The Influence of Social Capital on the Performance of Small Scale Agro-food Processing Enterprises in Tanzania

Abstract

Social capital is increasingly being acknowledged as one of the most important sources of competitive advantage in agro-food processing businesses, particularly small and medium-sized enterprises. Social capital, as measured by each processor's network of processing contacts, has become a missing piece in the development of small firms. Despite the fact that processors invest in contacts in faraway markets as well as regular local trading partners, only around a third of networks are based on ethnicity. This study looks at how social capital affects the performance of geographically concentrated and dispersed small agro food processing businesses in Tanzania's Dodoma and Singida regions. The study's hypothesis was that social capital (measured by membership in a business association and trust) contributes considerably to firm performance in both geographically concentrated and dispersed enterprises. Primary data were collected from 134 small agro processing firms. Secondary data were collected from Sokoine National Agricultural Library (SNAL), District councils, SIDO, Ministry of Industry and Trade, Ministry of agriculture and Tanzania Chamber of Commerce Industry and Agriculture (TCCIA). Stratified sampling methods were used because the sub-population varies considerably. Each stratum was sampled independently because stratification helped to enhance the representativeness of the sample. In sampling, few enterprises from each stratum were randomly selected to form the investigative sample. In this case, examination of parameters for each sub-domain within the population can be obtained separately. The paper provides an in-depth analysis on the aspects concerning social capital. Data were collected using structured questionnaire. Three criteria were used to choose the study areas. Including a) the number of firms in the study area; b) the sort of technology used by the firms in the location and c) firms with similar products. Different methodologies, such as descriptive statistics, multivariate regression, and log linear regression, were used to analyze the data. The findings show that social capital boosts firm’s performance and that it may be combined with other factors to boost firm performance even more. Therefore the study concludes that that social capital can be considered a crucial production component that determines firm’s performance within the agro-industrial development. Second, the interaction of human capital, expertise, membership in trade associations, trust (social capital), and enhanced equipment improves production and marketing capacity, resulting in increased productivity of high quality processed products that meet industry standards. It is further recommended that social interaction and networking be strengthened in order to enhance effective forward and backward linkages in all levels of the agro processing value chain.