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Limitations and Opportunities
Master Thesis
International Business & Management
Lieke Heijnis
Author: Lieke Heijnis Student number: S1944819 Supervisor: Drs. H. Bos
Co-assessor: Mr. Drs. H.A. Ritsema January 2012
University of Groningen
ABSTRACT
Keywords: Corporate Social Responsibility (CSR), Small and Medium Enterprises (SMEs), India, Confederation of Indian Industry (CII)
Despite having an economic growth amongst the highest in the world, India suffers many social and environmental problems. The Indian government, industry organizations and the society expect the private sector in India to contribute to improving these social and environmental conditions by implementing Corporate Social Responsibility (CSR).
Until now attention on CSR in India is focused on CSR in large enterprises. There is little knowledge available on CSR in Small and Medium Enterprises (SMEs), even though SMEs play a major role in the Indian economy. The aim of this study is to provide information to the Confederation of Indian Industry (CII), India’s largest industry representative, on CSR in SMEs to enable them to advise SMEs on the implementation of CSR. This is done by investigating the limitations and opportunities for the implementation of CSR in Indian SMEs. This thesis presents the findings from an exploratory research among 14 socially responsible SMEs in India. During semi-structured interviews with SME owners five areas of investigation were discussed: CSR characteristics, CSR activities, motivation to start CSR, challenges experienced with the implementation and benefits experienced from engaging in CSR.
PREFACE
This thesis is the final step in completing my master in International Business and Management. Writing it has been a struggle at times, but it has also been a great learning experience that made me aware of my strengths and weaknesses and helped me to become a better researcher.
This thesis combines two of my favorite topics; India and sustainable development. I love India’s rich culture with different traditions and religions being mixed in every day live, the hospitality of the people, its diverse and beautiful nature, the mouthwatering food and the mix of bright colors cheering up every day live. But, I have also experienced that India suffers many social and environmental problems. This made me wonder if and how the available knowledge and financial resources in the many, fast growing companies in India could and should play a role in solving India’s social and environmental problems. Thereby my interest in CSR was born. With this research on the limitations and opportunities for CSR in Indian SMEs I hope to contribute to the development of the role Indian companies play in solving the country’s problems.
There are some people I would like to thank for enabling me to successfully complete this research. First of all, I would like to thank the entrepreneurs and to the Confederation of Indian Industry for their time and participation. I am also thankful to my friends and family for always supporting me. Lastly, there are a few people I would like to thank in particular.
First of all, I would like to thank my supervisor, Rieks Bos. Thank you for your patience, the quick responses, constructive feedback and your guidance that enabled me to become a better researcher and make the most out of this thesis.
I’m also very thankful to my parents. Thank you for always supporting me through ups and downs. Especially my mum, you’ve been an incredible sparring partner and your love, patience and comfort food helped me succeed.
Last but not least, I would like to thank Sarthak. Thank you for all your help, for always cheering me up, for encouraging me to go for what I want and for your belief in me that has made me believe in myself.
TABLE OF CONTENT
1.
Introduction... 6
1.1.
Research aim...8
2.
Research questions ... 9
2.1.
Choice of sub-‐questions ...10
2.1.1.
Sub-question 1 – CSR defined... 10
2.1.2.
Sub-question 2 – motivation to start CSR... 11
2.1.3.
Sub-question 3 – challenges experienced with the implementation... 12
2.1.4.
Sub-question 4 – benefits for the company ... 12
2.2.
Overview chapter 2 ...13
3.
CSR and SMEs... 14
3.1.
SMEs...14
3.1.1.
SMEs worldwide... 14
3.1.2.
SMEs in India... 15
3.1.3.
SMEs in this study... 17
3.2.
Corporate Social Responsibility (CSR)...17
3.2.1.
Defining CSR ... 17
3.2.2.
CSR in the Indian context... 20
3.3.
SMEs and CSR in India...21
5.1.3.
CSR defined... 37
5.2.
Motivation to start CSR...38
5.3.
Challenges experienced with the implementation ...39
5.4.
Benefits for the company...41
5.5.
Overview chapter 5 ...44
6.
Discussion ... 45
6.1.
CSR characteristics ...45
6.2.
Motivation to start CSR...48
6.3.
Challenges experienced with the implementation ...48
6.4.
Benefits for the company...49
6.5.
Discussion summary...49
6.6.
Overview discussion...50
7.
Conclusions and recommendations... 51
7.1.
Limitations and opportunities for the implementation of CSR...51
7.2.
Recommendations to CII...53
7.3.
Academic and practical relevance of the research ...55
7.4.
Limitations of the research...55
7.5.
Conclusion...57
8.
References ... 58
9.
Abbreviations... 64
1. INTRODUCTION
Economic growth in India is amongst the highest in the world. Even after the global financial crisis, India has a growth rate of 6.1% (CIA Factbook, 2009). However, India also has many social and environmental problems like: overpopulation, extensive poverty, insufficient access to quality basic and higher education, water and air pollution, loss of biodiversity and environmental degradation among others (CIA Factbook, 2010). The Indian government cannot handle these social and environmental problems alone (Rowe, (2005); Marg, (2004)) and considers the help of the corporate sector in India as a necessary supplement in solving these problems (CSR Voluntary guidelines, Indian Ministry of Corporate Affairs, 2009). A company’s social, environmental and ethical activities are commonly referred to as Corporate Social Responsibility (CSR), although specific definitions of CSR differ among countries, sectors and organizations (see chapter 3).
Leading Indian chambers of commerce have traditionally been involved in actively encouraging industry participation in addressing various social and environmental issues and address it as a key concern for the industry (Sood and Arora, 2006; Das Gupta, 2007). Research done amongst workers, company executives and the general public also shows that the Indian society generally believes that business must play a wide and more comprehensive role in the society apart from providing good quality and reasonable products and services (Kumar, et al, 2001).
and around 40% of the total export of the country (Ministry of MSME, Government of India, 2007). Furthermore, the Indian SME sector has registered a higher growth rate than the overall industrial sector in the recent years (Ministry of MSME, Government of India, 2007).
