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* Department of Management, Faculty of Business Administration and Liberal Arts, RajamangalaUniversity of Technology Lanna, E-mail: [email protected]

CREATING SHARED VALUE OF THAI SMES FORCOMPETITIVE ADVANTAGE

Ratthanan Pongwiritthon*

Abstract: The Business practices of SMEs to achieve applying Creating Shared Value strategyfor competitive advantages should only to focus on better overall society or not to create themarketing image upon the organization. But it is also about the adoption of the activities orprojects to create awareness of all parties involved for both among the organization and outsidethe organization rather than just solving social problems. It also has to base on the expertise ofthe organization to create activities that result in more action than just providing informationto the third parties. From communities’ problem, the local community in the context of thelocation of the organization will relevant to societal level, community level and might alsoaffect social change on a global scale. Therefore, to develop SMEs business operation in applyingCreating Shared Value strategy for competitive advantages, it is important to focus on 1.) Theinvention of the new products should meet the needs of the society and the community. 2.)Thereshould be the new standard set for the productivity that will focus on social issues, communityas well as the Value Chain. 3.) The development of the basic infrastructure should be supportedin the context of the local community, but still is conductive to the business.

Keyword: Creative Shared Value, Competitive Advantage, SMEs

THE DEVELOPMENT OF CORPORATE SOCIAL RESPONSIBILITY TOCREATING SHARED VALUE

The economic crisis in 2008 affected many businesses to shut down itself, especiallysmall businesses. Even some Thai financial institutions that were internationallyrecognized as stable institutions still had to close down. This crisis had affectedmany countries which the causes and problems can be separated into many issues.Anyway, the outstanding point to consider is that some countries which havebeen affected but their businesses still survive. Information from various sources,the Small and Medium business play an important role in business nowadays.Small and Medium business has more chance to get significant resources that createcompetitive advantages to the organization. If any business has sufficientinformation and potential, it also creates opportunities for successful operation ofthe organization. By the way, the business must have appropriate informationand opportunities in operation, then they will be able to use their business

I J A B E R, Vol. 13, No. 5, (2015): 3109-3120

3110 � Ratthanan Pongwiritthon

advantage in efficiency way as well as matching with the situation that regularlychange nowadays (The Office of Small and Medium Enterprises Promotion, 2008).ASEAN Socio- Cultural Community (ASCC) operates simultaneously with theestablishment of the ASEAN Economic Community (AEC) to be completed withinthe year 2015. ASCC sets up the promotion issue on Corporate Social Responsibility(CSR) with the strategic objectives to urge the business sectors to include CSRmatter on the agenda of the company operation and also promotes sustainablesocio-economic development among ASEAN countries’ members. CSR-after-process should not relate to the business operations, but involved with allstakeholders which including customers, suppliers, community, environment inthe supply line (from business to upstream) and value line (upstream todownstream). It is important to focus on the continuity role of Process Leadershipby having a role of Event Leadership as a symbolic gesture. The Corporate SocialResponsibility should be the way to operate the business in a legal or legitimateway. It is also about the investments of the stakeholders of the business for theenvironment and social which all of these will lead to overall survival and steadyincome as well as wealthy and livable society which consistency and suitable forThai society. This will affect the raising of awareness of people, which will begood for the sustainability of people, business, society, environment and the nation.In overall, the Corporate Social Responsibility for Small and Medium Enterprises(SMEs) is an approach to enhance the value of the factor of production, whichinclude raw materials, labor, capital, technology for goods and services to get thequality and standards that are acceptable to consumers as well as create thesatisfaction of the stakeholders both internal and external on CSR (Stock Exchangeof Thailand, 2012). SMEs concern about CSR, however, they still unsure about theoutcome of CSR towards the business as well as not really truly understands themeaning of the Corporate Social Responsibility (Pongwirittonand Pakwipas, 2013:94). At this present, there is the development of Corporate Social Responsibility toCreating Shared Value with the concerning on 3 aspects as follows.

