The Environment in an Emerging Economy
An Empirical Research Study on Environmental Management Systems among Small and Medium Sized Enterprises in Cambodia
Name: Dorian van der Mullen, 12013250 Subject: Master’s Thesis MSc Entrepreneurship
Date: 01.07.2018
2 This document is written by Dorian van der Mullen who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 1. Abstract
Small and Medium Sized Enterprises (SMEs) have a crucial economic and environmental impact, especially in developing countries. However, the Environmental Management (EM) practices among SMEs in such countries is an under-researched topic. In this study, I aim to fill this gap by examining the awareness of EM and the application of both formal and informal Environmental Management Systems (EMSs) among Cambodian SMEs. On top of that, it was investigated how the origin of an SME’s owner-manager and the customer base influences the actual implementation of such systems. The findings show that firms with a foreign customer base have a higher application of EMSs. A high awareness of EM by the manager results in a higher implementation of EMSs. In addition, Khmer owner-managers are found to have a higher application of EMSs than their foreign counterparts. Moreover, the results indicate that there is a difference in the implementation of EMSs between small and medium-sized businesses – Medium sized SMEs score higher on the application of EMSs than small SMEs.
4 2. Introduction
People have come to realize that reducing our global environmental impact is of utmost urgency – as global warming can threaten our habitat. Emission of greenhouse gases such as CO2 will lead to global warming, the uncontrolled discharge of liquid chemical waste can destroy surface waters, and throwing away plastics and other synthetic packaging can severely disturb the ecosystem (Kaika & Zervas, 2013). Because of this alternative resources, energy reduction, and recycling are significant challenges and of utmost importance. In this context, environmental related phenomena are widely discussed in both the academic as well as the public field.
An important role in the impact of industrial activities on the environment is played by Small and Medium sized Enterprises (SMEs). SMEs have distinct characteristics in terms of employees – they are relatively small but combined account for a large part of the global economy and have a significant environmental impact (Curran & Hollander, 2015). As such, it is not a surprise that environmental topics such as Corporate Social Responsibility and Environmental Management among SMEs are widely studied in the academic field (Puppim de Oliveira & Jabbour, 2017; Cassells & Lewis, 2011; Parsons & Kriwoken, 2010; Gadenne, Kennedy & McKeiver, 2009). In the current study SMEs are defined as; Registered
companies that have up to 99 Full Time Employees (FTEs) (McKeiver & Gadenne, 2005). Environmental Management (EM) is referred to as how companies deal with the
environment (Brammer, Hoejmose & Marchant, 2012). Environmental Management Systems (EMSs) are concrete systems that a company can incorporate in its organization in order to reduce its environmental impact (Ferenhof, Vignochi, Selig, Lezana, & Campos, 2014). The application of EM practices among SMEs is diverse – some SMEs do not pursue EM
practices at all, while others have made their core business out of EM practices (Parker, Redmond & Simpson, 2009).
Especially in developing countries the protection of the environment is a major issue. This is due to rapid economic growth and the poor waste-management infrastructures that are usually in function (Denney, 2016). For instance, Cambodia, located in South East Asia, uses about ten times the number of plastic bags as their counterparts in China and Europe.
Combined with the poor education level, limited awareness, and meager waste-management systems makes pollution a serious and evident problem in this country (Ellen, 2018; Denney, 2016).
Where a lot of research has been done on Corporate Social Responsibility (CSR) and Environmental Management Systems (EMSs) among SMEs in general, there is a missing link
5 when it comes to SMEs in developing countries, even though this understanding can be considered all the more important (Jamali, Lund-Thomsen, & Jeppesen, 2017). In such countries, SMEs often constitute a large part of the economy and have a significant impact on the environment (Revell, Stokes, & Chen, 2010). For instance in Cambodia, SMEs account for the majority of all businesses (Enterprise Survey, 2017).
In order to fill this gap, this research study aims at gaining a deeper understanding of the attitudes towards the environment, as well as the actual implementation of both formal and informal Environmental Management Systems (EMSs) among Cambodian SMEs. Such findings will be of value for both scholars and practitioners, as it will provide new academic insights that can be used for further research. On top of that, the findings can function as a foundation to find ways on how to effectively stimulate SMEs to engage more in EM practices. Therefore, this study aims at answering the following central research question: What are the attitudes and practices of Cambodian SMEs regarding Environmental Management?
This central research question can be split into the following sub-questions. • What is the Awareness of EM among Cambodian SMEs?
• What is the application of formal EMSs among Cambodian SMEs? • What is the application of informal EMSs among Cambodian SMEs?
This report is structured as follows. First, a literature review on Environmental Management, SMEs, and relevant constructs is described. Second, the conceptual model and alternative hypotheses are presented. Third, a thorough description of the research methodology is given. Fourth, the results of the empirical research are analysed and described. Last, the findings are reflected on literature and the study’s limitations and implications for future research are presented.
6 3. Literature Review
3.1 Environmental Management (EM)
The concepts Corporate Social Responsibility (CSR) and Environmental Management (EM) among SMEs are widely studied (Puppim de Oliveira & Jabbour, 2017; Cassells & Lewis, 2011; Parsons & Kriwoken, 2010; Gadenne et al., 2009). CSR is in literature generally used as an overall term to describe the complex and multi-faceted relationships between business and society and to account for the economic, social, and environmental impact of business activities (Jamali et al., 2017). EM, also referred to as Corporate Greening (Banerjee, 2001), is the practice of how companies respond to environmental issues (Brammer et al., 2012).
Firms have different options in integrating EM as it can be done at different levels and using different methods (Banerjee, 2001). Different themes of Corporate Greening have been identified in past research (Ahmed, Montagno & Firenze, 1998; Azonne, Bertele & Noci, 1997; Caldwell & Smallman, 1996; Roome, 1992; Steger, 1990) – These include
environmental influences on strategic choices, internal structure reform, supply chain management, stakeholder management, and competitive advantage.
A study done by Banerjee (2001) on EM among businesses built on Corporate Greening themes was focused on the four broad areas; employee focus, manufacturing focus, corporate focus, and marketing focus. Those areas contained in total 25 different items, measured on a “yes” or “no” scale, obtained from a literature review as well as exploratory field research. The constructs and items have been used in other studies to measure EM among SMEs (Brammer et al., 2012).
