Introduction
Since the development of corporate social responsibility, its concept has taken center stage in the evolving business landscape, with numerous bodies such as business corporations and schools adopting it. Besides, Long et al. (2020) consider CSR a hot topic in recent years as more businesses recognize the importance of positively impacting society and the environment. In other words, this concept is being adopted by companies mainly because it enables them to go beyond their profit maximization goals and ensure they impact society and the environment positively. In addition, Perrini et al. (2007) demystify the belief that CSR practice is only relevant to large enterprises with large budgets by expounding on the increasing attention of literature on CSR significance and impact on SMEs. As a result, this essay will delve into the existing literature and evaluate CSR practices and their impacts on SME businesses in China.
To achieve the objective of this essay, the paper will be structured into eight sections. These sections will include an introduction, CSR discussion, defining SMEs, expounding on CSR practices, the impacts of CSR practices on SMEs, and a theoretical framework. Lastly, section seven will cover recommendations, and section eight will be the conclusion.
Corporate Social Responsibility
While no clear or universally accepted definition of CSR exists, scholars have used their contexts and value to provide varied interpretations. For instance, Caroll (1979) defined CSR as a four-part model entailing ethical, legal, economic, and philanthropic responsibilities a firm should undertake. Additionally, Greenwood & Freeman (2011) argued that the full responsibility of a business should cover all stakeholders, such as suppliers, employees, and customers. However, a contrasting view was presented by Carson (1993), who argues that businesses should only be responsible for maximizing the wealth of their shareholders.
Small and Medium-Sized Enterprises
Like CSR, SMEs do not have a general definition because of factors such as specific characteristics in a sector, varying national contexts, and changing economic conditions. World Bank defines a small business as having less than fifty employees and Medium-sized as having more than fifty employees. Additionally, in China, SMEs are defined based on Promotion Law to categorize businesses based on their assets, sales, and number of employees. According to Wang & Wang (2023), a company is characterized as small if it has earnings less than RMB 10 million, and those earning above it as medium enterprises. Wang & Wang (2023) further state that SME promotion Law ranks a construction business with employees fewer than 600 as small despite this number varying with European countries, which consider a company small with 200 employees.
SMEs CSR Practices in China
SMEs play a significant role in ensuring a country achieves equitable development and economic growth. Their business activity is generally performed near their stakeholders, who are considered firsthand recipients of their expressed needs. Therefore, SMEs have been comforted to engage actively in ethical business operations and take part in developing the environment. In the case of China, the increased adoption of CSR practices in global businesses has gained attraction, with thousands of Chinese companies publishing their CSR reports on a yearly basis. According to Wang (2022), Chinese firms, including state-owned and SMEs, have made significant contributions and donations to activities related to the social, economic, and ecological environment within which they operate. A key example of an SME in China that has implemented CSR practices to recognize the importance of environmental sustainability is Shenzhen Coolkit Technology Company Ltd specializes in developing Internet of Things devices. This SME has incorporated CSR practices by promoting environmental awareness by encouraging waste reduction and the adoption of eco-friendly initiatives amongst its stakeholders.
Besides, a CSR practice that is continually adopted and prioritized in Chinese SMEs is employee welfare and labor practices. These SMEs ensure their employees are well taken care of by providing them with fair wages and safe working conditions. A key example of an SME in China that ensures their employee’s welfare is well taken care of is Ningbo Joyson Electronic Corp engaged in the automobile safety business. Ningbo Corp ensures their employees work in a healthy and safe environment and are paid fair wages, which promotes employee satisfaction and productivity.
Apart from paying fair wages, SMEs in China have adopted a practice of training and developing their employees to enhance their productivity. This is supported by Liu & Fong (2010), who identified that the Chinese education system is still incapable of supplying vital skills and talents required for businesses to keep up with the dynamic market environment. As a result, workers in the Chinese labor market are now regarding their own career growth as an essential element in their working life. This has necessitated SMEs in China to adopt good labor practices, with the majority providing training and development opportunities to their workforce. A key example of an SME that provides this is Ping An Insurance Company in China. This company offers training initiatives to their workers, both online and classroom based to enhance their workers expertise and industry-specific knowledge.