1.1. Research aim
2. RESEARCH QUESTIONS
Despite a high economic growth India suffers many social and environmental problems like extensive poverty and air pollution. The Indian government sees the help of the private sector as a necessary supplement in solving these problems (CSR voluntary guidelines, Indian Ministry of Corporate Affairs, 2009). India’s largest industry representative, the Confederation of Indian Industry (CII), wants to advise their members on implementing socially and environmentally responsible practices in the form of CSR policies. CII’s membership base consists for almost 3/4th of Small and Medium Enterprises (SMEs) and SMEs play a major role in the Indian economy, so CII wants to focus on SMEs. However, there is little knowledge available on CSR within SMEs in India or worldwide. Therefore research on CSR within SMEs is needed.
The aim of this research is to provide information to CII on CSR within SMEs that will help them to advise Indian SMEs on the implementation of CSR policies. SMEs prefer to learn from experiences of their peers (Jenkins, 2006; EC, 2009), therefore the research is focused on the perspective of the SME. Experiences of other SMEs can be used by CII in advising their SME members. Successes with the implementation of CSR can inspire other SMEs and also suggest possible strategies. Therefore, this research is looking at factors that are advantageous for the implementation of CSR activities by a company – that is opportunities. Additionally, SMEs can learn from challenges other SMEs have experienced and how they have coped with it. This could prevent SMEs from putting energy or money into practices that might not give the expected results. Therefore, this research also looks for factors that impede the implementation of CSR activities by a company – that is limitations.
Therefore, to accomplish the goal of this research; to provide information to CII on CSR within SMEs that will help them to advise SMEs on the implementation of CSR policies, the following research question has been addressed:
What are the limitations and opportunities for the implementation of CSR within Indian SMEs?
To be able to provide an answer to the main question the following sub-questions will be addressed:
1) How can CSR be defined from the perspective of Indian SMEs? 2) What is the main motivation for Indian SMEs to implement CSR?
3) What are the key challenges faced by Indian SMEs in implementing CSR? 4) What are the benefits Indian SMEs experience from CSR?
The reasons for the choice of these sub-questions have been explained in the next section.
2.1. Choice of sub-questions
In this section the reasons for the choice of each sub-question have been detailed.
2.1.1. Sub-question 1 – CSR defined
relevant to them. A definition from the perspective of the SME will form a baseline for the rest of this research and is a requirement to interpret the rest of the questions. Therefore it is important to investigate the meaning that the SME managers associate with the concept of CSR and the activities associated with that meaning. This will be addressed in the first sub-question: “How can CSR be defined from the
perspective of Indian SMEs?”
2.1.2. Sub-question 2 – motivation to start CSR
Research among large companies has shown that one of the main drivers for large companies to behave ethically and responsibly is external pressure (Jenkins, 2006; Whitehouse, 2006; Sood and Arora, 2006). Through CSR the company wants to avoid damage to the brand image, damage to the company’s share price and reputation amongst the stakeholders. However, this does not directly apply to SMEs, which rarely attract media attention and are unlikely to see CSR in terms of a risk to their brand image or reputation (Jenkins, 2004). Although, some SMEs might face external pressure when important players in their supply chain demand specific socially or environmentally responsible practices from them, like rules on recycling or workplace diversity.
Several researchers (Jenkins, 2004; Jenkins, 2006; Sood and Arora, 2006; Pfister, 2008) argue that the motivation to implement CSR activities in an SME is likely to be highly influenced by the personal values of SME owners and managers. The European Commission (EC, 2009) even emphasizes that support for SMEs in implementing CSR should “built on and respond to the value based motivations” of SME owners and managers. On the other hand, according to Spence (1999), SME managers are often responsible for more than one business task at the same time. Tilley (2000) states that this might lead to lower awareness of everything beyond the daily business and CSR is not often considered as daily business.
The above, as confirmed by Jenkins (2006), shows that the motivations to adopt CSR practices for SMEs might be very different from those for large enterprises. Therefore, it will be interesting to investigate the motivations of Indian SMEs for implementing CSR. The discussion above leads to the second sub-question: “What is
2.1.3. Sub-question 3 – challenges experienced with the implementation
Perrini (2006) argues that more attention needs to be directed to the distinct challenges of engaging SMEs in CSR activities, since these challenges are likely to differ from those faced by large corporations.
In a research conducted among SMEs in Germany, Pfister (2008) indicates limited resources in terms of money, management, employees and applicable knowledge as possible challenges faced by SMEs in implementing CSR. Additionally, a multi stakeholder forum from the European Commission on “fostering CSR among SMEs” also pointed out “more immediate pressures from the daily struggle to survive
commercially” and “being reluctant and too slow to seek external help” as challenges
that possibly lead to limitations faced by SMEs with the implementation of CSR (EC, 2004).
A research conducted by Jenkins (2006) among SMEs in the UK, on the one hand indicated that key challenges all SMEs faced were time and resource constraints and getting employees involved. The same was found by Vives (2006) for SMEs in Latin America. On the other hand, a research by Jenkins (2006) also indicated that not all companies experienced these obstacles as barriers to implementing and executing CSR. Challenges can be described as difficulties that could lead to limitations, but can also be overcome. The SMEs in this research have successfully implemented CSR. The challenges each SME experienced could be experienced as barriers by other SMEs.
To be able to get an overview on the limitations for CSR within Indian SMEs this research addresses the challenges faced by Indian SMEs in the third sub-question:
“What are the key challenges faced by Indian SMEs in implementing CSR?”
2.1.4. Sub-question 4 – benefits for the company
level of corporate integrity can create a competitive advantage for some small firms (Small business research centre, 1997; Spence 1999). These benefits could be advantageous for the implementation of CSR by SMEs. The answer to the last sub-question, “What are the benefits Indian SMEs experience from CSR?” provides an understanding of possible benefits of CSR for SMEs in India. These benefits can be summarized for CII in opportunities for other SMEs.
2.2. Overview chapter 2
In this chapter a motivation for choosing the main research question: “What are the
limitations and opportunities for the implementation of CSR within Indian SMEs?”
3. CSR AND SME
SThis chapter explains this study’s two key concepts: “Corporate Social Responsibility
(CSR)” and “Small and Medium Enterprise (SME)”.
