The Impact of Ethical Practices on the Performance of Small and Medium Enterprises in South Africa

  • Obey Dzomonda Department of Business Management, Turflop Campus, University of Limpopo, Limpopo Province
  • Olawale Fatoki Department of Business Management, Turflop Campus, University of Limpopo, Limpopo Province
DOI: https://doi.org/10.22610/jebs.v9i5(J).1924
Keywords: Behaviour, ethics, performance, SMEs, South Africa

Abstract

 SMEs have become beacons of hope towards improving economic growth and development of many countries globally. However, the literature documents a high discontinuance rate among small businesses. The purpose of this study is to investigate the impact of ethical practices on the performance of SMEs in South Africa. The study was based on a quantitative research design. The survey method was used as a data collection method. Using this method, self-administered questionnaires were used as the primary data collection tool. These questionnaires were hand delivered to the participants by the researcher. The random sampling method was used to obtain the participants. The population consisted of SME owner/managers in Polokwane municipality. 74 SME owner/managers participated in the survey. Data analysis included descriptive statistics, factor analysis, T tests and regression analysis. The Cronbach’s alpha was used as a measure of reliability. The findings showed that SMEs display unethical behavior and a weak performance. It was discovered that SMEs does not have policies in place to guide their ethical behavior. The T test results showed significant differences between gender and education levels with ethical practices of SMEs. The regression results showed that there is a positive relationship between ethical practices and performance of SMEs. Recommendations were made for SMEs to treat ethical issues seriously lest they risk incurring costs associated with lawsuits and negative brand reputation. 

Downloads

Download data is not yet available.

