Investigating the effects of offline and online social capital on tourism SME performance: A mixed-methods study of New Zealand entrepreneurs

Highlights

• Tourism entrepreneurs networking activity manifests in three configurations.

• Associative and institutional networks were key offline social capital sources.

• Facebook, LinkedIn and Twitter were key online social capital sources.

• Online networkers have high future growth outlooks in employment and sales revenue.

• Entrepreneurs with low social capital have poor growth outlooks.

Abstract

Entrepreneurial social capital develops through the accrual of resources gained from an entrepreneur's social ties. These are integral to entrepreneurial success, enabling access to financial, marketing, and human resources, and innovation. Entrepreneurs increasingly manage their networks through online platforms such as Facebook, LinkedIn, and Twitter. However, there are major gaps in the extant empirical research concerning how online social capital is manifested, if this differs from an in-person context, and the effects ‘online’ and ‘offline’ social capital resources on tourism business success. This study adopts a mixed-method approach to examine tourism entrepreneur's behaviours in building offline and online social capital, and their nuanced effects on firm performance. The results found tourism entrepreneurs' networking activity manifests in three distinct configurations, Active Online Networkers, In-Person Networkers, and the Less Engaged. Each configuration demonstrated varying effects on expected business growth and performance with regards to number of employees, sales revenues, and net profit.

Introduction

The tourism industry is the highest contributor to foreign exchange earnings in New Zealand (Tourism Industry Aotearoa, 2019), predominantly comprising of SMEs (85% with less than 10 employees (Tourism Industry Aotearoa, 2017)). Thus, the performance of tourism firms is crucial to the success of the tourism industry and the visitor economy. Evidence suggests that an entrepreneur's professional and social networks facilitate access to resources integral to business success such as market information, innovation, and finances. These social and professional connections build entrepreneurial ‘social capital’, defined as ‘the sum of actual and potential resources embedded within, available through, and derived from the network of relationships’ (Nahapiet & Ghoshal, 1998, p. 243). In addition to physical/real world connections with family, friends, colleagues, and suppliers, entrepreneurs build social capital by using online social networking platforms such as Facebook, LinkedIn, and Twitter (Fischer and Reuber, 2011, Sigfusson and Chetty, 2013). However, social ties created and managed through online and offline environments present nuanced relationships and diverse opportunities which, in turn, can have varying types of impacts on a tourism business' activities.

In offline (i.e. face-to-face) environments, the evidence shows an entrepreneurs' social capital positively influencing enterprise performance (Stam, Arzlanian, & Elfring, 2014). Social capital is important to enterprise success as it enables opportunity recognition (Anderson & Miller, 2003), inter-firm alliances (BarNir & Smith, 2002), access to lines of credit (Honig, 1998), access to potential employees (Bosma, Van Praag, Thurik, & De Wit, 2004), development of business acumen (Zhou, Wu, & Luo, 2007), and the sourcing of ideas for innovation (Hughes, Ireland, & Morgan, 2007). However, our review of the literature also highlighted significant gaps on how social capital can develop from an entrepreneurs' online social networks. Although studies looking at online social networking in a tourism context have emerged (c.f. Lo, Mckercher, Lo, Cheung, & Law, 2011; Kim, Lee, & Bonn, 2016; Wang, Kirillova, & Lehto, 2017), most studies to date predominantly use a demand-side approach, focusing on the consumer's perspective and their engagement with social networking sites. In contrast, this study takes a supply-side approach to examine how tourism entrepreneurs utilise online social networking to build social capital and the consequent outcomes on firm performance.

A recent systematic review of research on social media and entrepreneurship demonstrates the adoption, usage, and outcomes of social media use by entrepreneurs (Olanrewaju, Hossain, Whiteside, & Mercieca, 2020). Several studies have examined how engagement with social media platforms can be used for business networking. Kasavana, Nusair, and Teodosic (2010) presented a conceptual paper on the historical development of online social networks and their implications for hotel businesses. However, the applicability of their concepts, which focus on large hotel properties, may not be suitable in the context of tourism SMEs that lack the time, resources, and skills necessary to develop, for example, proprietary online social network sites that can track customers (Kasavana et al., 2010). Smith, Smith, and Shaw (2017) presented a conceptual paper on how entrepreneurs may use online social networks to build their social capital resources, developing 12 propositions to explain how online social networks increases bridging and bonding social capital. However, these propositions are yet to be tested using empirical data. Studies have also looked at entrepreneur's use of Twitter and LinkedIn to build social capital. Fischer and Reuber (2011) examine the role of business-to-business (B2B) interactions on Twitter in enhancing an entrepreneur's goal-setting abilities (Fischer & Reuber, 2011). However, it is unanswered whether these interactions have implications on business success, nor does the study explore equally important connections that can be made between entrepreneurs and other stakeholders such as customers, suppliers, or their local community. Other studies focus on the retweets, posts, or interactions of Twitter and LinkedIn members in online groups for professionals (Sigfusson & Chetty, 2013; Quinton & Wilson, 2016; Wang, Mack, & Maciewjewski, 2016). However, the data extracted for these studies were from groups or discussion boards where membership was not exclusive to entrepreneurs. Therefore, it is unclear whether the interactions were between business owners (i.e. actual entrepreneurs) or individuals with merely an interest in entrepreneurship. In addition, the previous studies reviewed here bind their research settings to a single online networking platform (Twitter or LinkedIn), excluding larger and potentially more relevant online networking platforms to tourism such as Facebook and Instagram (Euromonitor International, 2019).

In light of these research gaps, this study will contribute to the literature on entrepreneurial social capital and empirically examine how entrepreneurs in the tourism sector develop social capital resources through offline (face-to-face) connections, and through online engagement via multiple social networking platforms (in our case Facebook, LinkedIn, Twitter, and Instagram). In addition, drawing on theories of entrepreneurship and social capital theory, the study examines the extent to which different forms of social capital (online and offline) have varying effects on tourism firm's performance outlooks. We conduct a mixed methods study through a survey of 285 tourism SMEs in New Zealand, as well as follow up in-depth interviews with tourism entrepreneurs. We use quantitative and qualitative methods of analysis that includes cluster analyses to segment different groups of tourism entrepreneurs according to their social capital resources. Parametric and non-parametric tests are then applied to profile ‘social capital clusters’ of firms and examine key differences across business and owner characterises, as well business performance and future growth outlooks. Post-survey in-depth interviews with seven entrepreneurs from the survey sample were conducted to help validate and explain the findings of the quantitative analysis. Through this approach, the study contributes to the body of knowledge on tourism entrepreneurship, social networks, and social capital by understanding the configurations of tourism entrepreneur's offline and online social capital in a single study, and the subsequent implications these configurations have with regards to tourism enterprise performance.