In developing countries, as some authors argue (Leutkenhorst, 2004) the contribution of SME’s towards employment generation is significant because they • tend to use more labour intensive production processes than large enterprises, boosting employment and leading to more equitable income distribution • Provide livelihood opportunities through simple, value adding processing activities in agriculturally based economies; • Nurture entrepreneurship; and • Support the building up of systemic productive capacities and the creation of resilient economic systems, through linkages between small and large enterprises While their significant economic contribution is well understood, their responsible business practices have not been extensively studied for any meaningful interpretation to be drawn. While individually each of these SME’s may not be a significant influence like the large corporations, their cumulative social and environmental impacts could be significant. This is already being witnessed in the textile belts and the chemical belts in India.
There is an urgent need therefore to understand the responsible business practices adopted by the SME’s. Responsible business practices can be conceptualized as consisting of two dimensions —- the ethical behaviours of the corporation and the Corporate Social Responsibility (CSR) practices that it adopts. This conceptualization allows us to capture the phenomena at two levels – at the level of individual managers and their institutions and at the level of the organization and the sector. A review of the literature indicates that a few studies have examined the value orientations and ethical stances of Indian managers in large corporations (Monga, 2004; Fisher, Shirole & Bhupatkar, 2001).
One study empirically examines the cultural influences on the judgement of Australian, Malaysian and Indian SME managers to whistle blowing as an internal control mechanism (Chavan & Lamba, 2007). There is however, no discussion in the paper about the significance of the choice of SME managers. Since the findings are at the level of cultural influences, the SME managers appear to be just a sample, with no specific behavioral uniqueness attached to them. Vasanthi Srinivasan is an Associate Professor at the Indian Institute of Management Bangalore Diana Joseph is a consultant with The Fourth Wave foundation. Much of the anecdotal evidence in India on SME managers appears to suggest that the ethical orientation of the SME’s is a product of the ethical orientation of its owner.
Since the ownership structure of SME’s varies significantly, it is likely that the stringent Governance norms that apply to large corporations may not be relevant and therefore supports the view that the owner/managers in SME’s determine the ethical orientation of the firm. There is a need for more research in this area. In recent years, however, the CSR practices in SME’s in India have gained a lot of attention. This paper attempts to draw up on the existing body of knowledge, both from the academic and the popular literature in India to identify the CSR practices and develop a research agenda for responsible business practices in the SME sector in India SME’s in India The SME’s alone contribute to 7% of India’s GDP. As per the Third All India Census of Small Scale industries conducted in 2004, the SME’s have increased from about 80,000 units in the 1940’s to about 10. 52 million units.
Their total employment is about 25 million and they produce about 7500 products including high technology products. In the sports goods and garments sector their contribution to exports is as high as 90% to 100%. They constitute 90% of the industrial units in the country and also contribute to about 35% of India’s exports. (Pandey, 2007) The Government of India since 1951 has encouraged and supported the SME’s through its various policy initiatives. Since 2005, The Government of India has identified 3,000 SME clusters of artisan-specific, village and small enterprises in the country and has taken up 1,150 such clusters for intervention and improvement.
The performance of the Indian small scale sector in terms of critical economic parameters such as number of units , production , employment and export during the last decade is indicated below . Performance of Small Scale Sector Year No of Units ( Million Nos) Production (Billion Rs) (at current prices) Employment (Million nos) Exports (Billion Rs) (at current prices) 253. 07 290. 68 364. 70 392. 48 444. 42 489. 79 542. 00 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2. 38 2. 57 2. 65 2. 80 2. 94 3. 08 3. 21 2416. 48 2998. 86 3626. 56 4118. 58 4626. 41 5206. 50 5728. 87 13. 93 14. 65 15. 26 16. 00 16. 72 17. 15 17. 85 2000-01 3. 37 2001-02 3. 46 2002-03 3. 7 2003-04 3. 83 2004-05 4. 00 2005-06 4. 18 2006-07 4. 37 (Source: Pandey, 2007) 6454. 96 6905. 22 8243. 63 9323. 54 10600. 87 12138. 00 14019. 39 18. 56 19. 22 20. 07 20. 90 21. 78 22. 78 22. 17 599. 78 712. 44 861. 03 NA NA NA NA Definition of SME’s SME’s are defined in different ways in different parts of the world. Some define them in terms of assets, while others use employment, shareholder funds or sales as criteria. Some others use a combination of revenue and employment as a hybrid criterion. The definition of SME has been a contentious issue in India. In fact, the term, the term SSI (Small Scale Industry) is more commonly used to refer to SME’s.
