Saudi Small & Medium Business Responsibility Issues

Subject: Impact of Business Issues
Pages: 18
Words: 5018
Reading time:
18 min
Study level: PhD

Introduction

In the current global business environment, organizations do not operate alone without interaction with other stakeholders and the environment. The objective of many businesses also is not only to go after financial gains but also to impact positively on the environment and the society at large. The products that a company produces have an impact on the environment and the people around. The impacts could be either negative or positive. The issue of corporate social responsibility ensures that business enterprises strive to have only positive impacts spill over to the environment and the society. Stakeholders insist that all organizations must bear the consequences of their operations on the environment.

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Managers of SMEs are faced with the daunting task of balancing the demand to ensure that there is economic, social and environmental development and at the same time meet with the rising demands of producing quality products for the society and remain relevant. The challenge is made worse due to the fact that these SMEs have to continue competing with other organizations while at the same time achieve progress in carrying out the initiated CSR projects. It is no longer acceptable that the sole purpose of establishing an SME is to meet the needs of the customers. The effects that operations done in the production of certain goods and services have on the environment must also be considered in order to create a balance in the way things are done without causing harmful effects on the environment and the society. The activities that a firm does in order to meet these demands are what are referred to as corporate social responsibility.

In this paper, the definition and characteristics of SMEs shall be highlighted. The paper shall then discuss issues which are pertinent to SMEs around CSR as compared to large corporations and their relevance in the Saudi Arabia context. The paper shall concentrate on SMEs because of the important role they play in the growth of a country’s economy, particularly in Saudi Arabia.

Definition of SME and its characteristics

SMEs can be defined as enterprises which have a workforce of between 10 and 100 people (Jenkins 2009, 25). These enterprises are usually looked down upon by many people because they do not think that they have the capacity to cause growth in a country’s economy. This could be the reason why SMEs are not considered during the process of making policies regarding business enterprises. Most governments do not think they are worthy to be considered during this process, yet they contribute a lot to a country’s economy if proper policies are implemented to govern their operations. Although there are organizations that target small business to help them financially and in other ways, SMEs do not benefit in most cases.

This is because such organizations work with the very small enterprises, with less than 10 people, therefore, SMEs seem to be very big to receive any help from these organizations. This means that SMEs lack support from both the government and well wishers who may be willing to support them because of their size. According to Davis (1960, 10), a lot of attention is usually directed towards large organizations, especially during the making of policies. Wood (1994, 50) observes that most of the investors also choose to work with large organizations instead of incorporating small and medium enterprises. Large companies are therefore the target for many investors and benefit more from tax incentives and subsidies than small and medium enterprises. This trend has started to change and the future for SMEs seem to be brighter than in the past. This is because there are people who have realized the importance of SMEs and have started to support them.

According to Walker, David and Andrew (2006, 80), there are typically more SMEs than large corporations in any country. SMEs are usually very important in any economy because they contribute immensely to growth and development of the country. SMEs are known to increase healthy competition in any economy. This helps in reducing the chances of a single organization dominating the market and exploiting the consumers. A lot of innovation is also initiated by small and medium enterprises.

In Saudi Arabia, it is estimated that 92 percent of the businesses fall under the category of SMEs. More than 80 percent of the work force in Saudi Arabia is employed by SMEs. In Saudi Arabia, SMEs are taken very seriously by the government. In some instances, the government provides funding for these enterprises in order to boost them. The government strongly believes that it is the SMEs that are the main drivers of the kingdom’s economy as opposed to large corporations. The issue of unemployment is very rampant in most of the countries globally and Saudi Arabia is not an exception. However, the people of Saudi Arabia are now turning to SMEs as a way of dealing with unemployment. Most of those venturing into this form of business are the young people. SMEs are attracting large numbers of the unemployed youth because of various reasons. For example, these enterprises are simple to start and the running of the business after establishment is also simple. The administrative structure is not complex and the amount of capital needed to set up such enterprises is not much.

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Issues which are pertinent to SMEs around CSR as compared to large corporations and their relevance in the Saudi Arabia context

Corporate Social Responsibility (CSR) has gained popularity among business enterprises in the recent years. Findings from research in this area indicate that initiation of the right CSR projects by an organization has a positive impact on how the organization performs. One of the benefits of CSR to an organization is innovation. Organizations that engage in CSR end up being more innovative in terms of their way of doing things and production of unique products, among others.

