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Procedia - Social and Behavioral Sciences 221 (2016) 185 193

SIM 2015 / 13th International Symposium in Management

Business Success of Small and Medium Sized Enterprises in Russia

and Social Responsibility of Managers
Pletnev D.a*, Barkhatov V.a
a
Chelyabinsk State University, Kashirinykh Br. str., 129, Chelyabinsk, 454021, Russia

Abstract

This article introduces the authors approach to the study of business success factors for small and medium sized enterprises. The
approach is based on the currently dominant practice of estimating the success of an enterprise as its ability to produce profit. The
authors have analyzed the success criteria used by managers of Russian small and medium sized enterprises based on the survey
carried out among the managers of 212 small and medium sized enterprises in the period of September November, 2014, and
described the correlation between the business success of small and medium sized enterprises and the level of their managers
social responsibility. To estimate the social responsibility, the authors used the values of average salaries and the proportion
between the salaries of average executives and those of their managers. Hence, a nonlinear relation has been established between
the business success of a small and medium sized enterprises and the managers social responsibility.

2016
2015TheTheAuthors.
Authors.Published
Publishedby by
Elsevier Ltd.Ltd.
Elsevier This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of SIM 2015 / 13th International Symposium in Management.
Peer-review under responsibility of SIM 2015 / 13th International Symposium in Management
Keywords: small and medium sized enterprises, business success, social responsibility.

1. Introduction

Small and medium sized businesses (SME) play an important role in the modern economy. In many European
countries, they comprise up to 80% of the gross domestic product and employment structure. The situation in Russia
is quite different; the country still has certain leftovers of the Soviet type of economy, with preference given to large
organizational forms of economic activities. Today, SMEs are developing, and the government is supporting them,
but they still act as auxiliary elements and have not yet established themselves as self-sufficient economic agents.

* Corresponding author. Tel.: +7 932 303 1235; fax: +7 351 799 7050.
E-mail address: pletnev@csu.ru

1877-0428 2016 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of SIM 2015 / 13th International Symposium in Management
doi:10.1016/j.sbspro.2016.05.105
186 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193

The only exception occurs in enterprises operating in online trade, IT and marketing sectors. However, in the
national economy in general there are some examples of successful small and medium sized enterprises. Hence, an
important task is to find them and reveal the secrets of their success that give them the opportunity to remain
successful in an environment which is actually not quite favorable to them.
The goal of this article is to analyse the relation between the business success of small and medium sized
enterprises and their managers social responsibility. This analysis was performed based on the suggested triad of
criteria for a successful SME as well as on the survey carried out by the authors among the managers of small and
medium sized businesses in November 2014.
The issue of success for small and medium sized businesses has been reviewed by many authors. Romar (2009)
analyzed the relationship between strategic expectations and the business success of various companies. Sieger
(2011) devoted his research to the estimation of long-term success of family enterprises. Jensen (2001) pointed out
some possible ways to resolve the contradictions in the two competing indicators of business success: cost
maximization and social well-being. Bronsteen, Buccafusco and Masur (2013) examined a new dimension of
business success; this is the well-being analysis, considered an alternative to the cost-benefit analysis.
Some authors paid special attention to studying the factors that influence the success of small and medium sized
businesses. Among the works of those authors, particular emphasis must be made on the ones that determine the
influence produced by the managers beauty capital on the success of the business. Brown (2006) pointed out the
possibility of business failures as a factor of future success, based on the concept of S. Beckett. Wang et al. (2011)
applied the motivation-abilities approach to estimate the business success of small and medium sized vendors in
China dealing with electronics production. Of particular importance, they established the effect of informal relations
on the success of the Chinese companies. Berger-Walliser et al. (2011) mentioned how important precision of
contractual relations is for small and medium sized businesses to be successful. They also suggested using a new
form for such contracts, such as a visualized one.
Factors of business success for SMEs such as the managers sex (Gottschalk and Niefert, 2011) and his or her
attractiveness as well as the beauty capital (Pfann et al., 2006) are also discussed in great detail. Furthermore, the
managers emotional intelligence (Webb, 2011) is recognized as an important factor that impacts the employees
fidelity to the company and their involvement in the production process.
There has been a series of studies aimed at detecting national peculiarities of business success. For example, a
group of researchers from the University of St. Gallen (Success Factors, 2013) studied the success factors of the
SMEs in Switzerland. Among the factors that have positive effects, they mention the professional qualities of the
employees, infrastructure, accessibility to financial resources, and social values as well. Negative effects are
produced by factors such as the economic environment, including recession, and government control, including
taxation.
Chittithaworn et al. (2011) analyzed the business success factors of SMEs in Thailand and after considering
specific features of the Thai economy and the results of their large-scale survey found out that the major factors
were: relations with the customers, how the business was managed and cooperation (i.e. the relationship with the
suppliers), access to financial and other kinds of resources and finally the external environment. On the contrary,
factors such as management of innovations, after-sales service and business strategy did not produce any significant
effect on the success of the business. This study did not analyse any of the factors related to human resources. It is
most probable that in the Thai economy, it is not reckoned among the factors requiring any analysis due to the high-
degree of uniformity of the resources used there.
A group of authors (Jasra et al, 2011) introduced a detailed study of business success factors for SMEs in the
national economy of Pakistan. In that country, all seven factors selected for the survey appeared to be quite
important: financial resources, technological resources, entrepreneurial skills, government support, marketing
strategy, business planning quality, and access to information. The authors do not mention whether they considered
the human factor, including the employees professional and personal qualities. However, the fact that they are
missing from the list of the important factors is quite significant in and of itself: for the large Pakistani economy,
where small and medium sized businesses are concentrated in light industry and metallurgy, human resources seem
to represent a uniform mass.
Researchers in most of the published works try to find the success of small and medium sized in factors outside
the business itself: for example, it may be government support or lack of it, banks or the legislative system. In our
 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193 187

