Thinking and Managing Ethically - Essay Example

Executive Summary Small and medium enterprises are the primary elements of any private sector. They are the chief reasons for rapid economic growth resulting from enormous creativity and innovation. A number of entrepreneurs are generated from these SMEs every year. SMEs sometimes are present in the informal sector in some regions. All they have is outdated technologies, poor human resource, ineffective management systems and entrepreneurial capabilities, lack of information and information technology, low product quality and standardization, altogether resulting in low productivity (Hassan et. al, 2007). CSR is playing an inevitable part and becoming more and more important in practice. It has an enormous potential to deliver better results while adding to business practices and knowledge. Corporate social responsibility plays a vital role in small and medium enterprises as more than 90 percent of enterprises in Asian Productivity Organization are members of SMEs. Gross domestic product consists of 75 percent of these enterprises (Hassan et. al, 2007). SMEs Small and medium enterprises (SMEs) stand for the companies whose turnover lies in certain limits. However, Malaysian SMEs are categorized as per the size, turnover and activity. In broad terms, Malaysian SMEs are defined in two major categories (Saleh et. al, 2006): 1. Manufacturing, services related to manufacturing and agro-based industries, having: less than 150 full-time employees annual sales turnover of not more than RM25 million 2. Services, agriculture and information and communication technology (ICT), having: less than 50 full-time employees annual sales turnover of not more than RM5 million Hence, it can be deduced that an enterprise is said to be an SME on the basis of its annual turnover or the number of full-time employees. Category Micro-enterprise Small enterprise Medium enterprise 1 Manufacturing, services related to manufacturing and agro-based industries Turnover of not more than RM250,000 or less than five fulltime employees Turnover in the range of RM250,000- RM10 Million or five-fifty fulltime employees Turnover in the range of RM10 Million - RM25 Million or 51-150 fulltime employees 2 Services, agriculture and information and communication technology (ICT) Turnover of not more than RM200,000 or less than five fulltime employees Turnover in the range of RM200,000- RM1 Million or 5-19 fulltime employees Turnover in the range of RM1 Million - RM5 Million or 20-50 fulltime employees Source: SMIDEC The 2000 census conducted by the Department of Statistics in Malaysia shows that there were about 20,455 active firms in the manufacturing segment when talking about the total numbers of SMEs. This figure was out of about 44,185 manufacturing firms registered with the Companies Commission of Malaysia (CCM). Textiles and apparel segment contributes the largest segment of about 17 per cent of the total enterprises. Where as, the food and beverages contributes about 14 per cent, metals and metals products contributes 14.3 per cent and wood and wood products contributes 13.6 per cent (Saleh et. al, 2006). The relevant stakeholders who deal with SMEs in Malaysia in any form follows and adopt these standard definitions. The list comprises of various Ministries and Agencies at Federal and State levels of Malaysian Government along with the Statutory Bodies, authorities and financial institutions. They maintain data based on annual sales turnover as well as number of full-time employees in companies and businesses. They are required to scrutinize the collection of data as per the classifications since they are involved in the development process of SMEs. The adaptation of a common standard definition facilitates effective collection of data, analysis and execution of various SME policies and programs and categorization of firms for financial assistance and support. Corporate social Responsibility An incessant obligation maintained by business in context of an ethical conduct so as to contribute to the economic development whereas improvising the quality of living of the workforce and society as a whole is referred to as Corporate Social Responsibility. It is a transparent practice based on the ethical values rendering respect to the communities and its environment. Corporate Social Responsibility or CSR is supportive to emphasizing the social and environmental wellness as it goes beyond the submissive laws. Importantly, the legalistic dimensions should better be avoided in order to consider CSR. Communities are free to adopt such concept as CSR involves no universal tack and technique. However, some conceptual facts should be taken in to account while commanding the company's Social responsibilities. The concepts are far away from submissive text and public relationships or altruism as it involves transformation of culture of a company and articulates the concepts of CSR into its functioning and decision-making processes. In order to have a relevantly dynamic vision for CSR, it is important for the company to communicate its actions to its respective stake-holders while emboldening their feedback. A typical Corporate Social Responsibility framework would cover several major sections which involve the work-place issues, human rights, impact of business on the community, branding and marketing, ethical investment, environment, and ethics and corporate governance. They are described as under: Community Companies are dependant upon the community and so is the community as companies live within them. Enrichment of community is the result of employment support in community issues which a company involves within. These supportive actions may include educational assistances such as adoption of institutes or schools as it depicts the creativity of companies as to the way they can contribute to the child associations, and youth development thereafter. It implies that there are immense opportunities for company to interact with the community. Marketplace Significant stake holders such as share holders and suppliers are included in the market place. Engagement in ethical practices