Development and Validation of a Scale for Measuring
Sustainability Construct of Informal Microenterprises
Eijaz Ahmed Khan*, Mohammed Naim A. Dewan** and
Md. Maruf Hossan Chowdhury***
In the field of sustainability research, the assessment of measurement
models has been ignored largely. As a result, many sustainability construct
scales are misspecified and this might lead to reduced scale validity. The
aim of the study was to develop and validate scales of sustainability
constructs by investigating an informal sector. A mixed method research
design was used. The content analysis procedures were utilized to analyse
the transcribed field study interviews. This procedure confirmed the
sustainability factors and variables. The quantitative data was analysed
through Exploratory Factor Analysis (EFA) followed by Partial Least
Square (PLS) approach. Quantitative analysis validated the factors and
variables. Sustainability constructs in context of informal sector found
hierarchical-reflective in nature.
1. Introduction
Over the last two decades, the sustainability concept was discussed by many academic
scholars in terms of three common constructs specifically, economic, social and natural
environmental. However, so far, no study has attempted to develop and validate
sustainability construct scales with respect to measurement model. Subsequently, it may
be assumed that many scales are misspecified in relation to measurement model. This
sustainability concept was described through several frameworks. Among these
frameworks, the Global Reporting Initiative (GRI) (Labuschagne et al., 2005), the Human
Development Index (HDI) by UNDP (UNDP, 2001), Sustainable Consumption Indicators
(SCI) by UNEP (Bentley, 2003), the IChemE framework (IChemE, 2002), the Wuppertal
framework (Spangenberg and Bonniot, 1998) are widely accepted. These several
frameworks reflect the progress of sustainability studies and still it is in developing process
(Khan et al., 2012). These frameworks also show that the sustainability indicators and
constructs are consisting usually in terms of economic, social, and natural environmental
factors. However, no empirical study has done yet to validate the construct indicators and
measurement model. Therefore, this study aim to develop and validate scales of
sustainability constructs.
This paper is organized as follows: The next section presents the theoretical background.
This is followed by research method section, which combines the exploratory field study
and questionnaire survey. Next, results of field study and survey are presented and
discussed in great depth. Finally, conclusions and future directions are presented.
*Eijaz Ahmed Khan, Doctoral candidate, Curtin Graduate School of Business, Curtin University Australia,
Email: eijaz_2@yahoo.com
**Md. Maruf Hossan Chowdhury, Curtin Graduate School of Business, Curtin University Australia, Email:
marufhossan@gmail.com
***Mohammed Naim A. Dewan, Doctoral candidate, Curtin Graduate School of Business, Curtin University
Australia, Email: mdewan01@hotmail.com
2. Literature review
1
2.1 Conceptualization of sustainability constructs
The next paragraphs discussed the three conceptualization of sustainability factor.
Economic sustainability is a vital dimension of the enterprises, it is logical to think about
the economic dimension on the basis of employees, profit and sales. Bjerke (2007) stated
that firm success is achieved when there is a substantial increase in sales, revenues or
employees. Bigsten and Gebreeyesus (2007) perceived a firm to be progressive if it
increased in economic size in terms of employees. Scholars have been more interested in
using the employees as an indicator of economic sustainability rather than other indicators.
They argued that relying on other economic indicators such as income, profit and sales is
difficult to compute due to incomplete records. However, change in employment is also
seen as a traditional indicator because the number of workers in the firm depends on its
sales and profit (Parker and Torres, 1994). It is therefore not suitable to use the increase in
the number of workers especially for IMs, since self-employment is a focal point of IMs as
owner-managers usually run these enterprises. Many scholars have used profit as an
indicator of economic sustainability (Chen et al., 2007; Honig, 1998; Davis et al., 2010;
Kreiser and Davis, 2010). In addition to profit, some scholars have emphasized sales
growth indicators as the best economic indicator (e.g., Zainol and Wan Daud, 2011;
Laforet, 2011; Shrader and Siegel, 2007). Sales/turnover provides a more objective
measure of economic sustainability. The current research has taken a qualitative view of
economic sustainability, using the following indicators: employment, sales growth, income
stability, return on investment and profitability (Khan et al., 2012).
