Verbeke and Lee 3rd Edition Chapter 17 A and B.pptx

International Business

1. Chapter 17A: International Strategies of Corporate Social Responsibility D. Dunn and K. Yamashita, ‘ Microcapitalism and the megacorporation ’ , Harvard Business Review 81 (2003), 47–54. 1

2. Five learning objectives (1) To explain the significance of corporate social responsibility (CSR) in the MNE context To illustrate the linkages between strategy and CSR in contemporary MNE business practice To examine how CSR applied by MNEs can improve labour standards To develop an understanding of the trade-off between maximizing MNE profits in the short run and fulfilling obligations to society 2

3. Five learning objectives (2) To clarify that there is no ‘one size fits all’ CSR approach across all types of economies (developed, emerging and least-developed) and all types of MNE administrative heritage, and that there can be various patterns of CSR capability building 3

4. Significance (1) Good citizenship can be viewed as a cost increase but also as an opportunity to develop FSAs and to improve performance Focus on Hewlett-Packard ’ s (HP) CSR efforts: the i-community initiative in Kuppam , India HP attempts to apply sound business practices to each project 4

5. Significance (2) Seven practices utilized in Kuppam : In-depth customer needs analysis ; prototype solution deployed on a limited basis; solution modification and repetition of cycle Use of diverse team with philanthropic skills, but also line-management knowledge Systems approach : community leaders must advocate solutions, trusted individuals must lend their reputations, local firms must get involved, technology companies must integrate their technology into the solution 5

6. Significance (3) Creating a leading platform , with HP providing the main infrastructure, and partners adding their technology Building an ecosystem of partners with a vested interest in a long-term solution Establishing strict project deadlines , moving to the action phase , participants seeking common ground quickly, making the project self-sustaining ‘ Solving, stitching and scaling’ : this means that building upon solutions created for specific customers, managers stitch a collection of these solutions into a more generally applicable solution that can be scaled 6

7. Significance (4) HP centered its citizenship efforts in Kuppam on e-inclusion: the use of technology to reduce economic and social divides One tangible expression : Kuppam information center which allowed people to make phone calls, photocopies, faxes, and offers computers with access to the HP-built i-community portal 7

8. Significance (5) The business value of the project included the templat e (routine). In this case, the four key project phases were: First phase (5 months). Quick start : establishing credibility and momentum; visioning exercises; high-level alignment with partners Second phase (8 months). Ramp up : gathering resources for prototyping, evaluating solutions, training stakeholders, creating a true coalition 8

9. Significance (6) Third phase (18 months). Consolidation : evaluating new intellectual content, assisting local partners on solutions to deploy or aborting dubious sub-projects Fourth phase (24 months, starting in sync with third phase). Transition : identifying community leaders, transferring control over the project and know-how to local participants 9

10. Significance (7) Kuppam ’ s i -community included community information centers The benefits have extended to other communities HP realized that doing good and doing well could be made mutually reinforcing The benefits for HP have included market growth , leadership training and technological development 10

11. Context - complementary perspectives (1) Richard Locke and Monica Romis (SMR) focus on MNE CSR efforts as they relate to labour standards MNEs need to go beyond monitoring suppliers for compliance with labour codes and should instead attack poor working conditions at their source Extending supply chains to developing countries requires incorporating labour standards in CSR policies 11

12. Context - complementary perspectives (2) Many MNEs/NGOs assess supplier compliance with codes of conduct on working conditions, but do not measure real workplace conditions Comparison of two Mexican firms subject to Nike monitoring , but very different in working conditions Nike developed the M-Audit , consolidating into a single score the performance on more than 80 items (hiring practices, worker treatment, worker-management communications, and compensation) But: even composite measures of compliance do not lead to a complete understanding of differences in working conditions among supplier factories 12

13. Context - complementary perspectives (3) Nike Generation 3 compliance strategy : monitoring of suppliers is supplemented with collaborative initiatives to transfer workplace and human resources management best practices among suppliers Similar to Pattern VI of FSA development, but in this case the MNE is supporting FSA development inside the supplier firm 13

14. Context - complementary perspectives (4) Sushil Vachani and N. Craig Smith (CMR) focus on pricing of AIDS Drugs in developing countries Key finding : making drugs affordable for developing country customers requires the MNE to mobilize effectively complementary resources provided by governments, multilateral institutions and NGOs 14

15. Context - complementary perspectives (5) Pricing allows the MNE to fulfill obligations to society rather than maximizing profits Socially responsible pricing can involve agreeing to pay higher prices for inputs , as seen with fair trade coffee Fair trade means vulnerable producers are given prices that allow a minimum level of economic security and sustained self-sufficiency, and empower them as legitimate economic participants in international supply chains At the output market side , CSR pricing revolves around lowering prices benefiting poorer customers with a weaker ability to pay 15