is one of the ways for the companies in order to interact in a responsible manner with the group of marketers. A helping hand in development of suppliers and other traders contributes to another way of accentuating the grades of Corporate Governance within the company. In this way, the shareholder expectations are met and are further to be considered. Workplace Inculcation of worthy values held by the company leads to healthy and quality work environment along with safety are major considerations in CSR. Companies are required to draw their employees from society as the staff needs to be socially responsible for dealing with issues related to basic human rights or other gender issues. The one important thing a company needs to know about is to identify its priorities and choices. There are certain areas and initiatives which are not meant to be applied. The initiatives which are individually linked with the CSR will rather depend upon the company's nature and it resources. It may also happen that, sometimes, some negative impacts come into existence because of a company's initiative adoptions. Too often, we fail to adjudicate the negative impacts of a company on the environment which, later on, prove to be disastrous to the company's assets. A bank, for example, is a financial institution which seems not to impact the environment in any case. However, some of its decisions related to business can have a meaningful impression over the environment, which is indirect. Corporate Social Responsibility in Developing countries Corporate Social Responsibility in developing countries is envisioned by framing progress goals which include a world with less poverty, hunger and disease, better educational facilities for adolescents and equal opportunities for women, so that it leads to a wholesome environment (UN, 2006: 3). Too unfortunate, developing countries fail to meet these global aspirations as business here can hardly tackle the issues for human development and environmental sustainability. Before scrutinizing corporate social responsibility, it is preferable to adjudge the meaning of developing countries. It refers to a collective reference of description to nations which are relatively low in per capita incomes and are contingently less industrialized. CSR in developing countries represents all the formal as well as the informal ways which contribute to the business in improvising the governance, social and ethical, labor and environmental conditions of the developing countries so that they remain religious, historical and cultural as well (Visser et al., 2007). CSR in developing countries is distinct from that of the developed world for four reasons. Firstly, the most desultory economies are represented by the developing countries which give a platform for them to accentuate their businesses and experience a lucrative growth. Secondly, developing countries are least prone to environmental catastrophes which they acutely come across. Thirdly, according to the World Bank reports, globalization, growth in economy and investment in business activities impact the developing countries in the most possible manner, be it negatively or positively. Lastly, the CSR agenda challenges are distinctly represented by the developing countries unlike those presented by the developed world. Cultural convention There are many conceptions for CSR about its originality and invention from the western context, CSR in developing countries is still believed to be the result of strong and deep-rooted indigenous cultural traditions of business ethics, philanthropy and community installations (Visser, Chapter 21). Some of these traditions belong to the ancient era, for example, some developing countries practice several business pursue Hinduism, Buddhism and Christianity which are, actually, dating back thousands of years. Moreover, many developing countries believe that business practices based on moral principles and ethical values result distinctly. Political Convention The Socio-political reform process drives business towards integration of social and ethical issues, and therefore, it is not possible for CSR in developing countries to cut out from it. For example, if Latin America since 1980s in concerned, the political and associated social and economic changes which include democratization, liberalization and privatization have resulted in greater responsibility for the businesses in context of social and economic issues (Visser, Chapter 21). Socio-Economic Prioritization It is the socio-economic environment which shapes the CSR in developing countries and develops the priorities created by it. For example, Amaeshi, in context of Nigeria, argue that the country is aimed at specifying the socio-economic developing concepts of the nation which include poverty alleviation, infrastructure development, provision of health-care and education (Visser, Chapter 21). Many Western CSR priorities such as consumer protection, fair trade, concerns of climatic change or other socially responsible investments like green marketing are often construed by these socio-economic concepts. Governance Gaps Governance Gaps include elements which are left out by weak, corrupt or under-maintained governments which, often, often fail to provide various social services or basic amenities such as housing, roads, electricity, education and health care etc. (Visser, Chapter 21). CSR is often referred to as a way out in order to diminish these governance gaps as it is a form of governance or a response to the governance challenges itself. This is a wider trend in developing countries as they involve weak institutions and poor governance where private actors such as families, tribe religions or some sort of business take the responsibility of delegation of such governance gaps. The strategies indulging into initiation of improvising the living conditions stand erect on argument to apply it to themselves as many developing countries can assume such a role. Many observations call it an alternative to the government as it is frequently advocated as a means of filling gaps in governance which are the result of liberal economic globalization (Visser, Chapter 21). All in all, CSR can be referred to as a building local capacity or a filling when the government falls short. Market Access Socio-economic priorities tend to scrutinize the unfulfilled human needs as an untapped market, since it underlies an expanding literature on 'bottom of the pyramid' strategies (Visser, Chapter 21). It refers to those business strategies which believe in turning the lour billion poor people into customers. CSR can be referred to as an enabler for those companies in the developing countries which try to access markets in the developed world as competitive advantage in international markets are on the key drivers for CSR in countries of Central and Eastern Europe and Asia. This concept makes sense as more and companies from developing countries are globalizing in order to comply with the international stock market requirements, thereby, including various forms of sustainability performance (Visser, 2005a). There is a strong bonding between international exposures, whether it is in terms of international sales or foreign exchange. Investment Incentives Companies strongly believe that multinational investment is linked with the welfare of developing countries in an entangled manner (Gabriel, 1972). These investments are foreseen for CSR performance as socially responsible investment has become another key driver for CSR in developing countries. According to the Dow Jones Index, around 8% of the emerging market companies are compared with 13% of high-income companies on the index (Visser, Chapter 21). Environmental reporting, however, does not have a negative impact over short-term profitability and maintains a positive relationship with the firm valuation. CSR may serve as a signaling key for developing countries which are looking forward to seek to assessment of foreign direct investment proposals by unknown foreign firms. Globalization and Environmental Protection Globalization is the major influence to the company's survival in the market. It, as a whole, focuses on the various influences on environment, legislation, development plans and quality governance of life. Environmental matter is an important requirement in order to trade in Western world. The concept of trade and movement of capital across the nation's boundaries externally influence the environment in global trade. Environmental protection actions are brought to action with the help of international standards and Multilateral Environmental Agreement or MEA. This is one of the ways to globalize the environmental protection effects with major fourfold. The first objective includes the restriction of markets for environmentally hazardous products or goods. Second objective involved the increment of the coverage by encouraging governments to join with MEAs. Third objective prevents free riding, and fourth objectives includes the ensuring of MEA efficaciousness by preventing leakage from other countries (Brack, 1997). Entrepreneurship Development for Competitive Small and Medium Enterprises Liberalization of trade borders has accentuated business opportunities with more and more flow of goods and services in global markets. Interestingly, consumers avail great benefits out of the technological advances and scientific development which have a multiplier effect on the opportunities and choices available. Hence, this advancement has resulted in the enhancement of productivity at a certain level which acts as a propelling force behind the rate of investment while determining the average growth rates of the economy. It has resulted in national competency which the government needs to focus on. Economic growth and national income can be accentuated with the help of the private sector and to national prosperity and competitiveness thereafter, as domestic private sectors are comparatively larger and influential than the actually potential external resources. This sector contributes to GDP substantially and therefore, both financial and entrepreneurial domestic resources create a pattern of progress which is more stable and sustainable. Small and Medium enterprises are a major component of the private sector as they act as the engines to economic growth and development. Creativity and innovation are the cornerstones to it and entrepreneurship has a vast future for them. However, many countries face the problems of technological backwardness and under grade level of human resources, which results in poor product quality and standardization. This hinders the access to financing and long-term capital which is the basis for companies. CSR regulation and legislation on SMEs Imposition of Corporate Social Responsibility regulation and legislation over small and medium enterprises has both pros in cons to be taken into account. Companies have started entering the arena of citizenship with the least indulgence of government, where it has not yet administered citizenship rights to the company. Many factors encourage companies to step in areas where government is of minimum involvement. These in return create a mechanism framework for companies to privatize their welfare intentions. These reforms may include improvisation of working conditions in sweatshops, whilst ensuring their employees a handsome living wage and, of course, financing the schooling of child laborers. All these acts are performed in the shear absence of legislation. On the other hand, according to Hamann, CSR is an irrelevant approach as there is a need and requirement for a more proactive involvement in order to move the local governance towards accountability with certified need for inclusiveness (Hamann, 2005). CSR has both negative and positive impact on SMEs as some scholars question it as a stepping- stone so as to regulate a better path in the developing countries. On the contrary, some scholars refer to CSR as a long-term project in order to diminish the weaknesses of companies in the name of prescribed judicial and welfare frameworks while addressing the limitations of nation-state so as to regulate the global economy. Developing countries, too often, fail to prioritize the legal responsibilities. However, it does