Social sustainability indicates that the micro-or small firm activities cannot be considered
sustainable unless they are measured by social indicators in addition to the measurement
of economic sustainability. The entrepreneur’s aspiration level is derived from fulfilling
positive social outcomes such as social needs, recognition, empowerment, freedom, etc
(Khan et al., 2012). Studies on entrepreneurial activities have defined social gains as
including life expectancy, child survival, education, justice and equality for the society
(e.g.,Parris and Kates, 2003). These indicators are not specific to the context of IMs.
Therefore, using social sustainability indicators is far removed from IMs research. Majority
of IMs in developing countries start small businesses to change their unemployment status
to employment. This is because they feel depressed during their period of unemployment
and need to seek ways to revive their social identity, freedom and empowerment.
Therefore, this current IMs research has suggested several social sustainability indicators
for IMs. Firstly, meeting basic needs is an indicator which covers a diverse range of basic
human requirements such as food, clothing, accommodation, education and health (Khan
et al., 2012). This research has also included quality of life which consists of
freedom/control, social recognition and empowerment indicators (Khan et al., 2012).
Natural environment sustainability is also essential for micro- or small firms because
the natural environment is a foundation of resources for the life support of society (Daily,
1997). If aspects of the natural environment are not sustained, the lives of many species,
including humans, can be threatened. Therefore, the entrepreneurial activities cannot be
treated as sustainable without measures for natural environment sustainability indicators in
addition to the economic and social sustainability dimensions. In the context of IMs, natural
environment sustainability performance is difficult to define since research has not yet
been done. Still, different aspects of the natural environment sustainability discussion are
ongoing. Whilst entrepreneurial activities such as IMs perhaps tend to possess a lesser
environmental footprint compared to other organizations, they still have responsibilities for
managing their business in such a way that they can minimize environmental vulnerability.
2
The IMs often fails to execute appropriate waste collection, use of energy and water, and
treatment or disposal practices, partially because of the high costs incurred relative to
income (Revell and Blackburn, 2007). Therefore, the natural sustainability of IMs becomes
challenging. The current study has attempted to explore natural environment sustainability
indicators such as management of waste, hygiene factors, air and water pollution and
space management which fit into the context of IMs (Khan et al., 2012).
2.2 Dimensionality of sustainability constructs
The literature review revealed that the vast majority of studies had considered only an
objective economic dimension or operational dimension. In addition, some studies focused
on archival economic and non-economic dimensions. This indicates that there are huge
gaps when it comes to considering subjective dimensions such as social and
environmental goals. However, the social field of study has recognized the importance of
social and environmental dimensions (see Kanter and Brinkerhoff, 1981). Fosler (1978)
identified three different dimensions: (a) the market economy; (b) the pluralistic economy;
and (c) the holistic economy. Furthermore, Kanter (1972) suggested that a survival
dimension can be a success criterion. Adaptation to the environment appears critical to
many scholars in the newly emerging organization–environment tradition. Therefore,
keeping these views in mind, the current research has adopted three sustainable
dimensions: economic, social and natural environmental.
3. Research methods
3.1 Qualitative approach
At first, by reviewing the relevant literature and analysing the qualitative field study data, a
measurement model of sustainability performance constructs was developed. 14
participants were selected for interview: eight micro-firm owners (tea-stall owners), three
NGO executives and three local government officials (ward commissioners). This study
employed convenience sampling rather than other methods (Zikmund et al., 2012). The
semi-structured interview was chosen as a method of collecting relevant qualitative data to
explore and refine the model (see Appendix A). The data were obtained based on a oneto-one personal interview. The transcribed interviews were analysed by using the content
analysis method. Huberman and Miles (1994) recommended the content analysis
technique as being useful in an exploratory research study for examining the determinants
of behavioural patterns. This procedure explored and confirmed important sustainability
factors and variables.
3.2 Quantitative approach
The quantitative approach was aimed at finding and validating the important dimensions,
subdimensions and variables. A survey questionnaire was developed based on the
literature review and qualitative field study (see Appendix B). A six-point Likert scale was
used to measure all the dimensions and variables. The sample included 438 IM owners
based on a simple random sampling. In terms of survey interaction, this study applied
location intercept techniques. At first, this study conducted an exploratory factor analysis
(EFA) to ensure construct validity by assessing items load on the right factor. Next, the
quantitative analysis was conducted using the structural equation modelling (SEM)
technique (Chin, 2010). The capability of handling formative as well as reflective indicators
and constructs was one of the greatest incentives to adopt PLS. The decision to model a
3
construct as reflective or formative were based on four major criteria: (1) direction of
causality from construct to items, (2) interchangeability of items, (3) covariation among
items, and (4) nomological net of construct items.
