PRME Corner March Update: SMEs’ Social and Environmental Initiatives in Indonesia: An Institutional and Resource Based Analysis

Nowadays every business has responsibility to applied sustainable development concept. Besides pursuing profits, business owners should be compromising with social and environmental awareness.  Aligning with the increasing global pressure to contribute to a sustainable world, many contemporary business have begun to reveal their awareness of social and environmentally friendly practices. It is feasible that company may view social and environmental initiatives as a constituting a competitive advantage. This study was explore the process of translation occur from external pressure to internal needs drive SMEs’ social and environmental initiatives. Our study was use Institutional theory that examines the external factors that affecting a company’s behavior and those that may have become isomorphic to particular practices; and resource theory that explores the internal factors that can affect a company’s decision to engage with sustainability in particular, included their economic motives. These two theories has the capacity to develop understanding of SMEs’ social and environmental behavior. Based on that, the complexity of SMEs’ decision regarding the adoption of particular social and environment initiatives may be affected by combination of external and internal influences. Business owners translate external pressures into their resource capacity, deciding to what extent they can seize the opportunity to contribute to a competitive advantage. Based on that we conclude that the antecedent factors of SMEs’ social and environment practices may be initiated by external factors before they translate into internal factors. When external pressures fit into a business ‘s internal capacities, they determine the choice of practice.

Institutional Based-External factors

Scott (2008), identifies three institutional factors that may affect different isomorphism models. These factors include a specific set of legal appeals, along with various motivations and levels of adoption describing the different models of cultural factor isomorphism in a given nation. The factors are regulatory, cognitive and normative. Motivation of Indonesian SMEs was result from cultural factors and government regulation. This indicates that the normative aspect  in  Indonesian  institutions  dominates  when determining SMEs’ social initiatives. In contrast, SMEs’ environmental initiatives are largely driven by cognitive factors   that   have   developed   to   become   a   mimetic   isomorphism   regarding   contemporary   concerns   about environmentally friendly initiatives in Indonesia. The normative aspect that dominates some SME owners’ interests regarding social initiatives is driven by the owners beliefs about religious teaching.  Although religious factors have a powerful influence on SME owners’ social interests, some interviewees also highlighted that the importance of their engagement in social initiatives was due to the connections between religious values and Indonesia’s traditions of gotong royong and teposiliro. Gotong royong refers to a collaborative effort to gain mutual benefits and prosperity.

On environmental side indicates the shifting concerns of educational institutions, particularly universities, towards an increased interest in environmentally friendly behaviors. The majority of business owners concerned about environmental issues are educated people who have graduated from university. Moreover, some respondents argued that their business aligned with the knowledge they developed during their university studies. Beside that, environmental initiatives also encourage with government policy, our respondents stated that their engagement with some government regulation was due to government pressure.

Resource Based – Internal Factor

On internal initiatives, financial matters is powerful for supported social initiatives. Regarding moslem is majority religion in Indonesia, Zakat as a financial consideration that has became social initiatives. Beside that, Indonesia also has strong bounding with culture and tradition so the others things is willingness to help community or society empowerment. Similar result were also made by respondents from business’s owners that conducted environmental friendly practices. Even though most SME owners argued that financial issues were crucial, this did not reduce their spirit to maintain environmentally friendly practices. In other words, SME social and environmental initiatives of SMEs are underpinned by levels of motivation and effective commitment.

In  general,  social  and  environmental  initiatives  among  Indonesian  SMEs  are  a  reflection  of  values  of  the SMEs’owners that heavily influenced by local culture rather than regulation pressure. Indonesian tradition’s values of gotong royong and tiposiliro are also highlighted as an important factor behind social engagement. We argue that the consistence between religion value and traditional culture of Indonesia had created as a normative isomorphic social engagement among SMEs owners. The similar finding we found also to SMEs’ interest in environmental initiatives that regulatory is absent as influential factor, even though with different issues. It is identified the advantage of knowledge and science developed in Indonesia, particularly among educated people contribute significantly to new business initiation with environmental engagement. The majority of SMEs that engage in environmental initiatives have owners who have graduated from university, they received insight about environmental issues during their studies. Their sense of awareness is developed and underpinned by knowledge and scientific logic. Majority of studied SMEs demonstrates that their owner’s strong belief and values of owners are important factor of their involvement in social and environmental initiatives.

Author:  Amilia Wulansari