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29 Business, Society, and the Environment

James E. Post is John F. Smith, Jr. Professor of Management, School of Management, Boston University.

• Published: 02 January 2012
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This article addresses how the relationship between business, society and the environment has evolved, with each system affecting the others. It reviews the effort to shift from a traditional “dominion of nature” paradigm toward a radically different “sustainability” paradigm. Effecting this change requires a new definition and understanding of the role of the corporation in society. The features of this new model are proposed. The interplay of science, markets, public policy, and ethical reasoning helps in the understanding on the way business and society interpenetrate and influence one another in relation to the environment. The Millennium Development Goals Project placed vital environmental goals in a framework of other human goals. The number of signatories to the Global Compact or other codes remains small relative to the total number of economic enterprises. Environmental issues are prominent in the economic marketplace, public policy arena, and the marketplace of ideas.

Business cannot operate apart from the rest of society. Indeed, commerce is an integral dimension of society and has been so for many centuries. Since the nineteenth century, however, there has been a growing emphasis on limiting, or reversing, the many negative externalities caused by industrial practice. The interaction of economy, politics, and culture regarding the environment has attracted the attention of social scientists for centuries. In the world of practice, this has been a never-ending story of challenge, conflict, and changing public policy. For scholars, however, this dynamic has inspired an analysis of the fundamental relationship between management and society. This chapter focuses on how the relationship between business, society and the environment has evolved, with each system affecting the others. I trace the effort to shift from a traditional “dominion of nature” paradigm toward a radically different “sustainability” paradigm. Effecting this change requires a new definition and understanding of the role of the corporation in society. The features of this new model are proposed.

Models of Management and Society

In Private Management and Public Policy (1975), Preston & Post employed a systems perspective to analyze the relationship between management and society. Market exchange and public policy were defined as the two processes through which economic and social interests are reconciled in a democratic society. In the pure market contract model, it is assumed that every actor in society gets what they need through exchange relationships with others. In contrast, the Marxian analysis of capitalist production inevitably points to the exploitation of labor—and in the context of this book, exploitation of natural resources—as the source of “surplus value” (i.e. profit). The continuous pressure to generate profits produces a new stock of capital that is used, in turn, to add to the capacity for more exploitation. For as Marx wrote, “Accumulate, accumulate! That is Moses and the prophets!” (quoted in Preston & Post 1975 : 21). Economic power becomes political power, and the system of exchange transactions breaks down because of excessive power or elitist decision-making, both of which constitute “market failures.” The existence of these failures gives rise to “exploitation” or “technocratic” systems, emphasizing the Marxian or Galbraithian tendencies originally defined by those authors (Galbraith 1967 ). Empirical evidence confirms that reality supports each theory to some extent, but that none of these theories explains all facts. We concluded that the appropriate model for understanding the business–society relationship in modern times is one that recognizes the interpenetrating effects of business and societal systems on one another. The business system shapes society, as the social system shapes business. This interpenetration happens through the market, the public policy process, and the acceptance of changing values in the larger social milieu (Preston & Post 1975 ).

The interdependence of business and society, while self-evident to many observers, is neither universally understood nor wholly accepted. History provides many examples of enterprises that operated with disregard for the side effects and consequences of their behavior. In theory, the rich and the powerful are not exempt from legal and ethical norms of society; in practice, the story differs.

With respect to natural resources and the environment, many industries have behaved as if they were empowered to operate apart from legal or moral restraint. At various times, the agricultural, petroleum, chemical, forestry, and biotechnology industries—to name but a few—have engaged in behavior that imposed damages, costs, and risks on citizens and communities in disregard of conventional ethical and legal rules. The cumulative impact on property and human life is incalculable, but few communities have escaped such externalities.

The business and society perspective complements that of corporate social responsibility—which asks the questions “to whom” and “for what” is the corporation responsible—and stakeholder theory, which is a response to those questions. (See Kassinis [Chapter 5 ] and Bondy & Matten [Chapter 28 ] this volume.) Rather, the business and society perspective is a macro viewpoint, focusing on the evolutionary interaction of economic, political, and cultural forces in national and global society.

Our thesis is simple: The study of business in contemporary society poses questions about how business relates—and should relate—to the natural environment, uses resources that all beings share, and internalizes costs that have so often been externalized to society in the past. Answering those questions begins with an understanding of how we have evolved since the Industrial Revolution.

A history of the Business, Society and Environment Relationship

Looking over several centuries, it is evident that individuals, firms, and industries have taken advantage of natural resources such as coal, petroleum, iron ore, timber, water, and land to meet their needs for energy and raw materials by employing a “rule of capture” rationale (i.e. whoever first exercises dominion over the resource is entitled to enjoy its use and benefits). From the hunter-gatherer societies whose members exercised dominion through hunting and fishing, to the industrial age when organization and scale enabled widespread economic activity, the dominion of nature has been a core reality of the human relationship with the natural environment. In some measure, the entire history of business, society, and the environment for the last 100 years has been a challenge to the “dominion of nature” paradigm. As discussed below, growing numbers of people have challenged the dominion of nature paradigm with alternative ideas and actions. From industrial hygiene to modern pollution control systems and futuristic global codes of practice, the environmental movement has sought to redefine the relationship between business, society, and the environment away from exploitation. But it has been a long, slow journey toward sustainability.

Four axial Themes in Environmental History

Within this history, four themes shape our understanding of how business, society, and the environment have evolved over time. These axial themes form a structure of understanding about the complex relationship between critical dimensions of life that are drawn together as business and society interact with the environment. Through this lens, we can see the interplay of economics, technology, moral values, and institutional action.

The first two themes (technology and economics) explain what can be considered the “drivers” of human use of environmental resources. These are forces that have propelled humans to use natural resources more expansively for centuries. The second two themes (public policy and ethics) are the sources of ideas and actions to “constrain” the use of those resources. Together, these four “axial” themes form a structure for understanding and analyzing this history. Let us briefly consider each of the axial themes.

Technology and science drive resource consumption . Science and technology form a powerful force that has driven consumption of natural resources to increasingly high levels. The development of machinery to enable massive harvesting of timber, deep-water drilling for oil, and vast mining operations exemplifies the “exploitation” or dominion of nature model suggested above. Business has used advances in chemistry, biology, and other physical sciences to capture the productivity potential of natural resources. Of course, science has also illuminated environmental harms, risks, and damage, and offered what appears to be “solutions” to such problems, but over several centuries technology's primary role has been a productivity driver.

Economic incentives fuel the use and abuse of natural resources . The second axial theme is the role of the economic marketplace. For centuries, the incentives of the market have led humans to pursue commercial progress. Coupled with scientific knowledge, economics has provided an incentive for widespread use, and abuse, of all manner of natural resources. But markets fail, and a body of scholarship has steadily grown to address the causes and consequences of market failures (see Baron & Lyon [Chapter 7 ] this volume). Many failures have involved environmental externalities; once again, history is replete with examples of damage to nature due to a misunderstanding of market signals. More recently, the market has been harnessed on occasion to promote environmental goals through policies that incentivize environmentally benign or environmentally friendly action.

Law and Public Policy provide vital constraints on commercial use. Law and public policy form the third axial theme in the evolutionary story. Law and public policy often constrain commercial use of natural resources. Public policy is often the preferred (or only) solution to market failures and, hence, pivotal to challenging rampant or unguided destruction of natural resources throughout history (see Coglianese & Anderson [Chapter 8 ] this volume). Today, government involvement extends from the local, state, and federal levels to an expanding system of international environmental governance. This trend seems likely to continue as the “logic of collective action” (Olson 1965 ) becomes clearer and more compelling.

Sustainability concerns are driven by moral, ethical reasoning . The fourth axial theme is the growing recognition that what is at stake as we confront environmental issues is a test of human values, morality, and ethics. In the past fifty years, business has often been confronted by individuals and communities who have framed and voiced their concerns in moral, ethical, and human rights terms. The language of the environmental movement has often been cloaked in normative language—what “ought” to happen—and pursued as an ethical, moral, or religious imperative. This is not new, for many of the movements to promote social welfare for children, health and hygiene for those in poverty, and assistance for vulnerable people without food, water, and shelter, have been defined in “environmental justice” terms. Moral conscience is critical to the modern debates about natural resource use and environmental impacts.

Taken together, the interplay of science, markets, public policy, and ethical reasoning helps us understand the way business and society interpenetrate and influence one another in relation to the environment. As illustrated in Figure 29.1 , these four themes enable us to understand the dynamic ebb and flow of environmental history as it has touched business and society in recent centuries.

Challenging the ‘Dominion of Nature’ Paradigm

The history of environmental awareness and activism stretches back more than 500 years. The process of challenging what was once accepted as “natural” dates to the Plague, which devastated Europe in the 1200s and stimulated early efforts to create a public health system. Water pollution problems were recognized as a problem in communities where population density produced dangerously unsanitary conditions. Rudimentary sanitation was enforced by local communities. The destruction of natural resources was also widespread. Forestry practices in Germany, France, and England left large tracts denuded and forced a shift to coal. Knowledge of soil conservation spread slowly, although cultures in China, Peru, and India understood the impact of soil erosion and used terracing, crop rotation, and natural fertilizer to prevent it. This “pre-history” also saw early efforts to understand and prevent occupational diseases.

Axial Themes in Environmental History

By the 1700s, the Age of Enlightenment emphasized the power of reason as an antidote to superstition. The era produced noteworthy efforts to safeguard human health, reflecting enlightenment philosophy that held that the individual citizen was valuable and that wretched conditions were not inevitable. But it was Thomas Malthus’ argument that grain supplies, which increase at arithmetic rates, will run out as population increases at geometric rates, that remains most notable, for it established the idea that the Earth has limitations associated with “carrying capacity.” As populations expand, argued Malthus, natural systems will be tested, with inevitable and tragic consequences. Hundreds of years later, that proposition is still being tested.

Of course, there were early warning signs of the health and environmental catastrophe that would soon take place on a much larger scale. The Enlightenment was an era of new technologies, some of which produced new types of pollution. Coal burning created tars that contaminated waterways, vulcanized rubber discharged noxious chemicals into streams and rivers, coal smoke choked the air in cities, and chemical factories operated without regard to those living downwind (Brimblecomb 1988 ). As the Industrial Revolution took hold, economic progress became synonymous with environmental degradation. Throughout the nineteenth century, living conditions deteriorated as cities grew, water quality worsened, and smog killed residents of large cities like London. Pressure mounted to change these conditions. In 1843, the House of Commons Select Committee on Smoke Nuisance recommended that all manufacturers be removed to a distance of five or six miles from the city center. The measure was ultimately defeated, but a new idea had emerged in public policy debate: industrial activity should be located apart from population centers.

