CSR and SMEs

CSR and SMEs

About SMEs and how they can contribute to CSR initiatives

Small and medium enterprises (SMEs) significantly contribute towards India’s economic growth and serve independently and also as ancillary to larger units. They help to generate employment and industrialise the rural and backward regions of India and employ nearly 40% of India’s workforce and contribute around 45% to India’s manufacturing output.

The CSR activities of these enterprises are driven by the personal interests of promoters who hold a significant financial stake in the business. They tend to be in clusters and engaged in similar business activities. While the quantum of revenue available for CSR with individual SMEs is expected to be small, all eligible companies in a specific geographical cluster, who single handedly as well as collectively impact the same community, can pool their resources to create a sizeable CSR fund.

Why SMEs collaborate for CSR initiatives and its advantages

There is an option of undertaking collaborative CSR activities by SMEs and this collaboration can also be used by other companies to maximise the impact of their CSR initiatives while reducing the operational costs for fund management.

Collaboration has the following advantages:

  • Reduces operational cost: Individual CSR efforts by a company consist of establishing a CSR department, assessing the needs of local communities, undertaking programmes directly or through an NGO/Trust and conducting regular impact assessment studies. A common organisation catering to a number of companies will carry out these activities collectively and thus reduce the operational cost of management.

  • Enables undertaking of long-term projects: A major hindrance in developing long-term projects is the uncertainty in the CSR budget. This is dependent on the financial performance of the company. A fluctuating performance implies that the CSR budget allocations can be unreliable and can jeopardise a programme initiated earlier. Pooling resources addresses this issue to a certain extent as the other partners can increase their share in case there is variance in allocation from a certain segment of the cluster. The long-term programmes also have greater impact than the short-term projects. Communities are increasingly realising the importance of the support offered by these programmes in making their lives better. Long-term programmes also lead to better community relations and this ensures avoiding situations of community unrest that hamper business activities.

  • Learning from experiences: A common entity with multiple participants from the cluster will help assess community needs, undertake relevant programmes based on past experiences and address a greater number of community issues.

  • Collaboration among the SMEs in a cluster also provides an opportunity to manage social and environmental issues and respond better to the pressure from buyers, who are trying to establish ethical supply chains and gain appreciation from the international community. Collaborations can also be forged amongst larger companies, possibly through industry associations, to enable them to address common issues plaguing a geographical region or an industry.