International Business, Sustainability & Corporate Social Responsibility by

INTERNATIONAL BUSINESS, SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY

ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE Previously ADVANCES IN ECOPOLITICS

Series Editor: Liam Leonard PUBLISHED UNDER SERIES TITLE ‘ADVANCES IN ECOPOLITICS’ The Transition to Sustainable Living and Practices: Advances in Ecopolitics Volume 4 Edited by Liam Leonard and John Barry Global Ecological Politics: Advances in Ecopolitics Volume 5 Edited by Liam Leonard and John Barry Sustainable Justice and the Community Volume 6 Edited by Liam Leonard and Paula Kenny Community Campaigns for Sustainable Living: Health, Waste & Protest in Civil Society Volume 7 Edited by Liam Leonard Sustainable Politics and the Crisis of the Peripheries: Ireland and Greece Volume 8 Edited by Liam Leonard and Iosif Botetzagias Enterprising Communities: Grassroots Sustainability Innovations Volume 9 Edited by Anna Davies Transnational Migration, Gender and Rights Volume 10 Volume Editor: Ragnhild Sollund Series Editor: Liam Leonard

ADVANCES IN SUSTAINABILITY AND ENVIRONMENTAL JUSTICE VOLUME 11

INTERNATIONAL BUSINESS, SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY EDITED BY

MARIA ALEJANDRA GONZALEZ-PEREZ Department of International Business, Universidad EAFIT, Medellin, Columbia

LIAM LEONARD School of Business and Humanities, Institute of Technology, Sligo, Republic of Ireland

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2013 Copyright r 2013 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. Any opinions expressed in the chapters are those of the authors. Whilst Emerald makes every effort to ensure the quality and accuracy of its content, Emerald makes no representation implied or otherwise, as to the chapters’ suitability and application and disclaims any warranties, express or implied, to their use. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-1-78190-625-5 ISSN: 2051-5030 (Series)

ISOQAR certified Management System, awarded to Emerald for adherence to Environmental standard ISO 14001:2004. Certificate Number 1985 ISO 14001

CONTENTS LIST OF CONTRIBUTORS

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LIST OF REVIEWERS

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ACKNOWLEDGEMENTS

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INTRODUCTION

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CORPORATE SOCIAL RESPONSIBILITY AND INTERNATIONAL BUSINESS: A CONCEPTUAL OVERVIEW Maria Alejandra Gonzalez-Perez

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GLOBAL CIVIL SOCIETY AND INTERNATIONAL BUSINESS: A REVIEW Maria Alejandra Gonzalez-Perez

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INTERNATIONAL BUSINESS, CORRUPTION, AND BRIBERY Duane Windsor

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INSTITUTIONAL AND MARKET FORCES: THE DOMINANT LOGIC OF STRATEGIC CORPORATE RESPONSIBILITY AND INNOVATIVE VALUE CO-CREATION Frederick Ahen and Peter Zettinig

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THE INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES ON BUILDING CORPORATE REPUTATION Emel Esen v

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CREATING THE GLOBAL GREENSCAPE: DEVELOPING A GLOBAL MARKET-ENTRY FRAMEWORK FOR THE GREEN AND RENEWABLE TECHNOLOGIES Margee Hume, Paul Johnston, Mark Argar and Craig Hume

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CONFLICTING FORCES FOR INTERNATIONALIZATION OF HYDROPOWER EQUIPMENT PRODUCERS: RECONCILING SUSTAINABILITY AND CSR WITH MNEs’ INTERNATIONAL STRATEGIES Lilach Nachum and Michael Schmid

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REVIEW OF STRATEGIC POLICY FRAMEWORK FOR RE-EVALUATING ‘CSR’ PROGRAMME IMPACTS ON THE MINING-AFFECTED AREAS IN INDIA A. N. Sarkar

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ABOUT THE CONTRIBUTORS

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LIST OF CONTRIBUTORS Frederick Ahen

University of Turku, Finland

Mark Argar

South-South Capital Partners Pty Ltd, The Philippines

Emel Esen

Yıldız Technical University, Turkey

Maria Alejandra Gonzalez-Perez

Universidad EAFIT, Colombia

Craig Hume

Griffith University, Australia

Margee Hume

University of Southern Queensland, Australia

Paul Johnston

South-South Capital Partners Pty Ltd, Australia

Liam Leonard

Institute of Technology Sligo, Republic of Ireland

Lilach Nachum

City University New York, USA

A. N. Sarkar

Asia Pacific Institute of Management, India

Michael Schmid

Technical University Vienna, Austria

Duane Windsor

Rice University, USA

Peter Zettinig

University of Turku, Finland

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LIST OF REVIEWERS John Barry Queens University Belfast, UK

Carmen Kuhling University of Limerick, Ireland

Anna Davies Trinity College Dublin, Ireland

Liam Leonard Institute of Technology, Sligo, Ireland

Marius De Geus Leiden University, Netherlands

Vesna Malesevic National University of Ireland Galway, Ireland

Peter Doran Queens University Belfast, UK Honor Fagan National University of Ireland, Maynooth, Ireland

Terrence McDonough National University of Ireland Galway, Ireland

Rosemary Gido Indiana University of Pennsylvania, USA

Graham Parkes University College Cork, Ireland

Maria Alejandra Gonzalez-Perez EAFIT University, Colombia

Maria Jose Zapata Gothenburg University, Sweden

Paula Kenny Institute of Technology Sligo, Ireland

Patrick Zapata Gothenburg University, Sweden

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ACKNOWLEDGEMENTS MARIA ALEJANDRA GONZALEZ-PEREZ’S ACKNOWLEDGEMENTS I would like to acknowledge the support of my colleagues at the Department of International Business, School of Business and the Directorate of Research in the Universidad EAFIT, including Francisco Lopez, Felix Londono, Sascha Fuerst, Andres Velez and Cristina Robledo. Also, I would like to say thanks for the feedback of all contributors, their teams and reviewers. Personally, I would like to give thanks for early comments on some of the manuscripts to Dr Terrence McDonough at the National University of Ireland, Galway. Special gratitude to our wonderful families (especially to my kids Cian and Tiwaz) and close friends who have provided us with company and unconditional support during this extraordinary project. And my most grateful feelings are towards my wonderful and admired co-editor Dr Liam Leonard with whom I had almost a year of fluid and enthusiastic communication, and with whom it was wonderful to work with.

LIAM LEONARD’S ACKNOWLEDGEMENTS I wish to acknowledge my family, friends and colleagues for their continued support and encouragement. In addition, I wish to acknowledge the continued support and professionalism of Emerald Environment Editor Sarah Baxter and all at Emerald Group over the first dozen volumes of the Advances in Ecopolitics/Advances in Sustainability and Environmental Justice Series. I am pleased to acknowledge my co-editor for Volumes 11 and 12, Dr Maria Alejandra Gonzalez-Perez for her excellent contribution to both volumes on Corporate Social Responsibility and Sustainability. Finally, I would like to thank all contributors to both of the CSR volumes, from 6 continents and 15 countries, making these editions a significant contribution to global understanding of CSR and sustainability in a changing world. xi

INTRODUCTION We are pleased to introduce this volume dedicated to International Business, Sustainability and Corporate Social Responsibility as part of the Advances in Sustainability and Environmental Justice Series. Within the context of International Business, Corporate Social Responsibility (CSR) might be considered a mechanism through which investments made can achieve the full economic benefits as long as there is an agreement to promote social and political stability. The control over political and social variables determines or helps to build a competitive advantage and insures a corporation’s long-term running position on the market and the facilitation of capital accumulation. Generally, there is a direct relationship between the creation of new markets and the enlargement of some of the existing markets. This is achieved through increased stability in the social context, and through the reduction of investment risks and improved economic conditions. This particular volume contains eight chapters, and includes contributions from 12 academics representing academic institutions from Australia, Austria, Bulgaria, Colombia, Finland, India, Turkey and the United States. The first two chapters in this volume provide contributions to understanding the impact of corporate social responsibility, and the role that the international civil society has played to provide transnational forms of regulations (via social responsibility networks). These social responsibility networks (SRNs) reflect how socially and environmentally conscious demands by international actors (mostly in consumer markets) are articulated at the transnational level affecting global value chains. The chapter titled ‘Global Civil Society and International Business: A Review’, also written by Dr Gonzalez-Perez, presents a detailed account of how the recent wave of globalisation since the end of last century has intensified social exclusion and environmental problems. In this chapter, Dr Maria Alejandra Gonzalez-Perez from Universidad EAFIT in Colombia, and the Centre for Innovation & Structural Change (CISC) in Ireland, specially looks at the evolution of CSR since the 1990s, and also looks at ethical and political theories to explain CSR. Finally it presents a summary of a broad variety of CSR initiatives. xiii

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INTRODUCTION

The chapter titled ‘Global Civil Society and International Business: A Review’, also written by Dr Gonzalez-Perez, presents in detail how the recent wave of globalisation since the end of last century has intensified social exclusion, environmental problems and has exacerbated inequalities Globalization has also exacerbated inequalities surrounding transnational governance systems. There is a need for such systems to be transparent, accountable and participative with an active and recognised contribution by the most affected actors (e.g. workers, marginalised communities, etc.). Besides the negative changes associated with globalisation, a decline in the regulatory role of the state has affected traditional forms of governance. These combined with negative impacts on communities have challenged civil society to exercise direct pressure on private corporations to assume social responsibilities which were traditionally those of the government. The transnational participation of civil society actors as well as multinational enterprises (MNEs) and state agencies provide a platform for the development of a broader scope for corporate social responsibility. Dr Duane Windsor, Professor of Management at Rice University in the United States wrote the third chapter in this volume. In this chapter, Dr Windsor examines the role of MNEs as key global actors in combating commercial and government corruption through CSR mechanisms. This chapter presents citations and analysis of crucial works on corruption, bribery and international business, while providing practical guidance to business managers and public officials. Dr Windsor has extensively published in the fields of CSR and business ethics. One of his most recent and significant contributions to the field was to be the co-editor with Robert W. Kolb of the Encyclopaedia of Business Ethics and Society. His papers have been published in prestigious high ranked journals such as the Journal of Business Ethics, Business & Society, Journal of International Management, Journal of Management Studies, amongst others. The fourth chapter in this volume is titled ‘Institutional and Market Forces: The Dominant Logic of Strategic Corporate Responsibility and Innovative Value Co-creation’ and is written by Frederick Ahen and Dr Peter Zetting, two scholars expert in sustainability from Turku School of Economics in Finland. This chapter presents a philosophical analysis of sustainable corporate strategy. It defends the importance of market and institutions contextualisation, and it emphasises the eminence of including value co-creation process based on ethically responsible content in order to achieve long-term corporate success. Dr Emel Esen from the Yildiz Technical University in Turkey wrote the fifth chapter titled ‘The Influence of Corporate Social Responsibility (CSR)

Introduction

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Activities on Building Corporate Reputation’. In this chapter, Dr Esen through the analysis of an extensive literature review examines the role and increasing importance of CSR in enhancing corporate reputation, and proposes a conceptual framework for building and improving firm’s reputation. The sixth chapter is focused on the creation and penetration of a global marketplace for green technologies (Greenscape), and is written by Dr Margee Hume, Associate Professor of Marketing in the University of Southern Queensland in Australia, Paul Johnston and Dr Mark Argar from the Australian’s firm South-South Capital Partners, and Craig Hume from Griffith University. The seventh chapter of this volume is written by the proliferous professor in international business from Baruch College in City University in New York, Dr Lilach Nachum, and Michael Schmid from the Technical University in Vienna (Austria). This chapter provides through a detailed case study an understanding of international activities of MNEs in the renewable energy sector. This chapter presents a special contribution to the international business field, since it not only provides an innovative study to an understudied industry, but it analyses from a sustainability perspective. Dr A. N. Sarkar, Professor of International Business and Dean of Research of the Asia-Pacific Institute of Management in India wrote the final chapter in this volume. It reviews the policy framework in India for evaluating the impacts of CSR programmes in the mining industry. The importance of this chapter is highlighted by its examination of the significant contribution to environmental and socio-economic degradation of the mining and extractive sectors worldwide, and the unquestionable need to address these damages to the planet. This chapter also contributes guidelines for monitoring, evaluation and implementation of CSR practices and standards in the sector. As editors of this collective work, we feel honoured to provide academics, practitioners and policy makers worldwide a resource for training, reference, analysis and discussion. We anticipate that this volume to contribute to increased understandings of the intersection of CSR, sustainability, politics, economics and international business studies, and to offer a new set of manuscripts for enhancing practitioners’ viewpoints for decision-making processes in relation to social, environmental, economic and labour issues regarding MNEs’ domestic and international activities. Liam Leonard Maria Alejandra Gonzalez-Perez Editors

CORPORATE SOCIAL RESPONSIBILITY AND INTERNATIONAL BUSINESS: A CONCEPTUAL OVERVIEW Maria Alejandra Gonzalez-Perez ABSTRACT Purpose – This chapter provides a theoretical and conceptual overview of Corporate Social Responsibility (CSR). It is written as a descriptive document to enhance the understanding of CSR within the context of international business. Design/methodology/approach – This chapter is built based on an extensive literature review. Findings – This chapter contains six subsections. The first subsection looks at the concept of CSR, and it highlights the possible role of CSR in mitigating the negative consequences of globalisation. The second subsection looks at the evolution of CSR since the 1990s. The third section looks at ethics theories. The fourth section looks at political theories to explain CSR. The fifth section looks at the business case for CSR. And finally the sixth section looks at specific CSR initiatives.

International Business, Sustainability and Corporate Social Responsibility Advances in Sustainability and Environmental Justice, Volume 11, 1–35 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000011006

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MARIA ALEJANDRA GONZALEZ-PEREZ

Practical implications – This chapter provides a response to the necessity for this analysis that arises from the effects of CSR actions in international business. Originality/value of chapter – This chapter provides a summary of the conceptual and theoretical framework of CSR. It could be used as a teaching tool for undergraduate and masters’ courses on either international business or corporate social responsibility. Keywords: International business; corporate social responsibility

INTRODUCTION This chapter provides a theoretical and conceptual overview of Corporate Social Responsibility (CSR). The necessity for this analysis arises from the effects of CSR actions in international business. It contains six subsections. The first subsection looks at the concept of CSR and highlights the possible role of CSR in mitigating the negative consequences of globalisation. The second subsection looks at the evolution of CSR since the 1990s. The third section looks at ethics theories. The fourth section looks at political theories to explain CSR. The fifth section looks at the business case for CSR. And finally the sixth section looks at specific CSR initiatives. Since the 1990s, CSR has become a catchword, possibly because it means different things to different publics, and since the concept of CSR is inexplicit, indefinite, multidimensional and changing (Bredgaard, 2003, 2004; Chen, 2011; Garriga & Mele´, 2004). As described by Bredgaard (2003), CSR is a natural feature of political decision-making that secures political support from different corners, allows for compromises and makes it possible for different actors to read their interests into political programmes. Social responsibility can be used in public relations (PR) to achieve better image and reputation, and economic and management research has identified an empirical correlation between CSR and economic performance (Ahmad, 2003; Carter, 2005; Chen, 2011; Galbreath, 2009; Gray & Smeltzer, 1989, McWilliams & Siegel, 2000, 2001). However, the line of causation is unclear. Bredgaard (2004) wondered if companies behaved in a socially responsible manner because of their economic success or if they became economically successful because they behaved in a socially responsible manner. Some authors suggest that CSR is one of the responses to the social disparities resulting from globalisation (Khan & Lund-Thomsen, 2011;

Corporate Social Responsibility and International Business

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Renouard & Lado, 2012; Scott, 2007; Swift & Zadek, 2002; Taylor, 2011). Hopkins (1999) suggests that in order to reverse the negative consequences of globalisation, there is a need for a ‘planetary bargain’ between the public and the private sectors. Continuing with the argument, Michael Edwards (2004a) suggests that there is a mutual relationship between economic actors and civil society. Edwards (2004b) states that no modern society can develop and maintain sustainable social goals without access to the surplus that market economies create, and he clarifies this further by saying that ‘a civil society cannot survive where there are no markets, and markets need a civil society to prosper’ (Edwards, 2004a, p. 50).

THE CONCEPT OF CSR The origin of the concept ‘corporate social responsibility’ is not associated with a specific author or a specific date. It could be argued that the notion of CSR is as old as enterprises themselves since evidence of concern for society by the business community has always been present (Carroll, 1999). The social responsibility (SR) of different actors in society, especially of those involved in economic activity has been studied predominantly by business management scientists, specifically in the fields of business ethics, strategy, organisational behaviour, social issues in management, human resources management, industrial/labour relations, marketing, accounting and finance. However, CSR has been also studied by other social sciences such as philosophy, theology and religious studies, history, political studies, sociology and economics. CSR has a crucial space in the current debate on access to economic, cultural and social rights for disadvantaged communities. During the 1990s and 2000s the literature on CSR served as the basis for emerging and consolidating business ethics theory, stakeholder theory (Harrison & St. John, 1994; Harrison & Freeman, 1999; Waddock, Bodwell, & Graves, 2002; Whysall, 2004), and corporate citizenship (Carroll, 1999; Maignan, Ferrell, & Hult, 1999; Matten & Crane, 2005; Rego, Leal, & Pina e Cunha, 2011; Shinkle & Spencer, 2012). Business corporations have always been related to the public; however, formal writings on CSR that have shaped practice, theory and research have been the product of the 20th century (Bredgaard, 2003; Carroll, 1999; Dunham & Pierce, 1989; Gray & Smeltzer, 1989; Quazi & O’Brien, 2005; Sheldon, 1924; Wood, 1991). The use of the term CSR has coincided with the new roles of modern corporations within the economy and society in

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general. In the nineteenth century, cooperativism and associationism can be seen as forms of shared SR, as attempts to conciliate business efficiency with social and civic principles of democracy, community engagement and distributive justice. In the eighteenth century, in times of early industrial society before the welfare state, some private and paternalistic enterprises internalised responsibilities for their employees on the basis of a social contract. These were habitually motivated by both the religious and ethical beliefs of the owners and fear of labour discontentment and radical action (Bredgaard, 2003). At the beginning of the twentieth century, there were few corporate acts of charity (Dunham & Pierce, 1989). Instead, wealthy business individuals made donations from their personal funds to charitable causes. This suggests that corporate philanthropy has evolved as the initiatives of individual philanthropist owners have been assumed by the corporations they own. The modern era of CSR began in the 1950s. However, at that time, the literature tended to refer to the SR (social responsibilities) of business (Carroll, 1999; Garriga & Mele´, 2004). The modern usage of the term was formalised in H. R. Bowen’s seminal book Social Responsibilities of the Businessman, in which he attempted to answer the question of what responsibilities businessmen may reasonably be expected to assume (Bowen, 1953). He postulated that business managers have an obligation ‘to pursue those policies, to make those decisions, or to follow those lines of actions which are desirable in terms of the objectives and values of our society’ (Bowen, 1953, p. 6). Succeeding scholars tried to define the term CSR more precisely. For instance, Joseph W. McGuire (1963) stated that ‘the idea of social responsibilities supposes that the corporation has not only economic and legal obligations but also certain responsibilities to the society which extend beyond these’ (McGuire, 1963). Similarly, Keith Davis (1980) posited that CSR refers to ‘businessmen’s decisions and actions taken for persons at least partially beyond the firm’s direct economic and technical interest’ (Davis, 1980, p. 70). Frederick, Davis and Post (1988) proposed two principles which contributed to contemporary views on CSR. The first is the principle of charity, which is rooted in the biblical tradition of wealth redistribution, which suggests that those who have plenty should give to those who do not have. Under this principle, members of the business community might decide to use their corporate power and wealth for the social or collective good. A second principle that shapes CSR is the principle of stewardship. This principle asserts that organisations have an obligation to see that the


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public’s interests are served by corporate actions and the way in which profits are spent (Dunham & Pierce, 1989). Because corporations control vast resources, because they are powerful, and because this power and wealth came from their operations within society, they have an obligation to serve society’s needs. In this way managers and corporations become the stewards, or trustees, of society (Frederick, Davis, & Post, 1988). The rise of CSR has coincided with an increased concern for the image of firms (Clark, 2000, p. 364), and firms have adopted CSR initiatives based on the assumption that both consumers (Becker-Olsen, Cudmore, & Hill, 2006; Benston, 1982; Berglind & Nakata, 2005; Levy, 1999; Maignan & Ferrell, 2003; O’Shaughnessy & O’Shaughnessy, 2003; Scharf, Fernandes & Kormann, 2012) and shareholders (Buzby & Falk, 1979; Unerman & Bennett, 2004) actively reward socially responsible firms. From this one can deduce that PR, marketing and advertising have played critical roles and that CSR initiatives are responses by corporations to explicit or implicit social demands. Early evidence of this was found by Eilbirt and Parket (1973). In an empirical study based in the United States, they found that after 1968 most major corporations established a SR officer who reported directly to the chief executive. Bowman and Haire (1976) conducted a study using a database of 82 food-processing corporations and found evidence of social impact disclosures in annual reports.

MODELS OF CSR An early model of CSR was developed by Robert Hay & Edmund R. Gray (1974). This model suggested that the concept has gone through various phases. Phase I is portrayed as the Profit-Maximising Management phase. This phase occurred during the period of economic scarcity in the nineteenth century, when business managers believed that they should have one objective: to maximise profits. The origin of this view was Adam Smith’s 1776 notion that each individual business person acting in his or her own selfish interest would be guided by an ‘invisible hand’ (the market mechanism) to promote the greatest possible wealth of nations. Phase I thrived in the United States because the common national goal during this period was to eliminate economic scarcity. Neither the principle of charity nor the principle of stewardship played an influential role in shaping CSR during this period, as managers essentially felt that what was good for

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business was good for the country. This business ethos was shaken by the Great Depression of the 1930s. Phase II is characterised by Trusteeship Management, which started to emerge in the 1920s and 30s, responding to the growth of pluralism and the increasing diffusion of stock ownership. As a consequence of the Great Depression, the number of privately held United States corporations began to decline, and organisations had to respond to the demands of both internal and external groups, such as stockholders, customers, suppliers, creditors and community, instead of to a single owner. This phase is characterised by the belief that corporate managers are not just responsible to the stockholders but are required to maintain accountability to all groups with a stake in the organisation. Accordingly, organisations had to shift their orientation to SR and the result was the emergence of trusteeship management in which it was the job of the corporate manager to maintain an equitable balance among the competing interests of all groups with a stake in the organisation. Senior managers are seen as trustees for the various stakeholder groups rather than merely agents for the owners. Consequently, pressure from these groups led to the use of some of the economic wealth generated to meet wider societal needs. Phase III is distinguished by Quality-Of-Life Management. By the 1960s, the focus in the United States had moved from the issue of aggregate economic scarcity to issues such as environmental pollution, racial discrimination, poverty, worker and product safety, urban deterioration and other signs of social deprivation. With this new set of national priorities the pressure on managers intensified to behave in socially responsible ways. The consensus was that managers had to do more than achieve narrow economic goals; society seemed to demand that businesses play a large role in meeting social needs, and helping to develop solutions for society’s ills. In this phase the principles of both charity and stewardship were firmly in place. In this three-phase model, each phase incorporates the essential elements of the earlier phases, as described by Hay and Gray (1974) who showed that managers holding a quality-of-life view understand the necessity for profits and to balance the demands of stakeholders as well as working toward societal betterment. There are also other models of CSR. For instance, one can distinguished three theoretical streams on CSR: one that supports the idea that corporations have responsibilities towards society, one that suggests that the sole responsibility of business is profit maximisation and one that emphasises the role of stakeholders.


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The first stream is characterised by the premise that corporations are obliged to be engaged with society a whole. This stream is led by the work of Archie B. Carroll (1979, 1991) who classifies CSR into four types of responsibilities: economic, legal, ethical and philanthropic. The model suggests that because a business firm is basically an economic entity its primary responsibility is economic. It must produce the goods and/or services that society wants and must sell them at a profit. Firms should operate within the law, so legal responsibilities are also basic. Regardless of their economic achievements, businesses must abide by established laws and regulations in order to be good citizens. In Carroll’s model, ethical responsibility refers to behaviour by the firm that is expected by society, but is not codified into law. The category of philanthropic responsibilities encompasses voluntary activities undertaken for the public good; businesses are also expected to display a genuine concern for the general welfare of all constituencies. Other exponents of this stream are Wartick and Cochran (1985), and Wood (1991). Wartick and Cochran (1985) formulated a model of corporate social performance (CSP) by focusing on economic, social and public responsibilities. Their model was reformulated by Wood (1991) who conceived CSR as being framed at the individual, organisational and institutional levels, and postulated that the outcome of corporate behaviour can be measured by the social impact of policies and programmes. Wood (1991) also observed that the processes of social responsiveness include environmental assessment, stakeholder management and issues management. The second stream argues that the sole responsibility of business is profit maximisation. The main proponent in this stream is Milton Friedman. Friedman (1970), when considering the social responsibilities of business, stated that firms, being artificial entities, only have artificial responsibilities because in his own words ‘only people can have responsibilities’. He asserts that discussions on the social responsibilities of business are loose, lack rigour, and that the sole responsibility of business is to maximise profits, while obeying the law. In a now famous quotation, Friedman (1970) stated that ‘one and only one social responsibility of business [is] to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud’. Friedman based his contention on economic and legal arguments. From the economic perspective, he asserted that if managers spend corporate funds on projects not intended to maximise profits, the efficiency of the market mechanism will be undermined, and resources will be misallocated within the economy.

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On the legal side, Friedman contended that because managers are legal agents of the stockholders (the owners), their sole duty is to maximise the financial return to the stockholders. Hence, if managers spend corporate funds for social purposes, they are essentially stealing from the stockholders. Friedman suggested that if the stockholders want money spent on social causes they are free to do so as individuals using their dividends. Another famous critic of CSR was Theodore Levitt (1958) who argued against CSR fearing that business values might come to dominate society. Levitt (1958) postulated that if business people became heavily involved in social and political activity, businesses as institutions would become the twentieth-century equivalent to the state, and this would not be healthy for society. The ‘CSR and the stakeholder theory’ was developed by Waddock et al. (2002). They defined primary stakeholders as those which have a direct and mutual influence/stake in a company, such as owners, managers, employees, customers, competitors and suppliers. Secondary stakeholders are those with some intermediary role such as trade unions, non-governmental organisations (NGOs), activists, communities, banks, business services providers and governments. Finally, the third group are social and institutional stakeholders who are represented in the emergence of global standards, guidelines and ‘best of’ rankings which report on initiatives focused on alternative bottom lines rather than the traditional financial bottom line.

FINANCIAL IMPLICATIONS OF CSR There is also a body of literature on CSR that suggests that CSR may influence the financial performance of firms in different ways (Arlow & Cannon, 1982; Carter, 2005; McGuire, Sundgren, & Schneeweis, 1988; Paton & Siegel, 2005; Wang & Bansal, 2012). For instance, some authors suggest that socially responsible actions imply added costs. Therefore, socially responsible companies would be at an economic disadvantage compared to less socially responsible companies (Aupperle, Carroll, & Hatfield, 1985; Chapple et al., 2005; Herbohn, 2005; Ullmann, 1985; Vance, 1975). Other authors claim that CSR costs can be seen as an investment in terms of effects on employee morale, productivity, consumer good will (Becker-Olsen et al., 2006; Chamorro & Ban˜egil, 2006; Klein & Dawar, 2004; Maignan et al., 1999; Soloman & Hansen, 1985; Smith & Higgins, 2000; Varadarajan & Menon, 1988); purchasing corporate responsibility


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(PSR) (Carter, 2005); relationships with local communities and countries (Porter & Kromer, 2006; Smith & Higgins, 2000), with local governments (Blecher, 2004; McGuire et al., 1988), and with financial institutions. Other authors suggest that CSR can be seen as an indicator of managerial competence (Dunphy et al., 2003; Eilbirt & Parket, 1973; McAdam & Leonard, 2003; Woodward, Edwards, & Birkin, 2001).

ETHICS THEORIES SR of business has been a controversial topic in management literature. The arguments in favour of SR are based on two general views. The first view, as presented previously in this chapter, is based on CSR as an instrument of wealth creation. The second view is that the acceptance of CSR is the morally correct position. This view suggests that our modern industrial societies experience many serious problems created by large corporations. Hence, because business firms control so many of the resources in economies they should devote some of these resources to the overall betterment of society and the corporations have a moral responsibility to help solve or ameliorate social problems (Petit, 1967). Jira´sek (2003), in presenting the transformations of ethics and morality over 25 centuries, establishes that ethics are intrinsic to societal development, including the development of economy, ecology, society and culture, adding that ethics are subject to change, particularly with alterations in the economy, law and culture. In the same essay Jira´sek proposes the emergence of a type of ‘market ethics’ produced by liberal market practices, where the ‘favored virtue’ is ‘merit’ and outstanding performance in value creation (Jira´sek, 2003, p. 345). Operational transparency, governance, honest PR and exemplary civic reputation are competitive advantages; therefore, economics and ethics are meaningfully related since both are value oriented. Changing Social Structures of Accumulation (SSA) (Kotz, McDonough, & Reich, 1994) alters the terrain in which corporate values are developed and expressed in capitalist societies. Capital accumulation depends on changing relationships and dynamics in and among capital, labour and social movements (Went, 2001, p. 171). Ethically-grounded theories of CSR have responded to the growth of global value chains in which Northern (developed countries) buyers control a network of suppliers in Southern countries, leading to calls for increasing responsibility beyond delivery dates and quality and extending responsibility

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towards environmental impacts and working conditions down the chain (Jenkins et al., 2002). This requires a more global view of ethical questions and issues.

POLITICAL THEORIES Political theories of CSR are those which are focused on the dynamics between business and society (Garriga & Mele´, 2004). Under this view CSR initiatives can be seen either as emanating from the bottom up, in which enterprises are initiators; or from the top down, in which governments are initiators; and according to their focus, either on societal responsibility or on labour market responsibilities. For example, the European Union approach is framed around issues such as human rights, international labour standards, the environment, relationships with the local community and ethical investments. This has required official clarification. For instance, due to the voluntary nature of CSR, the EU has stressed that CSR is not a substitute for legislation and regulations; however, it might be seen as an extension of them because companies may go beyond compliance and invest more in environment, human capital and relationships with stakeholders (Bredgaard, 2003). The term ‘corporate citizenship’ (CC) was introduced in the 1980s and since then it has gained recognition (Andriof, 2001; Crane, Matten, & Moon, 2004; Maignan et al., 1999; Matten et al., 2006; Matten & Moon, 2004; Matten & Crane, 2005; Rego et al., 2011; Shinkle & Spencer, 2012). Many authors (Andriof, 2001; Matten, 2005; Matten & Crane, 2005; Matten et al., 2003) recognise that the term corporate citizenship is problematic since the definition of citizenship implies a link with a politically bounded community which is generally framed within a particular nation-state. This view implies that corporations are legal and political entities in the countries in which they operate and moreover it implies that corporations have a set of political, legal and social entitlements in countries in which they operate (Marshall, 1965). Some authors (Crane et al., 2004; Matten, 2005; Matten & Crane, 2005; Oblesby, 2004) argue that the term corporate citizenship is legitimate since globalisation challenges the geographical, social, cultural and economic boundaries of nation-states, gives to corporations a pivotal role within economies and societies and challenges the role of state as the only guarantor of citizenship. The arguments emphasise that the process associated with globalisation requires a reshaping of the concept of citizenship (Crane et al., 2004; Matten & Crane, 2005).


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Another angle explaining the relationship between corporations and society is the observation that the shareholders of multinational corporations include millions of working people around the world, who through retirement plans and mutual funds have their pensions and life savings invested in the shares of corporations. It has been suggested (Davis et al., 2006; Stiglitz, 2006) that if the level of awareness of this ownership is increased and a systematic accountable approach to collective ownership of corporations is taken it will have positive implications on the process of state and civic involvement.

THE BUSINESS CASE FOR CSR The number of critical consumers, citizens and investors is increasing. Their use of information technologies has facilitated the exposure and dissemination of information on unethical civic, political, environmental and social behaviours of corporations (Becker-Olsen et al., 2006; Bredgaard, 2003; 2004; Little, 2012; Michelini & Fiorentino, 2012; Smith & Higgins, 2000). This has increased the power of the media, both to expose and to defend business practices. For business CSR thus becomes a means to improve corporate image and reputation. The business case for CSR has persuaded some enterprises to implement it since a positive or negative image of the company affects its value. Within the management literature the business case for CSR has become pivotal for encouraging, influencing, persuading and leading business to implement it. Theories that support what is known as the ‘business case for CSR’ see CSR a strategic means to achieve economic objectives (Crooke, 2005; Friedman, 1970; Freeman & Liedka, 1991; Porter & Kromer, 1999; 2002; 2006; Scharf et al., 2012). This instrumental view of CSR has been termed enlightened self-interest (Gray, 1972; Keim, 1978). This is the idea that SR is in the long-run in the best interests of the firm. This enlightened self-interest view has positive and negative dimensions. On the positive side, it can be argued that anything a firm does to produce a better environment will be of long-term benefit to it. A similar justification can be applied to corporate expenditure for urban/ environmental rehabilitation, vocational training, cultural programmes, and other areas of social concern. In addition, the improvement of internal opportunities and the creation of better labour conditions represent more traditional expressions of this philosophy.

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Company involvement in social concerns may also lead to the discovery of profitable market opportunities, and publicised social expenditure and activities tend to improve a firm’s public image. It is difficult, however, to measure the extent of economic benefits that might thus be accrued. These activities may be viewed as a form of corporate advertising that favourably projects the firm’s name to the public and thereby improves its long-term scale potential. Additionally, a firm recognised for its social programmes is likely to have an advantage in attracting recruits. Image-enhancing social programmes also tend to give the company’s employees a sense of pride in their company, which may result in higher morale and greater efficiency. Projects and programmes demonstrating enlightened self-interest can also be implemented to avoid negative consequences. In the early part of the twentieth century, worker-compensation laws were enacted as a direct result of employer indifference to the needs of injured workers. Insensitivity to social needs can lead to the imposition of government regulations. Pollution-control and product-safety regulations also represent examples of this. Furthermore, effective social involvement may also avert harassment by social action groups and other critics. Marketing initiatives that reflect society’s concerns for social and environmental issues have increased in importance since the late 1980s and early 1990s in the United States (Chamorro & Ban˜egil, 2006; Menguc & Ozanne, 2005; Scott, 2005). Other authors (Ashby, Leat, & Hudson-Smith, 2012; Gimenez & Tachizawa, 2012; Miemczyk, Johnsen, & Macquet, 2012; Porter & Kromer, 2002; 2006; Swift & Zadek, 2002; Werther & Chandler, 2005) suggest that CSR needs to be linked to strategic planning; therefore, there is a requirement for a specialised CSR agenda and management for each company. Porter and Kromer (1999, 2002, 2006) argue that CSR initiatives could be seen as a competitive advantage for a particular company if it is appropriate to the specific market context of the firm. Porter and Kramer (2006) argued that companies have inevitable demands made on them by media, activists and governments to be accountable for their actions and that each company requires specialised responses. They add that the capacity to anticipate the effects of particular actions or campaigns on public perception will act as a competitive advantage.

CSR INITIATIVES Currently, interconnected civil society surveillance networks provide an incentive to companies to behave well since anti-brand websites and e-mail


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campaigns can have a dramatic impact within a few days (Barwise, 2003). Global brands are now highly vulnerable to ‘internetworked’ protests around the world (Klein, 2000; Neef, 2004; Taylor & Scharlin, 2004). Pressure on multinational companies (TNC) to assume CSR initiatives varies from company to company, and depends on market outlets, products, consumers politics, and brand dependency (Riisgaard, 2004). Similarly, a broad range of increasing risks associated with the complexity of supply chains has prompted companies to introduce strategic ethicalmonitoring mechanisms across their supply chains to protect corporate reputations (Neef, 2004; Teuscher et al., 2006). A clear example of this is the case of the soybean sub-sector in the 1990s documented by Teuscher et al. (2006). Due to boycotts of genetically modified products by consumers, European retailers demanded products from their importers which were free of genetically modified organisms (GMOs). The demands created the necessity to construct and implement a traceable supply channel to guarantee the absence of GMOs, to develop social and environmental value-added products, and to establish mechanisms to produce more revenues for soybean-producing communities. Patterns of consumption and production of international agro-business brands provide opportunities for alternative production-based and distribution-based social differentiation – through labelling or other insignia which indicate the product’s social qualities (see Renard, 1999). However, a tendency of sequential transformation from niche markets to massmarkets has been observed (see Codron et al., 2005). As an illustration, the EurepGAP1 protocol has become the minimum market-entry requirement for agricultural products for European retailers and the Ethical Trade Initiative (ETI) has agreed to apply the protocol to all own brand products.2 While manufacturing and apparel industry literature on CSR seems to be focused on human rights and labour rights, the literature on implementation of CSR in agribusiness pays special attention to environmental issues, such as the use of pesticides, the impact of agribusiness practices on workers’ health and the sanitation of water (Smith & Feldman, 2004).

VOLUNTARY INITIATIVES Voluntary initiatives are those which are either led by corporations or NGOs, and which have no legal implications (Riisgaard, 2004, p. 2). Voluntary private initiatives can be classified into five categories: international labour

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standards, international framework agreements (IFAs); codes of conduct, social labelling/certifications and socially responsible investment (SRI).

