**Abstract**

This study explores empirical data on the orientation of CSR practices to SMEs in City Surakarta seen from CSR practices that are employee, market, and environment-oriented as a whole. The sample in this study was 90 SMEs in the Surakarta area. The method used in this research is a survey with data analysis using Confirmatory Factor Analysis (CFA). Before the survey, a pilot study was conducted on 10 SMEs actors to test the instrument's validity and reliability. The results showed that the most dominant CSR practices at SMEs in City Surakarta were the community orientation indicated by the rotated component matrix table of 0.904 and the market orientation indicated by the rotated component matrix table of 0.876. Both orientations are more dominant than other orientations.

**Keywords:** Corporate Social Responsibility, CSR orientation, SMEs, MSMEs, Market orientation, Community orientation, Environmental orientation

## **1. Introduction**

Corporate Social Responsibility (CSR) began to be adopted in accounting using a financial and management perspective. The financial perspective focuses on CSR disclosure or CSR reporting, while in the management perspective, it is related to measuring social performance [1]. This view is based on several main models in understanding the concept of CSR. First, Carroll's [2] view defines CSR in three dimensions: combining social responsibility at four different levels (economic, legal, ethical, and discretionary), the number of social problems facing companies, and the underlying philosophy. Second, the view of Wartick and Cochran [3], who adopted and perfected the CSR model of Carroll [2] by including the social problem management variable on CSR. Third, Wood, [4] sees CSR from the aspects of: configuration of CSR principles, social response processes, policies, programs, and outcomes that can be observed in the context of corporate and social relations. Fourth, the view of CSR from the perspective of stakeholders who feel satisfied with the company's performance is one of the successes of CSR [5]. This study uses CSR terminology from Wood's [4] model, which looks at CSR from responsive social processes, policies, programs, and observable outcomes (impacts) in the context of corporate and social relations.

CSR in Indonesia began to develop after Law no. 40 of 2007 [6] concerning Limited Liability Companies Article 74 concerning the obligations of companies engaged in natural resources to carry out social and environmental responsibilities. Along with the development of CSR in Indonesia, more and more companies are implementing social responsibility. CSR is an obligation and a strategy developed in large-scale companies but is expected to be further developed in Micro, Small, and Medium Enterprises (MSMEs) companies.

MSMEs in Indonesia have experienced significant development. Based on the Ministry of Cooperatives and Small and Medium Enterprises data, the number of MSMEs in Indonesia currently reaches 59.3 million [7]. That number of MSMEs in 2018 is known to contribute to Indonesia's GDP by 60% or Rp. 4.800 trillion [8]. The current condition of MSMEs needs better management further to increase their contribution to the country's economy.

The current phenomenon is that the MSME empowerment program is still not following the needs of MSMEs and is still routine and monotonous. Implementing the MSMEs empowerment program should be carried out by considering financial factors and developing environmentally friendly MSMEs businesses, especially production activities that can reduce industrial emissions. One example is the collaboration between Indonesia and South Korea at the 1st Indonesia-Korea Green Business Forum in Jakarta on December 6, 2016 [9]. So far, the concept of CSR is only practiced by large companies, so it has not touched the MSME sector. If CSR can be applied to MSMEs, it is hoped to provide integrity within the MSMEs organization, which thinks about profit and environmental and social. Therefore, all companies, both large and small, including MSMEs, can implement CSR as one of the things that can determine the sustainability of their business because, through CRS, companies can get support from stakeholders and the community around the company.

CSR activities by MSMEs can be carried out with different orientations. The CSR Practice Orientations include employee-oriented, community-oriented, marketoriented, environmental-oriented, and generally or comprehensively oriented [10]. However, CSR practices have always been associated with environmental orientation and have not led to other CSR practice orientations.

Based on data from the Central Java Province Cooperatives and MSMEs Service in the first quarter of 2019, the number of MSMEs in Central Java is 147,233 SMEs. One of the regencies/cities with the largest MSMEs is Surakarta City, which has 43,700 MSMEs in 2018 [11]. In other words, Surakarta City has 30% of MSMEs in Central Java. For this reason, this study chooses Surakarta City as the research area.