It first describes several definitions of SMEs that exist throughout the world. Following this, the definition of SMEs that is used in this study is given, because the variety of criteria used to define SMEs leads to various interpretations in research (Jenkins, 2006). Subsequently, various definitions of CSR are discussed. These definitions give an overview of the diversity in interpretations of CSR that exist worldwide and within India.
3.1. SMEs
This section first gives an overview of different definitions of SMEs that exist and shortly discusses the role of SMEs in several economies. Then, a definition of SMEs in India is given along with a description of the role SMEs play in the Indian economy. The variety of criteria used to define SMEs leads to various interpretations in research (Jenkins, 2006). Therefore it is important to provide a clear description of the definition used in this study. This will be done at the end of this section.
3.1.1. SMEs worldwide
SMEs play a major role in the world economy. Worldwide 95% of the enterprises are SMEs and they account for over half of the world’s private sector employment.1 In
the European Union (EU) these percentages are even higher. Of all European businesses 99% are SMEs. European SMEs also account for two out of three of Europe’s private sector jobs.2 Definitions of SMEs vary between countries, institutions and sectors. Definitions of SMEs are based on a variety of criteria like the number of employees, financial turnover, assets, sales, ownership and combinations of these (Curran & Blackburn, 2001; Srinivasan, 2009).
1 Source: World Bank - http://siteresources.worldbank.org/CGCSRLP/Resources/SME_statistics.pdf 2 Source: European Commission -
In 1976 the Worldbank defined SMEs as “firms with fixed assets (excluding land) less
than US$ 250,000 in value”.3 UNIDO has a different approach. They define SMEs
based on the number of employees and make a distinction between SMEs in developing countries and industrialized countries. According to their definition medium enterprises in developing countries have a maximum of 99 employees. While in industrialized countries a medium firm has between 100 and 499 employees.4
As shown in table 1, the European Commission (EC) uses a definition based on a combination of headcount and turnover or balance sheet total.
Enterprise category Headcount Turnover or Balance sheet total Medium-sized < 250 ≤ € 50 million ≤ € 43 million Small < 50 ≤ € 10 million ≤ € 10 million Micro < 10 ≤ € 2 million ≤ € 2 million Table 1 Definition SME, European Commission (EC)
Both UNIDO and the EC have included a headcount ratio in their definition of SMEs. However, the content of the criterion differs tremendously. According to the EC a medium firm has less than 250 employees, while UNIDO’s limit for medium enterprises in industrialized countries is twice as high. Hence, not just criteria for defining SMEs differ among organizations, but so does the content of those criteria.
3.1.2. SMEs in India
In India the term SME is defined since the enactment of the Micro, Small and Medium Enterprises Development Act (MSMED) in 2006. Before that, SMEs were referred to as small-scale industry or SSI (Srinivasan, 2009)
The Indian government distinguishes between Small and Medium Enterprises based on the amount of investment, with a two category classification - enterprises engaged in the manufacture or production of goods and enterprises engaged in providing or rendering services, see Tables 2 and 3.
Enterprise category
Investment in plant and machinery (Indian Rupees)
Investment in plant and machinery (Euros) medium-sized > 500,000,000 rupees ≤ 1,000,000,000 rupees > ± € 8 million ≤ ± € 16 million small > 2,500,000 rupees ≤ 500,000,000 rupees > ± € 40,000 ≤ ± € 8 million Table 2 Enterprises engaged in the manufacture or production of goods5
Enterprise category
Investment in equipment (Indian Rupees) Investment in equipment (Euros) medium-sized > 200,000,000 rupees ≤ 500,000,000 rupees > ± € 3,2 million ≤ ± € 8 million small > 1,000,000 rupees ≤ 200,000,000 rupees > ± € 16,000 ≤ ± € 3,2 million Table 3 Enterprises engaged in providing or rendering services6
SMEs play a central role in India’s economic development. Between 1940 and 2007 the number of SMEs has increased from almost 80,000 units to about 26.1 million units (4th All India Census MSME sector, 2007) In the past decade, the SME sector even registered a higher growth rate than the overall industrial sector (Ministry of MSME, Government of India, 2007). Furthermore, it is estimated that in terms of value the SME sector accounts for 45% of the manufacturing output and 40% of the total export of the country (Ministry of MSME, Government of India, 2007). Additionally, the Indian SME sector counts about 60 million employees and creates 1.3 million jobs every year (SME Chamber of India, 2011). In 2009 the SMEs’ contribution to the GDP in India was 17% and is expected to increase to 22% in 2012 (SME chamber of India, 2011).
3.1.3. SMEs in this study
Section 3.1 has shown both the diversity in criteria used to define SMEs and the differences in the content of these criteria. These differences have led to various interpretations in research (Jenkins, 2006). Since this research focuses on Indian SMEs, the companies in this study have been selected based on the Indian definition of SMEs. This definition distinguishes two categories of SMEs:
- Enterprises engaged in the manufacture or production of goods with an investment in plant and machinery between 40,000 and 16 million euro. - Enterprises engaged in providing or rendering services with an investment in
equipment between 16,000 and 8 million euro.
3.2. Corporate Social Responsibility (CSR)
Research on CSR is characterized by many discussions on which theories and definitions apply to CSR. CSR has been defined in different ways, from a variety of views regarding the role of business in society (Perrini, 2003). Differences in definitions can be explained by differences in interests of individuals or organizations (Jabareen, 2005; Manderson, 2006; van Marrewijk, 2002).
This study focuses on CSR within Indian SMEs. There is no single, commonly accepted definition of CSR shared among Indian private sector entities, the Indian government, non-profit organizations and industry representatives. In this section various definitions of CSR will be discussed to give an impression of how CSR is interpreted in India and the rest of the world.
3.2.1. Defining CSR
The first definition of CSR was given by Bowen in the 1950s. He stressed that “it is
the obligation of business men to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” (Bowen, 1953, p.6). 60 years later interest in the field of CSR
Both academic and practitioner literature contain many different definitions of CSR. Table 4 gives an overview of several definitions of CSR as defined by some international organizations. In academic literature the most commonly cited definition of CSR is Carroll’s: “the social responsibility of business encompasses the economic,
legal, ethical and discretionary expectations that society has of organizations at a given point in time” (Carroll, 1979). However, this definition is also often debated and
many other definitions are stated in academic literature.