International Labour Standards International labour standards refer to those labour principles, norms, conventions and recommendations which do not depend on national circumstances, and that are intended to be universally applied. These standards cover issues in the areas of: employment, work, social security, human rights and social policy (ILO, 2013). Labour standards are multidimensional and might vary from country to country depending on national institutions, economic interests, income level, stages of development, openness to trade and economic, social, political and cultural conditions (Brown et al., 1998; Busse, 2003). George Tsogas (1999) provides an overview of the main arguments for international regulation of labour standards. He examines the decisive role of international organisations, such as the International Labour Organisation (ILO), in setting international labour standards through social clauses in trade-related agreements. Tsogas also argues for the applicability of labour standards in trade agreements. The inclusion of labour standards elements in trade agreements, such as the European Union and the United States Generalised Systems of Preferences (GSP),3 provides examples of initiatives at the bilateral level. Moreover, labour standards have also been addressed at the regional level through provisions such as the adoption of EU Charter of Fundamental Rights,4 and the labour side agreement5 of the NAFTA. At the multilateral level, examples of initiatives include the linking of WTO membership to ILO membership. In this case, a country trading with another with better labour protections will be required to meet the standards of its trading partner. Violators of this principle will be subject to WTO sanctions. Social clauses involving labour issues are best addressed in regional trade agreements such as NAFTA, the European Union and APEC rather than multilateral trade agreements due to the current limited influence of labour on multilateral organisations such as the WTO (Tsogas, 1999). What Tsogas (1999) proposes can be seen as a ‘race to the top’ (as opposed to a ‘race to the bottom’) in labour standards in which market incentives are deployed to motivate better labour protection (e.g. full compatibility with ILO standards).


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Codes of Conduct Codes of conduct have been gaining the interest of stakeholders and academics since the 1990s (Jenkins et al., 2002). This interest has been growing mainly as a result of demands by consumer groups and other socially and environmentally committed actors, including amongst them many managers of corporations themselves (Kolk, Welters, & Van Tulder, 1999; Risso, 2012; Taylor, 2011). Jenkins (2001) identifies variability in scope and coverage variability amongst codes and classifies them into five main types: company codes, trade association codes, multi-stakeholders codes (MSC), model codes and inter-governmental codes (IGC). The development or adoption of codes of conduct in agribusiness is associated with branded companies, usually with high public profiles (Jenkins, 2002; Tallontire & Greenhalgh, 2005). It has been found that consumer goods industries tend to be more conducive to code development.6 The literature establishes that both codes of conduct and social labels stimulate social concern among consumers, and can provide market-based incentives to producers to improve labour conditions in niche markets (Stichele et al., 2005; Taylor, 2011; Taylor & Scharlin, 2004; Urminsky, 2001). However, no unanimity exists on regulation of CSR homologous to corporate financial accountability (Morro´s Ribera, 2003). Doubts on social accountability and social-auditing instruments developed by TNCs have been based on the fact that these instruments were designed by the environmentally and socially damaging TNCs themselves (Morro´s Ribera, 2003). The striking growth of voluntary corporate codes of conduct dealing with labour conditions is attributed by Jenkins et al. (2002) to a global tendency to corporate self-regulation in areas such labour and environmental standards and human rights which were historically government-regulated. Several arguments explain the proliferation of corporate codes of conduct, mostly associated with PR strategies and consequently the role of marketing in labour, social and environmental relations. The overall explanation given by Jenkins et al. (2002) to explain the growth in numbers and importance of corporate codes of conduct is that they are responses by MNCs designed to defend their reputation from consumer and political pressures from both trade unions and NGOs. They are also attempts to legitimise their globalising production practices by utilising internationally accepted labour standards. The literature shows that voluntary codes are developed and implemented to respond to market incentives and that there are no legal or regulatory

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obligations to meet the commitments expressed in these codes. Nevertheless, codes of conduct are justified as mechanisms which engage and encourage suppliers to act consistently with internationally accepted social standards (Arts, 2002; Becker-Olsen et al., 2006; Bredgaard, 2004; Cardozo Brum, 2003; Chambron, 1999; Collins & Burt, 2006; Davis, 1973; Hammer, 2005; Nelson, 2002; Riisgaard, 2004; Sheller, 2005; Taylor & Scharlin, 2004). Development and implementation of codes of conduct is associated with competitiveness since it opens market opportunities (Chamorro & Banãgil, 2006; Clark, 2000; Davis, 1973, 1980; Levy, 1999; Maignan & Ferrell, 2003; McWilliams & Siegel, 2000; Swift & Zadek, 2002; Tallontire & Greenhalgh, 2005; Teuscher et al., 2006). Labour issues embraced in codes of conduct often reflect publicised labour problems. For instance, Urminsky’s (2001) research was focused on core labour standards (forced and child labour, employment discrimination, freedom of association and collective bargaining, wages and occupational health and safety). He found that 33 per cent of the sampled codes of conduct addressed freedom of association and/or collective bargaining, in contrast with 70 per cent covering employment discrimination. Additionally, he found that 51 per cent of the 258 codes formulated commitments related to wage levels. Health and occupational safety appear to be the most frequent labour issues to be included in codes of conduct. Seventy-one per cent of the revised codes refer to health and occupational safety. Furthermore, the involvement of NGOs and trade unions in developing the codes of conduct increases the likelihood of including freedom of association and/or collective bargaining (Urminsky, 2001). The involvement of trade unions and other NGOs in the development of codes of conduct increased the likelihood of the inclusion of social and community goals (Jenkins, 2001; Nelson, 2002; Riisgaard, 2004; 2005; Schmidt, 2004; Urminsky, 2001). Urminsky’s (2001) research reveals that 27 per cent of the sampled codes included provisions for community involvement. Global networks of codes of conduct both at company and sectoral level could counteract competitive ‘race to the bottom’ tactics, and lock key suppliers into a commitment to raise rather than lower labour standards (Jenkins et al., 2002). Nevertheless, the universalistic and generalised approach assumed by corporate codes of conduct is questioned. Instead, a particularisation of codes based on the complexity of supply chains and consideration of specific contexts definitively increases the inclusion and representation of the interests of those the codes are supposed to represent.


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Corporate codes of conduct are also presented in the literature as controversial for brand-based activism as they are a non-legally-enforceable set of good intentions administered by PR departments and abuses that exist at corporations’ production sites, therefore, tend to be denied. An example of this is provided by Klein (2000), who describes how Shell in 1999 adopted a code of conduct without enforcing and monitoring the measures concerned. The literature shows that despite the fact that corporate codes of conduct have been associated with improvement of workers’ pay and working conditions, they could increase their impact if linked to other campaigns and initiatives. The literature suggests that corporate codes of conduct, in the absence of universally agreed commitments to the demands and needs of labour, can represent a pivotal framework for workplace justice and for a broadened commitment to responsibility beyond the workplace (Jenkins et al., 2002; Teuscher et al., 2006). Codes of conduct can also be understood as part of supply chain management systems which help companies to reduce inherent risks in global supply chains through the implementation of communication and intermediation strategies, third party involvement, the use of broadly recognised standards and the establishment of accountable partnerships.

Social Labelling The term social labelling implies a physical label carrying information on the social, environmental and/or labour conditions under which the labelled good or service was produced (Urminsky, 2001). The issues covered by a social label depend on the activity and the sector involved. Licensing is another means of social labelling. The process of licensing consists of a registration given to producers who meet the social label criteria. Social labels have their rationale in media and civil campaigns targeting affluent consumers in developed countries and producers in developing countries, and in the belief of consumers in their buying practices as political acts which can change market behaviour. Social labels demand a costly infrastructure comprising administration, consumer outreach, publicity, monitoring and verification management, which is passed on in some cases to the consumer in the form of a mark-up (Carrero & Valor, 2012; Stichele et al., 2005; Urminsky, 2001). Often, however, just a small percentage of the revenue is distributed back to local producers to cover the programmes that justify the labelling (Urminsky, 2001). Due to the commercialised

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characteristic of certifications, monitoring and labelling initiatives, consumers have raised transparency concerns. Originally, social labels were created for non-labour issues. However, due to the involvement of trade unions in social labels, labour issues have been added to the labelling agenda, and the development of social auditing has positioned the right to collectively bargain and freedom of association as ‘the Holy Grail of social auditing’ (Hunter & Urminsky, 2003, p. 52). However, social auditing, reporting and management systems of sourcing are often technical solutions to political problems and do not address the power imbalance presented across the sourcing relationships (Urminsky, 2001). The effects of social labelling can be assessed from apparently antagonistic positions. On the one hand, social labelling may help to build intraorganisational consensus and partnerships which may improve working conditions, may help to raise funds for specific programmes, may develop compliance to labour legislation and may cause industries to adopt codes of conduct (Taylor & Scharlin, 2004; Urminsky, 2001). On the other hand, social labelling may have adverse impacts, such as financial difficulties for producers (and as consequent job losses), legal incompatibilities with national labour law, higher prices and lower market penetration, inconsistency with national competition law and international trade law, and truth in advertising law (Urminsky, 2001). Some authors suggest that labelling programmes tend to lack transparency in the verification process, discriminate against producers in developing countries who are unable to finance a labelling strategy, and promote foreign intervention in national standards settings (Stichele et al., 2005; Urminsky, 2001). Gereffi et al. (2001) classified the certification industry7 into four categories: (a) First-party certification, in which single firms develop their own rules and report on compliance; (b) Second-party certification, whereby a trade organisation or an industry manufactures a code of conduct and implements reporting methods; (c) Third-party certification is frequently externally imposed by NGOs who are given the task of setting the rules of behaviour and compliance mechanisms on a particular industry or firm and (d) Fourth-party certification, whereby companies agree to be scrutinised and monitored for their environmental, labour, and human rights impacts according to principles of voluntary governance mechanisms decided by governments or multilateral agencies. Examples of social labelling initiatives include SA8000, ETI Base, Global Reporting Initiative (GRI), OHSAS18001, EurepGAP and the Sustainable Agriculture Initiative (SAI). The Social Accountability 8000 was promoted


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by Levis-Strauss & Co. as a response to public accusations in 1991 of exploitative labour practices towards its female labour force (Morro´s Ribera, 2003). Social Accountability International (SAI) developed the SA 8000 standard and focused primarily on producers and suppliers. Although the main certifications of SA 8000 are in manufacturing and production, SA 8000 is also used in agriculture (25 of the 655 SA 8000 certifications up to March 2005 were in agriculture) (Stichele et al., 2005). SA 8000 is based on both the Human Rights Declaration and International Labour Organization’s fundamental Conventions on labour rights. The SAI Platform is an industry based approach which counts on the participation of major TNCs in the agriculture sector (http://www.saiplattorf.org). Some further examples of social labelling in agriculture are: the European Good Agricultural Practices (EurepGAP); Hazard Analysis and Critical Control Point food safety regime (HACCP); the ETI, ISO 140008; and the Forest Stewardship Council (FSC). Some social labelling accreditation bodies such as the ETI9 and SA800010 include the views of trade unions, consumer groups, NGOs, workers and local governments as part of the auditing process to provide information on local conditions and sector specific issues (ETI, 1999; SAI, 2007).

International Framework Agreements The literature suggests that since the 1990s partnerships between business and NGOs have gained popularity (Arts, 2002). The literature also observes that corporations, in order to safeguard their social and environmental reputations, are moving towards traceable, supply-management based accountable partnerships (Neef, 2004; Taylor & Scharlin, 2004; Teuscher et al., 2006). Teuscher et al. (2006) identify measures such as stakeholder engagement, joint planning, mechanisms for price setting along the chain, use of systematic partner evaluation tools and periodic workshops between partners, which may reduce partnership risks. IFAs are accords negotiated between Multinational Companies (MNCs) and sectoral trade union federations concerning their international activities regarding minimum labour standards, such as a freedom of association and the right of collective bargaining (Niforou, 2012; Riisgaard, 2005; Scho¨mann et al., 2008). The IFAs must comply with the following: (a) conventions must be referenced to the ILO; (b) provisions for the MNC to influence its suppliers, contractors, subcontractors and licensees to ensure the accorded standards

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are implemented through the supply chain must be included; (c) a provision for trade union involvement in the implementation and monitoring must be included; and (d) a signatory right for the global union and the regional or national union structures must also be a component of the IFA (Graham & Bibby, 2002; Hammer, 2005; Nilsson, 2002; Thomas, 2011). The first IFA was signed between the French-based MNC, Danone (former BSN Group) and the IUF (International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations) in 1989. Since then, over 50 IFAs have been signed in a broad range of sectors, and although early IFAs were focused on specific workplace issues, increasingly they have included environmental concerns, relations with local communities, and other CSR aspects (Scho¨mann et al., 2008). The increase of IFAs is attributed in the literature to the failure of social dialogue in Global Multilateral Institutions such as the International Labour Organization (ILO), the World Trade Organisation (WTO), the Organisation for Economic Co-operation and Development (OECD), the World Bank, and the International Monetary Fund (IMF) (see Hammer, 2005). Hammer (2005) claims that IFAs constitute platforms for international labour relations, since IFAs legitimise GUFs (Global Union Federations) as bargaining partners. He argues that even though IFAs are voluntary agreements, not legally as binding as corporate codes of conduct, they contain obligations which are monitored by labour and they set responsibilities for MNCs with regard to minimum labour standards in foreign operations beyond national boundaries. He adds that the potential of IFAs to raise minimum labour standards of MNCs is vast and that their complexity requires systematic involvement in negotiation, implementation and monitoring at all levels of the labour movement. There is a difference between IFAs depending on whether they operate in buyer-driven supply chains (in which they function as rights agreements), or in producer-driven chains in which they function more as bargaining agreements.

Socially Responsible Investment Another form of CSR is SRI11 (Crifo & Forget, 2012). It is defined as the making of investment-related decisions that seek social change while maintaining economic returns. SRI can be classified into screening of investment funds and shareholder initiatives (Friedman & Miles, 2001; Sparkes & Cowton, 2004). Screening of investment funds consists of stock


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investment or disinvestment in publicly traded companies based on the social performance of a company (Managi, Okimoto, & Matsuda, 2012). Shareholder initiatives aim to influence a company’s social behaviour through mechanisms such as voting and submitting shareholders’ resolutions, raising concerns at shareholders’ annual meetings and attempting to reach agreements with management. The literature suggests that, beyond anecdotal evidence, the impact of SRI in labour issues remains inconclusive (Fombrun, 2005; Urminsky, 2001). Nevertheless, the literature reveals instances of companies with international outsourcing experiencing labourissues-related interventions through shareholder activism. Socially responsible investors tend to be located in public retirement and pensions funds, religious groups and educational institutions. Since 2000, British pension funds ‘require pension fund trustees to disclose their policies on socially responsible investment, including shareholder activism’ (SRI, 2000).

MANDATORY REGULATIONS Mandatory regulations are defined as those which are legally binding (Delbard, 2008; Riisgaard, 2004, p. 2). In the case of the agricultural sector, national legislation in some countries regulates the establishment and operation of workers/employees and/or employers/farmers/owners organisations in the sector (Chivu et al., 2005). Enforced Self-Regulation and Innovative Legislation Most of the literature focuses on businesses as the drivers of what is called the ‘agenda for social responsibility’ since it is associated with the privatisation of governmental responsibilities over society, However, some studies, for instance Moon (2004) focus on the role of government as a driver for CSR in the European Union. This will be briefly described in the next subsections.

INSTITUTIONALISED CSR PROVISIONS IN THE UNITED KINGDOM Moon (2004) observes that while the privatisation of social goods in the United Kingdom is partially a mechanism for relief of government fiscal

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responsibility, it is also a response to consumer demands related to the supply of traditional social goods. Some of these initiatives revolve around CSR: (i)

The creation of a CSR umbrella organisation within the British Industry Confederation which evolved into Business in the Community (BITC)12 which is currently part of the U.K. Department of Trade and Industry (DTI). This covers a large range of CSR issues such as the development of CSR skills, raising of CSR awareness, the business case for CSR, and the support of SMEs in CSR (DTI, 2004). (ii) The appointment in March 2000 by Tony Blair of the first minister of CSR in the world. (iii) The U.K. parliament has two all party groups on corporate citizenship (European Commission, 2006).

THE EUROPEAN UNION AND THE LISBON AGENDA The evolution of ‘official’ CSR in the European Union can be traced to the European Business Declaration against Social Exclusion in 1995. Other important milestones are the recommendation in May 1998 by the Gyllenhammar Group13 underscoring the importance of social dialogue in facilitating the implementation of change in the work place and advocating that anticipation and management of change through voluntary initiatives to be provided at various levels by the community rather than through legislation (Weber, 1998). This report emphasises that business and government should share the responsibility for ensuring employability of the workforce (idem). In the same year the Lisbon Appeal of Heads of State and Government on CSR was promulgated. Some other initiatives in this regard are: the ‘EU Recommendation on environmental issues in companies’ annual accounts and reports’ in 2001; ‘European Strategy for Sustainable Development’ in 2001; the ‘European Commission’s Green Paper 366: Promoting an European Framework for corporate social responsibility’ released by the European Commission in July 2001, the first European Presidency (Belgium) Conference on CSR, etc. Social dialogue Social Dialogue (SD) is an European tool which was designed to democratise the legislative and policy system of the European Union (Keller, 2006;


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Nordestgaard & Kirton-Darling, 2004). It involves the European Trade Union Confederation (ETUC), the Union of Industrial and Employers’ Confederation (UNICE) and the European Centre for Enterprises with Public Participation (CEEP). The European Commission, in its Communication concerning the application of the Agreement on Social Policy,14 indicates that labour and management are to be understood as social partner organisations organised across industry or by sector (EF, 2006). Social Dialogue differs from processes of tripartite consultation in the sense that it gives legal provision to both parties to conclude voluntary agreements. Therefore, it moves industrial relations from the traditional trilateral negotiation to a voluntary bilateral form which does not include the state any longer. It also moves from adversarial confrontations to consultation processes leading to mutual agreement. However, there are variations of the European Dialogue which do include tripartite consultation between labour organisations, management organisations and Community15 institutions in the context of European Employment Strategy (EF, 2006).16

CSR SINCE THE 1990S Since the 1990s, the global market for agricultural products requires suppliers to comply with increasing regulatory and voluntary standards, imposed on supermarkets’ global value chains (Barrientos & Kritzinger, 2004; Codron et al., 2005; Tallontire & Greenhalgh, 2005). The process of deregulation, the shrinking role of the state, the national effort to attract Foreign Direct Investment (FDI), flexible policy arrangements towards Transnational Corporations (TNCs) and challenges to conventional tradeunion strategies and practices since the 1980s in many ways provide the preamble for the emergence of CSRin the 1990s. This emergence is manifested in the proliferating of codes of conduct and other voluntary standards reflecting environmental and social commitments. Many of these standards have resulted from a civil-society backlash reflecting concerns about social, economic and environmental conditions of production (Dombois, 2003; Jenkins, 2001, 2002; Maitra, 1997; Palazzo & Scherer, 2008; van Marrewijk, 2003). Three factors have facilitated the development of the current era of CSR: 1. The formulation of the field of ‘Business Ethics’ by academics, policy makers and business firms since the 1960s.

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2. The perceived decline in state influence in the public sphere and the consequent transposition of governing power to civil society (which has traditionally acted in the private sphere). 3. Rapid economic globalisation with its effects on societies, the environment and business strategy. Since the 1990s the discourse about CSR has become more prominent in managerial, governmental, policy analysis and civil society publications (Michael, 2003). During the 1990s, some firms began to recognise their role in the social welfare of their stakeholders and assume greater responsibility towards development. In 1999, United Nations Secretary-General Kofi Annan asked corporations for demonstrations of good global citizenship in human rights, labour standards, and environmental protection by joining the U.N. Global Compact actions and reporting guidelines.17 This call was adopted by many companies. Companies who are now leaders in CSR and sustainable development were in crisis and were targets of criticism for their abuses at the time. Among these companies are Nike Corporation, Chiquita Brands, Shell Oil, Levi-Strauss, McDonald’s and Coca Cola. The Lisbon European Council (2000) strategic target requires a dynamic interaction of economic, employment and social policy in which CSR may be one way, at least at the rhetorical level, to balance the needs of employers, employees and the unemployed (Bredgaard, 2004). In July 2001, the European Commission published a Green Paper, the aim of which was to launch a wide debate on how the European Union could promote CSR at both the European and the global level. During the following six months, responses from international organisations, such as EU institutions, NGOs, social partners, individuals and other interested stakeholders, were submitted to the European Commission. In July 2002, the European Commission proposed a new strategy based on the responses to the Green Paper which defines CSR as ‘a concept whereby companies integrate social and environmental concerns in their business operations and their interactions with their stakeholders on a voluntary basis’ (European Commission, 2002, p. 3). It also proposed the establishment of a CSR Multi-stakeholder Forum to discuss CSR in Europe. The first Forum took place in October 2002 and brought enterprises together with other stakeholders including NGOs, trade unions, investors and consumers. The purpose of the Forum was to promote innovation, convergence and transparency in CSR practices and tools such as codes of conduct, labels, reports and management instruments.


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CSR AND LABOUR ISSUES IN SUMMARY The literature on CSR and labour issues can be divided into thematic trends. A trend can be observed, especially in business literature, to look at CSR as a risk-management strategy. A significant number of mechanisms (e.g. social labelling and fair-trade) were established in the 1990s by supermarkets and other food retailers in the North in order to reduce their vulnerability to consumers’ and other stakeholders’ (civil society) concerns on social, labour and environmental issues. A second track of the literature on CSR and labour issues is associated with the economic considerations of CSR initiatives, especially with the value added in relation to the ethical quality of goods and services. The policymaking literature provides positive feedback on this aspect of the implementation of voluntary mechanisms of responsibility over supply chain governance. A third track of the literature on CSR and labour reflects a third stage of CSR-development – scepticism and uncertainty, in which value chains are increasingly fragmented, making it difficult to differentiate between producer-driven chains and buyer-driven chains. In industries such as agriculture, CSR can be seen only in terms of its business function for retail industry and proactive governance over the value chain is often avoided.

ACKNOWLEDGEMENT The author would like to thank feedback received by reviewers and by Prof. Dr. Terrence McDonough at the National University of Ireland, Galway.

NOTES 1. EUREPGAP began as an initiative of Euro-Retailer Produce (EUREP) Working Group in 1997, aiming to develop a global certification on Good Agricultural Practices (GAP), after food safety crises such as the mad cow disease (BSE) outbreak in 1996, the use of pesticides and the progressive introduction of GMOs raised concerns amongst consumers of the conditions food production (http://www.eurepgap.org). 2. The goal of ETI is to ensure that goods consumed by United Kingdom were produced according to internationally recognised labour standards. Six of the United Kingdom’s largest supermarkets: Tesco, Sommerfield, Marks & Spencer, J Sainsbury, The Co-op and ASDA are members of the ETI.

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3. In 1968, the United Nations Conference on Trade and Development (UNCTAD) recommended the creation of a ‘Generalised System of Tariff Preferences’ under which industrialised countries would grant trade preferences and deeper tariff cuts to less-developed countries (LDCs) (UNCTAD, 2002). There are currently 13 national GSP schemes notified to the UNCTAD: Australia, Belarus, Bulgaria, Canada, Estonia, the European Union, Japan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey and the United States of America (UNCTAD, 2002). The US GSP was instituted on 1st January 1976 for a 10-year period, and it has been renewed periodically. It provides preferential duty-free entry for more than 4,650 products from 144 designated beneficiary countries and territories (USTR, 2006). The EU GSP was implemented in 1971. In 2001 the European Council adopted an ‘EBA (Everything But Arms) Regulation’ – (Regulation (EC) 416/2001) granting duty-free access without quantitative restrictions to all products from LDCs, except fresh bananas, sugar and rice (EC, 2001). 4. The ‘EU Charter of Fundamental Rights’ is a document ‘solemnly proclaimed’ by the European Parliament, the European Commission and the Council of the European Commission in December 2002. It contains human rights provisions divided into six sections: Dignity, Freedoms, Equality, Solidarity, Citizens’ Rights and Justice. 5. The North American Agreement on Labour Cooperation (NAALC) is a side agreement to the NAFTA which promotes the enforcement of national labour laws and transparency in the administration of these laws. The NAALC created both trilateral and domestic institutions. 6. Urminsky’s (2001) research (258 codes of conduct) found that the leather and footwear industries alone account for 24 per cent of the industry-distribution of codes, whereas the food and drink industry account for 10 per cent. However, no evidence is given specifically for codes of conduct in agricultural production. 7. Our own term. 8. The ISO 14000 model is primarily concerned with environmental management. 9. Environmental Trade Initiative (ETI) defines itself as ‘an alliance of companies, non-governmental organisations (NGOs) and trade union organisations. We exist to promote and improve the implementation of corporate codes of practice which cover supply chain working conditions. Our ultimate goal is to ensure that the working conditions of workers producing for the UK market meet or exceed international labour standards’ (http://www.ethicaltrade.org). 10. SA8000 is a social accountability standard for decent working conditions, developed and overseen by Social Accountability International (SAI). It defines itself as a ‘comprehensive and flexible system for managing ethical workplace conditions throughout global supply chains’ (SAI, 2013). It provides definition of terms and transparent, measurable, verifiable standards based on major multinational agreements in nine essential areas: child labour, forced labour, health and safety, freedom of association, discrimination, disciplinary practices, working hours, compensation and management. 11. Socially responsible investment has its roots in the late-eighteenth century in U.S.-based religious decisions not to invest in companies engaged in alcohol, gambling and tobacco (Urminsky, 2001).


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12. BITC in 2006 has a membership of over 750 firms, 71 of which are in the FTSE 100, and together employ over 12.4 million people in more than 200 countries (http://www.bitc.org.uk). 13. The Gyllenhammar Group was a high level task force appointed by the European Commission to evaluate the social and economic impact of industrial change. The group was lead by Pehr Gyllenhammar, former chairman of Volvo (Taylor, 1999). 14. EC (1993). COM (93) 600 final, Brussels, 14 December 1993. 15. In this case, the word community refers to those institutions which in an official or unofficial manner represent the interest of the European Community. For instance, the European Commission is considered a European Community Institution. 16. Retrieved from http://www.eurofound.eu.int/areas/industrialrelations/dictionary/ definitions/EUROPEANSOCIALDIALOGUE.htm 17. ‘Let us choose to unite the powers of markets with the authority of universal ideals. Let us choose to reconcile the creative forces of private entrepreneurship with the needs of the disadvantaged and the requirements of future generations’ (Kofi Annan during the launch of the Global Compact Initiative in 2001).

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GLOBAL CIVIL SOCIETY AND INTERNATIONAL BUSINESS: A REVIEW Maria Alejandra Gonzalez-Perez ABSTRACT Purpose – This chapter on global civil society provides a definition of global civil society, and also provides a historical and theoretical overview of social movements. This chapter also presents a taxonomy of non-state actors and demonstrates at the theoretical level that actions and initiatives by non-state actors since the 1990s’ globalisation. In this chapter, the concept of civil society is presented as a form of globalisation from below, and its role in the participatory governance of societal processes implies forms of soft regulation and moral authority which transcend the role of states as enforcers. Design/methodology/approach – This chapter is based on an extensive literature review. Findings – Actions and initiatives by non-state actors in the current age of globalisation have been increasing. This increase has become more evident with the more stringent traceability of processes associated with the development of information and communication technologies (ICT), and private forms of organisation networking at the local and


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transnational level. This has re-defined geographical boundaries, creating proximity between individuals which goes beyond physical constraints, and it has extended definitions of communities to multiple levels of identification and convergence, but also divergence. The concept of civil society and its role in the participatory governance of societal processes implies forms of soft regulation and moral authority which transcend the role of states as enforcers. The idea of civil society opens a space for non-traditional actors to actively participate and engage in the political processes of change in society, for the betterment of marginalised groups, the environment or social justice in general. The diversity of roles that single individuals have in society allows them to participate from different angles. Although the concept of civil society has limitations due to its breadth, manifestations of a global civil society can be understood as forms of globalisation that occur outside traditional institutional settings. Originality/value of chapter – This chapter provides a general overview on civil society, and its relevance for analysing contexts of international business, and MNES’s relations with community and non-governmental groups. Within this chapter, it is also conceptually describe how multinationals as non-state actors have increasingly playing a role in providing welfare. Keywords: Global civil society; international business; corporate social responsibility; social movements

INTRODUCTION There are several definitions of ‘societas civilis’ and multiple debates on how to include civil society organisations in societal processes. However, the conceptualisation of civil society as a sphere of human activity and a set of institutions outside the state and government (Castells, 2008; Cohen & Arato, 1992; Gellner, 1995; Hall, 1995; Knudsen & Moon, 2012; Seligman, 1995; Scholte, 2011) seems to be a common denominator in the discussions. An early approach to civil society was postulated by Rosseau (1762). In Rosseau’s The Social Contract, civil society is conceptualised as a free and equal relationship between the individual and the state (Matravers, 1998).

Global Civil Society and International Business: A Review

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Keane (2005) argues that until the nineteenth century, there was no clear separation between civil society and the state, in the same way that there was no distinction between civil society and ‘the market’. It is important to highlight that the pre-global form of civil society was composed of economic actors, as well as civic organisations operating in the public sphere1 (Mazlish, 2005). The development of the concept of civil society can be seen as a response to the capitalist system in order to mediate conflicts between social life and the market economy through traditional bonds of kin and community. Alternatively, it can be seen as a universal expression of the collective life of individuals that goes beyond the individualistic nature of capitalistic systems and the state. The conceptualisation of civil society can also be seen as a reflection of historical circumstances and a manifestation of public responses to forms of inequality. The conceptualisations of civil society both in tradition and in the literature are associated either with the market and the private sphere (i.e. Ferguson, Smith, and Marx), or with politics and the public sphere, but not the state (i.e. Hegel, Gramsci, and Alejandro Colas). Currently, the term ‘civil society’ reflects a set of institutions both local and global that mediate between individuals and the state, and whose membership operates under the principle of voluntarism. The escalating voluntary activity and the creation of private, non-governmental or nonprofit organisations in recent decades are evidence of what Salamon (1994) identified as the ‘associational revolution’,2 in which state functions are exercised and audited by apparatuses outside of traditional structures. Civil society can also be seen as diverse forms of civic representation and participation with which individuals identify themselves and upon which they subsequently act. The concept of civil society is also presented as the ‘arena of contestation’ which mediates the relationship between the individual, society and the state (Howell & Pearce, 2002). In that sense, civil society has a role in compensating for the decline of traditional forms of political participation such as voting, union membership and party affiliation (Salamon, 1994). Furthermore, the evolution of the term civil society has been facilitated by the advancement, flexibility, adaptability and speed associated with new information and communication technologies (ICT) (Juris, 2005). The idea of civil society has been viewed from different positions. For Hall, the idea of civil society diminishes the formation of social agency and human responsibility (Hall, 1995, p. 3), since it detracts from the institutional bases of society. It involves a historical determinism given that, as pointed out by Gellner (1995, p. 54), ‘a man is tied to a culturally

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defined pool’. Pe´rez-Dı´ az (1995) identifies civil society as a combination of continuous traditions and core socioeconomic and political institutions framed by a specific historical experience. For Antonio Gramsci, society is made up of the relations of production (capital and labour); the state or political society (coercive institutions); and civil society (all the non-coercive institutions in society) (Cox, 1983). Several authors have noted that the 1990s concept of civil society has moved from national to international settings and onto the global stage (Edwards, 2004; Florini & Simmons, 2000; Taylor, 2002). In this period the term civil society re-entered the social sciences crossing disciplinary boundaries and focused on the relationship between society, economy and the polity (Anheier, 2005; Anheier, Glasius, & Kaldor, 2001a, 2001b; Hall, 1995; Taylor-Gooby, 2012). Since the 1960s there has seen an increase in the number and diversity of social movements reflecting a range of different issues (Kelly & Breinlinger, 1996), and at the same time there has been a corresponding decline in classbased social movements and a fragmentation of identity in post-modern societies (Hall, 1995). A move has been observed from general categories such class, community or union membership towards smaller scale local interest groups reflecting particular needs and identities. An individual may belong to several different groups each meeting different and specific needs. This social fragmentation, along with the increasing ability of both production systems and marketing to target niche markets, has opened up opportunities both to corporations to target their branding at social concerns and activists to target brands to pressure for change. In the case of the banana industry, it can be observed how, starting from the adverse reputation of the industry associated with negative environmental, social and labour behaviour, banana companies tackled activist concerns with selfinitiated actions and alliances with other civil society organisations. This point is going to be further developed conceptually in the next chapter, and it is going to be explored in detail in the Colombian case in the findings part of this dissertation. According to John Keane (2003), the rise of cross-border public demonstrations has contributed over the last decade to the idea of the emergence of a civil society on a world-scale, which is complex, multidimensional and dynamic in character due to the immeasurable plurality of its actors and therefore its interests. When civil society networks integrate their strength over significant lengths of time, enough to mobilise fundamental change, they can be classified as social movements (Castells, 1997; Edwards, 2004). Edwards (2004) also affirms that ‘NGOs or non-profit


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intermediaries’ provide a noteworthy part of civil society’s connective tissue through building capacity, providing specialist support, and advocating and supporting alliances.

WHAT IS GLOBAL CIVIL SOCIETY? Global Civil Society (GCS) is defined by Anheier et al. (2001a, 2001b) and by Florini and Simmons (2000) as ‘the sphere of ideas, values, institutions, organisations, networks, and individuals located between the family, the state, and the market and operating beyond the confines of national societies, polities, and economies’. According to Anheier et al. (2001a, 2001b) the diverse activities of GCS can be organised into (i) actions against transnational corporations (TNCs) or global capitalism; (ii) the response based on the evidence of a need for infrastructures to spread democracy and development, and (iii) groups based on global solidarity which provide support for the oppressed. The term ‘global civil society’ is interpreted by Taylor (2002) as a progressive multi-organisation field characterised by innovative networks with a transformative purpose. The information revolution is moving towards a society which ‘takes global form and transcends nation states’, and expands the role of transnational institutions such as the UN, which transcends the power of national governments and local boundaries (Mazlish, 2005, p. 6). The evolution of communication technologies has increased the vulnerability of companies, and therefore the demand for transparency and the imperative for linking environmental, social and human rights to the economic order became an integral part of the new wave of globalisation (Welford, 2002). Responses by civil society can be understood as a reaction to the [perceived] demand for representation, but can also be understood as a response to pressures to make representation a legitimate political exercise. To illustrate this, Salamon (1994) proposed that these pressures are generated from what he identified as ‘below’, ‘outside’ and ‘above’. Pressures from ‘below’ reflect grass-root initiatives; ‘outside’ pressures reflect public institutions; and pressures from ‘above’ are imposed by government policies. It can be suggested that civil society develops its space from individual initiatives, institutional programmes, and state/multi-state policies, which are interrelated through a form of social tissue that acquires economic, political, cultural, and psychological significance via networks. Therefore, in the Information Age, the network society reflects a new form of social organisation that has partly superseded industrial society (Castells, 2005).

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Within the industrial societies, bananas were solely seen as commodities which satisfied nutritional needs in consumer markets; within the network society, bananas acquired new meanings and attributes linking farmers with consumers, the south with the north, and local concerns with opportunities to connect to global solidarities. Initiatives to address labour practices transcending national legislative regimes originated in the nineteenth century through international trade secretariats, international labour mobilisations and organisations. This culminated in the founding of the International Labour Organisation in 1919 (Haworth & Hughes, 1998; Kaufman, 2004). In summary, for the purpose of this thesis, therefore I define GCS as the myriad of individuals and institutions which operate under the principles of networking and voluntarism, outside of traditional institutions, and collectively seeking changes in the social order and inequalities, transcending individual interests and national boundaries.

SOCIAL MOVEMENTS Social movements have become a permanent feature of modern society (Della Porta & Diani, 1999) Social movements differ from other social forms, because they occur outside the institutional framework of everyday life, and their focus is towards a degree of social change (Hannigan, 1985). Another definition of social movements links them to ideologies of ‘social engineering’, which assumes that society is a social creation and therefore its malleability is feasible (Eder, 1993). Academic interest in the field of collective behaviour and social movements tends to reflect the ‘levels of activity by different movements in society’ (McAdam, McCarthy, & Zald, 1988). It is important to draw attention to the fact that social movements, whether political or cultural, make demands on political systems, for example, at the public policy level. Social movements are associated with an expression of dissatisfaction with existing policy in a given area. There is a direct correlation between issues raised in protests and the legislation produced as a result (Della Porta & Diani, 1999, pp. 233–236, 254).

Historical Roots of Social Movements It has been suggested that social movements must be understood in their historical context, since this provides the structural conditions for their


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emergence (Eyerman & Jamison, 1991; Tilly, 2004). For Tilly (2004), a social movement means ‘a particular, connected, evolving, historical set of political interactions and practices’ (Tilly, 2004, p. 7). He is critical of the term ‘social movement’ being extended and generalised to almost all relevant popular collective action, and its supporters. He explains that this inflation of the term has been used as a mechanism within social movements for mobilisation, recruitment and morale. However, he emphasises that social movements began in Western Europe and North America as a way of pursuing changes to public policies during the late eighteenth century. For Tilly (2004), social movements are a distinctive innovative combination of (i) campaigns, (ii) repertoires or performances and (iii) displays. Campaigns are organised public efforts focused on collective claims directly targeting the authorities. Social movements’ repertoires or performances are the combination of political actions such as: public meetings, demonstrations, petition drives, issue-based associations and coalitions, solemn processions, vigils, statements to and in the public media, and pamphleteering (Tilly, 2004, pp. 3–7). Displays are public presentations of the cause, which Tilly (2004) calls WUNC3 displays. Tilly’s (2004) main arguments are: 1. Historically, social movements have temporally connected ‘claimants’ and the object of their claims. 2. Processes of democratisation through public consultation promote the formation of social movements. 3. Although some social movements differ radically over who ‘the people’ are the most general claim is that public affairs should depend on the consent of the governed; therefore, all social movements social movements assert popular sovereignty. 4. As locally grounded forms of politics, social movements depend largely on established political leaders for their scale, effectiveness and sustainability. 5. Having been established in one particular political setting, mechanisms of modelling, communication and collaboration may be replicated in other settings. 6. The claims, personnel and form of social movements evolved historically, influenced by political environments, structural change within the movements’ spheres, and transfer amongst movements. 7. Social movements as an invented institution can disappear or mutate into a different form of politics.

