The contribution of corporate social responsibility on SMEs performance in emerging country

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Abstract

Enterprises around the world, and particularly small and medium enterprises (SMEs) in emerging economies, are facing an increasing number of threats and challenges due to globalisation and rapid environmental changes. This research intends to frame a specific role of corporate social responsibility (CSR) on firm performance and then examine mediating effects of customer retention and business continuity. This research has employed a smart partial least square (PLS) structural equation model (SEM) over 548 responses. Samples were collected using a random selection method. Results from this study show that CSR practices towards society, environment, employees and other stakeholders are the important contributors to enhancing customer retention and business continuity leading to a better firm performance. The originality of this study is the provision of insight into how CSR enhances firm performance by examining the integrated model whereby customer retention and business continuity moderate this relationship. Furthermore, its application to the context of SMEs in the new economic and environmental settings in emerging economies reinforces the uniqueness of this research. The outcomes of this research are useful for entrepreneurs and management levels of firms in an effort to promote the performance of SMEs in emerging economies in a sustainable manner. Besides, the findings of this study are meaningful for policymakers regarding the consideration for the most practical policy to motivate and facilitate firms to practice CSR properly on a voluntary basis towards balancing the benefits to society, the environment and the economy. In accordance with that, theoretical and managerial implications were also provided.

Introduction

Corporate social responsibility (CSR) is a multidimensional concept that reflects business responses to the expectations and needs of diverse stakeholders including individuals, society and the environment (Yuan et al., 2020). CSR has become a key point of sustainability (Soojeen et al., 2019), and its concept has received higher attention from academics and practitioners (Martinez-Conesa et al., 2016). CSR implementation is a way for businesses to benefit themselves while being accountable for their effects on society and the environment caused by their business activities. The World Business Council argues that the term CSR has connotations of a ceaseless commitment to act ethically and devote to economic development and corporates' efforts to enrich their employees' working and living standards as well as the quality of the local society and community in general (Holme and Watts, 2000). CSR is increasingly growing its importance to the sustainable development of firms by ameliorating the corporate reputation, impetus of innovation and fostering customer trust for achieving both customer retention and continuous support (Mishra, 2017). Those are the major challenges that impact firm performance in many ways (Hawkins et al., 2020). Additionally, Ciubotariu (2013) defined that customer retention is considered as one of the driving factors of business continuity that impact the overall firm performance. New businesses, and especially SMEs, are more prone to losing customers and are afraid to adopt action plans to achieve customer retention and increase long-term revenue due to a number of reasons. Profitability, business growth and increasing customer retention are problems for the longevity of small businesses' as well as challenges to creating persistent jobs in the economy. Environmental pressure is got a higher effect on small firms by a niche customer base, being limited market share and fluctuation of demands (Taneja et al., 2016). It is evident that the ability to retain customers and maintain business continuity is of utmost importance to the business community.

The current literature which discusses CSR itself and how it effects on firm performance discusses diverse approaches, diverse contexts and different perspectives. Consequently, the findings of CSR practices and their impacts on the organisational operation outcomes were found to be multifaceted. The highlighted findings revealed were either that full CSR implementations have a significative direct nexus with firm performance, such as Lloyd (2018); Shekar et al. (2019), or a significant direct nexus between CSR's components and firm performance such as Suttipun et al. (2018); Nirino et al. (2019); or there were roles of intermediate elements such as “intellectual capital” (Lin et al., 2015); “social ties” (Soojeen et al., 2019); “firm reputation” (Zhu et al., 2014); “brand image” (Michelon et al., 2013). Additionally, organisational operation outcomes determined in the previous research differed depending on the business context and industry characteristics whose metrics will be defined as either financial (Shekar et al., 2019; Nirino et al., 2019) or non-financial (Sadek et al., 2011), or a combination of the two (Al-Dmour et al., 2019; Ciunova-Shuleska et al., 2017).

