Social Responsibility Journal

Corporate social responsibility performance of small and medium enterprises in regional Japan: an
empirical examination
Anura De Zoysa, Nobyuki Takaoka,
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Anura De Zoysa, Nobyuki Takaoka, (2019) "Corporate social responsibility performance of small and medium enterprises in
regional Japan: an empirical examination", Social Responsibility Journal, https://doi.org/10.1108/SRJ-05-2018-0116
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 Corporate social responsibility
performance of small and medium
enterprises in regional Japan: an empirical
examination
Anura De Zoysa and Nobyuki Takaoka
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Abstract Anura De Zoysa is based at

Purpose – This paper aims to examine the extent of corporate social responsibility (CSR) performance of School of Accounting,
small- and medium-sized enterprises (SMEs) in regional Japan. It also aims to examine the impact of firm Economics and Finance,
size, industry, CSR awareness, firm origin and firm’s strategic focus on CSR. University of Wollongong,
Design/methodology/approach – The study measures the CSR performance using a CSR index and Wollongong, New South
seven sub-indexes designed on the global CSR standard – ISO26000. Data were collected through a Wales, Australia. Nobyuki
questionnaire survey of 146 firms. The indexes were analysed using Kruskal–Wallis one-way ANOVA and
Takaoka is based at Faculty
Mann–Whitney U tests.
of Economics, Wakayama
Findings – The results indicate that CSR performance of firms in regional Japan is low across all main
University, Wakayama,
areas of CSR and is significantly lower in SMEs relative to large firms. Further, CSR performance of SMEs
differs across various industries and firms established in the region display significantly lower CSR Japan.
performance compared to their metropolitan counterparts.
Research limitations/implications – Little research exists on the role SME’s play in improving CSR
practices in Japan, especially regarding SMEs in regional areas. The findings highlight the need for
improving CSR performance of SMEs and promoting the use of ISO26000 as a guiding tool for measuring
CSR performance.
Originality/value – This paper is one of the first papers that critically examine the CSR performance of
SMEs in regional Japan. It highlights that despite the recent CSR boom and regulatory initiatives in
Japan, CSR performance of SMEs in regional Japan remained low.
Keywords Corporate social responsibility, CSR performance of SMEs, ISO26000,
Japanese SMEs, Regional Japan
Paper type Research paper

Introduction
There has been an increasing interest in business organisations’ efforts to improve their
corporate social responsibility (CSR) within the global economy. Many organisations now
recognise that the principles of corporate responsibility are intrinsic to successful
management practices (Junquera et al., 2012; Adapa and Rindfleish, 2013). The benefits of
CSR are extensive and indisputable, primarily in relation to enhancing competitiveness
(Hitchens et al., 2003; Sweeney, 2009; Patrizia, 2012; Dalina and Simionescur, 2015). Prior
discussion and research on CSR have focussed on large firms, however, organisations of
any size can benefit from CSR initiatives (Thompson and Smith, 1991; Fuller, 2003;
Baumann-Pauly et al., 2013; Smith, 2013). Despite this, there is little empirical evidence
Received 12 May 2018
regarding the extent of CSR engagement by small- and medium-sized enterprises (SMEs) Revised 27 October 2018
until a few years ago. Previous research on CSR in SMEs demonstrates engagement in CSR Accepted 12 February 2019

DOI 10.1108/SRJ-05-2018-0116 © Emerald Publishing Limited, ISSN 1747-1117 j SOCIAL RESPONSIBILITY JOURNAL j
 activities to a significantly lesser extent relative to larger firms (Jenkins, 2006; Smith, 2013).
Regardless, given the prominence and importance of SMEs in the economic activities of
countries in the global economy (Jenkins, 2009; Blombäck and Wigren, 2009; Morsing and
Perrini, 2009), it is crucial that SMEs play a more integral role in enhancing their CSR
performance. In this context, a more astute understanding of the status of CSR in SMEs is
paramount for future improvements in this sector. In the last few years, there has been an
increased interest in examining CSR practices in SMEs (Amaeshi et al., 2016; Jain et al.,
2017; Martı́nez-Martı́nez et al., 2017; Ratnawati et al., 2018; and Valdez-Juárez et al., 2018).
However, prior research regarding CSR performance of SMEs in regional (non-major
metropolitan) areas is relatively non-existent. Despite this, CSR has been recognised by
policymakers as a feasible driver for regional development (Arato et al., 2016). This can be
attributed to the fact that SMEs are better positioned to contribute to local community
building and social wellbeing (Sawyer and Evans, 2010; Moyeen and Courvisanos, 2012).
Consequently, this makes a compelling case for conducting an empirical examination of
CSR performance in SMEs located in regional Japan.
Examining the CSR performance of Japanese firms is particularity interesting due to their
innovative approach to managing various business activities (Mizobata et al., 2014). These
firms are extremely adept at successfully tackling major business issues whilst
simultaneously taking into consideration the interests of a broad group of stakeholders. This
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contrasts with firms in the USA and Europe that tend to emphasise the importance of
increasing short-term profits to maximise returns for their shareholders (Hirose, 2004).
However, prior research on the CSR practices of Japanese firms is scarce and consists
mainly of descriptive/empirical studies examining the CSR performance of large firms (for
example, Tanimoto and Suzuki, 2005; Gaston, 2006; Fukukawa and Teramoto, 2009). These
studies have paid substantially less attention to the CSR performance of Japanese SMEs
(Welford, 2004). Given the reputation of Japanese firms in the global economy as efficient
and innovative business organisations, it is surprising that CSR in a Japanese corporate
context has attracted little academic attention in the English language domain (Fukukawa
and Teramoto, 2009). Major global Japanese firms, such as Toyota and Matsushita, clearly
have well-established CSR programmes due to their resourcefulness, know-how, and
expertise pertaining to CSR initiatives. Similarly to multi-national corporations (MNCs) in
other countries, these Japanese firms are scrutinised by global stakeholders, such as
institutional investors and rating organisations (Tanimoto and Suzuki, 2005; Tanimoto,
2009). Therefore, it is not surprising that they have a high level of CSR engagement and
continue to improve their CSR performance. As such, studies on CSR activities of large
firms do not provide a clear picture of the status of CSR in Japan since the characteristics of
these firms are notably different to the vast majority of other firms in Japan (Fuzino, 2012).
Therefore, a proper assessment of the CSR performance of Japanese firms cannot be
deduced without examining the CSR performance of SMEs, which account for 99.7 per cent
of total businesses and provide 70 per cent of Japan’s employment (Small and Medium
Enterprise Agency, 2013). SMEs operating in regional areas require greater scrutiny as they
lack the required knowledge, information and resources to successfully undertake CSR
initiatives (Small and Medium Enterprise Agency, 2015). Given this background, the main
objective of this paper is to examine the CSR performance of Japanese firms operating in a
major regional city in Japan through data collated from a questionnaire survey based on the
global social responsibility standard ISO26000. This survey aims to capture the managers’
awareness of CSR at the time ISO26000 was introduced in Japan. Therefore, the results
report in this study is expected to serve as a benchmark for examining the effectiveness of
ISO26000 as a tool for improving CSR practices in Japan. This paper starts with a brief
description of current CSR practices in Japan. It then describes the present study,
including the methodology and data, before proceeding to the analysis/discussion and
findings. The last section provides the conclusions and discusses the implications.

