Model of sustainability of SMEs in V4 countries

Zvarikova, Katarina; Dvorský, Ján; Belás, Jaroslav Jr.; Metzker, Zdenko Article Model of sustainability of SMEs in V4 countries Journal of Business Economics and Management (JBEM) Provided in Cooperation with: Vilnius Gediminas Technical University (VILNIUS TECH) Suggested Citation: Zvarikova, Katarina; Dvorský, Ján; Belás, Jaroslav Jr.; Metzker, Zdenko (2024) : Model of sustainability of SMEs in V4 countries, Journal of Business Economics and Management (JBEM), ISSN 2029-4433, Vilnius Gediminas Technical University, Vilnius, Vol. 25, Iss. 2, pp. 226-245, https://doi.org/10.3846/jbem.2024.20729 This Version is available at: https://hdl.handle.net/10419/317677 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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Published by Vilnius Gediminas Technical University ISSN 1611-1699 / eISSN 2029-4433 2024 Volume 25 Issue 2 Pages 226–245 https://doi.org/10.3846/jbem.2024.20729 MODEL OF SUSTAINABILITY OF SMEs IN V4 COUNTRIES Katarina ZVARIKOVA 1, Jan DVORSKY 1, Jaroslav Jr. BELAS 2, Zdenko METZKER 3 1Department of Economics, University of Zilina, Zilina, Slovakia 2Faculty of Social and Economic Relations, Alexander Dubcek University in Trencin, Trencin, Slovakia 3Faculty of Management and Economic, Tomas Bata University in Zlin, Zlin, Czech Republic Article History: Abstract. The research’s objective was to develop a thorough model of the viability of SMEs in the V4 countries based on predetermined variables. The following factors were defined: human resources management, business ethics, corporate social responsibility, company digitalisation, environmental considerations, financial management, and sustainability of SMEs. The model was developed on the solid empirical research carried out in the Visegrad Four countries in June 2022 by the renowned external agency MNFORCE using a sample of 1,398 respondents and the “Computer Assisted Web Interviewing” technique. According to the research, the developed complex model of SMEs’ sustainability depending on the listed criteria is statistically significant. Each investigated factor has a favourable impact on SMEs’ sustainability. The study’s findings supported the notion that the environmental aspects of the business have the strongest positive impact on the long-term sustainability of SMEs. The study’s findings indicate that the management of human resources, finances, and the degree of digitalisation of SMEs significantly influence the viability of businesses. The findings provide an important platform for managers responsible for the sustainability of the SME segment at the worldwide level (International council for small business), national level (particularly for V4 nations), as well as institutions supporting SMEs and SME owners. ■ received 26 April 2023 ■ accepted 18 December 2023 Keywords: small and medium enterprises, SME sustainability model, human resources management, ethics in business, CSR, digitisation of companies, environmental aspects, financial management. JEL Classification: L26. Corresponding author. E-mail: [email protected] JOURNAL of BUSINESS ECONOMICS & MANAGEMENT 1. Introduction If companies want to increase the efficiency of their operation and be competitive, they must change their focus from profit-only to sustainability (El-Kassar & Singh, 2019; Abdul-Rashid et al., 2017; Okręglicka & Pichugina, 2021; Khan et al., 2023), which also helps to shape the quality of the business environment (Cepel, 2019). Due to the significant contribution that small and medium-sized businesses (SMEs) make to the global economic system (Metzker & Zvarikova, 2021), this topic is now the subject of theoretical study and practical solutions. Sustainability represents a complex and multi-dimensional concept (Kiba-Janiak et al., 2022). Economic, social, and environmental considerations are all integrated into one concept (Elkington, 1994) and these variables should be in a dynamic equilibrium with a multiplier impact. However, many studies look at the problem of sustainability through the lens of separate responsibilities or are not addressed in detail (Abdul-Rashid et al., 2017; Wijethilake & Lama, 2019). De- Journal of Business Economics and Management, 2024, 25(2), 226–245 227 spite the growing interest of managers in implementing sustainability in practice, many companies cannot define sustainability in the context of their business (Lu et al., 2022; Silvestre et al., 2022). Problems with proper implementation in SMEs are most often related to the fact that they try to apply procedures characteristic of large companies without considering their capital, resource or personnel limits (Belas Jr. et al., 2021), and have insufficient conviction and knowledge about sustainability (Jansson et al., 2017). Even though SMEs face a lot of challenges nowadays, there are still fewer studies