Others have built on stakeholder theory to identify four important antecedents of corporate environmentalism, namely; public concern, regulatory forces, competitive advantage, and top management commitment (Banerjee, Iyer, & Kashyap, 2003). Banerjee et al. (2003)
developed a framework to test several hypotheses and made a distinction between internal and external environmental orientation.
An Environmental Management System (EMS) can in addition to EM be considered as a more concrete, pragmatic term which can be defined as “the systematic application of
business management to environmental issues” (Florida & Davison, 2001, p. 65). Companies can use such systems to reduce their environmental impact and can incorporate them into existing business systems or processes (Ferenhof et al., 2014). EMSs are viewed as valuable instruments that can be utilized by companies to manage their environmental performance (Biondi, Frey, & Iraldo, 2000).
7 The most well-known (formal) EMSs are those described in ISO 14001 – developed and published by the International Organization for Standardization (ISO) (iso.org/iso-14001, 2018), and the management instrument Eco-Management and Audit Scheme (EMAS) – established by the European Commission in order for organizations to evaluate, report and improve their environmental impact (ec.europa.eu/environment/emas, 2018). Both systems are recognized worldwide.
Despite the popularity of those formal EMSs, it must be recognized that many businesses might be engaged in environmental practices or are environmentally friendly without being involved in formal certification processes (Hillary, 1999). This is also stated by Biondi et al. (2000), where it is stressed that the new regulations from EMAS II offers SMEs the
opportunity to implement informal EMSs without formalizing any activity.
McKeiver and Gadenne (2005) make in their study a distinction between formal and informal EMSs. Where the formal EMSs are mostly related to formal certification processes, they argue that a definition of informal EMSs is lacking in literature. Therefore, they initiated informal EMSs based on responses to questions on environmental activities such as waste management, recycling, and energy conservation (McKeiver & Gadenne, 2005).
3.2 SMEs and Environmental Management (EM)
SME is a widely adopted term which stands for Small and Medium Sized Enterprise (europa.eu, 2018). However, the definition of an SME varies widely between countries (Parker et al., 2009; Hamonangan, 2009). The EU proposed a universal definition for Europe (User Guide to the SME Definition, 2015), whereas the US has no universal definition (Small and Medium-Sized Enterprises, 2010). Usually staff headcount and turnover or balance sheet total are used to determine whether a company is an SME (europa.eu, 2018; Parker et al., 2009).
For the sake of clarity, this study splits Cambodian companies on the level of staff headcount and defines Cambodian SMEs as; The registered companies that have up to 99 Full Time Employees (FTEs). A distinction between micro, small, and medium SMEs is made. This definition is adapted from Enterprise Survey (2017).
8 Table 1. SME distribution
SMEs constitute a large part of our global economy(Parker et al., 2009; Gadenne et al., 2009), and are considered to have a strong environmental impact (DiPeso, 2008). However, they often have limited resources, knowledge, and technical capabilities, that make it hard to manage their negative environmental impact (Parker et al., 2009). Moreover, they face more challenges than, and are more reactive to CSR than large corporations (Demuijnck &
Ngnodjom, 2013; MacGregor & Fontrodona, 2011). Given their environmental impact, it can be considered of vital importance that SMEs develop a focus on environmental sustainability (Curran & Hollander, 2015).
Previous work on EM practices among SMEs indicates that the degree of engagement in such practices can vary largely (Parker et al., 2009). Different SME categories that emerged from a review done by Parker et al. (2009) are; profit driven, compliance driven, advantage driven, and environment driven. Key factors for participation in environmental management were, similar to Banerjee et al. (2003) divided into external and internal factors. External factors are; regulations, financial incentives, assistance/education, and external demand, while internal factors are; knowledge of, commitment to, and increased business performance achievable from environmental improvement (Parker et al., 2009).
SMEs are in general expected to engage less in CSR and EM practices in comparison to their larger counterparts (Udayasankar, 2008; Lepoutre & Heene, 2006). They often lack resources, which is in prior research found to be the main barrier to implement such practices (Sweeney, 2007). Similarly, Del Brío and Junquera (2003), as well as Noci and Verganti (1999) stress that SMEs often lack financial resources, which is why they cannot allocate funds to environmental initiatives. This is supported by Bianchi and Noci (1998), who argue that a so called ‘greening strategy’ requires resources and skills that are in many cases not available in SMEs.
Past research found some important differences among small and medium sized SMEs. For example, a previous study by Brammer et al. (2012) found that medium sized firms have a higher degree of participation in, and perceive greater benefits from EM practices in
FTEs
Micro 1-4
Small 5-19
9 comparison to smaller firms. Medium sized firms have in general more (financial) resources than their smaller counterparts, which could be an explanation for their higher degree of participation in environmental practices. In addition, other studies found that smaller firms are less strategic regarding their environmental business practices (Revell & Blackburn, 2007; Graafland, Van de Ven & Stoffele, 2003). The study done by Brammer et al. (2012) on environmental initiatives among SMEs in the UK found that medium sized businesses gain greater commercial payoffs, mainly related to long-term financial benefits and increased market share. On the other hand, some scholars stress that smaller firms may be more flexible, and therefore able to exploit environmental niche opportunities, meaning that they could potentially benefit more from EM than their larger counterparts (Bowen, 2002). Small and medium-sized businesses differ too on legislation, which is by Brammer et al. (2012) found to be a greater driver for medium sized firms.
3.3 Developing countries
Developing countries are often considered to be distinct from the more developed countries when it comes to their environmental impact. One of the most well-known theories in this area is the Environmental Kuznets Curve (EKC) theory – named after Kuznets (1955). The EKC theory explains an economy’s relationship between economic growth and environmental degradation (Saboori, Sulaiman, & Mohd, 2012). Economic growth generally leads to
environmental deterioration, though, according to the EKC theory, at a certain point of economic growth the prosperity reduces the environmental degradation (Kaika & Zervas, 2013). For example, in the early stages of economic growth, eco-friendly infrastructures, proper waste management systems, and overall awareness are lacking. As the economy becomes more developed and income per capita increases, such problems are often being solved. For example, Saboori, Sulaiman, and Mohd (2012) in their study found an inverted U-shape relationship between CO2 emissions and GDP in Malaysia. Please see Figure 2 on page 28 for the EKC’s inverted U-shape.
