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CHAPTER 1
Small Business: Touching Base
We all are familiar with what we call small business. It can be found everywhere as it is the pillar upon which all societies are based. According to the European Union (EU) recommendation 2003/361, the main factors that characterize a business as small and medium enterprise (SME) are the staff headcount and either the turnover or balance sheet total (ec. europa.eu, n.d., cited in Karaoulanis 2017).
1.1 What Is Small Business?
So, letās see how we can categorize a small business. The medium-sized businesses have staff lt;250, turnover ā¤ā¬50 m, balance sheet total ā¤ā¬43 m; small size businesses have staff <50, turnover ā¤ā¬10 m, balance sheet total ā¤ā¬10 m; micro-businesses have staff <10, turnover ā¤ā¬2 m, balance sheet total ā¤ā¬2 m (ec.europa.eu, n.d., cited in Karaoulanis 2017). Table 1.1 lists the ways that we use in order to categorize SMEs.
Table 1.1. SME characteristics
Source: ec.europa.eu, n.d., cited in Karaoulanis (2017).
SMEs rely heavily on state support to not only operate but also try to develop and sustain their development, even during turbulent times (Romanescu 2016). For example, in the majority of countries in the EU, both the economic development and the rise of their markets are mainly supported by the application of laws and institutions implemented by the government of each country and by programs that support SMEs as their main goal (Romanescu 2016).
This is very important as it is indicative of how states perceive the important role of SMEs to society as a whole. It is also crucial here to underline that one of the biggest financing sources of SMEs is from the banking sector. Here, the state comes to play a very important role. Through specific āsmall business-centricā laws the state acts as the go-between and tries to establish the right operation of this transaction between the banking sector and SMEs.
1.2 The Importance of Small Businesses and Their Societal Impact
But why are SMEs so important to society? Why is their role so important? The numbers are indicative of the magnitude of their presence on a global level. The World Bank (n.d.) indicates that SMEs are the cornerstone of economies on a global scale, especially in developing countries. In emerging economies, the formal SMEsā contribution in total employment is up to 60 percent and up to 40 percent in national income (GDP),1 while if informal SMEs are going to be included, these numbers will be raised significantly (The World Bank n.d.). It is impressive to notice here that in the next 15 years, 600 million new jobs will be needed to be created in order to absorb the continuous growth of the worldās workforce. Mainly in Asia and in sub-Saharan Africa, and in emerging markets SMEs will be responsible for the creation of four out of five new positions (The World Bank n.d.).
According to the Office of the United States Trade Representative (n.d.), SMEs are the backbone of both the American and the European economies. In the United States, there are 30 million SMEs that provide two thirds of net new private sector jobs in recent decades. Of them, almost 300,000 SMEs export in foreign markets (Office of the United States Trade Representative n.d.). From these numbers, we can understand how important the role of SMEs is in the biggest economy of the world, the United States one.
Other factors that are indicative of the importance of SMEs on economic level are that they contribute to the establishment and growth of private property, they take part in both development and implementation innovations, and they participate in exports, something which is a very important factor of economic growth and which in a way can be seen as an investment attraction (Romanescu 2016).
In general, small businesses are considered to be an important paragon that affects growth and development of any economy as they play a key role in employment creation and in innovation, not to mention that their entire economic and social presence are widely recognized (Storey 1994, cited in Tse and Soufani 2003).
One can easily understand from the above that SMEsā sustainable development is crucial for the whole world. As the Organization for Economic Co-operation and Development (OECD) (2004, cited in Aksoy 2017) indicates, SMEs play a crucial role in the economies around the globe due to their huge number and the significant part of the workforce that is involved with them.
Romanescu (2016) stresses that SMEs are very important for the countries for several reasons: because they boost competition; they present the agility to help them respond to the rapidly changing demand due to globalization; they help citizens toward their self-realization, as they consist the majority of business; they provide the majority of the employment, especially during crisis years, something which is representative of their huge positive social impact, especially during such difficult periods when societies need, literally, every help they can get.
The importance of SMEs on a global level is unquestionable. Their presence has vast impact in generating the circumstances that are able to impact almost every level of the social and economic life of each country. In simple words, without small business the whole global economy will collapse and the social web as we know it will be devastated!