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Some authors (Eyerman & Jamison, 1991) argue that post-industrial society has observed a global shift in the international economy from manufacturing and production to service and knowledge industries in which information and knowledge are the main commodities. Therefore, the dominant actors are those who process information, and thus the identity of social actors is not necessarily exclusively class-based. For Eyerman and Jamison (1991), contemporary social movements are new because they occur at a specific stage of societal development, involving new identities. They define social movements as a ‘cognitive territory, a new conceptual space that is filled by a dynamic interaction between different groups and organisations [y] it is through tensions between different organisations over defining and acting in that conceptual space that the (temporary) identity of a social movement is created’ (Eyerman & Jamison, 1991, p. 55). Colombia is exceptional in its social movements. In fact, the history of the country could be outlined by the action of its social movements. The country has traditional social movements, such as the indigenous movements which have continued their struggle for over 500 years, descendants of Africans for over 400 years, the workers movement for over 110 years and campesino movements which together with the patriot army fought for independence from Spanish rule. Nonetheless, the country has also developed a reputation of repression and attacks on social movements. Since ‘la huelga del 28’4 leaders and organisers of social movements have been persecuted (Mondragoń, 2006). The country is widely recognised at the international level as a country which lacks peace since the beginning of the 20th century. This period of unrest begins with the civil war known as the ‘Thousand Days War’,5 and it continued with the ‘Rubber War’6 in which many indigenous inhabitants of the Amazon were enslaved. In the decade of 1940s, the period known as ‘la violencia’ started due to a new war between the Conservatives and the Liberals. The victims of ‘la violencia’ were campesinos who were dispossessed of their lands, socially and economically excluded, and denied spaces for political participation in the country. As a consequence of this socio-economic and political deprivation, campesinos decided to organise, to arm, and to attack the Colombian government. This was the beginning of the Colombian guerrilla movement. Since the 1990s Colombia has witnessed the formation and development of new social movements (NSM) linked to global concerns such as against war, pro-peace, human rights and environmental protection. These movements have been interrelated with the traditional movements (indigenous, Afro-descendants and workers), and there also have been localised movements focused on civic causes such as access to public health, free education,


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cultural and ethnic diversity (Mondragoń, 2006). On 4 February, 2008, one of largest initiatives in the history of the country led by members of Colombian civil society and supported by several social movements took place. The idea behind the initiative began on the Facebook group ‘A million voices against the FARC’, and within 4 weeks, it snowballed through the internet and other media and resulted in simultaneous public demonstrations in 133 cities around the world on February 4. Some early examples of international solidarity actions by civil society are: the British antislavery movement, the American ‘free produce’ movement and consumer activism. The British Antislavery Movement The antislavery campaigns of the eighteenth and nineteenth centuries in the United Kingdom highlighted slavery as a morally unacceptable activity and involved mass campaigns based on petitions, lectures, public speeches, tours, parliamentary debates and legal cases where consumers were incited to boycott slave-made goods (Cunneen, 2005). In 1787, Granville Sharp and Thomas Clarkson decided to form the Society for the Abolition of the Slave Trade. Antislavery activists needed to change the apathetic and indifferent public attitude to slavery. They opted for a national network of local abolition groups using tactics of pressure, and demonstrations such as articles in the local newspapers, public speeches and church sermons questioning the morality of the slave trade; pamphlets on the subject of abolition; and also collected signatures in local elections. In the summer of 1814, one of the most extensively signed petitions in British history resulted in the prohibition of the slave trade and become an international cause. It eventually resulted in the British Parliament passing the Slavery Abolition Act in 1833, which gave all slaves their freedom in the British Empire. It is important to recognise that even though this campaign was an undeniable historical victory for the emancipation movement worldwide, it also helped to obscure the appalling domestic labour conditions and new forms of exploitation by industrial capitalists at the early stages of Britain’s industrial revolution. American Free Produce Movement The American free produce movement set the basis for international solidarity in the agriculture sector. In the 1820s in the United States, Quakers and slavery abolitionists encouraged consumers to avoid goods made by slave labour and to purchase products made by free labour

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(Glickman, 2004). This movement adopted the strategies of the British antislavery sugar7 movement of the 1790s (idem). The first free produce store was opened by activists in 1826 in Baltimore, and over time more than 50 ‘free produce’ stores appeared in another eight states in the United States (Glickman, 2004). The range of products offered in free produce stores was primarily clothing and dry goods, especially cotton and sugar. The idea behind free produce was to depart from the slave labour system using alternative commercial models. Free produce activists ‘treated the market as a contested terrain, and an important arena of moral influence subject to their agency’ (Glickman, 2004, p. 893), suggesting that consumers are agents of moral and economic change. This movement was given a lot of support by abolitionists; nevertheless, despite such support, free produce stores were short-lived enterprises and associated with frustrating experiences for those who ran them due to high cost , a low quality of goods and demands as to the authenticity of the free produce goods by ‘hyper-conscientious consumers’ (Glickman, 2004, p. 891). The free produce movement had as an objective to create an understanding of consumers’ responsibility for the perpetuation of slavery. Therefore, it interpreted the system of slavery as a distribution of guilt from slave-owners through the slave-made goods onto the consumer with the claim that the sale of slave-made goods finances slavery. In that sense, by considering markets as a powerful channel for moral change, the free produce movement promoted the power of the consumer to play an active role in the alleviation of the suffering of slaves through the exercise of agency in market relations. Abolitionists adopted a consumerist strategy in 1834 and began to organise antislavery fairs. This strategy involved selling fashionable products with the aim of raising funds for abolitionist organisations so that, through buying practices, antislavery organisations were able to flourish (Glickman, 2004). Critics of the time took different views. On the one hand, a defeatist criticism claimed that because the system of slavery was embedded in every aspect of life and the economy in the United States, buying free produce was a useless action (idem). On the other hand, classbased arguments claimed that the price of free produce goods made them unaffordable to the poor (Glickman, 2004). However, free produce was the first movement in the United States that invoked the concept of longdistance solidarity and consumer responsibility in buying practices. Consumer Activism ‘However far removed we may be from the scene of their suffering in the physical world, in the moral world we are standing beside them’ (Glickman, 2004, pp. 896–897).


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Historically, consumer movements are a particular kind of social movement that attempt to transform elements of the social order around marketing and consumption through raising awareness about the ability to make decisions in buying practices (Kozinets & Handelman, 2004). Piore and Sabel (1984) suggest that the nature of consumption has changed, from mass to niche markets, which has helped to sustain consumption as one of the defining features of our identity. Boycotts. The term ‘boycott’ was coined in Ireland in 1880 to describe the ostracism by the Irish Land League of Captain Charles Cunningham Boycott, an English land agent of an absentee land owner in County Mayo, who refused to reduce the land rents of Irish tenant farmers. As a result of the ostracism he was forced to withdraw from his position and return to England (Ernst, 1992; Marlow, 1973). By 1885, the word boycott was commonly used in the United States to describe the whole spectrum of labour activism: picketing, strikes, social ostracism of non-union workers, and demands to close down shops (Marlow, 1973). Historical evidence has demonstrated that although the term boycott was coined in 1880, boycotts were used in United States since the National Negro Convention in the 1830s encouraged the avoidance of slave-produced goods (Browne, 1997; Lee, 1913). Since the nineteenth century, boycotts have been a controversial weapon used by organised labour and their sympathisers (Ernst, 1992). Ernst (1992) found that in the nineteenth century most boycotts were employed against local businesses which served local working-class markets and so were susceptible to collective actions by trade unions. Large oligopolistic businesses were rarely the target of boycotts (idem).

Theoretical Approaches to Social Movements Although the historical evidence for social movement action dates back a few centuries; current analytical approaches to the understanding of social movements date back to the mid-1970s (Della Porta & Diani, 1999). Before that the only two theoretical approaches for the understanding and interpretation of social conflict were the Marxist model and the structuralfunctionalist school. Marxist models are inclined to see social movements as bases for social change and furthermore as symptomatic of a movement towards the crisis of the capitalist order and its replacement by a socialist system. The emphasis

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of analysis in Marxist models tends to be on the class composition of the social movement, rather than on the processes of formation, interaction and structure (Eyerman & Jamison, 1991). The structural-functionalist school (see, e.g. Neil Smelser, 1962) considers social movements to be a side-effect of rapid and large scale tensions due to social transformations. Some authors (Della Porta & Diani, 1999; Della Porta, Andretta, Mosca, & Reiter, 2006) argue that collective behaviour for the structural-functionalist school has a double significance. First, collective behaviour can be a response to the inadequacy of the current institutions and the lack of social control mechanisms to maintain social cohesion. And second, collective behaviour can be understood as a societal reaction to crisis, in which shared beliefs are developed and in which collective solidarity is established. Psychodynamic approaches have explained social movements as expressions of individual aggression as a consequence of accumulated deprivations and frustrations experienced by individuals in relation to more powerful actors. From this perspective, the agglomeration of individual behaviours situated in a social crisis produces collective behaviours or revolutions, which bring about some kind of identity and social transformation. Resource Mobilisation (RM) theory emerged in the 1970s as an analytical framework to study social movements (McCarthy & Zald, 1977). Social movements were defined as a form of political struggle by means other than conventional politics. Therefore, they could be analysed from the point of view of conflicts of interest, and organisational dynamics could be used as a starting point for analysis. Buechler (1993) explained the emergence and development of RM theory in the 1970s and 1980s as a part of the cycle of protest in the 1960s and early 1970s in the United States, which involved the active engagement of many scholars, particularly from sociology. Previous to RM, social movements were assumed to be anomalous forms of collective actions. Thus, RM emerged as an alternative theoretical approach in sociology which included elements of psychological models of collective behaviour, and which provided analytical leverage for the understanding of contemporary social movements as normal phenomena which required analysis. Issues such as recruitment, mobilisation and strategy and its tactics were analysed using the RM framework. For the RM framework social movements were defined as ‘conscious actors making rational choices’8 (Della Porta & Diani, 1999, p. 9). NSM was a label coined in Germany the 1970s and 1980s to define social movements which departed from the previous paradigm of social movement (based on economic concerns), to concerns over the environment, peace,


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feminism and ‘collective movements which combine ideological bonds with political style’ (Dalton & Kuechler, 1990). The NSM approach proposed a logic of understanding collective actions based on the politics, ideology and culture which define collective identity. Buechler (1995) identified the main NSM theorists as Manuel Castells and his analysis of the role of urban social movements in the process of urban space transformation (Castells, 1983, 2008); Alain Touraine9 and his ‘action theory’ in ‘post-industrial’ and ‘self-produced society’ in which social actors construct a system of technical tools and knowledge that allow them ‘to intervene in their own functionality’; Ju¨rgen Habermas (1989) argues that there are processes of media, of money and of power which alter the intersection between the politicoeconomic system and the life-work. Alberto Melucci (1996) argues that NSM are responses to new forms of control, information processes and pressures towards conformity (Buechler, 1995; Della Porta & Diani, 1999; Hannigan, 1985). Alain Touraine (quoted in Castells, 1997) defines social movements using the principles of identity, adversary, and identification with a vision or social model. The principle of identity is what Castells (1997) refers to as selfdefinition. The principle of the adversary is that movement may be identified as against a particular enemy. Finally, the principle of the social model is what Castells identified as the societal goal, and it refers to the historical vision of the social order members of society wish to attain with their collective actions. Castells (1997) noticed that the main tool of the NSM is networking, which is characterised by a multi-centric form of organisation and intervention. NSM networks are for him ‘the actual producers and distributors of cultural codes’ (Castells, 1997, p. 362). Castells (1997) recalls an ‘old law of social evolution’: ‘resistance confronts domination, empowerment reacts against powerlessness, and alternative projects challenge the logic embedded in the new global order, increasingly sensed as disorder by people around the planet’ (Castells, 1997, p. 69). He suggests that the practices, dynamics and terms of social movements should be understood based on their self-definition, meaning this that ‘they are what they say they are’ (Castells, 1997, p. 70). Della Porta and Diani (1999) compare NSM with Marxism, pointing out that NSM placed the importance on actors (individuals), highlighting that its definition of identity is no longer in relation to the system of production, as some forms of Marxism suggest. They identify four common characteristics in the major theoretical approaches to the study of social movements: (i) informal interaction networks; (ii) shared belief and

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solidarity, which means that social interactivity requires a set of beliefs and a sense of belonging; (iii) collective action focusing on conflict, expressed as promotion or opposition to social change either at a systemic or nonsystemic level, and (iv) use of protest as forms of non-conventional indirect channels of influence developed through the intervention of collective actors. As with technological or scientific innovations, it is possible to identify in social movements a process of diffusion of ideas, tactics, and organisational structures. This diffusion can be expressed in geographical terms, but also from sector to sector, centre to periphery, periphery to centre.10 It also can also be direct or indirect depending on the mediation of the social movements by forms of mass media11 (Kriesi, 1995, p. 185, quoted in Della Porta & Diani, 1999, p. 246). Diffusion can also happen either through conscious/rational or unconscious imitation (Della Porta & Diani, 1999, p. 246). This can be seen in the example of the 4 February 2008 march against the FARC in Colombia. The campaign was widely and rapidly disseminated using a social networking internet-based facility. Those millions who supported the campaign either by marching or displaying in their ‘facebook profile’ did not necessarily choose to do so on an entirely rational basis. In Colombia, the 4th of February was taken up almost unanimously by public and private institutions as a public duty, and therefore not participating in it would have been perceived as a form of social disobedience, and an action showing a lack of national solidarity.

NON-STATE ACTORS/TRANSNATIONAL ACTORS Academic literature has argued that the increasing interconnection of different movements at the global level has been based on the fact that certain problems can be only attacked at the international level (Della Porta & Diani, 1999). This justifies the creation of a series of international organisations which have the power to exercise influence over agenda setting at the national and international levels. The tendency to see states as the sole providers of collective goods as commented on by Florini (2000) is increasingly viewed as simplistic and moreover inappropriate. Since the 1970s, the debate on foreign policies and world politics has increasingly moved away from state-centred approaches with more attention being paid to the impact of non-state actors (RisseKappen, 1995; Willetts, 2001). The concept of ‘non-state’ implies that the states are dominant and the other actors are secondary, explaining the


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replacement of the term in some of the literature and in general and academic debates with ‘transnational actors’. Willetts (2003) points out that in the study of international relations, the term ‘transnational’ was adopted to refer to any relationship across country boundaries in which at least one of the actors was not a government. However, these semantic representations (non-state actors/transnational actors) illustrate a political and economic debate between a state-centred approach, and other approaches which include further levels of pluralism and complexity. One of the criticisms of the state-centred approach is that it reduces world-relations into the interactions between 19212 units. In the international arena, institutions such as Non-Governmental Organisations (NGOs), Intergovernmental Organisations (IGOs), and Transnational Corporations (TNCs) are increasingly becoming involved in global matters. In my definition, transnational actors are those actors who are not direct representatives of states but potentially operate in the international sphere. Risse-Kappen (1995) argues that the impact of transnational actors and coalitions on states varies according to the differences in domestic structures or arrangements which structure society, form the ‘state’, and link together the polity, and the degree of international institutionalisation measured by the extent that an area/issue is regulated by multilateral agreements, bilateral agreements and/or international organisation. He concludes that ‘the more fragmented the state and the better organised civil society, the easier should be the access for transnational actors’ (Risse-Kappen, 1995, p. 5). On the other hand, Higgott, Underhill, and Bieler (2000) suggest the nature and scope of both state and non-state actors will be little changed even under new conditions. The concept of governance has also gained ground over recent years. The relationship between governance theory and non-state actors is structured according to Stoker (1998) into five propositions: 1. Governance refers to the institutions and actors which are drawn from government but also from beyond it. 2. Governance identifies the blurring of boundaries and responsibilities for tackling social and economic issues. 3. Governance identifies the power dependence involved in the relationship between the institutions involved in collective action. 4. Governance is about autonomous self-governing networks of actors. 5. Governance recognises the capacity to get things done which does not rest on the power of government to command or use its authority. It sees government as able to use new tools and techniques to steer and guide.

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TAXONOMY OF NON-STATE ACTORS Arts (2003) developed a taxonomy of Non-State Actors based on the existing literature dividing them into five groups: (i) Non-Governmental Organisations (NGOs); (ii) Intergovernmental Organisations (IGOs), (iii) Transnational Corporations (TNCs), (iv) epistemic communities and (v) a remainder category (non-legitimate actors).

Non-Governmental Organisations (NGOs) Higgott et al. (2000) classify Non-Governmental Organisations (NGOs) into social/civic sponsored NGOs found principally in western countries, and state-sponsored NGOs. Further divisions are indicated by acronyms such as INGOS (International Non-Governmental Organisations), BONGO (Business Oriented Non-Governmental Organisation), GONGOs (Governmentally Organised Non-Governmental Organisations), RONGO (Religious Oriented Non-Governmental Organisations), MANGOs (Manipulated Non-Governmental Organisations), QUANGOs (Quasi-autonomous NonGovernmental Organisations) or GRINGOs (Government Regulated and Initiated Non-Governmental Organisations). The phrase ‘non-governmental organisation’ was made official with the establishment of the United Nations in 1945 under Article 71 of Chapter 10 of the United Nations Charter (UN, 1945) which defines the role of organisations which are non-governmental (Willetts, 2001; Willetts, 2003). The Economic and Social Council (ECOSOC) defines NGOs under six principles: 1. NGOs should support the work of the UN. 2. An NGO should be a representative body, with an identifiable headquarters and identifiable officers. 3. NGOs cannot be profit-making bodies. 4. NGOs cannot advocate or use violence. 5. NGOs should respect the norm of ‘non-interference in internal affairs of states’. 6. INGOs are not established by intergovernmental agreements. Another feature associated with globalisation is the increasing role of NGOs in international environmental institutions, in activities such as negotiation, policy advice, monitoring and implementation. Raustiala (1997) notices how early environmental agreements rarely contained provision for NGOs. He analyses the reason for the increasing involvement of NGOs


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in environmental issues and concludes that states have externalised and coordinated their regulatory powers with NGOs, whose participation enhances their technocratic and political abilities.

Intergovernmental Organisations (IGOs) An IGO is conceptually an organisation whose members are nation-states, whose decision-making mechanism is based upon the requirement for unanimity among its members. Historically IGOs deal exclusively with [international] relations between states. However, their scope was been widened. Nowadays amongst their members are economic bodies, groups with particular interests such as the environment and women’s issues and private organisations such as banks and corporations (Willetts, 2001). IGOs can be classified into: 1. Global IGOs, such as the United Nations (UN), its specialised agencies, subsidiary bodies and commissions, the World Trade Organisation (WTO), the International Criminal Police Organisation (INTERPOL). 2. Regional IGOs such as the European Union (EU), North American Free Trade Area (NAFTA), Mercosur, Andean Community, North Atlantic Treaty Organisation (NATO) and the Organisation of American States (OAS). 3. IGOs with various membership criteria, such as the Organisation for Economic Co-operation and Development (OECD), the Organisation for Petroleum-Exporting Countries (OPEC), Arab League, Intergovermental Group of Twenty Four (G24). 4. Financial IGOs, such as the World Bank Group, the International Monetary Fund (IMF), the Bank for International Settlements, Asian Development Bank (ADB), Inter-American Development Bank (IABD, IDB).

Transnational Corporations Corporations are generally divided into two categories: public13 and privately owned. Marc T. Jones (2000) defines a TNC as a hierarchical social organisation with technological, social, political, economic and cultural dynamics, which incorporates both the competition and cooperative social relations of stakeholders, which functions in the production of goods

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and services at a profit, whose profits are the private property of its owners and which operates in multiple host countries (Jones, 2000). It is widely acknowledged that TNCs have an increasing role in governing the global economy (Higgott et al., 2000). In 1980, O’Brien and Helleiner observed that ‘the power of major transnational firms now rests as much upon their capacities to marshal information and knowledge as upon their traditional role in directly productive activities [y] There is every indication that the sharpest aspects of competition in the future may be based more on the efficient use of specialized knowledge, information, and new technological capacity for its communication and use than on more traditional factors’ (O’Brien & Helleiner, 1980, p. 445). Building upon their statement, it could be said that the increasing role of TNCs in every aspect of world dynamics stems from their ownership of the means of creation of information, the capacity to transform it into knowledge and the ability to administer it systematically. Nevertheless, it has been argued that the source of ‘TNC’s institutional superiority’ (Jones, 2000) arises from the ability of TNCs to extract rents from stakeholders such as the state and workers through reducing the bargaining power of these groups. The fact that TNCs operate in multiple host countries enhances their structural bargaining power versus states and workers through putting states and workers in competition for jobs, technology, revenue, tax and capital provided by TNCs. Epistemic Communities Scholars, academics and technical experts have historically participated in political processes at both local and international levels reflecting their discipline and area of expertise, their interest in the public good and their political values. Peter M. Haas (1992, p. 3) defines an epistemic community as a ‘network of knowledge-based experts or groups with an authority claim to policyrelevant knowledge within the domain of expertise’. The scope of action of epistemic communities transcends technical expertise and disciplinary boundaries. They are vehicles for the diffusion of norms, beliefs, values and notions of validity; and overall they are often policy enterprises. Remainder Category (Non-Legitimate Groups) This remaining category of non-state/transnational actors can be classified as non-legitimate groups engaged in cross-country criminal or violent behaviour. Examples of this are terrorist organisations and drugs traffickers.


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LABOUR ORGANISATIONS International forms of labour organisation are not a new phenomenon. In 1919, at the end of the First World War, the International Labour Organisation (ILO) was established at the Versailles Peace Conference with the objective of undertaking humanitarian joint action to improve labour conditions worldwide (ILO, 2012). However, the establishment of the ILO was also politically motivated in so far as it makes provision for avoiding social unrest and revolution, as set out in the Preamble of the ILO constitution.14 In fact, the establishment of the ILO can also be seen as one of the two strategies that the international labour movement has traditionally employed: dialogue and revolution. The strategy of pressure through revolution was exemplified in the October revolution; and the strategy based on dialogue and conciliation culminated in the ILO.

NSM, Civil Society and Unions The consequences of globalisation for industrial/labour relations, specifically with regard to such matters as the diminishing power of trade unions (Andersen, 2006; Foley, 2006; Frundt, 2002; Raess, 2006), declining trade union membership (Dreher & Gaston, 2007; Lee, 2005; Piazza, 2005; Slaughter, 2007), deteriorating labour conditions (Korovkin & SanmiguelValderrama, 2007; Yeoh, 2006), reduction of employment (Reinecke, 2006); gender and other labour inequalities (Baliamoune-Lutz, 2007; Rahikainen, 2007; Wood, 1998) and more unequal income distribution (Roy, 2007) have been given extensive and deep consideration by various authors. On the other hand, processes such as the transition from an industrial to an information and services capitalism, the collapse of communism, transnationalisation of production, markets and actions, the decline of labour membership, the social and economic policies associated with neo-liberalism have been seen by less pessimistic authors as opportunities for reinventing the trade union movement (Burgoon & Jacoby, 2004; Stillerman, 2003; Walker & Creanor, 2005; Wills, 2002; Wolf-Powers, 2007). This reinvention has already partially occurred through coalition, partnerships, alliances and networking with other social and political movements with common agendas which include economic, political, social and foreign concerns. As presented previously, NSM are built on multiple identities with flexible networks connecting local forms of organisation and individuals, and enabling direct actions in a broad range of contexts. Social movements can

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mobilise support on issues compatible with the interest of local unions (and vice versa), and create unconventional and participatory alliances to maximise pressure towards achieving social changes (Cohen & Rai, 2000). NGOs are increasingly covering areas which were historically focused on by labour movements. Gallin (1999, 2000), shows that the overlapping between trade unions and NGOs over workers’ rights gives rise to a relationship that is both conflictive and cooperative and which requires mutual understanding and acceptance of workers as human beings, of workers’ rights as human rights, and of workers’ rights as union rights. NGOs can be allied to trade unions; however, they may also work against the interests of labour, undermining local unions (Justice, 2003; Riisgaard, 2005). Munck and Waterman (1999) suggest that the form of ‘social unionism’ associated with the ‘network society’ has analogies with the ‘popular front’ in the 1930s. However, they emphasise that in contrast to the movement of the 1930s, the new social unionism is a social movement, rather than a political movement, as it operates in the context of civil society. Another characteristic of this new social unionism is that it is open to networking both internally and with other social movements. It can also be observed that trade union representation should be understood not just in its local manifestations as it has been traditionally. It can also be understood as a global phenomenon that transcends national frontiers, and is composed of networks, strategies and objectives with multiple forms of connection into civil society. As presented in the chapter on globalisation, it can be argued that the crisis in societal governance associated with the perceived decline of the influence of the authoritative institutions of the public sector, combined with a lack of predictability in the working of market institutions, could explain the renaissance of a redistribution of social responsibilities across different actors in society, and therefore could explain the rising influence of NGOs (Doh & Guay, 2006).

SUMMARY The definitions of civil society reflect the diversity of both the discourses and actors that are part of it. On the one hand, civil society consists of the social institutions that structure and facilitate the governance of democratic forces and lead towards meeting public needs. On the other hand, civil society represents autonomous forms of resistance outside the state sphere and marketplace, at the local and the transnational level.


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Actions and initiatives by non-state actors in the current age of globalisation have been increasing. This increase has become more evident with the more stringent traceability of processes associated with the development of ICT, and private forms of organisation networking at the local and transnational level. This has re-defined geographical boundaries, creating proximity between individuals which goes beyond physical constraints, and it has extended definitions of communities to multiple levels of identification and convergence, but also divergence. The concept of civil society and its role in the participatory governance of societal processes implies forms of ‘soft’ regulation and moral authority which transcend the role of states as enforcers. The idea of civil society opens a space for non-traditional actors to actively participate and engage in the political processes of change in society, for the betterment of marginalised groups, the environment or social justice in general. The diversity of roles that single individuals have in society allows them to participate from different angles. Traditional forms of industrial relations were generally driven by initiatives led by trade unions which represented worker’s interests. Changes such as the worldwide decline of union membership and the fragmentation of the trade union movement call for the emergence of more inclusive solidarity groups beyond the workplace in which non-traditional industrial relations actors can play complementary roles in labour relations. Although the concept of civil society has limitations due to its breadth, manifestations of a GCS can be understood as forms of globalisation that occur outside traditional institutional settings.

ACKNOWLEDGEMENT The author would like to thank feedback received by reviewers and by Prof. Dr. Terrence McDonough at the National University of Ireland, Galway.

NOTES 1. In this sense, Multinational Corporations (MNCs/MNEs) would be part of the public sphere, and the move towards corporate social responsibility ratifies this notion. 2. Salamon (1994, pp. 109, 114) postulates that the rise of ‘civil society’ might signify to the 20th century what the rise of ‘nation-state’ meant to the 19th century.

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3. WUNC is the acronym for worthiness, unity, numbers and commitment. (Tilly, 2004, pp. 4–5). In my interpretation what Tilly (2004) summarises as WUNC are the formal and informal attributes of identity which strengthen group membership through mechanisms of making evident patterns of identification or emblems of identity. 4. La huelga del 28, denotes the strike in 1928, which is also known as the massacre of the banana plantations. The facts of this strike are highly contested. The most widely disseminated account of the event is given in Nobel Prize winner Gabriel Garcia Marques novel ‘Hundred Years of Solitude’. 5. La Guerra de los Mil Dias took place in Colombia between 1899 until 1902 between the Conservative Party and the Liberal Party over land tenancy. 6. La Guerra del Caucho took place in the Amazon jungle in the border with Peru at the beginning of the 20th century. 7. Sugar produced by free labour. 8. Italics in original (Della Porta & Diani, 1999, p. 9). 9. Touraine (1992) located NSM within two logics, a system endeavouring to maximise production, money, power and information, and that of subjects seeking to defend and expand their individuality. 10. For example, in the case of union organising in the United States, it has been found that the techniques of popular education from central American countries play an important role in the development of tactics and strategy for the U.S. labour movement organising immigrant workers (Milkman, 2000). 11. If the diffusion is through personal interaction it is direct diffusion. 12. This is the number of United Nations members. 13. Publicly traded corporations are those whose shares are freely traded in the public share market. 14. ‘Whereas universal and lasting peace can be established only if it is based upon social justice; And whereas conditions of labour exist involving injustice hardship and privation to a large number of people, as to produce unrest so great that the peace and harmony of the world are imperilled; and an improvement of those conditions is urgently required; as, for example, by the regulation of the hours of work including the establishment of a maximum working day and week, the regulation of labour supply, the prevention of unemployment, the provision for an adequate living wage, the protection of the worker against sickness, disease and injury arising out of his employment the protection of children, young persons and women, provision for the old age and injury, protection of the interests of workers when employed in countries other than their own, recognition of the principle of equal remuneration for work of equal value, recognition of the principle of freedom of association, the organisation of vocational and technical education and other measures; Whereas also the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to improve conditions in their own countries; The High Contracting Parties, moved by sentiments of justice and humanity as well as by the desire to secure the permanent peace of the world, and with a view to attaining the objectives set forth in this Preamble, agree to the [following] Constitution of the International Labour Organization’ (ILO, 1919).


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INTERNATIONAL BUSINESS, CORRUPTION, AND BRIBERY Duane Windsor ABSTRACT Purpose – This chapter examines the corporate social responsibility (CSR) of international businesses to combat commercial and governmental corruption. The focus is on multinational enterprises (MNEs) as key business actors globally. Design/methodology/approach – The methodology of the chapter is a combination of literature review, summary of international anticorruption accords, and analysis of available data sources. The literature review is not a systematic survey of academic literature but rather citation of key works bearing on the chapter’s purpose. Greater emphasis rests on anticorruption accords and data sources to provide practical guidance to business managers and public officials. Findings – Corruption is global and ubiquitous although varying markedly by country and industry. Corruption occurs in multiple forms such as bribery, entertainment, extortion, facilitating payments, favors, gifts, gratuities, and travel. International anticorruption accords now constitute a formal global norm against bribery and extortion in commercial or governmental transactions. Economic and political costs of corruption are high. Active national enforcement is gradually increasing.


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Practical implications – The needed corporate policy is not to pay bribes, large or small, in any form for any reason. Such policy will in future extend to prohibit even minor facilitating payments. Businesses should define and enforce broadly applied anticorruption norms. The chapter cites key examples of prosecutions and anticorruption efforts. Originality/value of chapter – This chapter marshals available information from literature, anticorruption accords, and corruption data sources. The chapter is intended to be a useful guide for business managers and public officials. Keywords: International business; corruption; bribery; facilitating payments; money laundering

INTRODUCTION International businesses, especially multinational enterprises (MNEs), have a corporate social responsibility (CSR) to combat commercial and governmental corruption globally in all host countries. This responsibility is both negative (to avoid paying bribes) and positive (to act against corruption). A first step is to get a broad global picture of corruption. Corruption is global and ubiquitous although varying markedly by country and industry. Corruption occurs in multiple forms such as bribery, entertainment, extortion, facilitating payments, favors, gifts, gratuities, and travel. Most available information concerns government corruption (business and household to government); information concerning commercial corruption (business and household to business) is much less readily available and is thus likely significantly under-reported (Chaikin, 2008). There are three basic approaches to gauging intensity and business effects of corruption. One approach is perception of corruption at a country level; Transparency International (TI) collects and analyzes such perceptual information from multiple survey sources. A second approach is collection of firm-level information; the World Bank collects and analyzes such data by periodic direct surveys of firms. A third approach is rough estimation, from various sources, of the financial size of corruption and its economic effects by country, industry, and firm. Transparency International (TI, 2011b) generally reports that the least corrupt countries are small nations in Western Europe (e.g., the Netherlands,

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Scandinavia and Iceland, and Switzerland) together with Australia, New Zealand, and Singapore. The most corrupt countries tend to be developing countries (e.g., Angola, Nigeria, and Bangladesh) and transitional countries (e.g., Azerbaijan, Georgia, and Tajikistan) that were once part of the Soviet Union (USSR). If one artificially divides the globe into imaginary and very approximate quadrants using the equator and a pole-to-pole line, these rough quadrants reflect very different corruption levels. The equator separates ‘‘north’’ from ‘‘south.’’ A line just east of Poland and continuing circumpolar just west of Japan separates ‘‘west’’ from ‘‘east.’’ An imaginary north-west quadrant of Western Europe, North America, Japan, Australia, and New Zealand (the latter two countries south of the equator) – to which one should add Hong Kong and Singapore – is relatively most clean. The south-west quadrant of Latin America and Africa is relatively most corrupt, joined by some countries from the north-east and south-east quadrants. The north-east quadrant (e.g., Russia, former USSR republics, and Eastern European countries formerly dominated by the USSR) and south-east quadrant (e.g., China and India) lie roughly between relatively most clean and relatively most corrupt. There are significant variations across these quadrants. Greece, Italy, Portugal, and Spain fall well below the north-west quadrant norms. This picture of the globe roughly reflects what TI (2011b) finds in its annual corruption perceptions index (CPI) report. The World Bank (2012) provides some 100 indicators at the firm level for a large number of countries. The indicators come from a stratified sampling of firms conducted in a particular country every three to four years (on a rolling basis so that not all data is current). The most recently available information involves surveys of more than 130,000 firms in 135 countries. Part of the information captured concerns corruption. Worldwide, more than one-third of all firms (36.1%) identified corruption as a major constraint (see Ramdani & van Witteloostuijn, 2012). The range was from 13.9% in high-income Organisation for Economic Co-operation and Development (OECD) countries to 56.5% in the Middle East and North Africa. The range in other regions was from 29.1% (East Asia and Pacific) to 39.9% (Latin America and Caribbean). Worldwide, a quarter of firms (25.5%) reported being expected to give gifts to public officials to obtain action. Nearly the same proportion reported being expected to give gifts to secure government contracts (23.7%) or construction permits (23.2%). Worldwide, the proportion of public transactions where a gift or informal payment was requested was 15.1%; and 19.6% of firms reported at least one bribe request. The highest proportions were reported in South Asia, at 25.1% and 31.5% respectively. The value of a gift expected to secure a

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government contract was reported worldwide at 2.2% of contract value, being highest in the Middle East and North Africa (3.6%) and sub-Saharan Africa (3.2%). World Bank Institute research estimated in 2004 that conservatively more than US $1 trillion in bribes is paid annually worldwide (WBI, 2004). The estimate was based on 2001–2002 economic data, when the world product was just over US $30 trillion. The ratio as reported would be at least 3%. The estimate does not include public sector embezzlement or theft. There is likely a significant under-reporting of commercial bribery (Chaikin, 2008). Even if these obviously rough estimates should prove to be too high (see Debevoise & Plimpton, 2010), any significant level of bribery is equivalent to a tax seriously burdening economic activity of firms, households, and governments and depressing growth rate and investment in corrupt countries relative to corruption-free countries (Kaufmann, 2004). This chapter considers first the principles justifying the anticorruption CSR and then effective strategies for reducing corruption (Rodriguez, 2013; Rodriguez, Siegel, Hillman, & Eden, 2006). While a literature can be found that permits bribery as efficiency-inducing behavior on basically the same grounds that insider trading might be deregulated (Aidt, 2003), the strong consensus theoretically and politically is against corruption (or insider trading) and certainly against extortion in commercial or governmental settings (Johnston, 2005, 2010; Rose-Ackerman, 1999). An anticorruption principle is not a voluntary choice of business. On the contrary, bribery of public officials is almost universally illegal; and commercial bribery undermines competitive markets. Stemming from the Foreign Corrupt Practices Act 1977 (United States) or FCPA, amended 1988 and 1998, a formal international anticorruption consensus now exists in UN and various regional conventions (Windsor & Getz, 1999, 2000), implementing legislation in various countries such as the Bribery Act 2010 (United Kingdom), Council of Europe and European Commission (2011) efforts, TI affiliates in various countries, Principle Ten of the UN Global Compact (UNGC), and policies of international institutions such as the World Bank and International Monetary Fund (IMF). A strong stress is placed in this movement on the CSR of international business. The practical problem is how to implement ‘‘zero tolerance’’ for all forms of bribery, extortion, facilitation, and hospitality and to control the actions of agents. Financial institutions have a special responsibility to combat money laundering and terrorism financing. Recent bribery revelations concerning KBR in Nigeria, Walmart in Mexico, and Siemens globally reveal the dark side of international business. Moran (2006) and Wells and Ahmed (2007) suggest that MNEs may work


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around anticorruption laws by more sophisticated methods that engage local partners as shareholders. The country in which investment occurs may require a local share; and the MNE may lend the money for purchase of the local share – as one illustration of some possibilities. Such arrangements may not, strictly speaking, violate the FCPA, for instance; but the local partners are politically influential and there is the appearance (and likely reality) of exchange of favors. There are likely multiple methods for so-called ‘‘gray corruption’’ (Maras, 2010). In the period 2006–2009, the US Department of Justice (DOJ) brought 58 cases, larger than the total brought during 1977–2004, under the FCPA. The DOJ also began to target individuals with criminal charges rather than levying fines on firms (Searcey, 2009). Prosecutions of corruption are not yet a particularly useful index of corruption activities. At the end of 2011, according to TI, only 7 of the then 38 ratifying countries of the OECD AntiCorruption Convention were actively enforcing, with another 9 countries exhibiting moderate enforcement; other signatories exhibited little or no enforcement (TI, 2011c, p. 8). The active enforcement countries are Denmark, Germany, Italy, Norway, Switzerland, the United Kingdom, and the United States. The OECD has since December 2009 recommended against even minor facilitating (or facilitation) payments (i.e., ‘‘grease’’) made to expedite otherwise required action of minor public officials. The distinction between a bribe and a facilitating payment is as follows. A bribe is paid secretly to a government official or intermediary for a policy decision or contract; a facilitating payment is paid to a low-level government employee for carrying out a mandatory action speedily. Facilitating payments and funds provided to agents (middlemen) have to be properly recorded and accounted for. The OECD called facilitation payments ‘‘corrosive ... particularly on sustainable economic development and the rule of law.’’ A large majority of adherents to the 1997 OECD antibribery convention prohibit facilitating payments, which while acceptable under the FCPA are often illegal in the country where they are made. Facilitating payments raise the problem of necessity: companies may argue that it is not possible to conduct business in many locations without facilitation. If necessity is correct in practice, then governments must help coordinate with businesses to eliminate such necessity. In addition to the United States, only a few countries including Canada, New Zealand, and South Korea but not the United Kingdom or Germany, permit such payments, which must be recorded in company books. Numerous grease payments may invite DOJ scrutiny. (Searcey, 2009, is the source for information in this paragraph.)