There has been a variety of research done in the field of CSR both in direct and indirect ways; however, studies about how CSR affects SMEs' performance are still sparse and the degree of social responsibility in this business sector is mostly unclear (Martinez-Conesa et al., 2016). Furthermore, the extent to which customer retention and business continuity can mediate the impact of CSR on firm performance in a single integrated model has received scant attention from economic researchers. Therefore, this study focuses on addressing that critical gap by incorporating customer retention and business continuity variables into the relationship between CSR and SMEs' performance in emerging economies. Small and medium-sized firms are considered as the engine of a nation's economy as they provide a momentous advantage for the growth of economy (Beck et al., 2005), reduction of poverty (Vandenberg, 2006), and practices of employment creation and innovation (Lukács, 2005; Terziovski, 2010). According to the MPI (2019), around 97% of businesses operating in Vietnam are SMEs and they are contributing approximately 45% of GDP, 31% of overall budget income, and creating more than 5 million job opportunities. However, compared to other countries, SMEs in Vietnam still face many difficulties in relation to dealing with the competition, accessing capital and optimising resources that create obstacles for development. Besides this, limited financial resources, limited access to finance, little customer base and little influence on markets compared to large enterprises prevent SMEs from gaining a competitive advantage against large scale enterprises (Ciunova-Shuleska et al., 2017). This issue is particularly exacerbated in the context of increased competition because bilateral and multilateral free trade agreements have gradually taken effect which create both opportunities and challenges for SMEs, particularly in a context of developing countries at the early stages of international integration. Thus, the authors realise that it’s essential to have an intensive research on what SMEs need to do to meliorate their performance in a lasting manner and how to do this.

Moreover, from a broader perspective towards sustainable development, CSR is respectfully oriented towards balancing the organisation's benefits, stakeholders' interests and socio-economic and environmental issues (Singh et al., 2021). Therefore, organisations are increasingly expected to being more accountable, thus enhancing their CSR initiatives' efforts and improving their CSR practices by taking all interests of business and stakeholders, socio-economic and environmental issues into their business activities and processes as a whole (Farber et al., 2015). However, SMEs in Vietnam are still lacking or ignoring these practices. This leads to social and environmental consequences due to a lack of being understood CSR knowledges, cost issues or neglect in properly implementing CSR. In the meantime, Vietnam is still an emerging country in Southeast Asia with remarkable socio-economic growth in recent decades. Its position is gradually affirmed in the region and the world. Nevertheless, the rapid economic development and the population growth lead to inverse corresponding impacts to the environment and natural resources in many ways. Such issues consequently lead to environmental degradation, pollution and climate change. In reality, the majority of SMEs in Vietnam have not implemented CSR properly because of their inappropriate practices. CSR is commonly treated by SMEs as a form of charity with the aim of polishing their brand's reputation. With this perspective, SMEs are not interested in the synchronous economic, social and environmental benefits as a whole. Consequently, many serious problems have occurred relating to the pollution of water, soil and air, deforestation, ecosystem disruption; all of these cause environmental degradation and climate change. Meanwhile, Vietnam is in the premature gradation of implementing its commitment to the Paris Agreement 2015 (U.N., 2015) on change of climate towards decreasing greenhouse gas emissions and minimizing risks of climate change. To fulfil this commitment, it is necessary for businesses to join hands in properly implementing their CSR towards prosperity in the direction of economic, social and environmental sustainability as a whole. In that context, the benefits of enterprises are associated with the benefits of society and the sustainability of the environment of a whole nation. This practical basis reinforces the need and relevance for this research on CSR and firm performance with mediation effects of customer retention and business continuity for SMEs in Vietnam.

