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The interplay of human and social capital in shaping entrepreneurial performance: the case of Vietnam

Abstract

This study investigates the effects of human capital, social capital and their interaction on the performance of 1,398 Vietnamese new-born firms. Operating profit is used as the measure of success. Human capital is captured by individual-level professional education, start-up experience, and learning. Whereas the first two dimensions of human capital are measured with traditional indicators, we define learning as the ability to accumulate knowledge to conduct innovation activities (new product introduction, product innovation and process innovation). Social capital is measured as benefits obtained from personal strong-tie and weak-tie networks. Key findings are threefold: (i) human capital strongly predicts firm success, with learning exhibiting a statistically significant positive association with operating profit, (ii) benefits from weak ties outweigh those from strong ties, (iii) interaction of human capital and social capital displays a statistically significant positive effect on new-firm performance.

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Notes

  1. Prior studies on 'start-up' firms generally use size and age thresholds to construct an appropriate sample, with maximum ages set from 10 to 12 years since founding. Empirical research using this upper bound of firm age to delineate start-up firms includes Ostgaard and Birley (1996) and Stuart et al. (1999). Another reason for focusing on firms established from 1995 is that this allows investigation of the whole development process of the private sector since the introduction of Company Law and Law on Private Enterprise in 1990—which created the landmark for the emergence and development of private firms in Vietnam—until the promulgation of Enterprise Law in 2000, which infused a strong entrepreneurial spirit into the local business environment. Actually, up to 70 % of firms in the sample were established after 2000. The other 30 % were mostly established in the late 1990s, with only 0.03 % set up in 1995.

  2. For a detailed description of sampling methodology for the DANIDA surveys, see Rand and Tarp (2007, 2009).

  3. For a review of the measures of the performance of entrepreneurial ventures, see Deeds et al. (1998).

  4. “New product introduction” refers to the ability to bring/launch out a new product or service to market. The variable is operationalized by the answer to the question “Has the firm introduced new products since 2002?” By “product innovation”, we mean the introduction of any improvements to the firm’s existing goods or services. This includes, but is not limited to, improvements in functional characteristics, technical abilities, or ease of use. It is the answer to the question “Has the enterprise made any major improvements of existing products or changed specification since 2002?” Finally, “process/technological innovation” indicates the implementation of a new or significantly improved production or delivery method by developing or bringing new technology into widespread use. The variable is constructed by the answer to the question “Has the enterprise introduced new production processes/new technology since 2002?”.

  5. The White (χ2 = 133.82, p value = 0.002) and Breusch Pagan (χ2 = 26.8, p value = 0.000) tests indicate the presence of heteroskedasticiy; robust OLS estimation is adopted for the human capital equation.

  6. The dummy combines the answers to two questions: “Do you participate in one business network?” and “Do you participate in more than one network?”.

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Acknowledgments

We are grateful to two reviewers for their helpful suggestions. Enrico Santarelli acknowledges financial support from University of Bologna (RFO 2009).

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Correspondence to Enrico Santarelli.

Appendix: Correlation matrices

Appendix: Correlation matrices

See Tables 6 and 7.

Table 6 Correlation matrix of variables in human capital equation
Table 7 Correlation matrix of variables in social capital equation

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Santarelli, E., Tran, H.T. The interplay of human and social capital in shaping entrepreneurial performance: the case of Vietnam. Small Bus Econ 40, 435–458 (2013). https://doi.org/10.1007/s11187-012-9427-y

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Keywords

  • Human capital
  • Social capital
  • Entrepreneurship
  • Performance of entrepreneurial firms
  • Vietnam

JEL Classifications

  • L26
  • L25
  • L14
  • J24
  • O53