Kuala Lumpur Metropolitan Business School

Group Work (1. Group Report + 2. Poster Presentation)

(Assignment 3)

Business law and Ethics

Compatibility of Profit-Driven Business Decisions and Ethical

Business Practices for Small and Medium-Sized Businesses in
Malaysia
Evaluative Essay
 Table of Contents

Introduction..............................................................................................................................................3
Profit-Driven Decisions and Environmental Sustainability..........................................................3
Social Responsibility and Ethical Business Practices..................................................................3
Conclusion...............................................................................................................................................4
References...............................................................................................................................................5
Introduction

Small and Medium sized Enterprises (SMEs) are significant in the Malaysian economy in
terms of innovation, employment and economic development. However, the challenge of
balancing profit making objectives with ethical business practices has been a complex issue that
has been exacerbated in the current competitive global market environment. In the case of
Malaysian SMEs, this balance is further complicated by the fact that in addition to market forces,
the SMEs are influenced by cultural values, legal systems and environmental factors that are
inherent in the Malay socio-economic model. Sustainability and CSR have gained much
attention in recent years and are significantly changing the business approaches, which makes
SMEs review their prior profit-making orientation (Tahir et al., 2018). Environmental
sustainability and social responsibility have become crucial to the long-term sustainability of
these businesses, and therefore ethical considerations must be incorporated in their decision-
making processes. Even though the foremost aim of a business is to make profits for it to
sustain and expand, this essay will show that ethical practices like environmental friendly
policies and fair treatment of employees do not hinder profitability. It will posit that given the
risks that the company may incur when implementing ethical practices in business strategies
such as financial and operational risks, the integration of ethical practices into business
strategies improves the company’s image and increases its trust with its consumers, which in
turn contributes to the success of the company in the long run.

Profit-Driven Decisions and Environmental Sustainability

Environmental sustainability is an important area where business organization’s profit

motive and ethical concerns could easily converge especially for the Malaysian SMEs in the
resource based sector such as the manufacturing, agricultural and construction sectors. These
sectors, however, are highly sensitive to the challenges of operating in the environment of fast
and global competition and this results in organizations focusing on short-term cost control.
Despite the fact that this approach might seem cost-effective at first sight, it may lead to
negative environmental consequences and financial issues in the future (Jaish et al., 2024). For
instance, firms can abuse resources, pollute, and depend on the unsustainable use of natural
resources in a bid to reduce costs of production. Although these actions can result in significant
cost reductions in the short-term, they can also create material risks to businesses. Some of the
consequences of environmental degradation such as pollution and deforestation may lead to
fines or legal suits for non-compliance with set environmental standards by businesses.
Furthermore, failure to adhere to the ever rising environmental standards may bring about
negative publicity and thus damage the organization’s image, and thereby loss of consumer
confidence. Due to the growing awareness of environmental issues, people are becoming more
conscious, which means that they tend to support businesses that promote sustainable
development (Olabi et al., 2023). Hence, neglecting the sustainability aspect of the environment
in decision making not only attracts legal consequences but also reduced competitiveness in a
market that is conscious of the environment.

Additionally, concentrating on profit oriented goals that are achieved in a short period of
time, without regard for the environment can actually be detrimental to the company’s
sustainability. The unsustainable practices although may appear cheaper in the short run are
costly in the long run. For instance, energy and material wastages in the production processes
may lead to high energy bills and expensive corrective actions. The depletion of the resources
which affects the cost of raw material can also affect the profitability of the company. Also,
businesses that have not embraced sustainability may find it challenging to secure investments
from investors who are now looking for firms with strong Environmental, Social, and
Governance (ESG) profiles (Shayan et al., 2022). As the world moves to invest in sustainability-
focused projects, those companies that lack regard for the environment may not access the
much-needed capital. This is because as the issue of environmental sustainability gains
importance in the consumer and investor market, it is clear that companies that have not given
such factors much attention may end up incurring a lot of cost in the future in terms of finances
and image (Lingnau et al., 2022). Thus, business organizations should appreciate that adopting
sustainable practices not only enables the prevention of environmental degradation but also
foster long term business profitability, and hence is a critical factor in managing the balance
between the business’s profit making objectives and its moral responsibilities.