j SOCIAL RESPONSIBILITY JOURNAL j

 Corporate social responsibility in Japan
CSR in Japan is widely considered to be an institutional import from the US and Europe
during the 1980s and 1990s (Fukukawa and Moon, 2004; Mizobata et al., 2014). Many
Japanese firms were unfamiliar with the term “Corporate Social Responsibility” in the 1980s
(Wokutch, 2014); however, it has become a buzz word in Japan since the 2000s. This was a
result of the institutionalisation of CSR, which refers to companies establishing a CSR
department overseen by a CSR director and regularly publishing CSR reports (Tanimoto,
2013). Several domestic and global factors seem to have contributed to this increased
interest by Japanese businesses in improving CSR since the early 2000s. Amongst these
factors are a series of corporate crimes and scandals involving Japanese companies in the
1990s that required improved compliance practices (Tanimoto, 2013; Davis, 2010) to make
Japanese firms more attractive to foreign investors (Amann, et al., 2012). Other factors
include the need for improved corporate governance to face the impact of the collapse of
the bubble economy in the early 1990s and the Asian economic downturn (Miyajima and
Arikawa, 2001), as well as the increased internationalisation of Japanese society, the influx
of foreigners, the presence of large MNCs in Japan (Wokutch, 2014), and increasing social
awareness about public health and the environment (Kokubu et al., 2014). The global
financial crisis in 2007 also incentivised Japanese firms to strengthen their CSR initiatives
and corporate governance practices (KPMG, 2008). While the Japanese firms with
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established international presence appeared to have made constant efforts to improve their
CSR practices due to global stakeholder pressure, domestic firms with less international
involvement were not actively concerned with improving their CSR performance as they did
not experience this pressure from stakeholders (Tanimoto, 2013).
The year 2003 is often considered the start of CSR in Japan, since many Japanese firms,
including Ricoh Co. and Sony Corp., started institutionalising CSR through established
departments in charge of CSR issues (Kawaguchi, 2004). Since this rapid CSR
institutionalisation, which supposedly peaked in 2005-2006 (Tanimoto, 2013), the term CSR
has become a common business term/practice in Japan. This is reflected in the way that
Japanese firms frequently report company CSR activities and performance through
the company website and comprehensive CSR reports (Wokutch, 2014). However, until the
introduction of ISO26000 in 2010, corporate Japan did not have specific conditions for
benchmarking good CSR practices. Up to this point, the two Japanese business
associations (Keidanren – Japan Business Federation and Keizai Doyukai – Japan
Association of Corporate Executives) were primarily involved in developing CSR polices
and guidelines for firms to improve their CSR performance on the basis of accepted
international practices and guidelines. By using these policy guidelines and the inputs from
local communities and other stakeholders, Japanese businesses have been conducting
social responsibility activities using their own methods in a non-systematic manner
(Mizobata et al., 2014).
A closer look at the evolution of Japanese CSR practices reveals that historically Japanese
firms are known to have exemplary work practices such participative management, life time
employment practices, extensive employee benefits, and workplace safety and health
promotion activities. All of these have contributed to Japanese firms achieving high worker
productivity and enhancing the quality of their products (Wokutch and Shepard, 1999).
However, despite increasing corporate interest and rapid development in relation to the
institutionalisation of CSR, Japanese firms are still “facing ever-increasing demands by
consumers, trading partners, social groups and government agencies to behave in a
responsible manner” (Davis, 2010, p. 374). This is especially relevant to lingering issues
that Japanese firms were first criticised for decades ago, including equal employment
opportunities for minorities such as foreigners and women, and the protection of the
environment (Wokutch and Shepard, 1999).