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The US Chamber of Commerce has spearheaded an effort to weaken aspects of the FCPA (ICAR, 2012). The FCPA amendment effort is not an attempt to eliminate the statute but rather to soften certain aspects on the grounds of improving relative competitiveness in global markets. There is a legitimate issue of the specific controls on and penalties for business corruption in commercial and governmental settings. That issue concerns optimal design and enforcement rather than the basic principle that bribery and extortion are morally wrong on grounds of undermining democratic institutions and competitive markets (Wolff & Sawhney, 2008).

CORPORATE SOCIAL RESPONSIBILITY FOR ANTICORRUPTION EFFORTS Corruption can be commercial or governmental (Windsor, 2004). Corrupt practices constitute a burden on international business (Doh, Rodriguez, Collins, Uhlenbruck, & Eden, 2003; Rodriguez, Uhlenbruck, & Eden, 2005). Commercial corruption occurs between two nongovernmental parties, typically business to business. Governments regulate such commercial corruption to ensure fair competition in markets for the benefit of consumers and to enforce the duty of loyalty owed to employers by employees (Chaikin, 2008). Governmental corruption involves a breach of duty by a public official for private gain. This breach may occur by an act of extortion (by a corrupt official or an agent) or by an act of bribery (of a corruptible official or an agent). The 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention) defines (OECD, 2011a) ‘‘bribery’’ as yto offer, promise, or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official, for that official or for a third party, in order that the official act or refrain from acting in relation to the performance of official duties, in order to obtain or retain business or other improper advantage in the conduct of international business. (Article 1, Paragraph 1)

Bribe payments may be due to extortion by the recipient. The Commentaries to the Convention (Paragraph 9) clarify that: Small ‘facilitation’ payments do not constitute payments made ‘to obtain or retain business or other improper advantage’ within the meaning of paragraph 1 and, accordingly, are ... not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are


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generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for program of good governance. However, criminalization by other countries does not seem a practical or effective complementary action.

The OECD convention is modeled on the FCPA 1977, which makes payments or promises of any kind or in any value to foreign government officials to obtain or retain business unlawful for certain classes of persons and entities. The FCPA distinguishes between prohibited bribes for voluntary decisions (such as government contracts and licenses) and permitted facilitating payments (or grease) to expedite required action by minor officials (such as moving goods quickly). The FCPA, as amended 1988, provides for some greater use of agents as middlemen. Use of agents and facilitating payments involve required safeguards and reporting. Antibribery provisions prohibit intentional use of the mails of any means of interstate commerce corruptly to do so. The provisions apply to all US persons and certain foreign issuers of securities. The 1998 amendments applied the antibribery provisions to foreign firms and persons who cause directly or through agents such an act within US territory. The FCPA also requires companies listing securities in the United States to meet certain accounting and recordkeeping provisions and to maintain an adequate system of internal accounting controls. US federal anticorruption efforts include the DOJ, the Securities and Exchange Commission (SEC), the Departments of Commerce, State, and Treasury (concerning trade issues), the Department of Defense (concerning procurement), the US Trade Representative (USTR), and the Agency for International Development (USAID). There are advocates and critics of CSR. Two cases favor CSR: a moral case and a business case. The moral case asserts a duty in some form (Carroll, 1999, 2008). The business case asserts a long-run advantage to being responsible; or at least a disadvantage to being irresponsible (Carroll & Shabana, 2010). Critics tend to replace the moral case with public policy and to deny the business case empirically (Karnani, 2011). The critics’ arguments are that voluntary CSR tends to undermine the proper role of government and that business altruism cannot typically be profitable. CSR reasoning and stakeholder management theory overlap, in that key stakeholders (e.g., customers, employees, and investors) can affect the reputation and performance of the firm in ways that make voluntary responsible conduct of managers desirable (Campbell, 2007). The UNGC basically offers firms the opportunity voluntarily to endorse ten principles, which have moral and legal foundations. Principle Ten, added in June 2004, is an anticorruption commitment.

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Commitment to anticorruption is not voluntary policy or strategy but mandatory duty, as now effectively a universal legal and moral requirement. Corruption does not correspond to the economic and discretionary altruism domains of Carroll’s (1991) pyramid of responsibilities; rather corruption corresponds to the legal and moral domains of that pyramid. The same argument may or may not automatically extend to the other UNGC principles, each of which should be judged independently. While opposed to voluntary CSR understood basically as altruism, Karnani (2011) at the same time emphasizes the need for strong business ethics, governmental institutions, and stakeholder activism. No country endorses the principle that commercial or governmental corruption is simply a relatively free market in operation. Morally, corruption undermines both competitive markets (i.e., resource allocation efficiency) and democracy (i.e., the public interest) (Bardhan, 1997). Furthermore, international businesses have an important role to play in combating corruption (Dahan, Doh, & Guay, 2006) as sources of bribe and facilitating payments. Such businesses arguably have greater capacity to resist extortion and not pay bribes because they are global portfolios of sales and production. This legal and moral duty is even stronger in developing where corruption and incapacity are serious problems. In developing countries, direct lobbying is likely to be ineffective and indirect lobbying is likely to reduce to bribery and extortion. A number of authors have proposed, on various grounds, that MNEs have responsibility to help promote just political and social institutions in host countries lacking such institutions. One argument is that MNEs have a negative duty not to cause harm (Hsieh, 2009); and thus a duty to protect (Wettstein, 2010). Lobbying and corruption of weak governmental institutions in developing countries may cause such harm. This argument is reinforced by the developing UN human rights regime (Ruggie, 2011): citizens have rights to honest government. Businesses have negative duties not to harm human rights, and thus to protect such rights. A broader argument is that MNEs have a positive duty to promote democracy and to help provide public goods where governments lack the capacity to act effectively (Scherer & Palazzo, 2011; Scherer & Smid, 2000).

GLOBAL ANTICORRUPTION CONSENSUS A global anticorruption consensus exists in various global and regional conventions and instruments. Table 1 provides a basic list of these


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anticorruption initiatives. The table gives information concerning main principles, date of implementation, monitoring agencies, and any related public–private partnerships for the Extractive Industries Transparency Initiative (EITI), the OECD Anti-Bribery Convention, the UN Convention Against Corruption (UNCAC), the UNGC’s Principle 10, and the Wolfsberg Group Anti-Money Laundering (AML) Principles for private banks. These approaches are key global anticorruption initiatives. The table note provides a list of important regional initiatives. The World Bank and IMF also operate against corruption. The World Bank helped fund a pipeline development project by a consortium headed by Exxon Mobil in Chad; special financial controls were imposed to attempt to control corruption in that country (Gould & Winters, 2007). Implementation of the Dodd–Frank Wall Street Reform and Consumer Protection Act 2010 (United States) involves provision 1504 for US SEC rule making along the same lines for disclosure in the extraction industries as the EITI. (The United States is a recent applicant to EITI.) Provision 1502 addresses similarly transparency concerning conflict minerals originating in the Democratic Republic of Congo or neighboring countries. The 2011 revised OECD Guidelines for Multinational Enterprises, Part I, VII, Combating Bribery, Bribe Solicitation and Extortion, pp. 47–50, state (OECD, 2011b): ‘‘Enterprises should not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business or other improper advantage. Enterprises should also resist the solicitation of bribes and extortion’’ (p. 47). The recommendation applies to government officials and employees of business partners and misuse of third parties (i.e., agents or middlemen). The guidelines also cover prohibition of illegal campaign contributions. There should be internal controls, adequate records, risk assessment, and education of employees. The revised OECD guidelines define bribery and extortion as ‘‘The solicitation of bribes is the act of asking or enticing another to commit bribery. It becomes extortion when this demand is accompanied by threats that endanger the personal integrity or the life of the private actors involved’’ (OECD, 2011b). UNGC Principle Ten states: ‘‘Businesses should work against corruption in all its forms, including extortion and bribery.’’ The UNGC (2012) website cites the following definitions. TI defines corruption as ‘‘the abuse of entrusted power for private gain.’’ TI defines bribery as ‘‘Bribery: An offer or receipt of any gift, loan, fee, reward or other advantage to or from any person as an inducement to do something which is dishonest, illegal or a breach of trust, in the conduct of the enterprise’s business.’’

EITI Board, established 2006, consists of members representing implementing countries, supporting countries, civil society organizations, industry and investment companies.

OECD co-operates with civil society through Business and Industry (BIAC) and Trade Union (TUAC) Advisory Committees. There are also activities with other representatives of civil society: nongovernmental organizations, think tanks, and academia.

EITI is a multi-stakeholder coalition of governments, companies, institutional investors, civil society organizations, and partner organizations. A multi-stakeholder group oversees the EITI process in implementing countries and internationally through the EITI Board. From April 1999, OECD undertakes multilateral surveillance to monitor compliance and assess steps taken by countries to implement in national law.

October 2002 – announced by Tony Blair (UK Prime Minister, 1997–2007) at World Summit for Sustainable Development (Johannesburg). June 2003 – launched at First EITI Plenary Conference (London). Signed December 17, 1997. Entered into force February 15, 1999.

Increased transparency concerning corporate payments of taxes and royalties to governments in oil, gas, and mining industries.

All signatories commit to approving the Convention and passing legislation necessary for ratification and implementation into national law.

Extractive Industries Transparency Initiative (EITI) http://eiti.org/ 38 countries (36 compliant or candidate, 2 applicants) and over 60 companies involved in 2012

Organisation for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention) 34 member countries and 5 other participating countries

United Nations Convention Against Corruption (UNCAC) http://www.unodc.org/unodc/en/ treaties/CAC/

Requires signatories to establish criminal and other offenses for corruption. Binds signatories to cooperate internationally and render specific forms of mutual legal assistance for judicial actions and asset recovery.

Adopted by UN General Assembly resolution 58/4 of October 31, 2003. Signed in Merida, Mexico in December 2003. Entered into force on December 14, 2005.

UN Office on Drugs and Crime (UNODC) Conference of the States Parties to the United Nations Convention against Corruption Open-ended Intergovernmental Working Group on Asset Recovery Open-ended Intergovernmental Working Group on Prevention

Cooperation with national affiliates of Transparency International (TI) is common.

http://www.oecd.org/daf/briberyininternationalbusiness/anti-briberyconvention/oecdconventiononcombatingbriberyofforeignpublicofficialsininternationalbusinesstransactions.htm

Public–Private Partnerships

Monitoring Agencies

Date of Implementation

Key International Anticorruption Initiatives.

Main Principles

Initiative

Table 1.

Handled internally by each participating private banks. Must establish an adequately staffed and independent department responsible for prevention of money laundering.

Issued October 2000, revised May 2002, revised June 2012.

‘‘Bank policy will be to prevent the use of its worldwide operations for criminal purposes.’’

The Wolfsberg Group Anti-Money Laundering (AML) Principles http://www.wolfsbergprinciples.com/ 11 participating private banks in 2012

Has worked with Transparency International and Basel Institute on Governance on its Statement against Corruption (2007) and The Clearing House Association on international wire transfers.

The UN Global Compact Board, appointed and chaired by the UN Secretary-General, is a multistakeholder body comprised of 4 constituency groups: business, civil society, labor, and UN.

Note: Transparency International maintains a list of anticorruption conventions and instruments at http://www.transparency.org. Other important conventions and instruments not detailed in the table include African Union (AU) Convention on Preventing and Combating Corruption (2003); Asian Development Bank (ADB)-OECD Anti-Corruption Action Plan for Asia and the Pacific (2001); Council of Europe Criminal Law Convention on Corruption (1998) and Civil Law Convention on Corruption (1998); Resolution (97) 24 of the Committee of Members of the Council of Europe: Twenty Guiding Principles for the Fight against Corruption (1997); Resolution (99) 5 of the Committee of Ministers of the Council of Europe: Agreement Establishing the [Council of Europe] Group of States against Corruption (GRECO) (1999); European Union (EU) Convention on the Protection of the Communities’ Financial Interests and the Fight against Corruption (1995, in force 2002) and two Protocols (in force 2002, 2009); European Union (EU) Convention on the Fight against Corruption involving officials of the European Communities or officials of Member States (1997); Economic Community of West African States (ECOWAS) Protocol on the Fight Against Corruption (2001); Inter-American Convention Against Corruption (IACAC) of the Organization of American States (OAS) (1996, in force 1997); OECD Recommendation on Bribery and Officially Supported Export Credits (2006); OECD Recommendation on the Tax Deductibility of Bribers to Foreign Public Officials (2009); Revised OECD Guidelines for Multinational Enterprises (2011); Revised Recommendations of the Council of the OECD on Combating Bribery in International Business Transactions (2009); Southern African Development Community (SADC) Protocol against Corruption (2001); UN Convention Against Transnational Organized Crime, General Assembly Resolution 55/25 (November 15, 2000, in force September 29, 2003).

In August 2005, UNGC adopted a new governance framework of 7 elements: Global Compact Leaders Summit, Local Networks, Annual Local Networks Forum, Global Compact Board, Global Compact Office, Inter-Agency Team, Global Compact Donor Group.

Announced June 24, 2004, at UN Global Compact Leaders Summit. Implementing UN Convention Against Corruption (adopted December 2003).

Principle 10: ‘‘Businesses should work against corruption in all its forms.’’ – including extortion and bribery.

United Nations Global Compact (UNGC) http://www.unglobalcompact.org UNGC includes over 6000 businesses and over 2000 other participants in some 135 countries. Companies should file annual Communications on Progress (COP) or can be delisted.

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The fundamental case against government corruption is that it undermines legal and representative institutions; even apparently minor payments may fund what amount to extortion cartels orchestrated by senior officials. The supplementary case concerns the direct and indirect economic costs of corruption. The economic costs incurred by corruption in the European Union (EU) possibly amount to EUR 120 billion per year. This amount is about 1% of the EU gross domestic product (GDP), representing only a little less than the annual budget of the EU (EC, 2012). The OECD guidelines state the case against corruption as follows: ‘‘Bribery and corruption are damaging to democratic institutions and the governance of corporations. They discourage investment and distort international competitive conditions. In particular, the diversion of funds through corrupt practices undermines attempts by citizens to achieve higher levels of economic, social and environmental welfare, and it impedes efforts to reduce poverty. Enterprises have an important role to play in combating these practices’’ (p. 48). Illegal corruption, in the form of bribery and extortion by government officials, is a serious tax on the activities of domestic and foreign enterprises in developing and emerging economies in particular. Bribery is initiated or paid by the business; extortion is initiated by a government official. Widespread fraud reportedly had a significant effect on the Global Fund to Fight AIDS, Tuberculosis and Malaria (Heilprin, 2011). Of $21.7 billion pledged, about $10 billion had been spent since 2002 by the end of 2010. Reports indicate some donated drugs were sold on black markets and as much as two-thirds of some grants misspent. In response, Sweden suspended its annual donation.

GLOBAL PATTERN OF CORRUPTION Svensson (2005) cites eight frequently asked questions about government corruption as follows: (1) definition, (2) high corruption countries, (3) common characteristics of high corruption countries, (4) magnitude of corruption, (5) relationship with government wages, (6) effect of increased competition, (7) lack of progress in combating, and (8) effect on economic growth. This chapter addressed definition earlier. This section addresses variations in corruption by country and region (see Treisman, 2007). The TI 2011 CPI report includes 183 countries and territories (TI, 2011b). This CPI report is an index assembled from various other surveys of


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perceptions. The index varies from 0 (most corrupt) to 10 (most clean). Using France as a lower bound at 7.0, the countries in the north-west quadrant list from 7.1 for the United States to New Zealand at 9.5; the Scandinavian countries together with Singapore list quite highly. Hong Kong lists well above the United States. In this quadrant are also Chile, Qatar, and some Caribbean island-nations, together with Uruguay tied with France at the 7.0 level. Greece (3.4), Italy (3.9), Portugal (6.1), and Spain (6.2) fall well outside the north-west quadrant norms. Using 2.0 as an upper bound, the 12 most corrupt countries reported are in the south-west quadrant of South America (Venezuela and Haiti) and Africa (Burundi, Equatorial Guinea, Sudan, and Somalia), the north-east quadrant (Iraq, Turkmenistan, Uzbekistan, and Afghanistan), and the south-east quadrant (Myanmar and North Korea). Dictatorships tend to be more corrupt than democracies (loosely defined in each category). TI also publishes a bribe payers index (BPI) annually. The 2011 report ranks firms of 28 countries by perceived relative propensity to pay bribes (TI, 2011a). For this report, business executives having some business relationship with other countries were asked to report on frequency of firms headquartered in each country engaging in bribery in the executive’s own country. The 0 score corresponds with the CPI scoring of most corrupt, meaning in this BPI that companies from a particular country always bribe when operating abroad. The 10 score corresponds with the CPI scoring of most clean, meaning in this BPI that companies from a particular country never bribe when operating abroad. The north-west quadrant countries rank relatively high on this BPI – joined in the top half by Spain (8.0 tied with France), South Korea (7.9), and Brazil (7.7). Russia (6.1), China (6.5), and Mexico (7.0) rank at the bottom of these 28 countries. Hong Kong appears near the top of the bottom half, tied with Italy (7.6).1 There are of course serious difficulties attending reporting of data concerning corruption. What TI reports for CPI is a study of several surveys of perception of corruption. TI does explain range of variation in perceptions. These perception data are at the country level, rather than at the firm level. For firm-level data, there may be important problems of nonresponse and potential false response by firms (Jensen, Li, & Rahman, 2010). Those authors argue that corruption is quite likely under-reported in the most repressive countries. They test the argument using World Bank enterprise survey data of more than 44000 firms in 72 countries for the period 2000–2005. Their findings are that in countries with less press freedom, firms are more likely to provide nonresponse and false response. The systematic bias would then operate toward under-reporting. If so,

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reported data should be regarded as the likely floor of the corruption problem rather than as fully accurate, the bias increasing with repressiveness. Mallinger, Rossy, and Singel (2005) used a regression analysis to study the relationship between national culture and perceptions of corruption. The dependent variation was 2001–2003 CPI data reported in 2003 by TI. The TI report drew on 17 surveys from 13 independent institutions; and included 133 countries represented in at least 3 of the 17 surveys. The authors adapted culture data from the GLOBE study (Global Leadership and Organizational Behavior Effectiveness). Their GLOBE sample (House, Hanges, Javidan, Dorfman, & Gupta, 2004) comprised 17370 middle managers in 62 societies and cultures and 951 organizations in three industries (food processing, financial services, and telecommunications services). Culture was measured in nine dimensions (uncertainty avoidance, power distance, institutional collectivism, in-group collectivism, gender egalitarianism, assertiveness, future orientation, performance orientation, and humane orientation). Each country’s respondents were divided into two subsamples: half the subjects were instructed to consider their organization in assessing each scale (what is practiced); half the subjects were instructed to consider their society in assessing each scale (what is valued). Mallinger, Rossy, and Singel (2004) ran a second-order linear regression with 95% confidence level on each of the nine dimensions and subcategories. The only significance difference the authors identified concerned uncertainty avoidance: the greater this culture item, the less likely corrupt practices occurred. (The relationship was significant for valued, practiced, and the difference between valued and practiced.) The uncertainty-avoiding countries tended, in the GLOBE study, to have market-supporting governments and less bribery and corruption. Another study (Damania, Fredricksson, & Mani, 2004) concludes that in conditions of political instability there is business resistance to legal reforms to improve rule of law (i.e., judicial efficiency) and reduce corruption. Because institutions to monitor and enforce legal compliance are weak, corruption is more pervasive and regulatory compliance is low. Firms in effect have incentives to bribe local inspectors and lobby politicians to resist legal reforms. The authors report empirical results supporting this analysis. Among the four BRIC countries, Russia is most corrupt (2.4), while India (3.1) is more corrupt than China (3.6) or Brazil (3.8). India is the world’s largest democracy in terms of population. There is resistance to open markets and foreign direct investment (FDI). On the 2011 CPI, India ranked


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about 91 of 183 countries (i.e., it ranked between 91 and 95, tied with four other countries for 91), at the 3.1 level. China, a Communist Party government, ranks 75 (tied with Romania), at 3.6, on the 2011 CPI. Corruption is reportedly widespread at provincial and local levels (Luo, 2011). The economy is being marketized, with stock exchanges operating, but even privately owned firms are frequently either controlled or influenced by the government behind the scenes. Russia is reportedly more corrupt than China. Russia ranks 143 (tied with seven other countries, including Nigeria and Belarus), at 2.4, on the 2011 CPI. There are organized criminal gangs and likely significant police corruption. While constitutionally a competitive democracy, Russia is dominated by the United Russia Party lead by Putin and Medvedev, who has rotated the presidency. An emphasis on Russian policy is reassertion of control over privatized natural resources such as oil and gas. The regime has waged arguably a campaign of criminal indictments against former business oligarchs. Svensson (2003) uses a unique data set on bribe payments by Ugandan firms combined with detailed firm-level financial information. The set of firms faces similar national institutions and policies, varying by industry. Not all firms report needing to pay bribes. There is considerable variation in reported graft. The author argues that differences in ability to pay bribes and bargaining strength to refuse extortion explain variations in payment patterns. Government officials act as price discriminators, and partly set prices of public services to extract bribes. That is, the greater the ability to pay and the weaker the ability to refuse of a given firm in a given industry, the greater the extortion effort; the weaker the ability to pay and the stronger the ability to refuse of a given firm in a given industry, the lesser the extortion effort. Corruption is of course typically secret conduct. Jancsics and Ja´vor (2012) conducted 45 interviews in Hungary with different organizational actors who were actually participants in corrupt transactions or had first-hand experiences of corruption. They find intentional design and coordination of multilevel structured corruption networks within and among organizations involving a large number of individuals. The design and coordination is by corrupt elite cliques (Nielsen, 2000, 2003). The authors explain the major network elements and their functions in corrupt transactions. The article proposes a typology of corrupt networks based on such structural characteristics as location of ‘‘cash cows’’ and points from which the system of corruption is fed and individuals’ positions of relative power.

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RECENT INSTANCES OF CORPORATE BRIBERY Enforcement of the FCPA 1977 has ramped up in recent years. During 2005–2011, the US government settled 57 company cases without trial obtaining $4.1 billion (Pettersson, 2012). In December 2011, another US district court threw out the jury conviction of Lindsey Manufacturing and two Lindsey executives on grounds of prosecutorial misconduct (Frankel, 2012). Charges against individuals had a mixed record. Of 93 individuals charged, 41 pleaded guilty and 6 were convicted at trial. Four are fugitives, one was exonerated, and three had cases dismissed. The remaining 38 are awaiting trial. The 31 sentences as of January 2012 averaged 26 months in prison. US DOJ enforcement actions were increased in 2009, when 43 individual charges were brought. A sting operation against more than 20 defendants who were accused of agreeing to bribe Gabon officials concerning military contract awards resulted in a mixed outcome. A US district court granted the Department’s motion to dismiss charges against all defendants who had not pleaded guilty; the initial two trials had not produced convictions. In the United States, a 2010 prosecution of Panalpina (a Swiss freight forwarding firm) found that the company had operated as a corruption agent for a number of energy companies such as Shell, Transocean, GlobalSantaFe (merged with Transocean), Tidewater Marine, Pride, and Noble Corp. (of Switzerland). Panalpina paid a $236 million fine (Voreacos & Calkins, 2010). Kaufmann and Vicente (2011) argue that the conventional definition of corruption is itself misleading. They distinguish between legal corruption and illegal corruption as channels for private sector influence with government. The difference is a function of cross-country variation in legal framework. The authors further differentiate among three conditions: (1) illegal corruption in which the political elite does not face binding incentives to attempt to limit corruption, (2) legal corruption in which the political elite incurs some cost to protect corruption through the legal framework, and (3) no corruption in which the general population can effectively react against corruption (thus influencing the conduct of the political elite). Kaufmann and Vicente make use of a corporate survey of 8279 firms in 104 countries and new measures of legal corruption. They report that their empirical results generally support the proposed framework. The authors point out that country-wide indices of perceived corruption, such as reported, for instance, by TI, are subject to problems of endogeneity, whereas the corporate survey on which they draw permits micro-level analysis.


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Direct and indirect lobbying forms and bribery may function as complements and/or substitutes for the exercise of political influence by businesses (Campos & Giovannoni, 2007). As Harstad and Svensson (2011) point out, a firm can comply with a regulation (or public policy), bribe around the regulation (or public policy), or lobby government to relax the regulation (or change public policy). Additionally, a firm might engage in strategic philanthropy aimed ultimately at political influence. Presumably, a firm might mix these options in some way or order as a form of theoretically integrated market and nonmarket strategy. Harstad and Svensson (2011) posit that when level of a country’s development is low, firms are more likely to practice (i.e., switch to) bribery; when level of a country’s development is high, firms are more likely to practice (i.e., switch to) lobbying. The authors argue that when bribery discourages firms from investing in lobbying, the specific country may be stuck in a poverty trap with bribery forever. As a result, bribery is more common in poor countries, and lobbying is more common in rich countries. A body of evidence suggests that politically connected firms in developing and emerging economies exercise profit-gaining influence (Chen, Ding, & Kim, 2010; Goldman, Rocholl, & So, 2009). One instance concerning effective expropriation of a US investor by a local minority partner and the subsequent international pressure on the Czech government to repay the US investor illustrates the role of political connections; the US investor was a former US ambassador (Desai & Moel, 2008). Bennedsen, Feldmann, and Lassen (2011) used survey responses by firms to examine firm-level determinants and effects of political influence, perception of corruption, and prevalence of bribe paying. The data came from the World Bank’s World Business Environment Survey (WBES). The survey was conducted in 80 countries with at least 100 firms in each country during 1998–2000. Since not all questions were asked in all countries, the response set for the Bennedsen study involved a smaller set of countries. The regression analyses operated mostly on 4000–5000 observations from 57 countries. The study finds measures of political influence and corruption (i.e., bribes) to be uncorrelated at the firm level. The finding suggests that influence and bribery tend to occur in different firms rather than as to operate as complementary approaches in the same firms. The findings are that firms with certain characteristics (such as larger, older, exporting, government-owned, widely held, and in less competitive industries) have more political influence and perceive corruption as less of a problem and pay bribes less often. More influential firms tend to bend laws and regulations, while less influential firms tend to pay bribes to reduce costs of government intervention.

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Two unusual forms of corruption concern judicial institutions and terrorists. Chevron has refused to pay an $18 billion judgment by a court in Ecuador on the grounds that the judicial process was corrupt and illegitimate. Texaco, acquired by Chevron in 2001, had operated in northeastern Ecuador until 1992 under an agreement with the then government to clean up part of the area (in the Amazon basin). Farmers and Indian tribes had filed suit in US district court; Chevron asked for the case to be moved to Ecuador, and then a leftist government assumed power. Chevron has filed a racketeering suit in New York against the Ecuadorean lawyers and asked an international arbitration tribunal in the Netherlands to intervene; the tribunal ordered Ecuador to block enforcement of the judgment. The Ecuadorean plaintiffs filed suit in May 2012 in Ontario, Canada, to seize Chevron assets for satisfaction of the judgment. Chiquita Brands International reported to DOJ that during 1997–2004 its Colombian banana subsidiaries had paid protection money to terrorist groups. Following a DOJ investigation, Chiquita made a plea agreement involving in a fine of US $25 million and other penalties. Chiquita ultimately sold its Colombian operations (Teagarden & Schotter, 2010). The United States investigates both US and non-US firms, where the latter are subject to the law through, for instance, some form of participation in US stock exchanges. The biggest recent case against a non-US firm was the US and German investigations of Siemens (Baron, 2008; Schubert & Miller, 2008). Siemens allegedly engaged in a business strategy of bribery around the world. Until February 1999, bribes were deductible expenses under the German tax code, as in about 14 EU countries in total. This deductibility vanished with the OECD and EU anticorruption accords. A new management cooperated with the authorities, and reportedly agreed to pay about $1.6 billion in fines and fees to Germany and the United States and in excess of $1 billion for internal investigations and reforms. A German executive, sentenced to two years’ probation and a $150,000 fine after cooperating with authorities, reportedly supervised an annual bribery budget (or slush fund) of some $40–50 million annually during 2002–2006 in the telecommunications unit. About $10–15 million was budgeted annually for Greece. Bribes were paid typically through consultants in various countries including Argentina, Bangladesh, China, Iraq, Israel, Nigeria, Russia, and Venezuela. There were also apparently payments in Norway. Siemens maintained a system of more than 2700 business consultant agreements. The spokesman for the association of federal criminal investigators in Germany was quoted as stating: ‘‘Bribery was Siemens’s business model. Siemens had institutionalized corruption.’’ Of some $1.4 billion in corrupt payments during 2001– 2007, more than $800 million occurred in the telecommunications unit. False


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records were created to conceal this pattern of corruption. In 2007, a newly appointed CEO began a program of training and education concerning anticorruption practices, announced a month-long amnesty program excluding former directors (from whom damages were sought), and received information from some 40 whistleblowers. TI cofounder Michael Hershman was appointed as an advisor. The most significant foreign prosecution concerns the Lesotho Highlands Water Project (LHWP), a combined water supply and hydropower project of the governments of Lesotho and South Africa. The High Court of Lesotho concluded that the CEO of the Lesotho Highlands Development Agency (LHDA) had accepted at least $2 million in bribes from agents for 12 MNEs over a decade. The individual in 2002 received 18 years in prison on 13 counts. Prosecutions and investigations, with some convictions, were brought against MNEs from Canada, France, Germany, Italy, South Africa, Switzerland and Sweden, and the United Kingdom (IPOC, 2012). In April 2012, The New York Times (Barstow, 2012) alleged that Walmart had failed to report to law enforcement officials alleged bribery by senior executives of the subsidiary Walmart de Me´xico y Centroame´rica in connection with its acquisition of retail sites in Mexico and closed an internal investigation. Reportedly Walmart received detailed information about the bribery in 2005 from a former executive of the subsidiary. That executive had been the lawyer responsible for obtaining construction permits in Mexico for which bribes had been paid. One in five Walmart stores is located in Mexico, with 209,000 employees; Walmart is the largest private employer in the country. Walmart has opened more than 2100 stores and restaurants in Mexico beginning in 1991. Mexico ranks 100 (tied with 11 other countries), at 3.0, on the 2011 CPI; other countries at 3.0 include Argentina, Gabon, and Indonesia. Walmart reported to the DOJ in December 2011 that it had begun an internal investigation by external attorneys and accountants, after learning of the newspaper’s investigation. The DOJ opened a criminal investigation of the allegations. The news report alleged suspect payments of more than $24 million uncovered by the first investigation in Mexico City. The then CEO reportedly rebuked internal investigators for overly aggressive effort. The investigation was then handed to the subsidiary’s general counsel alleged to have authorized bribes. Walmart participated in a lobbying campaign by the US Chamber of Commerce to amend the FCPA more favorably to business. Walmart’s corporate secretary and top ethics officer (until 2010) was on the board of the Institute of Legal Reform, the unit of the Chamber conducting the lobbying effort; and reportedly received about the bribery in 2005. The vicechairman of Walmart from 2008, scheduled to retire in summer 2012,

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reportedly played a key role in the alleged bribery. Several executives, including the chairman (son of founder Sam Walton) and the CEO, are the target of several derivative lawsuits by shareholders. Stock price fell some 7.5%, equivalent to $17 billion in value (Foroohar, 2012). California State Teachers’ Retirement System, a large public pension fund, filed suit against various Walmart executives and board members. The news report also alleged that Walmart had received 31 similar reports of corporate violations in various countries during 2006 (Foroohar, 2012). Issues concerning apparently another $16 million in ‘‘contributions’’ and ‘‘donations’’ to local governments were not further reviewed, according to one report. One Mexican fund manager for a large US financial institution stated anonymously that most retailers pay bribes in Mexico (Foroohar, 2012). Mexico (7.5), Indonesia (7.5), China (6.7), and Russia (6.6) are the four worst of the 28 countries in the TI 2011 BPI (TI, 2011a). On this index, 0 means a country’s enterprises always bribe; while 10 means a country’s enterprises never bribe. The Mexican government reportedly first decided it would not investigate and then two days later announced it would review permits and seek information from US authorities. In June 2012, following revelations concerning alleged bribery in Mexico, about 13% of votes opposed reelection of the CEO, the board chairman (the son of founder Sam Walton), and the chairman of the audit committee; and over 15% of votes opposed reelection of the former CEO. Excluding family and insider shares, about 31–32% of votes were negative and 38% of votes concerning the former CEO – according to one analysis. The previous year, the Walmart board received an average 98.4% shareholder vote for reelection (AP, 2012). Another major US case concerned KBR Inc. (formerly Kellogg Brown & Root) in Nigeria. The firm apparently paid $180 million in bribes to Nigeria officials during 1994–2004 to obtain $6 billion in natural gas construction contracts (including for business partners) for the Bonny Island liquefied natural gas facility. In February 2012, Albert Stanley, the former CEO, received a sentence of 30 months in prison; pleading guilty in September 2008, he had agreed to restitution of $10.8 million. He had cooperated with federal prosecutors, resulting in eight felony guilty pleas, four deferredprosecution agreements, and fines of $1.7 billion (Calkins, 2012). Two former consultants for KBR also pleaded guilty of facilitating the scheme. A UK lawyer, holding dual UK and Israeli citizenship, was sentenced to 21 months prison, two years’ supervised release, a fine of $25,000, and forfeiture of $149 million. Another consultant, a UK citizen, received one year of unsupervised probation and a fine of $20,000. Both these individuals had been extradited from the United Kingdom for trial. KBR was spun off


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in April 2007 from Halliburton Co. KBR agreed in February 2009 to pay $579 million to resolve charges and claims by the SEC. Commercial corruption comes in two broad categories. One broad category involves collusive bribery without extortion in various forms between employees of different companies. In January 2012, four men received serious prison sentences for commercial corruption convictions under the Bribery Act 2010 (United Kingdom) (Roberts & Grieve, 2012). Commercial bribery is likely severely under-reported relative to available information concerning governmental bribery (Chaikin, 2008). The kickback, a typical instance, is negotiated bribery in which a commission is paid to the bribe-taker for services rendered. The kickback involves collusion between two parties cooperating in an illegal scheme. One party helps another party receive business in some form; the recipient ‘‘kicks back’’ a commission or favor to the first party. A typical approach is submission of a fraudulent or inflated invoice by a vendor with an employee of the purchasing company involved in securing payment. Kickbacks occur in both commercial and government corruption. Kickbacks are a significant problem in US Medicare payments, regulated by the Anti-Kickback Act 1987 (United States). Higher level managers may or may not be receiving a cut. The other broad category involves price fixing cartels among companies, typically orchestrated by higher level managers. Two key instances have been prosecuted in recent years. One instance concerned discovery in 1999 of some 16 cartels fixing prices of vitamins. While in North America monetary antitrust penalties exceeded the monopoly profits of the vitamins cartel, because of huge private settlements, EU penalties were only a small percentage of European overcharges, and penalties elsewhere were negligible (Connor, 2008). Foreign plaintiffs injured abroad were not permitted to bring suit in US courts (Klevorick, 2007). Another instance involved price fixing by various airlines. The EU fined 11 airlines about $1.1 billion for ‘‘fixing’’ air cargo fuel and security surcharges. The United States fined 18 airlines about $1.6 billion. Airlines included Air France, KLM (the Netherlands), British Airways; Qantas (Australia), LAN Cargo (Chile), Aerolinhas Brasileiras (Brazil), El Al Israel Airlines, Korean Air Lines, and Japan Airlines.