SMEs in developing countries can also be considered to be distinct from their counterparts in the more developed countries (Jamali et al., 2017). For example, there is usually little regulatory oversight and enforcement by the governments in developing economies when it comes to environmental regulations (Blackman, 2006; Tewari & Pillai, 2005). This is supported by other studies, such as the one done by Hamann, Smith, Tashman, and Marshall (2017), who found that formal institutions do not affect the daily operations of South African SMEs active in the wine industry. Moreover, SMEs in developing countries often represent
10 the vast majority of businesses – with micro-enterprises playing a particularly important role (Jamali et al., 2017).
3.4 Cambodia and Cambodian SMEs
Cambodia – officially known as the Kingdom of Cambodia – is a country located in Southeast Asia. The kingdom has a rich and vibrant, yet also a somewhat tragic history. The Khmer rouge, the Cambodian communist party which carried out the Cambodian genocide that took place between 1975 and 1979 – killing 25% of the entire population – has left his tracks on the country and its Cambodian (Khmer) citizens (Brinkley, 2011).
Despite the country’s history, Cambodia’s future can be perceived as bright. The country has experienced high economic growth in the past decade. By sustaining an average annual growth rate of 7.6% in 1994-2015, the country ranks sixth in the world with respect to growth rate (worldbank.org/cambodia, 2018). According to the World Bank, Cambodia had a
population of more than 15.7 million people in 2016, with a mean age of 27 years the youngest population in Southeast Asia – 41.7% (approximately 6.6 million people) of the population is under 20 (worldbank.org/cambodia, 2018). This large base of young people and a skilled population provides good opportunities for economic development (Zollinger & Sok, 2015). The major cities Phnom Penh, Siem Reap and Sihanoukville have emerged as hotspots for Cambodian retailers, mainly due to the emerging middle class that can afford more
premium or sophisticated products. The majority of the population is living in rural areas, though urbanization is expected to increase in the near future, mostly due to projected labour opportunities (Zollinger & Sok, 2015).
Cambodian SMEs constitute a large part of the Cambodian economy. Micro, small and medium enterprises account for 99.9% of all companies, with most firms being located in Phnom Penh and the most economically active areas such as Kampong Cham, Siem Reap, Battambang, Kandal, and Takeo (Vathana, 2014). The majority of enterprises are in the service sector (85.8 percent), followed by manufacturing (14.1 percent).
Exploratory field research of this study has indicated that EM practices are poor among Cambodian enterprises. There are no incentives offered to companies to be environmentally friendly, and larger companies tend to be more likely to have CSR programs (Hesketh, 2018), which is in line with findings of previous studies (Brammer et al., 2012; Blackman, 2006; Tewari & Pillai, 2005). For example, big Cambodian hydropower companies often have to commit to certain environmental standards, but these are not strictly enforced by the government (Hesketh, 2018).
11 3.5 Customer base
The customer base of a company is considered to have a large impact on its actual
environmental behaviour (Bianchi & Noci, 1998). As explained by Bianchi and Noci (1998), the major opportunities resulting from environmental management may be related to
increasing market share of so called ‘green’ customers. This is related to the environmental niche opportunities for smaller firms as stressed by Bowen (2002). The introduction of an environmental pro-active strategy within SMEs can partly be fostered by a change in the level of environmental awareness in the public opinion (Bianchi & Noci, 1998). Similarly, the study done by Banerjee et al. (2003) identified customers as one of the key antecedents to environmentalism.
In contrary to the study of Bianchi and Noci (1998), more recent research indicates that more customers are tending to purchase green products and are willing to pay comparatively higher prices for such products (Chen, 2008; Zhou & Schoenung, 2007), which indicates a trend of increased awareness of the environment among customers. Moreover, the study done by McKeiver and Gadenne (2005) among owner-managers of SMEs in Queensland found that customers and employees were significantly associated with the informal level of
implementation of an EMS. Customers can be considered as an external influence on environmental management behaviour (McKeiver & Gadenne, 2005).
It can be considered of importance to note that the studies described above are all
conducted in Western economies (e.g. United Kingdom and Australia). However, it should be recognized that CSR and related activities in developing countries – such as Cambodia – are distinct from more developed countries (Jamali et al., 2017). Cambodian people are in general expected to be less environmental aware and less willing to pay premium prices for
environmental products or services (Daniels, 2018; Ellen, 2018). 3.6 Attitudes and awareness of EM
Attitude can be considered of vital importance in evaluating the EM practices of an SME (Gadenne, Kennedy, & McKeiver, 2009; Hillary, 2004; Dewhurst & Thomas, 2003). In the current study attitude is defined as; A person's evaluation of the entity in question (Ajzen & Fishbein, 1977). The person in this context is the SME owner-manager, where the entity in question is the environmental impact of the company, as well as the environmental practices that can be undertaken to reduce this impact.
The attitude of the owner-manager plays a key role in determining the nature of the firm’s engagement in EM practices (Dewhurst & Thomas, 2003). Moreover, the perception of SME
12 owners and managers can be considered important as prior research found that they generally believe that their company has little impact on the environment (Gadenne et al., 2009). Awareness is an important construct in this, as SMEs often lack the awareness of potential benefits related to the implementation of EMSs (Hillary, 2004). Moreover, both the
knowledge of the benefits and a lack of awareness of an SME’s impact on the environment are expected to influence the decision to implement EM practices (Gerrans & Hutchinson, 2000; Hillary, 1999).
Previous research found that a lack of action in the context of the firm does not always reflect the personal attitudes of the SME owner or manager (Cassells & Lewis, 2011; Schaper, 2001:3). Gadenne et al. (2008) similarly found that strong positive environmental attitudes do not necessarily translate into proactive behaviour, meaning SME owner-managers manage to separate their beliefs about the environment from their business attitudes, or are unaware of the impact or do not know what they can do to improve the environmental outcomes of their business (Gadenne et al., 2009). Attitudes and awareness of the SME owner-manager can be considered an internal influence on environmental management (McKeiver & Gadenne, 2005).
