The Role of Social Capital and Entrepreneurial Orientation in Developing Tourism SMEs Resilience
Say Keat Ooi1*, Azlan Amran1, Xiu Ling Chew1
1 Graduate School of Business, Universiti Sains Malaysia, 11800 Gelugor, Penang, Malaysia
*Corresponding Author: [email protected] Accepted: 10 January 2023 | Published: 31 March 2023
DOI:https://doi.org/10.55057/ijaref.2023.5.1.26
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Abstract: This paper aims to propose a framework that may enhance business resiliency of the tourism SMEs through social capital and entrepreneurial orientation. The claim that there has been a dearth of research models in this area through a systematic review triggered the development of a moderation model to understand the relationship between social capital and entrepreneurial orientation towards enhancing business resiliency of the tourism SMEs. Based on an extensive literature review, a total of two propositions were proposed to understand the relationship between social capital, entrepreneurial orientation, and business resilience. This study is important to the management of tourism SMEs as it shows that management of SME could be improved, recovered, and sustained business resiliency through social capital and entrepreneurial orientation. There are only a few research studies related to the contribution of social capital and entrepreneurial orientation to business resilient of tourism SMEs. This study demonstrates the moderating role of entrepreneurial orientation on the relationship between social capital and business resilience.
Keywords: Social capital, Resilience, Entrepreneurial orientation, SME, Tourism.
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1. Introduction
The outbreak of COVID-19 is not merely affecting people around the world in term of health issue, it also gives a huge impact on the economic. According to The World Tourism Organisation (UNWTO), travel and tourism is one of the most affected industry, as most of the countries have implemented global travel restrictions (UNWTO, 2020). United National Conference on Trade and Development (UNCTAD) estimated that the loss of worldwide tourism industry could rise to USD 3.3 trillion which is equivalent to 4.2% of global Gross Domestic Product (GDP) if the situation continue for a year (UNCTAD, 2020).
Due to the outbreak of COVID-19 pandemic, it has brought a significant negative impact toward the global tourism industry. Business performance of Malaysia tourism industry has been significantly affected as well. In Malaysia, tourism shopping for domestic and foreign tourist accounted for approximately 12% of total retail spending prior to the outbreak of COVID-19 (The Edge Markets, 2020). The total retail spending dropped dramatically due to the closure of border and various restrictions that have been implemented in Malaysia such as non-essential businesses are not allowed to operate during some phases of movement control implemented previously. The tourism industry in Malaysia estimated to suffer RM100 billion losses in 2020 (New Straits Times, 2020). Tourism Malaysia (2020) reported that Malaysia is having negative growth of 68.2% for tourist arrivals from January to June 2020 as compared
to 2019. Consequently, the tourist expenditure decreases from RM41.6 billion to RM12.5 billion which is approximately 69.8% from 2019 to 2020 (Tourism Malaysia, 2020).
With the allocation of government funds and recovery plan launched by the government for tourism industry also insufficient to address the long-term impact caused by the outbreak of COVID-19. Over the past decade, researchers have focus on studying and recognising the important of social capital as it is one of the sources of sustainable competitive advantage and differentiation (Aidoo et al., 2020). Social capital provided value to network members, enabling them to take advantage of the resources established in their relationship and to create competitive advantage over the competitors (Tsai & Ghoshal, 1998). Nahapiet and Ghoshal (1998) also agree that social capital helps in the growth of intellectual capital through the creation of conditions essential for exchange and consistency in information flow from various sources. Study also shows that strong social capital leads to trust, support and team building which will eventually lead to improved firm performance (Aidoo et al., 2020). Hence, it creates a gap whether social capital would be able to create resilient with the influence of entrepreneurial orientation among tourism SMEs.