This paper will contribute to the current literature in several ways and varies from prior studies on CSR in a variety of aspects. Firstly, it should be noted that research on CSR in SMEs is relatively little and hardly known from experience on the level of social responsibility of small firms. More importantly, this research focuses particularly on an especially essential industry, namely food production and processing. Secondly, an intensive research on the impact of CSR on firm performance mediated by customer retention and business continuity in a single research model is scant in the current literature. The relevant existing literature on knowledge gaps that exist in the relationship of CSR and SMEs is far from developing a generally accepted and integrated model for investigating such relationships, as well as giving a responsible perspective on the governance of SMEs (Russo and Perrini, 2010). Thirdly, this paper will give empirical support to SMEs in the food production and process industry in emerging economies with respect to development strategy in a sustainable manner. Last but not least, from a broader perspective, this paper may offer deeper insight into the power of CSR on the sustainable development of SMEs, which is so important to the country's economy (Beck et al., 2005). Thus, policymakers need to give practical attention to policy reform in order to motivate and facilitate SMEs to implement their CSR initiatives on a voluntary basis.

The above approach creates the research questions of this research, which are: (1) “How do SMEs in Vietnam perceive the role of CSR on firm performance in general in the context of Vietnam?” (2) “How do the existing SMEs perform CSR in the context of Vietnam?” (3) “How do the flow of influences of CSR performance affect firm performance in reality?” and (4) “How can sustainable development be achieved by implementing CSR in the context of Vietnam?”

This structure of this incluses the abstract at first, introduction part. literature review, research model and hypothesis, research methodology, results and discussion, conclusion, limitations ans list of references.

Section snippets

Corporate social responsibility (CSR)

Different researchers have different views about CSR in terms of its definition and business contexts. Jenny et al. (2017) proposed that CSR literature in management and marketing has multidimensional interpretations such as seeing it as a mission to ensure the well-being of society and benefits of stakeholders through strategic business actions and the company resources' contributions (Du et al., 2011). From a broader perspective, CSR also includes various firms' activities such as charity

Research model and hypothesis

Based on the literature review of CSR, the firm performance-related literature and also on the research gaps as outlined above, this study's research model is suitably proposed in Fig. 1 below. This research model is used to examine the nexus between corporate social responsibility (CSR) and firm performance (FP) together mediating roles of customer retention (CR) and business continuity (BC). Overall, this model includes four variables which are constructed as presented in Table 2 below.

Research design and methodology

This study intends to understand intensively the role of CSR implementation in achieving customer retention (CR), business continuity (BC) and increasing firm performance (FP) together the mediating roles of CR and BC in the nexus between CSR and FP. In view of the complicacy of our proposed model, we employed the smart partial least square (PLS) structural equation model (SEM). PLS is a variance-based method that matches aggregate nature of our proposed model (Hair et al., 2017). This research

Assessing reliability of the scale

The grade of consistency between multiple measurements of a variable was calculated using a specifically designed reliability assessment (Hair et al., 2010). This study employed Cronbach's Alpha and composite reliability indexes for this purpose in order to bring all necessary bases into consideration to draw conclusions that suit the research context in the best way possible. The analysis results indicated that the A satisfactory level of reliability has been met because the Cronbach's Alpha

Conclusion

This article examines how CSR activities affect the performance of SMEs in the food production and food processing industries in emerging economies. The outcomes of this study present substantial theoretical and practical contributions that address the research objective. Beside the above findings, this study also provides company executives, regulators, entrepreneurs, government agencies, economists, and policymakers with interesting and useful insights that can be applied for their

Limitations

Despite the significant contribution above, this research has some limitations that are typically associated with data collection, the geography of the study and research context. First, on the specificity perspective, there is a limitation on the representativeness of the outcomes of this study because data was collected from randomly selected companies. Second, there is a limitation on the possible application of the implications of this research because of the research context and the nature

CRediT authorship contribution statement

Thanh Tiep Le: Conceptualization, Methodology, Data curation, Writing – review & editing. Ngo Quang Huan: Supervision, Visualization, Writing – review & editing. Tran Thi Thuy Hong: Writing – review & editing, Writing – original draft, Data curation. Dang Khoa Tran: Writing – review & editing.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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