Exploring Corporate Social Responsibility among ...

2012 IEEE Symposium on Business, Engineering and Industrial Applications

Exploring Corporate Social Responsibility among SMEs in Malaysia Herwina Rosnan, Zarith Delaila Abd Aziz Faculty of Business Management Universiti Teknologi MARA 40450 Shah Alam, Selangor, MALAYSIA [email protected]

report which limit the ability to identify the reasons behind companies’ CSR commitment.

Abstract—the issues of Corporate Social Responsibility (CSR) have received growing attention in recent years. However, previous studies on CSR were largely focused on developed countries. This is because CSR practices have long been associated with big corporations in developed countries such as Mark & Spenser, Johnson & Johnson, Volkswagen, and CocaCola. It has been argued that organizations operations and interaction with other stakeholder to a certain degree have an impact on society and the environment regardless of the size of the organization. Hence, CSR is critical in all firms, large and small. Despite the importance of CSR in all organizations, there is a lack of literature on CSR concerning small and medium-sized enterprises (SMEs). Thus, the main purpose of this paper is to explore the awareness of CSR concept among SMEs in Malaysia. In addition, this study is to investigate CSR initiatives implemented by SMEs as well as attempt to understand the challenges and barriers to CSR commitment. This is an exploratory study which employs a qualitative strategy as it provides deeper understanding of the phenomenon understudy.

In Malaysia, September 2006 marked an increased awareness on CSR when Bursa Malaysia introduced CSR Framework. CSR Framework is a guideline for Malaysian public-listed companies to assist them in the implementation of CSR reporting. This initiative has increased awareness of CSR among companies in Malaysia. In addition, the emergence of non-governmental organizations (NGOs) such as the Federation of Malaysia Consumers Association (FOMCA), the Consumer Association of Penang (CAP) and the UN Global Compact contribute towards increased awareness. Although there are growing studies on CSR but these studies focused mainly on large and public-listed companies. Research on CSR among SMEs has not been given fair attention despite the increasing importance of the role played by SMEs to the Malaysian economy. SMEs’ operations like any other organizations are affecting the stakeholders. Nevertheless, one study merit attention is by Nejati and Amran (2009) which focused on SMEs motivation behind CSR practices. This study, however, involve a very small number of sample and they suggested that future study should broaden the number of respondents.

Keywords-corporate social responsibility, small and mediumsized enterprises (SMEs), Malaysia, qualitative

I.

BACKGROUND OF THE STUDY

The corporate social responsibility (CSR) has gained considerable attention in the literature for decades. This scenario is particularly evidenced as a result of inconclusive findings on whether CSR is correlated with organization’s financial performance. However, most literature on CSR focused on the issues in developed countries (Belal and Momin, 2009). This is because CSR practices have long been associated with big corporations in developed countries. Companies like Mark & Spenser (Canon, 1992), Johnson and Johnson (Johnson and Johnson, 2000) and Volkswagen (Volkswagen AG, 2000) are committed to CSR practices as CSR has become an important part of successful organizations. In developing countries, research on corporate social responsibility is very limited (Belal and Momin, 2009). Furthermore, most previous research on corporate social responsibility tended to focus on the level of corporate social disclosure (for example, Nik Ahmad et.al, 2003, Thompson and Zakaria, 2004) as indicator to measure CSR commitment. These studies utilized secondary data from companies’ annual

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According to Hill (2009) globalization is not only driven by multinational corporations (MNCs) but also small and medium-sized enterprises coupled with the advancement of technology particularly in communication and transportation. The important role of SMEs in Malaysia is evidenced as it contributed 32 percent to GDP, 59 percent to employment and 19 percent export in 2010 as according to data published by SME Corp (www.smecorp.gov.my). Furthermore, SMEs have become the engine and the backbone of the economy that has generated more than 5.6 million employments (Zeti Akhtar Aziz, 2007). Hence, understanding CSR commitment from the perspective of SMEs is equally critical. A. Objectives of the Research Specifically, this study is to achieve the following objectives:

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i.

To explore the perception of SMEs on the concept of CSR.

ii.

To investigate the type of CSR initiatives undertaken by the SMEs.

iii.

To examine the challenges and barriers to CSR initiatives.

organizations, there is a lack of literature on CSR concerning small and medium-sized organizations. According to Spence and Lozano (2000), large and small organizations are different and these differences affect the nature and extent of their CSR activities. They are particularly different in terms of structure and management styles. For example, for small organization, control and management style remains in the hand of one of the owners, unlike large organizations. Thus, any decisions on CSR activities are influenced largely by the personal attitude of the owner (Hopkins, 2003).

B. Research Questions This study attempts to answer the following key questions: i.

Do SMEs understand the concept of corporate social responsibility?

ii.

To what extent have certain CSR initiatives been implemented by SMEs in Malaysia?

iii.

What are the challenges facing SMEs in embracing CSR initiatives? II.

Md Zabid and Saadiatul (2002) found that CSR in Malaysia has been given emphasis by businesses in recent years. In 2004, the Deputy Prime Minister of Malaysia urged Malaysian businesses to embrace CSR to raise ethical standards in business decision making. Businesses are expected to act beyond their own economic interest but to take into consideration the well-being of society and the environment (Najib, 2004). Literature on CSR in Malaysia are mushrooming but most of these studies used content analysis method which measured the extent and volume of CSR disclosures published in companies’ annual report (for example, Janggu et al., 2007; Nik Ahmad et, al., 2003; Othman et al., 2010; Thompson and Zakaria, 2004). Although Nejati and Aman (2009) have conducted an exploratory study on CSR among SMEs, their scope was limited to understanding the motivation behind CSR practices. They found that SMEs practices CSR out of their conscious towards religion as well as pressure and encouragement from the stakeholder.

