35 Corporate Social Responsibility: Issues in International Business

Dr. Savita

 

1. Learning Outcome:

 

After completing this, module students will be able to:

 

i.  Understand the concept of a corporate social responsibility.

ii. Understand the importance and benefits of corporate social responsibility

iii. Know about the challenges faced by MNCs in implementation of CSR.

iv. Understand the CSR and Sustainable Growth: In the context of International Business

 

2. Introduction: Corporate social responsibility is one the most significant issues in international business. Emerging economies of the world including India, are coping with the issues relating to poverty, hunger, malnutrition, woman rights, child labour, injustice, farmers’ suicides and community welfare etc and in this context the corporate sector have to develop innovative corporate social responsibility culture to address these social ills. In the market oriented economic structure, corporate sector is prime mover of economic growth. The business activities of an enterprise directly affect the environment and its stakeholders, such as customers, suppliers, employees, shareholders, and the society. It is therefore, imperative for business to come forward and share the responsibility for equity and sustainable development.

 

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The conventional approach of “Single Bottom Line i.e. earning profit” has become a concept of past now with enactment of new Company Act 2013. There is paradigm shift in corporate governance. Companies now have to focus on triple bottom line representing economic profit, social and environmental dimensions. In the economic dimension corporate has to ensure the best input-output ratios in relation to financial bottom line. Business has to perform the economic function within ethical and legal framework, failing to do so is indeed being CSR- unfriendly. The second dimension deals with social good- inclusive and equitable development in terms of employment generation, poverty reduction, equal opportunities and other issues of social significance.

 

And finally, the third dimension is concerned with the impact of the decisions and actions of corporates on the environment related issues such as pollution and emission control, energy conservation, climate change.

 

3.  Meaning and Concept of Corporate Social Responsibility (CSR): Corporate Social Responsibility refers to the obligation of an enterprise towards the society. Today, customers are demanding that an enterprise should understand its responsibility towards the society and people. CSR is also known as corporate citizenship, responsible business, sustainable responsible business, or corporate social performance.

 

According to the ICC10, “CSR is a voluntary commitment by business to manage its role in society in a responsible way” and the EU Commission11 defines it as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”

The concept of CSR is based on the fact that an enterprise operates in the society and uses its resources; therefore, it has some moral responsibility towards the society. When an enterprise adopts the principles of CSR, it fulfills its responsibilities towards environment, employees, communities, stakeholders, consumers, and other members of the society. The enterprise performs its responsibility by encouraging growth and development of the community and surroundings. Moreover, the enterprise works towards the elimination of unfair trade practices and other practices that negatively affect the society and public interest, regardless of legality.

 

Corporate social responsibility is closely linked with the principles of ‘Sustainable development’ and proposing that enterprises should be obliged to make decisions not only on the basis of financial/economic factors but they should also focus on the social and environmental consequences of their activities. Corporate Social Responsibility thus helps to define the contribution of a company beyond economic value and employment generation, and weighs this contribution against the damage done by the company through its products and processes. Corporate Social Responsibility encompasses two aspects:

  1. The steps taken by a company to neutralize, minimize or offset the harmful effects caused by its processes and product-usage.
  2. The further steps a company takes using its resources, core competence, skills, location and funds for the benefit of people and the environment.The steps taken by a company to neutralize, minimize or offset the harmful effects caused by its processes and product-usage.

 

4.  Benefits of CSR for MNCs 

 

Most of the MNCs are following CSR practices in the modern business environment. These practices provide various benefits to enterprises, which are discussed as follows:

  • Improving relationship with stakeholders: CSR activities help MNCs to develop the relationship with stakeholders. The enterprises engaged in CSR activities are able to build trust and loyalty among stakeholders. If the enterprises are transparent about their activities conducted for the welfare of communities, they can better understand the perception of stakeholders and issues that may affect their operations. This information helps the enterprises in defining priorities and ensuring that the business practices are aligned with the ethical standards.
  • Attracting the investors: It refers to draw the attention of investors through CSR activities. According to a study conducted by Mckinsey & Co. and World Bank, three quarters of stakeholders consider non-financial performance as  important as  financial performance, while evaluating the most suitable enterprise for investment.
  • Improving financial performance: It refers to enhance the financial performance of an enterprise through CSR activities. A study by Mckinsey & Co. shows that investors are avoiding enterprises with poor CSR records and ready to pay a premium for enterprises having a good record of CSR activities.