13 4. Conceptual Model
In this section, a conceptual model containing 5 alternative hypotheses will be presented. These hypotheses will be tested by the use of quantitative data gathered from field research. 4.1 Alternative hypotheses
The exploratory research related to this study indicates that it is safe to assume that SMEs serving mostly non-local, foreign customers are more likely to adopt EMSs than firms that serve local Khmer customers. This because of the expected difference in awareness among these customer types (Daniels, 2018; Ellen, 2018). For this reason, the following hypothesis has been formulated.
H1: SMEs that have a high number of foreign customers will have a higher implementation of EMSs.
As described in the literature review, previous research indicates that medium sized SMEs often more actively participate in EM practices than their smaller counterparts. Therefore, the following hypothesis has been formulated.
H2: Medium sized SMEs will have a higher implementation of EMSs than small sized SMEs.
SMEs that have an owner-manager with a foreign nationality are expected to have a higher degree of participation in EM practices. This, again, because Khmer people are expected to differ from Western people on the awareness of the impact SMEs have on the environment (Daniels, 2018; Ellen, 2018). For this reason, the following hypotheses have been formed.
H3: SMEs with a non-Cambodian owner-manager will have a higher awareness of EM than SMEs with a Cambodian owner-manager.
H4: SMEs with a non-Cambodian owner-manager will have a higher implementation of EMSs than SMEs with a Cambodian owner-manager.
As previous research found that a lack of action in the context of the firm does not always reflect the personal attitudes of the individual SME owner or manager (Cassells & Lewis,
14 2011; Gadenne et al. 2008; Schaper, 2001:3), the following hypothesis has been formulated in order to test whether this is also the case for Cambodian SMEs.
H5: SMEs with an owner-manager with a high awareness of EM will have a higher implementation of EMSs.
4.2 Overview of alternative hypotheses
As indicated by the hypotheses, influences – divided into internal and external – are expected to influence the actual application of EMSs. Customer base and company size are classified as external influences, while awareness and owner-manager characteristics are classified as internal influences. In addition, the origin of the owner-manager is expected to influence his/her awareness.
External influences Level of EM
Internal Influences
Figure 1. Hypothesized influences on the application of EMSs, adapted from McKeiver and Gadenne (2005). Awareness Customers Size Formal Owner-Manager’s Origin Informal
15 5. Research Methodology
5.1 Research design
A quantitative method has been chosen as main research tool. This method is considered to be most suited to test the hypotheses that were given in section 4.1. This quantitative approach has been selected, since scales and items that have proven to be effective in past studies can be used to measure the key constructs. In addition, with concerns to data collection,
quantitative data was expected to be more feasible to collect. This because of the difficulties that come with collecting qualitative data in a foreign country when the researcher does not speak the local language.
A questionnaire has been used as the main instrument of research. The survey was initially set-up in English and translated in the local Khmer language by Mr. Kay Rithy –
Vice-President of Cambodian Mekong University (CMU) – to overcome the language barrier. Most respondents were surveyed by the use of the Khmer version, though the English questionnaire has also been used to survey respondents. This English version was especially useful in the case of foreign owner-managers.
In addition to the quantitative research based on the questionnaire, some exploratory research has been done in the form of interviews, in which relevant parties were interviewed. This exploratory research was used as input for the theoretical design. Summaries of the interviews can be found in the appendix on page 37.
The non-probability sampling method convenience sampling was used, which means that companies that were close to hand and willing to cooperate were selected as part of the sample (Blumberg, Cooper, & Schindler, 2014). The main reason this method was chosen over a probability sampling is the lack of time and resources. All industry types were included in the sample. The sample has been steered in terms of selecting companies based on the nationality of the owner-manager and the nationality of the customer base in order to obtain significant groups related to the hypotheses of the study.
5.2 Research context
The context of this research study is situated in the domain of CSR among companies. More specifically, it is focused on the awareness that owner-managers of Cambodian SMEs have in terms of their company’s environmental impact, as well as their actual implementation of EMSs. The definition of an owner-manager of an SME was adapted from McKeiver and Gadenne (2005), and defined as; A person(s) who owns and/or manages an independent
16 Cambodian registered enterprise which employs up to 99 people. The SME owner-manager can be seen as the unit of analysis of this study, as it can be considered as the level at which the research is performed (Blumberg et al., 2014).
5.3 Data collection
The data collection has been carried out during a 3 week period in May, 2018. Owner-managers of companies located in Phnom Penh and Siem Reap were directly approached in person. I was very fortunate to have assistance from Mr. Kao Sokheng and Mr. Den
Virakyuth, both students at CMU. In many cases their help was needed to overcome the language barrier and to assist the respondents in understanding the questions correctly.
In total approximately 150 companies were approached. Feasibility played an important role in selecting the companies – Companies were mostly selected based on being close to hand, easy to approach, within the network of the researchers, or located in a specific (international) area. The selection of respondents was therefore not totally random. This has consequences on the distribution of the sample, with as consequence that the production sector is underrepresented and that most companies are active in the business-to-consumer market.
As much as 102 companies were willing to participate in the research, which represents a relatively high response rate of 68%. This high response rate could possibly be explained by the personal approach.
5.4 Measures & operationalization
The key constructs of this study are; 1) awareness of EM, 2) the application of formal EMSs, and 3) the application of informal EMSs. All key constructs were measured by the use of items and scales that have been proven to be reliable measures in past studies (McKeiver & Gadenne, 2005). In addition, customer base and employee base are constructs that were measured in order to obtain insights on how international customers and employees influence the actual application of EMSs. Below I start with a discussion of the key constructs.
Awareness is considered as the extent to which the SME owner-manager is aware of the impact of the company on the environment. It is measured by items such as my company has an environmental impact. Formal EMSs are related to formal environmental certification processes such as ISO 14001. The scale of the construct formal EMS represents the requirements of ISO14001 (iso14001.com.au/iso-14001-requirements.html, 2018), and contains items like making specific staff responsible for environmental activities and having a
17 written policy. In contrast, informal EMSs are not related to any formal certification
processes, and measured by items such as contributing money or in kind to environmental organizations. The construct awareness of EM as well as the constructs formal and informal EMS contained 8 items, and were measured on a 5-point Likert scale, from Never to Always – meaning the score range for every key construct was 5 to 40. Customer base and employee base were measured by asking respondents how would you specify your customer/employee base in terms of nationality?, and were also measured on a 5-point Likert scale, ranging from (Almost) Only Khmer, Mostly Khmer, Both Foreigners and Khmer, Mostly Foreigners, to (Almost) Only Foreigners – meaning the score range for both constructs was 1 to 5. An overview of the constructs and items used to measure the constructs can be obtained from the questionnaire listed in the appendix on page 43.