on SMEs’ sustainability than there are on large corporations (Yumei et al., 2021; Suoto, 2022). Due to this, the uniqueness of this study resides in the fact that it is concentrated on building a thorough model of SMEs’ sustainability based on business viewpoints. The research identifies and quantifies the aspects that affect a company’s sustainability based on previous literature research and own author’s expertise (e. g. Zvarikova et al., 2023; Rozsa et al., 2022; Belas et al., 2021; etc.). The originality of the study lies in the subjective attitudes of entrepreneurs from the countries of Central Europe (The Visegrad group) regarding the significance of the selected factors on the SMEs’ sustainability. The model is based on a questionnaire survey, which provides subjective opinions of entrepreneurs about the influence of individual factors on the sustainability of their business. According to the authors’ best knowledge, most studies are oriented on the perception of sustainability from the customers, employees, or other stakeholders’ point of view, not entrepreneurs and if the entrepreneurs’ attitudes are incorporated in the study, they represent only one factor of sustainability (e.g. Magrizos et al. (2021), who made qualitative research on CSR of 10 SMEs). However, in the case of SMEs, entrepreneurs are the bearers of managerial and decision-making functions (Alonso-Almeida et al., 2018; Amoah et al., 2021). They set the business direction and are often the role models for their employees (Zvarikova et al., 2023; Cheng et al., 2022). Based on this knowledge, we consider their approach to sustainability as crucial. Finally, we must not forget that although SMEs are relatively heterogeneous (e.g., national context, sector or company size), in many respects, they are still homogeneous (e.g., the influence of the entrepreneur’s personal characteristics on business management, informal relationships, etc.) (Vivier, 2013). The literature research of previous studies reveals that sustainability issues do not provide a thorough evaluation, which constitutes a significant theoretical issue. Thus, the creation of a theoretical model and its subsequent validation may contribute not just to the larger discourse on the problem of SME sustainability. It can also have substantial effects on economic policymakers inside the Visegrad Group. The structure of the article is as follows: The important discoveries that characterise the scientific gap are described in the theoretical part, which analyses and summarises existing case studies in the research using a critical lens. The research methodology and objective are explained in the next section. It includes the technique for constructing a questionnaire (Table 1), the methodology for collecting data, as well as the creation of statistical hypotheses and methods for verifying them. The study’s findings are presented in the third chapter. The sections that follow contain the discussion of the research, which includes a summary of major findings and a comparison with other significant studies aimed at solving the problem. Key empirical findings, theoretical and practical consequences, and future research goals are included in the conclusion. 228 K. Zvarikova et al. Model of sustainability of SMEs in V4 countries 2. Literature review Sustainability should not be considered an impediment to the SMEs´ competitiveness, moreover, the findings of Lopez-Torrez (2022) prove that the sustainability of SMEs has a considerable beneficial influence on their competitiveness in many ways. Based on this knowledge, we must be aware of the factors which are relevant to this topic and their significance. Environmental and social initiatives have historically been seen as marginal in sustainability. However, today they are implemented in corporate strategies with a direct impact on the level of profit (Grewal et al., 2021), customer satisfaction and loyalty (Souto, 2022; Dabija et al., 2022), business partners (Kliestik et al., 2023; Shafiq et al., 2017), risk of bankruptcy (Michalkova et al., 2022), or employees themselves (Mitchell & Walinga, 2017; Van Buren III, 2022). Furthermore, in particular, social performance is largely neglected in the professional literature (Buyukozkan & Karabulut, 2018; Yasin et al., 2022), although according to Yasin et al. (2022), whether Alonso-Almeida et al. (2018), it is considered the cornerstone of every business. On the contrary, environmental responsibility has the most connotations in the professional literature related to its more obvious impact on sustainability (Cheng et al., 2022). Within the framework of social responsibility in the context of SMEs, publications mainly focus on employees (Alonso-Almeida et al., 2018), as the most important capital of any company. Nowadays, companies have difficulty finding an adequate workforce with the necessary competencies