Preference of short-term projects

Implementation of CSR projects among the SMEs has been slower compared to implementation of the same in larger organizations. There are diverse reasons why the trend has been so. However, some scholars have identified lack of understanding on the benefits of starting CSR projects as the major cause for the slow adoption. SMEs prefer to participate in projects that will take a short duration to be completed instead of projects that are long term but more beneficial than the short term projects.

Concerns about public image

SMEs that decide to take part in CSR related activities are usually concerned about how the public views them. This makes their projects less beneficial to them because they are not driven by the right motive when carrying out these projects. The SMEs concerned too much about their public image may end up concentrating very much on this insignificant aspect at the expense of the more important factors. This is why it may be hard for them to reap the benefits of engaging in CSR projects. The right attitude is required when SMEs are starting CSR activities. This would help them reap the benefits of engaging in these activities.

Businesses that take part in CSR in Saudi Arabia have a more positive image in the society compared to those that do not. Most of the customers of these businesses remain loyal and trust them more than companies that shy away from being involved in CSR activities. CSR promotes virtues such as trust and loyalty among the customers and other stakeholders. It also encourages stakeholders to offer various contributions towards any venture that a business may decide to engage in that is beneficial to the society.

Engaging in CSR activities in Saudi Arabia has the benefit of attracting more investors to the organization. This is because investors have a lot of confidence in organizations that engage in CSR activities. They perceive these organizations as being financially stable; therefore, they have great confidence while investing their resources in such a company. Accocrding to Besser and Nancy (2001, 230), when investors put their resources in such companies, they feel that they are also contributing towards community development because the company where they have invested in takes part in activities geared towards helping the community. They are proud of contributing towards community development through such investments.

Companies that take the issue of CSR seriously and plan for CSR related activities attract people with a lot of talent. Many people enjoy being associated with such a company; therefore, a lot of talented people seek for employment opportunities in the company. This is a major benefit that these organizations get because when they employ gifted and talented people, the organization is able to grow its profits drastically. Companies that are involved in CSR have a higher retention rate of employees than companies that do not (Swanson 1995, 50). Employees feel confident working for such companies and do their best to take the company to greater heights. They feel that they are also contributors of the community development activities undertaken by the organization they are working for. Therefore, they are not quick to leave the organization for greener pastures but continue to work towards the development and growth of the organization.

Lack of clear understanding of the meaning of CSR

Although some SMEs have embraced the culture of having CSR in their organization, most of them still do not understand clearly the meaning of this concept and the benefits that initiation of such projects may bring to the organization. These organizations a re still dubious about the potential benefits that CSR activities are believed to have on the enterprise that takes part in the activities. They are still unaware of the positive impact that CSR projects have on the performance of the organization, whether it is an SME or a large corporation.

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There have been a lot of controversies surrounding the meaning of CSR. It has proved difficult to find consensus among various scholars concerning what is really meant by CSR. Although the term has continued to gain popularity in the business sector, the actual meaning of this concept still remains elusive. There is still a lot of ongoing debate among scholars in this field as they try to harmonize the varied views coming from different quarters. Although the issue has continued to raise a lot of debate, there are some things that those involved in these debates agree upon. For example, it is commonly agreed that CSR refers to the manner in which a company runs its operations with the aim of ensuring that the relationship between the company and the stakeholders is good (Solomon 2007, 25).

All firms are believed to have an effect on the society and the environment where the firms are situated. The effects are felt through the firm’s products and manner of doing things. The impact is also felt through interaction with people or other organizations that play a great role in the running of the firm. Since the operations of all organizations impact on the society and the immediate environment, CSR is an important concept in both small and large firms. Most of the scholars in this field have focused much of their attention on CSR in large firms. Very little has been done in the area of CSR in small and medium scale enterprises. However, since the 1990’s, there has been significant research that has been done concerning CSR in small and medium scale enterprises. Most people have realized that research on this topic would be of great benefit to people both academically and professionally. It is wrong to assume that research done on CSR in large firms would correctly depict a picture of CSR in small and medium scale enterprises. This is because large enterprises are very different from small and medium scale enterprises. There are numerous differences in the way these enterprises run their companies, the stakeholders they associate with as well as their impact on the society and the environment.