5.5 Data analysis
After data collection, the data was coded and analysed by the use of the software SPSS. First, the data was checked for missing values and outliers. Next, an Exploratory Factor Analysis (EFA) was performed in order to determine the validity of the constructs. The EFA resulted in a statistically significant model at p = < .001. KMO is .76, meaning there is a good sampling and the matrix of variables can be factored. 8 factors emerged from the analysis that together account for 71.2% of the variance. The rotated factor matrix indicates that the items of the constructs group together to some extent, though not completely. The output of the EFA can be found in the appendix on page 50.
In order to test the reliability – which can be viewed as to what extent the questionnaire consistently reflects the construct it is measuring (Field, 2013) – the Cronbach’s alpha measure was used. The reliability analysis was performed for each construct independently. All main constructs can be considered reliable, each having a Cronbach’s alpha measure which are on or above the .70 threshold – More specifically, for awareness I found α = .70, for formal EMS α =. 80, and for informal EMS α = .80. In conclusion, the constructs can be considered reliable, but do not have a strong validity.
After the validity and reliability measures, descriptive statistics of the sample profile, such as industry and company size were generated. In addition, the Mann-Whitney U test was used in order to test the hypotheses. These analyses will be described in more detail in the next section.
18 6. Data analysis and Results
6.1 Sample profile
The total number of respondents is 102. A number of questionnaires were incomplete and could therefore not be used in the analysis – resulting in a final sample of 98 respondents. The majority of the respondents are men (63%), whereas women account for (37%) of the sample. The average age of the respondents is 35 years. Approximately (29%) of the respondents are owners, (61%) are managers, and (10%) are employees. (41%) of the companies have 1-4 FTEs and are classified as micro enterprises. (42%) of the companies have 5-19 FTEs and are classified as small enterprises. Approximately (15%) of the companies have 20-99 FTEs and are classified as medium enterprises. About (2%) of the companies have more than 99 FTEs and are classified as large enterprises. The overall majority (90%) of the respondents are Cambodian. The remaining (10%) are from different countries and classified as foreigners. The main industries represented in the sample are; Retail (36%), Hotels and Restaurants (21%), Wholesale (11%), and Other (9%). The vast majority (93%) of the companies are based in Phnom Penh, while (6%) are based in Siem Reap. It should be noted that the
manufacturing (4%) industry – which is known to have a big impact on the environment – is relatively underrepresented in the sample.
Industry # %
Retail 35 36%
Hotels and restaurants 20 20%
Wholesale 11 11%
Other 9 9%
Table 2. Sample by industry
Company size Size # %
Micro 1-4 41 42%
Small 5-19 41 42%
Medium 20-99 14 14%
Large >99 2 2%
19 6.2 Key constructs
6.2.1 Awareness
Table 4 contains all items related to the awareness scale. Item 8 which refers to taking sufficient environmental action to meet legislation is scoring the highest (M = 4.26) on the awareness scale, though not every company is well aware of how legislation is affecting them (M = 2.73), as can be seen from the score of item 7. This could be explained by the fact that environmental standards are not strictly enforced by the government (Hesketh, 2018). The items Reducing our environmental impact can have significant cost benefits (M = 4.02), #1 and Improving environmental performance usually improves production efficiency (M = 3.89) #2, have the second and third highest score on this scale. This shows that respondents are aware of the (positive) impact that environmental initiatives can have on the business. This is also supported by the items focused on the actual benefits (M = 3.48) and (M = 3.06). Surprisingly, respondents rate the environmental impact of their business the lowest
(M = 1.89). This could possibly be explained by the industry distribution of the sample, as the majority of companies are active in industries that in general are associated with having a relatively low environmental impact – manufacturing industry being underrepresented. What represents ‘best practice’ in environmental performance can be considered to be generally understood by companies (M = 3.42). Overall, the construct awareness has a mean score that lies slightly above the median of the scale, which ranges from 5 to 50 (M = 26.7, SD = 4.8). From this it can be concluded that the awareness of environmental management is moderate among the sample.
# Item Mean
1 Reducing our environmental impact can have significant cost benefits 4.02 2 Improving environmental performance usually improves production efficiency 3.89
3 My company has an environmental impact 1.89
4 Business environmental initiatives are of benefit to my company 3.48 5 It is clear what represents ‘best practice’ in environmental performance 3.42 6 There are currently commercial benefits to my company in having an
environmental policy
3.06
7 It is clear how legislation affects us 2.73
8 We take sufficient environmental action to meet legislation 4.26 Table 4. Results items on awareness of Environmental Management
20 6.2.2 Formal Environmental Management System (EMS)
Table 5 gives the items corresponding to this construct formal EMS with the corresponding scores. Item #1 being focused on ensuring that the business is complying with all laws and regulations has the highest mean score on the informal EMS scale (M = 3.97). This is in line with scores on similar items in the previous described construct, awareness. Item #2 Making specific staff responsible for environmental activities has a similar mean score (M = 3.82). Whereas item #7 on Conducting an energy audit (M = 1.87) and item #3 Environmental audit (M = 2.39) have a relatively low mean score, indicating that such audits are not common among the sample. Having a written policy (M = 2.47) item #6, using outsider advisers (M = 2.39) item #5, and detailing environmental activities in the business plan (M = 2.50) item #4, are all items that have an average mean score. Subscribing to a formal certification program is among the sample uncommon, as this item has the second lowest mean score (M = 1.97). Overall, the construct formal EMS has a mean score that lies below the median of the scale (M = 21.3, SD = 5.8). From this it can be concluded that the application of formal EMSs is rather poor among the sample.