References

African Development Bank. (2007). Annual Report. Online at http://www.afdb.org ›Home › Knowledge › Publications › Annual Report. Accessed on 10 August 2015. Agbenyegah, A. T. (2013). Challenges facing rural entrepreneurship in selected areas in South Africa (Doctoral dissertation, North-West University). Ahmad, N. H., Amran, A. & Halim, H. A. (2012). Ethical and Socially Responsible Practices among SME OwnerManagers: Proposing a Multi-Ethnic Assessment. Journal of Southeast Asian Research, 2, 1-9. Arruda, M. C. (2010). Latin America: Ethics and corporate social responsibility in Latin American small and medium sized enterprises: Challenging development (pp. 65-84). In Spence, L. J. and PainterMorland, M. (Eds.). Ethics in small and medium sized enterprises: A global commentary. New York: Springer. Atkinson, D. (2013). Review of The Efficiency and Effectiveness of Past and ongoing SME Development Initiatives in the Free State Province. Online at http://www.ilo.org/0316F229-D231. Accessed on 27 July 2015]. Brammer, S., Millington, A. & Rayton, B. (2007). The Contribution of Corporate Social Responsibility to Organisational Commitment. International Journal of Human Resource Management, 18(10), 17011719. Castejón, P. J. M. & López, B. A. (2016). Corporate social responsibility in family SMEs: A comparative study. European Journal of Family Business, 6(1), 21-31. Chinchilla A. M. N. & Jiménez, E. (2013). Responsabilidadfamiliarcorporativa. Harvard Deusto Business Review, 228, 48-61. D’imperio, R. (2012). Growing the Global Economy through SMEs. Edinburgh Group. Online at http://www.cpaireland.ie/UserFiles/File/Business%20Development/Publications/Edinburgh%20G roup%20Research%20Project.pdf. Accessed on 10 August 2015. Dada, M. R. (2014). Commercial Banks’ Credit and SMEs Development in Nigeria: An Empirical Review. International Journal of Research, 1(8), 305-319. Dawson, L. M. (2013). Women and Men, Morality and Ethics. Online at http://homepages.se.edu/cvonbergen/files/2013/01/Women-and-Men-Morality-and-Ethics.pdf. Accessed on 04 February 2017. Donker, H., Poff, D. & Zahir, S. (2008). Corporate Values, Codes of Ethics, And Firm Performance: A Look at the Canadian Context. Journal of Business Ethics, 82(3), 527-537. Dutta, S. & Banerjee, S. (2011). Ethical practices towards employees in small enterprises: A quantitative index. International Journal of Business Management & Economic Research, 2(3), 205-221. Elms, H., Berman, S. & Wicks, A. C. (2002). Ethics and incentives: An evaluation and development of stakeholder theory in the health care industry. Business Ethics Quarterly, 12(4), 413-432.
Fatoki, O. (2012). The Impact of Ethics on the Availability of Trade Credit to New Small and Medium Sized Enterprises (SMEs) in South Africa. Journal of Social Science, 30(1), 21-29. FinMark Trust. (2015). Financial Access and SME Size in South Africa. Online at http://www.finmark.org.za/0e91471136eb493c9771c15a0d591dee/finaldownload/downloadida5f 7b10bf38c64bc80af7dbaacf46010/0e91471136eb493c9771c15a0d591dee/wpcontent/uploads/20 16/01/rep_financial-access-and-sme-size-in-sa_dec2015-1.pdf. Accessed on 17 March 2016. Firoozmand, S., Haxel, P., Jung, E. & Suominen, K. (2015). State of SME Finance in theUnitedStatesin2015.Onlineathttp://www.tradeupfund.com/.../state_of_sme_finance_in_the_unite d_states_2.Accessed on 7 July 2015. Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman. Freeman, R. E., Wicks, A. C. & Parmar, B. (2004). Stakeholder theory and “the corporate objective revisited”. Organization science, 15(3), 364-369. Government Gazette of the Republic of South Africa. (2003). National Small Business Amendment Act. Online at http:/ /www.info.gov.za/gazette/acts/2003/a26-03.pdf. Accessed on 10 August 2015. Harron, H., Ismail, I. & Oda, S. (2015). Ethics, corporate social responsibility and the use of advisory services provided by SMEs: Lessons learnt from Japan. Asian Academy of Management Journal, 20(1), 71 –100. Hazlina, N. & Seet, P. S. (2010). Gender variations in ethical and socially responsible considerations among SME entrepreneurs in Malaysia. International Journal of Business and Society, 11(1), 77-88. Hellriegel, D., Jackson, S. E., Slocum, J., Staude, G., Amos, T., Klopper, H. P., Louw, L. & Oosthuizen, T. (2008). Management. 