Global Strategy Mike W. Peng c h a p t e r 1212 Copyright © 2009 Cengage.PowerPoint Presentation by John Bowen, Columbus State Community College All rights reserved. Strategizing with Corporate Social Responsibility Part III: Corporate-Level Strategies Global Strategy Mike W. Peng chapter 12

Copyright © 2009 Cengage. All rights reserved.12–2 Outline A stakeholder view of the firm A comprehensive model of corporate social responsibility Debates and extensions The savvy strategist

Copyright © 2009 Cengage. All rights reserved.12–3 A Stakeholder View of the Firm A stakeholder is “any group or individual who can affect or is affected by the achievement of the organization’s objectives” A big picture perspective  Goal for CSR is global sustainability, defined as the ability “to meet the needs of the present without compromising the ability of future generations to meet their needs”  Drivers of global sustainability; rising levels of population and inequity, and stubbornly high levels of poverty in some countries  Stakeholders have the ability to affect firms

Copyright © 2009 Cengage. All rights reserved.12–4 A Stakeholder View of the Firm (cont’d) Primary and secondary stakeholder groups  Primary stakeholder groups are those on whom the firm relies for survival and prosperity  Secondary stakeholder groups are defined as “those who influence or affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival”

Copyright © 2009 Cengage. All rights reserved.12–5 A Stakeholder View of the Firm: A Fundamental Debate The CSR debate centers on the nature of the firm in society. Why does the firm exist? One side of the debate argues the “the social responsibility of business is to increase its profits, which leads to efficient capital and product markets” Advocates of shareholder capitalism argue that if firms attempt to attain social goals, managers will lose their focus on profit maximization

Copyright © 2009 Cengage. All rights reserved.12–6 A Stakeholder View of the Firm: A Fundamental Debate (cont’d) Few, if any, CSR advocates argue for a revival of socialism in the world. The goal of the CSR movement is a more humane capitalism in which justice and fairness can be addressed CSR advocates argue that all stakeholders have an equal right to bargain for a “fair deal”

Copyright © 2009 Cengage. All rights reserved.12–7 A Stakeholder View of the Firm Figure 12.1 Source: Adapted from T. Donaldson & L. Preston, 1995, The stakeholder theory of the corporation: Concepts, evidence, and implications (p. 69), Academy of Management Review, 20: 65–91. Copyright © Reprinted by permission of Academy of Management Review via Copyright Clearance Center.

Copyright © 2009 Cengage. All rights reserved.12–8 Managers: A Unique Group of Stakeholders The free market and CSR camps agree:  Not to rock the capitalistic boat  On the central role of managers Managers, as a stakeholder group, are uniquely positioned at the center of all stakeholder relationships  Managers make decisions on behalf of the firm which affect all other stakeholders  Therefore, it is important to understand how they make decisions concerning CSR

Copyright © 2009 Cengage. All rights reserved.12–9 A Comprehensive Model of Corporate Social Responsibility Figure 12.2

Copyright © 2009 Cengage. All rights reserved.12–10 Rivalry Among Competitors Mutual Interdependence  Reliance on old ways of doing business allows competitors to resist higher CSR standards Increases in the Number of Rivals  Competition based on CSR is lower when there are a small number of players determined to resist  As the number of rivals increases, maintaining the collusion to resist CSR among industry competitors becomes difficult and can collapse

Copyright © 2009 Cengage. All rights reserved.12–11 Threat of Potential Entry For incumbents, investments in CSR-related activities may allow them to ride down experience curves and deter potential entrants First mover experience in pollution control technologies can create entry barriers  Effectiveness as entry barriers for two pollution control technologies—pollution prevention and pollution reduction—is not equal  The technologies creating the most effective entry barriers are proactive, pollution prevention—not end-of-pipe, pollution reduction

Copyright © 2009 Cengage. All rights reserved.12–12 Bargaining Power of Suppliers / Buyers If socially and environmentally conscious suppliers provide unique, differentiated products with few or no substitutes, their bargaining power is likely to be substantial CSR conscious buyers can extract concessions  Individual buyers: Shell’s North Sea platform fiasco  Corporate buyers: Nike requires its suppliers to be “sweatshop”-free  Buyers in great difficulties can extract CSR concessions

Copyright © 2009 Cengage. All rights reserved.12–13 Threat of Substitutes If substitutes are superior to existing products and costs are reasonable, they attract more customers  Wind power, much more environmentally friendly than fossil-fuels and safer than nuclear power, may have great potential Overall, the threat of substitutes requires firms to vigilantly scan the larger environment, instead of narrowly focusing on the focal industry

Copyright © 2009 Cengage. All rights reserved.12–14 Turning Threats to Opportunities Not all industries are equal nor are any industries immune in terms of their exposure to CSR challenges Industries and firms may want to selectively but proactively turn threats into opportunities  Treating CSR as a cost or nuisance may underestimate strategic business opportunities  The most proactive managers are far-sighted to make their firm’s CSR activities a source of differentiation as opposed to an additional cost

Copyright © 2009 Cengage. All rights reserved.12–15 Resource-Based Considerations Value: Some CSR policies may reduce the firm’s value Rarity: CSR policies may not pay off if common Imitability: CSR that is embedded in people is harder to imitate Organization: A firm needs to tie together CSR activities The CSR-economic performance puzzle: Does CSR improve economic performance?

