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Corporate Social Responsibility and SMEs

The business environment has undergone vast changes in the recent years in terms of both the nature of competition and the wave of globalization that has been sweeping across markets. Companies are expanding their boundaries from the country of their origin to the evolving markets in the developing countries which have been sometimes referred to as emerging markets. India through its vast natural resources and huge manpower potential has secured a prominent place in the world corporate ladder. The country is growing enormously in terms of capitalization and opportunities. This growth has resulted in new opportunities as well as challenges particularly in the field of Corporate Social Responsibility.

Business is an inseparable and embedded part of the society. In addition to its economic role in society, business also has several other roles and responsibilities towards society, viz. responsible conduct of business activities while pursuing economic gains; the social and environmental responsibilities of the business towards its stakeholders; and business’s contributions that would benefit the society at large. It is believed that Corporate Social Responsibility (CSR) is largely associated with big companies.  They are more high profile and thus attract more media attention and they are particularly concerned to protect and enhance their reputations with the broader public as well as key stakeholders.  This is true but CSR is important for small and medium-sized enterprises as well.  CSR can be understood as voluntary social responsibility to give back to the society in which a company operates even though doing so may not be legally binding.

What is CSR?

There are many definitions of CSR.  The European Union’s widely disseminated definition stresses that CSR is voluntary, goes beyond what the law requires, and is an integral part of the business: it is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis.  It is about enterprises deciding to go beyond the minimum legal requirements and obligations stemming from collective agreements in order to address societal needs.”

Corporate Social Responsibility is an increasingly important part of the business environment. The past 3 decades have seen a radical change in the relationship between business and society. Key drivers of this change have been the globalization of trade, the increased size and influence of companies, the repositioning of government and the rise in strategic importance of stakeholder relationships, knowledge and brand reputation. The relationship between companies and civil society organisations has moved on from paternalistic philanthropy to a re-examination of the roles, rights and responsibilities of business in society. Corporate Social Responsibility (CSR), defined in terms of the responsiveness of businesses to stakeholders’ legal, ethical, social and environmental expectations, is one outcome of these developments.

SME and CSR

Small and Medium enterprises (SMEs) play an indispensable role in triggering economic growth and equitable development, particularly in developing countries. Their business activity is generally performed closer to the stakeholders, allowing them to be the firsthand recipients of expressed needs.

Corporate social responsibility (CSR) isn’t just about doing the right thing. It means behaving responsibly, and also dealing with suppliers who do the same. CSR isn’t about giving money to charity or just asking people not to print emails for the sake of Mother Earth! First and foremost, businesses exist to make profit, and this isn’t meant to change as a goal. The reality is that no organisation operates in isolation; there is interaction with employees, customers, suppliers and stakeholders. CSR is about managing these relationships to produce an overall positive impact on society, whilst making money.

SMEs are equally responsible towards making living conditions better for their employees and their families. As we move ahead, India can achieve its dreams, and turn its burgeoning young population into an asset only if each company big or small takes on responsibility for social, educational and environmental upliftment at large. This will go a long way in creating harmony between workers and the management, while at the same time addressing the expectations of all stakeholders in business.

The smaller enterprises need to not always spend in rupee terms for CSR. They have to first educate themselves on CSR. The UN through its UNIDO programmes in developing countries has successfully defined a Triple Bottom Line (TBL) Approach, which has proven to be a successful tool for SMEs in the developing countries to assist them in meeting social and environmental standards without compromising their competitiveness. The TBL approach is used as a framework for measuring and reporting corporate performance against economic, social and environmental performance. SMEs need to realise that profit alone will not drive them to become successful. They have to successfully integrate environment and society with economics.

Large corporations have significant impact on society and environment. They are concerned about their brand reputation too. Therefore, they invest in CSR. However, it is important to appreciate that social and environmental impacts are interconnected. The two are related and have to be treated as one by everyone, whether an individual, small enterprise or large enterprise. CSR has to evolve into ISR – Individual Social Responsibility – eventually for India to become developed.

To create the sweeping change in education, environment and society that India needs, the returns from focusing on large organisations are diminishing with time. The focus has to shift to enabling SMEs to make an impact on the society and environment. The changes they can bring about, as they have done in manufacturing and contribution to the GDP, in turning India into a developed country through making an impact within their organisation and their immediate neighborhood is enormous.

CSR advantages for SME

As one might expect, many of the business benefits of CSR are the same for firms of all sizes. Companies stand to gain engaged staff, an enhanced reputation, and lower long-run costs. But, small businesses in particular may be interested in some other benefits. For instance, SMEs with great CSR policies (particularly strong sustainability measures and labor practices) may be more likely to win contracts from larger businesses. Those with strong CSR reputations are poised for success as more and more large companies hold their entire supply chain accountable to certain ethical standards. In general, small businesses may find that investors are partial to companies with great corporate citizenship policies.

SMEs in the same industry are much more likely to cooperate with one another on a CSR initiative. Unlike their larger brethren who might tend to avoid this kind of cooperation, small businesses are more comfortable working together to solve a community problem. Social kind of joint initiatives give small businesses the opportunity to have an impact comparable in size to that of large multinational enterprises. They are often community focused and help to improve the local business climate.

Moreover, thinking of creative CSR policies and social entrepreneurship can spur incredible innovation. Today’s economy is increasingly knowledge driven. Companies of all sizes are reliant on their employee’s creativity. For a small business that does not have an extensive research and development team, thinking about CSR can be a great way to transform the business and its products with fresh ideas. Hence, it is imperative that SMEs take on this responsibility to reap the following benefits of CSR in long run.

  • A good reputation of SME makes it easier to recruit employees. Employees may stay longer, reducing the costs and disruption of recruitment and retraining.
  • CSR helps ensure SMEs comply with regulatory requirements.
  • Activities such as involvement with the local community are ideal opportunities to generate positive media coverage.
  • Good relationships with local authorities make doing business easier.
  • Understanding the wider impact of business can help SMEs to develop new products and services.
  • CSR can make SMEs more competitive and reduces the risk of sudden damage to their reputation (and sales).

Ethics and morals are the primary drivers of CSR in small business. Great CSR is born from great ethics. But, that does not exclude CSR from being great for business. Corporate Social Responsibility can improve local communities, lead to new business partnerships, and spur innovation. Ultimately, these benefits improve the business.

Conclusion

As we can all see the Large Companies and the SMEs are operating in the same environment but at the same time, they are operating in different ways. The Large Companies don’t lack from resources but they have to confront to their internal bureaucracy and also to the lack of the proximity in the external environment. SMEs must adopt CSR for innovation, creativity, and flexibility which enable them to respond more quickly to structural changes and to adapt the dynamic demand patterns of consumers. The government must look into policies and legislations for the benefits of SMEs adapting CSR and take up initiatives aimed at encouraging SME involvement in CSR. The SMEs of yesterday are the large corporate of today and could be MNCs of tomorrow. Thus, the banks and other agencies should take pride while servicing the SMEs as they are playing an instrumental role in the formation of MNCs of tomorrow. Thus, corporate social responsibility is not just the responsibility of big giants but also of small and medium enterprises too. Unless they come and shoulder their responsibility towards the society in a big way large Multi National Corporations cannot do much because they constitute a very small percentage in the Indian economy and large number of enterprises come in SME sector.

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