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  • Increasing public credibility: It helps to improve the credibility of an enterprise through CSR activities. Accountability and transparency of CSR activities help enterprises to build trust and credibility with public. In addition, enterprises should ensure that they have a strong dedication to implement the CSR plans as failure to meet commitments may lead to a negative public response.

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  • Utilizing the resources effectively: CSR practices may help in using the resources of the society in an effective manner to minimize cost and wastage. For example, Unilever in Bangladesh had started a tree plantation program to raise environmental awareness about using the resources efficiently.

 

5.  Challenges Faced by MNCs in CSR Implementation 

 

An enterprise faces numerous challenges while practicing CSR activities. These challenges may pose a hindrance in the process of strategic management in an enterprise. Some of these challenges are explained as follows:

  • Lack of Transparency: It imposes a major hindrance in the authentic implementation of CSR programs when enterprises do not disclose the information regarding the CSR programs and funds allocated to implement these programs. The lack of transparency may negatively affect the trust between enterprises and communities. Transparency is required in the following areas:

 

⇒Codes of conduct: Include worker’s right and environment protection

⇒Management standards: Include integrating social and environmental aspects of an enterprise

⇒Evaluation: Involves internal reporting of CSR activities by an enterprise

  • Lack of Community Participation: It hinders the prospect of CSR activities. Many countries have less knowledge about CSR; thus, it leads to lack of interest by communities to participate with enterprises in the CSR activities. For example, in case of India, enterprises do not have adequate understanding of the CSR activities because they lack tools, resources, and commitment to carry these activities. This in turn results in lack of initiatives by Indian enterprises to undertake the CSR activities at an extensive level.
  • Lack of Non-Governmental Organizations (NGOs): It leads to a lack of CSR activities as these activities are largely implemented through NGOs. In other words, the presence of NGOs is important to accelerate the pace of implementing the CSR activities in a country because NGOs guide and work with the enterprises to attain the objectives of CSR activities. Therefore, the non-availability of NGOs slows down the spread of CSR practices in remote areas in various countries.

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  • Lack of CSR Guidelines: It implies that many countries do not have clear guidelines related to CSR activities. As a result of this, the enterprises lack the proper direction to follow CSR practices. Enterprises do not measure and evaluate the CSR activities if no proper guidelines are defined.
  • Narrow View towards CSR Initiatives: It refers to the limited perception of an enterprise towards CSR activities. However, what is required is the wider view or perception of CSR, which includes the willingness of the enterprises to take responsibility and being accountable for impacts created by their activities.
  • Importance to Visibility Factor: Sometimes NGOs involve themselves in the CSR programs to gain the media attention but fail to achieve the goals at the grassroots levels.
  • Lack of Budget: It poses a major constraint for enterprises that wish to practice CSR activities. Sometimes, Small and Medium Enterprises (SMEs) do not have enough financial support to carry out CSR activities.

 

6.  CSR in Small and Medium Enterprises 

 

The general misconception about CSR practices is that they are meant only for large enterprises. No business can operate in solitude or just run for profit maximization. As discussed earlier, an enterprise affects or is affected by customers, suppliers, and the community. Therefore, like large enterprises, CSR practices are also equally important for SMEs. An SME can implement CSR practices by associating it with the values, core ideology, and goals of the business. The benefits enjoyed by SMEs that incorporate CSR in their business operations, are as follows:

 

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  • Makes investors interested in investing in the business
  • Helps enterprises to survive in the long-run
  • Ensures environmental friendly premises in the enterprise
  • Motivates employees to perform efficiently
  • Ensures health and safety of employees in the enterprise
  • Acquires support from local community and get value as a great neighbor
  • Attracts customers to purchase the products of the enterprise
  • Encourages suppliers to work with enterprise

 

7.  CSR towards Stakeholders 

 