4. Results of field study
The extracted variables were labeled under the three sub constructs i.e., economic, social
and natural environment and one sustainability construct. Results of the field study are
presented and interpreted in detail here.
Economic: Economic sustainability is considered to consist of several aspects:
employment, sales growth, income stability, profitability and return on investment.
Employment was considered as a positive indicator by field study participants Micro-firms
A and D, and NGO I, for example, “it is my job” (Micro-firm (D). Micro-firms A, B, D and G
agreed that their sales were gradually increasing. In addition, NGOs I and L observed the
positive sales growth of micro-firms. Income stability is also an important indicator for
measuring economic performance. All Micro-firms confirmed that their income was not
stable over time. It fluctuated depending upon the location, days, seasons and weather.
Nevertheless, they moderately agreed that their income fluctuated at an acceptable level,
for example, “Income may be good one day but it may be bad next day” (Micro-firm E) and
these views were similarly narrated by NGOs I and J and Local government L. Return on
investment also appeared as an important indicator. Micro-firms A, B and D reported that
“return on investment is moderate” (Micro-firm A); “profit margin is medium” (Micro-firm B);
and “income is so far so good” (Micro-firm D). The profitability of micro-firms was also
confirmed from the field study data. Most of the micro-firms as well as the NGO and Local
government participants strongly supported the profitability of IMs.
Social: Several social indicators were found to reflect micro-firms’ social sustainability,
namely, basic needs, social recognition, empowerment, freedom and control, and child
labour. All participants viewed micro-firms as a way to fulfil the daily basic needs of their
family, for example, “we cannot bear all these things [basic needs] (Micro-firm A). NGO
and local government participants provided contrary information by stating that, for
instance, micro-firm activities “cannot provide per-day minimum caloric intake for the
family” (NGO I). As for freedom and control over the course of one’s own lifestyle, some
tea-stall owners found that IMs were the tool to reach that goal. Several tea-stall owners
(Micro-firms A, B, C and G) agreed that their lifestyle was far better than in their previous
jobs. Moreover, a significant number of opinions emerged from the field study regarding
social empowerment, for example, “I have created some wealth” (Micro-Firm D).
Furthermore, since the child labour issue was considered sensitive, none of the tea-stall
owners mentioned the involvement of children in their micro-firms. However, from the field
observations, it was found that micro-firms used child labour on a part-time basis. NGO I
and Local government L confirmed the use of child labour in micro-firms.
Natural environment: Natural environment sustainability also covers a wide range of
indicators. Every firm contributes to degrading the environment through factors such as
water and energy use, waste and emissions, waste management, space management and
hygiene factors. As for the water and energy used, almost every micro-firm from the field
study believed that they used water and energy at a minimal expenditure level. Along with
others, Micro-firm C affirmed that they “use[d] chaff processing wood for making fire. Now
it is almost 9 kg every day … need almost 8 pitchers of water per-day.” NGOs I and J
confirmed these statements. In addition, participants noted that the creation of waste and
emissions was also at acceptable levels. Micro-firms C, D and E mentioned that chaff-log
4
was a good thing and it emitted a low level of smoke. NGOs I, J and K confirmed these
views. All micro-firms provided positive statements regarding waste management.
Conversely, NGOs I and J and Local government M and N disagreed with these
statements. The hygiene factor was also reflected in a positive manner in the field study.
Table 1. Factors, sub-factors and variables
Field study participants
A
B
C
D
E
F
G
H
I
J
Factors\items
Economic
-Employment
-Sales growth
-Income stability
-Return on investment
-Profitability
Social
-Basic needs
-Social recognition
-Empowerment
-Freedom and control
-Child labour use
Natural Environment
-Uses rate of utilities
-Wastes and emissions
-Waste management
-Space management
-Hygiene factors
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
K
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
L
√
√
√
√
√
√
√
√
√
√
M
N
√
√
√
√
√
√
√
√
Table 1 shows the list of variables identified in each factor and sub-factors as well as the
anonymous participants which mentioned the variables across the industry. Out of the 15
identified variables, only one variable such as ‘ensures basic needs’ confirmed by 13 IMs
field study participants. Overall, at least one variable was mentioned by all participants.