opinion, one should pay more attention to studying the internal reasons for success and finding factors the business
itself can control.
One such factor is the relationship between managers and their employees in SME. The influence of a success
factor like the social responsibility of the business must be examined. Social responsibility is normally considered to
be a prerogative of large corporations, but this issue is critical for small and especially medium sized businesses, too.
Several works have been written about this issue, including those by Epstein (1987), Donaldson and Preston (1995),
and Barhatov, Pletnev and Nikolaeva (2013). The main proposition, common in all the studies, is that social
responsibility improves business efficiency due to direct or indirect involvement of the many employees in the profit
distribution process. That means employees feel that they are parts of the enterprise and that they work for
themselves rather than for the master. The goal of this article is to verify this statement using empirical evidence
from Russian small and medium sized enterprises.

2. Methodology and data

This study uses data collected by the authors as a result of the survey that they organized and carried out among
the managers of SMEs. Over 250 managers participated in this survey. After the preliminary analysis, 212 of them
were selected for the study. Along with other questions, the managers were asked about the key and critical success
factors, about the barriers preventing their businesses from becoming successful, about each managers personal
feeling whether his or her business is successful or not, and about the level of the workers wage in the enterprise in
comparison with the managers income. The results, grouped and compared, built up the foundation of this study.
For the analysis, the authors used the following methods: analytical grouping, graphical method, and correlation
analysis of the qualitative attributes. Based on the analysis of the existing approaches and established norms in the
small and medium sized business sphere in Russia (Round table, 2014), the business success was estimated using the
efficiency values of the equity capital. Simply put, social responsibility is the obligation to act for the benefit of
society at large (Palmer, 1995). In this paper, the author uses a narrower point of view to social responsibility of
businesses which reflects features of small and medium-sized enterprises. The social responsibility of managers of
small and medium-sized enterprises is understood in this view as the obligation to act for the benefit of its
stakeholders and first for the benefit of enterprise employees. This approach is similar to P. Druckers understanding
of social responsibility (Drucker, 2008) and to the point of view of A. Regil from The Jus Semper Global Alliance
(Regil, 2003). For this reason, the social responsibility of the business was assessed using two indicators: the
employees salaries and comparing them with the managers income.

3. Results

In general, the businesses selected for the study represented different areas of activity, though it is still quite
significant that in the service industries prevailed. A considerable share of the businesses dealt with various kinds of
activities related to the construction industry. There were practically no businesses from the agricultural, light
industry or IT sectors. The survey showed that the overwhelming majority of the managers believed that the
employees, along with their professional and personal qualities, were the key factor of the business success. In total,
more than 75.9% of the respondents were sure that those factors were of key importance, and 16.5% thought they
were quite significant (so in total, 92.4% of the business managers pointed out those factors). Among the factors
producing the biggest effect on the business success, the managers also mentioned good and confidential relations
with customers and suppliers (there were two separate options in the questionnaire): 52.4% said it was the key
factor, and another 18.8% considered it quite significant; in total, 71.2% of the respondents. The entrepreneurial
skills of the top executives and the managers themselves were mentioned as well; 29.2% said it was the key factor,
and another 13.7% considered it quite significant (in total, 42.9% of respondents thought so). The numbers collected
for the rest of the factors appeared to be substantially lower (see Fig. 1).
188 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193

Fig. 1. Key and significant factors of business success (according to the survey carried out among the managers of Russian SMEs in November
2014).

The general character of the survey results can also be seen by examining the breakdown of the answers to the
questions about the essential success indices. The managers were allowed to choose multiple answers (Fig. 2).

