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CSR, a source of growth for SMEs

When discussing about Corporate Social Responsibility (CSR), the main actors that come up are multinational corporations (MNCs). Given their financial power and their global social and environmental impact, people expect their activities to follow a framework in order to avoid harmful effects and create benefits for the society.


However, even if MNCs are key players, small and medium enterprises (SMEs) are not less concerned by CSR requirements. There are approximately 213 million SMEs worldwide, representing 90% of businesses, that employ about half the world’s population while MNCs are only 60 thousand with around 500 thousand subsidiaries around the world.


Given their number and the proximity to locals that SMEs have, the implementation of CSR cannot be neglected. Instead, it should be used as an advantage to attract customers and increase revenue.

What is Corporate Social Responsibility?

Many definitions of Corporate Social Responsibility have been mentioned throughout the years. The first modern definition was brought by Howard Bowen, in 1953. According to him, CSR is the “obligations of businessmen 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”.

This definition has, since then, been evolving. Thinkers and organizations have been developing the concept towards the idea of not only avoiding being harmful to society but providing clear benefits to it. As mentioned by the World Business Council for Sustainable Development (WBCSD), CSR is “The continuing commitment by business to behave ethically and contribute to sustainable economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.

Hence it is clear that today, as mentioned by the European Commission “Being socially responsible means not only fulfilling legal expectations, but also going beyond compliance”.


The 3 levels of CSR

CSR is often mentioned to include three levels of commitment. The first one is about abiding by the rules that the legislator has set for businesses to limit any harmful impact that their activities could have on society as well as the environment. Companies will most often follow the rules since financial sanctions may be applied in case of failure to comply. This is a minimum requirement that is respected in order to avoid any harm that could be done to the business.

The second level of CSR is for a company to avoid any negative effects created on their stakeholders. In practice, companies will set up communication channels to allow suppliers, clients, etc. to express their needs and share how the company activities affect their lives. Once a complaint is filed, the appropriate corrective actions are taken in order to put an end to the harmful effects and preventive mechanisms are usually set.

The third level and the most advanced of all, where CSR becomes a business activity of its own, is when it becomes a competitive advantage. At this stage the company does not limit itself to the minimum of respecting legal regulations, avoiding sanctions or reducing its negative impact. The business uses its CSR activities to create added value, to innovate, invest in finding ways to improve social welfare and follow a sustainable development.


Consumers expect CSR practices

A study carried out in 2013 by Maison Research House and SGS Poland on Polish consumers revealed that “81% of respondents thought that companies should take actions towards environment or community” of whom “78% declared increased trust for the company” and 76% showed increased willingness to purchase the company’s products and services. In addition, people expressed their wish to have more transparent companies that share their internal practices and possible impact.


These findings, that have been confirmed in other countries as well, show the need and the expectations that exist for companies to show CSR engagement regardless of their size.

The lack of CSR strategy in SMEs


The absence of a CSR strategy in SMEs is the result of two factors. First, the lack of information, whereas directors often are not aware of the concept or the legal requirements that are attached to it. Second, for those who are aware of the concept, they do not have the tools or financial capabilities to satisfy such requirements. Unlike MNCs, smaller businesses do not have access to the same variety of resources and are unable to absorb extra costs.


Intuitive CSR practices in SMEs

Due to their size, SMEs claim to have stronger ties to society and thus, follow practices with a positive impact on their stakeholders. They are closer to their employees, their suppliers as well as their clients.


These “CSR-friendly” practices are intuitive actions coming from a day to day meet and discussion with the stakeholders, answering their needs and adapting to their situations. However, a specific strategic framework is missing. MNCs have teams or even entire departments developing the company’s strategy about sustainable development, as they have resources and even financial incentives to do so. Big companies know that “green” businesses are more attractive and win on customer trust.


SME growth through CSR

CSR should be seen by SMEs as an opportunity to improve their business growth. CSR practices can help cut costs, reduce wastage, boost efficiency and increase employee motivation and productivity. Showing concrete engagement can be supported and even financed by state or international organizations, such as the European Union for EU based companies, through grants that awarded for CSR implementation purposes.


Such practices can create a competitive advantage by promoting business decisions, such as choosing sustainable suppliers or row materials and following “green” processes. Moreover, CSR can be implemented in the products or services that the company provides or wishes to create. It can become a source of innovation and market differentiation, making a business the pioneer of a new unchartered market. Companies have already been able to develop based on such strategy.


The example of Safaricom in Kenya

Safaricom is a Kenyan mobile network operator that created in 2007, M-PESA, a mobile banking service that allowed unbanked Kenyans to make transactions with reduced cash handling costs. Users can add or withdraw money from their account through an agent who handles the cash and can also transfer money to other accounts using only their phones.

Today, M-PESA is used in more than 10 countries and has led to a revenue of 800 million dollars while offering solutions to struggling communities.

Motivating such actions does not only benefit the business but also society. Creating new tools and processes to face new challenges can help society, at large, to adapt to a fast-changing environment.

Conclusion

The final goal should be to create a new habit for SMEs namely, a common practice of implementing CSR actions in the business strategy. Creating a “reflex” for entrepreneurs to build their businesses with concern or even around social responsibility and sustainable development, offering benefits to society but also increasing their competitiveness on the market.

Katianna Michos

Consultant at AION Consulting




Credits

Books:

KECHICHE, Amina et SOPARNOT, Richard. CSR within SMEs: Literature review. International Business Research, 2012, vol. 5, no 7, p. 97.

KHAN, Muhammad Tariq, KHAN, Naseer Ahmed, AHMED, Sheraz, et al. Corporate social responsibility (CSR)–definition, concepts and scope. Universal Journal of Management and Social Sciences, 2012, vol. 2, no 7, p. 41-52.

SZCZANOWICZ, Justyna et SANIUK, Sebastian. Evaluation and reporting of CSR in SME sector. Management, 2016, vol. 20, no 1, p. 96.

Websites:

https://espace-mondial-atlas.sciencespo.fr/en/topic-strategies-of-transnational-actors/article-3A11-EN-multinational-corporations.html

https://www.statista.com/statistics/1261592/global-smes/

https://www.worldbank.org/en/topic/smefinance

https://www.safaricom.co.ke/about/about-safaricom/who-we-are/our-story