5. Results of survey
In the quantitative analysis, this study conducted EFA and PLS approaches respectively.
The results of the measurement properties are depicted by table 2, 3 and 4.
5.1 Exploratory factor analysis
In EFA approach, the KMO value was 0.922 (> 0.50), confirmed the measure of sampling
adequacy and Bartlett’s test of sphericity value was 6036.299, df = 105, significant at p =
0.000, provided evidence for a significant correlation among the variables. The sums of
squared loadings from the three factors have the cumulative value of 72.845% in
explaining the total variance in data. Throughout the process of EFA, those items were
deleted that did not load properly on a particular factor (< 0.40) or if they had cross
loadings (see Table 2). In this way, EC5, SO5 and EN4 were deleted. The remaining 12
items were retained for the next run of EFA. As presented in Table 2, the second round of
EFA with varimax rotation yielded three factors. The refined model explained 76.360% of
the cumulative variance. In this stage, both the KMO measure and Bartlett’s test of
sphericity were significant. Reliability analysis (i.e., Cronbach’s alpha) of the extracted
three factors was then computed, which exceeded the cut-off value of 0.70 (Nunnally and
Bernstein, 1991). Thus, the reliability of the refined model was established. This process is
recommended by the scale development study (Wetzels et al., 2009)
Factors
Table 2. Exploratory factor analysis (Rotated factor matrix)
Items
Factors
Alpha
5
Economic (EC)
Social (SO)
Natural environment (EN)
Employment (EC1)
Sales growth (EC2)
Income stability (EC3)
Return on investment (EC4)
Profitability (EC5)
Basic needs (SO1)
Social recognition (SO2)
Empowerment (SO3)
Freedom and control (SO4)
Child labour use (SO5)
Uses rate of utilities (EN1)
Wastes and emissions (EN2)
Waste management (EN3)
Space management (EN4)
Hygiene factors (EN5)
First stage
EC
SO
EN
.839
.888
.735
.880
.362
.536
.813
.745
.769
.252
.689
.657
.709
.365
.932
Second stage
EC
SO
EN
.830 .226 .180
.882 .132 .130
.741 .333 .111
.891 .171 .126
.927
.498
.229
.251
.329
.520
.817
.764
.781
.290
.299
.395
.332
.915
.228
.180
.114
.398
.537
.287
.732
.693
.776
.911
.127
.158
.860
5.2 Partial Least Square approach
To ensure the convergent validity of measurement indicators this study investigates the
item reliability, average variance extracted (AVE) and composite reliability (CR). Referring
to Table 3, it is portrayed that loading for all items are more than minimum threshold level
of 0.7 or 0.6 with reference to Ringle et al. (2012). Moreover, the t-value, obtained from
bootstrapping showed that all loadings are significant at the 0.05 level. Therefore, all items
are retained. To examine the convergent validity of measurement models this study
calculated AVE and CR (Chin, 2010; Fornell and Larcker, 1981). Table 3 reports that the
CR values of all constructs exceed the cut off level 0.70 and the AVE for all construct is
more than 0.50 suggested by (Fornell and Larcker, 1981). To establish discriminant
validity, the square root of the AVE was compared to the inter-construct correlations (Table
4). It shows that the square root of AVE was greater than the off-diagonal elements across
the row and down the column. Based on the outcomes shown in Tables 3 and 4, the
overall results for the measurement model have provided satisfactory empirical support for
reliability, and convergent, discriminant validity of the model.