Public health epidemics afflicted cities and prompted scientists and medical practitioners to action. John Snow, a London physician, traced a deadly cholera epidemic to a contaminated water pump in 1855.Water pollution often carried diseases such as cholera, but it was not until the 1880s that clean water was viewed as a vital public necessity. (As modern crises in Haiti and other nations show, problems such as cholera persist to the present.) The nineteenth century also signaled early efforts to conserve wilderness areas in the United States by using government (law and public policy) to say, in effect, “off limits.” As often occurs, public awareness followed tragedy. Following the California gold rush in 1849, settlement of the Sierra Nevada mountain range began. In 1851, an enormous tree called “Mother of the Forest,” measuring more than 300 feet in height and 92 feet in circumference, was felled. Public outrage grew as news of the cutting spread to San Francisco and other major cities. Ultimately, the controversy led to calls for a system of state or federal parks. There was a public sentiment that certain treasures of nature, such as giant sequoias, needed to be preserved even if “economic progress” was temporarily slowed.

These initiatives were isolated and sporadic, but gained force as the nineteenth century ended and the evils of polluted cities, industries, and impoverished communities generated fledgling social movements. These movements—especially conservation and preservation efforts—drew significant support from the wealthy as well as the poor and uneducated. Associations and societies such as the Boone and Crockett Club (founded in 1887 by future president, Theodore Roosevelt, and named after frontiersmen Daniel Boone and Davy Crockett) were formed and played an important role in the environmental crusades of the twentieth century.

Leading environmentalists such as John Muir also emerged. Muir's campaign to save Yosemite from commercial exploitation, and his numerous letters, newspaper columns, and magazine articles formed a foundation of ideas that shaped national parks in the early twentieth century.

The early twentieth century was a hotbed of reform activism in the United States. Working conditions, housing, adulterated food, sanitation, polluting industries, and political corruption all became targets for reform. President Theodore Roosevelt enlisted passionate advocates to implement his expansive vision of a better society. Foremost was Gifford Pinchot, who generated ideas about conservation of public lands and putting forests to “wise use.” But others, such as John Muir, were strongly opposed to “wise use” and fought for outright preservation of unspoiled wilderness areas, foreshadowing debates that continue to the present. Roosevelt walked the political tightrope, holding together his coalition of nature lovers while moving environmental policy through—or around—the US Congress (Brinckley 2009 ).

The Progressive era was dominated by social movements led by such notables as Jane Addams (Hull House), Florence Kelly, and Alice Hamilton. New organizations advocated causes including environmental conservation. Among the new groups was the Sierra Club, which championed natural preservation and conservation, and by the early 1900s, the National Audubon Society, which became an effective advocate for birds, habitat, and conservation. Through these entities, the “dominion of nature” philosophy was challenged across the nation, dispute by dispute, one controversy after another. To a progressive like Roosevelt, respect for nature was part of how America defined (or ought to define) “progress.” It was an uphill battle.

The legal system played an important role in adjudicating controversies and legitimizing the legal ideas of various state and federal legislators. In 1872, for example, the so-called “public trust doctrine” was certified by the US Supreme Court in the case of Martin v. Wadell . The Martin decision established that wildlife belonged to the people (the state ), although conservation was not yet fully a part of the American identity.

Public policy also became a pathway to protect wildlife populations. The widespread destruction of buffalo, waterfowl, and other wild game species decimated America's wildlife to support commercial demand for “food, feathers, and trophies.” In response, dedicated hunters and anglers from New York to Montana pushed for the nation's first game laws, restricting the numbers and methods of take for wildlife. Laws were established to sustain healthy wildlife populations, and conservation-minded leaders emerged to challenge how Americans viewed wildlife. Enforcement systems followed.

When Theodore Roosevelt, an avid outdoorsman and hunter, became president in 1901, conservation became part of the nation's agenda. Roosevelt's conservation ethic was part of a life-long desire to explore, enjoy, and write about the wonders of nature. The environment never had a more vigorous advocate in the White House than it had in Theodore Roosevelt (Brinckley 2009 ). Roosevelt articulated his conservation philosophy in speeches, interviews, and writings. He wrote,

Above all, we should realize that the effort toward this end is essentially a democratic movement. It is … in our power … to preserve large tracts of wilderness … and to preserve the game … for the benefit all lovers of nature, and to give reasonable opportunities for the exercise of the skill of the hunter, whether he is or is not a man of means … It is foolish to regard proper game laws as undemocratic. On the contrary, they are essentially in the interests of the people as a whole, because it is only through their enactment and enforcement that the people can preserve the game and prevent its becoming purely the property of the rich. The man of small means is dependent solely upon wise and well-executed game laws for his enjoyment of the sturdy pleasure of the chase. (Quoted at National Wildlife Federation website, 〈 www.nwf.org 〉, accessed 22 April, 2010).

Roosevelt vigorously pursued environmental goals: National parks, monuments, and preserves were created and more than a quarter million square miles of land were protected from development and exploitation. Roosevelt was not a model of democratic process, but he was a champion for environmental causes, and his passion inspired others, making the first decade of the twentieth century a “golden era” for environmental advocacy. The Roosevelt era was followed by a period of environmental backsliding and by the early 1930s, poor farming practices produced a “Dust Bowl” across great swaths of the nation. Coupled with the economic hardship of the Great Depression, the nation shifted focus away from natural resources and toward her unemployed population.

The 1930s produced two notable developments. First, the federal government joined employment and environmental goals through programs to improve national parks and related public works. From the Hoover Dam to the Civilian Conservation Corps, the nation's environmental infrastructure received a massive injection of resources. Second, the conservation movement became organized, and focused on advocating critical environmental goals. The formation of the General Wildlife Federation (later named the National Wildlife Federation (NWF)) in 1936 brought together an estimated 36,000 local and regional organizations as a coherent voice for fish, game, and wildlife protection. From the outset, the NWF lobbied for congressional action on a variety of environmental and conservation objectives.

Prosperity and social consciousness were not a smooth mixture during the high-octane economy of the 1920s. New actors were created such as the National Coast Anti-Pollution League, formed by municipal officers from East Coast communities from Atlantic City to Maine. Their concern focused on the oil and sewage pollution in coastal waters which were affecting tourism, an economically important industry. The League succeeded in getting an international oil-dumping treaty passed by the US Congress in 1924. The “dominion of nature” was challenged by economic arguments as well as conservation (public trust) arguments. A pragmatic, utilitarian strain of thinking joined conservation and preservationist arguments as reasons to weigh costs and consequences before allowing more exploitation of nature to occur.

The externalities of industrial activity were becoming clearer and more scientifically established. Once again, the environmental battleground was public health. Alice Hamilton led a losing crusade to ban leaded gasoline, which ultimately became the standard fuel for most of the world. But other cases of industrial harm successfully stirred the public imagination. Hamilton publicized the “Radium Girls,” a group of young women who were dying of radiation-induced cancer due to exposure in the workplace. Crusading journalist Walter Lippmann worked with Hamilton to bring their case to public attention. The publicity and campaign succeeded in getting medical care and some compensation for their families.

Science and commerce found expression in the “chemurgy” movement, a populist and scientific cause. Agricultural interests pressed for expanded use of farm products, including the replacement of petroleum with alcohol. The movement attracted successful businessmen to the ideas. Henry Ford sought to make cars and fuels from agricultural products, especially soybeans which Ford successfully used for gearshift knobs and horn buttons. George Washington Carver, an early contributor, developed industrial uses (e.g. paints, dyes, glues) for peanuts, sweet potatoes, and other crops to diversify the cotton-dominated industry of the South. During World War II, many efforts were made to employ farm products as substitutes for scare natural resources, most notably syn thetic rubber in place of scarce natural rubber for tires. Chemurgy faded as a political movement, but never lost its industrial appeal. Indeed, it has twenty-first century descendants in the biotechnology companies that are using agricultural feedstocks to make plastics, paints, textile fibers, and other products now derived from oil.

Industrial chemistry, which focused on managing industrial waste and creating methods of using apparently worthless products, or enhancing the value of seemingly worthless items, also flourished. As Pierre Desrochers has written, these “Victorian pioneers of corporate sustainability” argued that profitability and a cleaner environment went hand-in-hand (Desrochers 2009 : 704). Attention to industrial by-products produced innovations for manufacturers and their customers, and minimized environmental problems. The early movement was supported by the British Society for the Encouragement of Arts, Manufactures and Commerce, which promoted creation of by-products from polluting industrial waste (Desrochers 2009 : 703). By the end of the nineteenth century, however, the scale of industrial enterprise dwarfed the achievements of the industrial waste management movement. Still, an important line of scientific knowledge and thought was established that became a precursor for developments a half-century later. As suggested in Figure 29.2 , the “dominion of nature” premises that were the underpinnings of economic exploitation of the environment throughout history were now being challenged by a new set of ideas. While limited in their immediate effects, the idea that nature and its bounty had to be protected, conserved, and valued formed the premises of a new paradigm that would gain strength, momentum, and a new name— “sustainable development”— in the second half of the twentieth century.

The Modern Environmental Movement

The post-World War II era marked the beginning of modern environmental awareness (for more history of this period, see Weber & Soderstrom [Chapter 14 ] this volume). War is devastating to the natural environment and wide swaths of Europe and Asia were left with chemical waste from explosives, petroleum residues, and contaminated water supplies; widespread destruction of buildings and contamination of agricultural soil were common by-products. Restoration of natural habitat and productive land space required extensive reclamation efforts. The continental United States was spared major environmental damage, but suffered the consequences of major military facilities where millions of soldiers received training in live fire exercises and toxic landfills proliferated.

Two Paradigms

The “moral voice” of environmental policy emerged with the publication of forester Aldo Leopold's famous Sand County Almanac shortly after his death in 1948. Leopold made a compelling case for expanding the sense of human responsibility for each other and for the earth. Through his writings, Leopold contributed a treasure trove of stimulating ideas about the relationship between humans and the environment. His writing contributed to the ethical discourse about human beings in relation to the environment between 1948 and the 1960s. The “marketplace of ideas” would expand greatly in post-war America. The popularity of Leopold's work foreshadowed the tremendous response yet to come to other environmental treatises (e.g., Rachel Carson's Silent Spring ).