1) There is the failure of CSR to the practical use. Most of theorganizationscannot demonstrate the performance on CSR that they investin social activities. They supposed to be regarded, prevent and resolve as“Good Company”, not the “Good Marketing” that only uses the activitiesof CSR as a tool for communication.

2) The Strategic CSR is unclear and the understanding is needed in order tooperate CSR activity which is the paradigm shift in the organization.Therefore, to create “Shared Value”, it needs responsive CSR and StrategicCSR to achieve integration into creating shared value, opportunity,business returns and responding to the problem or the specific social needsas well as the sustainable uses of the resources and expertise of theorganization.

Creating Shared Value of Thai SMES for Competitive Advantage � 3111

3) CSR activity has the basis of capitalism and still based on ethics andmorality. To encourage the business to operate the concept of CSR, it isnecessary to point out the benefits and the link to the expected profitabilityand competitiveness of the business.

The change of the context causes the trends of social development in the wayof creating economic value with the business model by creating value togetherwith the profitability as well as competitive advantages to the organization byusing the resources and expertise of the business to generate both value ofeconomic and social at the same time. This is the way to use the capitalism tosolve the social problems, not just follow the standards of ethics or the personalvalues in the business. These leads to Creating Shared Value or “CSV”, which isnot meant to share the value of the business to the social in form of donation, notto balance the profits between the stakeholders and not the same issue ofsustainability (Porter and Kramer, 2012: 53). Then, the operation of SMEs playand important role in the business nowadays as they have more chance to getsignificant resources that create competitive advantages to the organization aswell asCSR to CSV strategy. The business with sufficient information andpotential would have more opportunities for success of the organization andthis appropriate to operate CSV strategy. The business can use their competitiveadvantages, CSR and CSV in the effective way and will implement thecharacteristics of the situation at the present time that change regularly(Wiriyapipat, 2009: 195).

THE DIFFERENCE BETWEEN CORPORATE SOCIAL RESPONSIBILITY ANDCREATING SHARED VALUE

Porter and Kramer (2012: 52 – 64) mentioned that the difference betweenresponsibility for CSR has different levels of social issues that the business cansupport which can be categorized as follows.

1) Low level issue: The organization does not recognize as the social problem.The organization will not solve the problem and ignore as well asproviding minimal accountability.

2) High level issue: The organization will aware of the social problem. Theorganization will take part to solve the problem by using the CSR activitiessuch as donation, public relations and build up a relationship with thestakeholders as a tool for operating the organization.

3) The highest level issue: The organization will involve in solving the socialproblem. The organization will allocate resources for solving the problemor use their expertise to manage, monitor, check and report about theoperation on the problem in order to let the stakeholders to receive thebest return and fair to all parties.


In order to achieve CSV, it is important to consider that it will be an occasionor an important issue that should be resolved. This will give the organization theopportunity to have the way to reduce costs or expenses, expand the growth ofthe sales, increase revenue, reduce taxes and create the difference in the values ofthe organization. To present the social problem solution, it needs to help to see thedifference between “CSR and Philanthropy” and “CSV”. “Duality” of the benefitsfor both the organization and society should also be considered as the benefitshould not happen to any party unilaterally. CSV is focusing on the value that theorganization will receive in the context of the problem areas by using the problemsolving to link with the ability to get the profits in the long run. By the way, theCSR is about being regarded, the image of the organization, reputation and thefactors that lead to the sustainable development. When comparing the differences,it can see the difference as in Table 1.

Table 1The difference between CSR and Philanthropy and CSV

CSR and Philanthropy CSV

1. CSR of the organization that only the 1. The operation is done on the basis ofsociety that get the benefit. doing business.

2. Most of the activities are focused on 2. Enhancing the competitiveness.donations, public relations that pointout the value of the images of theorganization.

3. The operation of CSR is not the value 3. Increase the progress of economy andthat creates or occurs together with the society.organization and community.