# Item Mean
1 Ensuring that your business is complying with all relevant environmental laws and regulations
3.97
2 Making specific staff responsible for environmental activities 3.82
3 Conducting an environmental audit 2.39
4 Detailing environmental activities and impacts in the business plan 2.50 5 Using outside advisers to help improve environmental performance 2.39
6 Having a written policy 2.47
7 Conducting an energy audit 1.87
8 Subscribing to a formal environmental certification program (such as ISO 14001 or EMAS or similar)
1.97
21 6.2.3 Informal Environmental Management System (EMS)
Changing business processes to reduce waste (M = 3.55) item #1, and item #6 focused on training staff on environmental issues (M = 3.42) are the highest scoring items of this scale. The reduction of the amount of packaging used in the products sold is also common among the sample (M = 3.21). Incorporating environmental messages in product marketing or packaging (M = 2.81) item #8, Changing business processes to reduce raw materials consumed (M = 2.77) item #3, and The use of recycled packaging in the products being sold (M = 2.62) item #4, have all similar mean scores. Interestingly, the change of business processes and the use of recycled packaging both differ rather strongly from the item
changing business processes to reduce waste. Contributing money or in kind to environmental activities in the community (M = 2.99) item #5, and Contributing money or in kind to
environmental organizations (M = 2.86) item #7, have similar mean scores, indicating that it is among the sample not uncommon to contribute money to environmental initiatives. Overall, the construct informal EMS has a mean score of (M = 24.2, SD = 6.0).
# Item Mean
1 Changing business processes to reduce waste 3.55
2 Reducing the amount of packaging used in the products you sell 3.21 3 Changing business processes to reduce raw materials consumed 2.77 4 The use of recycled packaging in the products you sell 2.62 5 Contributing money or in kind to environmental activities in the community 2.99 6 Conducting staff training on environmental issues 3.42 7 Contributing money or in kind to environmental organizations 2.86 8 Incorporating environmental messages in product marketing or packaging 2.81 Table 6. Results items on informal Environmental Management Systems
6.2.4 Conclusion
The construct awareness has the highest mean score (M = 26.7). From this it can be concluded that the companies in the sample are generally aware of the impact of their enterprise on the environment. Legislation is an important aspect in this, though owner-managers are not always aware how it is affecting them. Informal EMSs (M = 24.2) are more common than formal EMSs (M = 21.3). Audits and subscribing to formal certification
22 6.3 Customer base
The responses from the question on the customer base, measured on a 5 point Likert scale, were split into two groups – 1) Khmer and 2) Foreigners. Responses 1) (Almost) Only Khmer and 2) Mostly Khmer were classified as Khmer, where responses 3) Both foreigners and Khmer, 4) Mostly foreigners, and 5) (Almost) only foreigners, were classified as foreigners. This because from the response number 3) Both foreigners and Khmer, international influence is expected to play a role. The Khmer group accounts for (45%) of the sample, with the
majority (29%) being classified as mostly Khmer. The foreigner group accounts for (55%) of the sample, with the majority (38%) being classified as both foreigners and Khmer.
Khmer # %
- (Almost) only Khmer 16 16%
- Mostly Khmer 28 29%
44 45%
Foreigner # %
- Both foreigners and Khmer 37 38%
- Mostly foreigners 12 12%
- (Almost) only foreigners 5 5% 54 55% Table 7. Customer base by origin
6.4 Employee base
The employee base of the sample mostly consists of local Khmer. The same distribution as the customer base scale has been used. Companies employing mostly foreigners were hard to find, which could be due to the specific industries of the sample as well as the fact that Khmer employees are in general cheaper than foreigners. Khmer employees account for (91%) of the sample, and (74%) of the companies indicates it has almost only Khmer employees.
Foreigners account for (9%) of the sample, with (7%) accounting for both foreigners and Khmer.
23
Khmer # %
- (Almost) only Khmer 72 74%
- Mostly Khmer 17 17%
89 91%
Foreigner
- Both foreigners and Khmer 7 7%
- Mostly foreigners 1 1%
- (Almost) only foreigners 1 1%
9 9%
Table 8. Employee base by origin
6.5 In-depth analysis
In this in-depth analysis each null-hypothesis is tested by the use of statistical models. In order to make this section more self-contained each null-hypothesis is stated before it is analysed. Histograms and tables related to the analysis can be found in the appendix on page 65.
Null-hypothesis 1
SMEs with a high number of foreign customers do not differ on the implementation of EMSs from SMEs with a low number of foreign customers.
In order to test the first null-hypothesis, I combined informal and formal EMS into one variable, representing the overall application of EMSs. Next, it was investigated whether the data is normally distributed. The Khmer distribution is slightly skewed to the right (S = .06), and the foreigners distribution is skewed to the left (S = -.81). Kurtosis of Khmer is (K = .32) and foreigners is (K = .67). The mean of EMS for the Khmer customer base is (M 43.2). The mean of EMS for the foreigner customer base is (M = 47). Meaning numerically, that
companies with a foreign customer base score higher on EMS than companies with a Khmer customer base.
The skewness and kurtosis show that the data is non-normally distributed. For this reason, the Mann-Whitney U test was used to test the hypothesis (Field, 2013). Companies with a Khmer customer base have a Mean Rank of (MR = 43.2), and companies with a foreigner customer base have a Mean Rank of (MR = 54.6). U = 910.5, z = -1.984, and p =.047. The
24 difference in Mean Rank is significant at p = <.05 (2-tailed). This implies that we can reject the null-hypothesis which states that companies with foreign customers do not differ in the application of EMSs from companies with Khmer customers.
Null-hypothesis 2
Medium sized SMEs do not differ on the implementation of EMSs from small sized SMEs.
Micro (1-4 FTEs) and small sized (5-19 FTEs) firms were categorized as small SMEs, while medium sized (20-99) firms were classified as medium SMEs. The data is considered to be non-normally distributed – small SMEs have a skewness of (S = -.37) and a kurtosis of (K = .23), and medium SMEs have a skewness of (S = -.30) and a kurtosis of (K = -.75). Thus, the Mann–Whitney U test was used to test the hypothesis. Small SMEs have a Mean Rank of (M = 46.5) and medium SMEs a Mean Rank of (M = 60.3). U = 408.5,
z = -1.720, and p = .085. The difference in Mean Rank is not statistically significant as p = > .05 (two-tailed). However, using a one-tailed test we do find a statistically significant result at p = < .05, meaning when using a one-tailed test we can reject the null-hypothesis which states that medium sized SMEs do not differ on the application of EMSs from small sized SMEs.