Meanwhile, evidence mounted that air quality was deteriorating as deadly smog events occurred in Donorra, PA (1948), London (1952, 1956), New York (1953), and Los Angeles (1954). The public realized that air pollution was a new crisis. In 1955, the first international air pollution conference was held. Two years later, an increasing C02 buildup in the Earth's atmosphere was one of the surprising conclusions of Scripps Oceanographic Institute scientists working on International Geophysical Year projects (1957).

The modern environmental movement was forged in the social and political turbulence of the 1960s and 1970s. Rachel Carson's Silent Spring (1962) struck a responsive chord with a public that worried about the effects of chemicals on food, animals, birds, and children. A few years later this call to action was made more vivid by the “burning river” of oil and chemicals that ignited in the Cuyahoga River in Cleveland, Ohio (June 22, 1969). Flames soared five stories high; pictures of the conflagration circulated across the US and many foreign countries. The Cuyahoga became the visible answer to the question of “what does pollution look like?” It looked like a burning river.

Three developments shaped the new public policy context. First, the nation's political leadership embraced protection of the environment. Republican President Richard M. Nixon recognized the political power of the movement and sought to harness it by taking a front row position on the issues. Presidential endorsement provided mainstream legitimacy.

Second, events drew crowds to celebrate the Earth and advocate protection and restoration. Earth Day (22 April, 1970) was a political event whose success surprised its most optimistic organizers. Twenty million men, women, and children participated; the unity of such a coalition was unprecedented. The environment became a citizens’ movement with political clout.

Third, the environmental movement inspired innovative Americans to offer practical steps, solutions, and systems at every turn. The environmental movement has always been about ideas + action: “What can I do?” has been central to every meeting, rally, and event. This remains true more than forty years after the original Earth Day event.

The 1970s produced a public awakening and a series of monumental policy actions. Three pieces of federal legislation—the Clear Air Act, Clean Water Act, and the Endangered Species Act—provided an essential framework for modern environmental regulation, policy, and practice. President Nixon used his State of the Union address to offer several memorable rhetorical lines: “(W)e must make peace with nature” … we must begin “making reparations” for the damage done to the environment. The movement embraced the message, if not the messenger. As environmental activist Stewart Udall said of the environmental movement: “it enlarged the conservation movement to (include) the planet itself” (American Experience 2009 ). The creation of the Environmental Protection Agency in 1970 was another landmark. For the first time in history, a federal agency had been created for the explicit purpose of guiding the nation's efforts to tackle the problems of air and water pollution. “ Pollution prevention ” became the strategic concept guiding EPA activities, providing focus to an entity with vast responsibility but limited financial and human resources.

What has been described as a “decade of awakening and cleanup” began with the birth of the Environmental Protection Agency and ended with the Appropriate Community Technology demonstration on the Washington Mall in 1979. During the 1970s, air pollution was dramatically cut through use of catalytic converters on new cars that used unleaded gasoline. But the predicted “pollution free car” proved to be a false hope. Water pollution decreased through a massive sewage treatment expansion program, and rivers which once functioned as sewers began a gradual restoration. Still, the “national pollution discharge elimination system” failed to actually eliminate discharges. Toxic chemicals became a serious threat. Corporations like Allied Chemical, manufacturer of Kepone, were exposed as polluters that had put the public at risk for profit. The nation discovered more toxic sites, including Love Canal (Niagara Falls, New York) and Valley of the Drums (Louisville, Kentucky). These examples eventually led to new laws, including the much-heralded “Super Fund” law in 1980.

The greatest public crisis of the decade occurred in 1979 when the nuclear power plant at Three Mile Island (PA) released radiation into the atmosphere. The accident at TMI effectively guaranteed that no nuclear plant would be approved for decades to come. Once again, the fallacy of the dominion of nature paradigm was exposed. Industrial disasters became an increasingly important theme in the environmental debate. Three Mile Island gave meaning to “meltdown” and made vivid the risks that communities faced from nuclear as well as chemical facilities. (In time, this would extend to biotechnological and magnetic risks factors as well.) The media began to link industrial hazards to human health and to the fate of communities. A “risk management paradigm” was introduced in the 1980s by EPA Administrator William Ruckelshaus. Society could not expect a risk-free way of life, Ruckelshaus argued, but it could insist on careful risk assessment, evaluation, and risk management. This seemed a “balanced” course between the costs of environmental protection and the benefits of resource use.

Environmental disasters at home and abroad curbed the Reagan Administration's efforts to roll back regulations. In 1984, the Union Carbide plant in Bhopal, India, suffered an industrial accident that immediately killed thousands of citizens, and whose long-term effects have allegedly accounted for the deaths of more than 100,000 people. In the Ukraine, the Chernobyl nuclear reactor exploded, causing deaths and radiation leaks that spread worldwide. Such disasters put science and technology on the defensive. When the Challenger space shuttle exploded, killing its crew of astronauts, the accident was blamed on the failure of “O” rings. But the cause was ultimately traceable to an organizational culture that minimized risks in the name of mission. To many observers, this accident symbolized excessive risk tolerance in industry and the scientific community. The emerging ethos seemed to be “safety first.” In 1989, the Exxon Valdez oil tanker ran aground in Prince William Sound, Alaska, spilling millions of barrels of crude oil into pristine waters, killing untold numbers of fish, seabirds, and mammals. This accident was attributable to human failure: an inebriated sea captain allowed an unqualified seaman to steer the ship through the dangerous Prince William Sound passageway. It was also the nation's costliest environmental clean-up, with Exxon liable for nearly $3 billion of damages. Once again, the public confronted the high environmental costs of economic activity.

A more hopeful note was struck when an international accord was reached to address ozone depletion through the creation of the Montreal Protocol in 1987. The accord created a precedent-setting plan of international action that even US President Ronald Reagan and Britain's Prime Minister, Margaret Thatcher, signed despite their antipathy to international regulation. The Montreal Protocol reflected a scientific consensus that global environmental problems transcended the borders of sovereign nations, and a political consensus that intergovernmental collective action was required at the global level. The dangers of environmental advocacy were underscored by conflict on the high seas over whaling, industrial fishing fleets, oil production, and nuclear testing. In 1985, a Greenpeace ship—the Rainbow Warrior—was bombed in New Zealand. The ship had been used to confront “environmental terrorists” and the bombing was seen as an act of retaliation. The bombing provoked international outcry and was a reminder of other situations when protectors of the environment were assaulted or killed.

By the 1990s, the dominion of nature mindset had been widely challenged, but not reversed. The events of the 1970s and 1980s had called for new ways of doing business. In the marketplace of ideas—and ultimately in the political arena—it became clear that there was an imperative to create “win-win” outcomes. The 1970s and 1980s had demonstrated that “win-lose” thinking could quickly deteriorate into “lose-lose” outcomes. Business responded to this challenge with imagination. By the 1990s, environmental lessons about pollution prevention, waste reduction, recycling, and green design were widely shared. The economic market for environmental technologies, products, and services expanded. Improved environmental health and safety systems were implemented in many industries. These were “win-win” outcomes.

International environmental issues commanded growing attention during this period. In 1987, the Single Act of Europe amended the Treaty of Rome to provide an explicit legal basis for pan-European regulations. By the early 1990s, the need for harmonized EU environmental standards was recognized, and in 1993 the Maastrict Treaty officially made environmental issues a key EU policy area. Trans-boundary pollution is of serious concern in European nations, reflecting serious toxic spills along the Rhine, Danube, and other major rivers. In many respects, Europeans have provided strong public support for environmental policy and regulation. European environmental consciousness was stirred in 1995 when Shell was challenged regarding its plans to sink the Brent Spar oil rig in the North Sea. Greenpeace members seized control of the rig and an international campaign was directed at Shell, including a European consumer boycott. The company was further challenged by the international community when it was deemed complicit in the Nigerian government's execution of journalist and environmentalist Ken Saro-Wiwa who documented environmental and human rights abuses taking place in the oil-rich delta region where Shell operated. Although Shell denied the charges, and publicly sought Saro-Wiwa's release, critics deemed Shell's behavior a human rights disaster. The twin crises ultimately caused Shell senior management to reassess its way of doing business and to develop a host of new stakeholder-engagement policies and practices.

Global environmental awareness was building throughout this period. The Persian Gulf War became an environmental disaster when Saddam Hussein ordered the burning of thousands of oil wells. The images of burning oil fields were shown around the world. Another international cause of note involved worldwide protest at the construction of China's Three Gorges Dam project. This project, along with the burning of the Amazon rainforest, became visible examples of the globalization of environmental concerns during the 1990s. (For a discussion of the Amazon rainforest debate in the 1990s see Buchholz, Marcus, & Post 1992 .)

Business schools were notoriously slow to introduce environmental issues to the curriculum. But in the 1990s, with industry support, a few business schools focused on ways in which environmental issues intersected the economic and strategic interests of companies. The National Wildlife Federation and its Corporate Conservation Council fostered dialog between environmental leaders and senior executives of member companies on “common ground” topics, such as recycling, habitat conservation, and conservation of natural resources. In 1990, the NWF/CCC also sponsored the development of the first environmental curriculum in American business schools and the creation of pilot undergraduate and MBA courses in three American universities. Other schools soon joined the effort, and the field of environmental management grew quickly. The AACSB accrediting agency sponsored meetings, and the Wall Street Journal reported that within one year, more than 150 business schools were offering courses on business and the environment.

The dominion of nature paradigm was being broadly challenged by the end of the 1990s. The premise of air and water as “free goods” was no longer accepted. Economists and regulators focused on the proper pricing of environmental externalities and the creation of markets for trading emission rights. Economics and technology had both shifted from exploiting nature to preserving nature. The concept of sustainability began to take root in industry, government, and society, and the millennium provided a unique opportunity to focus public attention on the sustainability agenda.

Sustainability and the New Millennium

The new millennium provided a focal point for efforts to document, assess, and project the future of the planet's natural environment. Notably, the Millennium Development Goals Project placed vital environmental goals in a framework of other human goals. Eight goals were defined:

Eradicate extreme poverty and hunger.

Achieve universal primary education.

Promote gender equality and empower women.

Reduce child mortality.

Improve maternal health.

Combat HIV/AIDS, malaria, and other diseases.

Ensure environmental sustainability.

Develop a global partnership for development.

