Social capital development through the stages of internationalization: Relations between British and Indian SMEs

Research Summary: Relatively limited research has been conducted on the evolutionary development of social capital during the internationalization process of small and mediumsized enterprises (SMEs). We address this issue through a qualitative study of 30 pairs of British and Indian SMEs that have developed international business relations with each other. We provide frameworks that illustrate how microfoundations create, modify or dissolve network structures to achieve the desired outcomes at different stages of social capital development and internationalization. We identify that entrepreneurial characteristics and intentions influence the development of social capital and internationalization. We suggest that the stages of social capital evolution tend to accompany discrete stages of internationalization, albeit with some exceptions due to the nature of the industrial sectors and actors’ dispositions towards business exchange.

Managerial Summary: SMEs are rapidly internationalizing, competing, and even collaborating with large enterprises across the globe. Studies note that social capital plays an important role in the internationalization process of SMEs. We examine the evolution of social capital and internationalization process of SMEs, finding an association between the phases of social capital development and stages of internationalization, and a cumulative effect in social capital formation as the process of internationalization unfolds once initiated. Common ethnicity can help move the process forward, while the strengthening of social ties based on the accumulation of trust is also an important factor in this evolution. The characteristics and intentions of entrepreneurs influence the speed of social capital development, whereas the type of business and industry in question influences its form.