Small to Medium Sized Enterprises and Corporate Social Responsibility

The Role of International Networks

Pia Popal

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429516290
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

While the Corporate Social Responsibility (CSR) activities of small firms have been analysed to some extent, their engagement in international networks relating to CSR is less understood. Most of these networks primarily address the needs of multinational corporations. Surprisingly, however, the number of small firms participating in such institutions has substantially increased over recent years. But what is the reason for this new interest of SME in institutional forms of CSR?

Based on a qualitative empirical study of German small firms' participation in the most prominent CSR institution, the UN Global Compact, this book explores the drivers for small firm participation. The motivations are complex and do not follow the same hierarchical order associated with large business behaviour. Rather, reasons for institutional engagement suggest a heterarchical structure, where alignment is contingent upon factors such as individual CSR perception, self-conception or social environment.

The book explains why small firms prefer to engage in sustainable development within institutionalised forms of CSR rather than act in isolation, and provides recommendations on how to support and thus increase SME participation in institutionalised forms of civic engagement.

1 Defining terms

The analysis of the motives for small business participation in institutionalised forms of CSR at the international level is based on some definitorial fuzziness, as this chapter will show. In particular, the definition of what SME encompasses and how the concept of CSR is applied have been the cause of discrepancies in academic literature. However, using terms without providing clarification about how they are understood and applied can raise more questions rather than solving the occurrence of the phenomenon in question. In other words, it diverts from answering the central research question. The term SME refers to a quantitatively large group of companies that may vary in different ways, also regarding their CSR practice. Both the CSR practice itself and its theoretical framing have similarly led to various and contradictory interpretations. For the purpose of clarity, therefore, the following sections delineate both terms – SME and CSR – and their respective interpretations within this contribution. Particular reference will be given to the German historical context, as it is highly relevant to the firms’ self-understanding that was part of the research process.

The applied SME definition with relevance to German firms

The SME sector is largely a grey area of research. A popular assumption about smaller businesses is that they are homogeneous in character, mainly thanks to their smaller size in comparison to larger corporations (Fischer and Reuber 2003, p. 131; Lepoutre and Heene 2006, p. 258). Yet, in contrast to larger firms, the term SME refers to a much greater quantity of enterprises. In light of the extreme heterogeneity of the sector (Berghoff 2006, p. 270), it seems necessary to define exactly what the term small- to medium-sized enterprise encompasses. Small firms are in many instances different from large corporations in nature (Jenkins 2004; Lepoutre and Heene 2006; Preuss and Perschke 2010; Spence 2007); therefore a definition of SME based solely on the fact that they are not ‘big firms’ does not sufficiently explain the complexity of their numerous characteristics. In line with previous research on the SME sector, SME will be defined according to quantitative and qualitative characteristics (see e.g. Lepoutre and Heene 2006; Murillo and Lozano 2006; Perrini 2006; Spence 1999; Spence and Rutherford 2004).

Quantitative characteristics

Quantitative aspects concentrate to a large degree on employment numbers and general turnover¹ (see e.g. Hauser 2000, p. 3; Hull 1983, p. 153; Meyer-Stamer and Wältring 2000, p. 10). Although other criteria such as production method, market position, fixed assets or balance sheet total are also helpful for a quantitative SME definition, most official statistics often fail to provide the necessary data to be applicable (Hauser 2000, p. 2). Since turnover can vary widely across different economic sectors (Hauser 2000, p. 4), and the empirical data in this research project is gathered across sectors, this volume focuses solely on the number of employees with regard to quantitative criteria. This definition is in keeping with the classification of businesses provided by the UNGC itself, which only lists the number of employees but not the annual turnover of a company on its website. In line with the choice of the UNGC as the frame of reference for research and in line with earlier contributions to SME research in general (see e.g. Klein and Vorbohle 2010; Torugsa et al. 2013; Wickert 2010), small and medium sized enterprises are quantitatively classified according to their number of employees. Although definitions based on employment size predominate in practice, there are incongruities as to where the cut-off between ‘small’, ‘medium’ and ‘large’ should be (Hull 1983, p. 153). ‘Small’ applies to a wide range of businesses, ranging from the smallest corporate entities with five employees to large businesses that almost resemble multinational corporations in terms of size and turnover, for example.² Because of these incongruities, it is necessary to clarify the numeric definition of employment size applied in this research project. In contrast to the EC definition that categorises SME as having no more than 249 employees (EC 2003), this book follows the broader definition of the German Research Institute for SME (Institut für Mittelstandsforschung (IfM)) in Bonn, according to which small and medium sized companies may comprise up to 500 employees (IfM 2014). The relevance of this span (up to 500 employees) was also confirmed during the interviews: ‘So where does a “Mittelstand” company end? Without knowing any statistics, I would say that the company size up to 500 [employees] is relevant for SME’ (SME-2-IP-2) (Table 1.1).