The international community (governments, NGOs, and other institutions) mobilized support and resources for programs to achieve these goals. The lasting effect may be the framework itself, for it highlights the structural elements that must be in place if the twenty-first century is to be the era in which the new paradigm of sustainability and human progress takes root. The interdependency of business and society—and the inability of governments to address environmental problems alone—led UN Secretary-General Kofi Annan in 1996 to call for the creation of a global partnership, or “compact,” between leading businesses and the United Nations. The UN Global Compact was created to define an ethical and moral framework of responsible business principles and practices that would respect human rights, the environment, and labor rights. Ten principles of responsible business conduct were developed, including three that bear directly on the environment. The three core environmental principles are:

Global Compact Principle 7: “Businesses should support a precautionary approach to environmental challenges.”

Global Compact Principle 8: “Businesses should undertake initiatives to promote greater environmental responsibility.”

Global Compact Principle 9: “Businesses should encourage the development and diffusion of environmentally friendly technologies.”

By 2010, more than 8,000 organizations, from all continents, had signed the Global Compact, committing to its principles and reporting requirements. The Millennium Development Goals and the UN Global Compact signify global environmental awareness and action at the highest political level. Scientific research has created awareness of what is at stake in curbing greenhouse gas emissions and preserving biodiversity. Intergovernmental cooperation has taken place on a host of other environmental issues, and private actions by companies, NGOs, and citizens are growing in number and significance. Sustainability remains an elusive goal, but the global business community has become an integral participant in efforts to address the environmental and development agenda. The UN Global Compact and Millennium Goals represent important steps to harmonize the behavior of corporations with the “high principles” embodied in these documents. These documents, and the processes that created them, provided an unparalleled opportunity to focus on the moral dimensions of how humans use the earth's resources. At their best, the companies that have made public commitments to these principles are creating “best practice” models of how business and the environment can operate in a more harmonious relationship.

But is this enough? The dominion of nature paradigm has prevailed since the Industrial Revolution, enlisting economics, technological innovation, and the power of government to pursue “progress” in materialistic terms. In the twenty-first century, the four great axial themes that have shaped how business and society relate to the environment—economics, technology, public policy, and moral thought—are turning in the direction of sustainability. But to achieve that goal requires that we transform the institutions of the old order. Foremost among these is the corporation itself.

The number of signatories to the Global Compact or other codes remains small relative to the total number of economic enterprises. And there are geographic, industry, and resource settings where ecological impacts have barely been addressed. The adaptive stakeholder model falls short of harmonizing economic activities with environmental consequences and risks. What is required is a “transformative” model that places environmental effects at the center of all economic, technological, and political considerations (see also Hart [Chapter 37 ] this volume). In such a model, the license to operate, the license to compete, and the license to innovate would form three distinct decision contexts in which the full array of environmental consequences can be evaluated in operational decision-making (Sachs et al. 2011 ). What is needed is a redefinition of the corporation for the twenty-first century (see also Elkington & Love [Chapter 36 ] this volume).

Redefining the Corporation

The corporation has evolved as a legal form and an economic entity for more than three centuries. Among the noteworthy changes is the shift from narrow to general purpose charters, public accountability, global business operations, and expanded liability. These changes have greatly expanded corporate rights to participate in the economic and political life of nations. In Europe, Asia, Latin America, and other centers of corporate power, similar expansion of responsibilities and rights make clear the dynamic and global character of corporate existence.

There is reason to think we will see further evolution of the “stakeholder corporation” (see Kassinis [Chapter 5 ] this volume) as an incrementally more accountable enterprise. But there is a need to ask the more radical question: How would a corporation be designed to seamlessly integrate social and financial purpose? This question has been addressed by Corporation 20/20, an international, multi-stakeholder initiative. Its goal is to develop and share corporate designs in which social purpose moves from the periphery to the heart of the organization (〈 www.corporation20/20.org 〉). The Corporation20/20 process has produced six principles of corporate design to guide the creation of such corporations in the twenty-first century. These are,

The purpose of the corporation is to harness private interests to serve the public interest.

Corporations shall accrue fair returns for shareholders, but not at the expense of the legitimate interests of other stakeholders.

Corporations shall operate sustainably, meeting the needs of the present generation without compromising the ability of future generations to meet their needs.

Corporations shall distribute their wealth equitably among those who contribute to its creation.

Corporations shall be governed in a manner that is participatory, transparent, ethical, and accountable.

Corporations shall not infringe on the right of natural persons to govern themselves, nor infringe on other universal human rights.

Two of these principles—#1 and #5—are of special relevance to issues involving natural resource use and environmental impact. The purpose of the corporation (#1) has long been thought a “given.” In truth, the purpose of the corporation may be the most contestable proposition of all. As the principals write, “The question of corporate purpose is seldom asked yet lies at the heart of societal expectations, contemporary corporate conduct and prospects for innovative corporate designs in the coming decades. The common wisdom that used to divide the world into the Anglo-Saxon shareholder-oriented approach and the Continental Europe stakeholder-oriented approach is overly simplistic and should not be accepted at face value. New developments in US state charter law open new possibilities for repurposing the corporation” (www.corporation2020.org).

The other relevant principle is Principle #5 dealing with governance. As C20/20 principals write, “corporations (must) be governed in a manner that is participatory, transparent, ethical and accountable.” Accountability is a pivotal concept, evolving as societal expectations of business change in response to twenty-first century circumstances. Accountability is manifested in governance, stakeholder relations, and the organization's commitment to transparency and ethical conduct. What norms should corporations be held to? What are the leading examples of organizations whose practices provide a glimpse of the frontier in corporate accountability? These are questions for scholars and practitioners. The next phase in the process of business evolution is toward a corporation that no longer seeks to be, and is actively prevented from becoming, an “externalizing machine” (Monks & Minow 2008 ).

The natural environment and a global population of 6 billion people cannot bear the externalizing consequences of corporate disregard for the environment. Environmental damage has now reached proportions unknown in human history. For these reasons, scholars must search for new ways to harness the power of the corporation to public purposes. Neither the ends nor means are adequate to the task. Corporations do not voluntarily “do the right thing” very often, if at all, in the absence of economic incentives. And economic incentives sometimes create perverse, anti-social results. Regulation counts for very little when enforcement of standards and rules is lax or ineffectual.

What are the moral values and principles to shape the organizations of the future? If we begin with the assumption that each living person has a basic right to exist on Earth, then service to all humanity must be a guiding criterion. If we include the rights of other species, as well, we further constrain permissible activity. That people and other species have interests in common suggests that much more effort must be invested in optimizing survival strategies. Our thinking must venture beyond Garrett Hardin's “Tragedy of the Commons.” But the number and complexity of moral dilemmas grows quickly, and the debate over which values should shape the conversation expands.

It is clear that the narrow, private-purpose corporation is a poor fit with the realities of the twenty-first century. If it concentrates only on economic growth, business cannot adequately adjust to the other demands of modern life. A public-purpose corporation has more potential to adjust, but only if its governance and accountability mechanisms ensure—at minimum—that all relevant stakeholders interests are taken into account.

New models are needed. A stakeholder-owned enterprise could be one such option, though it must sacrifice “market efficiency” for “social effectiveness” if it is to place the environment in a position of prominence. Based on the needs of the future, the structure and governance of the corporate form need to reflect four characteristics:

The organization must be a participatory entity. Those who are affected by its operations must have a voice in the decisions.

Transparency and disclosure of operating results must be assured.

Ethical principles of decision-making must be communicated, including a clear statement of the values, principles, and norms to be followed.

Accountability for resources used, results achieved, and unintended consequences. This should include, but not be limited to, regular reporting of economic, environmental, and social equity information.

This agenda requires elaboration and refinement. It is the kind of scholarly work that addresses not only what is, but what can be.

Looking Ahead

This paper has offered an evolutionary view of the relationship between business, society, and the environment as interpenetrating social systems. As these systems have evolved, both the drivers of natural resource use and the constraints on the use of resources have become more sophisticated. Today, the adaptive stakeholder corporation is no longer an adequate model. A “transformative” or redefined corporation is required with a public purpose and new principles of governance and accountability (see Ehrenfeld [Chapter 33 ] this volume).

Business and society share a common destiny with regard to the environment. If human beings are unable to rebalance business activity and environmental consequences, future generations will bear a heavy burden in terms of the quality of life. Worst case scenarios abound for unchecked industrial activity.

The challenges are as daunting as any in human history. But the history of environmental action, from the earliest days of basic public health campaigns to the present is one of science, economics, politics, and ethical thought interacting to shape a new consciousness. Environmental issues are prominent in the economic marketplace, public policy arena, and the marketplace of ideas (i.e. the “public square”). Although opinion polls suggest shifting priorities, there is little reason to believe that interest in the environment will diminish for long. Global scientific communities, governments, NGOs, and millions of citizen voices are now joined in conversation through the Internet and other forms of communication. These voices are stating an unmistakable truth: The moral and practical mandate to preserve and protect nature rests with every person, organization, and public institution. For hundreds of years, humans believed in the dominion of nature . Today, the dominion of nature paradigm is being replaced by a sustainability paradigm . The ideas are clear, but progress is uneven. Nevertheless, science, public policy, and moral thought all suggest that achieving sustainability is the ultimate environmental challenge for business and society in the twenty-first century.

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INTERNATIONAL BUSINESS ENVIRONMENT: AN ANALYSIS OF INTERCULTURAL COMMUNICATION AND ETIQUETTE

ABSTRACT The twenty-first century business environment is expanding and increasingly attracting the interest of countries from developed and developing nations of the world. As these nations become increasingly interdependent and interconnected because of global market and diverse consumer needs, it is critically important that participating countries and their organizations understand and appreciate one another's cultural differences in order to ensure growth and sustainability in international business.

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Dr. Ephraim Okoro

Abstract The twenty-first century business environment is expanding and increasingly attracting the interest of countries from developed and developing nations of the world. As countries of the world become increasingly interdependent and interconnected because of global market and diverse consumer needs, it is critically important that participating countries and their organizations understand and appreciate one another's cultural differences in order to ensure growth and sustainability in international business.

Rohit Gautam

Valeria Sjomina

Journal of Business & Financial Affairs

Md. Touhidul Islam

Today’s Business area has no boundary. It conducts its activity all over the world with its own trends but the marketers must consider the external business factors to run the business successfully all over the world. Cross-Cultural Etiquette is one of the most important factors that must be considered to grow the business globally. The aim of this article review is to analyze the Cross-Cultural Etiquette in respect of strategic Business Manager. The author of this article tries to give an overview about Cross-Cultural Etiquette and its necessity for fruitful business communication for the strategic business manager. In twenty first century this article is related to the current business Etiquette and communication and maintains the accuracy, currency and stability so it is highly credible and relevant to the current business environment.