16. Context - complementary perspectives (6) Vachani and Smith focus on how AIDS drug pricing policies affects the MNE and societal welfare Three main approaches to improve drug access: Drug donation programs Problems with this approach: hidden costs such as drug distribution costs; not sustainable for diseases requiring extensive and long-term treatments 16

17. Context - complementary perspectives (7) Out-licensing : offers the MNE “ distance ” from the lower price in the developing country and favorable media attention; commercially appealing response to generic manufacturers Differential pricing : MNEs use their monopolistic position (patents), to sell in developing countries covering manufacturing costs only 17

18. Context - complementary perspectives (8) Risks of differential pricing : Unreliability of intermediaries such as wholesale distributors Price referencing Overhead costs from setting up, managing, policing, and fine-tuning differential price systems Drugs may not be taken as prescribed, creating potential drug resistant strains of the disease Perverse effect of reducing ex post host government (and donor) efforts 18

19. Management Insights Limitations: Analysis focuses on CSR within the developing/emerging economy context. It neglects the role of CSR in developed economies and related CSR initiatives Lack of attention to the different ways CSR initiatives can develop within the MNE Lack of attention to bounded reliability in CSR initiatives (importance of proper governance mechanisms to prevent the bounded reliability problem from occurring or to mitigate its effects) 19

20. International Borders Home Country Developed Economy Host Location Advantages Location Advantages Location Advantages Location Advantages Least Developed Economy Host Emerging Economy Host Internationally Transferable: FSAs in CSR Figure 17A.1 CSR and location context (1) 20

21. Figure 17A.1 CSR and location context (2) In the ‘Home Country’ triangle, the spearhead crossing international borders highlights the subset of the MNE’s NLB FSAs related to CSR. In the ‘Emerging Economy Host’ triangle, the double head on the right end of the arrow reflects the extra effort that institutional voids impose on the MNE for it to access LAs through LB-FSA development using CSR initiatives. The double-headed arrow on the right reflects CSR initiatives helping to fill institutional voids, thereby strengthening host country LAs. 21

22. International Border Home country Host country Internationally Transferable: Strengths CSR Location Advantages Location Advantages CSR initiatives business initiatives Figure 17A.2 Location advantages and MNE CSR (1) 22

23. Figure 17A.2 Location advantages and MNE CSR (2) A smaller size of the upper segment of the location-bound FSA space for deploying CSR initiatives would illustrate the discrepancy between the LAs for CSR initiatives and those for traditional business initiatives: the host country may not be the optimal environment in which to deploy MNE resources related to CSR. 23

24. Generic FSA-type Geographic source Internationally Transferable FSAs Non-transferable FSAs Home country operation Host country operation Network I II III + IV V VI VII VIII + IX X KEY: Non-transferable FSAs Internationally Transferable FSAs Explicit headquarters’ control FSA upgrading from LB to NLB NLB FSA transfer Corporate headquarters control Figure 17A.3 Patterns of CSR development in MNEs 24

25. Strategic challenges in the new economy (1) R.S. Kaplan, G. Serafeim and E. Tugendhat (HBR) prescribe how to scale up initiatives aimed to ‘do good’ for society , while simultaneously achieving the firm’s economic goals MNEs should initiate projects that generate both economic and social benefits for all key participants involved in these projects MNEs should try to partner with host-country organizations that command themselves sufficient expertise and have a stellar reputation for acting as catalysts for change 25

26. Strategic challenges in the new economy ( 2 ) Once an inclusive ecosystem is in place and scaled-up, the MNE can largely let the partners run the project themselves 26

27. Strategic challenges in the new economy ( 3 ) A generalizable script for doing well and doing good at the same time: The systemic search for multisectoral opportunities can build upon foreign subsidiary entrepreneurial initiatives Entering unfamiliar foreign markets typically drives MNEs to identify and access complementary resources from external actors 27

28. Strategic challenges in the new economy ( 4 ) An MNE’s self-financing of good causes should be supplemented with seed capital and scale-up financing from other partners in the public and private spheres in host countries 28

29. Five management takeaways (1) Determine the meaning of ‘corporate citizenship’ in each country where you operate and across all of the firm’s international operations Assess each CSR initiative in terms of its joint contribution to ‘doing well’ and ‘doing good’ , and evaluate the longer-term business opportunities that CSR activities can create for the firm in host countries Improve working conditions and labour standards at your factories and your suppliers’ by effectively implementing CSR activities 29