LITERATURE REVIEW

There is a lack of consensus on the concept of CSR in the literature. According to Davies (1960) social responsibility refers to business “decisions and actions taken for reasons at least partially beyond the firm’s direct economic and technical interest.” Although CSR is now a well established acronym (most business textbooks incorporate CSR in one of their chapters) the definition remains a subject to debate (Roberts, 2003; Hopkins, 2003).

Understanding the relevance of CSR initiatives from the perspective of SMEs is equally important. This is because it was argued that socially irresponsible organization can lose significant competitive advantage (Dirks, 2004; Lewis, 2003).

According to Jones (2005) and Vos (2003), the more recent definition of CSR has been described from the perspective of stakeholder theory. The stakeholder theory suggests that CSR relates to the way the company governs the relationship between the firm and its stakeholders. These stakeholders consist of primary shareholders which include investors, employees, customers, suppliers, public entities such as governments or other public organizations that set laws and govern economic commerce (Clarkson, 1995) and secondary stakeholders which include those who are not directly engaged in the organization economic activities but are able to exercise influence or are affected by the organization (Savage et al., 1991). Regardless of the absence of the universally accepted definition of CSR, research pertaining to issues of CSR is burgeoning. Previous literature on CSR largely tends to pay greater attention on larger organizations. This is not a daunting issue as larger organizations are commonly better able to fund their CSR activities. Through the engagement of CSR, organization expects to gain better recognition as responsible corporate citizen which ultimately assumed to be translated into dollar and cents. According to Davies (1960), some socially responsible business decision may in the long-term bring some economic gain to the organization.

It was also argued that SMEs faced more challenges in business than MNCs. Five major challenges for Malaysian SMEs as according to Ting (2004) are financial constraints which include access to finance, skilled human resources, ability to adopt new technologies, lack of information on potential markets and customers and international competition. In addition, Tay (2006) argued that the major concerns of SMEs are on revenue and profitability as their survival depends greatly on their ability to generate revenue to sustain their business operations. Hence, impact of their business operations on employees, customers and community in general has become less of their priority. Due to various constraints, CSR initiatives may not be a priority in their business agenda. CSR initiatives, to a certain extent, require organizations to allocate funds that may not give direct benefit to them. SMEs can be characterized as lack of time and financial resources (Vives, 2006) and this may hinder SMEs from committing to CSR. III.

It has been argued that organizations operations and interaction with other stakeholders to a certain degree have an impact on society and the environment regardless of the size of the organization (Hopkins, 2003; Roche, 2002; Williams, 2005). Hence, CSR is important in all firms whether they are large or small. Despite the importance of CSR in all

METHODOLOGY

The study is exploratory in nature and hence, qualitative strategy through face-to-face interviews is deemed appropriate for the present study. This study adopts a similar approach used by Sweeney (2007) and Spence and Rutherfoord (2001). This approach is not only consistent with previous studies but is

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appropriate in achieving the research objectives. Interviews will be conducted using semi-structured interview methods as proposed by Birn (2000) and Creswell (1994) as it would enable the collection of valuable insights and increase our understanding on the phenomenon understudy. Semi-structured interview is one of the most widely used methods in qualitative research (Bryman, 2001) as it provides flexibility during the interviewing process.

B. Qualitative Data Analysis Data analysis and interpretation is the most critical part of qualitative research. This study will use the systematic analysis guideline proposed by Miles and Huberman (1994). The analysis consists of three concurrent flows of activities: (1) data reduction, (2) data reduction, and (3) conclusion drawing or verification.

The empirical domain for the study is organization among SMEs from various industries. Respondents will be obtained from the directory as listed in the SME Corporation Website http://www.smecorp.gov.my/.

IV.

Corporate social responsibility has become an important agenda for organizations to pursue. Clearly, further research is needed to provide better understanding on CSR initiatives pursued by organizations regardless of their size as their operations and interactions are linked to sustainable development.

SMEs in Malaysia are defined based on the identification of their sectors and subsectors. Generally, SMEs are divided into three main categories or sectors which include manufacturing, primary agriculture and services. These SMEs are defined based on their annual sales turnover or the number of full-time employees. Table I, summarize the definition adopted by SME Corporation, Malaysia.

This study is expected to provide an in-depth understanding on the perception of SMEs towards CSR. This research is to filling the gap in literature in relation to CSR particularly among SMEs in Malaysia. In the context of academic research, it is hoped that this research provides a basis for further investigation on CSR initiatives by SMEs.

Table I: Definition of SMEs by annual sales turnover and number of employees Sector Size Micro

Manufacturing (including Agro-based & manufacturing related services) Less than RM250,000 OR employees less than 5 From RM250,000 to less than RM10 million OR from 5 employees to less than 50

Primary Agriculture

CONCLUSION

Services Sector (including ICT)

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Less than Less than RM200,000 RM200,000 OR employees OR employees less less than 5 than 5 Small From From RM200,000 to RM200,000 to less than RM1 less than RM1 million million OR from 5 OR from 5 employees to less employees to than 20 less than 20 Medium From RM10 From RM1 From RM1 million million to less million to less to less than RM5 than RM25 than RM5 million million million OR from 20 OR from 50 OR from 20 employees to less employees to less employees to than 50 than 150 less than 50 Source: SME Masterplan 2012-2020, Catalyzing Growth and Income

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