j SOCIAL RESPONSIBILITY JOURNAL j

 There have been numerous major milestones over the years in the development of
Japanese CSR practices. Keidanren has been promoting CSR since the 1970s and
established the first explicit CSR guide for Japanese firms in 1991 (Keidanren, 2010). In
2002, the Japanese government established a CSR standardisation committee to respond
to the International Organization for Standardisation’s (ISO) decision to develop a standard
for CSR, creating momentum for Japan’s involvement in the standard (Japan CSR Forum,
2014). Keidanren, while participating in this process, continued to develop CSR polices and
guidelines for Japanese firms (Mizobata et al., 2014), issued a report outlining the basic
concepts for promoting CSR and updated the charter of corporate behaviour as a CSR
guideline and incorporated many of the ISO26000 elements into its Corporate Behaviour
Charter before the adaptation of ISO26000 as an official standard in Japan in March 2012
(Japan CSR Forum, 2014). The amended charter outlined ten key principles relevant to the
regional community (Mizobata et al., 2014).
Since the release of ISO26000, there has been a significant increase in corporate interest in
CSR in Japan. Many firms viewed ISO26000 as a global licence for CSR and began to
employ it as a tool for inventorying their own CSR initiatives (Ito, 2012). The increased
institutionalisation of CSR, corresponding to the escalating proportion of firms issuing
standalone CSR reports, and the heightened utilisation of ISO26000 as a guide to reporting
CSR activities by Japanese firms, has given the impression that CSR is alive and active in
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Japanese firms today (Eweje and Sakaki, 2015; Mizobata et al., 2014; Wokutch, 2014; Ito,
2012). However, it is doubtful whether the proportion of firms conducting their business
activities in a socially responsible manner has actually increased in correlation with the
greater corporate focus on CSR and proliferating volumes of CSR reports, CSR officers and
offices, etc. (Davis, 2010). A more fundamental question is whether the CSR boom in Japan
has inspired all types of businesses, including SMEs that constitute the vast majority of
Japanese firms, to improve their CSR performance. This is questionable given that the
current empirical observations, concluding that CSR practices and reporting is improving,
are primarily based on large firms. The ambiguity regarding this conclusion is further
reinforced as only a small body of empirical evidence exists regarding the status of CSR in
SMEs located in regional Japan, despite the development of such SMEs constituting a
government priority (Small and Medium Enterprise Agency, 2015). This study aims to fill this
gap by empirically examining the CSR performance of SMEs in regional Japan.

Current study
Sample, data and methodology
Data for this study are derived from a questionnaire survey administered to the owners/
managers and top executives of Japanese firms operating in the Wakayama Prefecture in
Japan. Wakayama Prefecture is located south of Osaka in the Kansai Region and is the
biggest peninsula in Japan. The Wakayama economy is centred on agriculture, tourism and
manufacturing, and includes firms ranging from SMEs to large-scale business
organisations. More specifically, it is home to an extensive range of SMEs and large firms
that are pioneering their way into new fields through world-class technologies that have
earned their creators’ lion’s shares of markets in Japan and elsewhere in the global
economy. These firms include Shima Seiki MFG., Ltd., Shin-Nakamura Chemical Co. Ltd.,
and Taiyo Industrial Co. Ltd. Some well-known Japanese manufacturing and trading firms
have also established their factories in Wakayama. These include Nippon Steel & Sumitomo
Metal, Mitsubishi Electronic, Living Environment & Digital Media Equipment Group, Air-
conditioning & Refrigeration System Works Wakayama and Panasonic Division of Energy.
The total number of enterprises in Wakayama prefecture in 2012 was 49,196, including
4,334 manufacturing firms, 13,910 wholesale and retail firms and 4,680 construction firms
(Wakayama Prefecture Planning Department Planning and Policy Bureau, 2014).

j SOCIAL RESPONSIBILITY JOURNAL j

 A sample size of 477 was drawn from the population of firms. The total sample included 300
members of the Wakayama Managers Association and 177 non-members. Since
Wakayama Managers Association is a member association of Keidanren, (Japan Business
Federation), we believe that the views of members of this association broadly represent the
commonly understood views of Keidanren. The questionnaire given to participants
comprised two primary sections. The first section questioned the general aspects of CSR in
firms while the second section consisted of 36 questions across seven broad categories of
CSR practices underlined in ISO26000 (ISO, 2010). The survey was conducted in early
November 2012 with follow-ups executed from late November to early December 2012. The
total number of usable responses for the required data analysis for this study came from
146 firms. Table I summarises the profile data of the sample firms.
After collecting the data from the questionnaire survey, the following steps were performed
to analyse the data:
䊏 A comprehensive CSR index was constructed to measure the CSR performance of
firms.
䊏 Seven CSR sub-indexes were constructed to measure CSR performance in the major
CSR areas stipulated in ISO26000.
䊏 The scores of the eight indexes were used to examine whether significant variations
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exist among CSR indexes in relation to various groups based on size, industry,
manager’s CSR awareness, place of incorporation, and CSR strategy.

Corporate social responsibility index

The extent of CSR performance of the sample firms was measured utilising an index. To
construct this index we included 36 questions in the questionnaire (Appendix). These
questions were aimed at measuring the CSR performance of the sample firms under the
seven broad categories underlined in ISO26000 (ISO, 2010). Based on the responses
received for questions in each category, seven sub-indexes were subsequently
constructed: Governance Index (GI, a = 0.910) – five questions; Human Rights Index (HRI,
a = 0.911) – five questions; Labour Practices Index (LPI, a = 0.911) – nine questions;
Environment Index (EI, a = 0.925) – four questions; Fair Operating Practices Index (FOPI,
a = 0.915) – three questions; Consumer Issues Index (CII, a = 0.911) – four questions; and

Table I Profiles of the sample firms

Type of industry Firms (%)

Manufacturing 77 52.7
Wholesale and retail 15 10.3
Banking 4 2.7
Transportation 14 9.6
Real estate 5 3.4
Construction 10 6.8
Electric and gas 3 2.1
Information and communication 4 2.7
Service 14 9.6
146 100.0
Capital Firms (%) Employees Firms (%)
<¥10 m 8 5.6 < 50 employees 41 28.1
¥10-100 m 89 62.2 50-99 employees 31 21.2
¥101-300 m 10 7.0 100-499 48 32.9
>¥300 m 36 25.2 >500 employees 26 17.8
143 100.0 146 100.0

j SOCIAL RESPONSIBILITY JOURNAL j

 Community Involvement & Development Index (CIDI, a = 0.922) – six questions. Using the
responses to all 36 questions, an overall CSR index (OCSR, a = 0.898), ranging from 1 (All
36 CSR practices used) to 0 (None of the 36 CSR practices used) was calculated. This is
exemplified in the following formula:

X
m
CSR Score ¼ ðdi =M Þ
i¼1

where di represents CSR practices, the value 1 indicates the practice exists within the firm,
and the value 0 opposingly indicates the non-existence of the practice within the firm. The
value m expresses the maximum number of CSR practices included in the questionnaire, i.e.
36 practices. The calculated CSR scores of the seven sub-indexes are depicted in Figure 1.
As shown in Figure 1, the overall CSR performance in the sample Japanese firms equated
to 0.474 out of a possible score of 1, indicating a relatively lower level of CSR engagement.
The highest overall perfomance of sample firms concerned labour practices (0.596)
while the lowest performance related to fair operating practices (0.354). These results
indicate that the sample firms need to continue to make substantial improvements to their
CSR practices. This will ensure that these firms demonstrate greater compliance with the
CSR practices recommended by the ISO26000 standard and improve their CSR
performance to an acceptable level.
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Research questions
Given the background provided in the preceding sections, this study aims to examine
whether CSR performance differs significantly amongst Japanese firms based on
the characteristics of a firm. For this purpose, the scores of the indexes described earlier
are analysed under the groups formed in relation to five firm-specific characteristics (size,
industry, manager’s CSR awareness, place of incorporation and CSR strategy). The key
questions addressing these distinct categorical variables featured in the paper are:
RQ1. Does the CSR performance vary between SMEs and large firms?
RQ2. Does the CSR performance vary between different industries and among SMEs
and large firms?
RQ3. Does the CSR performance vary based on the level of managers’ CSR awareness?

Figure 1 CSR performance of Japanese firms

1.000 Governance
Overall CSR (0.407)
0.800 Human
(0.474)
Rights
0.600 (0.566)

0.400

Community 0.200
Involvement
0.000
& Labour
Development Pracces
(0.486) (0.596)

Fair
Consumer Operang Environment
Issues (0.356 Pracces (0.358)
(0.354)

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 RQ4. Does the CSR performance vary based on the place of incorporation of the firm
(regional vs. non-regional based firms)?
RQ5. Does the CSR performance vary based on the firm’s strategic focus on CSR?

Results and discussion

Size of the firm and the extent of corporate social responsibility practices
SMEs are less likely to engage in CSR activities for many reasons, including lack of
resources and expertise to engage in CSR initiatives and the logistical constraints imposed
by the size of their small-scale operations (Perrini et al., 2007; Smith, 2013). Despite this, it
has been suggested that both SMEs and large firms are equally motivated to participate in
CSR (Udayasankar, 2008). To examine whether the CSR performance of firms varies
significantly between Japanese SMEs and large firms, we divided our sample into two firm
sizes – SMEs and large firms. Since there are no universally accepted definitions for SMEs
and the SME definitions differ vastly in different countries (Scheers, 2011), we used the
criteria provided by the Small and Medium Enterprise Agency, in Japan to identify SMEs.
The agency recognises that there are large differences between various industries, and
therefore proposes four different criteria to classify SMEs on the basis on the industry in
which the firm operates. The relevant criteria for each of these four industries are:
Manufacturing – total capital is less than 300 million yen or the number of employees is less
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than 300 people; Wholesale – total capital is less than 100 million yen or the number of
employees is less than 100 people; Retail – total capital is less than 5 million yen or the
number of employees is less than 50 people; and Service – total capital is less than 5 million
yen or the number of employees is less than 100 people (The Small and Medium Enterprise
Agency, 2013). When this definition is applied to our sample, out of the 146 sample firms,
107 firms (73.3 per cent) are SMEs while the remaining 39 firms (26.7 per cent) are large
firms. Deploying the Mann–Whitney U test, we examined the differences of CSR
performance between the SMEs and large firms to identify whether there is a relationship
between the size of the firm and CSR performance. The results of this analysis are
summarised in Table II.
Table II presents the mean scores of SMEs and large firms in relation to the seven sub-
indexes and overall index indicating CSR performance of Japanese firms in each category.
The results show statistically significant differences between SMEs and large firms in
relation to all sub-indexes (GI – U = 740, p < 0.01; HRI – U = 1035, p < 0.01; LPI – U = 809,
p < 0.01; EI – U = 1444, p < 0.01; FOPI – U = 1267, p < 0.01; CII – U = 1189, p < 0.01;
CIDI – U = 1115, p < 0.01) as well as in relation to the overall CSR index (U = 808, p <
0.01). These results indicate that the CSR performance of Japanese SMEs is significantly
lower than that of large firms.

Table II Size of the firm and the extent of CSR performance

Index SMEs (Mean) Large firms (Mean) Mann–Whitney U Z p-value

Governance 0.31 0.68 740 -6.091 0.000

Human rights 0.50 0.74 1035 -4.816 0.000

Labour practices 0.52 0.81 809 -5.692 0.000

Environment 0.30 0.51 1444 -2.992 0.000

Fair operating practices 0.29 0.52 1267 -3.812 0.000

Consumer issues index 0.29 0.54 1189 -4.107 0.000

Community involvement and development 0.43 0.65 1115 -4.369 0.000

Overall CSR 0.40 067 808 -5.659 0.000
Notes:  Significant at 0.05 level;  significant at 0.01 level