Null-hypothesis 3
SMEs with a non-Cambodian owner-manager will not differ on the awareness of EM from SMEs with a Cambodian owner-manager.
All respondents that are not Cambodian are classified as foreigner. The mean of awareness of environmental management for Cambodian owner-managers is (M = 26.9). The mean of awareness for foreign owner-managers is (M = 25.5). Numerically, Khmer owner-managers score higher on awareness than their foreign counterparts. The data is non-normally
distributed with Khmer having a skewness of (S = -.81) and kurtosis of (K = 1.2), and foreigners having a skewness of (S = -.20) and kurtosis of (K = .45). Given the non-normally distributed data, the Mann Whitney U test was used to test this hypothesis.
The results of the Mann-Whitney U test indicate that Khmer owner-managers have a Mean Rank score of (MR = 50.4), and foreign owner-managers have a score of (MR = 42.0). U = 364.5, z = -.889, and p = .374. This indicates that Khmer owner-managers have a higher awareness of environmental management than the foreign owner-managers. The findings are
25 however not statistically significant as p = >.05 (two-tailed), meaning we cannot reject the null-hypothesis that states SMEs with a non-Cambodian owner-manager do not differ on the awareness of EM from SMEs with a Cambodian owner-manager.
Null-hypothesis 4
SMEs with a non-Cambodian owner-manager will not differ on the implementation of EMSs from SMEs with a Cambodian owner-manager.
The mean of the application of EMSs for Cambodian owner-managers is (M = 46.7). The mean for foreign owner-managers is (M = 35.8). Numerically, Khmer owner-managers score higher on the implementation of EMSs. The data is again non-normally distributed. Khmer managers have a skewness of (S = -.24) and kurtosis of (K = -.08), and foreign owner-managers a skewness of (S = -.53) and kurtosis of (K = -1.38). The Mann-Whitney U test indicates that Khmer owner-managers have a Mean Rank score of (MR = 52.0). Foreign owner-managers have a Mean Rank score of (MR = 27.3). U = 217.5, z = -2.614, p = .009. The findings are statistically significant as p = <.01 (two-tailed). This indicates that the null-hypothesis can be rejected and that – in contrary to the alternative null-hypothesis – Khmer owner-managers have a higher application of EMSs than foreign owner-owner-managers.
Null-hypothesis 5
SMEs with an owner-manager who has a high awareness of EM will not differ on the implementation of EMSs from SMEs with an owner-manager who has a low awareness of EM.
The construct awareness has been divided into average and high awareness. Average
awareness represents a total score on the awareness scale between 5 – 27, and high awareness represents a total score between 28 – 50. Average awareness (M = 41.9) has a lower mean than high awareness (M = 49.6), meaning numerically owner-managers with a higher awareness score higher on the application of EMSs. The data is non-normally distributed – average awareness has a skew of (S = -.29) and kurtosis of (K = -.64), while high awareness has a skew of (S = -.11) and kurtosis of (K = 1.6). High awareness has a Mean Rank of (MR = 59.7) and average awareness has a Mean Rank of (MR = 40.1). U = 719, z = −3.41, and p = .001, meaning the difference in Mean Rank is statistically significant at the level p = <.01 (two-tailed). Thus, the null-hypothesis that states SMEs with an owner-manager who
26 has a high awareness of EM do not differ on the degree of implementation of EMSs from owner-managers with a low awareness, can be rejected.
Mean Rank U Z-score P-value H1 Khmer Foreigner 43.19 54.64 910.5 -1.984 .047** H2 Small Medium 46.84 60.32 408.5 -1.720 .085* H3 Khmer Foreigner 50.36 41.95 364.5 -.889 .374 H4 Khmer Foreigner 52.03 27.25 217.5 -2.614 .009*** H5 Average awareness High awareness 40.10 59.70 719 -3.414 .001***
Table 8. Results hypotheses testing *p = <.05(one-tailed) **p = <.05 (two-tailed) *** p = <.01 (two-tailed)
6.5.1 Conclusion
It can be concluded that companies with a foreign customer base have a higher application of EMSs than companies with a Khmer customer base, which supports the first alternative hypothesis. In contrary to the 4th alternative hypothesis, Khmer owner-managers are found to have a higher implementation of EMSs than foreign owner-managers. Moreover, SMEs with owner-managers who have a high awareness of EM score higher on the application of EMSs, which supports the 5th alternative hypothesis. Using a one-tailed test, medium SMEs are found to differ statistically significant from small SMEs in the application of EMSs, meaning the alternative hypothesis 2 is supported. Moreover, SMEs with a non-Cambodian manager do not differ on the awareness of EM from SMEs with a Cambodian owner-manager, meaning alternative hypothesis 3 is not supported.
27 7. Discussion and Conclusion
7.1 Findings in relation to literature
In this research study I aimed to shed greater light on the attitudes and practices of
Cambodian SMEs regarding Environmental Management (EM). More specifically, I looked at the environmental awareness of SME owner-managers, the actual application of formal and informal EMSs, and the effect of international influences on the awareness and
implementation of EMSs.
The attitudes of owner-managers of Cambodian SMEs regarding Environmental
Management (EM) can be considered to be moderate – In general, owner-managers are aware of environmental related issues and have a proactive attitude towards them, though they tend to rate their overall environmental impact as low, which is in line with findings of previous research studies (Gadenne et al., 2009). The application of formal EMSs is uncommon – Few companies apply for formal certification programs such as ISO14001 or EMAS. The
implementation of informal EMSs can be considered to be more common among the sample. Similar findings were found in previous studies (McKeiver & Gadenne, 2005).
Consistent with prior research (Brammer et al., 2012), this study indicates that small enterprises differ from medium sized enterprises on the actual application of EMSs. This shows it is important that SMEs will not be considered as a homogeneous group in future research.
Contrary to prior research (Cassells & Lewis, 2011; Gadenne et al., 2009; Schaper, 2001:3), this study shows that positive attitudes do reflect into proactive behavior – SME owner-managers who have a high awareness score higher on the application of EMSs.
Moreover, in contrast to previous research done by Hilary (2004), this study found that SMEs are in general aware of potential benefits related to the implementation of EMSs.