Another important parameter that needs to be taken into consideration is also the local character of the small business. Such character is a crucial paragon in terms of employeesā organizational commitment. Under this prism SMEs that are locally owned were found to have the highest such commitment (Halbesleben and Tolbert 2014). Halbesleben and Tolbert (2014) also underline that small businesses, and especially the locally owned ones, are organized in a way that they have as part of their goals to promote and sustain the so-called social capital development that is formed as a combination of trust, communication, and concern about othersā well-being within interpersonal relationships, which in our case spring from the closer bond that can be found in local societies. This strong social character of local SMEs is extremely important and plays a vital role in the local societies.
Local communities are based heavily on the advancement and growth of SMEs, especially in decentralized areas where SMEs are the only kind of companies that exist. No matter whether SMEs are locally owned or not, their importance to local societies is huge. They act like a barometer. Anything that will have a negative impact to them will be followed by an even larger negative impact to their local society as a whole.
Karaoulanis (2016) did a case study on the ethical consequences in the decision-making process that might take place in small business in Greece during the years of the last financial crisis. The company that was examined was an SME that operated in the textile industry in Greece and which due to the turbulence of the last financial crisis that heavily struck Greece had to take a major decision, which was to move its operations to a neighboring country which was more favorable for SMEs, commercial and tax laws. The company in question was based in a small town populated with about 60,000 people. The ethical dilemma that the owners had to answer was going to have a vast impact in the local society, not only due to the fact that the majority of the companyās employees were living in the local society but also because a variety of other small businesses were also operating in collaboration (suppliers, contractors etc.) with the SME in question. Inevitably they were going to lose their grip in the local marketāsomething which eventually would lead them to bankruptcy (Karaoulanis 2016). The above-mentioned phenomenon was not the only one in Greece during this period of time. In fact a huge number of companies still are into this process of relocating to neighboring countries, even as we speak, about ten years after the outbreak of the economic crisis.
The bond between SMEs and local societies is extremely important and has a vast impact in peopleās well-being and societal balance. This is why the role of SMEs under such circumstances is huge, and the ethical dilemmas that SMEsā owners sometimes need to confront are huge as well.
So, as SMEs have a very strong connection with the local societies and their mutual existence is based upon this factor, they need to increase their corporate social responsibility (CSR) in order to meet the local societiesā needs and to cultivate the notion that they are there not only to increase their revenue but also to help and to grow together, hand in hand with the local societies. They need to make these very local societies to understand that SMEs are a vital part of them and that their mutual existence is bonded in a powerful and bidirectional way.
Another very important paragon that is a determinant of the level of SMEs contribution to the society is that they create the conditions needed in order to help toward the formation of the middle class, something which is the cornerstone of the stability on a societal level (Romanescu 2016). Romanescu (2016) also adds that SMEs have the ability to boost competition, something which has huge importance in the economic growth of societies. The increased competition on a local level can result in lower prices for the consumers, and more companies to compete with each other, something which will increase the number of job opportunities that will be filled by the locals as well in a big majority.
CSR is a concept that is often heard in the business scenery of all countries and industries. CSR is considered to be the moral, ethical, and philanthropic responsibilities that organizations have in addition to their core responsibility, which is to earn a fair return on investment to their shareholders while they are obliged to comply with law and regulations posed by the government or the international law (Campopiano, De Massis, and Cassia 2012). In this way of thinking, organizations need to approach their responsibilities in a broader way in order to include not only their shareholders but also their employees, suppliers, customers, the local community, the local and national governments, and other groups of special interest (Campopiano, De Massis, and Cassia 2012).
According to Murillo and Lozano (2006, cited in Campopiano, De Massis, and Cassia 2012), SMEs have specific characteristics that play an important role in terms of their commitment and engagement toward their CSR. Such characteristics present a heterogeneous spectrum of sizes, which starts from the so-called micro-SMEs and continues to the medium and large ones (Campopiano, De Massis, and Cassia 2012). SMEs also have a strong bond between the environment and the communities in which they operate (Murillo and Lozano 2006, cited in Campopiano, De Massis, and Cassia 2012), while entrepreneurs-owners pay a lot of attention to the interpersonal relationships (Murillo and Lozano 2006, cited in Campopiano, De Massis, and Cassia 2012).