MONEY LAUNDERING Money laundering is concealing the source of ‘‘dirty money’’ obtained by illegal means and ‘‘washing’’ the money through other organizations or individuals so as to make the funds appear to be ‘‘clean money’’ obtained by

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legal means (Beare, 2003). Crime, terrorism, or corruption and money laundering often occur together, with money laundering concealing illegal activities and also bribes facilitating conduct of money laundering (Chaikin, 2008). Drug trafficking, arms smuggling, and financial crimes typically link with laundering activities (UNODC, 2012). At the 1989 Paris summit, the Group of Seven (G7) countries, with the President of the European Commission, established the Financial Action Task Force (on Money Laundering) (FATF), or in French Groupe d’action financie`re (GAFI). The FATF/GAFI, headquartered at the OECD in Paris, develops policy recommendations for combating money laundering and terrorism financing (FATF, 2012). Financial institutions have an obvious and special responsibility to combat money laundering (Maggetti, 2012). Large volumes of ‘‘dirty money’’ must eventually be washed through financial institutions, especially commercial and investment banks. The Bank Secrecy Act (United States), sections 5311 through 5332 of Title 31 of the United States Code (USC), is a set of laws beginning in 1970 that require financial institutions broadly defined (e.g., banks, credit card companies, insurance firms, money services, and securities brokerdealers) to report certain transactions to the US Treasury. Cash transactions in excess of US $10,000 must be reported identifying individuals and sources. The Money Laundering Control Act 1986 (United States), section 1956 of Title 18 of the USC, criminalizes money laundering and prohibits individuals from engaging in any financial transaction with proceeds of specific crimes with the intention of concealing source, ownership, or control of the funds. No minimum amount or actual success of concealment is required for violation. Financial transaction is broadly defined in a way that does not have to involve a financial institution or other business. Passing money between individuals is a financial transaction. Possession of money without a financial transaction or intent to conceal is not a crime under the act. However, section 1957 prohibits any spending in excess of US $10,000 derived from prohibited proceeds regardless of intent to disguise. This spending must go through a financial institution; and carries a lesser penalty than money laundering. The Wolfsberg Group is a multistakeholder agreement establishing corporate responsibility principles against money laundering (see Table 1 description). As of 2012, 11 top private (i.e., nongovernmental) banking institutions had joined this initiative. Maggetti (2012) concluded that public ownership and a code of conduct were necessary conditions for


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participation of the institutions. Factors concerning type of financial institution and existence of a black list (e.g., the FATF/GAFI list of ‘‘NonCooperative Countries or Territories’’) were sufficient conditions for participation. In summer 2012, published reports indicated that Europe’s largest bank, London-based HSBC Holdings PLC (a founding member of the Wolfsberg Group) had been exposed to money laundering and terrorist financing by lax controls. Information suggested that Mexican drug cartels had laundered billions of dollars through HSBC’s US operations during 20002–2009, that the US division had also provided money and banking services to some banks in Saudi Arabia and Bangladesh that might have helped fund terrorist groups, and that HSBC affiliates had skirted US bans on transactions with Iran and certain other countries. The subsequent investigations began looking at other banks as well. Mexico’s National Securities and Banking Commission, fined the HSBC affiliate in that country $28 million for failing to prevent money laundering. In the mid2000s, that affiliate was reportedly handling about half of dollar cash transfers from Mexico to the United States, although one of the largest banks. HSBC operates in some 80 countries and in 2011 had a net income of nearly $17 billion. There was a DOJ criminal inquiry and a US Senate investigation; additionally there was a DOJ inquiry concerning whether HSBC aided tax evasion by US clients. The head of compliance at HSBC resigned that position. The compliance chief stated that he lacked full authority, as each affiliate had its own compliance officer. In 2010, the US Office of the Comptroller of the Currency (OCC) issued a cease-and-desist order concerning HSBC reporting deficiencies. In 2010, there was a DOJ settlement for $160 million with Wachovia Bank, subsequently acquired by Wells Fargo & Co., regarding casas de cambio transactions investigated by the US Drug Enforcement Agency (DEA). The chairman of the investigating US Senate committee stated that the OCC had overruled agency examiners who raised concerns about weak antilaundering controls at HSBC.

CONCLUSION AND SUMMARY Beginning with a broad global picture of corruption, this chapter considered first the principles justifying the anticorruption CSR of international businesses and then effective strategies for reducing corruption. The chapter also addressed commercial corruption in the forms of collusive bribery

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between companies and price fixing cartels, and money laundering. The latter is often tied to criminal gangs and terrorism funding. The strong consensus theoretically and politically is against corruption and certainly against extortion in commercial or governmental settings. An anticorruption principle is not a voluntary choice of business. On the contrary, bribery of public officials is almost universally illegal; and commercial bribery undermines competitive markets. Stemming from the FCPA 1977, a formal international anticorruption consensus now exists in UN and various regional conventions, implementing legislation in various countries such as the Bribery Act 2010 (United Kingdom), Council of Europe and European Commission efforts, TI affiliates in various countries, Principle Ten of the UNGC, and policies of international institutions such as the World Bank and IMF. The UNGC recommends three basic approaches to its participants concerning effective implementation of the anticorruption Principle Ten. The first approach is internal: businesses should adopt anticorruption policies and programs. The second approach is external: businesses report anticorruption experiences and best practices in the annual Communication on Progress (COP) to help share information with other UNGC participants. The third approach is collective action with industry peers and stakeholders. MNEs arguably have greater capacity to resist extortion and not pay bribes because they are global portfolios of sales and production. This legal and moral duty is even stronger in developing where corruption and incapacity are serious problems. The needed corporate global policy is not to pay bribes, large or small, in any form for any reason. The practical problem is how to implement such ‘‘zero tolerance’’ for all forms of bribery, extortion, facilitation, and hospitality and to control the actions of agents. Financial institutions have a special responsibility to combat money laundering and terrorism financing. There are positive examples. Bill Lytton joined Tyco International in 2002 following the Dennis Kozlowski scandal: ‘‘He recalled that when he worked previously for General Electric y Jack Welch, publicly praised a manager who had failed to reach his sales targets because he refused to pay a bribe to win a contract to build engines for a foreign airline’’ (Parsons, 2009). GE bans such payments according to a report attributed to Brackett Denniston, Senior Vice President and General Counsel, at the March 2012 Global Ethics Summit (Fox, 2012).2 Rockwell Automation in 2007 reportedly instructed its 19000 employees operating in 80 countries not to make such payments (Searcey, 2009; see Rockwell Automation, 2012). Wrage and Vega (2007) argue that halting facilitating


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payments is relatively simple; Mr. Vega was then an in-house counsel at Federal Express Corporation. Facilitating payments to minor public officials and corporate hospitality expenditures to entertain customers and vendors are not strictly the same as bribery. The case against facilitating and hospitality spending is instrumental: such spending tends to contribute to continuing cultures of corruption in many countries and industries. Critics should remember that even low-level graft may be funding corruption cartels operated by higher officials, who may receive a cut of each payment in what amount to pyramid schemes for extortion (Nielsen, 2000, 2003; Wage, 2009). Since December 2009, the OECD has recommended against such minor facilitating payments. The 2011 annual report of Siemens outlines how that firm has been implementing integrity (Siemens, 2011, p. 60). The integrity stand, ‘‘a nonnegotiable component of our corporate culture’’ includes ‘‘Creating fair markets, complying with legal regulations and fighting corruption worldwide ...’’ Siemens reports entering integrity pacts with partners and competitors in which customers and suppliers make ‘‘a project-specific commitment to maintain transparency in the bidding process and abstain from bribery when competing for public-sector contracts.’’ In India, there have been some 40 integrity pacts with public-sector organizations since 2009; these pacts are included in bidding documents and required for future contract awards in India. Siemens is now working with other organizations (the American Chamber of Commerce in the Czech Republic and the German Chamber of Commerce and International Business Leaders Forum in Russia as part of the Corporate Ethics Initiative joined by more than 90 enterprises). The Siemens Integrity Initiative, with a budget of US $100 million, finances nongovernmental organizations (NGOs) to promote ethical business practices and battle corruption. Siemens has also helped support the UNODC cosponsored the International Anti-Corruption Academy (IACA) in Vienna, Austria, which undertakes anticorruption research, education, and training, established in 2008 (IACA, 2012). Walmart has reportedly strengthened anticorruption practices in India, where it operates through a 50-50 wholesale retailing joint venture Bharti Walmart with Bharti Enterprises of New Delhi. Walmart has engaged KPMG to conduct due diligence on existing and potential future vendors. Walmart initiated in March 2011 a worldwide review of anticorruption efforts. The reported plan is for KPMG to classify vendors into three categories of red, amber, and green. Walmart will do business with ‘‘green’’ vendors, end business with ‘‘red’’ vendors, and leave judgments concerning ‘‘amber’’ vendors to Bharti Walmart (Bailay, 2012).

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NOTES 1. Top half (14 countries) comprised the Netherlands 8.8, Switzerland 8.8, Belgium 8.7, Germany 8.6, Japan 8.6, Australia 8.5, Canada 8.5, Singapore 8.3, US 8.3, U.S. 8.1, France 8.0, Spain 8.0, South Korea 7.9, Brazil 7.7 level. Bottom half (14 countries) comprised Hong Kong, Italy, Malaysia, South Africa at 7.6, Taiwan, India, Turkey at 7.5, Saudi Arabia 7.4, Argentina, UAR at 7.3, Indonesia 7.1, Mexico 7.0, China 6.5, Russia 6.1 level. 2. The General Electric Code of Conduct states: ‘‘Never give a gratuity or other payment to government officials or employees to expedite a routine administrative action without fully disclosing it to the GE National Executive or GE legal counsel. Some national laws that prohibit bribery outside that nation include an exception for ‘facilitating payments’ to expedite a routine administrative action to which a person is otherwise entitled. These payments are often illegal under local antibribery laws, and GE strongly discourages them. ...’’ Retrieved from http://www. sec.gov/Archives/edgar/data/1262449/000119312508061906/dex142.htm. Accessed on September 22, 2012.

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INSTITUTIONAL AND MARKET FORCES: THE DOMINANT LOGIC OF STRATEGIC CORPORATE RESPONSIBILITY AND INNOVATIVE VALUE CO-CREATION Frederick Ahen and Peter Zettinig ABSTRACT Purpose – This chapter seeks to theoretically demonstrate that authentic corporate strategy is entrenched in an ethical responsibility, and ethical responsibility requires a strategic framework to qualify as a sustainable value co-creation process that determines the long-term success of the firm. Design/methodology/approach – Through economic philosophical analysis and content analysis, we critically reviewed literature which argues for the integration of corporate responsibility (CR) and corporate strategy both in theory and practice by putting the concept into a proper context of institutional and time-based dynamics.


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Findings – The chapter delineates the salient dimensions of the dominant logic (D-L) of strategic corporate responsibility (SCR). The traditional notion of CSR is explained, compared and contrasted with the transitioning process of strategic CSR and the D-L of SCR which is at the civic level. We also identified four global forces that serve as enablers of strategic CR logic. Practical implications – The D-L of SCR explains how a firm defines and redefines itself and not what a firm does. We underscore what firms are in the ‘process of becoming’ through a co-evolutionary process with markets and institutions. Firms which want to go beyond mere survival in the 21st century must see the D-L of SCR not as a choice but as an imperative constrained by these global forces. Originality/value of chapter – The novelty of this chapter is that it challenges traditional CSR and provides a shift in thinking about the concept of CR where sustainability and innovative strategies become the source of institutional and market legitimacy and hence a competitive advantage. Keywords: Corporate strategy; corporate responsibility; global sustainability; institutional legitimacy; sustained competitive advantage

INTRODUCTION The purpose of the present chapter is to theoretically demonstrate that authentic corporate strategy (CS) is by nature ethically responsible, and ethical responsibility requires a strategic framework to qualify as a sustainable value creation process. Thus, true CS is not values-free (Donaldson, 2012a, 2012b; Frederick, 1995). Nevertheless, such an analysis is valid only when the institutional context and historical point or temporal dimensions are taken into consideration (Rivoli & Waddock, 2011). Employing economic philosophical analysis, we achieve this through the deconstruction (by questioning traditional assumptions about CR truths) and critique of 22 theoretically sampled articles. These articles propose the integration of the concepts of strategy and corporate responsibility (CR) towards sustainability. We analyse these postulations in the light of the premise that market and non-market forces shape, enable and constrain

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CR and CS (Laszlo & Zhexembayeva, 2011; Orlitzky, Siegel, & Waldman, 2011; Porter & Kramer, 2006). The emphasis is not on the social per se but on the sustained social benefits of responsible strategy making. In the past three decades, scholars of ethical responsibility and CS in the instrumental sense have traditionally walked parallel paths as if to suggest that the two disciplines had nothing in common to share or at least that they are only tangentially related. At best, a fragment of ethical content was added to some curricula but that was still not mostly seen as a major issue until the normal order of things was punctuated by an economic crisis. Such an impasse has started fading dramatically and is giving way to the generally acceptable notion of sustainability. This was the case in the 1970s with Friedman (1970) and Drucker (1974) until Freeman (1984) reawakened the consciousness of both academics and practitioners albeit having some operational ambiguities as to who stakeholders were. Prior to this period, pioneers such as Bowen (1953), Frederick (1960), Davis (1960) and Rhenman (1964) had an uphill battle defending their position about what the responsibility of the firm was. In that epoch, however, what they meant (at least, in part) by corporate social responsibility (CSR) was what the firm ought to give back to society and not how the firm could proactively and cooperatively create value with and for the society in which it is embedded. They did not manage to explain how giving back would help to create a competitive advantage and determine the success of the firm in the long term through innovations that earn premium. This is what we mean by the temporal dimension of CR when the concept takes a different meaning in each historical context under different varieties of capitalism. It can therefore not be naı¨ vely assumed away that the responsibility of the firm in society takes the same meaning in each institutional and historical context even though the profit-making motive is easily pointed out. It follows that what is deemed ethically responsible has mostly been defined by the era, prevailing global forces and the institutional matrix within which firms’ operations take place. It is now the era of global sustainability. The question then is do we embark on integration or continual fragmentation of concepts when analysing CS and CR? From the above description, there is ample theoretical and empirical evidence to substantiate the fact that the extant literature on the subject of the firm’s responsibility is at best fragmented, but the magnitude of emerging global forces warrants their integration in answering a simple question: what is the responsibility of the firm? This chapter therefore contributes to the debate on CR (in a broader sense; not CSR per se) towards sustainability with a focus on institutional theory as the main theoretical lens. It is emphasized here that

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there is a finely nuanced difference between CSR and strategic corporate responsibility (SCR). The former is a subset of the latter. We begin our analysis with a call for pluralism and pragmatism, a warning to avoid ideological polarization and dogmatism, and a recommendation to pursue interdisciplinary scholarship on the intertwined issues of CR and strategy in the era of systemic global crisis. In this way, we shall be adding substance and relevance (without sacrificing rigour) to our scientific endeavours. Some scholars’ ideological stances and unwillingness to change their weary premises to suit the contemporary market and institutional forces shaping the world’s economies and societies need to be questioned. We refer to the typical ‘holier than thou’ attribute that is neither a necessary nor a useful condition for the advancement of scientific knowledge. There are exceptions, however, for example, Devinney (2009), Donaldson (2012a, 2012b), Frederick (1998), Freeman, (1984), Galbreath (2008), Lee (2008), Orlitzky et al. (2011), Peng and Pleggenkuhle-Miles (2009), Porter (1985), Prahalad and Hamel (1990) and Sen (2010). In fact, at present much of the discourse in strategic management is dedicated to understanding how corporate actions can improve economic performance while earning institutional legitimacy (Suchman, 1995). At the same time non-economic motives and socially co-operative behaviour towards sustainability are increasingly becoming part of the strategic management research agenda. We argue that CR and CS are either constrained or enabled by the same dominant factors, that is, formal and informal institutions and the threat of the future of the planet. Implied here is that the study of these concepts, whether in ethical philosophy, law, economics, sociology or management science, is the study of social institutions (DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Williamson, 2000). On a higher level of abstraction, this supposition about the central role of institutions can be meant to be informed by various disciplines (theoretical lenses) which in essence are inputs towards the same outcome. The locus of ethical responsibility and strategy is found in the managers’ cognition and emotions, economic aspirations and actions which are institutionalized by routinization into the organizational culture. The focus is on the socio-economic impact of the firm’s interface with society and its environment. To be sure, there is an intricate link between CR and CS that needs to be unpacked to serve as an interdisciplinary dialogue which not only advances theory but also offers novel empirical and practical insights. Such new perspectives should not force practitioners and scholars into an ‘either-or’ position (Donaldson, 2012a). This much is long deferred but performing the task of integrating CS and CR is emphatically not a problem


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or a cost. Rather, it is merely another way of dealing with the unnecessary ideological bias that separates the two concepts. We are not suggesting that the operational traditions of these research streams and their practical application should follow the same set of standards and procedures. To ethical philosophers belongs the normative emphasis and to the strategic management science the portion of strategy, instrumentation and risk management towards value creation. While the focal point of the normative is on strategy implementation that is ethically appropriate or congruent with the norms of the context (Donaldson & Preston, 1995), the strategy on the other hand aims at the firm’s survival in the long term by reaching the basic objectives (meeting consumer needs, beating competitors in order to make profits) via successful operations with the core competence which creates a sustainable competitive advantage (Porter, 1985). In the post-millennium era, global institutions and questions of sustainability serve as the point of convergence in what we now refer to as the dominant logic (D-L) of SCR. Here, socio-political, economic and environmental issues are integrated into every facet of the strategic processes rather than being compartmentalized. For researchers, the methodological approaches in cultures of strategy and ethics may appear different yet the moral myth (Entine, 2003) of their difference can be made obvious. Half-baked theories, myopic ideas and uni-dimensional suppositions undermine managerial integrity and good practices leading to a crisis irrespective of the strength of the prevailing institutions. Thus, when the process of strategizing is divorced from ethical principles, it probably means that such strategies have been fed by a non-deliberative choice, one of a misleading theoretical kind or what Ferraro, Pfeffer, and Sutton (2005) call self-fulfilling prophecies. Ethical concepts are mostly espoused as philanthropic and emotional (do good rhetoric) but beyond that scope, they can become operational only via their full integration into strategy. Strategy is an agenda, interrelated set of complex plans for the reconfiguration and allocation of resources towards a purposeful creation of a competitive advantage (Drucker, 1974; Hayek, 1945; Porter, 1985) which serves stakeholders (Freeman, 1984) and creates value for shareholders (Friedman, 1970) while reaching its long-term goals of profitability (Porter, 1990). Nevertheless, this is achieved by offering optimal value propositions to consumers who are the ultimate value creators as well as to the society that sustains the firm. SCR is operationalized here as the process whereby the firm is seen as part of society and its institutions; hence, all the firm’s day-to-day actions are fully integrated into its strategy and not treated

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as ad-hoc programs. On the basis of these analyses, we offer policy recommendations and highlight the practically useful nature of the D-L of SCR for managerial application.

METHODOLOGICAL APPROACH: ECONOMIC PHILOSOPHICAL ANALYSIS This economic philosophical analysis employs the content analysis (a detailed and systematic examination of the contents of a particular body of material; Leedy & Ormrod, 2005) for the purpose of identifying the definition of concepts of CR and CS where suggestions are made for their integration both in theory and practice. Following Hassard and Parker’s (1993) post-modernism and post-structuralism view, Carter and Jackson (2007) present a distinct philosophical style that problematizes traditional assumptions undergirding what constitutes the responsibility of the firm. The post-millennial forces actually follow a pattern of analysis in terms of epoch, a historical era or the temporal dimension of the substantive domain of strategy and what responsibility means at different points in time. Thus, relationships between concepts (such as CR), organizations and identities are not fixed. They are ‘differed and becoming’. This way of philosophizing also takes an epistemological stance in terms of novel critical view of knowledge on CSR and (social) scientific truth: objectivity and subjectivity claims Kuhn (1996), without rendering them unscientific but out-of-date for contemporary use. By way of deconstruction, which is the decomposition of established paradigms or the existing knowledge claims about the responsibility of the firm towards society, we resuscitate the silenced opposition of the CSR concept in ways that weaken its implicit hierarchy (Kilduff, 1993). The silent opposition is the corporate irresponsibility that pervades practices because theories and their assumptions no longer fit the realities of the post-millennial era. It is against this backdrop that this approach aims at making a nuanced interpretation of what authors mean by traditional CSR or strategic CSR (SCSR) in the context of post-millennium global forces. Our preference for in-depth understanding of contextspecific knowledge and local circumstances rather than a quest for generalizability are motivated by the need to broaden the base of this research domain. Subsequently, our analyses are delineated as follows. We first conducted a search through various journals with the help of search engines such as


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Google Scholar and Scopus on the topic of CR. In Google Scholar, we used specific keywords such as ‘corporate strategy’, ‘corporate responsibility’ and ‘strategic CSR’. Articles which tend to suggest the unification of CR and strategy were selected. Initially we obtained 208 articles which then led us to other articles based on the references. By applying purposive sampling via the criteria that are detailed below we (selected) only 22 of these, including book chapters from Louche, Idowu, and Filho (2010). The selected articles were then reviewed on the basis of their contents and conclusions in terms of findings, contributions and the main argument or motivation for conjoining the two concepts. Second, we analysed and made sense of the lines of arguments which serve as the embodiment of the authors’ main assumptions in the light of market and institutional forces. The wider socio-political, legal, environmental and health issues and the potential effects of all the above on sustainability and competitive advantage for the firm were also considered. The objective here was to put the discussion into focus as to how the micro level (governance structures and managerial decision making) is integrated into the macro level of analysis. There must certainly be new ways of looking at old issues such as CR since the subject cannot be sealed within the borders of over-simplification. Such an approach pleases the conventional wisdom which attempts to ignore the stark differences within various institutional contexts. This is an equally rigorous attempt to enrich existing debate and to redirect efforts and resources towards institutionally relevant questions. Hopefully this will create ample space for research that reflects the voices and viewpoints linking CR and socially responsible managerial practice. This is to emphasize the contemporary trends that are elevating the importance of organizational ethics that can no longer be ignored (Kilduff & Mehra, 1997).

Criteria for Selecting (Theoretical Sampling of) the 22 Articles 1) Novelty in the discourse of CR – mainly articles written in the 21st century building on 20th century arguments and vacuums about the role of the firm. 2) How authors’ arguments linked to market and institutional forces and the wider socio-political, legal, environmental or health issues. 3) The potential effects of all the above on sustainability and a competitive advantage for the firm and value for society. Hence, the managerial and social usefulness were also fundamental to this choice.

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4) The strengths of the authors’ philosophical arguments or motivations for conjoining the two concepts were appraised in equal measure. Articles which did not emphasize the following essential premises were not deemed philosophically strong enough to be considered for inclusion in our analysis: the ethical philosophical nature of the arguments, the convincing empirical illustrations and conceptualizations, and the extent to which they encompass the three fundamental questions of (i) innovative value creation, (ii) the importance of varieties of institutional contexts emphasizing regulatory and market forces, and (iii) strategy implementation towards creating a sustained competitive advantage. Without these premises, the conclusions would hardly fit with what we refer to as the D-L of SCR. The D-L of SCR is not about social responsibility in the traditional sense. Rather, it is about the sustained social benefits of responsible strategy making that affects the socio-economic, political, ethical and environmental outcomes of the firm and its stakeholders. The table of conceptualizations (see Table 1) serves as the initial frame of theoretical reference upon which the analyses are performed using Parson’s (1960, cited in Levinthal, 1994) characterization of the three fundamental levels of an organizational structure. Parson refers to the technical level as the core competencies and capabilities linked to the firm’s operations. The managerial level refers to the functions of resource allocation and coordination, and the institutional level embodies the broader notions of organizational objectives and values (ethical posture) and the legitimacy of the firm in the social context of its operations. After this, we present a conceptual framework of four post-millennium market and non-market forces in the light of which SCR towards sustainability finds basis. The main questions for furthering analysis are articulated as follows: (i) Which market and non-market forces (institutions) with systemic effects constrain, enable or shape the ethically responsible strategy making in chemical and pharmaceutical firms to determine success? (ii) How do these forces influence managers in their quest to offer adequate and proactive responses in the science and innovation context for cooperative investment towards mutual value creation?

RESULTS The results of the analysis of the selected articles are summarized in Table 1.

‘The firm’s considerations of, and response to issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social benefits along with traditional economic gains’

Eco-enterprise strategy as a sound theoretical framework whereby the core value system serves as the basis for sound ethically developed ecologically sensitive archstrategy which permits the firm to meet its social and environmental responsibilities.

Strategic CSR is good for business and society; however, altruism is not a legitimate role of firms but ethical obligations are.

The strategic stage refers to the point where the company learns how realigning its strategy to address responsible business practices can give it a leg up on the competition and contribute to the organization’s long-term success.

Conceptualizes CSR as a constantly evolving field with direct impact on organizational strategies and success.

Emphasizes the anticipation of the possible impacts of global warming on organizations and the need to

Stead & Stead, 2000

Lantos, 2001

Zadek, 2004

Werther & Chandler, 2006

Boiral, 2006

Conceptualization of Strategic Corporate Social Responsibility

CR and climate change policies as proactive strategies to put the Kyoto Protocol into their strategies.

Recognizes the cross-cultural trends and convergence of thoughts about impact of CSR on the strategic viability of modern organizations.

From denial, compliance, managerial, and strategic to the civic stages; embodies the five steps to SCR.

Places ethical responsibility at the heart of strategy in marketing.

‘Enterprise strategy proposed as a meaningful framework for integrating ecological concerns into the strategic processes of organizations’ (p. 313).

Response to stakeholders by matching internal resources with environmental demands.

Characterization of CR Integration into Strategy

Conceptualizations of Strategic Corporate ‘Social’ Responsibility (SCSR) and Sustainability – A Step Towards the D-L of SCR.

Davis, 1973, p. 312

Article

Table 1.

The Dominant Logic of Strategic Corporate Responsibility 105

Identification of a set of social issues and investing in disruptive innovations as solutions in order to create a competitive advantage. SCSR – beyond best practices, choosing a unique position, differentiation, lowering costs and offering superior value propositions to customers (stakeholders), p. 11.

Short-term financial pressures and non-familiarity with CR issues lead to negligence of environmental issues, data protection and other sensitive matters as potential threats to value creation.

When a firm positions itself by focusing on a portfolio of resources and assets (centrality, p. 596); anticipate competitors in acquiring strategic factors (proactively); build reputation advantage through customer knowledge (visibility); ensure that the added value created goes to the firm (appropriability); engage in social practices beyond that required by law (voluntarism).

CSR and CR have been isolated from mainstream strategy. CSR can be integrated into strategy and linked to deliver advantages that create knowledge and stakeholder relations as part of the company’s core competencies and dynamic capabilities.

Bonini, Mendonca, & Oppenheim, 2006

Husted & Allen, 2007

Katsoulakos & Katsoulacos, 2007

explore policies and measures that managers can implement.


Porter & Kramer, 2006

Article

Table 1. (Continued )

Integrating CSR and sustainability into mainstream strategy.

Treating CSR as a strategic value creator.

Socio-economic and political issues must be integrated into firms’ governance systems due to their strategic nature.

Corporate social integration for creating shared value


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Group of activities that comprises CSR activities that go beyond best practice or simply responding to anticipated future social and environmental concerns and issues. It is a process of positioning and differentiation.

CR defined as the result of the way in which a corporation locates its strategic goals for responsible business as either managing risk, creating value and how it conceives of the organizational resources that it commits in order to achieve this goal as either a cost or an investment.

CSR and strategy: the possibility and importance for companies to engage in strategic or ‘profit maximizing’ type of CSR.

Action designed to improve social conditions.

The objective of strategic CSR is to identify ways in which companies can align business goals with consumer expectations to increase brand loyalty while simultaneously meeting larger societal demands.

Strategic activity that adds value to the firm, ecosystem and society under two conditions.

Competitive advantage gained only through regulatory compliance or exceeding regulatory requirements.

Arnold, 2010

Davis, 2010

Del Bosco, 2010

Galbreath & Benjamin, 2010

Guzmań & Becker-Olsen, 2010

Maas & Boons, 2010

Williamson et al., 2010

CSR viewed from compliance, on compliance, and beyond compliance; institutional change and firm resource alignment.

CSR (economic and social values) integrated into the firm’s strategy for creating or improving existing products. It must be a measurable process that allows monitoring new or additional values (p. 155).

Four key components: clear motivation, appropriate initiative, right timing, and right communication.

(1) Social issues, (2) strategic issues, (3) industry context, (4) issues of prioritization, and (5) strategic actions

Focuses on how integration of CSR and strategy can be executed.

Compared with the inherent limits of corporate initiatives based on the alignment of business with social demands, CSR based on the integration of social awareness into strategic business process promises huge potential (p. 375).

Cost reduction and increase in value to customers extends protection of proprietary nature from competitive pressures. Sometimes aligned with responsive CSR (p. 106).

The Dominant Logic of Strategic Corporate Responsibility 107

CSR strategies are linked to the creation of competitive advantage, attraction and retention of highly skilled employees, image enhancement and reputation building.

SCSR as a mechanism for creating and capturing social value sustainably.

Embedded sustainability: it is a response to a radically different market reality, one that unifies the profit, ecological and social spheres into a single integrated value creation space (p. 2).

Argue that SCSR enhances both competitiveness and image. Thus, such an approach to business boosts economic and financial performances.

A conceptual contribution argues that it is epistemologically faulty when the normative considerations are removed from the instrumental or the positive process of theorizing in corporate governance.

McWilliams & Siegel, 2011.

Laszlo & Zhexembayeva, 2011

Orlitzky, Siegel, & Waldman, 2011

Donaldson, 2012a


Milton De Sousa Filho, Wanderley, Go´mez, & Farache, 2010

Article


Calls for the integration of normative concepts into governance models.

The authors see SCSR arguments from the economic perspective as most promising for the advancement of this field of research.

A proactive integrated concept of business practices as social solutions to create a competitive advantage. It represents the assimilation of environmental, health and social value into core business activities or instrumental strategy without any trade-off in price or quality for all stakeholders.

SCSR is defined as any responsible activity that allows a firm to achieve a sustainable competitive advantage, regardless of motive.

CSR strategies affect and are affected by opportunities, resources, skills, corporation’s merits, industry structure and stakeholders.




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DISCUSSION From Traditional CSR and SCSR to SCR at the Civic Level In the discussions that follow, we offer a synthesis and critique of the key differences in the CR-related concepts. First, it is clear from the above conceptualizations of pro-strategic CSR scholars that there are no real disagreements on the normative level. However, there are different lenses of looking at the same substantive domain given the authors’ epistemological positions (Orlitzky et al., 2011). Hence, the semantic distortions and sometimes meaningless search for a single framework to answer one big question: ‘what is the responsibility of the firm?’ makes no sense when one attempts to find a universal definition without considering the varieties of institutions and the era within which firms operate. The perceived centrality of CSR in CS lacks grounds in most of the works cited above in Table 1. If it were not so, there would not be so much corporate irresponsibility and green washing in the economic system in the name of ‘social’ while neglecting the environmental, or in the name of environmental sustainability while leaving the political power of MNCs – a clear deviation from the expected optimal, proactive and innovative value creation which embeds corporate activities in the civic needs (Zadek, 2004). While traditional CSR is about what firms ought to give, SCSR is an intermediate level or transitioning stage of conforming to changes in the institutional environment. This intermediate level is where the traditional notions of philanthropy as suggested by Carroll (1979) among three other responsibilities and public relations (PR) are mixed with some lines of innovation without being fully integrated and institutionalized in the implementation process as long as they offer the firm some form of visibility. In essence, traditional CSR, SCSR and the D-L of SCR are closely related concepts but vastly dissimilar in practice. However, there is a curious measure of theoretical alignment between the notions when viewed superficially. This is the source of ambiguity that creates a strange acceptance that traditional CSR and medium-term SCSR are the same as the D-L of SCR. Historically, however, CSR has assumed a variety of meanings at different times and in different contexts. The concept has succeeded as a communication tool, but its substantive integration into strategy implementation is less convincing. To this end, the case that can be made is the convergence of market and non-market forces that are pushing the general responsibility (financial, socio-political, environmental, health) of firms into a fully integrated strategy implementation process. SCR then

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connotes a proactive attempt to induce change in the practical approach to responsible day-to-day management at the core of the firm’s existence – to succeed based on competitive advantage which derives from sustainable value propositions expressed in both incremental and destructive innovations. These in turn must create visibility that leads to institutional legitimacy. Examples of such practices include the collaboration of pharmaceutical firms with non-business actors to co-create value for consumers in developing economies. Proponents of traditional CSR have zealously defended its moral philosophical standing. While the need for CR in the implementation of firms’ strategies is unquestionable, some authors have done little to explain precisely how, why and what really transpires in the operational milieus of firms where institutions are weak, where transaction costs are higher and where stakeholders have neither voice nor the right to demand accountability (Banerjee, 2007). The theoretical fairy tale of traditional CSR demonstrates empirically robust attributes of weakness, given its clear deviation from observed strategies especially when the same firm’s CSR practices are taken into consideration both at home and abroad where institutions are fundamentally vulnerable. For some multinationals in the extractive industries and even in the pharmaceutical industries, CSR is treated as an ad-hoc program used to compensate any unethical activity; from the dumping of waste products to the use of child labour, drug testing on the poor, extremely high prices of essential medicines down to bribery and environmental negligence. What becomes SCR is not the kindergarten built by an MNC or a donation after much exploitation but the holistic day-to-day management of the relationship with the firm’s environment and the actors therein. While the above theoretically sampled conceptualizations purport to broaden our understanding, what is evident in this analysis is that the institutional logics (values, norms, belief systems and cultural and disciplinary backgrounds) which inform the ontological leanings of each author (Orlitzky et al., 2011), appears diametrically opposed to what one would expect if they had come from a homogeneous background. This rather is a source of enrichment that promotes academic debate from varieties of perspectives rather than a condemning rift. That notwithstanding, there are areas of potential generalizability and clear gaps to fill in this substantive domain. To this end, traditional CSR can best be described as a mixture of deviance, green washing and sporadic acts of philanthropy aimed at PR purposes. For this reason, only when the responsible innovations, including smart business models will make socio-economic, political and environmental difference by creating a competitive advantage, can they

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qualify as the D-L of SCR. Drucker (1974) and Friedman (1970) are partially correct in their analyses of what ought to be the responsibility of the firm; to make profits but not to destroy the environment nor exploit workers but create value for other stakeholders on whom the firm depends (Freeman, 1984). To structure our argumentation and to offer a fair critique of the conceptualizations above, we identify the evolutionary paths to SCR by contrasting these paths with the conventional notions. They are the (a) disruptive-entrepreneurial level, (b) strategic business entrepreneurial level, and (c) the D-L of SCR level or civic sensitivity level (Fig. 1).

Disruptive-Entrepreneurial SCR Disruptive innovations precede incremental innovation and a certain degree of incrementalism clearly creates the scenario and the need for disruptive innovations. To argue which of them is more useful is not only unfruitful but also a misplaced conceptualization. Both are required under different contextual realities to create competitive advantage (The Economist, 2011). Disruptive innovations and business models are very typical of start-up SMEs (but less so with pharmaceutical SMEs which mostly make generics) with novel entrepreneurial mindset and behaviour. They turn social problems into opportunities embedded in innovation by taking advantage of favourable regulatory novelties with sophisticated and radical but socially desirable technologies and value propositions. Such social solutions are for creating novel brand identity in substance and not as mere PR through sophisticated rhetoric. They include cutting-edge innovation replacing

Organizational core-values

SCR, organizational change, R&D, innovation-

transfer Disruptive entrepreneurial SCR (short term = traditional CSR) Mainly start-ups & SMEs Figure 2

Strategic business entrepreneurial level (medium term/transitioning) Both SMEs & MNCs

The D-L of SCR – institutionalised in daily routines (long term sustainability) Both SMEs & MNCs

Regulatory (coercive) + congruent normative ideals Financial and social capital (via networks) to buffer internal and external shocks for strategic reorientation

Fig. 1.

The Co-Evolutionary Process of SCR.

Legitimacy Ethically cooperative investment for mutual and sustainable value creation

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existing firms which do not meet the criteria and higher standards set by environmental regulators and emerging consumer demands. This is what Schumpeter (1975, cited in Maas & Boons, 2010) referred to as ‘creative destruction’. By implication, firms do not only innovate to meet existing needs but also proactively innovate to provide new value propositions and teach consumers to want new things. These considerations are in sharp contrast with the conflation of philanthropy with innovation and competitive advantage in strategic analysis. Despite the strengths of the above conceptualizations in Table 1, there are some assertions which clearly qualify as limitations. How do our arguments differ in this regard? Philanthropy has played a major role in building societies and creating wealth besides directing the course of distributive justice and charity. It still does today (Musafer, 2012). The raison d’etre of non-business organizations and foundations is unambiguous because they are indespensable sources of resources for the promotion of science and technology or some other form of advancement in society. That is what they are established for, unlike firms that are established to produce goods and services with the aim of meeting the needs of several stakeholders. In some cases there can also be partnerships between private business and private non-business entities or even governments in pursuit of a socially responsible goal. This is all good. Nonethless, charitable acts (altruistic behaviour) per se do not qualify as SCR, ethical behaviour does. First, philanthropic actions are good and commendable humanitarian works but do not enhance operational effieciency (Porter, 1990) nor any form of innovation of a business firm. This must not be confused with philanthropic organizations whose overarching objective is to promote peace, freedom, justice, culture (arts, history, music, etc.), scientific enquiry and technological advancement. Second, philanthropic actions by firms are morally praiseworthy; that notwithstanding, they only represent a value transfer from one party to the other with instantaneous or very short-term returns of PR. Third, unlike the arguments raised by authors such as Bhattacharya, Smith, and Vogel (2004), Carroll (2001) and McAlister and Ferrell (2002) in what they refer to as strategic philanthropy, we argue that such actions are tactical and sporadic and do not include the input of other strategic actors to create long term value. Fourth and most importantly, philanthropy does not determine the long-term success of the firm because its short-term nature does not include any collaborative efforts towards optimal resource combination or allocation that would lead to a sustained competitive advantage. Essentially it creates visibility in enhancing PR, but how sustainable is this?