This study indicates that while most businesses put effort in complying with all
environmental-related regulations, it is often not clear to them how they are affecting them. This could be explained by the fact that existing environmental regulations are not strictly enforced by the Cambodian government (Hesketh, 2018), which is in line with previous studies on EM among SMEs in developing countries (Jamali et al., 2017; Blackman, 2006; Tewari & Pillai, 2005).
In the light of the effect of international influences, this study found that the origin of the company’s customers influences the actual implementation of EMSs – Companies with a foreign customer base tend to be more active in the application of EMSs. Other scholars
28 previously showed that a firm’s customer base can have a big impact on its environmental behavior (Bianchi & Noci, 1998), and that customers are often key antecedents to
environmentalism (Banerjee et al., 2003). This particular research study builds on this as it indicates that for Cambodian SMEs, a foreign customer base acts as a bigger catalyst for EMS implementation than a local customer base.
Contrary to the origin of the customer base, the origin of the owner-manager is not found to be a determinant of the awareness of EM. Khmer owner-managers do have a higher degree of EMS implementation than their foreign equals. This difference could possibly be explained by the age difference in the two groups – Khmer owner-managers have a mean age of
(M = 35) whereas foreign owner-managers have a mean age of (M = 40). Prior research found that younger owner-managers are more likely to have a positive attitude towards, and are overall more interested in, the environment (Schaper, 2001; Olli & Wollebaek, 2001). Similarly, McKeiver and Gadenne (2005) in their study found that young respondents are generally more likely to implement informal EMSs.
In terms of awareness and the implementation of EMSs, the results of this research study can be considered to be similar to the results of comparable studies done in more developed economies (Brammer et al., 2012; McKeiver & Gadenne, 2005). In this respect, a bridge can be build with the Environmental Kuznets Curve (EKC) theory, which explains a relationship between economic growth and environmental degradation (Saboori, Sulaiman, & Mohd, 2012). According to the EKC theory, the economic growth will eventually reduce the environmental degradation (Kaika & Zervas, 2013). Figure 2 shows the EKC’s inverted U-shape relationship between income and environmental degradation.
29 Cambodia has experienced two decades of strong economic growth and attained the lower middle-income status in 2015, having a gross national income per capita of US$1,070 at time of writing (worldbank.org/cambodia, 2018). Cambodia could possibly be past the turning point of the inverted U-shape as shown in Figure 2, where economic growth, improved technologies, waste management systems, and awareness cause reduced environmental degradation. This could explain the high awareness of EM and implementation of EMSs by Cambodian SMEs as found in this study.
7.2 Theoretical and practical contributions
This study builds on the existing literature of Environmental Management (EM) and the literature of the application of Environmental Management Systems (EMSs) by SMEs in specific. It applied the research to Cambodia, and by doing so has filled an important gap in terms of researching environmental phenomena among SMEs in developing countries (Jamali et al., 2017). In addition, this research study contributes theoretically in terms of assessing the effect of internal and external international influences on the awareness and actual application of EMSs by SMEs. Moreover, it builds on the well-established EKC theory by linking it to the environmental behavior of SMEs. These findings can be considered important for the academic field as they gain new insights on which scholars can build important future studies on.
The findings of this research study offer important implications for practitioners as well. For example, this study indicates that owner-managers are not aware of how legislation is affecting them. Local policy makers can use such findings in order to develop regulations and enforce them – which could potentially result in a higher awareness and application of EMSs by Cambodian SMEs. Similarly, organizations like EMAS and ISO14001 could use the results as an incentive to further promote their formal certification processes – as the findings of this study indicate that the application of such systems is poor. In addition, (nascent) business owners based in Cambodia can use the findings in order to choose their focus market and related customer base.
7.3 Limitations and future research
The general limitations of quantitative empirical research apply to this study as well. As a non-stratified sampling method was used, only companies in Phnom Penh and Siem Reap were part of the sample – companies in Phnom Penh being overrepresented. On top of that, foreign owner-managers were underrepresented, which increases the chance of a Type I error
30 – indicating there might be an effect which was not found due to the small sample size (Field, 2013). It must be recognized that the sample profile makes the findings of this study less generalizable to the entire Cambodian market as well as to other research settings. For example, SMEs in the more rural areas of Cambodia might be less engaged in EM related practices. In that context, the different definitions of SMEs worldwide also influences the generalizability of this study. Moreover, as the questionnaire was translated from English into Khmer there might have been misunderstandings of key concepts which are not identifiable by the researcher. Also, the personal support given during some of the questionnaires might have resulted in a social desirability bias. Finally, the views of SME owner-managers are overrepresented – It could be argued that in order to truly grasp the complex processes of CSR in SMEs, the views of employees must be represented as well (Jeppesen, Kothuis, & Ngoc Trân, 2012).
Future research could include the views of employees on CSR activities within SMEs in developing countries and relate this to the views of the owner-manager. Studies done in developed economies already found that employees are significantly associated with the informal level of implementation of an EMS (McKeiver & Gadenne, 2005). Moreover, more research on legislation will be especially interesting among SMEs in developing countries. Questions such as how legislation could increase awareness and the implementation of EMSs, could be valuable for both the academic as well as the public field. Also, a deeper
understanding of other internal and external influences, such as suppliers and
assistance/education, that could function as drivers for the application of EMSs by SMEs in developing countries could complement this research study and provide useful tools for practitioners. Finally, the EKC theory could be applied to Cambodia or the South East Asia region in specific, in order to test whether there is indeed a relationship between income and environmental degradation.
Acknowledgements
I would like to express my gratitude and appreciation to Mr. Kay Rithy, Mr. Den Virakyuth and Mr. Kao Sokheng from Cambodian Mekong University. Without their assistance in translating and conducting field research I would not have been able to carry out this research study. Also, I would like to gratefully acknowledge my supervisor Dr. P. Peverelli for
providing me feedback that offered me the opportunity to sharpen the quality of this report. Moreover, I would like to thank Dr. Ali Ihtiyar and the students from Zaman University for hosting me at their university.
31 Abbreviations
CSR Corporate Social Responsibility
EM Environmental Management
EKC Environmental Kuznet Curve EFA Exploratory Factor Analysis EMS Environmental Management System
FTE Full Time Employee
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