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‘Transnational Corporations (TNCs) must implement Corporate Social Responsibility (CSR) in order to be successful in a global business environment’. Discuss with reference to some or all of the following companies: • Nike • Primark • H&M

Answer

‘Transnational Corporations (TNCs) must implement Corporate Social Responsibility (CSR) in order to be successful in a global business environment’: The cases of Nike and Primark

Contents

Introduction. 2

Practicing CSR in a global business environment 3

Importance of CSR for TNCs. 6

The case of Primark. 8

The case of Nike. 9

Conclusion. 10

References. 11

 

Introduction

All businesses are required to obey the law. Compliance with the law is considered the most fundamental corporate social responsibility for any business enterprise. However, in most cases, states are unable to put in place a perfect legal system for governing business operations. This leads to the existence of numerous gaps that some businesses tend to exploit with a view to maximize profitability. Even in the context of the best legal systems, implementation gaps are likely to exist. In other words, the state apparatus never works perfectly, and this leaves numerous loopholes that companies may exploit to enhance performance. For this reason, managers are called upon to embrace pro-social behavior as well as an aspiration to the public good.

There is growing demand for businesses to operate in a socially responsible manner. To be socially responsible, companies are required to comply with laws and regulations even when implementation gaps exist and enforcement bodies are weak. In corporate social responsibility (CSR), Corporations are even expected to go beyond the requirements defined by law to promote the common good (Robinson, 2002). In today’s world of globalization, businesses are likely to face more negative consequences if they are allowed to exploit all available weaknesses in the legal systems of different countries. Such companies may benefit in the short run but end up destroying the business environment, thereby putting long-term profitability in jeopardy.

Karnani (2010) opposes the argument that businesses have a responsibility to promote public interest and that they will ultimately reap profits by doing so. According to Karnani, this argument is not just flawed but also dangerous because it is likely to prevent society from seeking real solutions to the problems they continue to face. CSR efforts are bound to be ineffective because companies are unlikely to act in the public good unless doing so is profitable. They may also be said to be irrelevant in situations where public interests and private profits are aligned. Therefore, the role of CSR particularly in an environment of globalization needs to be clarified, and that is precisely what this paper seeks to do. The paper is based on the thesis that transnational corporations (TNCs) must implement Corporate Social Responsibility (CSR) in order to be successful in a global business environment. The discussion is made with reference to two TNCs: Nike and Primark.

Practicing CSR in a global business environment

The context of globalization is extremely important in current discussions on CSR. With globalization, negative impacts of business enterprises have intensified (Crane et al, 2008). This has led to a proportionate increase in the public call for all companies to behave in a socially responsible manner. A growing interest in the relationship between CSR and globalization has also surfaced (Crane et al, 2008). The outcome of these changes is evident in the fact that businesses are not only blamed for social ills but are also recognized as important stakeholders in the search for lasting solutions.

The debate has also created a scenario where CSR needs to be conceptualized in a new way that is congruent with the realities of globalization (Scherer, Palazzo & Matten, 2009). Companies should not just seek to demonstrate that they have engaged in CSR to a very high degree (Robinson, 2002). They must also demonstrate that their CSR programs are relevant in a world of globalization (Robinson, 2002). In the current set-up, the basic assumption as far as CSR is concerned is that corporations operate in the context of a properly-working political environment where government authorities put in place and implement rules and regulations. However, in the context of globalization, this assumption is flawed. The current global legal and regulatory frameworks are weak and fraught with inconsistencies. Moreover, no stable system of implementation exists. Therefore, businesses are faced with the political responsibility of contributing to the development of this system and ensuring the success of a global governance mechanism.

Numerous technological achievements particularly in the communications industry have greatly contributed to globalization. This is because they have led to a drastic drop in communication costs, such that people are able to interact and do business on the international stage. The emergence of the Internet has made it possible for people to operate in a virtual world of commerce commonly known as e-commerce (Gjølberg, 2009). At the same time, transportations costs have decreased dramatically (Gjølberg, 2009). Evidently, it is all systems go in the world of globalization. Now is the right time for corporate players to pause for a moment and think about how to sustain the global trade regime. An ideal way to do this is through CSR. In this debate, special attention will be directed towards TNCs because of their operational strengths and ability to influence the direction of international trade. They can influence the direction of international trade because their practices are likely to become the trailblazers in the corporate world especially in emerging economies. Moreover, TNCs tend to be strategically positioned in terms of the ability to mobilize massive resources and introduce business strategies that alter market dynamics on a global scale.