The dynamic or rapid change of business environment have forced SMEs to explore for new ways to enhance the competitive advantage as the previous or existing techniques have become obsolete and this would require management personnel that is equipped with creative, innovative, managing risk and have the ability to manage the resources and network which in return to improve the business resiliency. The outbreak of COVID-19 pandemic has negatively impacted the performance of travel agencies. Resilience is the ability of a system to maintain its identity and adapt its essential structure and function in the face of disturbance, and hence resilience has been emerged as an important topic in tourism (Chowdhury et al., 2019).
2. Literature Review
The outbreak of COVID-19 gives a huge impact on the economic. One of the main contributions of country’s income is generated from tourism industry and it account for a significant percentage in the contribution of the country’s GDP. Tourism industry accounted for 3.3% of direct contribution which reflect approximately USD 2,893 billion to the global GDP in 2019. The total contribution of Tourism industry account for 10.3%, which is approximately USD 9,258 billion of the total global GDP in 2019 (Statista Research Department, 2021). There are about 109 million of people employed in tourism industry which account for approximately 10% of the global employment rate (WTTC, 2017). In 2019, in worldwide there are approximately 1.5 billion international tourist arrivals and forecasted that the performance of tourism industry will continue to grow (UNWTO, 2020). Revenue generated from worldwide tourism industry increase tremendously to 51%, as it increases from approximately USD 979 billion to USD 1,478 billion from 2010 to 2019 (Statista Research Department, 2020).
In addition, 900 million fewer international tourist arrivals in January to October 2020 as compared to January to October 2019, and this indicated a loss of USD 935 billion in export revenues generated from international tourism (UNWTO, 2020). International tourist arrivals to Asia and the Pacific shows a decrease of 82%, Middle East decreased by 73%, Africa decrease by 69% and both Europe and America decrease by 68% from January to October 2020 (UNWTO, 2020). UNWTO (2020) expected that international arrivals would have return to level of 30 years ago as they expected that it will be decreased by 70% to 75% for the year of 2020. In 2020, 100.8 million jobs are expected to loss in worldwide tourism industry, 63.4
million out of 100.8 million is expected to happen in Asia Pacific region (Statista Research Department, 2020).
In Malaysia, tourism industry is the third largest contributor to the total GDP as it accounted for about 5.9%, which is approximately RM 94.5 billion in 2018 (Statista Reseach Department, 2020). There are about 3.6 million of people employed in tourism industry which account for approximately 23.6% to the total employment rate of Malaysia in 2019 (Department of Statistics Malaysia, 2020). In 2019, there are approximately 26,100,784 tourist arrivals to Malaysia which reflected approximately RM86.14 billion of tourist receipt (Ftnnews, 2021).
Income generated from tourism industry is classify as the third largest foreign income earner in Malaysia as it generated RM39 billion in the first half of 2018 and RM41.69 billion in the first half of 2019 (The Star, 2019).
The outbreak of COVID-19 has caused Malaysia government to implement the first movement control order (MCO) from 18 March 2020 to 4 May 2020 (Malaymail, 2021). The implementation of MCO has cause Malaysia to loss RM2.4 billion in a day, as most of the businesses are suspended during MCO period (The Star, 2020). This impact the economics of Malaysia heavily, as the MCO period is more than 40 days. In other words, Malaysia loss at least RM96 billion during MCO period. Some of the businesses may not be able to survive in this critical period and there are approximately 50,269 of SME closed down due to the implementation of MCO since March 2020 (The Star, 2020). The unemployment rate of Malaysia increases from 3.3% to 4.7% from 2019 to August 2020 (Department of Statistic Malaysia, 2020). The tourism industry in Malaysia estimated to suffer RM100 billion losses in 2020 (New Straits Times, 2020). Tourism Malaysia (2020) reported that Malaysia is having negative growth of 68.2% for tourist arrivals from January to June 2020 as compared to 2019.
Consequently, the tourist expenditure decreases from RM41.6 billion to RM12.5 billion which is approximately 69.8% from 2019 to 2020 (Tourism Malaysia, 2020).