4. Values refer to the recognition, images, 4. The value is created or occurredreputation or factors that lead to together with the organization andsustainable development. community.

5. The value that the organization getsfrom the social context from the socialproblem and the problem is solved bythe expertise of the operation of thebusiness organization.

In summary, the difference between CSR and CSV focuses on the elements ofcreating shared value that gives priority to the responding to social issues or theneed to generate the business opportunities by using the resources and expertiseof the organization to provide the benefits with regard to co-operation with externalparties and stakeholders (Thaipat Institute, 2013). Therefore, Thai SMEs shouldseparate the importance of CSR and CSV in order to have more chance to compete.The CSV activities and make a difference in the field of CSR will lead to achievingthe competitive advantages in the business in the future.


THE ELEMENTS OF CREATIVE SHARED VALUE

Porter and Kramer (2013:3-12) said that the elements of Creative Shared Value(CSV) are based on CSR by developed to respond to CSR from the problems in thecontext of area as regional, communities or villages. To operate the troubleshootingfrom business organization to make the difference to the competitors, the strategyto operate the CSR should create shared value between the organization and societytogether at the same time with the growth of the economy.

The identity of the Creative Shared Value is the drive to develop or solve thesocial problems in the context of social responsibility and awareness of society byfocusing on social issues that need to be resolved in order to make the use of theassets and expertise of the organization. However, the identity of socialresponsibility is the operation on the issues of social problem that the organizationshould follow under the basis of laws. The topics and social issues that theorganization must follow the law that is the basis to respond the stakeholders’expect from the organization. To operate the activities in society, the organizationshould make sure that they have the resources or expertise or not (Thaipat Institute,2013).

The elements of Shared Value Initiative should have the 3 basic things asfollows. 1. To create the opportunity or business returns and challenges. 2. Torespond to social issues or the specific needs of social. 3. To take advantage of theresources and expertise of the organization efficiently and effectively as shown inFigure 1.

Figure 1: The Elements of Shared Value Initiative

Source:Thai Corporate Social Responsibility, 2014


Therefore, the elements of Shared Value Initiative should include with thesefollowing issues. 1) The business development of decision making in investmentby focusing on social value and the values that the business expects to receive. 2)To engage with all parties that involved in order to enhance the exchange of learningand improvement continuously. 3) To set up the activities and budget for theinvestment in CSV operation. 4) To set up the project management for the projectof CSV in order to support the actual operation. And 5) To evaluate and follow upthe results.

Then, the way to plan the operation to bring social issues as the topic to inventand innovate and develop the operation of business organization by giving priorityto work together with all stakeholders that aims to develop and solve the socialproblems. Normal business operation along with solving the social problems atthe same time will give the results that the organization gets profit in their businesson the basis of ability and expertise of the organization in efficiency andeffectiveness and motivated by maximum profit as the drive. To motivate bybusiness profit could be sustainable and get more feedback from stakeholders thanCSR that motivated by outside pressure to show the responsibility as a drive tosolve the problem (Thaipat Institute, 2013). If SMEs aware of making a differencein business operation, they will be able to plan from the elements and be able tomanage CSV. The value will be shared with the other parties that will help inbusiness operation in terms of manufacturing process and the returns will be areputation from society, community as well as receive the quality factors of theproduction and distribute income back to society and the community. This is anindirect way to raise the quality of life, social, culture, and business organizationthat helps each other to create shared value together with all parties in the businesssector and the social sector.