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 Corporate social responsibility performance and industry
The CSR activities of firms may vary distinctly from industry to industry and within industries.
One of the major reasons for this variation is the lack of compulsory standards governing
CSR practices for all industries. Although there are some government regulations on CSR,
these are largely confined to specific practices within certain firms and industries (Idowu
and Filho, 2009). Furthermore, with continuous guidance provided to all Japanese firms by
Keidanren (through the CSR Charter) and other relevant authorities, one would expect that
Japanese firms across all industries would have regulatory-imposed uniformity in their CSR
performance. To empirically examine whether the extent of CSR performance in Japanese
firms varies among different industries, we first classified our sample into seven broad
industry groups as follows: Manufacturing (54 per cent), Wholesale and Retail (11 per cent),
Transportation (10 per cent), Construction (7 per cent), Real-Estate (3 per cent), Electric
and Gas (2 per cent) and Other Services (13 per cent). As the banking sector consists of
only four large firms, it was excluded from this analysis. Second, using the Kruskal-Wallis
ANOVA test, a nonparametric alternative to one-way ANOVA (Conover and Iman, 1981), the
differences between the CSR performance of SMEs and large firms were examined. The
results of this analysis are shown in Table III.
According to the Kruskal–Wallis test results shown in Table III, the CSR performance of
SMEs in relation to governance (X2 = 15.3, p = 0.018), labour practices, (X2 = 14.2, p =
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0.027), environment (X2 = 22.6, p = 0.001), fair operating practices (X2 = 15.2, p = 0.019),
and community involvement and development (X2 = 15.5, p = 0.016) varied significantly
among the seven industries, while the CSR performance in relation to human rights and
consumer issues were similar across all industries. However, in the large firms, the CSR
performance was relatively consistent for all CSR performance categories across all of the
industry groups, indicating that large firms follow somewhat uniform CSR practices. The
significant variation of CSR performance among industries in relation to SMEs is also

Table III CSR Performance across industries

Wholesale and Real Electric and Other
Manufacturing retail Transportation estate Construction gas services X2 p-value

SMEs
Governance 0.36 0.20 0.13 0.13 0.35 0.60 0.20 15.3 0.018
Human rights 0.52 0.56 0.50 0.33 0.58 0.40 0.31 10.9 0.090
Labour practices 0.57 0.55 0.44 0.11 0.54 0.33 0.32 14.2 0.027

Environment 0.40 0.11 0.13 0.00 0.34 0.75 0.00 22.6 0.001
Fair operating practices 0.33 0.21 0.11 0.00 0.54 0.33 0.15 15.2 0.019
Consumer issues index 0.35 0.18 0.21 0.17 0.13 0.50 0.16 11.6 0.070
Community involvement and
development 0.49 0.38 0.31 0.06 0.42 0.17 0.32 15.5 0.016
Large firms
Governance 0.86 0.50 0.63 0.40 0.70 0.60 0.69 6.9 0.332
Human rights 0.84 0.65 0.80 0.50 0.80 0.80 0.69 5.7 0.461
Labour practices 0.90 0.78 0.83 0.78 0.89 0.67 0.67 6.9 0.333
Environment 0.90 0.25 0.34 0.25 0.50 0.50 0.46 12.2 0.059
Fair operating practices 0.63 0.33 0.58 0.17 0.83 0.50 0.43 8.8 0.183
Consumer issues index 0.68 0.38 0.47 0.50 0.63 0.63 0.50 3.4 0.755
Community involvement and
development 0.70 0.58 0.54 0.83 0.83 0.50 0.64 6.0 0.421
Overall

CSRPI_SMEs 0.46 0.36 0.30 0.12 0.43 0.42 0.23 18.7 0.005
CSRPI_Large 0.81 0.55 0.64 0.56 0.76 0.61 0.61 7.2 0.304
x2 18.6 4.7 4.8 3.0 2.9 0.0 7.2

P-value 0.000 0.031 0.028 0.083 0.088 1.000 0.007
Notes:  Significant at 0.05 level;  significant at 0.01 level

j SOCIAL RESPONSIBILITY JOURNAL j

 evident from the overall index (X2=18.7, p = 0.005), whilst no significant difference was
observed between the industries in relation to larger firms. When overall CSR performance
was compared between SMEs and large firms, it was revealed that except for real estate,
construction, and the electric and gas industries, the CSR performance of SMEs and large
firms varied significantly in the manufacturing industry (X2 = 18.6, p = 0.000), wholesale and
retail industry (X2 = 4.7, p = 0.031), transportation industry (X2 = 4.8, p = 0.028), and other
services (X2 = 7.2, p = 0.007). Overall, the results indicate significant variations of CSR
performance between industries for SMEs while the CSR performance of large firms
appears consistent across industries.

Corporate social responsibility performance and managers’ corporate social

responsibility knowledge
One of the main obstacles for implementing CSR practices is managers’ lack of knowledge
of CSR affairs and activities (Madueño et al., 2016). This obstacle is also featured among
the top three obstacles identified by our respondents. If managers have a good
understanding regarding CSR and its potential benefits to the firm, they are more likely to
demonstrate an increased commitment to supporting a firm’s CSR efforts and hence
engage in further credible attempts to improve the firm’s CSR performance. To test whether
there is a relationship between the extent of CSR performance and the extent of managers’
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CSR awareness, we asked our survey respondents to indicate their familiarity with the term
CSR and the ISO26000 standard. Based on their responses, we classified the respondents
into the following three groups:

1. Group 1: managers who are familiar with both CSR and ISO26000 (26 per cent);
2. Group 2: managers who are familiar with CSR but unfamiliar with ISO26000 (47 per
cent); and
3. Group 3: managers who are unfamiliar with both CSR and ISO26000 (27 per cent).