In light of these challenges, it is clear that integrating sustainability is not only possible
but also highly beneficial for organizations because it also has positive economic implications
both in the short and long run. Activities like energy management and conservation, recycling of
wastes and the utilization of natural resources are not only environmentally friendly but can also
be cost-effective. For example, a large number of Malaysian SMEs have implemented green
technologies through the Green Technology Financing Scheme (GTFS) to enable the company
to invest in energy efficient equipment and renewable energy (Zaharudin, Mohd Azlan, 2017).
These measures cut down energy use, the associated costs and increase the effectiveness of
business operations thus making them independent of costly and scarce resources. Moreover,
there are provisions such as grants and tax exemptions for organizations that practice
sustainable management, and hence, encouraging firms to adopt sustainable technologies. In
addition, the society’s consciousness of environmental concerns is gradually rising, which leads
to a higher emphasis on the sustainability factor in consumers’ preferences. Hence, while
adopting green technologies, the SMEs not only mitigate their emission of greenhouse gases
but also gain competitive advantages in terms of market attractiveness through capturing the
attention of the environmentally sensitive consumers, thus underlining the financial gain from
sustainable management (Chavira et al., 2023). This transformation to environmentally friendly
policies shows that there is no inherent conflict between the pursuit of profits and the pursuit of
environmental responsibility; these two objectives can coexist in harmony and promote both
wealth creation and ecological stewardship.

In addition, the trend towards ESG standards across the world is another factor that is
changing the business environment and can help SMEs in Malaysia to meet international
standards. It has become imperative for companies to embrace the ESG principles in their
business operations especially when operating in different countries or sourcing for funds from
sustainable investors. For SMEs particularly competing in the global market, embracing ESG
standards is an effective way to stand out in the market with rising concerns about ethical
buying. For instance, a company with good history of environmental stewardship can get
investors who are looking for companies with the right approach to business with regards to the
environment (Adenan et al., 2024). Despite the high capital investment required in sustainable
technologies and procedures, its returns include market access, enhanced corporate image,
and customer loyalty. Firms that have embraced environmental management systems to
enhance environmental sustainability are likely to foster better stakeholder relationships, thus
boosting brand recognition, company image, and customer loyalty. Moreover, the availability of
sustainable finance tools, such as green bonds and ESG-oriented investment portfolios, allows
SMEs to find more ways to finance their sustainable initiatives (Fosu et al., 2023). Thus, it is
evident that Malaysian SMEs are capable of adopting sustainable practices and that sustainable
investment is a viable and potentially profitable option for the future.

Social Responsibility and Ethical Business Practices

 Social responsibility is an area where the profit-making decisions meet the ethical
business practices especially for the Malaysian SMEs that provide employment to a large
number of workers, including those in the low income and migrant category. In these
businesses, the pressure to increase profits tends to cause ethical issues, particularly regarding
employment. SMEs are always under pressure to cut down on costs in order to be more
competitive in the market and therefore may neglect the welfare of their employees, fair
remuneration, safety in the workplace and non-discrimination (Norbit et al., 2017). Although
these are ways to decrease the costs and can produce short term gains, they also lead to
undesirable effects in the future. For example, low wages, uncomfortable working conditions,
and lack of employee compensation result in a high turnover and low morale. High turnover rate
leads to new costs of hiring and introducing new employees, and low morale means less
productivity, more sickness, and poor performance at the workplace. At the worst, employees
may lose interest in their work or even complain to the authorities for being abused. However,
when businesses fail to uphold ethical labor practices, they face certain consequences which
may be damaging to their image (Rasool et al., 2021). This damage can put off potential
customers, investors, and employees as all of them are more conscious of ethical business
practice.