In recent years, the Government of India has sought to provide greater clarity in this sector by specifying a clear definition. In 2005, the definition of a Small enterprise was expanded to include a two category classificationa. Enterprises engaged in production/Manufacturing of goods for any industry b. Enterprises engaged in rendering/providing of services Enterprises in the manufacturing sector are defined in terms of investment in plant and machinery (excluding land & buildings) and further classified into:Micro Enterprises Investment up to rupees 2. 5 million i. e. Upto Rs. 2. 5 mn. (UD$ 60,000 approx) Small Enterprises Investment Between Rs. 2. 5 mn. and Rs. 50 mn.
Medium Enterprise Investment Between Rs. 50 mn. and Rs. 100 mn. Service Enterprises: defined in terms of their investment in equipment (excluding land & buildings) and further classified into:Micro Enterprises Investment up to rupees 1 million Small Enterprises Investment above Rs. 1 million & upto Rs. 20 mn. Medium Enterprises Investment above Rs. 20 mn. But below Rs. 50 mn. (Source: http://www. sme. gov. eg/English_publications/Issue2_english. pdf) CSR in SME’s: The evolution and growth of CSR in large corporations in India has been well documented (Mitra, 2007; Sood & Arora,2006; Arora & Puranik, 2004; British Council et al, 2002; Kumar et al, 2001).
However, with the phenomenal growth of the SME’s in recent times, there has been an increased awareness of CSR in SME’s. In this section, the authors draw up on anecdotes and information from the popular press and the reports of various initiatives that are underway to present a deeper insight in to the phenomena as it is unfolding. There is a paucity of academic research in this field in India. Corporate Philanthropy is widely prevalent in the SME sector in India. Their significant contributions to the health, education, religious institutions and temples cannot be undermined. Most SME owners significantly complement the work of the Government and the NGO’s in the towns/villages/cities they operate in.
In a report on CSR in SME’s done in the Pune Industrial belt by the NGO Business Community Foundation, it was found that the general impression among SME’s is that following mandatory Government laws makes them socially responsible. A lot of SME’s are of the opinion that philanthropy and CSR are one and the same. Since many of the SME’s are at a stage where they are struggling to establish themselves and do not have the manpower or resources to address these issues, they tend to ignore them. (Revenkar, 2004) One of the unqiue characteristics of SMEs is that their functioning is centered around the role of the owner who in most cases heads the organisation and their CSR policies are centered around his/her knowledge, values and interests. Many the SME’s are unable to see any clear benefits by following or practicing CSR.
Very few companies had social reports, code of conduct or stated ethical practices. But the study points that many of SME’s are involved in some development activity or the other. Many of the CEO’s of these SME’s were members of Rotary or Lions clubs and supported various developmental activities initiated by these clubs. Apart from following prescribed government norms, very few of them followed ethical codes as they did not have the resources to follow or implement them. Moreover, they did not give much priority for CSR or ethical code of conduct at they were tied down by various constraints ranging from finance, counselling, information technology and marketing.
The study drives home the point that there is a need to popularize the concept of CSR among SMEs and the benefits it can bring for them. Another perceptual study undertaken at the Okhla manufacturing hub near Delhi also indicates a similar pattern (Tarun Kumar, 2004) In the last decade, the Government is actively promoting cluster development as a strategy to grow SME’s. Clusters can be defined as sectoral and geographical concentration of enterprises, in particular Small and Medium Enterprises (SME), faced with common opportunities and threats which can: a) give rise to external economies (e. g. specialised suppliers of raw materials, components and machinery; sector specific skills etc. ; b) favour the emergence of specialized technical, administrative and financial services; c) create a conducive ground for the development of inter-firm cooperation and specialization as well as of cooperation among public and private local institutions to promote local production, innovation and collective learning approach to SME’s. UNIDO’s role and contribution to this effort has been significant (Russo, 1999). In 2007, UNIDO along with the Swiss Development Corporation has embarked on a thematic cooperation to identify and disseminate good practices and operational suggestions to improve the partipation of the SME’s in the CSR movement. The Sports good cluster in the State of Punjab had a multi-stakeholder engagement on CSR in 2008. It is expected that awareness education on CSR in SME would begin.
