Responsible Entrepreneurship in Developing Countries: Understanding the Realities and Complexities

February 6th, 2010

Journal Of Business Ethics This paper explores the reasons for the less than optimal level of social responsibility demonstrated by some small-scale individual entrepreneurs (SIEs) in developing countries. The authors examine the influence of a number of contextual factors including: business environment; cultural traditions; socio-economic conditions; and both international and domestic pressures on business practices. They offer some suggestions as to the reasons for the lack of responsible entrepreneurship of SIEs and signpost important implications for promoting sustainable business practices.

Key Findings

CSR in industrialized nations does not reflect the way SIEs operate in developing nations. While some SIEs are managing to forge a responsible orientation despite situational restrictions, the number engaged in socially irresponsible business practices is on the rise.

Corruption: while there have been significant efforts to combat corruption in developing countries, it remains the most corrosive problem with far-reaching implications threatening economic and social development.
Patron-client relationships characterized by close intermeshing of economic and political connections present opportunities for granting benefits to and redistributing resources towards favoured groups.
These problems are often exacerbated by weak enforcement of sanctions and the poor functioning of the judiciary and legal system.
Pervasive corruption has led to a number of related actions, such as lack of rule of law, government ineffectiveness, and a lack of accountability that in turn undermine regulatory quality, thus creating a vicious circle of poor governance.
Due to the lack of a strong and effective judiciary, enforcing contracts is problematic. This can lead to, amongst other challenges, severe environmental degradation.
Sanctions, which play an important role in encouraging the enforcement of regulation and underpin compliance, are not effectively implemented as private entrepreneurs are able to circumvent them through irregular, illegal payments.
The limited and unsteady income achieved by SIEs not only limits their commitment to social responsibility but is one of the reasons for their focus on short-term rather than long-term profitability.
Consumers in developing countries are not generally aware of their fundamental rights, and businesses, including SIEs, are ignorant of the importance of mutual trust and a committed relationship with their customers. As a result, consumer rights are frequently abused.
This can take the form of: unsatisfactory goods and services; price hikes; lack of necessary information for consumers to make informed decisions; deceptive advertising; power abuse; little after-sales service; and very little concern for environmental protection.
The adoption of responsible practices by some SIEs despite the difficult context might be explained by their religious beliefs and ethical values.
Informal rules are often the norm in developing countries. These undermine legal obligations. This is as applicable for formal business as for the public sector.
International drivers such as donor agencies and MNCs (multinational corporations) have an important role to play in improving CSR in developing nations.
While several organizations have advocated various reforms, none have offered a path, assistance or suggestions to devise relevant accountability measures. Prescriptions were superficial with little consideration given to the unique contextual factors of developing countries.
MNCs have the opportunity to be a role model by complying with the standards of their home country, obeying the laws and setting examples for local companies.
Unfortunately, MNCs often adopt double standards of CSR in developing countries, depending on their level of economic development.
There is considerable scope for involving civil society to enhance rights of public participation and create awareness about socially responsible business practices and customers rights.