Name of the
organization Definition of CSR Source
United Nations Industrial Development Organization (UNIDO)
The way through which a company achieves a balance of economic, environmental and social imperatives while at the same time addressing the expectations of shareholders and
stakeholders.
http://www.unido.org/ind ex.php?id=o72054
CSR ASIA
A company’s commitment to operating in an economically, socially and environmentally sustainable manner whilst balancing the interests of diverse stakeholders.
http://www.csr-asia.com/aboutus.php
European
Commission (EC)
A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.
Commission Green Paper, 2001, "Promoting a European Framework for Corporate Social Responsibility" World Business Council for Sustainable Development (WBCSD)
Corporate social responsibility is the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large. WBCSD, 1999, p.3, "CSR: Meeting changing expectations" International Chamber of Commerce (ICC)
The voluntary commitment by business to manage its activities in a responsible way.
http://www.iccwbo.org/p olicy/society/id1188/index.ht ml
Table 4 Organizational definitions of CSR
A few commonalities can be drawn out of the many academic and practitioner definitions of CSR.
First of all, several definitions of CSR are based on the Triple Bottom Line (TBL) principle; also known as the People, Planet, Profit (3P’s) formulation. In this principle John Elkington added a “people” and a “planet” perspective to the traditional “profit” bottom line (Elkington, 1994). “People” refers to a company’s social performances and “planet” to a company’s environmental performances. As seen in Table 4, definitions from UNIDO, CSR Asia and the European Commission refer to the TBL concept by shifting the focus of a company from a solely economic view to a balanced combination of economic, environmental and social goals. The TBL concept also returns in academic literature. As shown in Carroll’s statement that it is the social responsibility of business to take into account the society’s economic, legal, ethical and philanthropic values (Carroll, 1979).
Another feature of CSR in many definitions is the multiple stakeholder orientation. Several definitions (UNIDO; CSR Asia; European Commission, 2001) redefine the relationship between the private sector and the society from one just focused on shareholders to one taking into account various stakeholders. Examples of these stakeholders are governments, customers, suppliers, environment, investors and local communities, but stakeholders differ among companies. The definitions of UNIDO, CSR Asia and the EC as shown in Table 4 include that a company needs to interact with its stakeholders and consider their interests and expectations while doing business.
A third commonality drawn out of the numerous definitions of CSR is the voluntary nature of the initiatives undertaken by companies. Definitions of the EC (2001) and the International Chamber of Commerce (ICC) see Table 4, state that CSR initiatives go beyond what is imposed and obliged by formal regulations. According to the ICC (2005) “Compliance with the law is the minimum acceptable level of performance;
CSR, in our view, refers to initiatives that go above and beyond legal compliance.”7
A last feature seen in defining CSR is the discussion on whether CSR goes beyond philanthropy, charity and sponsorship. According to van Marrewijk (2002) philanthropy can be seen as the roots of CSR but both concepts are different. Philanthropy can be described as a unilateral act or gift to promote human welfare. CSR goes beyond this by establishing bi- or multilateral relationships in which the company feels responsible for the result of the act or gift. According to UNIDO
“philanthropy can also make a valuable contribution to poverty reduction, will directly enhance the reputation of a company and strengthen its brand, but the concept of CSR clearly goes beyond that.”8 CSR has to be integrated into the company’s core business by making it part of all the company’s business institutions, such as “the
mission, vision, policy deployment, decision making, reporting, corporate affairs etc.
(Van Marrewijk, 2002, p.3). However, research showed that this integration process has proved to be problematic for both SMEs and large enterprises (Jenkins, 2006; Perrini, 2006; Murillo and Lozano, 2006).
In summary, this section outlined the diversity in definitions of CSR that exist worldwide.
3.2.2. CSR in the Indian context
The development of CSR in India is driven and characterized by India’s history of corporate paternalism and philanthropy (Sood and Arora, 2006). Especially family-run businesses that generally feel strongly involved with the society, traditionally take on a wider responsibility towards local communities (Balasubramanian et al, (2005). In the first half of the 20th century corporate sector activities in India were highly influenced by Gandhi’s trusteeship theory (Chahoud et al, 2007; India Partnership Forum, 2002). This theory is based on the idea that business owners should act as trustees of those people in the community who are less wealthy (Desai and Bok, 1993). Many socioeconomic development activities of well-established Indian family businesses, like the set up of trusts for schools and establishment of training institutes, were based on the principles of trusteeship (Chahoud et al, 2007).
In the export-led sectors the liberalization of the Indian economy in the 1990s led to a shift from the traditional philanthropic approach to a more integrated and organized approach to CSR (Chahoud et al, 2007; Sood and Arora, 2006). However, according to Sood and Arora (2006) “returning to society” still remains the guiding philosophy in the rest of the Indian companies instead of integrating CSR into a company’s strategy. This approach is also visible in other research done on CSR in India in the past few years. Research among large Indian companies has shown that most companies did not have a CSR policy as part of their business strategy but consider occasional donations or sponsorships as their contribution to CSR (Karmayog, 2007) or practice CSR through the creation of trusts and foundations (Arora and Puranik, 2004).
On the other hand, the Indian government explicitly states that there is a difference between CSR and philanthropy. Statements from the Indian Ministry of Corporate Affairs in India refer to CSR as a strategic management concept exhibiting socially, environmentally and ethically responsible behavior that goes beyond philanthropy. (CSR Voluntary Guidelines, Indian Ministry of Corporate Affairs, 2009).
Another point of discussion in India is whether CSR should be mandatory or voluntary. The Indian government tried to make it mandatory for companies, but they have not succeeded thus far.9 Instead they developed voluntary guidelines that
companies can follow when implementing CSR. CII and other industry representatives and the philanthropic community in India are against compulsory CSR. All expect this to lead to camouflaging activities and corruption.10
In summary, this section outlined the diversity in definitions of CSR seen in India.
