The quantum of revenue available for CSR from individual SMEs is expected to be small. However, 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.
CSR is for all companies. SMEs in India have participated in CSR activities but these efforts have not been optimally delivered. One possible reason can be the fact that CSR activities depend on the profits of an SME and any fluctuations in profits can adversely affect their capability to continue their contribution for CSR. Another reason can be the limited human resources available to SMEs which may also result in the lack of a professional approach.
SMEs tend to focus on short-term activities that involve lesser operational costs. With the introduction of the new Companies Act, 2013, the SME’s approach to CSR has to be modified while keeping operational costs low. One viable alternative is to pool resources with other SMEs in the cluster and create joint CSR programmes managed by a single entity. This collaboration can be formed within the units in a cluster as they interact with the same communities and have already established associations that cater to the business needs of the units.
Collaboration has the following advantages:
1. 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 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.
2. Undertake 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 realizing 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.
3. 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.