After forming these groups, we used the Kruskal–Wallis test to determine whether there
were statistically significant differences between the three groups in relation to their level of
CSR performance based on the seven indexes and overall. The results of the statistical
analysis are presented in Table IV.
The results in Table IV show that for SMEs, CSR performance differs significantly between
the groups in relation to the CSR performance in governance (X2 = 8.2, p = 0.016), human
rights (X2=7.6, p = 0.022), labour practices (X2 = 9.1, p = 0.011), consumer issues (X2 =
10.5, p = 0.005) and community involvement and development (X2 = 17.1, p = 0.000). The
results indicate that the CSR performance of the firms in these groups is significantly lower
than that of other firms in relation to these five CSR areas. The CSR performance regarding
the environment and fair operating practices was similar in all firms irrespective of the level
of manager CSR awareness. In case of large firms, the CSR performance significantly
differed between groups only for governance (X2 = 6.0, p = 0.049) and consumer issues
(X2 = 8.0, p = 0.018), indicating a relationship between CSR knowledge and managers’
CSR awareness in these two areas. While the overall CSR performance varied significantly
between groups for SMEs (X2 = 10.5, p = 0.005) no such variations were observed for large
firms. When the CSR performance between SMEs and large firms was compared in relation
to each group, we found that the CSR performance of large firms is significantly higher than
that of SMEs. Overall, the results indicate that the managers’ increased awareness,
knowledge and understanding of CSR increases the CSR performance of the firm.

Origin of the firm and the extent of corporate social responsibility practices
It is common knowledge that CSR is largely associated with large firms (Perrini et al., 2007)
which often operate in metropolitan areas such as Tokyo, Osaka and Nagoya. The firms based

j SOCIAL RESPONSIBILITY JOURNAL j

 Table IV Managers’ CSR knowledge and the extent of CSR performance
Index Group-1 Group-2 Group-3 X2 p-value

SMEs
Governance 0.38 0.34 0.21 8.2 0.016
Human rights 0.54 0.54 0.42 7.6 0.022
Labour practices 0.55 0.58 0.41 9.1 0.011
Environment 0.35 0.35 0.21 3.9 0.139
Fair operating practices 0.28 0.35 0.23 3.8 0.150
Consumer issues index 0.26 0.38 0.17 10.5 0.005
Community involvement and development 0.41 0.52 0.30 17.1 0.000
Large firms
Governance 0.79 0.66 0.44 6.0 0.049
Human rights 0.84 0.69 0.64 4.1 0.127
Labour practices 0.81 0.80 0.80 0.4 0.822
Environment 0.63 0.51 0.15 5.1 0.079
Fair operating practices 0.60 0.47 0.47 2.0 0.363
Consumer issues index 0.68 0.53 0.20 8.0 0.018
Community involvement and development 0.68 0.66 0.50 2.7 0.254
Overall
CSRPI_SMEs 0.42 0.46 0.30 13.6 0.001
CSRPI_Large 0.74 0.65 0.51 5.8 0.056
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X2 11.5 10.2 5.4

P-value 0.001 0.001 0.021
Notes:  Significant at 0.05 level;  significant at 0.01 level

in metropolitan areas are generally better resourced, utilise more sophisticated administrative
systems, and are more exposed to scrutiny from key stakeholders who are interested in CSR
activities. These firms are expected to have higher CSR performance than firms based in
regional areas, such as Wakayama-based firms, where there is less scrutiny regarding CSR by
stakeholders. However, if a firm based in a metropolitan area also has a presence in a regional
city, it is still expected to engage in CSR activities to a greater extent, as their practices are
influenced by the parent company. On the other hand, regional-based firms are less
sophisticated and resourced and have less expertise to engage in CSR activities. The counter
argument to this is the premise that regional-based firms are more aware of community and
environmental issues than their larger counterparts as they operate within regional communities.
Subsequently, regional-based firms design appropriate CSR strategies to address issues
prevalent in their local communities and therefore engage in CSR activities that affect the region
in a more meaningful and qualitative manner (Moyeen and Courvisanos, 2012). To examine
whether the extent of the CSR performance of Japanese firms is significantly different among
regional-based and non-regional based firms, we divided our sample into two groups: regional-
based firms (firms established and operating in Wakayama) and non-regional based firms (firms
established outside Wakayama but operating in Wakayama). This analysis of the data shows
that 116 of the sample firms (79 per cent) are regional-based firms and 30 firms (21 per cent)
are non-regional based firms. Not surprisingly, the vast majority of the regional-based firms (84
per cent) are SMEs while the vast majority of non-regional based firms (70 per cent) are large
firms. This confirms the view that non-regional firms operating in regional areas are more likely to
be large firms or firms associated with large firms. The results of the Kruskal–Wallis test carried
out to examine whether these differences are statistically significant are shown in Table V.
The results in Table V show that the CSR performance of regional based firms, either SMEs
or large firms, is significantly lower than that of non-regional based firms across all CSR
categories and overall except in two areas. The CSR performance in community
involvement and development of both SMEs and large firms and human rights of SMEs are
similar across both regional-based and non-regional firms. However, when the overall CSR
performance of regional firms is compared against that of large firms, it revealed that CSR

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 Table V Origin of the firm and the extent of CSR performance
Index Regional Non-regional X2 p-value

SMEs

Governance 0.28 0.56 9.458 0.002
Human rights 0.49 0.62 2.947 0.086

Labour practices 0.50 0.73 7.173 0.007
Environment 0.28 0.58 5.158 0.023

Fair operating practices 0.27 0.52 6.271 0.012

Consumer issues index 0.26 0.56 9.024 0.003
Community involvement and development 0.41 0.57 3.173 0.075
Large firms

Governance 0.49 0.85 14.769 0.000

Human rights 0.60 0.87 11.389 0.001

Labour practices 0.72 0.88 9.902 0.002

Environment 0.25 0.74 13.556 0.000

Fair operating practices 0.39 0.63 6.38 0.012

Consumer issues index 0.35 0.71 11.88 0.001
Community involvement and development 0.60 0.68 0.899 0.343
Overall

CSRPI_SMEs 0.38 0.61 10.113 0.001

CSRPI_Large 0.53 0.79 15.157 0.000
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X2 8.4 9.0
 
P-value 0.004 0.003
Notes:  Significant at 0.05 level.  significant at 0.01 level

performance of regional-based SMEs is significantly lower than that of large firms (X2 = 8.4,
p = 0.004). Similarly, the CSR performance of non-regional SMEs is significantly lower than
that of large firms (X2 = 9.0, p = 0.003). These results show that the CSR performance of
regional-based firms is lower than that of non-regional firms irrespective of their size. These
results highlight the discrepancy in CSR performance amongst regional-based and non-
regional firms and the subsequent need to pay more attention to regional-based SMEs to
improve overall CSR performance in regional Japan.