30. Five management takeaways (1) Rethink your pricing decisions by trading off profit maximization against fulfilling obligations to society Align your CSR activities to your business objectives in the host country and to the host’s socio-economic and institutional context . But also adopt formally a corporate-wide ESGD stewardship approach as part of your international business strategy to mitigate material risks for the firm as a whole and to capitalize on opportunities arising in the ESGD sphere 30

31. Chapter 17B: International Strategies of Corporate Environmental Responsibility M.E. Porter and C. van der Linde ‘ Green and competitive ’ Harvard Business Review 73 (1995), 120-134 31

32. Five learning objectives (1) To assess the impact of environmental regulations as a created location advantage (or disadvantage) in international business To explain the impact of environmental regulations on firm-level innovation by MNEs To highlight the possibilities for new FSA development , resulting from environmental innovation and associated with an arsenal of MNE sustainability-oriented business practices 32

33. Five learning objectives (2) To develop a classification scheme of alternative MNE environmental strategies To clarify that not all firms should try to develop environmental FSAs , since this may be a resource-intensive undertaking with uncertain outcomes 33

34. Significance (1) Environmental management is playing an increasingly important role within broader MNE corporate social responsibility (CSR) Concerns over global warming have put the environment at the forefront of consumer (NGO) movements. MNEs are particularly scrutinized as they dominate pollution-intensive sectors Porter and van der Linde argue that environmental standards can trigger innovations and lead to competitive advantage 34

35. Significance (2) Environmental regulations trigger two innovation types: First type converts pollution sources into something of value Second type improves resource productivity of the main production process Early adoption of advanced environmental management approaches may produce a first-mover advantage : herein lies the relevance for international business strategy . Case of German companies specializing in less-packaging intensive products 35

36. Significance (3) Regulations alert, educate and motivate companies to adopt environmental innovations Good regulations focus on outcomes, not on specific technologies (let industries discover how to solve their own problems) Countries should develop regulations in sync with or slightly ahead of other countries (examples of Scandinavian pulp and paper and the Dutch flower industry) 36

37. Context - complementary perspectives (1) D. Kiron (SMR) discusses contemporary environmental strategies of large companies that are aligned with evolving societal views on the responsibility of business to operate sustainably The rapidly rising importance of “environment, social, and governance (ESG) metrics” to improve firm-level sustainability performance The deployment of sustainability-oriented strategies and ESG metrics varies widely across geographies and industries , and it is also a function of firm size 37

38. Context - complementary perspectives (2) Eight guidelines to help companies achieve a successful sustainability-oriented strategy : “Set your sustainability vision and ambition.” “Focus on material issues.” “Set up the right [routines] to achieve your ambition.” “Explore business model innovation opportunities.” 38

39. Context - complementary perspectives (3) Eight guidelines to help companies achieve a successful sustainability-oriented strategy (continued) “Develop a clear business case for sustainability.” “Get the board of directors on board.” “Develop a compelling value-creation story for investors.” “Collaborate with a variety of stakeholders to drive strategic change.” 39

40. Context - complementary perspectives (3) Kolk and Pinkse ’ s (CMR) develop a framework for assessing climate change impact mitigation strategies: Framework is based on the strategic goal pursued ( innovation or compensation ) and the degree of interaction with other firms in trying to achieve this goal ( internal focus , vertical interaction within the supply chain , and horizontal interaction beyond the supply chain ) 40

41. Context - complementary perspectives (4) Six climate strategy approaches : Cautious planners : firms preparing for action but showing little activity on potential climate change strategic options Emergent planners : have set targets for greenhouse gas reduction but lack long term plans to reach those goals Internal explorers : strong internal focus entailing a combination of targets and improvements in the production process 41

42. Context - complementary perspectives (5) Vertical explorers : strong focus on environmental measures within the supply chain (cases whereby the companies rely on natural resources vulnerable to extreme weather conditions or when the manufacturing process has a relatively low climate change impact compared to its products) Horizontal explorers : seek climate change opportunities in markets outside of their current business scope Emissions traders : focus their efforts on emissions markets and participation in offset projects 42

43. Context - complementary perspectives (6) Most companies fall into the cautious planner or emergent planner category Can be explained by the increased bounded rationality challenge associated with policy uncertainty on, e.g., climate change mitigation An innovation approach is more likely to lead to the dual benefits of meeting emission targets and developing FSAs The compensation approach does not offer direct FSA development 43

44. Management Insights (1) Three important limitations of Porter and van der Linde: They do not address fully the impact of environmental regulations on location advantages in an international context Relative lack of focus on alternative patterns of environmental FSA development in MNEs 44

45. Management Insights (2) A distinction should be made (and was not made by Porter and van der Linde) among three categories of firms : Firms in industries with a high salience of environmental issues (oil, electricity, cars), where environmental impact mitigation can be a source of competitive advantage Firms specialized in goods or services instrumental to mitigating environmental impacts or anticipating, influencing or responding to public policy/regulation 45