Though monetary gains with least concern for societal welfare could be advantageous in
the short run, they are bound to create adverse effects in the longer run. Negative
consequences of unethical labor practices include legal problems, customer distrust, and
decreased worker performance, which usually exceed the potential gains from labor cost
reduction. For instance, organizations that violate labor laws or mistreat their employees may
suffer penalties or lawsuits, which not only lead to direct financial losses but also negatively
impact the organization’s image and branding (Khan et al., 2023). With a growing number of
businesses operating in the market today, customers and investors are paying attention to the
supply chain’s ethics, and if a company does not meet these expectations, it can lose customers
and potential investors. Therefore, businesses that are not concerned with social responsibility
are likely to harm their future profitability by just chasing after short term gains ignoring the fact
that every business must be socially responsible if it wants to be profitable in the long run
(Pfajfar et al., 2022). Sustainability is a major issue that SMEs need to consider in their business
in order to achieve long-term success in the market without compromising the social
responsibility.
 On the contrary, companies that embrace ethical labour engagement and corporate
social responsibility (CSR) get better results. Ethical labor practices in form of paying fair wages,
skill development, workplace safety, and inclusion policies not only improve the welfare of
employees but also the output and tenure of employees. When employees believe that they are
appreciated and paid properly, they tend to stay with the company, thus reducing turnover, and
the costs of recruiting and training new workers. In the same way, ethical practices enhance
credibility and trust among the stakeholders such as the consumers, investors as well as the
community. It is therefore important to understand that trust is a crucial element in ensuring long
term profitability given that customers are more likely to seek services from organizations that
are socially responsible. Other CSR measures like charitable activities, eco-friendly activities,
health and wellness of employees also add to the company’s image and legitimacy to carry on
business (Brieger et al., 2019). It is therefore evident that Malaysian SMEs have in recent years
adopted CSR because they understand that it provides them with a competitive advantage in a
market where the consumers and investors are becoming more conscious of the social impact
of their purchases and investments. Even though the costs of implementing CSR programs are
usually high during the initial stages, the returns on these investments in the form of increased
brand loyalty, improved employee morale, and better market positioning are usually significantly
higher than the initial investment (Vuong & Bui, 2023). Therefore, ethical labor practices can be
used by SMEs as a tool for establishing good relations with the employees and in turn the
consumers, thus stimulating growth.

Cultural and religious values in Malaysia also reinforce the notion of the harmony
between profit and ethics which makes it easier for SMEs to embrace socially responsible
business practices. Islamic values such as equity, justice and the welfare of people are
important in ensuring that many Malaysian companies practice ethical business. For instance,
halal certification that is relative to Islamic principles not only confirms that businesses are
adhering to religious practices but also creates business revenue locally and globally. Halal
certification is important to Muslim consumers and is fast becoming a symbol of reliability and
accountability. On this aspect, cultural values do not only support ethical business practices but
also create a way to make profit by creating a bridge to new markets and making customers
loyal (Ahmad et al., 2023). Furthermore, adopting cultural values in the business model can also
serve as a competitive advantage in the market where firms compete with each other, as the
consumers who consider ethical practices. However, SMEs face number of resource constraints
and other challenges which prevent them from adopting socially responsible practices. This can
be a problem for many smaller firms because they may not be able to afford to devote
resources to the welfare of their employees or the support of community projects in the early
stages of their business development. These challenges can only be tackled by government
support. Financial incentives, grants and training can thus reduce the cost of implementation on
SMEs, allowing the companies to pay the social responsibility without affecting their bottom line.
Furthermore, there are technologies that are available for the management of human resource
and which enhance ethical labor practices through their use while at the same time increasing
efficiency and lowering costs. This shows that even though there are challenges in terms of
resources, they are not impossible to overcome (Farida & Setiawan, 2022). Given the right
support and resources, SMEs are able to embrace ethical labor practices thus improving their
corporate social responsibility while at the same time improving their profitability in the long-run.

Conclusion

Profit-driven business decisions and ethical practices are not inherently incompatible for
Malaysian SMEs. However, through the integration of sustainable measures and social
responsibility, SMEs have the potential to build a balance between the two aspects of ethical
concerns and profitability. However, there are some financial and operational implications of
implementing these practices, but the benefits are usually felt in the long run. For instance,
using environmentally friendly strategies like energy conservation, waste management might be
expensive in the beginning but will in the long run, reduce costs, enhance efficiency and
competitiveness of the firm in the market. For instance, adhering to corporate social
responsibility, such as paying employees decent wages, ensuring their safety, and investing in
their training, can decrease employee turnover, increase employees’ motivation, and enhance
customers’ loyalty. Furthermore, the Malaysian government has put in place several measures
and policies that support SMEs in overcoming the financial barriers of sustainability, for
instance, the Green Technology Financing Scheme. Other cultural values such as equity and
social justice also support ethicality making it a critical element of business operations.
Technological advancements also help SMEs in implementing ethical practices with better
efficiency, effectiveness, and low cost.
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