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Strategic CSR – Medium Term or Transitional Level SCSR involves the MNC or SME’s identification of new lines of business which are then gradually aligned with the existing business models. This however as intended in the conceptualizations of SCSR in Table 1 is nothing more than corporate diversification with a social or environmental focus (depending on the firm’s CR orientation) that will be integrated into the mainstream business over time or a gradual development of technologies or cheaper medicines for the bottom of the pyramid consumers.This is what Brooks (2009) and Fowler (2000) refer to as social entrepreneurship or civic innovation. The process may lack coherent coordination unless it has a promising scope, scalability and prolonged existence to qualify as strategic. Further, such a process, although desirable, does not serve the sustainability purpose if it does not involve heavy resource allocation in R&D towards innovation. It may also have resources that are usually time dependent given the external competition. This is what makes this strategic CSR level cumbersome, transitional at best, and unfocused in its implementation and predictability. Further, SCSR does not evoke the regulatory institutional contraints which make this process a failure or success in a competitive market where differentation, cost reduction, and positioning count in order to offer a competitive advantage to firms that meet regulatory requirements or structural reforms. Little else is said about the value co-creation by way of relational embeddedness (Gro¨nroos, 2008) and organizational learning via feedback loop of knowledge acquired through interaction (Prahalad & Ramaswamy, 2004). Simply pinpoiting a range of activities that are socially responsible in the short term, or in response to effects of isomorphism (DiMaggio & Powell, 1983) does not lead to sustainability. That is, such a view does not completely qualify asthe D-L of SCR because of the lack of commensurability in firms’ scope and levels of integration across functional levels and from head quarters to subsidiaries in MNCs. Vogel (2005) postulates that companies draw a fine line between ‘offensive’ or ‘defensive’ approaches to CR. Thus, some firms may either use CSR in the traditional sense as a means towards achieving a competitive advantage or as a modus operandi to escape from a competitive disadvantage as in the case of philanthropic acts. For Vogel, the level of corporate commitment is proportionate to the expected payoff. Any defensive approach to CR is about protecting corporate image and therefore the level of resource allocation is negligible just as the resultant benefits to the stakeholders in question. On the other hand, any substantial resource

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allocation towards CSR with its inherent risks brings about better payoffs. This stems from the fact that aligned business models are experimental by nature but do not always translate into fully-integrated core businesses and this presents quasi-insurmountable operational challenges. If an operation is not deemed core, then neither are the managerial nor the employees’ commitment to such a business and social cause. It will turn out to be a cost due to operational lapses and the lack of key resource allocation. By contrast, whenever practices are fully integrated at both process (culturalcognitive level) and procedural level (at the operational and strategy implementation level), then all core competencies and dynamic capabilities (Eisenhardt & Martin, 2000) are involved in achieving the objective through structural changes and new product and service architecture that meet emerging needs. In this way, there is no ambiguity in the direction, scale and scope of the organization at its functional levels and within subsidiaries towards allocating the best resources innovatively to adapt to market and institutional trends which shape, constrain or enable ethical managerial decisions. Are we therefore to argue that despite the fact that these definitions in large part do not lack cogency, actions which deviate from the established new sustainability and CR programs are usually socially irresponsible? We do not know. Primary stakeholders (employees, customers and investors) (Clarkson, 1995) are the first to know the impact of SCR before the external stakeholders.

The Post-Millennium Forces Shaping the D-L of SCR Towards Sustainability The academic, industrial and political consensus about the urgency for a consolidated action towards sustainability is an evidence of the need to aggregate emerging issues and ethical responsibility into strategy. Heightened ecological awareness and global preoccupation with socio-economic and political turbulence have ignited a tremendous response towards sustainability. Prominently, governments, financial institutions and venture capitalists are increasingly unsupportive of R&D projects or investments that do not have a clear substantive vision to be ecological and socially responsible. This widespread attitude is not meant to be a pun but it is rather a strategic posture towards a revolutionary change in values. In developing economies, questions pertaining to whether any form of foreign direct investment will help or derail the national development agenda may be posed (Louche et al., 2010); is it sustainable in a nutshell? The following

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four forces are the determinant factors of a globally converging call for ethical responsibility embedded in strategy as potential solutions to the global quest for sustainable value co-creation with a major focus on the areas of education, the environment, economy and healthcare: (i) institutional dynamics, (ii) sustainable capitalism, (iii) global networking and innovation, (iv) re-regulation and institutional eco-protectionism (Fig. 2). Global climate change, desertification, diseases and the lack of drugs for neglected diseases affect the sustainability of modern capitalism. This in turn leads to institutional reactions and significant involvement across the board with non-traditional players such as NGOs, governments and private individuals. The current state of affairs aided by technology in a digital era has led to a geopolitical shift. The agenda has now moved from de-regulation to re-regulation and institutional eco-protectionism in global governance with firms as active players and agents of change in different

Global market and non-market turbulence as forces shaping SCR of firms

Institutional Dynamics

Systemic links

Sustainable Capitalism

Consolidated efforts to protect CPR Reregulation & institutional ecoprotectionism

Global Networking & Innovation

SCR = Sustainable value co-creation

Fig. 2. The Structure of Strategic Corporate Responsibility (SCR) and Its Institutional Embeddedness Towards Sustainability. CPR – Common Pool Resource.

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institutional contexts. Global networking between socio-economic actors, owners of resources and their varieties of activities in different sectors result in the interconnectedness and interdependence to save the planet as a common pool resource (CPR; Ostrom, 1990).Therefore, the need to manage the CPR via cooperative value creation is a plausible explanation for the high interest in sustainability. Institutional dynamics Four global pressures and one critical functional pressure of the organization are moderated by powerful entropic and inertial pressures which lead age-old practices and status quo to give way to deinstitutionalization (Oliver, 1992).There is now a global follow-the-leader trend (in the form of institutional isomorphism; DiMaggio & Powell, 1983) in all industries where institutional forces via mimetic and coercive regulatory pressures or normative means compel firms to act responsibly along the value chains albeit with a degree of resistance. Across industries, small firms are forced to follow the trend of sustainability, while for some it is even the only means of survival. SCR is corporate entrepreneurship that employs dynamic capabilities constrained by institutional developments and managerial values to address emerging market and non-market issues. Grayson and Hodges (2004, p. 11) refer to these types of corporate social opportunities as ‘commercially viable activities which also advance environmental and social sustainability’. The elimination of the negative impact of firms’ externality increases costs and constitutes a competitive disadvantage if rivals in the industry do not do the same (Drucker, 1974; Williamson, Lynch-Wood, & Dragneva-Lewers, 2010). Where elimination of an impact requires a restriction, regulation is in the interest of business and especially in the interest of responsible business. Otherwise it will be penalized as irresponsible while the unscrupulous, the greedy, the stupid, and the chiseller cash in (Drucker, 1974, p. 335).

The regulatory changes across the board offer firms the incentives to outpace public choices on environmental and public issues in order to create a competitive advantage and to avoid the cost of non-compliance. This means regulations in some cases help to avoid scandals, highly punitive laws in future and creates the opportunity for social innovators who see social ills as opportunities (Drucker, 1974). SCR is not about trade-offs as to whether these considerations are of ethical interest to the firm. Rather, it is about what the response of consumers and stakeholders will be under such dynamic market with increasing socio-economic, political and environmental pressures.


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Sustainable capitalism Sustainability must be construed as an urgent response to the global threat to all spheres of human existence. The imperative to protect and renew our common pool ecological resources (CPR) with direct effects on socio-economic lives requires systemic efforts consolidated across the board. Shrinking resources, radical transparency, increasing expectations of societies (Downes & Mui, 1998) and governments matched by an exponential rise in public private and non-market involvements have now fed the global interests in questions of sustainability. For example, corporate actions in the Niger Delta destroy the aquatic habitat of fish upon which the population depends (Ibeanu, 2000), or river fish suffer from accumulation of compounds from human drug waste (Gilbert, 2011; Mason, 2003); such activities also spread skin diseases and spoil the streams while leaving livelihoods shuttered. Disgruntled villagers in Niger Delta who disrupt oil production can affect global prices in a matter of days. What happens on Wall Street has systemic effects across the global financial markets. Carroll (1979) describes three types of ecological behaviours of firms: (a) eco-defensive behaviour which seeks instantaneous economic gains while viewing any environmental action as costs, (b) ecoconformist behaviour refers to firms which stay within the regulatory confines even when they are capable of raising the standards and (c) the eco-sensitive behaviour which goes beyond prescribed legal requirement as a way of survival in the long term. We subscribe to the third category as the only strategic action that leads to sustainable value creation for the firm and society. Although all companies are legally and legitimately accepted, their operational procedures may have negative externalities being the results of unethical decisions and actions of managers and by extension the firm. A negative externality is present when a third party (neither the producer nor the consumer) is harmfully affected by an economic activity, thus from production to consumption of a product or a service (Chernomas & Hudson, 2010). Environmental and air pollution are the most infamous of all the externalities because the severe and sometimes irreversible harm they cause affects those who are neither producers nor consumers of the product in question. Increasing negative externalities, such as cancer resulting from pollution, represent an extremely high cost to societies and their environment. This, in essence, is beyond the private costs to the company that caused it. The protection/ preservation of the ecosystem or biodiversity (flora and fauna) is the basic premise underpinning the concept of sustainability of which firms have a major role to play.

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From de-regulation to re-regulation and institutional eco-protectionism That global and national institutions are overwhelmingly rallying behind issues of sustainability with new regulations is well received. The attention has been turned from the buzz about de-regulation to global ‘ecoprotectionism’. This concerns the internationalization of questions pertaining to food, health and safety in what Hollingsworth and Boyer (1998) call ‘international regulatory agenda’ aimed at harmonizing global policy measures via the cross-national alignment. Runge (1990, p. 187) refers to the phenomenon of global attention to re-regulate given the global forces and pressures as eco-protectionism. In fact such arguments are too obvious to be worth pursuing any further. The discourse only needs to be theorized by its authentic name; the D-L of SCR based on sustainable innovations. This view is generally seen as an imperative because it cannot be fittingly called anything else given the rate at which economic activities and organizational practices affect the full gamut of eco-systems and threaten human livelihood. The eternal tension between economics of self-interest and altruism and institutional changes (namely, the private and public regulatory regimes, increasing organized dialogues (Campbell, 2007), industrial influences, socio-cultural foundations of institutional structures (Scott, 2001) have enormously changed the global mindset now and perhaps for good. This represents the dawn of a new socio-economic order that places sustainability at the centre of all institutional frameworks which in turn affects firms’ strategy. Pursuing such objectives and not only engaging in rhetoric has become the way to demonstrate commitment and seriousness in search of legitimacy from financiers, consumers, and society in general on whom the firm depends for its existence (Davis, 1960; Pfeffer & Salancik, 1978). This is also due in part to the increasing role of big firms as political actors given the socio-economic power they wield (Mitchell, 1989; Scherer & Palazzo, 2007) and the evolution of global forces which naturally select innovative firms that fit with the changing environment. Examples of global initiatives include: the International Organization for Standardization (ISO) 26000; a non-binding, voluntary standard. Since 2005, ISO has been developing CSR international standard guidelines. The first of its kind was published in 2006. The 2010 ISO 26000 publication was made possible by contributions from industry, government, worker’s unions, consumers, NGOs and other specialists (Moratis & Cochius, 2011). Other examples are the UN Millennium Development Goals (MDGs), the Global Compact, and the Global Reporting Initiative (GRI). The latter is a globally accepted framework for voluntary reporting on socio-economic and environmental activities of firms. A critical concern regards their non-binding nature which


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again brings in the question of regulatory regimes as the preconditions for translating these codes of conduct into real enforceable and meaningful measures. This however depends on the prevailing institutional context if it is to create any competitive advantage for firms that adhere (Williamson et al., 2010). Global networking in innovation and technological change The responses to post-millennium forces by business and non-business organizations represent a unique source of both incentives and opportunities on one hand and a set of complex problems requiring sophisticated tacit knowledge forms as well as cooperative initiatives for creating solutions. Hollingsworth and Boyer (1998) imply that there are three important dimensions of the coordination of organizational partnerships for knowledge use and innovation which are either in the form of joint ventures, alliances or other discrete structural alternatives to governance via vertical integration such as franchising and spot contracts. For our purpose, however, non-traditional partners, that is, governments and NGOs play a critical role where solving questions of legitimacy is a prerequisite for a firm’s long term success. Moreover, new advancements in technology, for example, new product architecture and innovations have caused structural changes, mergers and acquisitions, and strategy retooling especially in the pharmaceutical industry, all in the face of global competition, environmental changes and high societal expectations (Hollingsworth & Boyer, 1998; Prahalad & Hamel, 1990). Institutional changes accompanied by opportunities or what North (1991) refers to as ‘incentive structures’ spur innovations. Such incentives according to Hage and Jing (1995, cited in Hollingsworth & Boyer, 1998) are pushed by two competitive forces which drive firms into networking and other forms of collaborations: (1) innovation which in the post-millennium era represents a more prominent and a fundamental competitive factor compared to cost reduction and high productivity; (2) the critical nature of adaptive costs incurred on monitoring both technological and product change, R&D and other competitive responses. Such operations must always be expedited given the short product life cycles so as to gain (i) market share and (ii) first mover advantages with novelty that comes with premium prices. Analysis from this perspective has now made transaction costs obsolete for our purpose. Three other points add to the definition of adaptive costs especially in the science and innovation firms, for example, the pharmaceutical industry: (iii) the need to implement competitive solutions; (iv) the threat of the loss of market share which is a consequence of slow response to competitive challenges

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(Hollingsworth & Boyer, 1998); (v) the opportunity costs associated with ‘non-innovativeness’ by firms in the face of the global forces and the speed of technological advancement towards sustainable global health. Testable theoretical propositions of the dimensions of the D-L of SCR are delineated in Table 2. These dimensions also serve as the preconditions for the existence of the D-L of SCR within the internal structures of the firm and its interface with the environment.

MANAGERIAL IMPLICATIONS: 21ST CENTURY RESPONSIBLE STRATEGY MAKING FOR INNOVATIVE VALUE CO-CREATION There is no recipe for actualizing SCR. The D-L of SCR is not what a firm does; we are rather referring to what firms are in the ‘process of becoming’ (firms’ position and identity within this historical juncture) as a coevolutionary process with the markets and institutions within which they are embedded. Firms which want to go beyond mere survival in the 21st century and become successful in the long term must see SCR not as a choice but as an imperative. Principally, the process of strategic value co-creation entails the following points listed below for managers in MNCs which must be idiosyncratically adapted to each individual firm within the industrial composition that it finds itself. The foregoing is neither a description of some activities nor a to-do list, but rather, contents and processes and philosophical underpinnings explaining the possible outcomes of the D-L of SCR for the firm. How does the firm define and redefine itself given the dynamism of institutional reforms and market changes? (i)

Determinants of the success of the firm. The first point is in the form of a philosophical question: what is the responsibility of the firm that will generate long-term success (and a competitive advantage) on one hand and what the implications of such success on the environment, society and ultimately the consumers are? This means the concept of SCR is a cooperative investment based on innovation and the moral posture of the firm. Then again why should any manager care? The central role of managers is also emphasized here. (ii) Integrity and transparency in all day-to-day decisions and actions. The firm must see the D-L of SCR as its day-to-day ethically responsible cooperative investment for mutual and sustainable value creation. This

This basic cognitive frame and shared values (ethical principles about what is appropriate behaviour) produce congenial working environment and space for culture of innovation that is institutionalized throughout the firm and its subsidiaries in the case of an MNC. The productive use of political power of decision makers rests on the upper echelon. Put together, conditions will determine constant increase in the social, psychological and intellectual capitals that spur innovation.

The strength of the leadership network ties within industry, academia and even in the political arena creates social capital based on trust that leads to social legitimacy. The greater the informal alliances and cooperation with organizations and other stakeholders, the better the dialogue and learning (knowledge exchange) is made possible to meet national or global sustainability agenda.

The proactive innovation ‘durchKompetenz’ by sensing emerging opportunities and challenges of context-specific needs occurs when existing resources are configured into new capabilities to meet the context-specific needs via managerial entrepreneurship. SCR exists only within the scope of the core competence or the synergy produced from collaborations. These strategic decisions are based on available incentive structures and prevailing institutions.

The identification and advancement of the latent needs of stakeholders for which a premium price is paid. This proactive process comprises innovation, learning, authentic branding, dialogue and engagement with stakeholders (whether or not they have power and urgency) while keeping an eye on the actions of competitors and regulatory changes.

Structural dimension

Dynamic capability dimension

Opportunity seeking and stakeholder orientation

Theoretical Proposition

Sources

Freeman, 1984; Clarkson, 1995; Kohli & Jaworski, 1990

North, 1991; Eisenhardt & Martin, 2000

Granovetter, 1985; DiMaggio & Powell, 1983

Orlitzky, Siegel, & Waldman, 2011; Herbert, 2000

The Dimensions of the D-L of SCR.

Cognitive and values-based (ethical) leadership

Construct

Table 2. The Dominant Logic of Strategic Corporate Responsibility 121

Knowledge about the cultural, regulatory and normative circumstances creates the added momentum to explore what contributes to the developmental agenda of the home government and local people as well as other social establishments. Institutions also refer to the internal governance structures of the firm. Transparency and accountability both create visibility and trust since they become the unintended communication tools which link the firm with stakeholders about its symbolic position as a responsible organization. This is what leads to good reputation.

Available resources that are well defined and allocated and are contingent to the successful achievement of the firm’s long-term goals. Positioning the firm in industry is not only through differentiation, focus or cost leadership but also through a response to (i) the post-millennial forces, (ii) adaptive costs and (iii) innovation via collaboration.

Value for the consumer translates into value for the firm. The ultimate goal of the combination of all the above in this table is to offer consumers the best possible service via constant control of routines to ameliorate existing quality standards. That is made possible via the protection of the value chain. Cooperative innovation also leads to sustained competitive advantage. In essence, the D-L of SCR is inherently proactive, reactively relational, and it is the result of interlinked resources, activities and strategic stake-actors with reciprocity of interests for a mutual investment in sustainable value co-creation.

Strategic dimension

Value co-creation dimension

Theoretical Proposition

Institutional legitimacy

Construct


Gro¨nroos, 2008; Prahalad & Ramaswamy, 2004; Hollingsworth & Boyer, 1998; Maas & Boons, 2010

Hage & Jing, 1995 (in Hollingsworth & Boyer, 1998); Werther & Chandler, 2006; Zadek, 2004

Suchman, 1995; Scott, 2001

Sources



(iii)

(iv)

(v)

(vi)

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is because such a process is not tactical but for the long-term gain. It is a win-win approach for all stakeholders rather than a zero sum game. Innovation and differentiation are not to be perceived as costs. The D-L of SCR must also not be construed as a cost since it involves a constant amelioration of the raison d’eˆtre of the firm to keep abreast of market and institutional dynamics or what we refer to as the global forces. It is clearly a process of differentiation and adaptation to the ever changing business environment that allows the firm to gain premium from sales and outpace competitors. Eco-sensitivity and cooperation lead to great social capital. The content of the D-L of SCR entails alliances with the consumers, cooperation with other stakeholders and a foresight that allows the firm not only to comply with current regulatory requirements but also to exceed the expectation of employees, stockholders, consumers and governments. This clearly creates visibility (good image) and legitimacy in different institutional contexts. Moral task (ethical responsibility) and appropriate use of corporate political power. When the firm operates in a developing economy, the weak institutional environment may offer the firm a leeway to manoeuvre without the responsible use of its political power (Banerjee, 2007; Davis & Yugay, 2012). This means that individuals in managerial positions have the moral task to operate with integrity and respect for the environment and workers in ways that avoids any form of exploitation (Ma`ria & Devuyst, 2011). What does the firm gain in return? Investors put their money in responsible firms; such firms avoid antagonism from workers and thereby increase productivity, creativity and knowledge sharing on sustainable practices (Nicolopoulou, 2011). Host governments will then move from an adversarial role to business friendly policies that will accommodate and allow firms to flourish. Firms avoid marring their reputation because they will not attract bad publicity. All these will happen only when firms see developing and emerging economies not as markets to exploit but opportunities for civic innovation. Disruptive-entrepreneurial SCR, social entrepreneurship and civic innovation. Understanding the contextual needs of different environments and employing new business models and offering products that meet the ‘latent needs’ of consumers and other stakeholders is the new way of doing responsible business. When responsible strategies towards sustainable innovations make a positive socio-economic, ethical, political and environmental difference by creating a competitive advantage for the organization and value for society, the process can then qualify

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as the D-L of SCR; a paradigm shift from defensive, offensive and PR-seeking traditional CSR that is no longer fit for a new era of greater accountability and institutional expectations.

LIMITATION OF THE STUDY The number of theoretically sampled works was minimal. Nevertheless they fall within the parameters that we set: they were theories and conceptualizations proposing the integration of CS and CR. While it is fair to argue that such parameters do not preclude the analysis of a higher number of works, we looked at the content that aimed at laying the grounds for a more extensive review. In other words, no claim of total paradigm shift (but paradigm shifting) is being proposed here. Nevertheless, the precarious balance between firms and the planet help make this case of the D-L of SCR and its institutional embeddedness. It is argued that the post-millennium forces are the prominent socio-economic factors that are strongly emblematic in the way they constrain, enable and shape firms towards sustainability. These forces and the dimensions of the D-L of SCR are hence the prerequisites for acquiring institutional legitimacy. They need to be studied in detail in future since they take different forms in different institutional contexts. Several arguments may be raised about this article but that is the purpose of it since debate is what advances scientific research and philosophical reflections.

CONCLUSIONS AND SUGGESTIONS FOR FUTURE RESEARCH The global forces and dimensions of the D-L of SCR are theorized within the framework of institutional theory as the systemic variables which are causing a shift in paradigm towards sustainability via value co-creation as a D-L. Strictly speaking, ‘science cannot produce relevant knowledge; rather, practice has to make scientific knowledge relevant by incorporating it into the specific logic of its system’ (Rasche & Behnam, 2009, p. 243). The relevance of this article is the contribution it makes to strategic management and the broader domain of CR. The plausible explanations as to what constitutes the responsibility of a firm and under what conditions firms will naturally embark on SCR are carefully delineated. Strategy or CR makes no


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sense without considering the implications of institutional and prevailing market and non-market forces within varieties of contexts at a historical point in time. Both strategy making and ethical responsibility refer to the internal system linking itself to the external environment to purposefully achieve an objective that satisfies multiple beneficiaries. There is an unnecessary dichotomy between strategy making and ethical responsibility of the firm which must not be confused with philanthropic actions for PR purposes. Further, SCR, competitive advantage and the quest for pragmatic, moral, and cognitive legitimacy (Suchman, 1995) underpins all the above. While the global forces appear systemic in their influence of firms’ actions, there remain institutional barriers to innovation especially in developing economies. The relevant question for further study is: under what institutional conditions will pharmaceutical firms respond to global forces with sustainable innovations in global health? This chapter provides a conceptual basis for explaining how context, temporal dimension and pragmatism in theory building drive the debate about what the responsibility of the firm is. Our arguments shed light on the existing confusion about the use of traditional CSR whereby firms are required to give to society without asking how such value can be created co-created. We maintain that the post-millenium forces represent turbulences that are also viewed as opportunities and not as threats to the firm’s survival. Future research will also explore the differences in the SCR logic in multinationals and small scaled companies in different institutional contexts. Further research questions are proposed below: What are the responsibilities of the organization and whose interest should it promote in order to gain legitimacy? Objective: to investigate what the fundamental obligations and purposes of different organizations and different sectors are and what are the limits within which they should operate. Proposed method: Grounded theory, ethnography, and multiple case studies with well defined sectors. Theoretical underpinning: The purpose of this is to apply the theoretical knowledge into answering problem-based questions in practical ways about how to determine the parameters of the firm’s scope, scale and objective and who carries out the responsibilities of the firm and to whom are firms accountable. Whose responsibility is it to implement sustainable practices? Objective: What is the role of leadership in enacting responsible corporate strategies?

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Proposed method: New methods incorporating sense making, critical discourse analysis and different experimental studies. Theoretical underpinning: Theories from psychology and neuro-economics would prove helpful in advancing analysis on the key role of managers in actualizing sustainability. What are the parameters by which we can measure the limits of the rights and obligations of the firm? Objective: Authors can propose new pragmatic research approaches. Proposed method: Economic philosophical analysis or some other quantitative methods. How do institutions and temporal dynamics define the nature of CR and CS? Objective: To explore, describe and explain how CR is enacted in varieties of institutions and define the variables that affect the changes. Proposed method/strategy: Systematic review.

ACKNOWLEDGEMENTS The previous version of this paper was presented as a competitive paper at the European International Business Academy (EIBA) conference in Bucharest, Romania, in 2011. We thank the two anonymous reviewers, the session chair and all the colleagues for their constructive comments. We would also like to thank the anonymous reviewers and the editors of this volume: Dr. Liam Leonard, Institute of Technology, Sligo, Ireland and Dr. Maria-Alejandra Gonzalez-Perez, Universidad EAFIT, Colombia for the opportunity to contribute. We gratefully acknowledge the generous grant support from the Turku School of Economics, the University of Turku Foundation, Finnish Cultural Foundation, Matti Koivurinta Fund and Stiftelsen fo¨r Handelsutbildning i A˚bo.

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THE INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES ON BUILDING CORPORATE REPUTATION Emel Esen ABSTRACT Purpose – In business environment, corporate social responsibility (CSR) is becoming increasingly an important issue for every stakeholder. Organizations are being reputable through CSR activities. The aim of this chapter is to examine the relationship between CSR and corporate reputation, and determine the role of CSR activities in corporate reputation building process. Design/methodology/approach – An extensive literature research is conducted in order to develop the theoretical framework that supports the positive role of CSR activities on corporate reputation. Findings – As CSR activities affect the consequences that have a positive impact on corporate reputation, findings show that CSR enables firms to improve reputation with a broad range of stakeholders including employees


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(internal customers), customers (external customers), suppliers, competitors, bankers, and investors. Research limitations/Implications – However this research is a theoretical study, for further studies an empirical research model may be developed for investigating the relationship between CSR and corporate reputation. These dimensions should be measured and the hypothesis about the positive relationship between CSR and corporate reputation may be statistically tested. Practical implications – This theoretical study may be useful for the board of directors and managers since they should become aware of the importance of one of the growing areas of corporate reputation and CSR. They are also increasingly being encouraged to engage CSR activities into their organization’s vision, identity, brand, and reputation. Based on societal expectations of stakeholders, organizations should develop and improve their CSR programs and reflect these developments to their reputation mechanisms. Originality/Value of the paper – This study is valuable to understand the corporate reputation practices that enhance and demonstrate the value of reputable organizations. It is also attractive to compare other dimensions of corporate reputation such as emotional appeal, workplace environment, and corporate reputation with CSR. Keywords: Corporate social responsibility; corporate reputation

INTRODUCTION Over the last decades, corporate social responsibility (CSR) has gained greater importance as an idea, as a corporate strategy, and as an organizational value for corporations (Dobers, 2009). CSR activities make the corporation more attractive for variety of stakeholders such as employees, business partners, shareholders, governments, and customers, increasing its brand loyalty, image and awareness, long-term commitment, and environmental protection, and so reducing the loss of corporate reputation (Jonhson, Connolly, & Carter, 2010; Lacey & Kennett-Hansel, 2010). Corporations are realizing various social responsibility programs both domestically and internationally on the basis of primary stakeholders’

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expectations and needs to become stronger than before. (Kim & Kim, 2010), if any of the stakeholder groups withdraws its support to the corporation, the corporation’s activities are adversely affected (Mishra & Suar, 2010). Corporate social responsibility is a way of actively contributing to the society’s basic order, in doing so enhancing the company’s reputation. A good reputation increases the value of the brand and company’s goodwill (Falck & Heblich, 2007). Because CSR activities has a positive effect on corporate reputation, most companies not only pay attention to CSR issues, but also actively participate in CSR activities (Lai, Chiu, Yang, & Pai, 2010). More and more businesses try to profile themselves as responsible organizations to minimize negative consequences of CSR issues and reputational damage (Hillenbard & Money, 2009). CSR activities seem fundamental to corporate marketing strategies because they aid to strengthen organizational and brand image and identity (Perez & Bosque, 2012). This chapter attempts to understand the importance of CSR in corporate reputation, which is increasingly being seen as one of the key elements and drivers of reputation. For this purpose, CSR is examined based on definitions of the concept, corporate reputation, and dimensions of corporate reputation, and then the linkage between CSR and corporate reputation are presented. Corporations are encouraged to behave in a socially responsible manner, but there is a significant problem about how CSR should be defined (Dahlsrud, 2008). A wide variety of definitions of corporate social responsibility have been proposed in the literature (Mackey, Mackey, & Barney, 2007). In general, CSR refers to actions taken by firms with respect to their employees, communities, and the environment that go beyond what is legally required of a firm (Barnea & Rubin, 2010). Corporate social responsibility is defined as a company’s obligation to exert a positive impact and minimize its negative impact on society (Wagner, Lutz, & Weitz, 2009). Corporate social responsibility, which is also known as corporate social performance, corporate citizenship, and sustainable business, means operating a business in a socially responsible manner by undertaking ethical practices in workplace, making social investments, protecting environment, and contributing to sustainability and corporate governance (Kanji & Chopra, 2010). Corporate social responsibility refers to company’s voluntary activities, which include environmental and social attributes, philantrophic activities, exceeding expectations, and adoption of advanced human resources management programs (Inoue & Lee, 2011). According to the other definition of

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corporate reputation, it is the obligation to use a company’s resources to contribute to the society at large (Snider, Hill, & Martin, 2003). CSR is a commitment toward ethical behavior, economic and sustainable development, and improvement in the quality of life of employees (Chaudhry & Krishnan, 2007). Corporate social responsibility is generally defined as the economic, legal, ethical, and discretionary expectations that are driven by contracts between companies and society that society has of organizations (Carroll, 1979). In 1979, Carroll differentiated between four types of CSR: economic (make profit), legal (obey the law), ethical (be ethical), and discretionary (be a good corporate citizen) (Geva, 2008). Business organizations are economic entities to produce goods and services to make an acceptable profit, also expected to comply with laws and regulations. In this time, ethical responsibilities embrace those activities and practices that are expected by society. In philanthropic responsibilities, businesses contribute resources to the community and improve quality of work life (Carroll, 1991). Carroll revised and organized his four-step pyramid in 1991. Based on this pyramid, it is accepted that economic responsibility is the basic foundation and the four dimensions are addictive and aggregative. With this perspective, economic and social responsibilities are socially required, ethical responsibility is socially expected, philanthropy is socially desired (Jamali, 2008). In the 1990s, CSR activities were the firm’s responses to pressures. But with stakeholder approach, companies now are responsible to respond to customers, the media, and others (Bravo, Matute, & Pina, 2012). Economic, social, and environmental roles are three roles of business in society. Another definition refers to the ‘‘triple bottom line’’ in the CSR literature. According to this definition, there is an interdependency between these areas. If one of the areas is neglected, others will be affected (Truscott, Bartlett, & Tywoniak, 2009). Economic areas such as sales, profits, Return on Investment (ROI), taxes paid, monetary flows, and jobs created; environmental areas such as air quality, water quality, energy usage, and waste produced; and social areas such as labor practices, community impacts, human rights, and product responsibility reflect an increase in the company’s value, including its profitability and shareholder value (Savitz & Weber, 2006). On the other hand, corporate reputation is the aggregate perceptions by stakeholders of an organization’s ability which is about fulfilling stakeholder’s expectations and needs, attracting investors’ and customers’ interests and so on (Van Riel & Fombrun, 2007, p. 43). In the following


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section, the definitions and dimensions of corporate reputation are discussed in depth.

CORPORATE REPUTATION New changes and challenges in the market call upon organizations to focus on their reputation in order to create better product and services and enhance their credibility and image (Srivoravilai, Melevar, Liu, & Yannopoulou, 2011, p. 243). In the last two decades, there has been considerable interest and research on corporate reputation and it has become a business issue since the 20th century (Hasanbegovic, 2011; Mishina, Block, & Mannor 2012, p. 459). Because of many factors such as increased public awareness about corporate actions and issues, increased requirements by multiple stakeholder groups, word-of-mouth, and customer’s personal experience with a company’s products and services, corporate reputation is becoming more important than ever (Shamma, 2012, p. 151). Corporate reputation is defined as the collective, stakeholder group-specific assessment regarding an organization’s capability to create value based on its characteristics and qualities (Mishina et al., 2012, p. 460). Reputation has been interpreted as a competitive advantage and increasingly recognized as an important asset of the firm (Helm, Garnefeld, & Tolsdorf, 2009). Intangible elements, such as research and development, brand, intellectual property, infrastructure, employees, customers, and reputation, also create reputation (Dalton & Croft, 2003). So reputation is one of the intangible assets that is extremely hard to imitate, turning it into a valuable source of competitive advantage (Alsop, 2004, p. 1). From a more global perspective, reputation may be associated with the organization’s credibility. In this case, reputation would be the result of the comparison between what the company promises and what it eventually fulfills (Brammer & Pavelin, 2004; Casalo, Flavin, & Guinaliu, 2007; Griffin, 2002). Corporate reputation is described in the academic literature as organizational standing, goodwill, esteem, organizational identity, organizational image, brand, and prestige (Shenkar & Yuchtman-Yaar, 1997; Wartick, 2002). Some researchers have used especially image, identity, and reputation concepts as if they are synonymous, whereas others have implied that they are independent but closely related. Organizational identity reflects the employees’ perceptions about the organizational activities (Van Rekom & Van Riel, 2000; Walsh, Mitchell, Jackson, & Beatty, 2009). On the other hand, organizational image is about what members think about their

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organizations (Lewellyn, 2002; Middleton & Hanson, 2003). Briefly, identity is about perceptual judgments of internal shareholders, and image is about perceptual judgments of external shareholders. So corporate reputation differs from organizational image and organizational identity in a couple of ways. First, reputation is more general than image; it reflects the internal and external audiences’ permanent perceptions of an organization’s products, responsibilities, and strategies compared with competitors. Second, corporate reputation is legitimated by internal and external groups (Elsbach, 2003). Briefly, corporate reputation is viewed as a combination of image and identity. Corporate reputation is stakeholders’ reaction to organization’s actions that are strong or weak, good or bad. Reputations are the outcomes of repeated interactions and cumulative experiences (Castro, Navas Lopez, & Lopez Saez, 2006; Dortok, 2006). Corporate reputation is an emotional capital that reflects the various stakeholders’ perceptions about organization’s past and future actions and inimitable, intangible assets (Firestein, 2006; Fombrun & Van Riel, 2004; Gable, 2008; Kotha, Rajgopal, & Rindova, 2001; Schu¨rmann, 2006; Walsh et al., 2009; Worcester, 2009). Stakeholders are generally divided into two main groups: (1) key or primary stakeholders – who are directly affected by or who expect to benefit from the organization’s activities and (2) secondary stakeholders – those with some intermediary role. The stakeholders may include current employees, potential employees, shareholders, customers (past, present, and future), suppliers, government, pressure groups, media, investors, competitors, local communities, opinion leaders, trade groups, and trade leaders (Dalton & Croft, 2003). It is stated in the definition of reputation that stakeholders are the main aspects of the corporate reputation. Therefore, corporate reputation is developed based on how an organization balances the needs and interests of its stakeholders – the organization’s key assets (Capozzi, 2005). Stakeholders must feel confident and trust the firm if they and the firm have social contract and standards of behavior (Dowling, 2004). Firm’s size, structure, type of industry, competitive strategy, culture, advertising and publicity, adapting regulations and laws, firm’s prior and current performances, ownership structure, and media exposure are the factors that may affect a firm’s reputation (Carmeli, 2004; Delgado-Garcia, Quevedo-Puento, & Fuente-Sabate, 2010; Turban & Cable, 2003; William, Schnake, & Fredenberger, 2005). The factors of corporate reputation can vary from one industry to another or from one country to another (Zabala et al., 2005).


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Dimensions of Corporate Reputation Reputation was considered to be an immeasurable thing, but more effort has been placed into the measurement of reputation and at the same time more models of reputation measurement have been used (Hannington, 2004; Page & Fearn, 2005). Several scholars have used criteria to measure corporate reputation. These measurements are discussed below; some scholars such as Siltaoja (2006) support that there is no right set of criteria because different evaluators use different concepts. One of the most comprehensive measuring methods of corporate reputation is Reputation Quotient (RQ) that was created by Haris Interactive (Fombrun & Foss, 2001). This reputation model has six drivers of corporate reputation. These are emotional appeal, products and services, vision and leadership, workplace environment, financial performance, and social responsibility. RQ, which was developed by Fombrun, Gardberg, and Sever (2000), is a valid, reliable, and robust measure of corporate reputation (Uo & Abratt, 2006). The most commonly used measure of corporate reputation, however, is the one popularized by Fortune in its annual survey of America’s Most Admired Companies. These attributes are quality of management, ability to attract and develop talented people, responsiveness to the community and environment, innovativeness, soundness of financial position, quality of product and service, wise use of corporate assets, and global competitiveness and value as a long-term investment (Caruana, 1997; Fryxell & Wang, 1994). The Rotterdam Organizational Identification Test (ROIT) is one of the measurements of corporate reputation and consists of six elements such as perceived prestige, job satisfaction, goals and values, culture, organizational identification, and employee communication (Davies, Chun, Silvia, & Roper, 2003). Corporate Personality Scale is used to measure both internal and external perspectives of reputation. An organization is perceived as a person and is evaluated with their characteristics. So corporate character in terms of human characteristics is commonly associated with an organization (Davies, Chun, Silvia, & Roper, 2004). Factors of the measurements are agreeableness (emphasis on trust and social responsibility), enterprise (human personality dimension of extraversion), competence (corporate and individual brand), chic (emphasis on prestige), ruthlessness (staff and customer satisfaction), and machismo and informality (emphasis on brand) (Davies et al., 2003).

