BMAN73172 INSTITUTIONS AND FIRMS’

INTERNATIONALIZATION STRATEGY
Lecture 6 Strategic CSR in International Business

Pei SUN

Professor of International Business

March & April 2024

 Outline of the Lecture

• The stakeholder view of CSR with respect to MNEs

• Tactics of Strategic CSR on the part of MNEs

• Institutional arbitrage
• Cross-border corporate philanthropy
• CSR reporting

• The Interplay between strategic CSR and CPA

 Starbucks: Standards in the
Spotlight

Do Starbuck’s customers really care where the coffee is

coming from? What is ethical practice for growing coffee?
 Starbucks: Standards in the
Spotlight
• In 2000, Global Exchange, an NGO promoting fair
trade, launched a campaign against Starbucks.
– To ensure a “living wage” for coffee producers, the
NGO advocated a minimum “fair” price of $1.26 per
pound, while the prevailing price in 2000 was 64
cents.
– Demonstrating in front of a San Francisco store
– During Starbucks’ annual shareholders meeting,
activities took the microphone and demanded Fair
Trade Coffee
 Starbucks: Standards in the
Spotlight
• Reasons for targeting Starbucks:
– NGOs seek publicity, so they generally target large, famous,
MNEs
– Starbucks claimed to be socially responsible
– Its customers – middle class and intellectuals – may care about
social justice and be supporters of such NGOs
• Ethical sourcing: In response, Starbucks agreed to sell Fair
Trade coffee in domestic company-owned stores. It also
launched Coffee and Farmer Equity (CAFE) guidelines to
develop certified suppliers.
• Since 2001, Starbucks has been publishing its CSR annual
report.
 CSR and Stakeholders
Corporate Social Responsibility (CSR)
Firms’ consideration of, and response to, issues beyond the narrow
economic, technical, and legal requirements of the firm to accomplish
social benefits along with the traditional economic gains which the firm
seeks.

Triple bottom line

The economic, social and environmental performance that simultaneously
satisfies the demands of all stakeholder groups.

Sustainability
The ability to meet the needs of the present without compromising the
ability of future generations to meet their needs around the world.

Stakeholders:
Any group or individual who can affect or is affected by the achievement of
the organization’s objectives.
A Stakeholder View of the Firm
 Primary and Secondary
Stakeholder Groups
• Primary Stakeholder Groups: The constituents on
which the firm relies for its continuous survival
and prosperity.
• Secondary Stakeholder Groups: Those who
influence or affect, or are influenced or affected
by, the corporation, but are not engaged in
transactions with the corporation and are not
essential for its survival.
– Non-governmental organizations: Activist groups not
affiliated with governments, e.g., Greenpeace
 The Stakeholder Perspective
• The goals of business firms should not be limited to the
maximization of shareholder value. Rather, firms should
enhance the social wealth by making explicit allowance for the
interests of other stakeholders.
• Normative CSR: Firms ought to be self-motivated to ‘do it
right’ because they have societal obligations. They have a
moral duty to go beyond respecting the law and generating
profits. Firms purse CSR not simply to claim special credit for
doing so.
• Strategic CSR: Strategic in the sense that it aims to achieve
certain specified benefits for society as well as the firm itself –
doing well by doing good
• CSR activity is consistent with the notion of maximizing
long-run market value of the firm
 Stakeholder Conflicts

The challenge is not only to balance between shareholders and

other stakeholders, but between different groups of stakeholders.
 Proactive CSR Strategy
• Focus innovation activities on areas of social and
environmental needs
• Engage in collaborative efforts to set and
implement higher standards
• Develop collaborative relationships with NGOs
• Develop CSR capabilities and link them to MNEs’
existing core business competence
• EMNEs need to develop CSR capabilities given their
liability of origin
• CSR activities as a buffer to political risk
 MNE Environmental Strategies:
Arbitraging or Raising Standards?
• Help raise environmental standards in host
countries
– It may create barriers to some local low cost
competitors
• Pollution havens: Countries with lower
environmental standards
– MNEs may relocate production to locations with
less stringent regulations
– Attracted by developing country governments
 Evidence of Institutional Arbitrage

• Li, X. & Zhou, Y. M. 2017. Offshoring pollution while offshoring

production? Strategic Management Journal, 38: 2310-2329.
• 18,000 US plants (8,000 firms) over 1992-2009
• Plants release fewer toxic emissions when their parent firm
imports more from low-wage countries
• Goods imported from low-wage countries are in more
pollution-intensive industries
• The “green shift” of US manufacturing coincides with a “brown
shift” of imports from poor countries
• Not all US firms choose to offshore pollution. Plants located in
domestic counties with greater institutional pressure for
environmental performance offshore more, but more capable
U.S. plants and firms (in terms of productivity, R&D, and
brand) offshore less.
 Evidence of Institutional Arbitrage