Different motives for taking part in CSR activities

It is also common for those involved in planning about CSR within SMEs to differ concerning the purpose of venturing into CSR projects. Some of them may identify image branding as the core purpose of the projects, others development of new products while other still may identify decreased costs as the aim of venturing into the projects. With no common aim, it becomes hard to venture into CSR projects and benefit from the projects. In Saudi Arabia, for example, some people in an organization engage in CSR to fulfill their religious obligation towards the needy in the society. However, some feel that this should not be the case and organizations should decide whether they want to be involved in CSR activities without relating this to religion. They also feel that engagement in CSR should be a voluntary activity and one should not be coerced or forced to do so in the name of religion.

Most business enterprises that initiate CSR projects in Saudi Arabia do so with an aim of ‘serving’ those who are less fortunate in the society. Businesses that have CSR activities have a sense of fulfillment because they view these activities as a way of fulfilling their religious obligations towards the poor. This is according to the Islamic law that requires those who have material wealth to help the less fortunate. Most of the Saudi Arabian businesses will therefore engage in CSR related activities in order to help the needy in the society and fulfill their religious obligation towards the less fortunate. However, there are some people who run SMEs and large business enterprises who feel that CSR activities should not be initiated on the basis of religion.

CSR activities done by companies can be proactive or reactive. Proactive CSR activities are geared towards meeting a need in the community that has not yet become a major problem. The activities are done to prevent a situation that seems to be potentially dangerous from becoming a major threat to the community. An SME will therefore engage in activities that will help prevent the issue at hand from becoming a major problem. Such activities are very helpful to both the community and the organization performing them. Reactive CSR projects are those projects that are done to alleviate a problem in the community that is in existence. Such projects are geared towards curbing a problem that the community is facing and an SME may decide to help the community to deal with the problem. Both of these approaches lead towards innovation in the organization. In Saudi Arabia, there are various activities that companies choose to be involved in as their CSR. For example, there are anti smoking campaigns that are done to raise awareness on the harmful effects of smoking. The campaigns are also aimed at helping those who are addicted to quit and live normal lives. Others are meant to empower women and the girl child through providing vocational and educational training. There are also numerous CSR activities initiated by various companies aimed at supporting and rehabilitating orphans and vulnerable people in the Saudi Arabian kingdom.

Use CSR practices that have been tailored for large companies in SMEs

Small and Medium Enterprises (SMEs) are very important in any country’s economy. According to Mullerat (2009, 25), they contribute greatly to the economy and are vital in the growth of a country’s economy. Therefore, it is of paramount importance that these SMEs incorporate CSR projects during formulation of strategic plans for their respective businesses. It is not practical to try and use CSR practices that have been tailored for large companies in SMEs. If this is done, it may not be possible for the SMEs to achieve the same results that large companies achieve after using the CSR practices developed for them. The needs of the SMEs and those of large organizations are entirely different. The contexts within which the small and large enterprises operate are also different. This offers these organizations varied opportunities to engage in activities geared towards sustainable development.

Challenge of meeting the needs of the people without causing negative impact

Corporations globally are struggling with the challenge of meeting the needs of the target population without impacting negatively on the society and the environment (Jamali 2008, 220). They are required to be responsible for all their actions and bear the consequences that their operations may have on the environment and the society as a whole. Social and environmental concerns have continued to be emphasized and as a result, sustainability has been very vital in the running of any business enterprise. Economic prosperity in an organization has to incorporate all the key stakeholders who feel the impact of the organization’s operations. This means that a corporation should consider the impacts that its operations will have on other people and the environment as they go on with their strategic plans. All the operations of an organization should be geared towards achieving both private and public benefits.

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Most organizations, both small and large enterprises, continue to amend the agendas they had set for their organizations in order to cope with the challenges that are arising everyday. Moreover, there is a renewed understanding among the organizations concerning the relationship between the organization and the wider society. This includes the relationship between both the local and international stakeholders who feel the impact of the organization’s operations. It is currently very hard for organizations to ignore the wider society as it carries on with its day to day activities because the society plays a very integral role in the success of any organization. This explains why many SMEs and large organizations alike are embarking on CSR projects within their area of operation and beyond. The kind of relationship that an organization has with the society and key stakeholders plays a major role in determining the success of that particular organization. A good relationship inevitably leads to success of the organization whereas a bad relationship could lead to the downfall of the organization.