In contrast to Italy, where small firms dominate the economic landscape, Germany hosts a very prominent number of larger medium sized companies (with 250 to 500 employees). These companies feature the typical characteristics of smaller firms that distinguish them substantially from large shareholder-owned corporations. That is why the IfM definition of SME is more relevant than the EC definition (IfM 2014) for this study. This quantitative definition also digresses from the SME definition provided by the UNGC itself, which distinguishes smaller firms from multinationals with a limit of 249³ employees. I, however, contend that it is only by studying a wider spectrum of smaller firms in the study that this contribution can present the complex and heterogeneous landscape of German SME engagement in its entirety. Moreover, because ‘an enterprise of 245 employees does not change its character if it employs another 10 or 20 persons’, a broader SME definition in quantitative terms can be argued (Hauser 2005, p. 12).

Table 1.1 Quantitative SME definition according to the EC and IfM

Company category	Number of employees per EC definition	Number of employees per IfM definition
Micro/small sized	Up to 9	Up to 9
Small/medium sized	Up to 49	Up to 499
Medium sized (SME) total	Up to 249	Below 500

Source: Numbers and categories (partly) adopted from EC (European Commission (2003) and IfM (2014).

Although some German companies with a large number of employees would, in self-assessment, also classify themselves as Mittelstand (e.g. the Dr. Sasse AG, which employs almost 5,000 workers,⁴ or even Robert Bosch GmbH with 132,000 employees in Germany alone) the majority of research on German SME focuses on the upper margin of 500 employees. These different quantitative categorisations illustrate the necessity to specify which employment numbers the numerical classification entails. In Ireland, for instance, the upper limit for small firms is 50 employees, in the Netherlands employers of 100 staff members are categorised as large, and in France any employment number under 1,000 employees classifies a firm as small or medium sized (Berghoff 2006, p. 270; Meyer-Stamer and Wältring 2000, p. 10). Although growing internationalisation makes a definition within national boundaries increasingly outdated (Meyer-Stamer and Wältring 2000, p. 11), a working definition of quantitative characteristics is helpful in curtailing potential interview partners.

Qualitative characteristics

Quantitative characteristics are a crucial starting point for classifying smaller firms, yet the number of employees does not reveal much about if or how they differ from large firms, except that they are smaller in size. It does not convey much about the way they practise business per se, or how, for instance, their structure might influence the way in which they interpret sustainable action. It can therefore be argued that a mere quantitative description of SME characteristics does not suffice to grasp the characteristic distinctiveness of smaller firms. In addition to a numerical categorisation, which is helpful as an initial distinction, the delineation of further characteristics is, in my view, essential in order to capture the complexity of SME specifics.

General terms

Apart from quantitative aspects, smaller companies strongly define their activities along the lines of different aspects such as small and informal organisational structures, an innovative understanding of new business opportunities, as well as a flexible attitude when facing new challenges. Some of the key features attributed to smaller firms will therefore be outlined as follows.⁵

Flexibility was an early keyword for SME behaviour (Dyson 1990, p. 21). The willingness to adjust is, among others, a survival mechanism. SME are ‘very adaptive, swiftly adjusting their trading capacities according to changing market opportunities’ (Goffee and Scase 1995, p. 18). In other words, the small size enables private business actors to respond more quickly to changing circumstances. These flexible structures also point to another important SME feature.