and experiences (Souto, 2022; Belas & Rahman, 2023), especially with the growing migration of the workforce (Privarova et al., 2022). From the above, we can conclude that retaining experienced employees is a key management task (Van Buren III, 2022; El-Kassar & Singh, 2019). Companies implementing social responsibility practices are characterised by satisfied and loyal employees, low turnover (Schroder et al., 2022), and a higher level of innovation (Flammer, 2015; León-Gómez et al., 2022) as the key drivers to sustainable entrepreneurship. According to this knowledge hypothesis 1 was stated as follows: H1: Human resource management has a positive effect on the sustainability of SMEs. As mentioned above, experts are most often concerned with sustainability in environmental protection, and it is SMEs that are mainly oriented towards environmental responsibility (Jayarathna et al., 2022). However, El-Kasar and Singh (2019) argue that improving environmental performance is usually achieved at the expense of economic growth, at least in the short term. This is also supported by Abdul-Rashid et al. (2017), which claim that products produced sustainably have a positive effect on environmental performance but a negative effect on economic and social performance. Nevertheless, many studies confirm that the environmental responsible activities of companies have a positive impact on business sustainability (Cheng et al., 2022; Ahmed et al., 2021; Moisecu et al., 2020). H2: Environmental aspects of the business have a positive effect on the sustainability of SMEs. Many studies prove a positive relationship between financial performance and sustainability resulting directly from cost savings (Alonso-Almeida et al., 2018; Valls Martínez et al., 2022) but also from non-economic indicators such as employee satisfaction (Van Buren III, 2022; Sorribes et al., 2021), maintaining or improving market position (Yasin et al., 2022), image support (Ahmed et al., 2021) and customer satisfaction (Moisescu & Gica, 2020), sustainable consumers (Alhouti et al., 2021), improvement of ethics (Silvestre et al., 2018), or higher credibility (Gaio et al., 2022). Also, investors are orientated towards companies that Journal of Business Economics and Management, 2024, 25(2), 226–245 229 carry out their activities in a sustainable manner (Flammer, 2015), which is evidenced by their growing interest in non-financial statements (Carvajal & Nadeem, 2022) to incorporate this information into the evaluation of their investments (Du et al., 2017) to identify future business performance, business opportunities as well as risks (Didenko et al., 2022). But as Chatzistamoulou and Tyllianakis (2022) emphasise, financial barriers represent the key obstacle for SMEs to implement sustainability. Companies’ social and environmental policies cannot be separated from profit focus. According to Przychodzen et al. (2016), successful SMEs’ transition to sustainability depends on leadership and clear profit orientation and management. H3: Financial management of the company positively affects the sustainability of SMEs. Silvestre et al. (2018) claim that companies are socially and environmentally responsible with the aim to increase their financial performance and only their commitment to business ethics differentiates them. Ethics represent a code of values and principles that guide the actions of a person or group of people regarding what is right and what is wrong (Zvarikova et al., 2023; Prochazkova & Micak, 2023). In a business environment, being ethical means applying the principles of honesty and justice in relationships with stakeholders (Pizzi et al., 2020) with a direct impact on SMEs’ sustainability (Huang et al., 2022). Hockerts and Searcy (2023) published article with the aim of better understanding of relationships between corporate sustainability and business ethics fore researchers. Authors presented keys aspects of outputs from empirical research – to spur innovative thinking and constructive discussion to the relationships between business ethics and corporate sustainability. Khattak et al. (2023) showed research results from business environment of SME segment of Pakistan (research sample is 611 SMEs). The manager age and firm age do not moderate the nexus between financial resources and sustainability performance. In this context, authors also found, that connection between financial resources and sustainability performance is significant. Authors recommends SMEs to focus on experienced and educated managers as compared to older ones to utilize their financial resources efficiently in sustainable activities. H4: Applying ethics in business has a positive effect on the sustainability of SMEs. In their empirical research from the business environment of V4 nations, Belas et al. (2021) discovered that awareness of the CSR concept and its application in business