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Based on the dimensions and attributes of corporate reputation, social and environmental responsibility reflects that the firm supports good causes, takes environmental responsibility, and takes community responsibility (Gabbioneta, Ravasi, & Mazzalo, 2007).

THE ROLE OF CORPORATE SOCIAL RESPONSIBILITY IN CORPORATE REPUTATION As explained in the previous section, in general there are major facets of reputation, such as leadership, quality of products and services, financial performance, treatment of staff, environmental responsibility, and social responsibility. Of course, social responsibility is not the be-all and end-all of reputation (Lewis, 2003). Researchers have argued that attractiveness of organization is based on the perceptions of its reputations that would be determined by CSR actions. But it should be stated that corporate reputation is also a multidimensional concept that couldn’t be evaluated only from the CSR aspect (Siltaoja, 2006). It is important to answer the question that how and why CSR has become one of the key dimensions of corporate reputation and so corporate identity, image, and organizational success when compared with other dimensions. Many companies have used CSR as strategic tool to respond to expectations of various stakeholders to maintain and build reputation (Lai et al., 2010). Companies that engage in CSR activities and disclose these activities in their annual reports are perceived to have good corporate values and intangible assets that could be positively translated in many ways (Othman, Darus, & Arshad, 2011). Companies having bad reputations seem interested in establishing good reputation through CSR activities (Yoon, Canlı & Schwarz, 2006), because it is believed that socially responsible companies enhance public perceptions positively (Mitra, 2011). CSR has become an important driver of public opinion and corporate reputation. Sotorrio and Sanchez (2008) found that there are significant differences in the social responsibility behavior between the most highly reputed European and American companies. These differences are about the social responsibility activities that are less reported and might produce loss of reputation (Sotorrio & Sanchez, 2008). For example, Amway in China, which was recognized for responsibility efforts with ‘‘The Most Responsible Enterprise,’’ builds the brand awareness and reputation through a variety of CSR initiatives, including a children’s fund (Prymas, 2012).


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Valentine and Fleischman indicated that companies might better enhance positive outcomes as employees and customers’ beliefs about organizations, through CSR activities (Valentine & Fleischman, 2008). Porter and Kramer (2006) stated CSR initiatives to enhance a company’ image, strengthen its brand, improve morale, and raise share prices (Piercy & Lane, 2009). In addition, doing what is right develops positive attitudes toward the firm and its products and strengthens its reputation (Godoz-Diez, Fernandez-Gago, & Martinez-Campillo, 2011). CSR activities are engaged in doing well and avoiding harmful performances, so this kind of activities creates reputational consequences for the organizations (Minor & Morgan, 2011). CSR is also assumed to be of strategic importance to corporate reputation, because stakeholders not only give importance to producing goods and services, but also are concerned with how those products and services are produced (Pomering & Johnson, 2009). Barnea and Rubin (2010) explained that insiders and outsiders of the firm are affected by firms’s CSR ratings, which can enhance their corporate reputation. Public relation activities aim to increase firm’s reputation from weak to strong position to meet the demands and expectations of key stakeholders (Kiousis, Popescu, & Mitrook, 2007). Public relation, which is an organizational strategy to reflect outside perspectives, may be used to promote CSR activities developed in response to bad publicity where the company needs to repair and enhance its corporate reputation (Benn, Todd, & Pendleton, 2010). In the public relations field, it is believed that reputation management is an important element to the public relations function. Public relations practitioners realized that if the company is to attract the best employees, raise capital effectively, become a good community member, or gain and retain loyal customers, it must communicate in ways that protect the corporation’s reputation (Clark, 2000). Consequently, public relations make a contribution to the company’s CSR activities by communicating them to internal and external stakeholders (Westhues & Einwiller, 2006). According to Carroll and Shabana (2010), the firms may strengthen their reputation by engaging in CSR activities as aligning stakeholder interests, customers’ reports, enhancing company and product images, and disclosing social and environmental issues as corporate social reporting. Corporate philanthropy is another CSR tool that aims to enhance reputation by creating trust (Carroll & Shabana, 2010). The linkage between CSR and corporate reputation is also related to corporate financial performance. According to Stuebs and Sun (2010), there is clear empirical evidence for a positive relationship between CSR and performance, and in some cases, a positive relationship between corporate

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reputation and financial performance (Stuebs & Sun, 2010). On the other hand, the relationship between corporate reputation and financial performance can vary according to CSR and corporate performance activities. If the organizations are profitable, they would have the funds to invest in socially responsible activities (Hammond & Slocum, 1996). Based on the effect on integrating social elements into business strategies and values with the purpose of achieving sustainable development, CSR improves corporate social performance and enhances corporate financial performance, but there are no permanent, direct and consistent outcome of these variables (Huang, 2010). The complex relationships may be the result of the moderating or mediating variables. Corporate reputation seems to be a moderator or mediator on the relationship between CSR and corporate financial performance. Past financial performance is one of the determinants of corporate reputation; financial performance affects corporate reputation, or in other words, corporate reputation has an influence on financial performance. Based on the linkage between CSR and financial performance, the relationship of these variables is positive, negative, or neutral (Sabate & Puente, 2003). If firms want to achieve the best financial results and fulfill social responsibility, they should incorporate ethical values in the cultural belief system, and they should encourage employees at all levels by adjusting their norms to the organizational culture (Stanwick & Stanwick, 2003). Ethical reputation also reflects the relationship between corporate reputation and CSR. Negative reputation and publicity can damage firm’s business activities in short and long terms. If the firm’s commitment to the ethics reduces, socially irresponsible behavior that can especially turn off the customers to their product and services will appear (Mulki & Jaramillo, 2011). It is strongly accepted that ethics is a crucial element of CSR (Rowe, 2006). Some researchers empirically demonstrate the linkage between corporate reputation and CSR, as summarized in Table 1. As exhibited in Table 1, corporate reputation dimensions such as trust, ethical values, corporate culture, employees’ motivation and behaviors, and leadership style are related to CSR initiatives such that public relation activities of corporations meet the demands and expectations of key stakeholders. This communication between key stakeholders and organizations increase the importance of CSR activities. Corporate social responsibility contributes to the gaining of a competitive advantage through the development of an internal and external organizational image and reputation. Reputation that is built on CSR is found to be

Increasing current employees’ motivation and morale

Product evaluation

Ownership

Culture and cultural dimensions

Heikkurinen and Ketola (2012)

Perera and Chaminda (2012)

Dam and Scholtens (2012)

Waldman et al. (2006)

Disclosure of social and environmental issues

Leadership

Engaging in socially responsible activities

Ethical values and ethical reputation

Stanwick and Stanwick (2003); Mulki and Jaramillo (2011) Carroll and Shabana (2010)

Waldman, Luque, Washburn and House (2006)

Adjusting norms to the organizational culture

The relationship between corporate reputation and financial performance

Hammond and Slocum (1996); Sabate and Puente (2003)

Managers in cultures valuing institutional collectivism value most aspects of corporate social responsibility in the decision-making process

Different types of ownership are related to social behavior

Corporate social responsibility initiatives positively influence the evaluation of products and services

Responsible reputation

An expected outcome of visionary leadership and integrity is the building of social responsibility values in an organization

If the organizations are profitable, they would have the funds to invest in socially responsible activities

Corporate philanthropy

Creating trust and positive intent

Carroll and Shabana (2010); Hillenbrand et al. (2011)

Meet the demands and expectations of key stakeholders; communicate with internal and external stakeholders

Summary of Findings

Public relation activities of corporations

Dimensions of Corporate Reputation

Main Dimensions of Corporate Reputation Associated with Corporate Social Responsibility.

Benn et al. (2010); Clark (2000); Kiousis et al. (2007); Westhues and Einwiller (2006)

Authors

Table 1.

The Influence of CSR Activities on Building Corporate Reputation 143

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positively related to the share value in financial and international environment (Buciuniene & Kazlauskaite, 2012, pp. 10, 11). For instance, when analyzing the Turkish companies’ contribution to social responsibility with companies’ performance, Hey Textile has been found to have gained a competitive edge and reputation in global markets by complying with social standards and business ethics perceptions of founders and employees, developing working conditions, and establishing employee-management communication (CSR Consulting, 2010). Companies in India, such as Tata Steel, give importance to being primarily a social company to become competitive and reputable in the global economy (Arevalo & Aravind, 2011). Also, German and British companies have some differences related to CSR activities in international environment to increase their reputation,for example, UK companies were driven to launch broader CSR initiatives to improve their social acceptance (Silberhorn & Warren, 2007). German companies give high priority to CSR components. These results and discussions highlight the importance of considering the role of CSR on corporate reputation.

CONCLUSION Corporate social responsibility can be understood as a business that has responsibility to contribute to social and environmental goals voluntarily. The importance of CSR activities for firms is related to financial performance, brand identity, customer satisfaction, customer loyalty, and corporate reputation. It is crucial for an organization to recognize how the managers and board of directors can build and manage its reputation, and what should be the factors involved in this building and maintenance process. Corporate reputation is viewed as overall perceptions and beliefs of stakeholders about firm’s past and present activities. It reflects the general evaluation about how a firm behaves in any given situation. Stakeholders are the main parts of the organization. Positive or negative perceptions of stakeholders affect the corporate reputation positively or negatively. The study tries to examine how social responsibility activities can increase and enhance corporate reputation. This study also highlights the importance of CSR among the drivers of corporate reputation. Many important determinants of corporate reputation are present in the literature. These are classified as emotional appeal, products and services, vision and leadership, workplace environment, financial performance, and social responsibility in general. Among these dimensions, corporate social responsibility is valuable


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to enhance and demonstrate the value of reputable organizations. Some scholars believe that corporate reputation is influenced mostly by CSR activities which appear as a most important driver among others. CSR activities should not be evaluated as an only factor for determining corporate social responsibility, but it can be evaluated as the most important factor when it is compared with other factors. As discussed on the theoretical framework about the role of CSR practices on corporate reputation, research findings show that CSR enables firms to improve reputation with a broad range of stakeholders. Companies nowadays are more sensitive to the value of their reputation, behave ethically, and make contributions to society to improve the economy of the masses. Firms achieve positive outcomes through CSR activities. Therefore, stakeholders want to see organizations behaving in a socially responsible manner giving highest priority to corporate reputation. CSR activities should be disclosed in periodic reports to meet stakeholders’ expectations. Reporting on the CSR activities of an organization is the main part of the disclosure. Corporate social responsibility is a key tool for communication with stakeholders about CSR activities. Actually, different stakeholders have different perceptions and expectations. Their reflections about corporate reputation can vary over time. If the firm announces the economic, social, and environmental position to their stakeholders regularly and clearly, they will believe activities are reliable and the firm will protect and maintain its reputation. Public relations activities are also important strategic tool to increase corporate reputation by promoting CSR activities. It helps to attract and retain favorable public image and reputation, and also leads to more investment, more sales, and bottom line. Companies should communicate their CSR activities, principles, and achievements to different stakeholders. CSR may promote public policies and encourage companies to be more proactive while trying to communicate with each stakeholder.

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CREATING THE GLOBAL GREENSCAPE: DEVELOPING A GLOBAL MARKET-ENTRY FRAMEWORK FOR THE GREEN AND RENEWABLE TECHNOLOGIES Margee Hume, Paul Johnston, Mark Argar and Craig Hume ABSTRACT Purpose – This chapter develops the case for a global Greenscape. It introduces the green global marketplace (Greenscape) to better understand the global green market. Design/methodology/approach – The chapter introduces current green market practices and adopts case study methodology to present three distinct green cases related to renewable energy, process technology and wastewater recycling and their international market activities. The chapter offers discussion on findings and incorporates the novel technique of discourse analysis using Leximancer 3.0. Findings – The case shows how the Greendex Report (2012) positions Brazil, India, China and Russia at the top of the markets for green International Business, Sustainability and Corporate Social Responsibility Advances in Sustainability and Environmental Justice, Volume 11, 151–185 Copyright r 2013 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 2051-5030/doi:10.1108/S2051-5030(2013)0000011011

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product penetration. The developed nations of USA, France and Canada make up the bottom rankings. The chapter finds essential elements for creating the global Greenscape and marketing of green technologies. Research limitations/implications (if applicable) – Empirical research testing success pathways and destination opportunities is desirable. Practical implications (if applicable) – The ‘success and failure criteria’ identify how planning, patent and partnerships are essential for successful entry. Specific market research on G(reen) markets, market information, marketing functions for market entry and market diffusion for renewable products and process technologies such as supply chain elements, and how these interrelate with achieving sustainability goals is essential for successful entry. Originality/value of chapter – The chapter offers a novel and original approach to international green market penetration and offers analysis related to the new world BRIC countries that have been little explored. Keywords: Green marketing; renewable technology; international marketing; green supply chain; sustainable consumption

INTRODUCTION AND OVERVIEW OF CHAPTER This chapter introduces the green global marketplace (Greenscape) and discusses the market, consumer types and attitudes. The chapter introduces current green market practices and adopts case study methodology to present three distinct green companies related to renewable energy, process technology and wastewater recycling and their international market activities. The chapter offers discussion on findings and incorporates the novel technique of discourse analysis using Leximancer 3.0. The chapter concludes with a framework for the global Greenscape and reflections for global marketing of green technologies. The Stern report is the result of a major review undertaken in the United Kingdom to better understand the economics of climate change. The report aimed to clarify comprehensively the nature of the economic challenges of climate change and how they can be met in the United Kingdom and globally. The study examined the implications for energy demand and emissions in both developed and developing countries. The study considered the risks of increased climate volatility and major irreversible impacts, air

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pollutants, greenhouse gas emissions, the role of land-use changes and forestry and the effectiveness of national and international policies. The study consulted with key stakeholders including academic, private sector, scientific, NGO and other experts, internationally and domestically, to understand views and inform analysis. Several archived documents exist, which elaborate and advance the findings of the Stern report and position this report as seminal to the debate on climate change (HM Treasury Independent Reviews, 2010). The report concluded that all individuals, firms and communities, in relation to production of housing, transport and food consumption decisions must unite to develop sustainable change and well-being. The Stern report offered the notion that dangerous climate change cannot be avoided solely through high-level international agreements; it will take behavioural change by individuals, regions and communities (HM Treasury (Independent Reviews), 2010). While solutions to sustainable consumption involve diverse stakeholder groups, they also extend to the innovation, development and diffusion of a diverse range of products, processes and services and the adoption of corporate socially responsible policies (Tukker et al., 2006; Uiterkamp & Vlek, 2007). This chapter discusses product and process innovation and diffusion into greenready markets and offers a framework for developing and penetrating the global Greenscape. Achieving sustainable consumption and corporate social reasonability is a response to the scientific and international communities’ concern that the world is living beyond its ecological systems (Placet, Anderson, & Fowler, 2005) and is facing a potential crisis with regard to environmental and other resources (Tukker et al., 2006). Defining sustainable consumption is difficult because of the multiple perspectives that surround the concept (Peattie & Collins, 2009; Tukker et al., 2006). It is best viewed as an umbrella term that incorporates sustainability’s environmental, social and economic dimensions and takes on such ideas as reducing environmental impact, enhancing quality of life, minimising waste, taking a life cycle approach and looking at ecological preservation for future generations (UNEP, 2002). The goal of sustainable living is to ensure that society is able to be maintained over time and can be applied to all layers of community and business. Solutions to sustainable consumption are multidimensional and involve three parties: governments (policy makers), producers (business) and consumers (Tukker et al., 2006). Issues of energy security, food security, cost management and waste minimisation all come to play. The notion of consumption in this context extends beyond the initial purchase of products to include their manufacture, use and disposal, a concept that is wider than a narrow

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marketing ideology (McDonald & Oates, 2006; Peattie & Collins, 2009). Moreover, the way in which we market these products in the marketplace will depend on the notion and philosophy of sustainability, renewal goals and green practices. These ideals form the foundation of this chapter. Business contributes to sustainable consumption through the manufacture of goods and services that are more ecologically efficient and durable, using fair trade practices and ensuring an economic benefit to the community (Peattie & Charter, 2003; Tukker et al., 2006). Consumers contribute to sustainability through purchase, use and waste. Consumer demands can drive business production and provide consumers with a direct opportunity to contribute to the goals of sustainable business consumption through demand. Governments and government platforms for green innovation can also drive much of this innovation with green consumption focused on both consumer and business communities. Governments in many countries are responding to this enthusiasm through policies and practices that promote and attract green innovation (McDonald & Oates, 2006; Peattie & Collins 2009). International and national market commercialisation of these sustainable technologies provides a number of benefits to the economy, including improving the terms of trade, allowing specialisation in green product development and development of clean and process technologies (cleantech) (Clean Energy Council, 2010), development of export and internationalised markets and support and development to the primary industries. However, the most recent data indicates that market success for green/clean technology is low (Clean Energy Council, 2010) and requires marketing development support (Hume, 2010). There are some countries with strong market potential and green stewardship, such as China, India and Brazil with smaller markets like Australia not taking advantage of these opportunities. Interestingly, North America is also slow to adopt green development programmes (Greendex Report, 2012). As a market, China, India, Malaysia, Latin American and, in particular, Brazil are actively scanning the globe for a range of clean technologies to implement in order to maintain their policy of a minimum of 50% renewable or green technologies throughout their energy matrix (Clean Energy Council, 2010). This directly relates to opportunities for new implementations and international transference of green technologies for penetration into these developing markets. Companies with the right set of skills can capitalise on these markets with product portfolios like wind, biomass, bioenergies (such as ethanol and biodiesel), hydro, tidal, ocean/wave, geothermal, solar and agribusiness innovations, to name a few. In order to leverage products and programmes, companies need extensive commercial


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support, market development and education to assist them in penetrating markets like China, India and Latin American. To increase the chance of success for global green innovator companies, the requirement for market commercialisation strategies and ‘market entry’ support is warranted. More knowledge on market development, market entry and planning needs to be shared for international partnerships, such as the Australasian Latin American Business Council (http://www.alabc.com.au/) to prosper. This chapter aims to contribute to the discourse in the field of market commercialisation of new technologies to global market opportunities such as China, India and Latin America and offer a conceptual framework for market entry, diffusion and growth. This chapter incorporates three case studies on process innovations and product sectors that have penetrated global markets and develop a green entry framework. The case study process is designed to identify and develop a toolkit for market success criteria and pitfalls of commercialising and internationalising process technologies and product innovation diffusion into the broader marketplace. The chapter proceeds with discussion on the specific ‘G(reen) markets’ market information, marketing functions for market entry and market diffusion for renewable products and process technologies such as supply chain elements, and how these interrelate with achieving sustainability goals.

OVERVIEW OF THE CURRENT GREEN MARKETS AND GLOBAL RENEWABLE ENERGY MARKET The Case for a Going Global Green Marketing Framework The increasing realisation that global economic prosperity and employment depends on a stable climate and healthy ecosystems is spurring investment in green products, green process technologies and services. As the OECD has recognised, strong environmental policies can no longer be regarded as a burden to economies (OECD, 2003). On the contrary, ambitious environmental policies have an impressive track record in generating innovation, industry development, job creation and economic prosperity. The case of Germany (Franz, Taeger, & Tidow, 2006) and Denmark (Christensen, Godskesen, Gram-Hassen, Quitzau, & Ropke, 2007; REN21, 2008) leading the way in wind and renewable energy provides good examples of where active environmental industry policy has led to the development of strong

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domestic markets. Brazil and India have emerged recently as two of the world’s fastest growing markets for renewable energy investment and green buildings. These developments in global destinations have opened up a range of opportunities in energy, technology, construction, architecture, engineering, building materials and equipment manufacture for domestic firms to seek overseas investment. Australian businesses have been moderately successful in the ‘clean green growth’ scenario accessing overseas markets. However, in other areas, particularly solar energy and other renewable energy technologies, some of Australia’s most promising technologies have only been commercialised overseas due to a lack of political interest and investment support in Australia (Green Gold Rush, 2008; REN21, 2008). This chapter advances the notion of overseas market development by identifying the types of green products and process technologies available in the marketplace and through case study analysis offers some success and failure criteria.

Green Market Opportunity This section identifies areas where innovation and development can capitalise on opportunities. The discussion includes an overview of the green market landscape, including green products and process technologies and customer types and behaviour. This section also identifies some of the marketing opportunities in Latin America, especially Brazil.

Current Market for Green Services and Product Globally In the Annual Greendex Report (2012), the emerging economies of Brazil, India and Russia (BRIC) (O’Neill, 2006), along with Mexico and Argentina, rated in the top eight countries that had the highest sustainable behaviour. Green markets and industries, rapidly evolving globally in response to climate change and other environmental challenges, have significant potential for global businesses and local economies. Overall, global green markets are projected to double from $1.4 trillion per year to $2.7 trillion by 2020. Based on this analysis of 30 green industries globally, green innovator businesses are particularly well positioned to succeed in the following six key markets: Renewable energy. Generally defined as the production of energy directly from natural resources, for instance, solar, geothermal, hydro and wind.


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Energy efficiency. Improvements in current design, such as a better form of lighting or water heating. Sustainable water systems. Reuse of grey water, for hand washing, laundry and showering. Biomaterials. For example, biodegradable plastics. Green buildings. Akin to energy efficiency, natural lighting, recyclable grey water, water harvesting and automatic lighting. Biomass. Varied descriptions include the use of waste products from processing of sugar (bagasse) for electricity generation, whole trees or part thereof for heating and electricity generation. (Source: REN21, 2008). Many global economies such as Australia, China, India, United Kingdom and LATAM, Brazil are aiming to implement government policy that creates strong market demand and pathways for industry development. It is predicted that in the six key industries, the creation of strong domestic markets supported by strong climate change and other policies could result in additional jobs for all economies by 2030. Unfortunately, in many scenarios inadequate domestic market demand fails to address skills and training for green industry development and investment in green businesses with firms needing to look for opportunities overseas. The most recent data indicates that market success for green/clean technology is low and needs marketing development support (Cadman & Hume, 2012; Clean Energy Council, 2010). Using Australia as an example exporting of green technologies tends to make up only small contributions of all businesses (IDC, 2011) with mixed success in translating innovation capacity and natural resource advantages into business success in green industries globally (Green Gold Rush, 2008) with most successful innovators taking product overseas to larger markets with a greater green investment.

STAKEHOLDER ANALYSIS: GLOBAL GREEN PLAYERS Globally, the growth of clean technology indices is now consistently outpacing the broader market and presents a strong market potential. As a proportion of global venture capital investment, green industries are up from just 1.6% of total investment in 2003 to 11% in 2008 suggesting we are slowly improving success. Industries including biofuels and renewables, clean technology and biomass are leading the way in investment capital. The

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value of sales from green energy sources like wind, solar and geothermal power and biofuels will continue to grow to as much as $1 trillion globally a year by 2030, according to investment analysts (Green Gold Rush, 2008). More than $148 billion in new funding entered the renewable energy sector globally in 2007, up 60% from 2006. The highest levels of renewable energy investment are in Europe, followed by the USA. However, China, India and Brazil (REN21, 2008) have been drawing growing investor interest and their collective share of new investment growing from 12% in 2004 to 22% in 2007, representing an increase in absolute terms of 14 times, from $1.8 billion to $26 billion. With the move towards a low-carbon and more sustainable world, growing numbers of jobs are being created in these sectors (WBCSD, 2007). Almost 1.2 million workers are employed in generating biomass-derived energy in just four leading countries: Brazil, the United States, Germany (Franz et al., 2006) and China (WBCSD, 2007). Overall, the number of people presently employed in the renewable energy sector is about 2.3 million (Securing Australia’s Energy Future, 2009). The industry relies on strong consumer markets and aims to develop these over the next few years to maximise the market.

Who Are the Green Consumers? Climate change is viewed by most as a global problem. Concerns about the cost of energy and shortages of natural resources cloud the future of the environment and are important consumer considerations for sustainable living. Indian, Chinese and Brazilian consumers fill the top three positions in their consumers’ sustainable behaviour (Greendex Report, 2012). Australia is not as developed but the government has recognised the importance for action, introducing a Carbon Tax in July 2012. Often consumers suggest that individual efforts are ‘not worth the effort, if government and industry do not also take action. This is typically the view of developed nations’ consumers (Greendex Report, 2012). There are many green firms designing and producing renewable technologies that are attractive for many global markets with the firms looking to capitalise on sustainability and the global Greenscape. The stakeholder customers include individual consumers, governments and businesses. Process technologies and green products are purchased for many reasons with focus on increased efficiencies, lower waste, minimising negative climate effects and lower carbon. Particular reference to Latin America consumers will be incorporated into the case analysis, highlighting reference to


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initiatives and sectors that have been gaining traction. Despite improvements in renewable home energy saving systems such as solar and energy saving appliance, little improvement in food and goods manufacture and consumption can be found in the general green marketplace. Developed countries consumers such as Australia and America are ranked poorly in transportation with little future changes planned for renewable energy usage and vehicle modification, with Australians are among the least likely to use public transportation and to walk or cycle to their destinations. In Latin America, with higher populations and a longer focus on renewable energy, consumers are more familiar and supportive of green initiatives (State of the Environment, 2011). Behaviour Process in Buying Green Products Consumer behaviour, green habits and the drivers of green consumption are little researched in academic discourse, save for The National Geographic Society’s Greendex Report (Greendex, 2012), which surveys 17,000 consumers across 17 countries to quantitatively measure environmentally friendly people. Consumer search and choice differs across the green consumer segments with personal, firm and government values and agendas influencing approaches. Interestingly, the social conscientious of firms impacts these attitudes with many firms rarely opting for green innovation and portraying socially aligned and responsible innovation. In many countries, in particular, Australian consumers have increased their consumption of imported goods and reduced consumption of self-grown foods. These are small trends towards market communities and consuming locally grown food; however, the numbers are small and at this stage insignificant (State of the Environment, 2011). Interestingly, in many countries a lower rate of drinking bottled water is evident; however, consumption of beef and chicken has not changed and these make a large environmental impact. These behaviours are all indication of the consumer’s understanding and approach to green and sustainable practices (State of the Environment, 2011; WBCSD, 2007). What Do Consumers Think About Green Products? Understanding the demographics and drivers of green consumerism can help entrepreneurs explore the environmental market domestically and globally and focus on likely prospects. Australian consumers’ attitudes towards the

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environment suggest a relatively high level of concern and a lower level of action (Hume, 2010). Climate change is viewed by most as a national and government problem. Concern about the cost of energy and shortages of water is considered important, with Australians feeling supportive of environmental problems (Hume, 2010). Consumers however also suggest that individual efforts are not worth it if governments and industries do not also take action. Cost considerations and environmental concerns are suggested to motivate consumers to adopt more environmentally sustainable behaviour. In general terms, the actual retail cost, a lack of environmentally friendly options and clear information about green products and service offered are considered a deterrent to buy green (Hume, 2010). It appears that consumers are sending a message that they want ‘less talk and more action’ from business and government, or at least action before talk. In general terms, much market research has been done on green consumers with market research suggesting that green consumers are sincere in their intentions, with a growing commitment to greener lifestyles. Most consumers suggest that their environmental practices are inadequate. Consumers show a tolerance for companies and green practice, and they do not expect companies to be perfect in order to be considered ‘green’; however, they easily distrust firms who are caught making false claims. They look for companies that are taking some substantive steps and are making the commitment to improve. Consumers want green practice to be easy so that only minimal inconvenience is tolerated by consumers of green products. In a recent poll, 58% of respondents cited poor product availability as a reason for not purchasing more green products. Irrespective of the negative attitudes, consumers globally are eager to learn, and this means that consumer education is one of the most effective strategies that entrepreneurs can use when taking green products to market. There is a perception among consumers that ‘green’ products will be less effective than existing brands with these consumers less likely to sacrifice quality than price. Assurances of quality are absolutely essential, and must be communicated convincingly. Quality is judged on many features, including performance, look, feel, fit, comfort and durability. There is suggestion that currently the loyalist ‘deep-green’ market is too small to attract major competition with recent estimates putting the size of this market at about 2% of North American consumers (The National Measurement Institute, 2011). This is an important factor in planning long-term global penetration strategies. These individuals will often pay higher prices or sacrifice product performance for environmental improvements. Premiums of more than around 2% can be charged only if the


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consumer perceives additional product value. This segment is moderately attractive with these factors influencing pricing strategy of any marketing and global strategy. The most responsive age groups of green consumers tend to be children, teens and young adults, and some adults, many of whom are influenced by their children. In addition, women are a key target for greener products, and often make purchases on behalf of men. The best ‘green’ customers are people with more money to spend (Pitney Bowes). As a result, the most promising products for ‘greening’ tend to be at the higher end of the market. The most promising outlets for green products are retail stores frequented by wealthier shoppers, businesses with high carbon load and global markets looking for energy and food security. In general, green consumers have the education and intellectual orientation to appreciate value; they will understand evidence that is presented in support of environmental claims and be discerning of information that is unprincipled. Nielsen (http://www.nielsen.com/au/en.html) and NMI’s (The National Measurement Institute, 2011) research identifies the LOHAS model (Lifestyles of Health and Sustainability) and suggests these green consumers are the top spenders in many areas. For entrepreneurs targeting their green innovations, this model can offer some valuable consumer insights. NMI estimates US LOHAS products to be a $209 billion industry, and projects US sales of LOHAS products to be more than $400 billion by 2010. These figures are similar for the other large global populations and markets positioning, and these markets are opportunistic for many green markets including renewables, biomass and clean technology. The Greendex (2012) is a research resource that explores individual consumer behaviour and material lifestyle of 17,000 consumers in 17 countries around the world, and measures the specific choices and behaviours that contribute most to a consumer’s overall ecological impact. It offers an index of the green consumer patterns in global markets. It should be noted that China, India and Brazil are among the highest in green consumer patterns presenting a strong marketing opportunity in these regions. It should be noted that not only do these countries represent the highest overall rankings, the developed nations of USA, Canada, France, Great Britain and Australia rank the lowest in relation to sustainable consumer behaviour and their attitudes towards the impact on their environment. To succeed eco-entrepreneurs must not neglect the traditional values of price, quality, convenience and availability, we these factors supported by the consumer comments introduced. Green products must be significantly better in environmental terms than the competition, and the product

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data must provide clear, persuasive and comprehensive information that differentiates the product apart environmentally. An important rule in marketing green products is to minimise the sacrifices that consumers must make in order to buy and use ‘green’ products and support the claims with valid data. Improvements must be substantive and backed by hard facts. A good strategy is to offer environmental improvements in several categories at the same time, such as water pollution, solid waste and manufacturing processes. The following section introduces some of the process innovations, product and the green supply chain factors that contribute to the green market. The Green Supply Chain In conjunction with specific product types, firms have several opportunities to capitalise on green market opportunities and many ways in which they can innovate products and processes to fit green markets and create differentiated products based on green attributes. Current practices in the green supply chain can support going global with a green strategy as a new process and as an efficient element for a current supply chain. Moreover, innovations in the green supply chain add green improvements and innovations to products that allow for differentiation and repositioning. Key areas include green design, green supply chain, G(reen) procurement, G(reen) design, G(reen) manufacture, G(reen) waste management and G(reen) retail and the role of development and distribution as a tool to increase productivity and eco-efficiency. This section introduces these terms and applies them to the global Greenscape. Current Green Practice and Design Business contributes to sustainable consumption through the manufacturing of goods and services that are more ecologically efficient and durable, using fair trade practices and ensuring an economic benefit to the community (Peattie & Charter, 2003; Tukker et al., 2006). Consumers contribute to sustainability through purchase, use and waste. Consumer demands can drive business production and provide consumers with a direct opportunity to contribute to the goals of sustainable business consumption through demand with governments driving sustainability through policy and incentive. Practices such as green procurement, green manufacture, green retailing (Jones, Comfort, Hillier, & Eastwood, 2005) and the integration of


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these practices into service design are the fundamental practices available to firms in creating a Greenscape that delivers green product services, process innovations and promotional claims to consumers. Marketers have responded to growing consumer demand for environment-friendly products in several ways, each of which is a component of green practice and should be considered in quality management programmes. These include (1) promoting the environmental attributes of products; (2) introducing new products specifically for those concerned with energy efficiency, waste reduction, sustainability and climate control and (3) redesigning existing products with an eye towards these same consumers. Marketing campaigns touting the environmental ethics of companies and the environmental advantages of their products are also on the rise with most observers agreeing that some businesses engage in green marketing solely because such an emphasis will enable them to make a profit. Other businesses, however, conduct their operations in an environmentally sensitive fashion because their owners and managers feel a responsibility to preserve the integrity of the natural environment and satisfy consumer needs and desires (Tukker et al., 2006). Indeed, true green marketing emphasises environmental stewardship with green or environmental business and marketing defined as any business and marketing activity that recognises environmental stewardship as a fundamental business development responsibility and business growth responsibility (Kanellos & Valos, 2010). This expands, to some extent, the traditional understanding of responsibilities and goals of a business. Service design transects many functional departments including marketing, finance, operations, human resource, research and development and information technology with the aim of service design to develop and design methods of coordinating and delivering ideas to the marketplace. Environmentally responsible or ‘green’ business practice takes into account consumer concerns about promoting preservation and conservation of the natural environment. In particular, green marketing campaigns highlight the superior environmental protection characteristics of a company’s products and services. The sort of green characteristics usually highlighted include such things as reduced waste in packaging, increased energy efficiency of the product in use, reduced use of chemicals in farming or decreased release of toxic emissions and other pollutants in production. Green design seeks to reduce negative impacts on the environment, and the health and comfort of stakeholders in the supply chain with the basic objective of sustainability; green services reduced consumption of nonrenewable resources, minimisation of waste and creation of healthy and

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productive environments. Coupling this with the distinct objectives of traditional services design, green service design firms can offer efficient, productive and quality products from a ‘green’ ideology. Although it is not yet mainstream, many big companies are now pushing triple bottom line and corporate social responsibility requirements deep down into their supply chains. In fact, the term ‘green’ procurement is probably too narrow. What the leading big companies around the world are talking about is sustainable procurement. That means their suppliers must tick all the boxes on environmental issues including reduced packaging, less pollutants, energy efficiency, water conservation and waste reduction. They also need to treat their workers fairly, offer a safe workplace and purchase their own inputs in a sustainable fashion. Enhancing indoor environments reduces non-renewable energy consumption at all supply chain points, including aligning with green suppliers and intermediaries, minimising water and using environmentally preferable products and also popular green strategic choices. Adopting delivery practices within a green framework often forms the basis of green claims. Given that somewhere between 50% to 70% of a company’s overall costs can originate from purchasing, procurement policies can have a significant impact on a company’s environmental footprint, so too has green procurement become a popular area of adoption and promotion for the green firm. Green procurement is a fundamental and essential element of green design with the ethos aiming to seek out and buy goods and services that are less environmentally damaging. Due to lower transport costs and the associated carbon footprint, goods and services produced locally will tend to be less environmentally damaging than those produced from afar. Green procurement is often supplemented with other environmentally friendly practices, such as reusing and recycling. Green procurement integrates into the green manufacturing chain with its focus on manufacturing methods that support and sustain a renewable way of producing products and/or services that do no harm to you or the environment (Walton & Hume, 2011). Green manufacturing and process flow and small incremental changes can make large differences in the environment and will flow on to other areas of the supply chain. Reducing the use of hazardous chemicals, prohibiting testing on animals and using packaging labels and office communication that are recyclable and minimising energy consumption are all elements of green manufacture. These claims are often used by green firms to legitimate and communicate their green practice. Green distribution is about being efficient, timely and cost-effective, and supporting the sustainability agenda with sustainable


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distribution focusing on storage and movement of goods in a way that supports continued economic growth while protecting the environment and delivering a better quality of life for future generations. The need to reduce carbon emissions has driven the environmental challenge and positions green distribution as a key consideration in green design. The final green activity within firms is green retailing which is often adopted by firms as a means of green practice (Tukker et al., 2006). According to new research from the Australian Centre for Retail Studies (Tukker et al., 2006), consumers are willing to spend more for green; green with increasing numbers demanding greener products from retailers and green brands. The major trends in global best practice and green retail include energy-efficient stores, offering energy-efficient products, reduced packaging, green marketing and merchandising as well as green sourcing and distribution (Babbie, 1989; Harris, 2007). It is evident there are both internal practices and external positioning that firms are currently using to create a green ethos and aim a greater share of the green economy. It is essential to highlight to current marketeers that marketing and retail practices; current trade practices issues and product line modification must be considered in the positioning of the green product and services when penetrating international marketing. Issues including green locations and leasing, more sustainable customer interactions such as web and E Retail, greener and eco-advertising and green packaging need consideration in the branding of a green firm and product. Green design seeks to reduce negative impacts on the environment, and the health and comfort of stakeholders in the supply chain. The basic objectives of sustainability and green services are to reduce consumption of non-renewable resources, minimise waste and create healthy, productive environments. Coupling this with the distinct objectives of services design, green service design aims to offer an efficient, productive and quality service tailored to the requirements of the firm, the customer and other stakeholders and is delivered and developed from a ‘green’ ideology (Joyce, Green & Winch, 2006).