Juan C. Palmer-Silveira

Formato ISO 690-2 (Articulos de revistas electronicas) Palmer-Silveira, Juan Carlos, The need for successful communication in intercultural and international business settings: Analytic and comparative studies, new trends and methodologiesIberica [en linea] 2013, ( ) : [Fecha de consulta: 9 de noviembre de 2017] Disponible en: ISSN 1139-7241

robertus randy richardo

Psychology & Developing Societies

Dharm Bhawuk

Uday Uddanti

This volume originates from the editors&#39; interest in one of the most relevant fields of research these days: Intercultural and International Business Communication. The needs of the business world to communicate effectively at an international level in order to overcome language differences have proved to be a fascinating topic for many scholars. International business discourse is culturally-situated and therefore context-dependent, and all three -- discourse, culture and context -- play a key role in the communication process. The present contributions analyse this topic under the perspective of theory, research and teaching. Different scholars have offered their views on the subject, presenting contributions on different areas related to business communication all over the world.

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Dissertations / Theses on the topic 'Changing business environment'

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Wasserman, Megan B. "The changing competitive environment of the banking industry." Honors in the Major Thesis, University of Central Florida, 1997. http://digital.library.ucf.edu/cdm/ref/collection/ETH/id/20.

Garbo, Samuel P. (Samuel Paul). "Technology development and business strategy : a changing environment impacts practices." Thesis, Massachusetts Institute of Technology, 1997. http://hdl.handle.net/1721.1/10540.

Suikki, R. (Raija). "Changing business environment—effects of continuous innovations and disruptive technologies." Doctoral thesis, University of Oulu, 2007. http://urn.fi/urn:isbn:9789514283437.

Bergg, J. A. "Highway engineers in local government : Professionals in a changing environment." Thesis, University of Kent, 1985. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.482768.

Stockwell, Cecil. "Strategic analysis of the South African motor manufacturing industry's changing business environment." Thesis, Port Elizabeth Technikon, 2000. http://hdl.handle.net/10948/36.

Lancia, Peter L. (Peter Louis) 1968. "A methodology of aligning product development teams with business level goals in a changing business environment." Thesis, Massachusetts Institute of Technology, 1998. http://hdl.handle.net/1721.1/50046.

Van, Zyl Tobey Zanelda. "Managing diversity for a sustainable competitive advantage in the changing European business environment." Thesis, Stellenbosch : University of Stellenbosch, 2004. http://hdl.handle.net/10019.1/5031.

Jurgens, Ben. "A strategic approach to beer distribution in a changing South African environment." Thesis, Stellenbosch : Stellenbosch University, 2005. http://hdl.handle.net/10019.1/18186.

Mans, Nadia. "The effect of the changing economical environment on the capital structure of South African listed industrial firms." Thesis, Stellenbosch : University of Stellenbosch, 2010. http://hdl.handle.net/10019.1/4266.

Fallström, Sarah. "Leadership during change : A study of leadership within the rapidly changing transaction banking environment." Thesis, Internationella Handelshögskolan, Högskolan i Jönköping, IHH, Företagsekonomi, 2018. http://urn.kb.se/resolve?urn=urn:nbn:se:hj:diva-38806.

Wang, Zefeng. "Sustaining dynamic strategic alignment between business and information systems in a rapidly changing environment : an exploratory case study." Thesis, University of Sheffield, 2015. http://etheses.whiterose.ac.uk/11393/.

Köhnke, Johanna, Ewa Chmiel, and Pawel Kuska. "The dilemma of Polish subcontractors : A study of sustaining competitiveness in a changing environment." Thesis, University of Kalmar, Baltic Business School, 2008. http://urn.kb.se/resolve?urn=urn:nbn:se:hik:diva-376.

Our interest in this thesis is based on the discussion we had in previous courses about the development of emerging countries. Since two of the writers of this thesis are from Poland we tried to found a common interest, hence the relationship between the Polish subcontractors and Swedish customer is analyzed.

Poland is also known as a low cost country and that make it favorable when it comes about hiring subcontractors. The subcontractors in Poland are also known for the skills and expertise to produce quality. Something that is important for many foreign companies. IKEA has more than 40 subcontractors in Poland; the reason is just the factors mentioned above, to be able to produce good quality to low cost. (www.ikea.com)

Earlier research indicate that Poland is developing rapidly compare to other emergent countries in Eastern Europe. There have been and will be changes in the environment that most likely will affect the competitive advantage that the subcontractors are the leader in. In other words these changes might lead to that Poland loses its customers which choose other markets that still are able produce at lower costs.

The main problem for the thesis is to investigate how can polish subcontractors cope with environmental changes to sustain competitive advantage?

In order to answer this, we used a qualitative approach where the characteristics of a case study are conducted. We collected and analyzed data in an abductive way. The interviews with the three Polish subcontractors were made in a semi structure form via telephone. To be able to solve the above problem an environmental analysis of Poland was done, in order to found those factors that are mentioned as worries and are likely to change in the future. The changes are presented from subcontractors’ perspective and recommendation how to cope with them is given.

Wilkinson, James Edward. "Credit Strategies for Small and Medium-Sized Enterprises Within a Changing Environment." ScholarWorks, 2017. https://scholarworks.waldenu.edu/dissertations/2909.

Kuhn, Sarah. "From the back office to the front lines : the computer software development labor process in a changing business environment." Thesis, Massachusetts Institute of Technology, 1987. http://hdl.handle.net/1721.1/17211.

Ek, Jennie, and Robin Persson. "Brexit - The Waiting Game : A qualitative case study about how Swedish forestry firms perceive and respond to the uncertainty regarding Brexit." Thesis, Linnéuniversitetet, Institutionen för marknadsföring (MF), 2019. http://urn.kb.se/resolve?urn=urn:nbn:se:lnu:diva-85532.

Breitenbach, Nicolaas Gerhardus. "An investigation into the changing environment due to the globalisation process in the South African automotive industry in the 21st century." Thesis, Stellenbosch : Stellenbosch University, 2001. http://hdl.handle.net/10019.1/49689.

Van, der Merwe Susan Josina. "Developing an improved retail pricing model for Volkswagen of South Africa in a changing competitor environment with special reference to the passenger vehicle market." Thesis, Stellenbosch : Stellenbosch University, 2008. http://hdl.handle.net/10019.1/5027.

Azawi, Athil, and Pegah Hassani. "Crisis Consultants & the Vastly Changing Environment : A deductive study of the crisis consultant's perceptions & the effect of the Covid-19 Pandemic." Thesis, Uppsala universitet, Företagsekonomiska institutionen, 2021. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-447375.

Tong, Fei. "Changing Corporate Social Responsibility (CSR) in China : A Case Study of Svenska Kullagerfabriken (SKF) in China." Thesis, Stockholms universitet, Stockholm Resilience Centre, 2011. http://urn.kb.se/resolve?urn=urn:nbn:se:su:diva-63430.

Soudavnaya, Victoria. "Environmental mindset change in Swedish youth: from reactive to proactive : A study of environmental mindsets using focus group interview and repertory grid technique." Thesis, Umeå University, Umeå School of Business, 2009. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-18640.

Today the problem of dirty streets is often mentioned in media indicating that it is an environmental and a social problem that needs to be solved. Trash lying around destroys the city picture affecting people negatively. Moreover, unpicked trash might have some devastating consequences in terms of rats and other animals. The population segment that trashes the most is youth between 15 and 29 years old. This study was conducted in order to see whether any specific action can be undertaken to affect young people who cause most of trashing and to reduce their environmentally unfriendly behavior.

In this thesis, the aim is to see how youth who is environmentally unfriendly is different from environmentally friendly in terms of a mindset; how those who are unfriendly think about trashing today and later test different stimuli to find out their effectiveness on the thinking patterns of these individuals.

The research method consisted of two parts using a combination of qualitative and quantitative methodologies. First one was a focus group interview which was chosen as an appropriate method to elicit the stimuli with potential to change a mindset. Six stimuli in total, 3 rewards and 3 punishments were chosen to be tested. Second method was an experiment using Repertory Grid technique. This technique’s purpose is to study and describe the values and attitudes of one individual. In this paper this technique was used on two occasions. The result of the first occasion indicated the person’s current mindset toward environment. After that, the person was presented certain stimulus that had a potential to change that person’s thinking pattern and behaviour. After the introduction of the incitement, the individual was asked again to use the grid. Before-and-after results were compared to find out whether the stimulus presented was effective enough to change individual’s thinking pattern.

The study indicated that there are two different mindsets concerning environment. One is the environmental mindset of indifference and the other one is the environmental friendly mindset. However, the gap between these can be mended if those people who are indifferent are affected in a right way. The study further indicates the specific stimuli that can be applied in order eliminated or at least decrease the gap. The most effective one is the shorter distance toward the nearest trashcan. This can be implemented by putting more trashcans on the streets. Moreover, to make the gap even less it would be possible to make the trashcans more aesthetically nice to the eye. Right now they are blending in to the city picture by being grey, black or dark green. Making these look nicer, as the study indicates, can contribute to change in thinking patterns.

Bradley, Karen A. "Unfinished business : Missouri's Natural Streams campaign and the changing conditions of environmental action/research /." free to MU campus, to others for purchase, 1996. http://wwwlib.umi.com/cr/mo/fullcit?p9841206.

Yazdani, D. "Particle swarm optimization for dynamically changing environments with particular focus on scalability and switching cost." Thesis, Liverpool John Moores University, 2018. http://researchonline.ljmu.ac.uk/9434/.

Jaworska, Persson Alexander. "Internet of Things and connected home living : - A case study on how manufacturing firms in the kitchen and furniture industry is implementing and developing IoT products and services." Thesis, KTH, Industriell ekonomi och organisation (Inst.), 2017. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-209844.

BISWAS, KALLOL KUMAR. "Changing Climate; Bangladesh Facing the Challenge of Severe Flood Problems; A Comparison of Flood Management between Bangladesh and the Netherlands." Thesis, Blekinge Tekniska Högskola, Sektionen för planering och mediedesign, 2010. http://urn.kb.se/resolve?urn=urn:nbn:se:bth-5927.

徐賢德. "Taiwan Sweater Industry Business Strategies in a Changing Environment." Thesis, 1998. http://ndltd.ncl.edu.tw/handle/59916449649397542548.