• Berry, H., Kaul, A., & Lee, N. 2021. Follow the smoke:
The pollution haven effect on global sourcing. Strategic
Management Journal, 42: 2420-2450.
• Census data on US manufacturing imports from 77
countries over 2006-2016
• The stringency of environmental standards in a
country is negatively related to its share in sourcing
by US manufacturing firms.
• This relationship holds for both offshore integration
(sourcing from owned foreign operations) and
offshore outsourcing (sourcing from unrelated third
parties abroad).
 Evidence of Institutional Arbitrage
• Surroca,J., Tribo, J. A., & Zahra, S. A. 2013. Stakeholder
pressure on MNEs and the transfer of socially
irresponsible practices to subsidiaries. Academy of
Management Journal, 56(2): 549-572.
• 269 subsidiaries in 27 countries belong to 110 MNEs
from 22 countries
• A holistic assessment of MNEs’ CSR performance
• In the face of the mounting stakeholder pressure in
their home countries, MNEs may transfer their socially
irresponsible practices to their overseas subsidiaries.
• This is especially the case in subsidiaries where the
HQs held a stake between 5 and 10 percent and at
least one HQ executive served on a subsidiary’s
board.
 Cross-border Corporate Philanthropy

• Corporate philanthropy can be a legitimation strategy used

by MNEs in host markets
• Overcome liabilities of foreignness and outsidership
• Facilitate social integration

• Natural disasters as a good setting to study the strategic

CSR activities of MNEs in comparison with local firms
• Destabilize the social and economic landscape and
increase the openness of host communities for
external help
• Provides opportunities for both foreign and local firms
to deploy CSR tactics with the aim of enhancing
legitimacy and organizational performance
 Cross-border Corporate Philanthropy

• Mithani, M. A. 2017. Liability of foreignness, natural

disasters, and corporate philanthropy. Journal of
International Business Studies, 48: 941-963.
• Compares the philanthropic contributions of MNEs
and domestic firms before and after a series of natural
disasters in India
• MNEs donated more after the disasters, and the difference
persisted over time
• MNEs were relatively averse to complementing the increase
in philanthropy with higher advertising expenditures
• Philanthropic contributions paid off in terms of improving
MNE financial performance in India
 Cross-border Corporate Philanthropy

• Zhang, J., & Luo, X. R. 2013. Dared to care:

Organizational vulnerability, institutional logics, and
MNC’s social responsiveness in emerging markets.
Organization Science, 24(6): 1742-1764.
• Why might MNEs respond differently to natural disasters in
China?
• Corporate donations made by subsidiaries of MNEs in China
following the catastrophic earthquake in May 2008 (69,226
known deaths, 4.8 million homeless)
• Compared with quick response and large donations made by
some domestic firms, MNEs reacted relatively slowly and
donated less
• Online activists voiced grave concerns about the disparity
and developed a list of “stingy MNEs”
 Cross-border Corporate Philanthropy

• MNEs are found to respond sooner to the online campaign if:

• They were on the list
• They previously developed their CSR image in China
• They had a higher reputation in China
• They were headquartered in the US (strong tradition of
discretionary philanthropy)

• Nokia was listed for donating only $432,000. The VP of

Nokia China immediately flew to headquarters to persuade
top executives to donate more. Headquarters tried to justify
the amount by referring to similar amounts after the
Indonesian tsunami and Burma typhoon; the VP showed
them the stingy list, prompting the headquarter to make
another donation, which resulted in a total of $7.6 million.
 Cross-border Corporate Philanthropy

• Hornstein, A. S., & Zhao, M. 2018. Reaching through the

fog: Institutional environment and cross-border giving of
corporate foundations. Strategic Management Journal,
39: 2666-2690.
• Cross-national allocation of charitable giving by
US-based corporate foundations from 1993 to
2008
• For example, the Coca-Cola Foundation, the primary
philanthropic arm of the Coca-Cola Company, donated
$72.6 million to 57 countries in 2016, 55% of which went
outside the US.
 Cross-border Corporate Philanthropy

• Foundations give more in host countries with relatively weak

rule of law and higher levels of corruption; using foundation
giving to navigate opaque foreign institutions (obtaining a social
licence to operate)
• Foundations give more in countries with newly established
subsidiaries, especially in those featuring weak institutions
• Foundations give more in countries where the local subsidiaries
actively engage in marketing or supply chain management,
which requires stronger connections with local stakeholders
• Foundations tend to give through international organizations
(e.g., Red Cross) as opposed to local agencies, in countries
with weak institutions
• Large MNEs may donate more via foundations than through
local subsidiaries because of the potential agency problem
 CSR Reporting by EMNEs

• Marano, V., Tashman, P., & Kostova, T. 2017. Escaping

the iron cage: Liabilities of origin and CSR reporting of
emerging market multinational enterprises. Journal of
International Business Studies, 48: 386-408
• Liabilities of origin: Negative perceptions (stereotypes)
about an MNE’s host country, which question the focal
MNE’s willingness and ability to conduce legitimate
business
• CSR reporting: public disclosure of firm CSR activities
• Since the 1990s, Western MNEs have been publishing
standalone CSR reports
• EMNEs seek to align themselves with global norms and
international best practice
 CSR Reporting by EMNEs

• EMNEs from less institutionally developed countries are

more likely to face liabilities of origin, thus undertaking
more intensive CSR reporting to convey positive signals
to host countries and global stakeholders

• The positive relationship between home country

institutional voids and the use of CSR reporting is more
pronounced when EMNEs achieve a higher degree of
internationalization and when they are listed on
developed country stock exchanges.