play a crucial role in the business sustainability of SMEs. Skypalova et al. (2016) examined that engagement of organizations in the CSR activities growths with the size of the organization. Authors also found that only 30% of micro and small enterprises in the Czech Republic know and make use of the CSR concept comprehensively and are active in all three pillars of CSR. But as Magrizos et al. (2021) pointed out, there is still little evidence about the impact of CSR on SMEs. At this point, we consider important to emphasise that CSR and sustainability are not synonymous. According to Ortiz-Martinez et al. (2023), we might define CSR as the microeconomic part of the larger macroeconomic idea of sustainability, so CSR is perceived as a tool of sustainability. Betakova et al. (2023) found that demographics characteristics as ia age, level of education or business sectors play kay role in CSR implementation. Skypalova et al. (2023) realised empirical research on the 360 Slovak and Czech enterprises. Their findings indicate that exist differences among the two countries in the implementation of CSR. Authors also found that CSR implementation had stronger effect on the sustainability of SMEs in Czech enterprises than Slovak enterprises. 230 K. Zvarikova et al. Model of sustainability of SMEs in V4 countries Dvorský et al. (2023a) on the base of case study of 1,090 SMEs from the business environment Visegrad group countries showed that did not confirm the negative effects of crisis events in business on the financial management, but level of implementation CSR is significant in the context of corporate sustainability. H5: Corporate social responsibility has a positive effect on the sustainability of SMEs. The present time is characterized by a large amount of data that provides information supporting decision-making processes (El-Kassar & Singh, 2019) with adequate digital competencies (Orrensalo et al., 2022). The Federal Ministry for Economic Affairs and Energy (2018) defines digitalisation as “the transformation of business models due to fundamental changes in basic internal processes, interfaces with customers, products and services, as well as the use of information and communication technologies.” On the other hand, some researchers, e.g., van der Velden (2018), point out the contradiction with the positive effects of digitalising businesses on environmental sustainability. The adverse effects of widespread usage of digital technology necessitate a sustainable digitalisation process since they include, e.g., greenhouse gas emissions, high flow of electronic waste, etc. Avelar et al. (2024) realised study with the data from the Flash Eurobarometer 486 gathered through interviews with 16.365 SMEs in the EU27 and 12 non-EU countries. The findings show that most entrepreneurs do not express interest in a pro-growth agenda, which limits the reach of pro-entrepreneurship and pro-innovation discourse. Furthermore, firms’ youth affect sustainability, not innovation and digitalization dynamics. Broccardo et al. (2023) realised questionnaire survey from Italian business environment with research sample of 353 Italian firms. Their findings reveal a significant relationship between digitalization, sustainability, and profitability performance and that when positive results are achieved under the environmental and social lens, economic performance also improves. H6: Digitization of companies has a positive effect on the sustainability of SMEs. 3. Methodology The research aimed to create a comprehensive model of the sustainability of SMEs in the V4 countries based on defined factors. 3.1. Research design The comprehensive SME sustainability model was built based on robust empirical research conducted in the Visegrad Four countries (Czech Republic (CR), Slovak Republic (SR), Poland (PL), and Hungary (HU)) in June 2022. The data collection was carried out by the renowned external company MNFORCE using “Computer Assisted Web Interviewing” (CAWI Research Method). Market research agency MNFORCE is specialist for empirical data collection from V4 countries. They pay great attention to the quality control of data and outputs, while complying with ESOMAR quality standards. The data collection criteria given to the external company before the actual data collection were as follows: i. the number of micro-enterprises in the sample set was twice the range of small and medium-sized enterprises; ii. according to selected demographic criteria, selected Journal of Business Economics and Management, 2024, 25(2), 226–245 231 groups of respondents were represented proportionally to the proportional representation in the primary set of respondents in the selected country. Only the owner or top manager of an SME participated in the research. The final sample set of SMEs (n = 1398 respondents) did not show significant deviations from the data collection criteria defined by the article’s authors. The questionnaire contained 52 questions. The questionnaire consisted of the following parts: demographic questions, selected factors and statements formulated about them. The respondent could answer the statements with only one of the following answers: I completely agree with the statement (value = 1), ..., I completely disagree with the statement (value = 5). All statements examined were identically scaled. The analysis of the size of the sample set confirmed that the range of SMEs in the number of 1398 respondents more than doubled the minimum number of SMEs (n = 684), which is imposed on the size of the sample set in V4 and the application of the SEM method. 