Benamati, John. "Managing information technology in a changing information technology environment." 1997. http://catalog.hathitrust.org/api/volumes/oclc/39276747.html.

Chen, Ding-Wei, and 陳定蔚. "Business Model Research of an Insurance Agents Company under Changing Environment." Thesis, 2013. http://ndltd.ncl.edu.tw/handle/25574302057936408983.

Gabauer, Bastian Friedrich. "The fourth industrial revolution – metamorphosis of the business environment." Master's thesis, 2018. http://hdl.handle.net/10362/38695.

Uecker, Phillip. "How to handle a changing market environment with adaptation of its current business model?" Master's thesis, 2016. http://hdl.handle.net/10362/20555.

Zurbins, Andrejs, and Angus Hawkins. "CAPM and the state of the market's environment : Analysis of alpha under changing market conditions." Thesis, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:hj:diva-48674.

林欣衛. "A study on the business strategy of interconnection industry in Taiwan for the changing environment." Thesis, 2018. http://ndltd.ncl.edu.tw/handle/7bwx6b.

HUANG, LI-HUA, and 黃瓈嬅. "The Study of the Architects' Business Strategies for Coping with the Economic Cycle and Changing of the Environment." Thesis, 2019. http://ndltd.ncl.edu.tw/handle/43265s.

Bux, Imraan Goolam Hoosen. "The role and purpose of a port in the context of a changing economic environment." Thesis, 2003. http://hdl.handle.net/10413/2261.

Chetty, Dayalan. "A study to evaluate the suitability of strategic alignment in a changing external environment : a case study of Moreland Developments (Pty) Limited." Thesis, 2003. http://hdl.handle.net/10413/4925.

Gur, Yonatan. "Sequential Optimization in Changing Environments: Theory and Application to Online Content Recommendation Services." Thesis, 2014. https://doi.org/10.7916/D8639MWF.

Uang, Jyh-Min, and 汪治民. "A Study of the Impacts on Business Performance of Taiwan Apparel Brands when Facing Different Business Guanxi Patterns and Changing Environments." Thesis, 2003. http://ndltd.ncl.edu.tw/handle/01780640568531142392.

A Systems View Across Time and Space

• Open access
• Published: 10 July 2021

Exploring internal business factors and their impact on firm performance: small business perspective in Ethiopia

• Abriham Ebabu Engidaw   ORCID: orcid.org/0000-0002-5081-5668 1  

Journal of Innovation and Entrepreneurship volume  10 , Article number:  25 ( 2021 ) Cite this article

17k Accesses

3 Citations

Metrics details

Mainly, the study is aimed at exploring the internal business factors and their impact on firm performance in micro- and small-scale enterprises. The study employed a descriptive and explanatory research design and used a quantitative research approach. The study is conducted on Amhara region, North Wollo zone, Lalibela city administration micro- and small-scale enterprise operators, and in this study, the dependent variable is the performance of SMEs while independent variables are managerial factors, workplace factors, and entrepreneurial factors. To achieve the objectives of the study, 199 sample micro and small enterprises are selected from the 395 target populations. It used an explanatory design with stratified and simple random sampling techniques. The study employed descriptive and inferential statistical data analysis methods. The finding shows that the independent variables managerial factors and workplace-related factors have a positive and significant effect on small business performance in the study area. Also, there is an insignificant relationship between entrepreneurial factors and the dependent variable.

Introduction

Micro and small enterprises play a significant role in job creation, source of wealth for owners, and source of income for the government in Ethiopia. However, their journey in many instances is short-lived with a high rate of failure due to several factors. There is now a wide-ranging recognition of the influence of micro and small enterprises on economic development; recently, the role of MSE in economic growth and employment creation has occupied most of the discussions among government, policymakers, academicians, researchers, and economists in both developed and emerging countries. By generating larger volumes of employment and higher levels of income, the MSEs would not only have contributed towards poverty reduction, but have enhanced the welfare and standard of living of the many in the society (Mukras, 2003 ). Micro and small enterprises generally account for the bulk of the total enterprise population, irrespective of the level of economic and social development of a country. In many countries of the world, particularly those in Africa and Asia, the microenterprise sector constitutes the majority of the working population. Micro and small enterprises play various roles in the economic development of a nation that includes building up local production structure, creating employment opportunity, and achieving a fairer distribution of national resource, income, knowledge, and power, and help to promote rural industrialization and promote export market specifically (Mulugeta, 2008 ).

According to the African Development Bank (ADB, 2005 ), SMEs account for 60% of the continent’s output and 80% of employment, and they also create 80% of new jobs. As stated by the Central Statistical Authority (CSA) survey, there are almost 570,000 MSEs in Ethiopia, 99.4% of which are microenterprises with fewer than ten employees, accounting for 88.2% of private sector employment. Microenterprises are very small. On average, they employ one and a half workers (this includes the owner and perhaps one occasional helper) and earn an annual operating surplus of 1300 birrs. Sole proprietors operated 82% of urban enterprises. Of the entire employment in these urban microenterprises, family members accounted for 60%. Beyond family members, apprentices constituted a huge proportion of the remaining MSE workforce (CSA, 2003 ). Small business performance is often measured by financial and nonfinancial criteria although the previous has been given more attention within the literature. Traditional measures of business success are supported by employee numbers or financial performance, like profit, turnover, or return on investment. Inherent in these measures is an assumption of growth that presupposes all small business who owners want to grow their businesses (Walker & Brown, 2004 ).

Bouazza, Ardjouman, and Abada ( 2015 ) found the critical factors that determine the growth of SMEs in Algeria, namely, factors of the business external environment which were away from control, and internal factors. External factors include the legal and regulatory aspects, access to sources of finance, and human resource capacity improvement. Internal factors more emphasize entrepreneurial character, capacity management, marketing capabilities, and technological capacity. Admasu ( 2012 ) analyzed the factors that affect the performance of MSEs in Addis Ababa, Arada, and Lideta sub-cities using sample household survey data collected in 2011. He used both descriptive data analysis and multiple regression models to identify the factors affecting micro and small enterprises. His finding indicates that finance factors, marketing factors, infrastructure factors, technological factors, work premise factors, management factors, and entrepreneurial factors hindered the performance of MSEs.

In the real business world, there are many internal and external factors that hinder its success, which means the ever-changing business environment requires enterprises to adapt quickly to associated new factors and competition, and current particular problems for small businesses given their small size and scarce resources. Small businesses increasingly face competition not only from their peers but also from large enterprises participating in markets once regarded as the preserve of smaller businesses. In fact, reliance on domestic markets for business growth is a thing of the past for many SMEs. Therefore, in order to be more competitive and relevant in the business world, they must identify, prioritize, and address these challenges effectively.

Generally, as per the researcher’s knowledge, previously, there was no research conducted relating to internal factors that affect the business performance of micro and small enterprises in Lalibela city, and there is inconsistency of previous study results in the world. So, this research tried to fill this gap.

Objectives and contributions of the study

The central aim and the contribution of this research are resulting from the deficient knowledge about SMEs, compared to what we know about large enterprises and the inconsistency between the findings of SMEs in the developed countries and those in developing countries. By growing the quantity and quality of knowledge about SMEs, preconditions are created for increasing the level of adapting the existing theory and the worth of scientific knowledge for developing an effective SME practice, which is indeed the final goal and purpose of this research and is the reason to conduct this research.

General objective

The general objective of the study was to explore the internal business factors and their impact on firm performance, in micro and small-scale enterprises working on the case area.

Specific objectives

To fill the study gap and to achieve the general objective of the study, the following specific objectives are investigated:

Examining the effect of managerial factors on business performance

To evaluate the effect of workplace factors on the performance of small businesses

To measure the effect of entrepreneurial factors on enterprise performance in the study area

Review of related literature

The micro and small enterprise sector in ethiopia.

Ethiopia has prioritized MSE development to alleviate the problems of unemployment, low levels of working skills, and poverty reduction, and improve the levels of skills, contributing towards economic growth. In 1997, the Ethiopian government has established a national MSE development and advertising strategy which encourages or facilitates the legal ground for the growth and development of the enterprises. The primary objective of the strategic framework was to create a favorable environment for MSEs so that MSEs could facilitate economic growth; create long-term jobs; strengthen cooperation between MSEs, the starting point for medium and large-scale enterprises; and promote trade activates. Small businesses contribute immensely in terms of the redefining of social structure, economic emancipation, resource allocation, and income generation in all regional states (FDRE Ministry of Trade and Industry, 2002 ). The Federal Micro and Small Enterprises Development Agency (FeMSEDA) was designed or established by the Council of Ministers Regulation Number 33/1998 to run Ethiopia’s MSE development and growth. To establish the MSE strategies and policies, Regional Micro and Small Enterprise Development Agencies have been designed.

Micro and small enterprise development hold a strategic place within Ethiopia’s Industrial Development Strategy. Enterprises are the key instruments of job creation in urban centers, while job creation is the centerpiece of the country’s development plan. The role of MSEs varies among those; the principal job creators are promoted not only in low-income countries like Ethiopia but also in high-income countries. Accordingly, because MSEs play a pivotal role in employment creation, stimulating and strengthening MSE development should be one of Ethiopia’s top development priorities.

Internal factors’ influence on performance of MSEs

Management factor effect on the performance of mses.

Managerial ability in the context of micro and small enterprises indicates the capacity of owners or operators to produce sound enterprise plans, function-trendy bookkeeping, auditing, and record-keeping duties, introducing gorgeous applied sciences and expertise, dedication in terms of empowering employees, investing in skills-associated training opportunities for employees, capacity in resolving commercial enterprise related disputes amicably, etc. Successful organizations and corporations have been associated with managers who loved what they have been doing, whereas unsuccessful corporations and businesses were associated with managers with little or no motivation and commitment (Worku, 2014 ). According to Fetene ( 2017 ), management elements had been revealed as one of the robust influential elements for the enterprise overall performance of MSEs. The entrepreneur/commercial enterprise owner must surely and scientifically arrange his/her employer with clear obligations and duties to put off confusion and collision among personnel that will create nerve-racking surroundings and impact man or woman and group performance.

Entrepreneurial factors’ effect on performance of MSEs

Entrepreneur competencies.