3.3. SMEs and CSR in India
In the beginning of this chapter the diversity in definitions of the term SME was discussed. Since this research focuses on Indian SMEs, the studied companies have
9
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4636
10
been selected based on the Indian definition of SMEs. This definition distinguishes two categories of SMEs:
- Enterprises engaged in the manufacture or production of goods with an investment in plant and machinery between 40,000 and 16 million euro. - Enterprises engaged in providing or rendering services with an investment in
equipment between 16,000 and 8 million euro.
The second part of this chapter showed that there is no single, commonly accepted definition of CSR shared neither among practitioners nor among academics worldwide. Although, there are a few common aspects of CSR mentioned in the variety of definitions of CSR:
- Triple Bottom Line (TBL) perspective - Multi stakeholder orientation
- The voluntary nature of CSR
- Integration of CSR into a company’s core business
India also knows a variety of definitions and interpretations of CSR, without having a commonly accepted definition.
CSR in India is strongly influenced by its history of corporate philanthropy. While “returning to society” is still the guiding philosophy among companies, the Indian government emphasizes the difference between philanthropy and CSR by referring to CSR as a strategic management concept. On the discussion whether CSR should be mandatory or voluntary there is no common agreement either.
4. METHODOLOGY
This chapter will provide further insight into this study’s research strategy and methods of data collection and analysis. In the first section the reasons for the choice of a qualitative research design in the form of face-to-face interviews will be discussed. Subsequently, the interview method that has been used in this research will be discussed in detail in the second section. This section will also explicate the choice of the target group. In the third section the method of the data analysis will be discussed.
4.1. Research strategy
CII wants to advise its SME members on the implementation of CSR. However, the research available on CSR within Indian SMEs or SMEs elsewhere is very limited. As explained in more detail in the introduction, research on CSR within large enterprises cannot be applied to CSR within SMEs, because SMEs differ in numerous aspects from large enterprises (Perrini, 2006). Thus, little knowledge is available on CSR within SMEs in India or worldwide. The aim of this research is to provide information to CII on CSR within SMEs that will help CII to advise Indian SMEs on (further) implementation of CSR policies. The lack of existing research on CSR within Indian SMEs, leads to the choice of an exploratory qualitative research design, since this is especially recommended when little information exists on the topic under investigation (Lamnek, 2005; Creswell 1994).
company is preferred, since this research aims to obtain information on successes and challenges Indian SMEs have experienced with the implementation of CSR policies. Therefore, a survey is the most applicable research method for this study. A survey can be carried out in several ways. First of all, the research can be carried out by sending out questionnaires to SMEs by post or by email. A second option is to have interviews with the SMEs.
Sending out a questionnaire is less time and money consuming than conducting interviews. Moreover, even though the response rate of questionnaires tends to be low (Thomas, 2004), the researcher is likely to reach more respondents than when conducting interviews. This is useful in gathering possible successes and challenges SMEs experienced with CSR implementation. A questionnaire also allows the respondent to stay anonymous, which might limit the chance of socially desirable answers. However, a problem with a questionnaire is that the researcher does not know who has filled the questionnaire. Thus, it is uncertain if the respondent has sufficient knowledge of the company’s CSR policy, the drivers behind this policy and the challenges and benefits the company has experienced with the implementation of CSR. Additionally, different respondents might interpret the set of questions differently. For example a respondent might describe policies, drivers and benefits of CSR as experienced by other and possibly larger companies instead of solely the experiences of the SME he/she works for. The researcher cannot validate this interpretation. The fact that the role in the organization and the interpretation of the questions of the respondent are unknown, leads to a validity risk of the research (Thomas, 2004).
suitable option for gathering information on experiences with implementing CSR policies within Indian SMEs is through face-to-face interviews.
In this section the reasons for the choice of an exploratory qualitative research were discussed. Subsequently, the motivation to conduct face-to-face interviews was detailed. In the next section the interview method and the target group selection will be described in detail.
4.2. Data collection
In the previous section reasons for the choice of an exploratory, qualitative research in the form of face-to-face interviews were discussed. This section first describes the interview method in more detail. Subsequently, the selection of the target group will be explained.
4.2.1. Interviews
As described in section 4.1, face-to-face interviews have been conducted to gather information on CSR within Indian SMEs.
During the semi-structured interview open questions were asked which addressed key areas of investigation deduced from the sub-questions of this research. The following areas of investigation were discussed:
- CSR characteristics - CSR activities
- Motivation to start CSR
- Challenges experienced with the implementation - Benefits for the company
To ensure that all topics were discussed the researcher had a list with the following questions:
- What are your thoughts about Corporate Social Responsibility? - Which CSR activities does your company currently undertake? - What other activities could be part of CSR?
- What motivated you to start CSR with your company?
- Did your company experience any challenges while implementing CSR? - Does your company experience any benefits from being engaged in CSR? The researcher used this list of questions as a checklist. To maximize the quality of the responses and reduce the risk of misunderstandings through cultural differences, the questions were formulated with help of the Indian employees of the CSR department of CII. As suggested by Schnell et al (1999) two pilot studies were done before starting the research. Based on the results and the feedback on these tests, minor improvements were made on the formulation of some questions. The quality of the results of the second pilot study allowed that interview to be fully integrated in the research.
responses by different interviewers, all interviews were conducted by the same interviewer.
To enable the respondent to give informed consent, the interviewer first explained that the research is focused on CSR within Indian SMEs. Subsequently, the interviewer emphasized that their right to privacy will be respected. They and their companies will not be named in the research.
In this section the semi structured face-to-face interview method used in this research was explained in detail. In the next section, the characteristics of the target group will be described.
4.2.2. Sample
The companies selected for this study were selected based on a number of characteristics.
As explained in chapter 2, SMEs prefer to learn from experiences of their peers (Jenkins, 2006; EC, 2009). Therefore, the research focuses on the perspective of the SME and is done among SMEs. As explained in section 3.3, the studied SMEs have been selected based on the Indian definition of SMEs. This definition distinguishes two categories of SMEs:
- Enterprises engaged in the manufacture or production of goods with an investment in plant and machinery between 40,000 and 16 million euro. - Enterprises engaged in providing or rendering services with an investment in
equipment between 16,000 and 8 million euro.
successfully implemented CSR policies, because this decreases the chance of window dressing.