Numerous socio-cultural developments have unfolded in the context of globalization. According to Clapp (2005), homogenous cultures that used to exist prior to the era of globalization have now been dissolved. Traditional cultures and values are quickly giving way to a new global culture necessitated by high rates of migration, westernization, urbanization, and a pluralism of values and cultures. Since people are able to interact at a global level, they share many social expectations, embrace new social movements, and pursue numerous interests in unison. Today, people see the value of looking beyond what official state agencies can provide in terms of problem-solving (Robinson, 2002). On the same breath, business-minded citizens are keen to see what role TNCs will play in helping their countries deal with pressing social problems such as poor infrastructure, unemployment, crime, and poverty. They are keen to see how these companies will reconcile two seemingly incompatible ends: the pursuit of profits and the promotion of public good. These two ends are incompatible because a company can only choose to pursue public good at the expense of profitability. In many cases, the converse is also true.

As numerous economic developments continue to unfold in the form of trade liberalization and cross-border trade, the level of interconnectedness among countries has become extraordinarily high. The destiny of all societies is tied to the success of the international trade regime. Therefore, it is inevitable that most of the problems affecting this regime are best dealt with collectively. The societies must contend with large, extremely powerful multinational corporations (MNCs) and TNCs. Their power extends beyond the economic scene to the social environment. Part of the problem-solving process entails acknowledging the important role that these MNCs and TNCs can play as social agents.

The main question, which has necessitated this discussion, is on the extent to which these corporations can engage actively and productively in CSR. One of the main challenges of globalization for these corporations is that it has subjected them to more competition. Moreover, the global financial system is more volatile than ever before. In 2008, the world was hit by a recession originating in the US. Consequently, the corporations are under growing pressure from shareholders and investors to maximize profits to be able to beat competition. Failure by these companies to achieve desirable profitability levels exposes them to the risk of hostile takeovers or disinvestment.

For managers who are compelled by circumstances to focus on profitability above all else, CSR may seem like a distraction. The managers may easily choose to embark on only those CSR activities that bring benefits in terms of both public good and profitability. A case in point is the embracement of the idea of fuel efficiency in the case of the automobile industry. In this industry, automobile companies did not focus on the public good of conserving the environment through fuel efficiency and reduction of carbon dioxide emissions until fuel became very expensive. The rising fuel prices created a business imperative for the design and manufacture of fuel-efficient cars. This way, the automobile companies were able to both make profits in the short- and medium-term and at the same time promote public good. Unfortunately, such a convergence of interests relating to both public good and private profit does not occur for most of the problems affecting the global society such as poverty and climate change.

Importance of CSR for TNCs

CSR is indispensable for TNCs because of the existence of transnational risks accompanied by a regulatory vacuum in the international business environment. Today, TNCs are being accused of abusing this vacuum by engaging in unethical or unacceptable behavior especially in states where law enforcement agencies are weak or almost non-existent (Koenig-Archibugi, 2004; Whitehouse, 2003). In a world where uproar against large multinational corporations continues to increase, any company that has its sights on long-term survival should embrace CSR because it is an ideal platform through which to gain legitimacy. In an environment where a foreign company has no legitimacy, local communities are likely to sabotage its activities, thereby leading to massive losses.

Societal expectations are changing in the wake of the redistribution of power among national government, civil society, and economic actors. Through CSR, TNCs have an opportunity to find their place in regards to the pursuit of public good. TNCs that fail to position themselves strategically in the global dispensation are likely to receive most of the blame for the problems that arise in the course of transnational business engagements. Examples of these problems include smuggling, illegal drug trade, international economic crimes, human rights violations, forced labor, and climate change.