Stakeholders refer to individuals, who hold some interest, investment, and share in an enterprise. The stakeholders of an enterprise include shareholders, customers, employees, community, society, government, and others. These stakeholders directly affect or are affected by the business activities of an enterprise. Today’s dynamic competitive, economic, and political environments require a continuous modification of facilities for stakeholders. An enterprise can be successful, if it strives to understand and fulfill the needs of its customers and value employees, community, and shareholders. In other words, an enterprise needs to have a deep understanding of the interests, concerns, and priorities of its stakeholders. Therefore, it should engage in a dialog and proper communication with its stakeholders. An enterprise should address the issues and grievances of its stakeholders, which, in turn, increases the productivity and effectiveness of the enterprise.

 

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The responsibilities of an enterprise, whether it is a domestic or international, towards its stakeholders are as follows:

  • Responsibility towards shareholders: Involves the concern of an enterprise towards the individuals, who invest in its business to earn profits in return. An enterprise has various responsibilities towards its shareholders, which are as follows:

 

⇒Providing accurate financial information of the enterprise to shareholders

⇒Providing fair and adequate returns on the capital invested by them

⇒Maintaining regular and effective communication with them

⇒Preparing audited financial reports of the business

⇒Informing shareholders about annual, general, and emergency meetings

  • Responsibility towards customers: Involves the accountability of an enterprise towards the individuals, who buy the products or services of the enterprise. The responsibilities of an enterprise towards its customers are as follows:

 

⇒Providing high quality products and services at reasonable prices to customers

⇒Ensuring maximum satisfaction to customers by giving value for money

⇒Restraining the selling of adulterated and low-quality products and services

⇒Advertising products and services to make customers aware about them

⇒Introducing customer care centers and consumer advisory councils to listen and solve customer’s grievances

⇒Abiding by the rules and regulations under the Consumer Protection Act, 1986

 

  • Responsibility towards employees: Involves the responsibility of an enterprise towards the individuals, who are appointed to render services to the enterprise in exchange of a fixed amount of wages and salaries. Some of the responsibilities of an enterprise towards its employees are as follows:

 

⇒Providing fair and timely wages and bonus to employees

⇒Appreciating and recognizing employees according to their performance

⇒Motivating and encouraging employees to perform efficiently

⇒Ensuring healthy, harmonious, and productive working conditions in the enterprise

⇒Providing growth opportunities to employees

⇒Facilitating effective communication with employees

⇒Providing necessary training to employees, whenever required

  • Responsibility towards community and society: Involves the responsibility of an enterprise toward the society in which the enterprise operates. An enterprise has some responsibilities towards community and society, which are as follows:

 

⇒Generating employment opportunities for people in the society

⇒Avoiding the manufacturing processes that create environmental pollution

⇒Providing education, health, and other basic amenities to the people

⇒Working for the growth and development of the society

  • Responsibility towards government: Refers to a responsibility of an enterprise to adhere the industrial rules and regulations set by the government. The responsibilities of an enterprise towards the government are as follows:

 

⇒Abiding by the rules and regulations prepared by the government

⇒Paying taxes on a regular basis

⇒Abstaining from submitting misleading and false information or documents

 

  • Responsibility towards other stakeholders: Include suppliers, distributors, banks, and financial institutions. The responsibilities of an enterprise towards these stakeholders are as follows:

 

⇒Providing accurate and clear information, such as balance sheets, profits and loss statements, and ratio analysis, to banks and financial institutions

⇒Providing fair margins to distributors

⇒Providing correct and clear specifications to suppliers regarding raw materials

⇒Ensuring timely payment to suppliers

⇒Working in association with different Non-Governmental Organizations (NGOs) to develop the weaker section of the society

 

8.  CSR and Sustainable Growth (SG): In the context of International Business

 

Traditionally CSR in India was practiced by way of extending financial support to schools, hospitals and other social institutions. With growing globalization, CSR activities have been increasing its importance as it helps organizations to improve their relationships with local communities, increases brand value and builds a good corporate image. Over the year, CSR has evolved to be a business necessity. CSR has now become a pervasive business component of any forward looking business venture. While government is mandating it through various Yojanas and Social Schemes, it becomes the duty of every responsible corporate citizen to take care of the sustainability of its business. As if now, CSR has breached the contours of social philanthropy and traversed into the arena of business strategy for sustainable growth. At present a good number of corporations have leveraged CSR and articulated it into business strategies for growth.