There were no databases, information on company websites or other sources of information available to the researcher that listed the Indian SMEs that have successfully implemented CSR. However, through contact with their members CII did have information on the CSR policies of their members. Therefore, the companies in this study were selected by CII based on two criteria that the researcher requested. Firstly, the SME had to conform to the Indian definition of SME that is detailed in the beginning of this section. Secondly, the SME had to be known by CII for successfully implementing CSR policies. Other characteristics were not taken into account in the selection. Since the results of this research are of interest to CII it is assumed that they have carefully selected the SMEs, so that the selection exists of SMEs that have successfully implemented CSR activities.
The Confederation of Indian Industry (CII) selected the socially responsible SMEs, based on CII’s knowledge of the CSR policies of these member companies. The interviews were conducted with owner–managers of these companies or when available with managers in charge of the CSR strategy of the company. This increases the likelihood that the respondent has sufficient knowledge of the company’s CSR policy, the drivers behind this policy and the challenges and benefits the company has experienced with the implementation of CSR.
According to Corbin and Strauss (2008) the sample size of a qualitative research that is sufficient to fulfill the goal of a study is reached when the researcher determines that the gathered information offers considerable depth and variation on the studied phenomena and additional interviews do not lead to new observations. After conducting 14 interviews the collected data offered in-depth information on the areas of investigation, as discussed in section 4.2.1. Moreover, after the twelfth interview additional interviews led to many repetitions in the findings. Therefore, the researcher determined that 14 interviews was a sufficient sample size to reach the goal of this study: to provide information to CII that will help them to advise Indian SMEs on the implementation of CSR.
In this section the characteristics of the 14 SMEs that were interviewed for this study were described. In section 4.3 this study’s method of data analysis will be discussed.
4.3. Data analysis
As suggested in Glaser & Strauss (1967) and Strauss (1987) a simple analysis took place after each interview. This enabled the researcher to ask more specific questions and to follow through on specific issues brought up during the subsequent interviews. As explained in section 4.2.1 the following areas of investigation were deduced from the sub-questions:
- CSR characteristics - CSR activities
- Motivation to start CSR
- Challenges experienced with the implementation - Benefits for the company
Due to the limited number of companies it is not possible to draw conclusions on sector or size specific differences, so these were not taken into account in the data analysis.
In this section the method of data analysis that was used in this study was described.
4.4. Overview chapter 4
In this chapter, the reasons for the choice of a qualitative research design in the form of face-to-face interviews are discussed. Furthermore, the interview method and the choice for the sample are detailed. Additionally, the method of data analysis is discussed.
5. RESULTS
This chapter summarizes the results of the interviews that were held with the 14 Indian SMEs and provides an answer to the sub-questions of this research. As described in section 4.2.1 the following areas of investigation were discussed with the interviewees:
- CSR characteristics - CSR activities
- Motivation to start CSR
- Challenges experienced with the implementation - Benefits for the company
The results of the interviews led to the answers of the sub-questions of this research. The first section discusses the first two areas of investigation, “CSR characteristics” and “CSR activities”, and answers the first sub-question: “How can CSR be defined
from the perspective of Indian SMEs?”
The second section discusses the third topic, “motivation”, and answers the second sub-question: “What is the main motivation for Indian SMEs to implement CSR?” The third section discusses the fourth area of investigation, “challenges”, and answers the third sub-question: “What are the key challenges faced by Indian SMEs
in implementing CSR?”
The fourth section discusses the last topic, “benefits”, and answers the last sub-question: “What are the benefits Indian SMEs experience from CSR?”
5.1. Defining CSR
This section provides the answer to the first sub-question: “How can CSR be defined
from the perspective of Indian SMEs?”
implementation of CSR. There is still no definition of CSR available from this specific perspective. Therefore to be able to interpret the rest of the questions in this research it was important to investigate the view of Indian SMEs on CSR.
First, the characteristics of CSR as described by the interviewed SMEs are discussed. This is followed by a summary of the CSR activities executed by the interviewed companies. Both combined lead to a description of CSR as perceived by the Indian SMEs that were interviewed in this study.
5.1.1. CSR characteristics
All companies that were interviewed were familiar with the term Corporate Social Responsibility (CSR). They described it as "a company’s responsibility to the
society", “giving back to the society” and “doing good”.
1. “CSR is activities related to doing something for the society”
2. “Any activities a company undertakes that contribute to the society”
3. “A part of what we earn must help those who are unfortunate. CSR is our responsibility towards the society”
However, only 6 out of 14 companies that were interviewed use the terms 'CSR' or 'Corporate Social Responsibility' in their external communication to describe their activities. Moreover, none of the companies that were interviewed uses the terms internally. They mostly use terms that are less formal and describe the activities in more detail, like community development, environmental activities or affirmative action programs.
4. “CSR is a company’s voluntary, thoughtful, dutiful commitment to contributing to the society. It is about feeling committed to contribute to the society without being legally committed to that feeling. Feeling responsible for something that you cannot be held responsible for.”
5. “CSR consists of voluntary activities…”
Two companies mentioned that they are positive towards making CSR mandatory by law. They stated that this is a good solution to fulfilling the large societal need for more companies being involved into CSR. On the other hand, two other companies explicitly stated that they expect that making CSR mandatory would solely lead to an increase in corruption. The Confederation of Indian Industry (CII), other industry representatives and the philanthropic community in India also share a sentiment similar to the last statement. On the contrary the Indian government has tried to make CSR mandatory by law, but they have not succeeded thus far.11
Another theme that emerged was the link of a company’s expertise and its CSR activities. This theme however generated contradictory views. Some companies explicitly stated that CSR activities do not have to align with a company’s business activities. On the other hand, some companies stated that CSR activities should be related to the experience of the company and integrated into a company’s core business.
6. “CSR activities do not have to be related to your business activities, but they are meant to fill existing gaps in the society.”
7. “CSR to us means: using your professional expertise free of cost to benefit the society in a sustainable way”.