Fig. 2. Breakdown of the answers to the question How do you assess your business success? (according to the survey carried out among the
managers of Russian SMEs in November 2014).
 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193 189

The most popular answer was The success of a business is assessed on its ability to produce profit (59.4%).
This was quite expected. The runner-up, which was certainly unexpected, was the ability to be better than others, i.e.
competitors and partners (38.7%). Exactly a quarter of the managers focus on the ability of the business to reach the
intended goals, while 20.8% of them choose the ability to grow. The fewest number of the respondents chose the
ability of the business to bring satisfaction (11.8%). This kind of breakdown of the answers is evidence of the
managers formal approach to the business success assessment, of their orientation to short-term perspectives and
fixation on the external aspect of the assessment process; in fact, both profit and good comparison results represent a
reflection of the fetishistic motives of the managers of Russian small and medium sized businesses.
The analysis of the answers to the question about the business economic efficiency and return on the invested
capital show some interesting results. First, more than a half (52.0% of the managers said their efficiency was under
12%, which is the actual level of inflation in Russia. According to the normal criterion, their capital thus did not
grow but rather depreciated in one way or another. However, over three quarters of them (79.1%) said their
businesses were successful. Despite the fact that they declare profit to be the main indicator of success, a business
can still be considered successful even if there is not enough profit to compensate inflation to the business owners.
Totally, the economic efficiency breakdown of the enterprises appeared quite even, with an average value of 19.4%.

Fig. 3. Return on the invested capital (business efficiency) (according to the survey carried out among the managers of Russian SMEs in
November 2014).

Now it is necessary to proceed to the analysis of the effect produced by the managers social responsibility on the
business success. The questionnaire provided two questions on the subject: What is the average wage in your
company? and How many times is the managers income higher than the wage of the full-time employee with the
minimal income?
One of the critical issues regarding the correlation between business success and the entrepreneurs social
responsibility is the correlation between the average wage level and the business success. Both variants of
explanation are possible: the workers wage level can influence the business success, and vice versa (Fig. 4).
190 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193

Fig. 4. Breakdown of the answers to the question about the workers wage level for businesses with different economic efficiency (according to
the survey carried out among the managers of Russian SMEs in November 2014).

In the overwhelming majority of the enterprises with low business efficiency, the monthly income of the
employees does not exceed 20,000 rubles, which is considerably lower than the average salary level in Russia.
Moreover, in a quarter of the enterprises the employees get less than 15,000 rubles a month which makes them
balance on the poverty line and certainly does not motivate them to show their best qualities in the business or feel
any involvement in it. The enterprises with medium business efficiency have a higher modal efficiency value of
20,000 to 25,000 rubles; the distribution itself is more uniform here as well. The enterprises with high business
efficiency are characterized by a more complex correlation with three modal intervals in the salary distribution:
15,000 20,000, 25,000 30,000, and over 35,000 rubles a month. By all appearances, the managers of the highly
efficient enterprises follow different logical approaches to establishing the workers wage level. Some of them think
that there is no need to change anything or provide any extra incentives to the employees when everything appears
fine the way it is. There are others who believe that the workers wage should depend on business efficiency and
they subsequently increase the former proportionally to the growth of the latter. And the third group, the smallest but
still a considerable one (6 highly profitable enterprises out of 35), can be characterized by an essentially different
approach: they consider the workers wage level to be one of the top priorities in their activities and the key factor of
their success.
There is also the analysis of the answers to the second question to consider. In general, th145e answers were
distributed the way it is shown in Fig. 5. It had been quite expected that the income differentiation appeared to be
insignificant in most SMEs and to lie within the limits of the ratio described by P. Drucker (8:1). However, a
significant share of the enterprises had a much greater difference. About 25% of the respondents said that their ratio
was 10:1 or higher. There were even 12 enterprises with ratios exceeding 25:1. This kind of distribution can be
explained by the peculiarities of the business or by its dependence on the quality of the employees work, or possibly
by the managers personal position in that respect.
 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193 191

Fig. 5. Excess of the business managers income over that of the lowest paid employee (according to the survey carried out among the managers
of Russian SMEs in November 2014).