According to Kebede and Simesh ( 2015 ), the considered entrepreneur is an individual who organizes and manages a business mission with the ultimate purpose of earning making a return on investment. An entrepreneur can be described as an innovating man, path-breaker, and a pacesetter of monetary and industrial growth. Entrepreneur’s personality (owner’s and/or managers) is a specific internal business environmental factor. All research has proven it has a considerable impact on the existence and operation of businesses, especially SMEs. According to Fetene ( 2017 ), specifically, its strong influence on the enterprise strategic framework has been set up (vision, mission, commercial enterprise orientation, way of life, and goals), which, indirectly and implicitly, influences all the elements of the inner environment, approach, and performance. The problem of examining this element is mirrored in the complexity of deeper analysis (of motives, attitudes, personality traits) that would require a professional psychological approach.

Access to working place effect on performance of MSEs

Another critical factor for MSE growth is working space. In response, although the government has massively built working spaces for MSEs in major cities and towns, working space remains a critical challenge. According to Amwele’s ( 2013 ) study entitled Empirical investigation into the elements affecting the overall performance of SMEs in the retail quarter in Windhoek, Namibia , he determined that over 90% (90.9%) of the 22 respondents revealed that rent or lease of a place for their commercial enterprise in Windhoek has prevented their performance. He discovered that it was once pricey to hire working vicinity for business use in their present-day locations; therefore, most MSEs are unable to grow financially as the massive element of the income goes into the rental expenses. Access to land for business use in Windhoek used to be one that additionally hinders business.

Micro and small enterprises development strategy and Ethiopian economy

The micro and small enterprises sector is described as the countrywide homes of entrepreneurship. It gives the ideal environment, enabling entrepreneurs to exercise their talents to the full and to attain their goals. In comparison with other countries, it is known that in all the successful economies, MSEs are viewed as a springboard for growth, job creation, and social development at large in Ethiopia. MSEs serve as sources for sustainable job opportunities, not only in developing countries like Ethiopia, but also for developed countries like the USA and Japan. For instance, for globally recognized giants like Toyota and Sony, more than 50% of their manufactured products are produced by MSEs (Federal Democratic Republic of Ethiopia FDRE, 2013 ).

Having recognized the importance of this sector, the Government of Ethiopia established the MSE development strategy in 1997 (Wasihun & Paul, 2010) and revised it in Wasihun & Paul, 2011 (Drbie & Kassahun, 2013 ). The FDRE (Federal Democratic Republic of Ethiopia, 2013 ) also identified the challenges of MSEs at the startup level, at growth level, and at maturity level with corresponding support at each stage. Accordingly, section 2 of the strategy lists the MSE development support framework. This includes human resource and technological development support (consisting of developing attitudinal change and initiation, training on the development of TVET, MSE technology development, facilitation of common property, and an extension service for industry), market development and marketing supply system (which includes strengthening the system of subcontracting, outsourcing, franchising and out-grower and marketing, raw material supply, constructing organized market centers, exhibition and bazaar of MSE, and preparing the enterprise website and directory), and credit service system (i.e., strength in the credit guarantee system, identifying focus areas of credit system, lease machine services), under the condition that production and sales centers and establishing a system of one center service to be provided to MSEs involved in production and services legally, to be a beneficiary from government support, and to enable the provision of services in an integrated, transparent, and efficient way.

Empirical literature review

Past studies indicate that many factors affect the business growth of micro and small enterprises in a different scope, and the use of different variables among that in this empirical literature discusses its use of variables and its finding in the following ways.

Kebede and Simesh ( 2015 ) investigated the effect of internal and external business environmental factors on the performance MSEs in East Gojjam Zone, Ethiopia. The findings of the regression analysis show that infrastructure and monetary environment, technological environment, and factors related to entrepreneurial commitment have a clear significant relationship with performances of MSEs. Primarily, based on the signal of the slope coefficients, researchers found that infrastructure and finance had positive impacts on the overall performance of MSEs, while the rest has negative roles.

Fetene ( 2017 ) was intended to explain the influential business factors that affect the business performance of small and medium enterprises (SMEs) in Addis Ababa Nifas Silk Lafeto Sub-city. The regression results have shown that the eight hypothesized factors, financial, management, marketing, entrepreneurial, technology, politico-legal, infrastructural, and working premises factors, were found significantly affecting the business performance of SMEs operating in the sub-city, and it was found that the financial factors were the most influencing predictor variable for SME business performance followed by infrastructure and politico-legal factors. Working premises were at the fourth position in terms of their strength in influencing business performance followed by management and marketing factors. In the seventh and eighth ranks were technological and entrepreneurial factors, respectively.

Seo and Lee’s ( 2019 ) findings also indicate that knowledge-based factors, such as discovery and exploitation, in the innovation system of start-ups are positively associated with the dynamic capabilities for exploring new market dynamics. By the nature of knowledge, defined as exploring new things and collecting new information, discovery can be recognized as the engine of new market dynamics, and it leads to more innovative outcomes, which are the crucial part of dynamic capabilities of start-ups, than exploitation. Moreover, the dynamic capabilities of start-ups can be affected by the social norms and performance-based culture in their local community due to the shortage of information and scarce financial resources. And in terms of the total effect on business performance of start-ups, both the discovery in the innovation system of start-ups and the local community support for starting new businesses are the most significant factors for increasing the business performance of start-ups. Moreover, two intervening variables, social norms and performance-based culture, and dynamic capabilities have a positive and significant impact on the business performance of start-ups. Although a variety of factors can affect the start-ups’ business performance, the findings might tell us that the combination of the discovery in the innovation system of start-ups for new market dynamics and the local community support plays a significant role in improving the business performance of start-ups amid a rapidly changing market environment.

Janeska-Iliev and Debarliev ( 2015 ) study on factors affecting the growth of the small business, the case of developing country having experienced transition. The results strongly confirm among the resources and processes of enterprises, skills, and knowledge possessed by the owners and workers of MSEs the strategic approach and orientation of small business, the degree of inclusiveness of the planning activity, and the nature of the external environment of small business independent variables; three independent variables: limitations in the internal environment, additional forms of education of the owner, and development of a strategic plan have a statistically significant impact on the growth of the small business. According to Alemu ( 2015 ) researching entrepreneurs’ characteristics as a determinant of MSE growth, this paper is to explore how owner-manager characteristics may affect MSE growth in Ethiopia; the findings indicated that enterprises owned/managed by individuals with high previous experience show better growth. Again, education level which is expected to have an effect on MSE growth does not affect growth here.

The other crucial factor for MSE’s growth is the working space. In response, although the government has massively built working spaces for MSEs in major cities and towns, working space remains a critical challenge. Amwele’s ( 2013 ) study entitled Empirical investigation into the elements affecting the overall performance of SMEs in the retail quarter in Windhoek, Namibia revealed that rent or lease of a place for their commercial enterprise in Windhoek has prevented their performance. He discovered that it was once pricey to hire working vicinity for business use in their present-day locations; therefore, most MSEs are unable to grow financially as the massive element of the income goes into the rental expenses. Access to land for business use in Windhoek used to be one that additionally hinders business performance

Abera ( 2012 ) finds out the eight most important challenges which appear to affect the overall performance of MSEs include the following: inadequate finance, lack of working premises, advertising and marketing problems, inadequate infrastructures, negative management practices, and technological, entrepreneurial, and politico-legal problems which includes bureaucratic bottleneck system. The findings similarly point out that there exists linear and superb massive ranging from tremendous to the strong relationship located between independent variables and dependent variable (Islami, Mulolli, & Mustafa, 2018 ). The study found that internal business factors have a larger positive impact on a firm’s performance than industry factors. And in a study by Ibrahim and Harrison ( 2019 ), the results show that external factors, in particular, competitors’ marketing mix elements, have a greater influence on a company’s business performance than internal (marketing and non-marketing) strategy variables. Implications for marketing theory and management are discussed. This study result contradicts with the finding of Islami et al.’s ( 2018 ) research.

The other study conducted by Nimlaor, Trimetsoontorn, and Fongsuwan ( 2014 ) revealed that the factors influencing the business performance included higher customer response capacity in terms of customer wants and needs cost, and competitive advantages over other competitors. It is found that the empirical factors affecting the business outcome of the Thai garment industry comprise the firm’s characteristics which include organizational leaders and teamwork. Additionally, other key factors include a firm’s strategy which comprises product differentiation, R and D, and brand building. The firm’s environment also plays a role that includes international trade, business alliances, and government policy. Thus, it is recommended that entrepreneurs must create brand awareness through R and D, focus on how to optimize their international trade, and enhance their networking as well as their global alliances.

Conceptual framework

In this study, the dependent variable is the performance of SMEs while the independent variables are managerial factors, workplace factors, and entrepreneurial factors (Fig. 1 ).

The current study

The main purpose of this study was to measure the effect of internal factors on small business performance in the case of Lalibela city MSEs. In this study, there are three independent variables (managerial factor, entrepreneurial factors, and workspace factors), and there is one dependent variable (small business performance). Based on the overall findings of the study, general conclusions and recommendations are drawn. Accordingly, the study has three major hypotheses:

Hypothesis #1: Managerial factor has a significant effect on small business performance in the study area.

Hypothesis #2: Workspace factor has a significant effect on small business performance.

Hypothesis #3: Entrepreneurial factors have a significant effect on small business performance.

Study methods

The study used an explanatory design with a quantitative research approach, and it used a cross-sectional survey design. To explain the position of variables studied and the effect of independent variables on the dependent variable, it is advisable to use this design. To meet the objectives of this study, both the primary and secondary sources of data are utilized. Primary data was collected directly from the owners of the MSEs with standardized close-ended questionnaires. And also, secondary data was collected through various sources like previously published materials as a literature review especially research papers, organization reports, and internet websites. The target population was considered as all MSE owners working on manufacturing, service, and trade industries in Lalibela city, which is found in the Amhara region, North Wollo zone of Lasta Woreda. The total population of the study was 395 MSE owners. Based on Yamane’s ( 1967 ) sample size determination formula (n = N/ (1 + Ne^2)), the researcher got a grand total sample size of 199, at 95% confidence level and 0.05 precision levels. The researcher employed stratified and simple random sampling techniques to collect the data. And also, the collected data was analyzed through correlation and multiple linear regression analysis methods, and the study examined the cause and effect relationships between dependent and independent variables.

Study materials

Measures of variables (internal factors and small business performance).

The independent variables were measured using a 15-item questionnaire including five (5) managerial factors, five (5) workplace factors, and five (5) entrepreneurial factors. And also, the dependent variable was measured using five (5) small business performance factor item questions. Both the independent and dependent variables are measured with a 5-point Likert scale response range (from 5 = strongly agree to 1 = strongly disagree). The variables used to measure the items on the instrument had been ordinal scale (strongly agree to strongly disagree) because the nature of this study is quantitative.