11
5.1.2. CSR activities
The companies in this research undertake numerous CSR activities. These activities are illustrated in tables 5 till 8. The classification of the activities into four categories is similar to the classification used by Jenkins (2006), who did a comparable research among SMEs in the United Kingdom. The activities are divided based on their target: • Community: activities focused on improving societal circumstances.
• Environment: activities focused on doing less harm to the environment and on conserving nature.
• Employees: activities for the employees.
• Suppliers: international standards focused on CSR related topics
Within these categories the activities vary in terms of target group, goals and means of support.
Community
Cooperate with NGOs on short-‐term projects
Train young people in computer skills (part of an affirmative action program) Test water in schools on a non-‐profit basis
Donations to NGOs and funds (yearly budget) Rotary
Donations to Mother Theresa Home Women empowerment (tailoring classes) IT skill classes
Found a health clinic with 2 doctors to examine patients for free "Family India" -‐ assist as volunteers
Organize a blood donation camp twice a year
Supporting education of underprivileged children (financial resources) Supporting an old age home (financial resources)
Donation to an orphanage (financial resources) Girl child education (by sponsoring girls financially)
Sponsoring life saving medical facilities in cooperation with a local hospital Sponsoring facilities at a local school
Supporting local entrepreneurs through business counseling Forum for Ethical Business -‐ platform to get into contact with other people/companies to discuss ethical business practices
WMSME Forum -‐ platform for SMEs to discuss problems and solutions Supporting a local school by buying educational products (writing material/books/furniture)
Women empowerment (vocational training) One time projects with NGOs
Table 5 Community development activities
Environment
Electronic waste management Energy saving programs
Water resource management programs Plant trees
Environmental friendly light and other energy efficient office building techniques
Table 6 Environmental activities
Activities in the third category are focused on the company’s employees. Only two companies mentioned activities that fall into this category. The activities mentioned were having a welfare department for employees and organizing workshops for employees to educate them on diverse topics like HIV/AIDS and climate change.
Employees
Welfare department
Workshops on topics like HIV/AIDs or the environment Table 7 Employee activities
Other activities focused on employee development, teambuilding or social events for employees were not mentioned as a part of CSR activities. Although on the other hand, through informal conversations after the interviews and through information on company websites it became apparent that team building activities and social events were organized by some of the interviewed companies. Examples of such activities were sport activities with the employees, company diners and career development trainings. Half of the companies in this research explicitly stated that they did not consider employee development and employee satisfaction as a part of CSR.
8. “To us employee development and team building activities are part of our company culture. With CSR we focus on our external responsibilities.”
The last category, refer to table 8, “suppliers”, was mentioned as a part of the CSR activities by only one company. They are said to fulfill SA8000 standards12 and ILO
standards13, but they were not officially certified for these standards. The company
stated that they are fulfilling these standards on request of their clients, which are solely based in Europe and the United States. However, their clients did not require certification and the owner felt that the certificate would not add any value to his company, so the company never applied for certification.
Suppliers
Social Accountability 8000 standards (SA8000) (not officially certified) International Labour Organization (ILO) standards (not officially certified) Table 8 Suppliers
As described above, within the different categories of CSR activities, the activities varied in target group, goals and means of support. Additionally, there was also a difference in the duration of activities. Some companies undertook only short-term activities, while others aimed for long-term activities or a combination of these. Common examples of short-term, mostly one-time activities were donating money or volunteers for an event or an NGO. However, not all sponsoring and donation activities are short time activities. Several companies structurally support NGOs.
5.1.3. CSR defined
All companies were familiar with the term Corporate Social Responsibility (CSR). However, less than half used the term in their external communication and none of them used the term internally. They described CSR as “doing good for the society”, on a voluntary basis. While for some companies their CSR activities were directly related to their business activities, others avoided links between these activities. CSR activities among Indian SMEs were mainly focused on community development. There was very little attention for environmental issues. Additionally, most companies stressed that employee development and teambuilding were a part of the company culture and that they did not see this as being a part of CSR. Instead, they stated that CSR focuses on external responsibilities.
Human Rights and the UN Convention on the Rights of the Child.”(Source: http://www.sa-intl.org/index.cfm?fuseaction=Page.viewPage&pageId=1140&parentID=473&nodeID=1
13 The standards of the International Labour Organization (ILO) “aim at promoting opportunities for
5.2. Motivation to start CSR
Research among large companies has shown that one of the main drivers for large companies to behave ethically and responsibly is external pressure by different stakeholders, like clients, NGOs, suppliers, governments and local communities (Jenkins, 2006; Whitehouse, 2006; Sood and Arora, 2006). However, as described in section 2.1.2., SMEs get less public attention than large companies, so they might have other reasons to implement CSR. The driving force and the motivation to start CSR could impact the level of success in the implementation of CSR. Therefore this section first discusses the motivation of the interviewees to start CSR. Thereafter, it provides an answer to the second sub-question: “What is the main motivation for
Indian SMEs to implement CSR?”
All the interviewee responses suggested that the driving force behind the company’s CSR policies was the company’s motivation rather than external pressure, as is often the case with large enterprises. Only one company mentioned that they faced external pressure from their clients.
Within all companies interviewed, the main driver behind their CSR policies was the motivation of the owner. This motivation generally stemmed from the owner’s personal values and beliefs. These values and beliefs were primarily focused on helping to decrease societal needs, such as income inequality and societal groups in need of support. Some interviewees also mentioned that they believe that they have to give back to the society at least equal to what they take in the form of natural and human resources.
The responsibility for the companies’ CSR policies always lay with the company owners or other top-level managers. They formulated the activities and took care of the implementation.
successfully implemented CSR activities. These networks also brought them into contact with organizations that were helpful for the implementation of CSR.
9. “As the owner of this company I was personally motivated to give back to society and I got inspired by successful projects that people around me started.”
10. “The Human Resource Manager, who is in charge of CSR, has a wide network of organizations like Greenpeace and local NGOs that the company works together with.”
11. “We (the founders of this company) are originally from the village we have adopted with the company and we wanted to do something for the village. The owner of the NGO that works there and that we are now working together with is a friend of us.”