Innovation: SME are concurrently capable of taking ‘advantage of new niche markets for products and services’ (Jenkins 2009, p. 23) by innovative means. In that sense, SME ‘serve as “growth labs” for innovation and risk-orientated product development’ (Morsing and Perrini 2009, p. 2). SME tend to invest, in relative terms, more than larger firms in Research and Development (R&D), and the rate at which innovations are implemented is correspondingly faster (Hull 1983, pp. 158–159).⁶ In 2013, for instance, SME invested €9 billion in R&D (IfM 2015).

Resource limitations: Yet, technical enhancements in the broader context are limited to available (and, in SME, often scarce) financial resources (Gaskill et al. 1993; Raymond 2001; Spence 1999, 2007). They have therefore been repeatedly characterised as being short of means (Jenkins 2004; McWilliams and Siegel 2001; Tilley 2000). In fact, smaller businesses tend to face a variety of crucial resource limitations, such as having less financial investment and less time than larger corporations. Many SME subsequently lack time for anything other than survival (Enderle 2004; Spence 1999, p. 165; Tilley 2000, p. 5).⁷ These chronic conditions of shortage that frequently accompany daily business operations in SME may conversely function as an amplifier in initiating innovative processes. This aspect draws, for instance, upon the understanding that necessity is the mother of invention.

Less hierarchy: SME also have different organisational structures in comparison to large companies. They possess less hierarchical complexity (MacMillan 1975). Owner-managers exert a strong influence over these structures and introduce their personal values intuitively into business practice (Murillo and Lozano 2006; Russo and Tencati 2009; Sen and Cowley 2014; Spence and Rutherford 2004). Thus, personality characteristics can deeply affect the way in which information is facilitated within a company (Murphy 1996). Knowledge is usually gained in informal ways and habitually builds on personal experience (Fassin 2008; Perrini et al. 2007). Communication procedures are only rudimentary and not strictly established (Preuss and Perschke 2010; Spence 1999). Employees are often responsible for several business tasks simultaneously (Murillo and Lozano 2006; Perrini et al. 2007; Spence 1999). Because of this multi-functionality, time and task pressures are likely to be great (Spence 1999). Consequently, awareness of issues that do not concern the daily routines of the business may be low (Tilley 2000).

Personal relationships: To a large degree, these firms are family-owned (Spence 2007) and are also managed by the owner (Preuss and Perschke 2010; Russo and Tencati 2009). Personal relationships are a common denominator in SME. Family involvement on the management level can enhance employees’ trust in the companies’ objectives and agenda. More particularly, the involvement of the owners demonstrates their personal commitment, which may positively affect employees’ willingness to identify with and trust in the objective of the firm (Spence 1999, p. 165). Trust in relationships is also at the basis of long-term commitment to small firms. In SME, apprentices frequently stay with the company where they commenced their apprenticeship. More generally, employee loyalty and employment duration are greater in smaller firms than in their larger counterparts. Accordingly, the personal character of relational structures can be relevant to customers and other stakeholders. Relationships with customers have usually been developed over long periods of time by the same token. These examples demonstrate a high degree of investment in (local) social capital by small firms. In sum,

[T]he enhanced possibility of personal contact between the owner-manager, employees, suppliers, customers and even competitors may enable the building of trust relationships which can act as a bedrock of open and honest dialogue in a way which is impracticable in the larger f...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Acknowledgements
• List of acronyms
• Introduction
• 1 Defining terms
• 2 The UN Global Compact
• 3 Research process
• 4 Central assumptions derived from Institutional Theory
• 5 Empirical findings
• 6 Concluding remarks
• Appendix: list of interview partners, occupation in firm and date of interview
• Index