3.2. Questionnaire – factors and items definition The following factors (latent variables) were defined in the research: human resource management (HRM), business ethics (BE), corporate social responsibility (CSR), digitalisation of companies (DG), environmental aspects (EA), financial management (FM), sustainability of SMEs (S). Table 1 contains defined statements (manifest variables) for selected factors. Table 1. Claims to defined factors and to the sustainability of SMEs HRM Human Resources Management HRM1 People are the most important organization assets. HRM2 Human resources management is the most important area of corporate management. HRM3 I regularly evaluate the performance of my subordinates and motivate them to innovate their work procedures. HRM4 I apply a participative management style (I encourage employee participation in decisionmaking). HRM5 I devote a lot of time to personnel management in my management work. HRM6 I heavily invest in improving the qualifications of our employees. HRM7 I have developed a system of material involvement of employees. BE Business ethics BE1 I consider business ethics to be necessary. BE2 In managing a company, I consider the ethical implications of my decisions. BE3 Ethical behaviour has a positive effect on the company’s performance. BE4 I feel good when I behave ethically in business. BE5 Our company enforces the rules of ethical behaviour in business. CSR Corporate Social Responsibility CSR1 I know the concept of corporate social responsibility (CSR). CSR2 When managing a company, I consider the concept of CSR. CSR3 Implementation of the CSR concept enables our company to gain competitive advantages (better company image, higher customer loyalty, new business opportunities, etc.). CSR4 The implementation of the CSR concept has a positive effect on the long-term relationship with business partners. CSR5 CSR helps us to gain new customers. 232 K. Zvarikova et al. Model of sustainability of SMEs in V4 countries CSR6 CSR helps us to gain great employees. CSR7 CSR helps us to gain loyal and motivated employees. CSR8 CSR has a positive effect on a company’s performance. EA Environment aspect EA1 Environmental responsibility is an important part of corporate governance. EA2 When managing a company, I consider responsibility for the environment. EA3 Environmental responsibility brings higher costs for the company. EA4 Our company is actively involved in environmental protection. FM Financial management FM1 I understand the most critical aspect of a company’s financial management. FM2 I consider the financial risk to be a part of the daily life of a company. FM3 I can adequately manage financial risks in our company. FM4 I evaluate the financial performance of our company positively. FM5 Our company will survive on the market in the next five years. DG Digitalization DG1 I positively evaluate our company’s digitization level (use of digital technologies). DG2 Digitalization improves customer perception of our company. DG3 Digitization allows us to innovate our business models. DG4 Digitization allows us to gain knowledge from new sources and thus mitigate the risks. S Sustainability S1 I understand the concept of sustainable business growth. S2 Sustainable growth should pursue not only the economic interests of the companies but also the positive impact on the social system and environmental aspects. S3 It is essential to perceive also the social impact of entrepreneurship. S4 It is essential to perceive also the environmental impacts of entrepreneurship. S5 I evaluate our company as sustainable. 