1. Global Strategy Mike W. Peng c h a p t e r 1212 Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Global Strategic Management Mike W. Peng Chapter 12 Corporate Social Responsibility

2. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Stakeholder View of the Firm A stakeholder is “any group or individual who can affect or is affected by the achievement of the organization’s objectives” Goal for CSR is global sustainability, defined as the ability “to meet the needs of the present without compromising the ability of future generations to meet their needs” Three drivers related to urgency of sustainability  Rising population, poverty, and inequity  NGOs and other civil society stakeholders have begun monitoring and in some cases enforcing social and environmental standards  Industrialization

3. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Stakeholder View of the Firm (cont’d) Primary and secondary stakeholder groups  Primary stakeholder groups are those on whom the firm relies for survival and prosperity  Secondary stakeholder groups are defined as “those who influence or affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival”

4. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Stakeholder View of the Firm Source: Adapted from T. Donaldson & L. Preston, 1995, The stakeholder theory of the corporation: Concepts, evidence, and implications (p. 69), Academy of Management Review, 20: 65–91. Figure 12.1

5. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managers: A Unique Group of Stakeholders The free market and CSR camps agree:  Not to rock the capitalistic boat  On the central role of managers Managers, as a stakeholder group, are uniquely positioned at the center of all stakeholder relationships; therefore, it is important to understand how they make decisions concerning CSR

6. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Comprehensive Model of Corporate Social Responsibility Figure 12.2

7. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Rivalry Among Competitors Mutual Interdependence  Reliance on old ways of doing business allows competitors to resist higher CSR standards Increases in the Number of Rivals  Competition based on CSR is lower when there are a small number of players determined to resist

8. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Threat of Potential Entry First mover experience in pollution control technologies can create entry barriers  Effectiveness as entry barriers for two pollution control technologies—pollution prevention and pollution reduction—is not equal  The technologies creating the most effective entry barriers are proactive, pollution prevention—not end-of-pipe, pollution reduction

9. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bargaining Power of Suppliers / Buyers If socially and environmentally conscious suppliers provide unique, differentiated products with few or no substitutes, their bargaining power is likely to be substantial CSR conscious buyers can extract concessions  Individual buyers: Shell’s North Sea platform fiasco  Corporate buyers: Nike requires its suppliers to be “sweatshop”-free  Buyers in great difficulties can extract CSR concessions

10. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Threat of Substitutes If substitutes are superior to existing products and costs are reasonable, they attract more customers  Wind power, much more environmentally friendly than fossil-fuels and safer than nuclear power, may have great potential Overall, the threat of substitutes requires firms to vigilantly scan the larger environment, instead of narrowly focusing on the focal industry

11. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Turning Threats to Opportunities Not all industries are equal nor are any industries immune in terms of their exposure to CSR challenges Industries and firms may want to selectively but proactively turn threats into opportunities  Treating CSR as a cost or nuisance may underestimate strategic business opportunities  The most proactive managers are far-sighted to make their firm’s CSR activities a source of differentiation as opposed to an additional cost

12. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Resource-Based Considerations Value: Some CSR policies may not add to the firm’s value Rarity: CSR policies may not pay off if common Imitability: CSR that is embedded in people is harder to imitate Organization: A firm needs to tie together CSR activities The CSR-economic performance puzzle: Does CSR improve economic performance?

13. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Question of Value Large firms, especially MNEs, can apply their financial, technological, and human resources toward a variety of CSR causes  Social issue participation (involvement in social causes not directly related to managing primary shareholders) does not qualify as value-adding activities and may actually reduce shareholder value

14. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Question of Rarity If competitors also possess certain valuable resources and capabilities, then the focal firm does not gain a competitive advantage by having them  Valuable but common resources and capabilities only provide competitive parity  Only valuable and rare resources and capabilities can provide focal firms some competitive advantage

15. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Question of Imitability Only valuable and rare resources and capabilities that are hard-to-imitate can offer firms sustainable competitive advantage  CSR-related resources and capabilities deeply embedded in the idiosyncratic managerial and employee skills, attitudes, and interpretations of firms  The socially complex way of CSR engagement is difficult to imitate

16. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Question of Organization Complementary Assets  Assets that, when combined with valuable, rare, and hard-to-imitate resources and capabilities, enable a firm to fully utilize its CSR potential  Difficult to “fake it:” These assets should grow from more general business strategies (e.g., differentiation)

17. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Institution-Based Considerations Reactive strategy: Many cost-conscious manufacturers ignore CSR Defensive strategy: Argue against costs Accommodative strategy: CSR as a worthwhile endeavor Proactive strategy: Actively participate in policy discussions, build alliances with stakeholders and voluntarily go beyond what the regulations require Making strategic choices: A strategic menu of choices among reactive, defensive, accommodative, and proactive strategies

18. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reactive Strategy Characterized by a lack of support by top management for CSR causes The need to accept CSR is neither internalized through cognitive beliefs, nor does it result in any norms in practice, leaving only formal regulatory pressures to compel firms into compliance CSR Movement  Emerged in response to the blatant lack of responsiveness toward CSR

19. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Defensive Strategy Focuses on regulatory compliance with only piecemeal involvement by top management CSR issues are regarded as an added cost or nuisance Firms admit responsibility, but often fight it In the absence of informal normative and cognitive beliefs, it seems that formal regulatory pressures are the only feasible way to push firms ahead

20. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Accommodative Strategy From both normative and cognitive standpoints, it may become a legitimate social obligation to accept responsibility and do all that is required  A negative view: Window dressing?  An instrumental view: Another plot to make money?  A positive view: Doing the right thing? Institution-based answer: All of the above  From window dressing to self-motivated, better corporate citizens

21. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Proactive Strategy Proactive participation in regional, national, and international policy discussions Alliances with stakeholder groups (e.g., NGOs)  Alliances with NGOs: The key lies in identifying short- term, manageable projects of mutual interests Voluntary activities beyond what is legally required