Formalised corporate social responsibility strategy and corporate social

responsibility performance
Although CSR has now become a fundamental priority for business organisations, it is still a
long way from being an integral part of corporate strategy (Smith, 2003; Stewart, 2006).
Despite the significant attention given to CSR (mainly due to stakeholder pressure), many
managers still lack sufficient understanding regarding the effect of CSR on firm performance
(Vilanova et al., 2008) and other potential benefits of CSR (Madueño et al., 2016). Porter and
Kramer (2006) suggest that firms who make CSR management part of their overall
management strategy successfully receive the intended benefits of CSR for themselves and
wider society. Furthermore, based on the results of 24 detailed case studies of UK SMEs,
Jenkins (2009, p. 21) concludes that “Integrating CSR into the core of a company is crucial to
its success”, and if a firm incorporates CSR as one of the firm’s objectives, then it is more likely
to engage in more economically and socially valuable CSR practices. To examine whether
CSR performance differs based on whether a firm has a strategic focus on CSR relative to
firms without such a focus on CSR, we asked our respondents to indicate whether CSR is
included in their mission statement or as one of the main objectives of their firm. Based on this
information, we classified our sample into the following two groups.

1. Group 1: firms with formalised CSR strategies; and

2. Group 2: firms without formalised CSR strategies.

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 The results of this classification revealed that 39 of the 146 firms (27 per cent) had a
formalised CSR strategy while the remaining 107 firms (73 per cent) had no strategic plans
detailing how their CSR performance would be achieved. The Kruskal–Wallis test was
conducted to examine whether there is a significant difference between the CSR
performance of the two groups – as summarised in Table VI.
The Kruskal–Wallis test results in Table VI do not show any significant differences between
the two categories of firms, either SMEs or large firms, in relation to any of the seven CSR
categories. However, when the CSR performance of SMEs with a formalised CSR strategy is
compared against large firms, we found that CSR performance of SMEs is significantly
lower than that of large firms (X2 = 13.7, p = 0.000). Similarly, the CSR performance of SMEs
without a formalised CSR strategy is found to be significantly lower than that of large firms
(X2 = 14.2, p = 0.000). These results indicate that having a formalised strategy on CSR has
not significantly affected the CSR performance of the sample firms. Conclusively,
irrespective of whether the firm has a formalised CSR strategy or not, the overall CSR
performance of the SMEs is significantly lower than that of large firms.

Conclusions
Despite the recent exponential increase in corporate interest regarding CSR in Japan, the
focus of CSR has mostly been confined to the scope of large firms. The discussion on CSR
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in SMEs is limited despite recognition of the significance of SMEs to the prosperity of the
Japanese economy. Surprisingly, there has been no empirical analysis of the CSR
performance of regional-based firms, despite numerous government polices to support
regional development and improvements through regional-based firms. This paper has thus
attempted to mitigate this disparity in empirical research by providing greater insight in
regards to CSR performance of SMEs in regional Japan.

Table VI CSR Strategy and the extent of CSR practices

Formalised CSR No. formalised CSR
Index strategy strategy X2 p-value

SMEs
Governance 0.38 0.29 3.0 0.084
Human rights 0.50 0.50 0.1 0.773
Labour practices 0.54 0.51 0.2 0.655
Environment 0.26 0.31 0.1 0.744
Fair operating practices 0.32 0.29 0.3 0.571
Consumer issues index 0.35 0.27 0.9 0.354
Community involvement and 0.45 0.42 0.3 0.607
development
Large firms
Governance 0.76 0.61 2.2 0.143
Human rights 0.79 0.70 1.2 0.279
Labour practices 0.82 0.79 0.2 0.663
Environment 0.58 0.45 1.0 0.317
Fair operating practices 0.58 0.47 1.2 0.282
Consumer issues index 0.66 0.44 4.3 0.058
Community involvement and 0.66 0.63 0.3 0.580
development
Overall
CSRPI_SMEs 0.43 0.40 0.5 0.496
CSRPI_Large 0.72 0.62 2.4 0.122
X2 13.7 14.2
p-value 0.000 0.000
Notes:  Significant at 0.05 level;  significant at 0.01 level