Impacts of CSR on SMEs
Owing to the unique nature of SMEs in China considering philanthropy as one and the same as CSR, there has not been extensive literature on the impacts of CSR on their operations. Regardless, a study conducted by Zhang et al. (2019) examined the role CSR has on stakeholder relationships with SMEs and found that SMEs adopting CSR helped them develop stronger relationships with their stakeholders. With the adoption of CSR, these SMEs were able to address concerns regarding the environment and society, which in turn led to improved relationships with stakeholders (Zhang et al., 2019). A key example of an SMEs in China that has adopted CSR initiatives and built stronger relationships with their stakeholders is Li-Ning Company. This company operates in the sportswear industry and has prioritized sustainable manufacturing, which resonates with their customers leading to increased satisfaction.
Furthermore, adopting CSR practices such as fair wages has enhanced and impacted SMEs’ relationship with employees. This CSR initiative has made employees in the SME sector more engaged and satisfied with their work. In other words, CSR initiative has fostered the relationship between SMEs and their stakeholders. Besides, studies show the brand image and reputation of SMEs in China have been impacted positively by the adoption of CSR practices. Adopting CSR enhanced their brand reputation as it showcased these SMEs’ commitment to addressing societal and environmental issues, differentiating them from competitors. a key example is China Metal Recycling (Holdings) Limited, whose brand reputation has been enhanced through its CSR practices, such as the adoption of proper recycling methods. These initiatives have increased the support and confidence of investors in the company resulting in its accessing expansion opportunities.
Besides, a study by Bahta et al. (2021) evaluated the role and impact of CSR on SMEs’ financial performance and found that CSR improves SMEs’ competitiveness which in turn enhances their financial performances. According to Bahta et al. (2021) SMEs engaging in environmental sustainability, they are able to gain a competitive advantage in the market, which contributes to customer satisfaction and the reduction of operational costs. Besides, Liu et al. (2014) argue that the financial performance of an SME is only impacted by only one CSR-oriented activity which is quality assurance. A key example of a company that has incorporated a quality assurance CSR initiative is Haier Group Corporation, by ensuring its products are of higher quality which in turn increases its sales and boosts financial performance.
Theoretical Framework
The stakeholders’ theory is one of the theories that provide insight and motivation behind CSR practices and their impacts on SMEs. The stakeholders’ theory was founded by Freeman in 1984 and advocates for corporations to create value for their stakeholders by incorporating them in decision-making (Parmar et al., 2010). Besides, this theory identifies different stakeholders, such as customers, employees, and suppliers, that a business should be responsible and accountable for. Therefore, by Chinese SMEs adopting CSR practices, they would be able to address societal concerns and engage with their stakeholders (Parmar et al., 2010).
Another key theory that aligns with CSR practices is the resource-based view. The theory gained prominence in the 1980s and suggests that the primary driver for a company’s growth and gaining competitive advantage are their unused managerial resources (Olavarrieta & Ellinger, 1997). Therefore, the adoption of CSR practices can be considered a valuable resource for SMEs as it enhances their relationship with stakeholders and boosts their brand image. Also, by SMEs incorporating CSR practices into their operations, they are more likely to enhance their competitive advantage in the market. For instance, Little Sheep Hot Pot restaurant in China has used its sustainable sourcing of ingredients to gain a competitive advantage in the food industry. Lastly, Institutional theory is founded on the premise that the organizational behavior of an SME is influenced by values and societal norms. Therefore, for SMEs to conform to the regulatory requirements and societal expectations, there is a need for them to adopt CSR practices. These CSR practices assist these SMEs in reducing the chances of experiencing reputational risks and enhancing their business legitimacy.
Recommendations
With the SMEs in China not fully conforming to the concept of CSR practices due to CSR evolving nature, company size, and complex implementation methods, it’s best to provide appropriate recommendations that should be adopted. One of the recommendations is that NGOs and large corporations in the industry should collaborate to raise awareness and education on CSR practices (Bute-Seaton, 2023). This program will subject SMEs to seminars and workshops on the role CSR practices have in enhancing sustainability and positive stakeholder relationships. Besides, this report recommends that the Chinese government to intervene despite CSR adoption being voluntary. According to Long et al. (2020), the government could intervene by offering tax incentives to SMEs using CSR practices. These interventions, such as tax incentives, will make CSR practices more attractive to SMEs as they would offset the costs of implementing CSR. Other ways government can intervene are by developing support and capacity-building programs and acknowledging SMEs that have excelled in CSR practices.