3.3. Statistical hypotheses and estimation techniques To fulfil the main goal of the article, statistical hypotheses (H1, ..., H6) were verified using statistical methods through factor analysis (FA) and structural equation modelling (SEM). FA is a multivariate method that is not primarily intended to find relationships between variables but to classify claims to a factor (Zhang & Browne, 2012). FA aims to determine whether variables are similar in the selected manifest variables. The similarity in the sample data set means the similarity of the choice of attitudes of entrepreneurs to the selected statements. If the answers to the selected statements are similar, then we can combine them and try to name the given group of variables (call them a factor). Applying the FA exploratory technique can be logically organised into three steps. The first step: verifying the suitability of the data – to see if the variables are sufficiently correlated so that it makes sense to look for more general factors behind their structure (Kaiser-Meyer-Olkin test, Bartlett’s test). If the value of KMO is lower than 0.5, it makes no sense to perform factor analysis (Hair et al., 2012). Second step: factor extraction – Principal component analysis, matrix of components; BIC – Schwarz’s Bayesian information criterion; Scree plot) (Rose et al., 1991). Third step: rotation of factors – choice of method, interpretation of factor loadings (Varimax – orthogonal rotation) (Nevels, 1986). End of Table 1 Journal of Business Economics and Management, 2024, 25(2), 226–245 233 The SEM method is suitable for constructing, identifying and quantifying relationships between latent variables and their graphical representation using a structural (final) model. The final model is a combination of regression and factor analysis, the result of which is the regression of latent variables (e.g., Jann, 2014). The SEM method is a method of multivariate statistics suitable for evaluating research aimed at examining respondents’ attitudes in the economic and psychological spheres (Sarstedt et al., 2022; Borisov & Vinogradov, 2022). The suitability of the final model can be verified by selected measures (processed according to Hair et al., 2012): Goodness of Fit (GFI); CMIN/DF – The minimum discrepancy; Comparative Fit Index (CFI); Root Mean Square Error of Approximation (RMSEA); Normed fit index (NFI). The results were outputted from the IBM SPSS Statistics software. Graphical visualisation of relationships was created in IBM SPSS Amos. 3.4. Structure of respondents Structure of SMEs (n = 1398) according to: country of operation of the company: 347 (24.8%) SMEs from Czech republic (CR); 322 (23.0%) SMEs from Slovak republic; 381 (28.1%) SMEs from Poland (PL) and 348 (24.9%) SMEs from Hungary (H); size of the enterprise (number of employees): 678 (48.5%) – microenterprise (0–9 employees), 347 (28.4%) – small enterprise (10–49 employees), 323 (23.1%) – medium-sized enterprise (more than 49 employees); business sector: 368 (26.3%) – services, 264 (18.9%) – trade, 226 (16.2%) – production, 112 (8.0%) – construction, 46 (3.3%) – agriculture, 54 (3.9%) – transport, 226 (16.2%) – tourism, 102 (7.3%) – other field of business; time of operation of the enterprise in business: 370 (26.5%) – enterprise up to 3 years, 550 (39.3%) – enterprises more than 3 and up to 10 years, 478 (34.2%) enterprises more than 10 years; location of business: 410 (29.3%) – capital of the country, 988 (70.9%) – other region of business. 4. Results Basic descriptive characteristics (M – Mean; SD – Standard Deviation; Skw. – Skewness; K – Kurtosis) of the investigated independent factors (HRM, CSR, BE, FM, EA, DG) and the dependent factor (S) together with the results of the links between the statement and of the factor (CI-TC – Corrected Item –Total Correlation) are the subject of Table 2. Results (see Table 2) show that the respondents’ most significant degree of agreement is with the importance and implementation of business ethics (BE (M: BE1+…+BE5)/5; M = 1.643). On the contrary, the smallest degree of agreement of the respondents in the assessment of application and understanding of social responsibility (M: CSR (CSR1+...+CSR8)/8; M = 2.114). Also, the most significant internal consistency of the respondents’ evaluations of the indicators is for the BE factor (SD = 0.957), and the smallest internal consistency of the respondents’ evaluations of the indicators is for the CSR factor (SD = 0.720). Correlations between indicators and defined factors showed good links (CI-TC ≥ 0.5; Hair et al., 2012). The values of skewness and kurtosis (Skw., K ≤ 2.0; except for BE5: S = 2.099) indicate multiple normal distributions, which confirms the assumption for applying SEM modelling. The results of the KMO test and Bartlett’s sphericity test are the subjects of Table 3. The KMO test (see Table 3) confirmed that the defined factors explain the share of the total variance distribution of individual variables in the background (KMO test = 0.965; a value close to 1.000). Bartlett’s test confirmed that the factors are orthogonal to each other (i.e., they are not correlated). 240 K. Zvarikova et al. Model of sustainability of SMEs in V4 countries Acknowledgements This research was financially supported by the Grant Agency Academia Aurea – Grant No. GAAA/2022/5: Impact of CSR concept implementation in small and medium-sized enterprises in the region V4. 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