Another reason for choosing a research area in Surakarta City is that there are previous studies on MSMEs in Surakarta City, but no one has specifically examined the orientation of MSMEs in implementing CSR. These studies, among others, were conducted by [12] which examined the effectiveness of the performance of the RKB of Bank BRI Solo in developing its fostered SMEs in terms of factors, indicators, measures, and the process of evaluating the effectiveness of the performance of the RKB of Bank BRI Solo. The research shows that the performance of the RKB of Bank BRI Solo in developing its fostered SMEs has been carried out effectively but has not been researched and provided further descriptions of the SMEs studied in terms of CSR practices and the orientation chosen. Subsequent research conducted by [13], who examined MSMEs in Surakarta with the ability to respond to the market, turned out to have a significant effect on product innovation excellence and marketing performance. These studies have not revealed CSR practices by MSMEs in Surakarta, including the chosen orientation in CSR practices.

The following study by Harto [14] examined the effect of CSR orientation on Corporate Social Performance. The CSR orientation in this study includes a corporate ethics orientation and a legal orientation. The results obtained are that the company's ethical orientation is positively related to the company's social

*CSR Practical Orientation in Small Medium Enterprises (SMEs): A Case Study in Solo City… DOI: http://dx.doi.org/10.5772/intechopen.99859*

performance, while the legal orientation is negatively related to the company's social performance. The study has paid attention to environmental uncertainty as a moderating variable, which indicates a significant interaction between the company's orientation towards social responsibility in MSMEs in Central Java. This research examines economic orientation, legal orientation, ethical orientation, and discretionary orientation as independent variables and is carried out on large, medium, small, and micro-scale companies. Unlike Harto's study, this focuses on the CSR orientation in employee, community, market, environmental, and an overall orientation perspective on MSMEs.

Another case is the study conducted by [15] which shows waste treatment as one of the CSR activities at Batik SMEs in Sukoharjo Regency. The CSR practice of waste treatment was chosen as a strategy carried out sustainably, but from this study, there has not been a specific picture of the orientation chosen by MSMEs in the practice of CSR in waste treatment.

Based on the previous studies and the phenomena that occur in MSMEs above, the purpose of this study is to explore (pooling) empirical data on the CSR orientation of MSMEs in Surakarta in terms of CSR practices that are oriented towards employees, society, markets, the environment and as a whole.

## **2. Literature review**

#### **2.1 Corporate social responsibility (CSR)**

CSR (Corporate Social Responsibility) by the general public is understood as a concept or action taken by a company in social activities as a form of corporate responsibility to the environment and the community around the company.

According to [16] the concept of CSR is a way of running a business that is not solely for doing business. Many MSMEs have done it even though they do not consider it a CSR or a Sustainability business. Nevertheless, they have implemented values in running the business by maintaining good relations with employees, customers, and stakeholders and contributing positively to society. Applying these values has demonstrated CSR as part of running a business to gain business profits while doing commendable things by providing important benefits for a better life for the community and providing protection to the environment.

In Surakarta Mayor Regulation Number 12-A of 2013 concerning the implementation of Corporate Social Responsibility (Corporate Social Responsibility) in Surakarta City [17], CSR is defined as the responsibility inherent in every company to continue to create a harmonious, balanced and appropriate relationship with the environment, values, norms, and culture of society.

In companies, especially the large ones, there are 5 (five) pillars in the CSR practices of the Prince of Wales International Business Forum, including:

1.HR capacity development (Building Human Capital).

The company forms reliable human resources or empowers the community.

2. Strengthening the community economy (Strengthening Economies).

The company contributes to economic improvement, including assisting in poverty alleviation.

3.Maintenance of community harmony (Assessing Social Cohesion).

The company maintains the stability and harmony of the community so that conflicts do not occur, especially those related to business activities.

4. Implementation of good governance (Encouraging Good Governance).

The company implements good governance.

5.Environmental Conservation (Protecting The Environment).

The company preserves the physical, social and cultural environment.