not mean that they violate or flaunt the laws, but they fail to influence a good conduct over it. The main reason behind this is the development of legal infrastructure is poor and the enterprises lack independence and adequate resources, thereby leading to the lack of administrative inefficiency. According to Mwaura, there are many developing countries across the world, which fail to incorporate human rights and other relevant issues to the corporate social Responsibilities in to their legislation, and hence are far more behind the developed world (Mwaura, 2004). However, there are still several developed nations which act as exceptions in context of the failure of incorporation of human rights, as they have witnessed a significant progress in strengthening and beholding the social as well as the environmental aspects of their legislation. Government capability for the enforcement is still limited to some serious limitation as it depreciates the efficaciousness of legislation as a driver of the Corporate Social Responsibilities. As a result, there has been an emergence of an argument which indulges companies setting an example of the most irresponsible business nature and behavior by avoiding taxes and hence, contradicting their claims for the CSR in context of a real good and healthy conduct of business. Legislations include both positive and negative build ups. Some workers have retained their permanent jobs on the farms and have availed all possible benefits from the government's intervention, others are still away from it. The restructuring process of the labor force has resulted in three responsive pressure aspects. There are enormous cost pressures which flow from contracts with overseas retailers pursuing inflexible demands. Domestic labor legislation which includes minimum compensation, and legislation which aims at providing permanent security of housing tenure to the on-farm workers. The introduction of legislation in some fields has enforced the workers to lead a living far more dreadful and precarious than the previous one before the commencement of legislation rules. In contrast with industrial activities and international trade, the introduction of regulation and legislation has played more of a supportive role. Legislation has proved its metal in offering tax incentives to companies so as to protect environmental initiatives. These incentives include the conservation of energy, recycling activities, usage of environmental protection equipments in production activities, infrastructure allowance and conservation of environment. SMEs which take on any of the initiatives are proven to be eligible for income tax incentives. Along with the incentive provision, other major act under the legislation includes the protection of environment and increase the penalty for non-compliance. It covers all sources of pollution, air water, land and sea (Kadaruddin, 2002). Legislation applied on SMEs, on the whole, has aimed at the management and control over the hazardous waste and establish an environmental audit. Regulations along with adequate support and information on how to comply with the environmental consideration in businesses are well implied through the experiences from developed nations. A considerable source of information and support allows an enterprise to put aside many other opportunities for the promotion of environment. These opportunities, later on, prove to accentuate environmental management in unusual ways of their own. Conclusion In the present scenario, all the accessible information available to examine the Malaysian SMEs is not integrated (Ghani, 2007). Most of the SMEs information addresses few particular requirements and fail to compensate with the demand of additional values by the potential participants. The SME Credit Bureau in Malaysia is focusing on the availability of useful and integrated information. SMEs play an efficacious role in the economic and social life as they give rise to a number of non-agricultural jobs, sales and values. Apart from all such features, SMEs face a number of similar captivities which result into low productivity. The practice of CSR can prove to be of great help to them as it is relevant to business operations and creates a general awareness among SMEs of corporate citizenship. There is still a large scope of research on CSR in developing. Further research is required especially in developing nations at various levels along with the analysis and examination of CSR in different regions and parts. References 1. Brack, D. 1997. Reconciling the GATT and Multilateral Environmental Agreements with Trade Provisions: The Latest Debate. Review of European Community and International Environmental Law (RECEIL), 6(2): 112-120. 2. Ghani, Zamani Abdul. 2007. The SME sector in Malaysia. BIS Review 76/2007. 3. Hamann, R, et. al. 2005. Local Governance as a Complex System: Lessons from Mining in South Africa, Mali and Zambia. Journal of Corporate Citizenship, 18. Summer: 61-73. 4. Hassan, Za'faran. 2007. Entrepreneurship Development for Competitive SMEs: A Comparative Analysis of Malaysia and Philippines. Faculty of Economics and Business, University, Kebangsaan Malaysia. 5. Kadaruddin, A. et. al. 2002. Globalization of Environmental Protection: Challenge for Malaysian Businesses. Proceedings of the Regional Symposium on Environment and Natural Resources. Kuala Lumpur, Malaysia. Vol. 1: 215-224. 6. Matten, D, et. al. 2007. The A to Z of Corporate Social Responsibility. London:Wiley. 7. Mwaura, K. 2004. Corporate Citizenship: The Changing Legal Perspective in Kenya. Interdisciplinary CSR Research Conference, Nottingham, International Centre for Corporate Social Responsibility (ICCSR). 8. Saleh, Ali Salman. 2006. An Evaluation of SME Development in Malaysia. International Review of Business Research Papers. Vol.2. No.1. pp.1-14. 9. SMIDEC 2002. SMI Development Plan (2001-2005). Percetakan Nasional Malaysia Berhad, KualaLumpur. 10. UN. 2006. Millennium Development Goals Report 2006. Brussels: United Nations. 11. Visser, W. 2007. Corporate Social Responsibility in Developing Countries. 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