Chapter 2: Corporate Social Responsibility: A literature review
2.9. Multinationals’ operations across the globe
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that MNCs derive from implementing CSR in host countries. MNCs develop their CSR strategies fully aware of the benefits that accrue from implementing them and are therefore in the best position to understand the impact of each initiative. MNCs may benefit from CSR strategies in a way that purposefully or unintentionally assists the organisation to achieve its organisational objectives, depending on the innate motives of social responsibility implementation. This evaluation is therefore important as it brings to light the importance of CSR on corporate and investment strategy. It also forms a foundation to explain why MNCs are inclined to formulate certain strategies and how they respond to the needs and expectations of society.
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Figure 2.11. Comparison of revenue between countries and MNCs Source: ABC Finance Limited (2020)
This comparison highlights the enormity of some MNCs and their significance on the global stage.
Their contribution to the fiscus of nations is instrumental to the augmentation of the host government’s developmental effort. For example, Jones et al. (2007:3) state that Unilever contributed US$170 million in taxes (excluding sales tax) to the Indonesian economy in 2003, thus surpassing the UK’s aid to Indonesia (less than US$100 million).
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MNCs are also seen as important players in the transfer of skills and expertise as well as best practices across the globe (Meyer, 2004:263, 266). Their use of advanced technology and modern business standards and practices helps in upskilling the citizens for present and future prosperity.
More relevant to this study, is the fact that these organisations are well placed to improve CSR standards and practices in the countries they invest. Undén (2007:32) asserts that MNCs are recognised conduits for the transmission of CSR standards and ideologies to workers and organisations in host countries. This transmission of knowledge is guaranteed to have a positive ripple effect on CSR practices across developing regions.
Although not their primary objective, MNCs are uniquely positioned to develop infrastructure that is often used to support their operations (Starke, 2002:203). Infrastructure development includes the construction of telecommunication systems, roads, ports, electricity, railways, airports and water supplies, all of which serve a double purpose: that is to serve the MNC and to serve the community in which it plies its operations (Starke, 2002:20). These MNCs inject capital into the host country’s economy thereby ensuring, for example, infrastructure development that the host government would otherwise not have been able to provide (Jain & Puri, 1981:58). As such, infrastructure development in most developing countries is characterised by the provision of new structures as opposed to upgrades of existing ones.
MNCs bring about welcome change to the value chain by providing new opportunities for local suppliers to furnish them with their operational needs. In instances where fair competition prevails, suppliers are forced to improve their capabilities, thereby not only improving their ability to meet the stringent demands of the local MNC operations but also to compete on the global market (Undén, 2007:13). Although these initiatives are often linked to the organisation’s CSR policy, they also offer a strategic logistical advantage to the MNC. To illustrate this, Porter and Kramer (2011:62) found that, Nestlé redesigned its global coffee procurement processes in 2011, to incorporate smaller farmers from disadvantaged circumstances into the system. These farmers were caught in a vicious cycle of low production, poor quality, and environmental destruction which often saw them attracting unfavourable market prices. With the assistance of Nestlé, who provided advice on advanced agricultural practices and assisted with inputs and equipment such as fertilizers, pesticides and harvesters, they managed to increase the quality and quantity of their yields thereby becoming reliable suppliers of good grade coffee to Nestlé.
2.9.1. Negative impact of MNC operations in host communities
Although MNCs have a global presence and play an important role in economically improving many less developed nations, their activities often come with some undesirable spill overs. A good understanding of these negative spill overs is important to note as host countries need to adequately prepare for their relationships with MNCs.
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Jones et al. (2007:3) highlight that MNCs often operate in challenging social and geographic environments but have the capacity to substantially invest in these communities if there is a compelling business case for doing so. As such, they are in a position to be part of the solution to the chronic underdevelopment such as in Sub-Saharan Africa. Unfortunately, some MNCs justify their lack of social investment by arguing that they endure substantial risk by investing or operating in these developing countries and that alone is a significant form of CSR. In some instances, MNCs take advantage of the prevailing social and economic hardship and exploit people and the environment. For example, in 2016, electric car manufactures including BMW and Fiat-Chrysler were identified as having failed to combat child abuse in the cobalt supply chain. Gordon (2019: par. 9) reported that in 2016 Amnesty International wrote a report titled “Democratic Republic of Congo:
"this is what we die for": human rights abuses in the Democratic Republic of the Congo power the global trade in cobalt” which found that, although not directly involved, these car manufactures were ignoring the plight of child miners by virtue of not conducting due diligence on their cobalt supply chain. Nike, an American apparel manufacture, was also found to be exploitive in Indonesia, Cambodia and Pakistan in the 1990s (Milovanović et al., 2009:96). The manufacturer was exposed to have exploited its workers by paying below-minimum wages and providing unacceptable sweatshop-like conditions at its factories in Indonesia.