Factors
Economic (EC)
Social (SO)
Natural environment (EN)
Items
EC1
EC2
EC3
EC4
SO1
SO2
SO3
SO4
EN1
EN2
EN3
EN5
Table 3: Psychometric properties
Reflective measurement
First-order constructs
Second-order constructs
L t-v
L t-v
L
AVE
CR
L
AVE
CR
0.915 113.043 0.820 0.948 0.726 18.480 0.569
0.940
0.909 103.828
0.667 16.055
0.871 55.848
0.711 25.860
0.926 127.463
0.691 20.693
0.819 43.787
0.799 0.941 0.793 39.114
0.901 74.864
0.797 39.373
0.929 143.574
0.832 67.528
0.922 115.558
0.849 61.692
0.910 124.161 0.793 0.939 0.792 24.966
0.906 89.695
0.819 39.368
0.875 54.961
0.686 18.817
0.869 63.122
0.654 20.009
R² for economic = 0.597
R² for social = 0.839
R² for natural environment = 0.697
Abbreviations: L-Loadings, L t-v-Loadings t-value, AVE-Average Variance Extracted, CR-Composite Reliability
Table 4: AVE Square root
First-order constructs
Second-order constructs
6
Economic (EC)
Social (SO)
Natural environment (EN)
Sustainability (SA)
EC
0.906
0.585
0.398
0.773
SO
EN
SA
0.894
0.703
0.916
0.890
0.835
0.754
6. Discussions
The objective of the study was to develop and validate scale of sustainability constructs in
context of IMs. At first, this study established a conceptual definition of sustainability
constructs and indicators via literature review. In the same way, the study also confirmed
the dimensionality of sustainability constructs. Next, the study used a field study approach
to generate any new items and confirm existing items in literature review which represents
the sustainability constructs. This process also assessed the content validity of the items.
After confirming the content validity, this study formally specifies the measurement model.
After that, this study runs an EFA to refine and purify the items. Finally, the PLS approach
was conducted. In this step, the scales showed decent value criteria a set of item’s loading
and its corresponding t-values were significant. Further, AVE and the CR values also meet
the criteria and established the convergent validity of measurement models. Furthermore,
good AVE Square root values also confirmed the discernment validity among the
constructs. The study also tested the second-order sustainable performance dimension
underlying the three first-order subdimensions, namely, economic, social and natural
environmental sustainability. The explained variance R² for the economic subdimension
was 60%, for the social subdimension was 84% and for the natural environmental
subdimension was 70% (see Table 3). Therefore, the findings confirmed that sustainability,
incorporating economic, social and natural environmental dimension, was a significant
first-order dimension. The findings also suggested that a reflective scale of sustainability
constructs in context of IMs.
7. Conclusions and future directions
This study proposed a hierarchical- reflective sustainability measurement model that this
model is unique in the sense that it has been developed based on the literature review,
field study data analysis, and EFA and PLS-SEM approach. The proposed measurement
model consists of one focal factor, three subfactors and 12 variables. Although the
variance explained by the research model is quite high for this study, future work should
attempt to identify and test additional boundary conditions of the model with a view to
presenting an even richer understanding of IMs’ sustainability. This extension might be
shaped in terms of additional contextual variables; multi-group analysis (e.g., gender, age,
etc.); geographical location differences (e.g., urban and village); and other contexts.
Findings from such studies might enhance the overall generalizability of the IMs’ model.
Future studies could extend the present research model by adding some new constructs.
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Appendices
Somewhat Disagree
Somewhat agree
Agree
Strongly agree
Economic sustainability
1 We see our “micro-firm” is providing employment to us and others.
1
Our “micro-firm’s” economic performance is at an acceptable level in terms of …
2 sales growth.
1
3 income stability.
1
4 return on investment.
1
5 profitability.
1
Social sustainability
Our “micro-firm”…
6 ensures basic needs for our family.
1
7 enhances our social recognition in society.
1
8 improves our empowerment in society.
1
9 provides freedom and control over the course of our own lifestyle.
1
10 is concerned about child labour use.
1
Natural environmental sustainability
Our “micro-firm”…
11 uses utilities (e.g., energy and water) in an environmental friendly manner. 1
12 produces few wastes and emissions.
1
13 is concerned about waste management.
1
14 uses small space to set up and operate business.
1
15 is concerned about hygienic factors.
1
Disagree
Appendix B-Questionnaire survey
The statements below describe the sustainable performance of your “microfirm” in terms of social, economic, and natural environment. Please read each
statement carefully, and then indicate the extent to which you agree or
disagree by circling the number on a scale of 1 (Strongly disagree) to 6
(Strongly agree).
Strongly Disagree
Appendix A-Field study protocol
Q.1. Does micro-firm business can make money?
(How do you see it?)
Q.2. Does micro-firm business can support their family?
(How do you see it?)
Q.3. Does micro-firm business harmful for environment?
(How do you see it?)
2
3
4
5
6
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
6
6
6
6
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
5
5
5
5
5
6
6
6
6
6
2
2
2
2
2
3
3
3
3
3
4
4
4
4
4
5
5
5
5
5
6
6
6
6
6
9