Different organizations have come up with diverse ways of dealing with the rising challenges within their area of operation in order to have sustainable development. Although there are some organizations that do not accept the fact that they have a responsibility towards the society where they operate from, there are numerous other organizations that acknowledge that they have a role to play towards achieving sustainability of the society they live in through engaging in CSR projects. There are, however, some other organizations that do not know where they fall and can only be categorized as falling between these two extremes.

The structure and the styles of management and leadership

The structure and the styles of management and leadership used in these organizations are very different and they have an impact on the CSR activities that these organizations engage in. one of the major differences between large firms and SMEs is that large firms have a well developed hierarchy of leadership, with certain designated leaders appointed to head different departments. On the other hand, small and medium scale enterprises have no separation in terms of ownership and management. It is not uncommon to find that the owner and the manager of a small scale enterprise is the same. This means that all major decisions in the firm are made by the owner without consulting any other person because they feel that since they own the firm, they cannot trust another person to make decisions on their behalf. The owner(s) in small and medium scale enterprises make decisions regarding allocation of resources and other major decisions in the firm. In the small and medium scale enterprises, the owner(s) is responsible in making the decision as to whether or not they are willing to take part in CSR. If the owner is willing, it is also their responsibility to decide on the nature and the extent of the CSR activities they are willing to engage in.

Financial and time related challenges

SMEs that venture into CSR related activities are usually faced with some challenges. The most common challenges are usually financial and time related challenges. Although most of the SMEs face these challenges, many analysts believe that SMEs are better placed to engage in CSR activities that would meet the needs of the society than large enterprises (Parker 2005, 80). However, although SMEs may seem to face less pressure than large firms when carrying out their CSR activities because they are not very visible, they gain very little from the CSR activities that they may decide to take part in.

Large firms are believed to have an easier access to resources than small scale enterprises. Since resources are very vital for any enterprise to take part in CSR activities, they seem to better placed in terms of resources. For small and medium scale enterprises, commitment to CSR activities may be limited by the available resources making it hard for them to venture into these activities.

In terms of how organized a firm is, large enterprises are more organized compared to SMEs. Their processes are advanced and they way they deal with matters arising from their immediate environment are very different from the way SMEs deal with the external matters that may arise (Leonard 2008, 100). For large organizations, the internal structure is well developed and more aware of the societal needs as opposed to the SMEs.

Some scholars are of the opinion that SMEs should not be burdened with the task of engaging in CSR activities. They feel that these firms are not capable and should therefore be exempted from this task because most of them may not be able to withstand the challenge. However, others feel that SMEs should be encouraged to take part in CSR activities because they are capable to do so. It does not mean that they have to engage in ventures that require a lot of resources but SMEs should choose to take part in activities that will not strain them financially. Some of the activities that SMEs could engage in include charitable works and monetary and other forms of donations towards meeting the needs of the society. It has been suggested that it is easier for the SMEs to identify the very basic needs that could be missing within the society because they have close interaction with members of the society as compared to large organizations that do not have a lot of direct interaction with the members of the society from where they operate.

Age of an SME

There are several factors that influence the performance of an SME, especially in terms of its participation in CSR activities within the community. The age of a particular SME is very vital in determining whether the enterprise is able to take part in CSR within the community where it operates. Age determines how different procedures are done within an organization as well as the choices that the management arrives at. A very young enterprise may focus more on activities geared towards internal stabilization of the enterprise than on external activities that demand resources such as CSR activities. However, as the organization grows, it may go a step further and include external activities geared towards community development and giving back to the community (Preston and Post 1975, 14).

Such activities are mostly done when an organization is stable both financially and in other aspects. If a very young SME rushes towards engaging itself in CSR, it may not be able to sustain the projects it initiates. It is important for a newly established enterprise to take time to mature first before embarking on any external projects such as CSR. During this duration, the organization is able to learn the needs of the society in order to establish the best CSR activity to start. Older enterprises are able to exhibit more participation in CSR activities compared to younger enterprises. This is because such organizations have higher and more organized levels of institutionalization and management making it easier for them to plan for CSR than SMEs.