In addition, developing nations may sacrifice their otherwise strong labour and environmental and consumer laws to attract FDI. Furthermore, punishment for these negative externalities may be disproportionate to the far-reaching destructive consequences of their actions. For example, some scholars, environmentalists and international organisations such as Amnesty International argue that the punishment bestowed on Union Carbide following the Bhopal explosion in 1984 was not commensurate to the extensive ecological and humanitarian damage (BBC, 2010).
MNCs are also accused of short-changing host countries as the bulk of their profits are remitted to their home countries instead of being reinvested locally (Undén, 2007:14). Although this may seem logical and within normal business practice as the organisation would have met its tax obligations, it may be argued that by repatriating most of their profits back home, MNCs further enrich those countries at the expense of the host countries. The profit repatriation is even greater if the host country had provided tax breaks to lure the MNCs. Faheem and Siddiqui (2020:138) however argue that MNCs are only willing to reinvest in the host countries when there is significant reason, such as political stability, rule of law and favourable monetary policies. These organisations are reluctant to reinvest in the host country where institutions are weak and therefore opt to repatriate their profit.
Faheem and Siddiqui (2020:139) contend that this is the reason why repatriation of profit is higher in developing countries as compared to developed countries. This leaves the host country with less to grow their economies with.
Another disadvantage of MNCs on host countries is the introduction and imposition of foreign cultural norms and practices at the expense of the rich local traditions. Starke (2002:198) acknowledges the
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intrinsic relationship between culture and indigenous land and concedes that MNCs may be disruptive to cultural norms in areas in which they operate as communities may have difficulties in coping with the operations of MNCs and the ingress of outsiders. For example, when contrasted to a Middle Eastern approach of informal comments, negotiations, and a strong respect for rituals and traditional ceremonies, American organisational culture can be characterised as individualistic, straightforward, and very formal (Hofstede, 1984). In some countries, employees strongly identify with the organisation yet in others, identification with the community is more important. The expectations of the MNC in such instances may supersede or be forced onto the employees and communities leading to the erosion of the hosts’ values and norms.
MNCs involved in the extraction of raw materials are often accused of negative social and environmental externalities such as water and air pollution, degradation of the natural landscape, changes to the social structure and local culture, increased crime, prostitution and forced relocation.
Many communities have suffered though the trade-off of accepting these investments at a cost of direct and indirect challenges that they bring. It is the opinion of Becker-Ritterspach et al. (2019:196) that negative externalities are often worse in emerging and developing countries because protecting institutions are missing or inadequate and incoherent. Some MNCs take advantage of the inadequate measures by host governments’ and fail to acknowledge that their investments are responsible for significant sources of these externalities. In many instances, local communities face the greatest disturbance to their well-being but receive the least compensation for the extraction of raw material from their area.
In some instances, such as in the manufacturing and retail industries, MNCs may force local businesses to close shop as local businesses are unable to rival their pricing models. This is detrimental to indigenous businesses. Due to the negative competition created by MNCs, Undén (2007:14) notes that they may outcompete indigenous businesses, establish monopolies and compel suppliers to become price takers as a result of the “negative competition” that would have been created. According to Bobo (2005:35), MNCs also provide customers with incentives such as discounts and free samples, expanding their consumer base at the detriment of local businesses.
They use their financial muscle to destroy any competition in the area.
Insufficient stakeholder activism, lack of legal awareness amongst the victims of human rights violations and lack of effective remedies to redress the wrongs committed by companies, continue to encourage organisations to pursue socially irresponsible activities (Mwaure, 2006:140). The lax approach by some governments towards providing a comprehensive legal framework that hold organisations accountable for their actions is detrimental to any development.
MNCs operate within a paradox of profit and responsibility. Their commitment to CSR is curtailed by their insatiable appetite to maximize profits even within this modern, progressive world. Despite these disadvantages, MNCs still represent a welcome relief to the development of the global
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community. These entities meaningfully contribute to the reversal of societal injustices, albeit some of which are created by them. Their commitment to the UN SDGs and other global initiatives goes a long way to promoting sustainable development in across the globe.