2nd Edition South African. Oxford: Oxford University Press. Herrera-Madrue˜no, J., Larrán-Jorge, M., Lechuga-Sancho, M. P. & Martínez-Martínez, D. (2014). Motivacioneshacia la Responsabili-dad Social en las PymesFamiliares. Revista de Empresa Familiar, 4(1), 21-44. Hilman, H. & Gorondutse, A. H. (2013). Relationship between Perceived Ethics and Trust of Business Social Responsibility (BSR) on Performance of SMEs in Nigeria. Middle-East Journal of Scientific Research, 15(1), 36-45. Ilegbinosa, I. A. & Jumbo, E. (2015). Small and Medium Scale Enterprises and Economic Growth in Nigeria: 1975-2012. Journal of Business and Management, 10(3), 203-216. International Finance Corporation Report. (2013). Assessing Private Sector ContributionstoJobCreationandPovertyReduction.Onlineathttp://www.ifc.org/wps/wcm/connect/d 3b612004e3468c783d5ab7a9dd66. Accessed on 11 July 2015. Kamyabi, Y., Barzegar, G. & Kohestani, A. (2013). The Impact of Corporate Social Responsibility on Iranian SME Financial Performance. Journal of Social Issues and Humanities, 1(5), 2345-2633. Key, S. (1999). Organizational ethical culture: real or imagined? Journal of Business Ethics, 20(3), 217-225. Key, S., Bewley, L. & Vault, S. (2004). Stakeholder theory around the world: A twenty-year retrospective. In Proceedings of Academy of International Business, Southeast USA, Annual Meeting, Knoxville, TN. Kim, T. K. (2015). T test as a parametric statistic. Korean journal of anesthesiology, 68(6), 540-546. Kongolo, M. (2010). Job Creation versus Job Shedding and the Role of SMEs in Economic Development. African Journal of Business Management, 4(11), 2288-2295. Larrán-Jorge, M., AndradesPe˜na, F. J. & Muriel de los Reyes, M. J. (2014). La responsabilidad social corporativaen las titula-ciones de empresa y marketing ofertadaspor las universidadesespa˜nolas. ESIC Market Economics and Business Journal, 45(1), 121-146. Lather, A. S. (2009). Measuring The Ethical Quotient of Corporations: The Case of Small and Medium Enterprises in India. Forum on Public policy, Spring. Online at http://forumonpublicpolicy.com/spring09papers/archivespr09/lather.pdf. Accessed on 13 April 2015. Manaf, A. H. A. & Latif, L. A. (2014). Transformational Leadership and Job Performance of SMEs Technical Personnel: The Adaptability Cultural Approach as Mediator. Mediterranean Journal of Social Sciences, 5(20), 648-655. Peprah, J. A., Mensah, A. O. & Akosah, N. B. (2016). Small and Medium Sized Enterprises (SMEs) Accessibility to Public Procurement: SMEs Entity Perspective in Ghana. European Journal of Business and Social Sciences, 4(11), 25-40.
Pérez H. D. C. (2010). Perfil del profesionaluniversitariofuturogerentePyme, fortalezasustentable para el desarrolloendógeno. CICAG: Revista del Centro de Investigación de Cien-ciasAdministrativas y Gerenciales, 7(2), 1-13. Schlierer, H., Werner, A., Signori, S., Garriga, E., von Weltzein Hoivik, H., Van Rossem, A. & Fassin, Y. (2012). How do European SME owner-managers make sense of ‘stakeholder management? Insights from a cross-national study. Journal of Business Ethics, 109, 39-51. Sekaran, U. & Bougie, R. (2010). Research Methods for Business: A Skill Building Approach (5th edition). New Jersey: John Wiley and Sons. SME Growth Index, (2015). SME sustainability and growth should be an obsession for job creation in South Africa. Online at http://smegrowthindex.co.za/. Accessed on 04 May 2016. Smit, P. J., Cronje, G. J., Brevis, T. & Vrba, M. J. (2007). Management Principle: A Contemporary Edition for Africa. Cape Town: Juta and Co Ltd. Spence, L. & Painter-Morland, M. (2010). Ethics in small and medium sized enterprises: A global commentary. New York: Springer. Spence, L. & Perrini, F. (2010). Europe: Practice and politics: Ethics and social responsibility in SMEs in the European Union. In Spence, L. J. and Painter-Morland, M. (Eds.). Ethics in small and medium sized enterprises: A global commentary. (pp. 35-54). New York: Springer. Tsele, L. (2015). Female entrepreneurship: Is South Africa winning the gender inequality struggle? Available at http://www.smesouthafrica.co.za/15922/Female-entrepreneurship-Is-South-Africa-winning-thegender-inequality-struggle/. Accessed on 23 April 2017. Vivier, E. (2013). A tough line to work through: Ethical ambiguities in a South African SME. African Journal of Business Ethics, 7(2), 68-78. Viviers, S. & Venter, D. (2008). Fraud: An SMME perspective. Southern African Journal of Entrepreneurship and Small Business Management, 1, 51-65.
Published
2017-10-21
How to Cite
Dzomonda, O., & Fatoki, O. (2017). The Impact of Ethical Practices on the Performance of Small and Medium Enterprises in South Africa. Journal of Economics and Behavioral Studies, 9(5(J), 209-218. https://doi.org/10.22610/jebs.v9i5(J).1924
Issue
Vol 9 No 5(J) (2017)
Section
Research Paper

Copyright (c) 2017 Obey Dzomonda, Olawale Fatoki

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.