In addition, this paper recommends the development of CSR guidelines that are sector-specific as they will act as a guideline or a map for SMEs in embracing CSR practices (Bute-Seaton, 2023). According to Pang et al. (2011), the development of sector-specific CSR guidelines is very vital as it offers practical recommendations to SMEs that are facing implementation challenges. Pang et al. (2011) further state that once the sector-specific guidelines are in place, the SMEs are then able to comprehend the relationship between CSR and industrial goals and standards. Lastly, incentivization of SMEs in China to adopt CSR practices should continue by fostering and encouraging collaboration of financial institutions with these SMEs. These financial institutions would only offer low-interest preferential loans to Chinese SMEs that have incorporated SME practices in their operations.
Conclusion
In conclusion, businesses and organizations around the world have adopted CSR practices to enhance their reputation and long-term business performance. However, existing literature provides limited information on SMEs adopting CSR practices. A key example is the SMEs in China, whose implementation of CSR practices is still in its early stages. It is also vital to note that there are SMEs in China that have adopted CSR practices which have impacted their relationship with stakeholders positively. Other impacts include enhancing their competitiveness in the market and influencing the motivation and morale of employees. Therefore, to ensure there is broader adoption of CSR practices in China, SMEs, the NGOs, and large corporations in the Chinese market should corporate to raise awareness of CSR practices and government interventions. Also, CSR practices could be promoted through the development of sector-specific CSR guidelines and the encouragement of collaboration between China SMEs and financial institutions.
References
Bhalla, T. (2020). Corporate Social Responsibility by Small and Medium Enterprises in India. International Journal of Scientific and Research Publications (IJSRP). 10. 483–489. 10.29322/IJSRP.10.12.2020.p10854.
Bute-Seaton, K. (2023). An Assessment of Best Practices of Corporate Sustainability Strategies in Canadian SMEs.
Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of
Management Review, 4, 487-505.
Carson, T. (1993). Friedman’s theory of corporate social responsibility. Business & Professional Ethics Journal, pp. 3-32
Garg, P. (2016). CSR and corporate performance: evidence from India. Decision, pp. 43, 333–349.
Greenwood, M., & Freeman, R. E. (2011). Ethics and HRM: The contribution of stakeholder theory. Business & Professional Ethics Journal, pp. 269–292.
Long, W., Li, S., Wu, H. and Song, X., 2020. Corporate social responsibility and financial performance: The roles of government intervention and market competition. Corporate Social Responsibility and Environmental Management, 27(2), pp.525-541.
Olavarrieta, S., & Ellinger, A. E. (1997). Resource‐based theory and strategic logistics research. International Journal of Physical Distribution & Logistics Management.
Pang, A., Mak, A., & Mui‐Hean Lee, J. (2011). Significance of Sector‐Specific Corporate Social Responsibility Initiatives: Status and Role in Different Sectors. The Handbook of Communication and corporate social responsibility, 295-314.
Parmar, B. L., Freeman, R. E., Harrison, J. S., Wicks, A. C., Purnell, L., & De Colle, S. (2010). Stakeholder theory: The state of the art. Academy of Management Annals, 4(1), 403–445.
Perrini, Francesco & Russo, Angeloantonio & Tencati, Antonio. (2007). CSR Strategies of SMEs and large firms. Evidence from Italy. Journal of Business Ethics. 74. 285-300. 10.1007/s10551-006-9235-x.
Pradhan, S., & Puranik, R. (2014). Measuring Effectiveness of CSR Program: A Case Study of Tata Power Co. Ltd. In Implementing Corporate Social Responsibility: Indian Perspectives (pp. 167-183). New Delhi: Springer India.
Tripathi, A., & Bains, A. (2013). A study of Indian CSR practices in small and medium enterprises.
Vancheswaran, A., & Gautam, V. (2011). CSR in SMEs: Exploring a marketing correlation in Indian SMEs. Journal of Small Business & Entrepreneurship, 24(1), 85-98.
Zanjurne, P. (2018). Growth and future prospects of MSME in India. International Journal of Advanced Engineering, Management, and Science, 4(8), 264315.
write