Due to the outbreak of pandemic COVID-19, it has brought a significant negative effect toward the global tourism industry. Business performance of Malaysia tourism industry has been significantly affected as well. In Malaysia, tourism shopping for domestic and foreign tourist accounted for approximately 12% of total retail spending prior to the outbreak of COVID-19 (The Edge Markets, 2020). The total retail spending dropped dramatically due to the closure of border and various restrictions that have been implemented in Malaysia such as non-essential businesses are not allowed to operate during some phases of movement control implemented previously. Retail Group Malaysia (RGM) managing director Tan Hai Hsin expect that at least 15,000 closure of retail shop due to the outbreak of COVID-19 (The Edge Markets, 2020).
The CEO of the Malaysian Hotel Association, Yap Lip Seng mentioned that Malaysia will be lost at least 60% of its tourism business in 2020 (DWNews, 2020). From 11 January 2020 until 16 March 2020, there are about 170,084 hotel room bookings has been cancelled which cost losses of RM68,190,364 (Foo, et al., 2021). In addition, there are about 109 hotels and other short-term accommodation operators, and 95 travel agencies has closed the business as announced by Tourism, Arts and Culture (MOTAC) Minister Datuk Seri Nancy Shukri (The Malaysian Reserve, 2020).
Besides that, the major three airlines in Malaysia which are Malaysia Airlines Berhad, AirAsia Group Berhad and Malindo Airways Sendirian Berhad have try to survive and sustain the business through scale down, reduction in wages, staff retrenchment and offered unpaid leave to the employees (New Straits Times, 2020). Transport Minister Datuk Seri Wee Ka Siong
mentioned that, approximately 169,728 flights have been cancelled and these will affect 4.316 million passengers (The Edge Markets, 2020). The airline industry in Malaysia is projected to incur a loss RM13 billion in 2020 (New Straits Times, 2020).
Given the importance of social capital, entrepreneurial orientation and business resilience, and lack of empirical research conducted on the integration of social capital, entrepreneurial orientation, and business resilience in tourism industry, thus, this conceptual paper aims to propose a set of complementary relationship between social capital, entrepreneurial orientation, and business resilience. Specifically, the study seeks to highlight the moderating role of entrepreneurial orientation in the relationship between social capital and business resilience.
By doing this, this paper is able to examine does through networking (social capital) which provide access to various support, information and opportunity would be able to create resilient among travel agencies which eventually help to improve the business performance. Seemingly, this paper predict that manager’s orientation will enhance the business resilient.
3. Proposition Development
Social capital is one of the most important social-economic theories. Social capital defines as
“the connections among individuals—social networks and the norms of reciprocity and trustworthiness that arise from them” (Putnam, 2000). Social capital could arise from different level such as individual, group and society (Coleman, 1988). Social capital is also defined as resources and opportunities arise from one social network (Yen et al., 2020). Social capital development is important for SME as SME will face resources constraints such as limited financial resources, lack of appropriate technology, lack of management skills and training, limited knowledge on the rules and regulation, etc (Tian et al., 2019). Studies have shown that social capital built by organisation over the years tend to overcome the resource constraints issue (Canevari-Luzardo et al., 2019).
Dynamic capabilities address the transformation of resources. Dynamic capabilities focus on identifying the most significant and enduring source of competitive advantage which enable firms to integrate build and reconfigure internal and external resources to address rapidly changing environments (Teece et al., 1997). In the rapid change environment, dynamic capabilities assist firms to sustain a competitive advantage as it enable the reconfiguration of existing resources and capabilities (Teece et al., 1997). Hence, how to leverage resources to create and sustain firm competitive advantage has become central for scholars interested in linking various types of resources and capabilities with firm performance (Lichtenthaler, 2008).
This study contribute on how dynamic capabilities can trigger organisational resilience.
Based on the integration of social capital and dynamic capability theoretical underpinnings, this paper attempts to propose 2 propositions based on the direct relationships between social capital and business resilience, as well as the moderating role of entrepreneurial orientation.
