to economic growth. He argued that the increasing importance of the orientation towards service reflects modern business operations. To be competitive, firms need to devote effort and resources to perform their core business. The growth in the outsourcing of activities to external service providers indicates the importance of service. The outsourced activities range from the sourcing of parts and products to performing shipping and logistics operations. A TCE with a high level of TF-MI is capable of providing better services for serving actors and facilitating them to perform trading and related activities. To better understand the contribution of TCEs, it is therefore essential to examine the relationship between economic performance and economic activities (Banerjee & Marcellino 2006). According to Ang (2006), the economic performance of a country will be better when their operating efficiency is higher. Hence, the following hypotheses are put forth.
Hypothesis 5.1: TF-MI positively affects the service orientation of a country.
Hypothesis 5.2: The service orientation of a country positively affects its economic performance.