The next step would then be to analyse the responses to the same question in enterprises with different business
efficiency levels. There were three groups: those with low efficiency (return on equity under 12%), medium
efficiency (return on equity of 13% to 30%) and high efficiency (return on equity over 30%) (Table 1). It shows that
there were considerable differences in the distribution of the SMEs according to income in the groups with different
levels of efficiency. The statistical significance of the differences is confirmed within one-tenth of a percentage point
(i.e. 0.1%);the calculated chi-square value is 34.04 while the value in the table is 26.1. The relation between those
variables is nonlinear. The enterprises with low business efficiency were characterized by a more uniform
distribution of income, while the share of enterprises which are highly differentiated according to the labor wage is,
on the contrary, small. At the same time, the share of the managers with bigger differences between their income and
that of the average executives was growing as the level of business efficiency was approaching the average.
However, the distribution in the SMEs with even higher business efficiency was becoming similar to that of the low-
efficiency businesses. An explanation for this phenomenon can be found if the issue is examined in terms of cause-
and-effect. When business efficiency is low, managers simply have no opportunity to increase their own
remuneration. But when the business efficiency starts to grow, they get that opportunity. This is evident in the drastic
growth of the SMEs which have an income ratio of 1015:1. However, further growth of the business efficiency
allows the enterprise to redirect certain portions of their resources to increase the salaries of all the employees, which
makes the differentiation lower again, but at a generally higher labor wage level. Hence, social responsibility mainly
shows among low-efficiency and high-efficiency businesses, while medium-efficiency ones are characterized by a
considerably lower concern about the employees well-being and are oriented at maximization of the managers
income instead. The survey results, in their absolute values, are represented in Table 1, and Fig. 6 shows them
visually. The table also shows that a considerable part of the entrepreneurs do not think about the economic
efficiency of their businesses at all, which surely contradicts the followers of the neoclassical interpretation of the
behavior of small and medium business representatives. In total, nearly 20% of those surveyed are this kind of
business owner.

Table 1. . Breakdown of the answers to the question about the comparison of the managers income to that of the lowest
paid worker
Excess of the business managers income In the entire In low- In medium- In high- Where managers
over that of the lowest paid employee sample efficiency efficiency efficiency do not care about
192 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193

businesses businesses businesses efficiency

2 to 5 times 101 48 21 16 16
6 to 9 times 46 22 9 7 8
10 to 15 times 31 7 14 6 4
16 to 25 times 5 3 1 1 1
More than 25 times 12 3 4 2 2
Total 195 83 49 32 31

Fig. 6. Breakdown of the answers to the question about the ratio between the managers income and that of the lowest paid employee, depending
on the business efficiency of the enterprise (according to the survey carried out among the managers of Russian SMEs in November 2014).

Finally, an analysis of the average economic efficiency level for each group of the SMEs was determined by
income ratio. The economic efficiency level is low for the enterprises with low income difference; for example, 18.6
with the income difference of 2 to 5 times and 18.3 with the income difference of 6 to 9 times. With medium income
differences (10 to 15 times), the economic efficiency shows a drastic growth (up to 23.2), and any further difference
growth is accompanied with an insignificant but stable decrease of the economic efficiency. The optimal point in
the levels of income difference can be determined at the interval from 10 to 15 times. On the one hand, when this
ratio observed, it provides an adequate labor wage to the manager who is often the owner of the SME. On the other
hand, it ensures enough motivation and involvement for the employees.

4. Conclusion

The effect of the managers social responsibility on the business success of SMEs is rarely studied. This paper
presented an approach to studying this phenomenon based on the wide-spread understanding of the business success
through its economic efficiency (i.e. return on the invested capital), and the interpretation of the social responsibility
of SMEs managers as their attitude to the level of the employees labor wage and its ratio to their own income.
According to the results of the survey carried out among 212 managers of Russian SMEs, the overwhelming
majority of them consider their employees professional and personal qualities to be the key or significant factor of
their business success. However, they do not always show due concern for their employees; the salaries are mostly
at a level that does not allow the employees to show their best qualities and be totally devoted to what they do. At
the same time, there is a direct relation between the labor wage level and the business success. SME managers will
certainly have to take this fact into consideration in the future. In the majority of cases, the ratio of the managers
 D. Pletnev and V. Barkhatov / Procedia - Social and Behavioral Sciences 221 (2016) 185 193 193

income and the employees salaries lies within the norm mentioned long ago by P. Drucker (1:9). This result
characterizes the social responsibility of SMEs managers positively. It means that the manager show his or her
solidarity with the employees, and, in spite of their low income, they do not feel so exploited. They can see that they
are sailing in the same boat with their manager. There is a slight decrease of the social responsibility in medium-
efficiency businesses. Enterprises with high economic efficiency have lower income differences. This makes us
come to the conclusion that the managers social responsibility has a positive effect on the success of small and
medium sized businesses. The relative optimum of the labor wage level (20,000 to 25,000 rubles) and of the income
difference (10 to 15 times) which may be required to make an enterprise successful are determined. At the same
time, this study can be and must be supplemented with some analysis of other kinds of social responsibility and with
some methods that have to be developed further to get a better estimation of the cause-and-effect relations.

Acknowledgements

This study was performed at the expense of a grant of the Russian Science Foundation (Project No. 14-18-02508)

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