In most cases, personal connections of the company owners with NGOs led to a long-term relationship between the company and the connected NGO. Connections through networks of employees or acquaintances were more likely to lead to a short-term or one-time cooperation between the company and the NGO.
In conclusion, the driving force behind the implementation of CSR in all the companies that were interviewed was the companies’ own motivation. This motivation stemmed from the owners’ personal values and beliefs on helping to decrease societal needs. It was strengthened by inspiring examples and valuable connections from the owner’s social and business networks. The main motivation to implement CSR was the will to help to decrease societal needs.
5.3. Challenges experienced with the implementation
related to commercial survival (EC, 2004) were mentioned as possible challenges. However, research by Jenkins (2006) showed that not all companies experienced such obstacles as limitations to implementing CSR.
To be able to get an overview of the possible limitations for CSR within Indian SMEs, this section addresses the challenges Indian SMEs faced with the implementation of CSR. Thereby it answers the third sub-question: “What are the challenges faced by
Indian SMEs in implementing CSR?”
During the interviews the SMEs mentioned some key challenges they experienced with the implementation of CSR. However, 11 out of 14 also mentioned that these challenges did not limit their CSR activities.
10 out of 14 companies stated that having the right mindset - that is the intention and the motivation to start CSR, is the most important starting point for overcoming challenges of CSR implementation. They also stated that companies should be motivated to implement CSR and not try to find barriers to not implement CSR.
12. “It is about the mindset you have, if you want to help you can help”
13. “We didn’t experience any challenges, but for other companies that are not doing CSR it is either not a priority or a lack of money and knowledge that holds them back.”
14. “Most companies are either not motivated or they don’t know how to get on with it”
15. “We have specific activities in mind that we would like to start, but we cannot find a suitable NGO to execute our ideas. It is also difficult to monitor the NGO to see if the funds are used properly”
16. “It can be difficult to pick an NGO to work together with due to trust issues”
Another barrier that was highlighted was that companies did not know what kind of CSR activities to implement. Due to the large amount of different social and environmental problems in India, they had trouble deciding on what to support.
17. “We would like to do more CSR activities, but we don’t know what to do and with whom to work together.”
Only one company mentioned a lack of resources like money and knowledge as challenges on the implementation of CSR.
In conclusion, most companies stated that the intention and motivation of a company to start CSR play a crucial role in overcoming challenges with the implementation of CSR.
The main challenge faced by Indian SMEs in implementing and executing CSR is to find trustworthy NGOs to work together with. Another challenge they experienced was deciding on what activities to execute. A lack of resources like money and time hardly played a role.
5.4. Benefits for the company
This section provides the answer to the fourth sub-question: “what are the benefits
Indian SMEs experience from CSR?” This will provide an understanding of the
possible benefits of CSR for SMEs in India.
When asked about the benefits of engaging in CSR, only 3 out of 14 companies said that they did not experience any benefits from their CSR activities. These companies were also of the opinion that it is not ‘right’ or ‘moral’ for a company to experience benefits from CSR and related activities, as they see it as a service towards a social cause.
18. “The focus is not on making the company benefit, but on wanting to make the society benefit.”
19. “Social activities should be done from the background and not from the front, you should not look for any benefits with it.”
A larger group agreed that CSR should not be used as a commercial activity or to create publicity. They stated that a company could realize benefits from CSR, though this should never be the reason to do it.
None of the interviewed companies measured benefits their company could realize from CSR activities like increased turnover, increased market share or reduced employee attrition. However, a majority of the interviewees affirmed that their companies experienced intangible benefits from CSR.
All interviewed companies, with the exception of one, stated that they did not realize any direct financial benefits from their CSR activities. One of the interviewed companies though had implemented water and energy management programs, which they received direct financial benefits from by saving costs.
experienced a more active participation and increased loyalty from employees towards the company.
20. “Employees are motivated to work for a company that also contributes to the society.”
21. “Employees are more loyal, because they receive direct benefits or they feel proud of working for a company that does something for the society.”
22. “It creates a feeling of participation among employees, it strengthens their values and stimulates them to work for the good cause.”
Another benefit of CSR that the interviewees often mentioned was an improved image and reputation of the company. They did however state that CSR should not be misused as a branding activity. Some interviewees felt this is done by some larger enterprises in India. Therefore they did not actively communicate about their CSR activities.
Next to this, the interviewees stated that their CSR activities created trust and understanding among clients and other stakeholders. This led to improved business relationships and a stronger business network.
In conclusion, even though none of the companies measured the potential benefits their company could realize from CSR, a majority stated that they did experience intangible benefits.
5.5. Overview chapter 5
This chapter presented the results of the interviews. The following sub-questions were answered:
- How can CSR be defined from the perspective of Indian SMEs? - What are the main reasons for Indian SMEs to implement CSR?
- What are the key challenges faced by Indian SMEs in implementing CSR? - What are the benefits Indian SMEs experienced from CSR?
6. DISCUSSION
In the previous chapter the results of the research were listed. In this chapter these results are analyzed.
6.1. CSR characteristics
The results showed that even though all the companies in this study were familiar with the term ‘CSR’, none of them used it in their internal communication and only a few used it in their external communication. Instead of using the term ‘CSR’ they mostly used terms that were less formal and described the activities in more detail, like community development or environmental activities. Research among SMEs in the UK (Jenkins, 2006), Spain (Murillo & Lozano, 2006) and Italy (Perrini, 2006) showed similar findings. These studies stated that the reason for SMEs to not use the term ‘CSR’ in their communication was that the SMEs often felt that the term is more associated with the activities of large companies. These SMEs also felt that the term ‘CSR’ was misused by larger enterprises with the purpose of a more superficial brand-building motive. In this research the reason for not using the term has not been addressed.
The interviewed SMEs described CSR as “doing good to society on a voluntary
basis”. A similar description was found in research among large Indian enterprises
(Sood and Arora, 2006; Karmayog, 2007; Arora en Puranik, 2004). This position is likely to originate from India’s long history of corporate philanthropy. Indian businesses traditionally take on a wider responsibility towards local communities (Balasubramanian et al, 2005).