The role of industry associations in influencing the practice of CSR in SME’s is significant. The Bombay Chamber of Commerce and Industry along with the UK NGO, Business in the Community had in 2007 undertaken a project with 20 select SME’s. The intention was to build capability in these SME’s over a period of time (BCCI, 2007). Last, but not the least has been the influence of codes of conduct and certifications on the ethical practices of SME’s in the export sector. The impact of these codes is the highest in consumer goods industries like garments, carpets, textiles etc that are produced for export. The brand and corporate image of the buyer is impacted in the supply chain and therefore, most exporters comply with these standards.
There are hardly any examples of organizations which adopt these codes of conduct while manufacturing for the domestic market. This implies that the reality of codes and standards in India as it exists now covers a very small fraction of the Indian market (Sood ; Arora, 2006). Implications for the future: There is a clear and evident trend of an increased emphasis of expectations of CSR from SME’s in India. In the export sector, it appears that a large number of ethical and social responsible initiatives ranging from education, codes of conduct, technology transfer and incentives have been adopted. Instances of enlightened SME’s and owners appear to be by far very few.
However, in future the pressure from the local community, government and the industry associations may force SME’s to act responsibly in areas related to the environment. The high levels of air and water pollution in many cities in India in the last decade has caused a great deal of concern. CSR education has been undertaken by the industry associations and this could result in more SME’s engaging in CSR activities related to the environment. The fragmentation of the labour market and the large participation of the work force in the informal sector in India would mean the need for Human resource practices which provide social security to employees. From the view point of practice, it appears that a number of initiatives related to CSR have been launched in the last few years.
This should result in visible and tangible impacts over the next few years. From a theory building point of view, there may be opportunities for researchers to engage in meaningful action research. Towards an Agenda for Research: As is evident from the literature review, there is a dearth of research studies on understanding the role of Ethics and CSR in SME’s in India. Some of the research areas that emerge are: a. How effective are industry associations in influencing the state of CSR in SME’s? b. Is the CSR intervention at a cluster level likely to be more successful that at the level of the firm? One could explore this question from multiple perspectives – he economic perspective with reduced costs arising out of a cluster orientation, the cultural context in which peer and community pressure of participation could induce a spill over effect on CSR practices. c. How do SME’s that engage in CSR manage the additional costs of being responsible? It appears that unlike large corporations, they do not have a market or consumer incentive to be ethical or behave responsibly. d. How do owners engage with the various stakeholders on critical ethical aspects? What are the stances adopted by them? There is an urgent need for research at multiple levels — individual, organization and the industry level. e. What are the variables that impact the adoption of CSR practices by SME’s?
Conclusion: Since SME’s contribute significantly to the economy and are geographically widely spread in a country like India, their adoption of CSR and Ethical practices is crucial to a balanced development. There is a paucity of academic research in this area. In a vast country like India, comprising of 28 states which are economically at different stages of development, a study of the intra country similarities and differences in adoption of CSR practices in SME’s could be a valuable exercise for policy makers. References: British Council, , United Nations Development Programme (UNDP), Confederation of Indian Industry (CII) ; Pricewaterhouse Coopers (2002) Corporate Social Responsibility Survey -2002.
British Council, UNDP, CII ; PwC, New Delhi Bombay Chamber of Commerce and Industry (2007) Socially Responsible business: from an SME Model to a Model SME using the Corporate Responsibity framework Mumbai Fisher C M, Shirole R ; Bhupatkar A P (2001) Ethical stances in Indian Management Culture. Personnel Review; 2001; 30, 5/6 Kumar R, Murphy D F ; Balsari V (2001) Altered images: The 2001 State of Corporate Responsibility in India Poll. Tata Energy Research Institute . New Delhi Leutkenhorst (2004) ‘Corporate Social Responsibility and the Development Agenda: The case for actively involving small and medium enterprises’, Intereconomics, May/June.
Mitra M (2007) It’s only Business: India’s corporate social responsiveness in a globalized world Oxford University Press New Delhi Manjit Monga (2005) Value orientations: a case study of north Indian manufacturing managers . The Journal of Management Development; 2005; 24, 7/8 Pandey A P (2007) Indian SME’s and their uniqueness in the country. MPRA Paper No. 6086 (http://mpra. ub. uni-muenchen. de/6086/) Revenkar. A V (2004) Corporate Social Responsibiilty in Small and Medium scale industries. Business Community Foundation Publication. New Delhi Russo (1999) Strengthening Indian SME clusters: UNIDO’s experience. Tarun Kumar (2004) CSR in Industrial areas/SME’s: Activities, policies and strategies in Delhi India. Business community Foundation publication, New Delhi