In the current world, the civil society continues to direct its wrath towards multinational corporations. Such responses are to be expected in a world where corporations have demonstrated their willingness to take advantage of law enforcement gaps to maximize profits at the expense of public good. Therefore, as things stand, TNCs must implement CSR to be successful. The globalized environment in which they operate requires them to venture into initiatives that have traditionally been assigned to state actors in the form of political responsibilities. For example, it has become common for corporations to launch human rights initiatives and health improvement programs. Some have even gone a step further by setting up or redefining existing legal, regulatory, and moral standards. Failure to do so will lead to the inevitable collapse of the international trade regime for the simple reason that it is unsustainable to do business in an anarchical environment. TNCs that hope to gain legitimacy in their business activities and to succeed in their businesses must be part of the CSR programs whose objective is to create a semblance of law and order in the international environment in which they operate. The next section examines the case studies of participation in CSR implementation by two TNCs: Primark and Nike.

The case of Primark

Primark is a subsidiary of Associated British Foods. It is a clothing retail chain that maintains in presence in 220 department stores mainly spread across the UK, Spain, and Ireland, but also in a few other countries in Europe. Primark is the second largest clothing retailer in the UK. In Ireland, where the company was founded in 1969, the company trades as Penny’s. However, it is the largest in its core market, which covers people aged below 35. These people are fashion-conscious, meaning that the company has had to feature different departments to be able to satisfy the market better. The main areas of focus for Primark include women’s wear, menswear, children’s wear, accessories, household textiles, lingerie, footwear, and accessories. The company’s main distribution centers are in Naas and Leicestershire. Since its inception, the company has maintained a reputation for offering great value for money while never letting go of its fashion-driven edge.

Apart from maintaining a competitive edge in the fashion market, Primark has also endeavored to implement CSR. First, it has established ethical standards and values that all its employees, distributors, and suppliers must adhere to. This system of values is underpinned in the company’s Code of Conduct. However, one of the CSR implementation efforts that stands out is the company’s contribution to the HER (Health Enables Returns) Project, commonly referred to as HERPRoject (Yeager & Goldenberg, 2012). HERProject is an initiative of Business for Social Responsibility (BSR). BSR works with some 250 companies with a view to safeguard social, environmental, and human rights (Yeager & Goldenberg, 2012).

Primark embraces CSR because of its belief that businesses should take the responsibility of acting and trading ethically for the simple reason that such efforts constitute a force for public good. The company acknowledges that while it does not own the factories or companies that make its goods, it has a responsibility of ensuring that the workers in those factories undertake all their activities in good working conditions. Towards this end, Primark has greatly contributed to the HERProject in Bangladesh (Yeager & Goldenberg, 2012). In this country, Primark focused on improving women workers’ health and reducing infant mortality. Primark got healthy returns on its investment in the HERProject in the form of improvements in workforce productivity, stability of the workforce, decreased labor turnover, lower absenteeism, and improved quality of products. For example, in one Bangladeshi factory, absenteeism drooped by 55 percent within 6 months of the introduction of HERProject (Yeager & Goldenberg, 2012). During the same time, female workers’ turnover decreased by 38 percent (Yeager & Goldenberg, 2012).

The case of Nike

Nike Inc. is the world’s leader in the shoe and apparel business. Like Primark, it was founded in 1969. Its business involves designing, developing, and selling products for soccer, basketball, training, athletics, and other action sports. The company also makes sports-inspired products for different recreational and competitive activities such walking, tennis, and golf. The company is also involved in the sale of products relating to sports performance such as socks, bags, eyewear, electronic devices, timepieces, protective equipment, children’s sportswear, and gloves. Nike has two main competitors in the international market: Adidas and Puma.

In terms of CSR, Nike has for a long time been criticized for its abusive labor practices that involved outsourcing of its manufacturing activities (Nisen, 2013). After outsourcing tasks at slave wages, the company would then use the money saved to engage in aggressive marketing campaigns. Some of the countries where criticism of the company’s labor practices remained strong throughout the 1990s and the early 2000s include Bangladesh, Taiwan, South Korea, and Indonesia. With time, the company became associated with poor wages perpetuated through outsourcing. In 1996, Nike established a department whose role was to improve factory laborers’ lives.

