CSR and MNC Competitiveness Jay Hyuk Rhee Professor of IB/Strategy Korea University Business School

Corporate Social Responsibility Seriously considering the impact of a company’s actions on society Historical perspectives – Take actions that protect and improve the welfare of society as a whole along with their own interests 2 Economic Model Legal Model Social Model

Arguments for CSR Addresses social issues brought on by business, and allows business to be part of the solution The public supports CSR 3

Arguments Against CSR Dilutes the primary purpose of business Business is not equipped to handle social activities Limits the ability to compete in a global marketplace 4

Issues & Theories in Global Strategy Why a firm is willing to do business abroad and how it can compete in unfamiliar markets (Buckley, 1988; Dunning, 1980; Egelhoff, 1982; Hennart, 1989; Hymer, 1976; Johanson & Vahlne, 1977; Kogut & Zander, 1988; Rugman, 1980; Vernon, 1966) Two different approaches – purpose-oriented – process-oriented 5

Assumption & Reality Existence of “liabilities of foreignness” (Zaheer, 1995) MNCs (vs. indigenous competitors) – face additional costs cultural/legal/institutional/linguistic differences lack of knowledge of local market conditions increased expense of communications 6

Implications & Requirements MNCs must have some advantages – which are, at least in part, specific to the firm and which are readily transferable within the firm and across distances – firm-specific advantages, as embodied in organizational practices which are difficult for other firms to copy (Barney, 1991) 7

Firm-Specific Advantages Operational measurements – technology and marketing skills – international experience – excess managerial capacity – financial and monetary factors, etc Specific to the firm, readily transferable within the firm and across distances? 8

MNCs expanding into multiple host countries operating in diverse industries conducting many business activities implementing different strategies ….. thus interacting with multiple stakeholders 9

Business Stakeholder Groups Media Suppliers Special-Interest Groups Society General Public Competitors Customers Community Stockholders Employees 10

11 Home Country Stakeholder Pressures Host Country Stakeholder Pressures Standards Practices Ethics Laws Culture Customs System of Government Socioeconomic System Standards Practices Ethics Laws Culture Customs System of Government Socioeconomic System MNCs

Revisiting “Firm-Specific Advs” Are they really “firm”-specific advs? Or advs with location-bound characteristics? – meaningful for a certain host country, industry, or business activity? CSR : firm-specific advs with non-location-bound characteristics : especially in the Era of Social Media 12

Challenges for MNCs Visible targets for policy-makers and non-governmental organizations (NGOs) – “Pollution havens” (Daly, 1994; King & Shaver, 2001) – “Race to the bottom” (Korten, 1995) – blacklist of water polluters in China (China Daily, 2007) – face more labor lawsuits (Mezias, 2002) 13

To Name A Few… Child labor Forced labor Health and Safety Discrimination Working hours Compensation Management systems 14

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CSR in the Era of Social Media The incorporation of a holistic CSR perspective within a firm’s strategic planning and core operations More critical for MNCs that face diverse stakeholders in a global environment – need to take strategic approach to CSR 16

Contribution of CSR Practices Improve social legitimacy and overcome liabilities of foreignness (Campbell, Eden & Miller, 2012; Dacin, Oliver & Roy 2007) Manage externality while create economic value (Crouch, 2006; Daudigeos & Valiorgue, 2011) Enhance Competitiveness Non-location-bound characteristics 17

Applicability of CSR Compliance with, not “differentiating,” CSR standards across diverse – host-countries – industries – business activities Departure from the traditional assumptions and approaches 18

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CSR for MNC Competitiveness Not any more a “nice-to-do” add-on Need to take CSR to the strategic level – Framing the purpose of the business : To create profit by doing good business in every sense of the word 20

Ongoing Issues Contributions of CSR to Performance Specifically, – How to measure CSR activities? Internally or externally – How to measure performance? Financial, environmental, or social 21

22 Perspective 1: CSP Drives the Relationship Perspective 2: CFP Drives the Relationship Perspective 3: Interactive Relationship among CSP, CFP and CR Good Corporate Reputation Good Corporate Social Performance Good Corporate Financial Performance Good Corporate Reputation Good Corporate Financial Performance Good Corporate Social Performance Good Corporate Reputation Good Corporate Social Performance Good Corporate Financial Performance

“Perhaps the biggest catalyst for change is that many of the big social and environmental challenges, once seen as obstacles to progress, have become opportunities for innovation and business development.” – Patrick Cescau, CEO, Unilever 23