It is not uncommon, however, for young enterprises to take part in CSR practices more than the more established enterprises (Preston and Post 1975, 30). This can be explained by the fact that young managers are very energetic and vibrant in starting new projects and have open minds that are receptive to new ideas. This school of thought has been advanced by those scholars who argue that the age of an SME is not vital in determining whether an enterprise takes part in CSR. These scholars believe that even a young enterprise can decide to start a CSR project without considering that it has just started. This is very evident in Saudi Arabia where young family businesses take part in CSR activities, particularly because of the religious obligations that they have to fulfill towards their needy brothers. Although it is important to take time and learn more about CSR activities before engaging in them, it does not mean that the age of an enterprise should completely hinder it from venturing into CSR activities. One an organization is well informed about CSR; they can always be involved in some activities regardless of their age.

The size of an SME

According to Bowen (2002, 120), the size of an SME also affects its decision to get involved in CSR projects. Smaller SMEs may not be able to venture into CSR projects because of factors such as financial constraints and limited workforce. Larger SMEs may not find it hard getting into such tasks because they have the resources and are able to comfortably carry on with the projects they may initiate. Most people believe that corporations that are able to engage in CSR activities are those that have enough finances to cater for the needs of the organization and at the same time be able to set aside some extra resources for their CSR initiatives. Although this could be partly true, it does not mean that SMEs that do not have a lot of resources cannot take part in these activities. However, very small SMEs, with less than twenty employees may find it hard at the beginning to take part in CSR related activities.

In Saudi Arabia, there are numerous business enterprises that are owned by families. This means that most of them fall under the category of small scale enterprises. Analysts in this area have tried to evaluate whether these family businesses undertake CSR initiatives or are just out there to make profit without giving back to the community. Most of the family owned businesses operate at a local level. This means that the target population and the employees are people from the local area. Consequently, these organizations are better placed to initiate CSR projects within the community because they have people who understand the needs of the community where they live better than anyone else.

Family owned businesses in Saudi Arabia are therefore engaged in CSR activities as a way of giving back to the community and also as a way of marketing their products. Corporate social responsibility involves the inclusion of social, environmental and economic concerns when planning or making major decisions in an organization (Hopkins 2007, 40). In order for an organization to be sustainable, positive contribution towards the environment and the society at large are very vital. It is also important for an organization to engage its shareholders in addressing risks that may be facing an organization and threatening its survival. This helps in creation of a credible organization that enjoys the trust of the shareholders as well as the people in the society who benefits from the CSR activities that the organization starts. In the kingdom of Saudi Arabia, most organizations are aware of CSR and have been involved in CSR-related activities. Most of these organizations have a positive view of CSR related activities because of the benefits they have reaped after engaging in CSR in the past.

In Saudi Arabia, there has been an evaluation by various stakeholders on the impact that various companies have on the environment during their operations. The evaluation has also been done to look at how these companies treat their employees and how they respond to the needs of the society where they are based. Embracing CSR by organizations has been found to be very beneficial to the Saudi Arabian organizations. Taking part in CSR has been found to contribute to the overall growth and development of a particular region. It has also been identified as an avenue of growth and development in a business enterprise.

Conclusion

Corporate social responsibility is a common term in the business world and an integral part in many businesses. The concept of CSR remains controversial and there are ongoing discussions as different scholars try to come up with a universally acceptable definition of the term. Many people have put in their contributions with regard to the definition and what exactly the concept means. In the 1990’s, CSR was declared as one of the greatest whims in the corporate world. Schreck (2009, 150) notes that ‘CSR is sometimes seen as a discretionary management task which a company could only afford if it is financially successful’. In the recent past, there has been immense recognition of CSR and the benefits it has on the society and the business enterprise engaging in it. This has helped to drastically reduce the number of critics of CSR.

Currently, most organizations regard it as a very integral part of the organization and invest a lot of their resources in CSR related projects. For a long time, SMEs had shied away from venturing into CSR projects but currently, most of them have embraced the concept and are investing their resources in these projects. In Saudi Arabia, particularly, most of the SMEs have ventured into CSR activities due to increased awareness of the benefits of taking part in these activities. Although some do so for religious reasons, most of them understand the social, economic and environmental value of engaging in these activities. SMEs is Saudi Arabia have taken up the concept of CSR seriously, despite the numerous challenges they are facing, and are reaping the benefits of these ventures.

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