A real shift in CSR thinking at Nike started in May 1998, when Phil Knight, the then CEO, admitted in a speech that his company’s products had become synonymous with forced overtime work, slave wages, and arbitrary abuse (Nisen, 2013). Since then, the company embarked on a highly successful CSR campaign of improving  the conditions of the laborers working in factories contracted to manufacture the company’s products. Apparently, Nike had all along been taking advantage of weak enforcement agencies in many Asian countries to outsource manufacturing activities at slave wages. If the company did not change its ways, the demand for its products could have declined drastically, thereby threatening its survival in the face of fierce competition from Puma and Adidas

Conclusion

In today’s global business environment, transnational corporations have a responsibility to abide by the law. Unfortunately, the existing international regulatory systems are weak and imperfect. At the same time, managers of multinational corporations are appraised in terms of the profits that they create for the shareholders. This situation creates numerous incentives for many TNCs to engage in illegal, unethical, and immoral practices. Businesses that adopt such practices may earn huge profits in the short run but may suffer in the long run through a tarnished image like in the case of Nike. Although the pursuit of profitability tends to be incompatible with the promotion of public good, TNCs can do well by doing good. Nike changed it ways but it remains the world’s leader in the shoe and apparel business.

Similarly, the case of Primark shows that TNCs must embrace certain trade-offs between various stakeholder needs. CSR goals cannot be attained free of charge; transnational corporations must truly commit resources, energy, and management time. Every coin that Primark invested in the HERProject to improve the health of female workers in Bangladesh yielded many more coins in business benefits. In conclusion, the Nike and Primark case studies demonstrate that for any business model being implemented by TNCs in today’s global business environment to be successful, it must be anchored on CSR principles.

 

References

Clapp, J (2005), ‘Global Environmental Governance for Corporate Responsibility and Accountability’, Global Environmental Politics, vol. 5, no. 3, pp. 23-34.

Crane, A, McWilliams, A, Matten, D, Moon, J & Siegel, D, (eds.), (2008), The Oxford handbook of Corporate Social Responsibility, Oxford, Oxford University Press, 413-502.

Gjølberg, M (2009), ‘The origin of corporate social responsibility: Global forces or national legacies?’, Socioeconomic Review, vol. 7, no. 4, 605-637.

Karnani, A (2010), The Case Against Corporate Social Responsibility, 23 August 2010, Retrieved from http://online.wsj.com/news/articles/SB10001424052748703338004575230112664504890  on March 16, 2014.

Koenig-Archibugi, M (2004), ‘Transnational Corporations and Public Accountability’, Government and Opposition, vol. 39, no. 2, pp. 234–259.

Nisen, M (2013), How Nike Solved Its Sweatshop Problem, 9 May 2013, retrieved from http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5  on March 16, 2014.

Robinson, M (2002), Beyond good Intentions: Corporate Citizenship for a New Century, RSA World Leaders Lecture, retrieved from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCkQFjAA&url=http%3A%2F%2Fwww.old.li.suu.edu%2Flibrary%2Fcirculation%2FGurung%2Fsoc4500sgBeyondGoodIntentionsSp12.pdf&ei=84AlU9fZE6PD0QXJw4HIDw&usg=AFQjCNG3X5pgTZJH2YDTGPMUSJDjBWidTw&sig2=QZOiBI19hOnDdDoA3oIaQw  on March 16, 2014.

Scherer, A, Palazzo, G & Matten, D (2009), ‘Introduction to the Special Issue: Globalization as a Challenge for Business Responsibilities’, Business Ethics Quarterly, vol. 19, no. 3, pp. 327-347.

Whitehouse, L (2003), ‘Corporate Social Responsibility, Corporate Citizenship and the Global Compact: A New Approach to Regulating Corporate Social Power?’, Global Social Policy, vol. no. 3, pp. 299-318.

Yeager, R & Goldenberg, E (2012), ‘HERproject women’s health program delivers real business returns’, Global Business and Organizational Excellence, vol. 31, no. 2, pp. 24–36.

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