In addition, another important distinct characteristic which makes special the way SMEs approach their CSR is that entrepreneurs-owners are usually sensitive to all the activities that have an important impact to their stakeholders with whom they are in a direct connection, like employees, customers, and suppliers in a way that they lead their small business to implement a responsible behavior toward that direction, as they perceive such behavior as a way of good management approach (Fassin, 2008, cited in Campopiano, De Massis, and Cassia 2012).
But is CSR something that can be found in SMEs or is it something that has to do only with large corporations? Corporate Social Responsibility (CSR) is a term that we hear mainly when large firms are involved. According to Berk (2017), for many SMEs, such term is something that is not very well accepted or even not well enough understood. This is why the term seems to be unattractive for many SMEs, even when they are actually engaging in such activities (Giovanna and Lucio 2012; Jenkins 2006; Lee and Pang 2012, cited in Berk 2017).
The different ways in which small and large businesses comprehend and approach the CSR made scholars to coin a new term which applies specifically to small business and is the āsmall business social responsibilityā (SBSR) (Lepoutre and Heene 2006; Spence 2015, cited in Berk 2017). According to Soundararajan et al. (2016, cited in Berk 2017), the new term is defined as the activities that small companies are engaged in and which are result in creating a positive change in the society.
Although small companies are engaged in CSR activities, it is not easy to gather information about them when we deal with large companies which publish reports and in general make easier for the interested parties to be able to find such information publicly and especially online (Fassin 2008; Wickert et al. 2016, cited in Berk 2017).
Berkās (2017) research on 2,653 small businesses in the USA concluded that small businesses have a high level of participation in CSR activities, while parameters like SMEs, leadership, and employees are playing a vital role in SMEsā CSR activities/engagement.
In addition to the above-mentioned indications regarding the CSR of small business, Lepoutre and Heene (2006) state that small businesses in general will face more barriers than large ones while trying to exercise their actions toward CSR. Such barriers will be faced with regard to the companiesā external stakeholders or the natural environment (Lepoutre and Heene 2006). This might be one of the main reasons why CSR is not so often encountered in small businesses as in larger ones.
Since small businesses might face such barriers, a very important step that needs to be taken toward the overcoming of such obstacles is the actions adapted by the small business owners-managers (Lepoutre and Heene 2006). This is why, SME owners need to become more effective in their actions toward their companyās SBSR activities, for example, by seeking partnerships in the market where their companies are operating, in the government, in the very society which they want to help, or in the entire supply chain, toward the common goal of alleviating societal problems (Lepourte and Heene 2006). Via such initiatives and partnerships they will be able to develop the needed capabilities in order to overcome the barriers that might prevent them from implementing the SBSR actions which the society in which they operate needs (Lepourte and Heene 2006).
Another important role that SMEs play in the society is their environmental impact. Although several studies showed that formal managerial tools, such as environmental reporting or ISO 14001, are not the most suitable ones for utilization among SMEs (Graafland and Smid 2016), SME managersā awareness of such tools (Johnson 2013 cited in Graafland and Smid 2016) and awareness raising programs for SMEs are possibly the best ways that can be used in order to help SMEs adopt more environmental management tools (Bradford and Fraser 2008 cited in Graafland and Smid 2016).
According to Roy and Therin (2008, cited in Graafland and Smid 2016), there are two main kinds of organizations that can help SMEs the most toward that direction: the industrial organizations and the trade ones. As such organizations are better informed about the environmental circumstances by their members, they can help SMEs by transmitting to them the information needed in order to help them adapt the environmental tools they need toward their positive environmental impact (Roy and Therin 2008 cited in Graafland and Smid 2016).
SMEs are usually kept back from their environmental targets due to their ānaturalā constraints which are unanimous to their very existence, such as lack of time, lack of finances and lack of knowledge in the specific area (Roy and Therin 2008 cited in Graafland and Smid 2016). With the help of the above-mentioned two kinds of organizations, SMEs will be able to develop their environment-oriented managerial tools, in other words, they could be able to overcome their embedded ānaturalā deficiencies and reach their goal in terms of their environmental impact to th...