LEVEL AND THE OPERATION OF CREATIVE SHARED VALUE

Regarding to Porter and Kramer (2013: 5-9), the operation of CSV can divide thebusiness to create shared value between the organization and society together byfocusing on creating shared value to the organization and society with the operationtogether with solving the social problems. Business organization can identify howto create shared value into 3 levels as follows. 1) The level of innovation or productdevelopment which will meet the need of society and to create the market orcustomers who have not received the response the needs of society. This is thepractical way of creating shared value by focusing on the product development todeliver value to society directly via products and services. This should operate byhaving interaction in the market that involved, such as access to funding, theinfrastructure improvements, the development of energy-saving product, andlearning and education media. The business will get the returns in terms of revenue,market share, growth rate, the ability to make profit, tax deductible, reputation


and image of the organization. 2) The level to set up the new norms of productionof goods and services that give the importance of the social problems that need tosolve from upstream to downstream of the Value Chain in the manufacturingprocess. Social problem issues are the topic that needs to solve by products andservices development via the cooperation of partners from activities to enhancethe use of resources and energy such as agricultural development, value-addingin the procurement process, sourcing local resources, and the distribution of goodsand services, and so on. In order to create a value chain, it is important to deliverthe management of resources, materials, labors, compensation, benefits that thebusiness received in terms of efficiency and effectiveness, cost management,material security, quality and the ability to increase profitability back to society. 3)The level of infrastructure development in the context of local communities thatfacilitates the organization to operate CSV by increasing the role in the developmentof infrastructure in a way that is conductive to the business. It can be done bydelivering value to society by creating jobs, public utilities, education, communityeconomy, social welfare such as skills development, community development,local administration, and promoting on behavior modification and so on. Thebusiness will get value in terms of administrative cost, access to factors ofproduction, distribution of goods and service as well as the increasing ofprofitability (Thaipat Institute, 2013).

The operation on CSV has the process by 1) Survey the environment or conditionthat causes the action. 2) Set up the rules for organization level to make all partiesaware of the importance. 3) Create the structure of strategy management andeducating and supporting staff within the organization to have the motivation totake action. In practice, it must be practiced by all three levels. 1) Organizationlevel, it must start from the attitude and vision of the organization that aware ofshared values and CSV to achieve the link to meet the needs of society that matchwith the business strategy. 2) Individual level, to create motivation or providemotivation in an appropriate form of CSV such as offer knowledge, fieldtrip,training, check on leadership. 3) Cooperation level, to focus on the specificindicators in both for business and society as well as the projects or plans thatrelating to the business in the form of value of product, value chain, and localcommunity (Porter and Kramer, 2013: 10-15).

GUIDELINE FOR BUSINESS OPERATION OF SMES BY APPLYINGCREATIVE SHARED VALUE TO CREATE COMPETITIVE ADVANTAGES

Porter and Kramer (2006: 78-82) says thatCSR is creating value that is not limitedby the budget. The key element is Creating Shared Value (CSV) within theorganization in order to drive the society in a sustainable way. This kind of CSR isbased on the sincere belief by focusing on love and faith to protect the environment,to appreciate goodness, to create something useful to society, to save the use of


resources, and the business or organization creates something that sustainablevalue to the society. SMEs in Northern region of Thailand can bring the CSR conceptand activities to consider and evaluate, control, improve and set up the regulationof the CSR activities to use as a strategy in the business management. This willreflect positive results in the value of goods, service, staff, community and allstakeholders as well as creating a sustainable business in the future of theorganization. Recently, the operation of SMEs to achieve applying CSV to createcompetitive advantages must operate with care for the stakeholders, economic,social and environment by virtue, ethics and moral. As well as using goodgovernance as the direction to operate each act with honesty, trustworthy,transparent and fair. Also aware of the negative impact on economy, society andthe environment and be ready to change to decrease such effects. To present CSR,it is not only to be legal or correct, but also need to invest in stakeholders, society,the environment of the organization which lead to overall survival and sustainableincome. Therefore, CSV is just like to invest in research and development whichcannot invest without the right direction. It must take some time before start thestrategy as it is medium to long term investment. In Thailand, there is the campaignto encourage the organizations, both business and non-business sectors to engagewith CSR in internationalization’s direction by based on CSV with virtue to createvalue and benefit to the organization, community, stakeholders, society,environment and the nation truly. In addition to applying the concept ofinternationalization CSR and CSV, the entrepreneurs should also integrate Thaiknowledge, wisdom, characteristic, as well as cultural, traditional and localknowledge of Thai into their CSR and CSV operation. To operate the businesswith a unique Thai identity, the employees should be aware of public mind orpublic consciousness through philosophy, value, and culture of the organizationto integrate and lead to success and benefits. It also increases the competitivenessthat will be good for the sustainability of the business, stakeholders, economy,society, and the environment (Stock Exchange of Thailand, 2012).