This philosophy is embodied in this quote: “If trade and commerce is not sensitive to its social and environmental contexts, it will not sustainable, and if it is not sustainable, it will collapse”. Sustainable growth is about ensuring a better quality of life for everyone, now and for generation to come. Thus, combining CSR and Sustainable Growth in  the context  of  international  business, means combining  the ecological, social  and economic concerns and offers business opportunities for companies that can improve the lives of people. At present corporations are striving to attain sustainable growth. The integration of CSR with Sustainable Growth would build up a respectable, responsible and thriving management approach. Following principles suggest the best integration of CSR and Sustainable growth i.e. social and environmental practices for an organization:

  • Set measurable goals: Some goals can be set to bring small change like minimising waste and resource use. These sustainability efforts can support companies overall corporate strategy.
  • Stakeholder engagement: Let us give equal treatment to all stakeholders. Stakeholders can not only solve all CSR roadblocks and potential crisis but also improving relationships proactively.
  • Mapping of sustainable issue: Use of interactive maps to help prioritize and narrow down key issues saves company time and money, which can be used other productive activities.
  • Sustainability framework: Developing a framework to ensure the integration of environmental, social and economic concern in tandem in decision making process.
  • Continuous assessment: Continuous assessment of the existing products and efforts to create and innovates new products can ensure long term improvement.
  • CSR reporting/disclosure: It is important to provide easy access of latest efforts to consumers. For this purpose, latest CSR initiatives can be posted on website and make it easy to download in any assessable format.
  • Branding of sustainability: Here, transparency is the key of succes Make efforts to brand sustainable initiatives which can help you to capture reasonable market share and it will become easy to reach to a broader customer base.

 

9. Summary: In this module, we have discussed the concept of corporate social responsibility and issues involved in international business along with its benefits and responsibilities towards different stakeholders. An enterprise faces numerous challenges while practicing CSR activities, therefore it has also highlighted the challenges facing by corporates in implementation of CSR activities. The module also discuss that development cannot take place unless the people at the grass root level are not involved in the development programme. According to the modern point of view the objectives of business is to discharge its moral responsibility towards all the stakeholders and also earn profits simultaneously. The emerging concept for the need of social responsibility of the business is due to the fact that business is a part of society. So today the responsibility of the business corporate is not limited to its owner, but it has assumed large dimensions i.e. employees, consumers, suppliers, competitors, government, environment etc. and this responsibility of the business corporate, which includes the satisfaction of these parties along with the owner is called social responsibility of the business. In shaping India’s future, the integration of the corporate sector into community development for all sections with full social responsibility is a need of the hour.

 

Suggested Readings

  1. Sundharam K.P.M. and Datt Ruddar (2010). Indian Economy, S. Chand & Sons, New Delhi.
  2. Sharan Vyptakesh (2003). International Business: Concept, Environment and Strategy. Pearson Education, New Delhi
  3. Cullen. (2010). International Business. Routledge.
  4. Bennett Roger (2011). International Business. Pearson Education, New Delhi
  5. Paul Justin (2010). Business Environment-Text and Cases. Tata McGraw Hill, New Delhi.
  6. Cherunilam Francis (2010). International Business. Prentice Hall of India Private Limited. New Delhi.
  7. Cherunilam Francis (2013). Global Economy and Business Environment. Himalaya Publishing House, New Delhi.
  8. Levi MauriceD. (2009). International Finance. Routledge.
  9. Conklin David w. (2011). The Global Environment of Business. Sage Publications.
  10. Mithani D M. (2009). Economics of Global Trade and Finance. Himalaya Publishing House New Delhi.
  11. Cherunilam Francis (2011). International Business Environment. Himalaya Publishing House, New Delhi.
  12. Saleem Shaikh (2010). Business Environment. Pearson Education, New Delhi.