46. Management Insights (3) For the above two categories of firms, a continuous reflection is required on FSA-development But: most firms belong to a third category: they will benefit from adopting/purchasing best available practices, accessible in external markets 46

47. Location Advantages Location Advantages Location Advantages Location Advantages Strict environmental regulations Large economy A B C D Newly added LAs Newly added LAs Easier market penetration Newly added LB & NLB FSAs Factor conditions Related and supporting industries Demand conditions Firm strategy, industry structure, and rivalry Strict environmental regulations Small open economy A B C D ? ? ? LAs Location Advantages A B C D A B C D Environmental regulations Environmental regulations Figure 17B.1 The Porter and multiple diamond model perspectives on environmental strategy (1) 47

48. Figure 17B.1 The Porter and multiple diamond model perspectives on environmental strategy (2) In the top panel, the vertical rectangular box on the left-hand side of the home diamond represents the new LAs resulting from strict environmental regulations in this large economy. These new LAs give rise to LB FSAs and NLB FSAs, represented by the horizontal rectangular box in the circle spanning the triangle, and should facilitate the MNE’s international expansion In the bottom panel, the question marks in the rectangular boxes indicate it is highly uncertain whether strict environmental regulations in small open economies will give rise to new LAs, LB FSAs or NLB FSAs. The dotted arrows, starting on the right-hand side, are suggestive of changes in relative strength of domestic and foreign diamonds, when environmental regulations are different in each country, the point being that small open economy governments (e.g., Canada) better be careful when imposing stricter environmental regulations than those prevailing in much larger trading partners (e.g., United States) 48

49. Generic FSA-type Geographic source Internationally Transferable FSAs Non-transferable FSAs Home country operation Host country operation Network I II III + IV V VI VII VIII + IX X KEY: Non-transferable FSAs Internationally Transferable FSAs Explicit headquarters’ control FSA upgrading from LB to NLB NLB FSA transfer Corporate headquarters control Figure 17B.2 Patterns of environmental FSA development in MNEs 49

50. Strategic challenges in the new economy (1) P. Hopkinson, M. Zils, P. Hawkins and S. Roper (CMR) focus on circular economy (CE) opportunities in the global economy using the example of the Japanese MNE Ricoh A CE strategy can involve various approaches: the simple extension over time of product usage the reuse of products through refurbishment and redistribution 50

51. Strategic challenges in the new economy ( 2 ) the remanufacturing with new uses for existing products, and the recycling of resources embedded in products One of the challenges to overcome in implementing a CE strategy is many consumers’ perception that ‘new equals best’ 51

52. Strategic challenges in the new economy ( 3 ) Four stages of Ricoh’s CE business model : Between 1980-1994, Ricoh started with extending the usage of its products , mainly because of the somewhat artificial life cycle of copiers and printers From 1994-2004, Ricoh’s operations in continental Europe and the UK then developed actual design capabilities for CE , involving the massive recycling of materials 52

53. Strategic challenges in the new economy ( 4 ) From 2005-2012, Ricoh’s remanufacturing business expanded from covering only the European and UK markets , to include the Middle East Starting in 2008, Ricoh was able to overcome the strong downward price pressures on its products, resulting from the great recession, by expanding into emerging markets 53

54. Strategic challenges in the new economy ( 5 ) Guidelines for a 3R (recover, reuse, recycle) approach: Engineering groups need to consider design items such as material choices, design durability, modularity of products, and software connectivity and compatibility Front-office groups that are close to marketing, need to understand customer requirements for specific services and for product differentiation 54

55. Strategic challenges in the new economy ( 6 ) Remanufacturing will in most cases need to co-exist with the production of new products inside the firm Many challenges related to achieving a more circular economy will require: “ global cooperation between governments and businesses” to ensure that key policy and system barriers to development are addressed 55

56. Five management takeaways (1) Keep track of expected, new environmental regulations and assess not only their likely cost, but also their potential contribution to green FSA development Fight ill-conceived messages from external stakeholders that more stringent environmental regulations at home will lead to first-mover advantages abroad, since this is usually not true for firms in small open economies 56

57. Five management takeaways (2) Develop new FSAs through environmental innovation by considering the different consumer groups that might benefit from such innovation. This may include circular economy innovations, the potential of which is likely to vary across geographic space Analyse the scope of the MNE’s environmental strategy (inside focus; vertical value chain focus; broader industry focus) to identify relevant environmental initiatives Beware of exaggerating the economic potential of environmental innovation initiatives, especially if the firm is unlikely to build unique expertise in this area and may be better off adopting – or purchasing – ‘best practice solutions’ from the external market 57