In developing CSV of Thai SMEs, they are developing to achieve a sustainableorganization by operates CSR-in-Process which lead to Strategic CSR and willachieve CSV in the form of an approach to create value of the business and societytogether at the same time. In order to motivate many organizations of SMEsbusiness, they must study several factors, according to the concept of CSV toenhance the activities of CSR to get the acceptation, image, and reputation.However, the operation on CSV should also focus on making a profit in the longrun via various projects that organizations recognize the problems of thecommunity and help to solve the problems on the basis of the expertise that arelikely to perform the same direction. For example, the papermaking industry inThailand adapting CSV by start from defining the knowledge of the concept ofCSV to be concreted within the organization, then defines the programs and


activities base on external factors that the farmers have a problem with such asfloods, droughts and so on that cause the farmers the loss of income fromagriculture. The organization has realized the problems and finds the solutions tolet farmers get more income by planting eucalyptus tree from the organizationthrough training and promoting the planting of eucalyptus. The organization offersthe farmers extra income from low investment, the eucalyptus is easily grown andcan be sold throughout the year which help to raise the standard of living of farmersto be well-being and have a sustainable income. From the operation of CSV andpay attention to the business approach on resources and expertise in SMEs to thedevelopment and solving social issues in the expertise on paper, papermakingprocess from upstream to downstream. Therefore, from operating CSV activitiesby promoting the farmers to plant eucalyptus and sell to the papermakingorganization which aim to create a better quality of life for farmers (CSV (CreatingShared Value), 2014).

For the guideline to operate SMEs businesses in order to apply CSV to createcompetitive advantages, from the sample, it can be seen that the practicalapplication of CSV is to create the value that can be shared between organizations.In terms of the manufacturer, the organization needs eucalyptus as raw materialto produce paper in papermaking industry. In terms of the society, community,the organization buys raw materials from farmers at the fair price, as a result, thefarmers earn income at a certain time to invest. This also builds up a relationshipas partner organizations for continuing doing business.The application for CSV tocreate the competitive advantages lead to see opportunity in the industrial marketsthat demand quality materials or can develop the raw materials to develop a widerrange of products and services to increase the value. To work with external partnersin order to achieve cooperation in sharing value based on skill and expertise of theorganization to solve social problems through the exchange of learning andcontinuous improvement. For the part of society and community, the farmers earnmore income from planting eucalyptus for the organization which leads to thedevelopment of local infrastructureto support to do business. This aims to developsociety and community by delivering value back in various formats such as creatingjobs, supporting the healthcare, education, community economic and social welfare(CSV (Creating Shared Value), 2014).To apply CSV in SMEs business, the businessshould offer alternative way to the target group of the society, then the communitywill get value in terms of income or the returns meet local context and benefitsociety in the overall. At the same time, the business will get return in terms ofinvestment, cost management, access to factors of production, distribution of goodsand services, as well as the ability to get more profit. CSV should operate on thebasis context of business that responsible to conduct the research, develop thematerials, products and services. It is including finding good quality raw materialsand promote to plant the tree according to the new technical procedures. All of


these results the revenue management, cost control, efficient operation becausethey can access to the factors of production and good quality raw materials thatresult from the research and development department. And the last thing is thebusiness has support in the process of distributing product from the project to useas raw materials in the industry. To develop and strengthen CSV for social in thecontext of community or area, people in the community in the area of theorganization must have the clear problems that all organizations aware of. Peoplein the community should willing to join the CSV by the organization in order toget certain income or get extra income out of their main income, all these thingscreate more revenue to the community, encourage the business and society to getbenefit as per the concept of CSV.