Social capital is one of the important elements in building organisational resilience. Previous study shows that social capital is a key asset for long-term resilience at the small business level (Torres et al., 2018). Torres et al. (2018) finding shows that social capital can significantly drive small business resilience post-Katrina as the immediate support from first responders, government, and financial institutions can have long-lasting effects on the economic resilience of small businesses. Similarly, another study shows that social capital have been associated with successful recovery by large enterprises following severe interruptions (Olcott et al., 2014). Consistently, another study also shows that networks and resources available to firms
through their connections facilitate the development of organisational resilience (Jia et al., 2020). As such, it is proposed that:
P1: Social capital has a positive effect on organisational resilience.
With more entrepreneurial orientation are expected to perform better than those who have less entrepreneurial orientation. More entrepreneurial orientation enables entrepreneurial firms to recognize and exploit opportunities in unique way that is different from non-entrepreneurial ones (Gathungu et al. 2014). Another study shows that inter-firm networking can positively influence entrepreneurial orientation (Davis, 2007). Other studies have found that small firms can positively influence entrepreneurial orientation through their networking practices (Parida et al., 2009).
Previous study shows that entrepreneurial orientation has a significant positive effect on resilience (Eshegheri & Korgba, 2017). Similarly, another study also concluded that entrepreneurial orientation is required for organisational resilience in mobile telecommunication firms (Coleman & Adim, 2019). In line with this, Li et al. (2008) concluded that entrepreneurial orientation could lead firms to enhance their capability resilience, in particular under the rapidly changing business environment. As such, it is proposed that:
P2: Entrepreneurial orientation strengthen the relationship between social capital and organisational resilience.
Figure 1 presents the research framework of this paper.
Figure 1: Research Framework
4. Research Method
This paper addressed the business resilience of tourism SMEs research gap through synthesising the available literature, and proposed a moderation model to understand the dynamics of business resilience among the tourism SMEs. Based on the social capital theory and dynamic capabilities theory, the conceptual model is outlined, and a set of propositions was formulated. The model and propositions lay out the theoretical foundation for the subsequent empirical analysis. The data will be collected by using online questionnaires. Partial least square (PLS) will be applied to test the cause-effect relationship among the research variables. Of late, many social science studies have used PLS for regression analysis, including Yeap et al. (2021) and Gim et al. (2022).
5. Findings
Given the growing concern of the business performance of tourism industry, especially the SMEs such as travel agencies, which are badly affected and having difficulties in sustaining the business during this critical time. This paper sheds some light on the relationship between social capital, entrepreneurial orientation, and SMEs resilience in the tourism context. Two propositions were proposed. Based on an extensive literature review, it is proposed that (i) social capital has a positive effect on organisational resilience, and (ii) entrepreneurial orientation strengthen the relationship between social capital and organisational resilience.
Given the importance of social capital, entrepreneurial orientation and organisational resilience, coupled with the lack of empirical research conducted on the integration of social capital, entrepreneurial orientation, and organisational resilience in tourism industry Malaysia, this paper aims to examine the relationship between social capital, entrepreneurial orientation, and resilience. The study also seeks to examine the moderating role of entrepreneurial orientation. By doing this, this study expects that through networking which provide access to various support, information and opportunity would be able to create resilient among tourism SMEs.
6. Conclusion
Refer to the proposed conceptual framework, social capital theory solely is insufficient to support the entire framework as it is not able to fully address and support the dependent variable which is firm performance. In this case, dynamic capability theory will be applied as complemental theory. Resilience consists of tangible (e.g., internal resources) and intangible resources (e.g., good leadership, quick decision making, and critical information and knowledge), suggesting that it is an internal resource that helps organizations adapt to external crises and opportunities, thus potentially improving firms’ business performance (Liu et al., 2018). Another study shows that resilience has a positive impact on the regional economic performance of a country (Rose, 2004). Therefore, resilience can be considered as a capability that offers an useful internal guidance system for organisational analysis and decision making in unexpected and unforseen circumstances.
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