Results and discussions

Descriptive analysis.

In this descriptive analysis, the response for each specific statement is compared using the mean and standard deviation scores. The degree of agreement or disagreement of the respondents for each statement is analyzed by summarizing the 5-point Likert scale response into three by considering the strongly agree and agree on responses into one positive response and strongly disagree and disagree responses into one negative response, and the neutral response is taken as it is. That is, the higher the mean score, the more that the respondents agreed with the statement and vice versa. The figure for the standard deviation (SD) also indicates the degree to which responses varied from each other: the higher the figure for SD indicates the more variation in responses.

Therefore, the end result of this study is analyzed using this standard to decide the relative importance for interpretation whether it fails in 1–1.80 very low, 1.80–2.60 low, 2.60–3.40 median, 3.40–4.20 high, and 4.20–5.00 very high.

The summary statistics of Table 1 (descriptive statistics) results show that the grand mean of independent variables, managerial factors, entrepreneurial factor, and workplace factor is 3.1447, 3.0915, and 2.9357 with standard deviation value of 0.66542, 0.65557, and 0.79002, respectively. And also, the mean and the std. deviation for the dependent variable small business performance is 2.9035 and 0.76695, respectively. This mean result clearly shows that the majority of the respondents’ response level of agreement for all variables falls into the medium range. And additionally, the standard deviations recorded indicate the extent to which the respondents’ opinions about the statements on dependent and independent variables varied.

Correlational analyses

Pearson product-moment correlation analysis was used to analyze the relationship between independent variables (managerial factor, entrepreneurial factor, and workplace factors) and the dependent variable (small business performance). The correlation result is interpreted using the Cohen (1992) interpretation range. An interpretation of the range of the coefficient of correlation has been described in the following: −0.3 to + 0.3 weak, −0.5 to −0.3 or 0.3 to 0.5 moderate, −0.5 to −0.9 or 0.5 to 0.9 strong, and −0.9 to −1 or 0.9 to 1 very strong.

According to Cramer and Howitt ( 2004 ), the correlation coefficient can range from −1 to +1. The value of −1 represents a perfect negative correlation while a value of +1 represents a perfect positive correlation. A value of 0 correlations represents no relationship.

As it is clearly indicated in Table 2 , there is a moderate statistically significant positive relationship between independent variables (managerial factor, entrepreneurial factor) and dependent variable (small business performance) at a correlation coefficient of 0.352 (p = 0.000) and 0.362 (0.000), respectively, in the study area. And also, the study result showed no significant relationship between workspace factors and small business performance at a significance level of 0.643 in the study area. Generally, the study finds out there is the existence of a positive significant relationship between overall internal factors and small business performance at a significance level of r < 0.01 in the case area.

Assumption tests

There are primary assumptions that justify the use of a linear multiple regression model for the purpose of inference or prediction. The ultimate outputs were worried about checking the model assumptions of multicollinearity, normality, and linearity. This study’s result showed that there is not a problem of multicollinearity, normality, and linearity in the study variables.

Multiple linear regression analysis and hypothesis testing

Multiple linear regressions were used to be estimated to determine the effect/influence of each independent variable on the dependent variable.

Tables 3 and 4 analysis results show that the regression model accounted for 17.8% of the variations on MSE performance which can be explained by internal factors; the remaining 82.2% of the variance in the dependent variable is explained via other variables which are not included in this study.

In addition, based on the ANOVA table’s result, the significance value of F statistics indicates a value of 0.000, and it was less than p<0.05, so it means the model was significant enough, and there is not a model fitness problem.

As indicated in Table 5 , it can be concluded that managerial factor and entrepreneurial factors both have a positive significant effect on MSE overall performance at B = 0.282, P = 0.001 and B = 0.294, P = 0.001, respectively, in the study area. From this result, we can observe that the entrepreneurial factor is the most predicting factor for small business performance, and the managerial factor is the next one. This result supports the previous findings of Fetene ( 2017 ), Abera ( 2012 ), and Islami et al. ( 2018 ).

Contrarily, workplace factor has no significant effect on small business performance in the study area at B = 0.028 and P > 0.05. This finding contradicts with the study result of previous researchers (Abera, 2012 ; Amwele, 2013 and Fetene, 2017 ) because they find out the significant relationship between workplace factor and small business performance.

The unstandardized beta coefficient had proven that when managerial factors are increased in one unit, there will be change/increment in small business overall performance by 28.2%, and also, when entrepreneurial factors are increased in one unit, there will be change/increment in small business overall performance by 29.4%. As a result, the regression coefficient clarifies that the average amount of change in small business performance was affected by a unit of change in internal factors by the stated beta value for each factor (Table 6 ).

Discussions of major findings

This study is concentrated on examining the effect of internal factors on small business performance of Lalibela city administration (Appendix). A total of 199 questionnaires contained twenty items that have been administered and used at a 100% response rate. This mean result of independent and dependent variables clearly shows that the majority of the respondents’ response level of agreement for all variables falls into the medium range. And additionally, the standard deviations recorded indicate the extent to which the respondents’ opinions about the statements on dependent and independent variables varied.

In the inferential statistical analysis of the study, the end result proved that there is a moderate statistically significant positive relationship between independent variables (managerial factor, entrepreneurial factor) and dependent variable (small business performance) at a correlation coefficient of 0.352 (p = 0.000) and 0.362 (0.000), respectively, in the study area. And also, as the study result showed, there is no significant relationship between workspace factors and small business performance at a significance level of 0.643 in the study area. Generally, the study finds out that there is the existence of a positive significant relationship between overall internal factors and small business performance at a significance level of r < 0.01 in the case area.

The study’s result showed that there is not a problem of multicollinearity, normality, and linearity in the study variables, and the study result shows that the regression model accounted for 17.8% of the variations on MSE performance which can be explained by internal factors; the remaining 82.2% of the variance in the dependent variable is explained via other variables which are not included in this study (at R 2 = 0.178). In addition, based on the ANOVA test result, the model was significant enough, and there is not a model fitness problem.

From the multiple linear regression analysis results, it can be concluded that managerial factors and entrepreneurial factors both have a positive significant effect on MSEs’ overall performance at B = 0.282, P = 0.001 and B = 0.294, P=0.001, respectively, in the study area. From this result, we can observe that the entrepreneurial factor is the most predicting factor for small business performance, and the managerial factor is the next one. The unstandardized beta coefficient had proven that when managerial factors are increased in one unit, there will be change/increment in small business overall performance by 28.2%, and also when entrepreneurial factors are increased in one unit, there will be change/increment in small business overall performance by 29.4%. In general, the regression coefficient clarifies that the average amount of change in small business performance was affected by a unit of change in internal factors by the stated beta value for each factor. In conclusion, these study objectives are accomplished well by originated findings as previously supposed.

Recommendations

Based on the above findings and study objectives, the researcher forwarded the following recommendations.

Entrepreneurial factors are self-motivated and drive for commercial enterprise success through readiness to improve and to change to take responsibility for the sound decision-making in the business. These factors have been among the internal factors that had been the most considerable influential factors affecting small business performance in the study area. Therefore, as shown in the finding of the study, entrepreneurs had better determine the availability of entrepreneurship pieces of training and take the training and exploiting the on-hand enterprise opportunities and desirable ample to research and benchmark high-quality practices of others to be more effective in their business activity. In relation to entrepreneurial factors, the entrepreneurs should work on avoiding the problems of lack of business skill training, lack of persistence and courage to take responsibility for one’s failure, and lack of entrepreneurship training in their business. Also, in this study, management factors have a statistically significant effect on the small business overall performance of MSEs. Therefore, it is recommendable that business owners should facilitate and take training regarding managerial skills and strategic business plan preparation, and they should prepare their organization’s structure with clear work and duty division among members and employees to create a participative, motivational, and attractive work environment in their business, in the study area.

In addition, the micro and small enterprises development offices (government) had better start presenting business planning training, entrepreneurship training, leadership training, fundamental business, and marketing management ability training and provide commercial enterprise development service as this will enable entrepreneurs to make sound decisions and improve the entrepreneurial competencies that enable them to apprehend and take advantage of the handy business opportunities in their business area.

Conclusions

The main purpose of this study is to measure the effect of internal factors on small business performance in the case of Lalibela city MSEs. In the study, various parameters are used to evaluate the performance of MSEs and internal factors. The study has three independent variables (managerial factor, entrepreneurial factor, and workplace factor) and one dependent variable (small business performance). To attain the study objectives, the statistical association of each independent variable with the dependent variable is well measured and presented in the study in line with the study questions using descriptive, correlation, and regression analysis. After assessing all the factors entirely, the study found that the independent variables managerial factor and entrepreneurial factors have a positive significant effect on small business performance in the study area, and entrepreneurial factor was the most contributing factor for MSE performance in Lalibela city MSEs. Henceforth, in the end, we can conclude that an internal business factor has a significant effect on small business performance in the study area.

Based on the overall findings of the study, the researcher recommends that owners of MSEs are better to determine the achievable market plans that are consistent with their product/service in the domestic or worldwide market, scan new market opportunities, develop sufficient and suitable marketing strategy, formulate an approach and mechanism to enhance their market share, and continuously enhance their customer relationship and handling, and they have to forecast demand primarily based on the ample information. Therefore, the finding recommends that policymakers should develop different supportive policies for those enterprises by doing similar investigations and appropriate analysis of the situation because their support is fundamental for the top performance of any enterprise venture, and provide commercial enterprise development service as this will enable entrepreneurs to make sound decisions on their business and improve their performance.

Suggestion for future study

In this study, the researcher conducted only a quantitative study; a deep qualitative study could also be done to validate the results of this study. From the findings of the study, it is concluded that the model included in internal factors explained only 17.8% of the variance of small business performance, the rest 82.2% may be due to the other variables which were not included in this study and left for further study.

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Abbreviations

Micro and small enterprises

African Development Bank

Internal factors

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Frequency and regression standardized residual

Normal P-P plot of regression standardized residual

Partial regression plot of independent variable managerial factor

Partial regression plot of independent variable entrepreneurial factor

Partial regression plot of independent variable workplace

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Engidaw, A.E. Exploring internal business factors and their impact on firm performance: small business perspective in Ethiopia. J Innov Entrep 10 , 25 (2021). https://doi.org/10.1186/s13731-021-00167-3

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• Managerial factors
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Microenterprise development in Quito, Ecuador: A case study of social, cultural, and environmental factors affecting growth

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