Copyright © 2009 Cengage. All rights reserved.12–16 The Question of Value Large firms, especially MNEs, can apply their financial, technological, and human resources toward a variety of CSR causes  Social issue participation (involvement in social causes not directly related to managing primary shareholders) does not qualify as value-adding activities and may actually reduce shareholder value  Expertise, techniques, and processes associated with the direct management of primary stakeholder groups are likely to add value  Competing on diversity via internships, scholarships, ad campaigns, and aggressive recruiting of minority candidates

Copyright © 2009 Cengage. All rights reserved.12–17 The Question of Rarity If competitors also possess certain valuable resources and capabilities, then the focal firm does not gain a competitive advantage by having them  Valuable but common resources and capabilities only provide competitive parity  Only valuable and rare resources and capabilities can provide focal firms some competitive advantage

Copyright © 2009 Cengage. All rights reserved.12–18 The Question of Imitability Only valuable and rare resources and capabilities that are hard-to-imitate can offer firms sustainable competitive advantage  CSR-related resources and capabilities deeply embedded in the idiosyncratic managerial and employee skills, attitudes, and interpretations of firms  The socially complex way of CSR engagement is difficult to imitate

Copyright © 2009 Cengage. All rights reserved.12–19 The Question of Organization Complementary Assets  Assets that, when combined with valuable, rare, and hard-to-imitate resources and capabilities, enable a firm to fully utilize its CSR potential  Formal management control systems  Codified production and engineering processes  Informal relationships between managers and employees  Difficult to “fake it:” These assets should grow from more general business strategies (e.g., differentiation)

Copyright © 2009 Cengage. All rights reserved.12–20 CSR Economic Performance Puzzle Why is there no conclusive evidence on a direct, positive link between CSR and economic performance? Various studies produce different results Not every firm benefits from CSR

Copyright © 2009 Cengage. All rights reserved.12–21 Institution-Based Considerations Reactive strategy: Many cost-conscious manufacturers ignore CSR Defensive strategy: Argue against costs Accommodative strategy: CSR as a worthwhile endeavor Proactive strategy: Actively participate in policy discussions, build alliances with stakeholders and voluntarily go beyond what the regulations require Making strategic choices: A strategic menu of choices among reactive, defensive, accommodative, and proactive strategies

Copyright © 2009 Cengage. All rights reserved.12–22 Reactive Strategy Characterized by a lack of support by top management for CSR causes The need to accept CSR is neither internalized through cognitive beliefs, nor becoming any norms in practice, leaving only formal regulatory pressures to compel firms into compliance CSR Movement  Emerged in response to the blatant lack of responsiveness toward CSR

Copyright © 2009 Cengage. All rights reserved.12–23 Defensive Strategy Focuses on regulatory compliance with only piecemeal involvement by top management CSR issues are regarded as an added cost or nuisance Firms admit responsibility, but often fight it In the absence of informal normative and cognitive beliefs, it seems that formal regulatory pressures are the only feasible way to push firms ahead  Governments force polluters pay “green taxes”  The Clean Air Act of 1970

Copyright © 2009 Cengage. All rights reserved.12–24 Accommodative Strategy Individuals and firms make rational choices given the right kind of institutional incentives From both normative and cognitive standpoints, it may become a legitimate social obligation to accept responsibility and do all that is required  A negative view: Window dressing?  A positive view: Doing the right thing?  An instrumental view: Another plot to make money? Institution-based answer: All of the above  From window dressing to self-motivated, better corporate citizens

Copyright © 2009 Cengage. All rights reserved.12–25 Proactive Strategy Proactive participation in regional, national, and international policy discussions Alliances with stakeholder groups (e.g., NGOs)  Alliances with NGOs: The key lies in identifying short- term, manageable projects of mutual interests Voluntary activities beyond what is legally required  Refuting the “pollution haven” hypothesis

Copyright © 2009 Cengage. All rights reserved.12–26 Debates and Extensions Domestic versus overseas social responsibility  Potentially increases corporate profits, provides employment to host countries and increases standards of living there  However, often domestic employees and communities pay the price for this expansion Active versus inactive engagement overseas: To what extent should an MNE use threats or its power to impose its values in a country? Race to the bottom (“pollution haven”) versus race to the top: Some companies may move to a country to escape environmental regulations

Copyright © 2009 Cengage. All rights reserved.12–27 The Savvy Strategist Managers may want to integrate CSR as part of the core activities of the firm—instead of “faking it” and making cosmetic changes Managers need to pick CSR battles carefully Strategists need to understand the formal and informal rules of the game, anticipate changes, and seek to shape such changes From a CSR perspective, we can revisit the four fundamental questions The globally ambiguous and different CSR standards, norms, and expectations cause many managers to relegate CSR to the “backburner,” but they have responsibility to safeguard and advance capitalism by building more humane, more inclusive, and fairer firms