j SOCIAL RESPONSIBILITY JOURNAL j

 Somewhat surprisingly, this study reveals that the overall level of CSR performance of firms in
regional Japan is low despite the recent hype regarding CSR engagement in Japan. When the
CSR performance is analysed by firm size, the CSR performance of SMEs is found to be
significantly lower than that of large firms in relation to all CSR areas, with fair operating
practices and consumer issues being the worst performing areas. The CSR performance of
SMEs also varied significantly across the majority of industries while such variation is not
observed across large firms. The study also found that the CSR performance of firms with
managers who are not familiar with CSR is significantly lower than that of other firms,
highlighting the importance of educating SME managers about CSR to order to stimulate
greater CSR performance in the sector. Interestingly, the CSR performance of regional-based
firms, either SMEs or large firms, is significantly lower than that of non-regional firms across the
majority of the CSR categories and overall. This supports the view that the lack of resources,
know-how and understanding relating to CSR practices in regional-based firms constitute a
distinct obstacle for these firms to engage in CSR. This is in comparison to firms established in
metropolitan areas who are heavily influenced by the CSR polices of their lucrative and
globally integrated parent companies operating in large cities. Although the institutionalisation
of CSR (featuring CSR as an integral component of the firm’s mission statement) is seen as a
way to improve CSR performance in Japan, this study did not find that the CSR performance
of firms with a formalised CSR strategy was significantly different to firms without such a
strategy. Consequently, perhaps a more important strategy is to set and implement achievable
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CSR targets on the basis of ISO26000 guidelines rather than having to implement incremental
policy improvements to satisfy stakeholders.
Overall, the results of the study reveal that firms in regional Japan, both SMEs and large
firms, have a long way to go to fully implement the benchmark of good CSR practices
outlined in the CSR standard – ISO26000. However, the comments made by our
respondents, the recent reports indicating the proliferating number of firms now
publishing CSR outcomes in accordance with the ISO26000 standard, and the
continuous efforts by Japanese business associations to promote CSR in both SMEs
and large firms, suggests that Japanese firms have a desire to integrate CSR in their
business operations. The rapid institutionalisation that took place in Japan creating
CSR departments seems to have had limited success, even for large firms, in improving
CSR due to a lack of integration between business operations, people, and various
sections of the firm. Consequently, institutionalisation is not the answer for SMEs, as
they lack resources to sufficiently support and maintain their viability. SMEs need clear
guidance as to what to do to improve their CSR performance at both a firm and industry
level. From the views expressed by our respondents, we clearly see that firms
understand the requirement for CSR improvements but remain uncertain in regards to
what actions and initiatives to implement. From this perspective, ISO26000 is
indisputably a welcome change for these firms as it provides clear guidance on CSR.
This will subsequently allow firms to establish measurable key CSR performance
indicators (KPIs) to ensure that they consistently meet satisfactory CSR targets. This
will facilitate the ability of these firms to improve their long-term competitiveness in the
face of increased global pressure to enhance CSR. Given the comprehensive
guidelines provided by ISO26000, future studies should examine the impact of CSR
practices advocated by this standard on the financial performance of regional SMEs.

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Appendix
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Organizational governance
1. Our company has a director, a committee and a department or unit responsible for CSR.
2. Our company has a policy or code of conduct defining the responsibility and the role of
the firm to society.
3. Our company has conducted employee training on corporate ethics, prevention of
corporate misconduct and corporate compliance.
4. Our company has consulted with our stakeholders (interested parties).
5. Our company has a designated person responsible for occupational health and safety
in accordance with related laws.

Human rights

6. Our company has procurement guidelines based on CSR for selecting and contracting
suppliers.
7. Our company ensures that our suppliers comply with relevant domestic and international
laws and regulations or requests that our suppliers are compliant.
8. Our company has internal rules and policies to prevent and limit the transactions with
firms suspected of violating laws or engaging in anti-social behaviour.
9. Our company provides our employees with holidays and leave (including prenatal and
childcare leave) according to related laws.
10. Our company provides our employees with insurance (including industrial accident
insurance, health insurance and pensions) according to related laws.

Labour practices

11. Our company used merit-based selection to assess the ability and suitability of employees
for positions before making promotions, transfers and re-assignment decisions.
12. Our company has a formal system of consultation between management and workers.
13. Our company has women in management positions and in the board of directors (in
addition to the relatives of company personnel).

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 14. Our company has a system to grant leave to male workers for childcare and parental
leave or has a good record of such practices.
15. Our company has established regulations, a consultation system, or appointed a designated
person to deal with employees’ rights and complaints such as harassment.
16. Our company provides ongoing training to employees to improve their job-related skills
and abilities.
17. Our company re-employs retired workers in different capacities including in part-time or
fixed-term contracts.
18. Our company organises company trips, recreational events and other activities as part of our
welfare and socialisation programmes.
19. Our company supports employees’ asset-building efforts such as joining collective group
insurance, employee savings schemes and buying company shares.

Environment

20. Our company has obtained ISO14000 certification.

21. Our company has its own environmental policy to more efficiently use resources in
addition to complying with relevant laws and regulations.
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22. Our company takes into account the impact of components/manufacturing methods on the
environment as a primary decision criterion when selecting materials, parts, et cetera.
23. Our company has taken initiatives such as recycling and reducing emissions from wastes
and pollutants.

Fair operating practice

24. Our company has a code of ethics to prevent fraud and illegal behaviour of employees.
25. Our company collects and holds information on the safety and fairness of our suppliers’
products and production methods.
26. Our company makes regular donations to political parties and political organisations and
regularly subscribes to their publications.

Customer issues

27. Our company discloses information on CSR activities, including public relations and
outreach activities.
28. Our company allows in-house tours to local residents or other applicants who seek to
visit our company.
29. Our company discloses information about the safety and production methods of the
ingredients/parts/components of our products.
30. Our company has guidance/regulations to control the access to customer information
and the release of such information to outside parties.

Community involvement and development

31. Our company makes regular donations or gifts to local events such as festivals and
cultural events.
32. Our company has a system to support the voluntary activities of our employees or to
promote such activities.

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 33. During the last five years, our company has established a good record of conducting
activities in corporation with industry, government, academic institutions, local public
organisations and not-for-profit organisations.
34. During the last five years, our company has accepted interns and trainees.
35. During the last five years, our company has received financial assistance, grants and
subsidies for the employment of the elderly, persons with disabilities, women, and
unemployed graduates.
36. As much as possible, our company secures management resources such as capital and
labour locally.

Corresponding author
Anura De Zoysa can be contacted at: anura@uow.edu.au
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