• CSR-reporting as a legitimation strategy

 CSR Reporting by EMNEs
• Tashman, P., Marano, V., & Kostova, T. 2019. Walking the
walk or talking the talk? Corporate social responsibility
decoupling in emerging market multinationals. Journal of
International Business Studies, 50: 153-171.
• CSR reporting often misrepresents or overstates the actual
CSR performance of the firm, meaning that firms engage in
CSR “decoupling”
• Symbolic impression management efforts
• Ceremonial adoption
• Poor CSR performers can also be active reporters
• Greenwashing: marketing spin in which green PR, green
values or green marketing are deceptively used to
persuade the public an organization's products, aims or
policies are environmentally friendly.
 CSR Reporting by EMNEs

• Risks and negative legitimacy implications for MNEs that

exercise CSR decoupling, such as increased regulatory
oversight and penalties

• Two institutional drivers of CSR decoupling

• Dual embeddedness in home countries and the
global institutional environment
• Home country institutional voids lead to greater
CSR decoupling on the part of EMNEs
• Higher levels of internationalization lead to less
CSR decoupling on the part of EMNEs
 Interactions between CPA and
CSR in the IB Context

• Complementarity between CPA and CSR

• Engaging in CSR activities to gain/improve

access to political stakeholders and their
resources

• Engaging in CSR activities to buffer the

potentially risky effects arising from the host
country political system
 Gaining Political Access

• Choudhury, P., Geraghty, J. A., & Khanna, T. 2012. A

‘core-periphery’ framework to navigate emerging market
governments – Qualitative evidence from a biotechnology
multinational. Global Strategy Journal, 2: 71-87.

• Engaging the “periphery” (quasi-state and civil

society actors) may change the information set of
the core or help align incentives of multiple core
actors with MNEs

• Particularly relevant when the institutional

framework is still emerging
The Core-Periphery Influence Framework
 Case Study: Genzyme
• Genzyme is a US-based leading biotechnology multinational,
with about 50% of revenues from outside the US in late 2000s.
• It focuses on developing orphan drugs for “rare diseases”, i.e.,
diseases that affect a very small part of the patient population
around the world.
• A key strategy is to make governments around the world
partially or fully reimburse medication costs for patients with
the rare diseases.
• This bring Genzyme in close contact with host governments in
emerging markets like Brazil, China, and Costa Rica.
• Identifying core actors; engaging with peripheral actors (initially
taking about the disease and its drug efficacy and providing
free drug for patients)
 CSR as A Political Strategy
• Rodgers, P., Stokes, P., Tarba, S., & Khan, Z. 2019. The role
of non-market strategies in establishing legitimacy: The case
of service MNEs in Emerging Economies. Management
International Review, 59: 515-540.
• Interviews conducted in 2013 with managers/owners of nine
service MNEs operating in Ukraine.
• The blurring of CPA/CSR activities
• “We understand the rules of the political game now. We
need to pay some informal taxes and also we need to fund
some social programmes. We benefit from improving our
reputation as a foreign business interested in local issues.
For the state officials, it’s a ‘win-win’ too. They manage to
receive some monies and also show to the local population
how they’ve attracted international business to the region”
(pp. 531-532)
 Buffering Political Risks

• Darendeli, I. S., & Hill, T. L. 2016. Uncovering the

complex relationships between political risk and MNE firm
legitimacy: Insights from Libya. Journal of International
Business Studies, 47(1): 68-92.
• Using the abrupt fall of the long-established
Qadhafi regime in Lybia as a natural experiment to
highlight the differential impact of MNEs’ pre-
overthrow market and nonmarket activities on their
performance during and after the transition
• Eight Turkish MNEs operating in Libya’s
construction sector as of January 2011
Social-sector-based Path vs
Government-based Path
 Buffering Political Risks
• All these MNEs had to cultivate ties to the Qadhafi family before the
political shock (winning contracts and approvals in the construction
sector)
• “Libyan law specifically required foreign construction
companies to establish a joint venture (JV) with a Libyan
partner that owned at least a 35% of the venture; these
partners were invariably connected to the Qadhafi circle of
influence (p. 77).”
• Investment in public-benefit product or services (e.g., schools and
hospitals) before the political transition enhances an MNE’s
resilience in the event of abrupt political change
• Building social ties to local social-sector actors, such as families and
tribes, and to bureaucrats (public servants) before the political
transition enhances an MNE’s resilience in the event of abrupt
political change
 Buffering Political Risks

• These investments served as an effective hedge against

political upheaval in 2011.

• MNEs associated with public-benefit projects all

performed better than those associated with private-
benefit projects.

• “The most effective protection from political turmoil was a

concrete and visible demonstration of commitment to
society at large through project type plus the investment
in ties to local families and bureaucrats.” (p. 82)
 Essential Readings

• Chapter 10, Peng & Meyer (2023)

• The papers mentioned in the prior slides,

which will be uploaded on Blackboard.
Thank you!