There are many organizations in Thailand that success in operating CSV. Forexample, Siam City Cement Public Company Limited or Insee Cement who startsthe project of “Be number one for customers, communities, business partners andemployees”. This project balances the business interest that is satisfactory to allstakeholders in the way that the organization make satisfactory profit while havegood governance and continuity awareness of Corporate Social Responsibility(CSR). The project began in the area of their factory in Tabkwang, Kangkoy District,Saraburi Province by improving the quality of community life in the form ofbusiness organization that focus on solving social and environmental problems.They teach their staff through the Green Heart Campaign with a commitment toraise awareness of waste segregation. Then they operate public relations to letstaff and people in the community to collect recyclable materials from home toleave in the bank of recycling to collect points to exchange to eggs and other thingsto use in their everyday life to ensure better well-being of the community andstaff. Then they developed the operation to extend to business partners, storesand customers which lead to the elevation projects of the Green Village, GreenPark, Green School and Green Water Tankwhich are satisfactory successful. Theresults of the projects consistent with the needs of society and community as theorganization focus on “Green” concept through the business activities as well asdistributed to all stakeholders. In order to put the business strategy and innovationin the same direction of the organization in line with return the benefits to society,the organization respect to the green heart, then in all activities will be done tomake sure that people will recognize all sectors of the company. The way they letpeople in the community participate in the activities also benefits to society andthey will consider the company as environmentally caring organization (MBAMagazine, 2014).

SUMMARY

The approach of SMEs, in order to achieve applying Creating Shared Value tocreate competitive advantages, should make some differences from CSR that not


concentrate on only make the overall society get better, not to create the marketingimage of the organization, but it is to operate activities or raise awareness to allparties who involved in the organization rather than just solve the social issues.CSV that can create competitive advantage should have the targets that are theproblem that affect the operation of the organization as well as the problem shouldbe on the basis of the expertise of the organization. The activities of the organizationwill result in action more than just give information to people outside theorganization, then social issues of the local community that is the area context ofthe organization will extend to community and affect the change in global scale.Therefore, the guideline for development of SMEs’ CSV operation to achievecompetitive advantages should apply to operate both CSR and CSV by focusingon 2 issues as follows.

1. For sustainable CSV of SMEs, they should focus on the following issues. 1.1)They should create conscious mind and awareness on CSR of all stakeholders bothexternal and internal parties. 1.2) They should aim to aware of virtue, ethics, moral,and good governance that can support all stakeholders. 1.3) They should operateCSR together with CSV in all business processes for sustainability of bothcommunity and the environment. 1.4) The evaluation and improvement of CSRactivities should implement in the context of business operation to adapt andchange that will result sustainable in the organization’s CSR.

2. CSV is the way to adopt the business approach to develop and solve socialissues by concentrating on using resources and expertise of the organization tocreate economic and social value. CSV can be operated through theimplementation of the duality of interest that should happen to both organizationand society which should come from the elements of creating value together. Aswell as focus on the responding to social issues or the needs of society to createthe business opportunity for the maximum benefit of expertise and resources ofthe organization under the collaboration with partners both inside and outsidethe organization. The ways to operate CSV are at 3 levels as follows. 1.) Newlyinvented products that are needed by the society and the community. 2.) Set upthe new norms of productivity to focus on social and community issues, includingthe value chain. 3.) Infrastructure development in the local context that isconducive to the business.

AcknowledgmentThanks to Thaipat Institute and MBA Magazine for supporting the information until thisarticle finish. And thanks to the Faculty of Business Administration and Liberal Arts,Rajamangala University of Technology Lanna, Academics, Senate, and all officers related tothis article. Especially, thanks to the support of families who have contributed to the work tilldone.


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