Data and Methodology Exploratory research is a flexible and valuable tool for research (Babbie, 1989; Churchill, 1979; Kinnear & Taylor, 1996). The objective of exploratory research offer depth and thick descriptions to areas where little is known increasing the researcher’s familiarity with a problem and clarifying concepts

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(Churchill, 1979; Miles & Huberman, 1994; Patton, 1990; Zikmund, 1991). It is suggested that the interpretation of the findings is subjective and with small sample cases that cannot be projected to a wider population (Miles & Huberman, 1994; Zikmund, 1991); however, the depth of data obtained is informative, valuable and offer insight not obtained from empirical research. This chapter adopts a case study methodology to identify overall themes and practices and offers a deeper understanding of the global Greenscape; the cases identified for examination are reflective and retrospective and include a range of green firms. These are selected to offer an in-depth overview of the green innovation marketplace. This research adopts a qualitative ethnographic approach and employs a combination of workplace observations and documents collection to explore and gather a contextualised understanding of the measures and evaluations of the green innovation market penetration. As recommended by Eisenhardt (1989) and Patton (1990), the research sample will consist of three to six different cases. The cases were purposively selected to provide a maximum variation to assess replication logic for theory building purposes. The underlying principle to the sampling technique will be to provide information-rich cases that are worthy of in-depth study. Multiple data sources across hierarchical levels, together with observation and relevant document collection, were sought within each of the case studies to provide the data variation and the theoretical saturation as recommended by Glaser and Strauss (1967), Eisenhardt (1989), Eisenhardt and Graebner (2007) and Perry (1998). Data from the multiple sources was divided into themes and categories based on literature findings The next stage progresses to narrative analysis, a subfield of discourse studies. Discourse studies have increasingly been using types of linguistic analyses (Alvesson & Karreman, 2000; Søderberg, 2006). A computerassisted text analysis of the interview transcripts was undertaken using Leximancer (2006) and relying on a corpus-based approach (Stubbs, 1996). One advantage of the use of the Leximancer 3.0 system is argued that it makes the investigator aware of the global context and significance of concepts and helps avoid fixation on particular anecdotal evidence, which may be atypical or erroneous (Smith & Humphreys, 2006). Identification of the dominant themes of the cases was undertaken by examining the maps. Leximancer stochastically calculates of the concepts in the corpus, as recommended by McKenna and Rooney (2005). This visualisation technique enables investigators to see, in a global representation, the important concepts in the corpus and relationships between these concepts. Concepts that occur in very similar semantic contexts tend to form clusters. Each map


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is then used by the investigator to present an overall representation of the corpus and to guide interpretation. Case Examples of International Alliances Pitfalls and Processes of Practice Latin America This section highlights and discusses the criteria and globalisation processes of three cases. Each of these cases chooses to enter the LATAM market, and Table 1 offers insight into the key PESTLE issues for going global to this market. The table depicts the Australian–Brazilian relationship. Brazil offers incentive and encouragement for clean technologies, whereas this has not yet been established in Australia, China, Indian and Russia. Brazil also has strong government support with electoral candidates running on the green ticket. It appears one of the key considerations distinguishing these countries in size, government objectives and population. The following three cases cover the three distinct green markets: (1) biofuels, (2) biomass and (3) water technology. This section elaborates on the success criteria and pitfalls for market introduction, entry and diffusion through these case studies of agribusiness, biofuels and biomass technology transfers.

CASE STUDY 1 – ENERGY SECURITY AND HOME-GROWN TRANSPORTATION FUEL Description and Idea Origination This case explores a process innovation for a biofuels injection system that opened into the Brazilian diesel transport sector. While conducting a ‘spill clean-up’ for a biofuel producer south of Sydney, Australia, a mechanically minded environmental scientist overheard the client asking, ‘why isn’t this fuel being used in the Diesel transport market’. He knew the answer. Namely, that the chemical nature of Diesel compared with gasoline is different, in that gasoline can mix readily with biofuels, while Diesel and biofuels are akin to oil and water. While chemical emulsifiers have been used to bind them, their performance outcome characteristics do not match market requirements. Therefore, it became evident that what was required was a manner of using biofuels with diesel, where performance was at least equal to the existing paradigm. An injection method was invented, and 12

Political

Carbon Tax introduced in July 2012 Company establishment is simple

Government grant and incentive programmes for electricity, biofuel/ ethanol growth and biomass export programmes Difficult for foreign company to establish presence

Country

Australia

Brazil

Table 1.

Resources & Agribusiness 2012 GDP growth = 3.2% GDP = $2.2T Ranking = 6

Resources-driven economy 2012 GDP growth = 3.5% GDP = $1.3T Ranking = 13

Economic

Green candidate in 2012 election received 17% of round 1 votes Significant investment across ‘clean tech’ portfolio spectrum

Green if it is profitable Not viable biofuels and biomass industry Solar, wind, wave receive market acceptance

Socio-Cultural

Comparison Table of Australia and Brazil PESTLE.

Net buyer of technology with large technology base of users Investment available for local partnership Technology transfer is preferred model of government

Innovative nation with small market Export is preferred option of government

Technological

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months later, a patent application was completed and a prototype existed. Internal technology validation to test the process gave support to external trials to measure its robustness and validity in non-protected laboratory settings. Following some capital sourcing, the prototype was further developed and a commercial agreement for market-based pilot was pursued. An agreement and pilot in place, two years of marketing the innovation to similar commercial entities did not achieve the same outcome. It became evident that while Australian users were stating their green credentials, no one had interest to introduce an environmentally friendly transport fuel.

Market Opportunities and Scanning Exploratory quantitative research identified two international markets, namely: USA and Brazil. Qualitative research clarified each market, identifying strong market barriers in the USA to foreign inventions, when compared with local competitive offerings and the constant food versus fuel debate. Though presenting its own barriers, in this instance, language and regulatory, Brazil, in comparison, offered an attractive investment and market profile, while dispelling any food versus fuel concerns, given biofuels have been produced for over 35 years, using only 1% of arable land and supplying 52% of fuel transport consumption with no impact on food production (Neves, Pinto, Conejero, & Trombin, 2011, p. 20). Comparatively speaking, Australia had no government support and a private sector presented strong resistance to an environmentally friendly transport fuel; USA had some penetration, though deep set within the food versus fuel debate and heavily supported by government incentives, while Brazil was in its fourth decade of a country-wide revolution in the use of home-grown biofuels and openness towards continued innovation.

Market Selection It is widely recognised that Australia’s economy in 2012 is growing on the back of a shovel, driven by a resource-hungry international market. Fossil fuels, in part, are by-products of some raw materials extracted from the earth that find their way back into the equipment used to further excavate and transport this material to the seaside ports. Thus, it could be said, there is reason to continue to use these refined fuels. Brazil, whose economy is also growing, due in no small way to international commodities demand, in

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contrast, has a home-grown biofuels market, started as a result of the Middle East oil crisis of the 1970s. Two countries with similar economic drivers have developed far differing strategies for their passenger transportation: One whose car manufacturing industry is strongly linked to overseas control; while the other has attracted almost every car manufacturer inside its borders to research and manufacture vehicles to use biofuels. Three decades later, early prototypes have been developed and vehicle manufacturers produce over 80 passenger vehicle models, while the government mandates a 25% consumption of biofuels in a tank of gasoline. There are more than 8 million non-passenger vehicles on the road in Brazil with an average life span of 12 years (Instituto do Brasileiro de Geografia e Estatistica (IBGE), 2011). A visual inspection will see these vehicles below black plumes of smoke into the densely populated cities of Brazil. In summary, Brazil is; a market looking for a biofuels solution for its non-passenger fleet and a government prepared to assist and existing proof of concept, where validation of a process innovation is in place. The answer to ask, therefore, is ‘how does the innovative early stage company leverage itself to take advantage of the opportunity?’

CASE STUDY 2 – ENERGY CROPS FOR ELECTRICITY GRID AND INNOVATIVE SUPPLY CHAIN MANAGEMENT Description and Idea Origination This case study looks at process innovation for a device to reduce the supply chain costs associated with harvest of short rotation crops. Born from the notion of harvesting fast-growing trees for use as a power source, Australian farmers saw the need for ‘energy cropping’ as a revenue stream for themselves while achieving a clean energy basis for the market. Market forces prevailed with power stations driving the financial model by giving a transparent floor price to the farmers, for the delivered raw material. Working upstream from the end-user to the field, calculations showed that harvesting and transportation consumed over 70% of the raw materials’ delivery cost. A decade-long research and development programme to understand the origins of these costs, funded through long enormous federal, state government and private enterprise, resulted in a supply chain management innovation that cost $6 million to build the initial prototype.

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This product proposes to reduce harvesting and transportation costs by as much as 50% of the existing harvesting and transportation costs. Market Opportunities and Scanning The initial prototype successfully demonstrated the concept that a significant cost reduction could be achieved through a technology-enabled harvesting supply chain management innovation. In parallel, the initial prototype demonstrated two previously unknown areas, namely; that Australia’s expansive geographic nature, coupled with a heavily engineered design for purpose product, the actual cost of the invention proved prohibitive to the market that needed it, as it did not have the quantity of raw material, nor the nearness of end-users to exploit its potential. Australia’s forestry regions track close to its coastline, while Brazil’s regions sit within a 2,000kms by 2,5000kms grid, in reach of the Tropic of Capricorn but not the coast, containing large areas reaching annual rainfalls up to 1,600mm. In comparison, Australian maximum annual rainfall levels would barely reach 700mm. ‘Find me the wood’ was the instruction of the entrepreneur. Unbeknownst to him at the time of his decree, on the other side of the planet, the concept of ‘short rotation crops’, researched by several scholars over the prototype’s development timeline, had moved themselves on a commercial footing. Using various species, particularly Eucalyptus, which surprisingly had been imported into Brazil from Australia 100 years earlier, a number of commercial entities had established themselves, broadly in the forestry market space but with a strategy to fulfil market requirements for Mandatory Renewable Energy Targets (MRETS) and deliver clean energy to the growing Brazilian energy matrix, which came to be known as the ‘pure energy play’, began to emerge. The uptake of MRETS is advanced more in European countries than in Brazil, resulting in the growth of an export market with a commencement date of 2013. So, Brazil has the landmass, growing conditions, market forces and market participants as a potential target zone. Market Selection The trade-off between oil extraction, water content, cost of growth, a plantation’s holding cost and cost associated with harvesting the relevant tree size are some of the variables facing the decision of when to plant and

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when to harvest. At the time of writing, approximately 1 million hectares of short rotation or energy crops are planted in Brazil, thereby answering the second issue of demonstration. A market of sufficient size to require large number of harvesters, whose production costs would conceivably reduce through the learning curve of development and production, as it nears commercial release. Some more advanced than others, key market participants are readying themselves to fulfil demand (delivery) contracts commencing in 18 months. Profit margins for the early mover and higher returns for the investor buoyed by the emergence of a new energy market await the astute participant.

CASE STUDY 3 – LOW WATER, LOW CARBON AND THE SCALABILITY OF RECYCLING Description and Idea Origination Case Study 3 reviews a process innovation for the industrial sector in relation to the recycling of grey water and conservation of electricity. The son’s awareness of the soaring electricity and water costs and their impact on the profitability of the family-owned laundry business, gave rise to an innovative process that recycles 80% of water use, while simultaneously reducing electricity consumption by as much as 30%. Funded internally by the organisation to achieve savings for the business, the initial prototype took an elapsed timeframe of 24 months. The intellectual property process was followed and a patent application exists. Expansion into multi-storey buildings followed and the company had successfully demonstrated external rigour to their invention, while simultaneously opening a new market segment.

Market Opportunities and Scanning While the first prototype remains in use today three years later, the commercially available product utilises design and incorporates an existing invention to perform a key process task. This secondary item is owned by an international company for use in a separate environmental area. Upon discovery of this international company, presentation of this new market sector resulted in an exclusive, performance-based global agreement for the laundry industry. Armed with a partnership to attack the world, the key

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competitors are chemical-based products and therefore do not carry the green credentials of the innovation. A key Brazilian mantra is Low Carbon, Low Water. Committed to continuing the green content of the energy matrix and maintaining a minimum 50% clean energy threshold, low Carbon is evident in the marketplace and is often demonstrated through investments by typically non-green participants into green technologies. The recent Vale investment of $350 million into the building of wind farms is one example. In a country where rainfalls can reach over 1,600 millimetres per annum, it would appear on the surface that there is an abundance of water. The truth is that half the nation remains water-poor and the sustainable retention of this natural resource is a critical element in the nation’s future sustainability strategy.

Market Selection Performance-based contracts last as long as the partner is prepared to pursue and achieve to desired outcome. Akin to a ticking time bomb giving notice to its detonation, the signing of a global agreement forces the company into an action to which it may not be prepared. A successful sourcing of capital gave rise to documentation for process innovation and technology validation. Commissioned research highlighted priority market segments and Brazil sat in the top 10. In a land of dense population where the typical home sits inside a multi-storied building, laundry is an outsourced activity. Laundries are as common as street corners and as visible as the high rise buildings from where the cleaned product emerges. The geographical size of a major capital city of Australia, such as Melbourne, compares to that of Sao Paulo, whose population compares to that of Australia. As the market waits for a solution, the company has capital in place, external rigour on validation conducted and a documented process innovation to strengthen the company’s foundation for international entry. Who is the right partner and when can they be found?

LATAM Brazil’s Green Market Summary Using Brazil as a market opportunity this section discusses the specific cultural economics and social influences of this destination. Brazil prides itself on the honouring of intellectual property and intellectual property is a primary hook to secure investment. Local registration is paramount. A

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patent application is sufficient from which to construct licensing agreements and gain the investment community’s attention. Regulatory barriers exist for foreign companies. Establishing a company in Brazil can take upwards of nine months and the government imposes heavy tariffs on the importation of goods, not so as to douse foreign technological advances reaching its shores but to encourage technology transfer with local entities through formal partnerships. Respecting the will of the country to successfully enter the nation, behold its wishes and use the willingness to form a partnership as an arrow in the quiver of strategic entry. Australiabased technology validation is the ‘door-opener’ to attracting the eye of the partner. Appropriately focused quantitative and qualitative research is a methodological approach to targeting the right partner, while conducting locally based validation, either through a well-established private–public research partnership model or directly with the targeted commercial partner, gives the stamp of approval from which to proceed with market penetration. Investment inside Brazil differs from that in Australia. Digging precious commodities from the ground and growing the food basket above the earth are two sectors shared by Australia and Brazil, who also share the Southern Cross as an integral element of their respective nation’s flag. Brazilians are aware of its connection with Australia and several technology transfers have taken place in these sectors that further enhance the willingness to conduct business. Angel investment is a key source of funding in Australia (http:// www.australianinvestmentnetwork.com/home). It is true that an investment angel community exists in Brazil but family offices are the visible face of technology investment (http://www.australianinvestmentnetwork.com/ home). Brazil is an older country than Australia. While Australia celebrated its bicentennial in 1988, in 2012, 24 years later, Sao Paulo celebrated its 400th year since birth. Business ownership of this period has produced numerous family dynasties with many adopting a diversification approach to investment with renewable technologies placed high on the priority list. Relationships hold the keys to success in this market and the primary form of networking is through personal contacts. To achieve entry into this environment, a broad range of contacts is required, particularly in the commercial centre of Brazil, Sao Paulo. Home to 22 million in the greater Sao Paulo city and 40 million in its state, Sao Paulo contributes over 30% of the country’s gross domestic product. Portuguese’ is the official language of Brazil is the country. Australian companies in the past have based themselves in the western part of the continent and performed a briefcase entry strategy into Latin America’s largest economy. While this has been tolerated for some time, Brazilians, as

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a proud nation, want to be recognised and encourage people to learn their language and base themselves inside their boundaries. A strong diplomatic culture exists between Australia and Brazil. Business relationships are encouraged, and business visas are available to those who seek them. Culturally similar to Australia, a strong work ethic mirrored by a familyoriented society awaits the prepared innovator.

FINDINGS AND ANALYSIS This section elaborates on the descriptions of the short cases offered and the findings of the case, the Leximancer results and the case assessments. The Leximancer maps allow for collation and assessment of vast amounts of case materials and allow for unbiased judgement of this material. A global map of the themes was produced which led to an enriched interpretation. The cases were analysed using data analysis from Leximancer 3.0 (2012) output, the key and global concepts and green cases material and interview data and were collated and themes identified. Each firm was analysed separately and in cross comparison. The data output and global mapping is discussed in this section. Fig. 1 identifies the global nodes of the combined cases with the pathway map, Fig. 2, offering insight into related themes, concepts and relationships of the case content. The process offers affirmation and verification of the case analysis and adds to the ethnography and identifies the important areas of function that should be considered for successful market penetration with green product. The following maps inform and add value to the discussion.

Fig. 1.

Leximancer Mapping.

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Fig. 2.

Leximancer Pathways and Relationships.

Examination of the map presented in Fig. 1, themes and concepts within the maps led to the identification of a number of recurring themes. The global themes of Green and Market are most prominent in the analysis and represent the focus of the firms and the nature of each case. The overlapping concepts of research and global suggest that research is essential for market development and the green market is global in nature and support the critical analysis of cases offered in Table 1. Interestingly, Investment and Brazil present newer concepts that are yet to intersect the market node and suggest the novelty of the Brazilian market with investment in this market emerging and growing. The evident themes of green, environment, environmental and business were consistently identified in the map of narratives of all cases and case material. These were identified explicitly as key nodes central to the map. Specific firm material and documentation analysed supports the themes/ central node from each firm. Environmental, environment and green all overlap identifying the nature of the green markets which is directly related to environmental causes and improvement to the environment. The


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pathways of business and water depict the emergence of businesses offering environmental product and services-related business. The map depicts the popularity of business related to water security, purification and conservation. Hydro energy and water business are also aligned to the goals of many global markets for energy security and this node depicts that popularity. Moving beyond the cross-compared map the pathway diagram offers an enriched interpretation of the interrelationships of many concepts and themes. Each pathway is identified by considering the global themes, the centrality in the map, relationship with other themes and concepts within themes. The pathways are discussed in the following section and adopt a collective approach to all cases. Using Leximancer 3.0 a pathways diagram is offered that advances the critical analysis and the global node map of the cases offered. The pathways diagram demonstrates the relationships from the four key nodes of green, market, products and process. As expected, the majority of pathways emanate from Green, as it forms the central node of the case study analysis. Market and Products are linked directly to Green, where Research, Use, Renewable, Supply and Business have no further linkages. This may be due to the notion that they are logical elements of Green, though as yet, undetermined as to why they may not link directly to other pathways and could be advanced by further specific research. Environmental is deemed to have consumption and consumers as its connections, suggesting it is more of a mindset than an output. Should this hold, Environmental products would have a solid link to markets with consumers who have beliefs in the environment. Waste has two logical associations, tying the closed loop process of waste-related technologies to the ongoing sustainability of the environment. Energy is a key pathway from Environmental with cost a demand input and Water, an important market segment. This is consistent with the ‘wastewater’ case study that connects the strong demand originating from Brazil for hydro or water products and the need for associated technologies. Energy is growing and shows growth with a connection to some form of government intervention. Again, this is consistent with each of the case studies, where Brazil has solid government intervention on biofuels, biomass and water. As process-defined products, it is logical to see that practices are required in order to deliver the product, where Marketing is an inclusive determinant to pursue the Global nature of the Product. Markets are a pathway from Market that include the Process relationship of technologies that in turn, relates to product as one endpoint and case as the other. These relationships are understandable, given the relevance of the case study analysis and the product’s basis in technology. A Market as a

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subset of a dynamic environment or country would require ongoing development and continuous innovation to meet the market’s demands. Technology as a defined linkage of Market, further emphasises the relationship of the technology-based case studies and highlights the need for investment in order to flourish in the designated market choice. Market has a strong link to Brazil, sitting at pathways’ end that would indicate the strength of its green nature, while Australia originates the pathway with industry and companies feeding into the Market. It could said that Australia is included due to the nature of the case studies originating from Australia; however, it is suggested that any global origination point could be transposed to reflect the need for inputs to the demand, rather than Australia standing alone as the unique supply market. Further, it could be hypothesised that apart from a strong market direction to Brazil, other BRIC nations could be transposed for Brazil, given the rankings of these emerging nations in the Greendex Report (2012) and their consumer’s attitudes towards sustainable behaviour. Other areas for further research include the question of ‘whether the same pathway to investment exists in the other BRIC nations, as strongly as it does in Brazil’ and ‘what, if any analysis can be made about a node’s final position of the pathway’. Table 2 offers a summary of the current practices of each of the cases used and applies this to marketing theory and knowledge. Using critical analysis, the content has been coded and aligned to known marketing terms and practices. It is clearly identified that basic market functions are required and should be mapped from commencement. It should be noted that research and data validation is seen as a vital practice for these firms into the emerging markets with testing and market research an essential requirement for market success. Markets such as Brazil, Philippines, Latin America, United Arab Emirates and, in particular, Brazil were all identified as strong prospects for penetration and success. All products were in the growth phase of the product life cycle.

Proposed Framework, Discussion and Recommendations for Going Global with Green/Renewables Considering all the available data, the Leximancer analysis in Figs. 1 and 2 and the pestle information in Table 2, the Green Innovators Global Growth Knowledge Pathway offers reflections for global marketers for sustainability, process and biomass technologies (and products) that plan to enter global markets, Brazil in particular. Planning to enter a popular green

High

Yes. Levels to be determined by JV partner

South Africa, USA

Government support

Venture capital

Other global market potential

South Africa, LATAM, Mexico, UAE

Yes. Funding through local distribution partner

Medium-high

Technology transfer to local distribution/investment partner

Data validation, product development, process design

Data validation, management education, research options

Research partnership & joint venture (JV) investment partner

Mode of entry

Growth

Global practices needed

Growth

PLC stage in cycle

Product Process

Local agent to develop installation process, transpose original to local conditions, government assistance to be detailed

Product process

Product or service

Latin America(LATAM), United Arab Emirates

Marketing functions needed Laboratory testing to confirm data validation, government liaison for lobbying, local pricing needs to be better understood

Brazil, Philippines

Global market selected

Company 3, Water

Summary of Case Findings.

Company 1, Biofuels

Table 2.

Data validation, technology transfer

Map manufacturing process to local conditions, conduct local validation, investment personnel

LATAM, Northern Europe, USA, Canada

Yes. Funding being pursued via manufacturing partnership

Low-medium

Manufacturing partnership & local investment

Early-growth

Product process

Brazil, LATAM

Company 2, Biomass

Creating the Global Greenscape 179

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destination like Brazil would require adopting the recommendations offered by the framework. This section uses a combination of general and specific international business and marketing material focussed on market entry into Latin American markets. Fig. 3 maps the entry, arrival and ongoing practices required for global market entry into Brazil for clean technology

• Create value and plan for global market entry • Awareness of what relations could be established with publicprivate partnerships and other Brazilian counterparts.

prior to global entry

on entry

• External market validation = international product readiness • Market knowledge. Competitive understanding of similar technologies and products operating in the market • Intellectual property portfolio. • Pre-commercialisation: Adoption of the technology by established firms and firms based around the technology; • Realistic position on investment, divestment and sales

• Know that you need a local partner, ie, you cannot do it alone • Introductions and seeding for business and academe partnerships • Linkage with industry advocates and brokers who have established networks and contacts • Specific research on who can do your testing and validation • Applied Research; Relationships with Brazil academe • Market demonstration; Find partners to demonstrate the technology in real-world applications and measure performance • Qualitative market knowledge. Speak to market participants • Intellectual property portfolio management

ongoing

• Ongoing Product development linked to market testing and performance outcomes • Continued market research so that you can keep pace and align with market dynamics and government legislative changes • Practical analysis and examples of what strategic actions and behaviours are required for the relevant renewable technoloogy • Management of green promotion, business development, technology internationalization, intellectual property, commercialization and marketing

Fig. 3.

Green Innovators’ Global Growth Knowledge Pathway.

Group 1, Sustainability

Awareness that it is an active and growing market. Product development positioned through research is essential

Large company structures and diversification strategies

Joint ventures are proving to be a successful model

Linkage between theoretical research and commercial application. Benefit analysis modelling

Geographical positioning reflects technological market similarities

Entry objectives

Examples of Marketing development practice

Marketing objectives

The needs of industryspecific research

Cross-border collaboration

Existing research can leverage advanced market deployment

Industry-wide impact. Productivity increases and returns on investment

Identify traditional sales and distribution operating in market

Through solid industry associations, demonstrate market benefit

Particular to industry type

Group 2, Process

Reflections and Recommendations.

Technology Type

Table 3.

Australia tends to lead development for this product through a government research agency, though the practical application lags emerging economies

Logistics and supply chain relevance

Specific to market participant

Spin-off planning associated with existing market condition

Establish relationships and partnerships through the early stage of market growth

Group 3, Biomass

Creating the Global Greenscape 181

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products and process, with Table 3 offering the specific nuances for each product and process. On entry it is essential to create value, and plan. On arrival the activities are focussed on creating partnerships and alliances with local stakeholders and competing research to support product claims and market needs. Finally, it is essential for ongoing development to ensure that research is continued, marketing is evolving and response to market needs is rapid.

Reflections and Future Research Table 3 depicts some specific reflections for market entry of the potential green products segments discussed: clean technology, process technologies and renewables. The table offers insight into the penetration of product into global markets and offers insights into global green technology penetration. It is noted that these companies contain highly technical personnel; however their understanding of marketing principles is weak and by extrapolation, the place of the company within an international market entry framework. This includes opportunities for external linkages to research facilities and industry associations, the impact of successful government liaison on funding, establishment of alliances and penetration of new markets and ongoing market research. These factors are all vital to the successful penetration of new world green markets.

CONCLUSIONS The chapter has offered three case studies on process innovations and product sectors and has shown how these cases have developed a strategy of entry into Brazil as a green market opportunity. Given the position Brazil has within the Greendex Report (2012), it would be acceptable to extrapolate that India, China and Russia, who make up the other top three positions and the developed nations of USA, France and Canada make up the bottom rankings, this document relates to the BRIC nations and is not just confined to Brazil. The ‘success and failure criteria’ identify how planning, patent and partnerships are essential for successful entry. The chapter offered insight into the different types of green products and supply chain process technologies that form the green marketplace. This included specific content on G(reen) markets, market information, marketing functions for market entry and market diffusion for renewable products and process

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technologies such as supply chain elements, and how these interrelate with achieving sustainability goals. Finally, this chapter presented a strong case for entry into Brazil, and positioned this destination as a prime opportunity for green investment.

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Pitney Bowes. Retrieved from http://news.pb.com/press-releases/corporate-citizenship/pitneybowes-business-insight-and-earthsense-uncover-the-top-ten-green-us-states.htm Placet, M., Anderson, R., & Fowler, K. M. (2005). Strategies for Sustainability. Research Technology Management, 48(5), 32–41. REN21 (Renewable Energy Policy Network for the 21st Century). (2008). REN21 Renewables Global Status Report 2009 update. Paris: REN21 Secretariat and Washington, DC: Worldwatch Institute. Retrieved from www.unep.fr/shared/docs/publications/RE_ GSR_2009_Update.pdf Securing Australia’s Energy Future. (2009). Retrieved from http://www.efa.com.au/Library/ CthEnergyWhitePaper.pdf Smith, A. E., & Humphreys, M. S. (2006). Evaluation of unsupervised semantic mapping of natural language with leximancer concept mapping. Behavior Research Methods, 38(2), 262–279. Søderberg, A.-M. (2006). Narrative interviewing and narrative analysis in a study of a crossborder merger. Management International Review, 46(4), 397–416. State of the Environment. (2011). Retrieved from http://www.environment.gov.au/soe/2011/ report/built-environment/2-1-livability.html Stubbs, M. (1996). Text and corpus analysis: Computer-assisted studies of language and culture. Cambridge, MA: Blackwell Publishers. The National Measurement Institute. (2011). Retrieved from http://www.measurement.gov.au/ Tukker, A., Cohen, M. J., de Zoysa, U., Hertwich, E., Hofstetter, P., Inaba, A., y Sto, E. (2006). The Oslo declaration on sustainable consumption. Journal of Industrial Ecology, 10, 9–14. UNEP (United Nations Environmental program). (2002). Environment for development – UNEP-publications. Retrieved from http://www.unep.org/publications/contents/pub_ details_search.asp?ID=274 Uiterkamp, A. J. M., & Vlek, C. (2007). Practice and outcomes of multidisciplinary research for environmental sustainability. Journal of Social Issues, 63(1), 175–197. Walton, A., & Hume, M. (2011). Creating positive habits in water conservation: The case of the Queensland water commission and the target 140 campaign. International Journal of Nonprofit Voluntary Sector Marketing, 16, 215–224. WBCSD (World Business Council for Sustainable Development). (2007). Powering a sustainable future: Policies and measures to make it happen. An interim report. Retrieved from http:// www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID ¼ 124&NoSearch ContextKey ¼ true Zikmund, W. G. (1991). Business research methods. Forth Worth, TX: Dryden Press.

CONFLICTING FORCES FOR INTERNATIONALIZATION OF HYDROPOWER EQUIPMENT PRODUCERS: RECONCILING SUSTAINABILITY AND CSR WITH MNEs’ INTERNATIONAL STRATEGIES Lilach Nachum and Michael Schmid ABSTRACT Purpose – We seek explanation for the existence of international activity in industries whose characteristics provide conflicting rationales for international expansion. In such industries, the competitive value of some industrial characteristics is magnified by international expansion, whereas the value of others is undermined by these moves. The tension is amplified in the presence of sustainability concerns and the quest for meeting Corporate Social Responsibility (CSR) goals. Design/methodology/approach – The study is based on case studies of the world’s largest multinational enterprise (MNE) producers of hydropower


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plant equipment, which provide representative examples of MNEs in renewable energy industries. We examine the strategic balances that these MNEs strike to deal with the conflicting pressure of international strategy and their performance outcomes. Findings – The insights we generate from the case studies suggest that there might be plural ways to successfully address such tensions, and firms’ histories and competitive advantages shape the choices they make in the face of these conflicts. Implications – Our contribution is of notable merits in the contemporary world whereby the pressure for international expansion extends to industries whose characteristics both favour and inhibit international activity. We outline the distinctive impact that sustainability concerns have in this tension. Originality/value of chapter – Our study serves to deepen the understanding of international activity in the renewable energy sector, a relatively understudied sector, whose significance in the world economy and in international business is growing rapidly. It is novel in extending the tension of international activity to include sustainability and CSR concerns. Keywords: MNE international strategies; hydropower equipment producing MNEs; sustainability and CSR in global competition; conflicting forces for internationalization

INTRODUCTION The major sources of competitive advantage in the hydropower equipment industry provide conflicting rationale for international expansion. On the one hand, internationalization of the production is a major means of costcutting and growth in an industry where price competition is critical, and size is a vital source of competitive advantage. The need for custom-tailoring of the products according to clients’ specifications and shipping costs of the bulky output favour production in proximity to the client and provide additional rationale for international expansion. At the same time, the interaction between the manufacturing and R&D facilities, vital in a production process that changes with each project according to clients’ specifications, combined with the advantages of centralizing the R&D and

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keeping it in the home country, questions the logic of global expansion. The tailor-made nature of the production also inhibits standardization and undermines the scale advantages that international expansion could provide. These tensions are exacerbated in the contemporary business world, where firms’ activities, including those they undertake in the international arena, are increasingly expected to deliver social value and advance the well-being of their stakeholders and society in large, in addition to their own profitability (Kanter, 2009; Porter, & Kramer, 2011). Nonetheless, the leading firms in the industry have been operating internationally for decades, and have recently expanded their international operations significantly (Credit Agricole Group, 2012). What explains these developments? How do these firms address the conflicting forces for and against international expansion? What trade-offs do they strike that enable them to overcome the tension between these forces, which is inherent in the nature of the industry, and create value via international activity? These questions are particularly pertinent in the contemporary world, where firms are expected to behave in a manner that not only maximizes their own goals and profitability but also creates social and environmental values. The inherent challenge in relation to multinational enterprises (MNEs) is the reconciliation of varying and often conflicting perceptions across countries of what constitute social and environmental values and what the standards of these dimensions are (The Economist, 2011a; Witt & Redding, 2009). This pressure appears to create major concerns for firms in the renewable energy sector, and particularly in the hydropower equipment industry, where the leading MNEs originate from the advanced countries but most of their international activity, notably the more recent one, is flowing to emerging markets (Schmid, 2010). This intensifies the conflicts between the home and host countries in relation to these issues. MNE theory provides rich and diverse rationale for the international expansion of firms (Bartlett & Ghoshal, 1989; Hymer, 1960), but it is underlain by the (typically implicit) assumption that industrial characteristics create unified forces that either drive international activity or inhibit it. The presence or otherwise of these attributes is employed to explain industrial variation in the intensity of international activity (Caves, 1996). When an impact of varying drivers for internationalization has been acknowledged, they have been assumed to manifest over the product life cycle rather than in tandem, in a manner that does not create conflicts among them (Vernon, 1966, 1979). Practitioner-oriented theories have acknowledged the existence of conflicting forces for internationalization, but have assumed that firms can address such conflicts by adequate strategic

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choices, such as multi-domestic versus global strategies, local adaptation or global standardization, centralized or decentralized organizational structures, and the like (Bartlett & Ghoshal, 1989; Ghoshal & Nohria, 1993; Porter, 1986). These approaches do not fully address the contemporary reality of international activity, whereby the pressure of global competition has drawn many industries that until recently have been domestic, exactly because of the presence of conflicting forces that spell out inconclusive rationale for internationalization, into international activity (notable examples include the retail industry, hospitals, stock exchanges, among others (Carr & Collis, 2011; Corstjens & Lal, 2012; The Economist, 2011)). Nor do they acknowledge the pressure on firms to act in a socially responsible manner, and the conflicting expectations across countries, in aggravating these pressures and introducing new ones (Levy & Kolk, 2002). The limited understanding of such situations constrains firms’ ability to create value via international activity and results in poor international performance. In this chapter we seek to make a contribution in this direction by studying one industrial setting whereby these forces are most apparent – hydropower equipment production. The major sources of competitive advantage in this industry – technological prowess, cost and size – spell opposing directions towards international expansion and call for conflicting strategies for organizing these activities. Furthermore, this industry, which is representative of the renewable energy sector, is particularly interesting in the context of discussions of sustainable and responsible investment. By producing equipment that enables the creation of renewable energy, hydropower equipment producers represent possible solutions to global warming and clean environment. At the same time, however, their production activities create pollution. They are thus both part of the problem and the solution (UNCTAD, 2010). Based on case studies of the world’s leading producers of hydropower equipment, which draw on published and unpublished company reports as well as vast industry expertise of one of the chapter’s authors and views of other industry observers, we illustrate the strategic choices that these firms have made to address these tensions, and their performance consequences. The case study material provides the basis for outlining ways by which value can be created via international activity in such industries. Our study makes important contributions to several theoretical strands. For one, it advocates a novel way of thinking about international strategy, one that is based on striking a balance between opposing forces, rather than making a choice between them. This approach contrasts with views


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that ‘y some industries cannot travel across borders as well as others’ (Corstjens & Lal, 2012, p. 105). Instead, we suggest that integral approaches that strike a delicate balance among conflicting forces create value via international activity. This contribution is particularly novel in the context of the pressure on MNEs to act in a sustainable way and to strike a balance between their profit-maximizing goals and the societal consequences of their activities. The study also serves to bridge between the characteristics of industries and those of firms in shaping firms’ strategies and the industrial patterns of competition (Ghemawat & Spencer, 1986). Such a bridge has not received much attention in MNE theory, which with its natural focus on geography and locations has paid limited attention to the characteristics of industries and the way they affect the internationalization of firms. This interplay is vital because the strategic choices that firms have are constraint by the characteristics of their industries (Porter, 1986), and hence are fundamental for the explanation of firms’ strategies and the patterns of their international activity. Yet another notable contribution of our study lies in extending the understanding of the internationalization of firms in the hydropower equipment industry, an understudied, yet most important industry.1 Hydropower energy is by far the most important source of renewable energy, accounting in 2011 for 90% of energy generated from renewable resources, and for 20% of world’s electricity (Lucky, 2012). In spite of its apparent importance, to the best of our knowledge, ours is the first academic study of this industry. We believe that the understanding we derive from the study of this industry has broader validity to other renewable energy industries. Given the significance of these industries and their future growth prospects (Asif & Muneer, 2007; de Lange, 2010; Madrigal, 2011; Scheer, 2004), this is the most important and timely contribution.

THEORETICAL FOUNDATIONS MNE theory suggests that firms expand internationally because such moves provide means to magnify the value of their existing assets and acquire and develop new ones (Hymer, 1960; Makino, Lau, & Yeh, 2002; Wesson, 1999). These include intangible assets in the form of technological capabilities, branding and differentiation skills, as well as managerial and organizational skills that enable firms to manage large-scale operations and create the internal synergy that underlain value creation via international activity. International activity also favours scale economies, for instance by

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enhancing the advantages of purchasing on a global scale and the achievement of efficient scale of production. Impediments that inhibit the drivers towards internationalization have also been recognized. These include heterogeneous local conditions and needs, government policies, transaction costs and organizational complexity (Porter, 1986). Beyond recognizing variations in the importance of these attributes across industries (Caves, 1996; Porter, 1986), however, for the most part, theory has been silent about the balance between them. To the extent that the conflicts between them have been acknowledged, they were maintained to be temporarily separated. The product life cycle theory suggests that they manifest themselves in an orderly manner over time, at different stages of the life cycle (Vernon, 1966, 1979). It is the differences among these forces that drive the movement over the life cycle, whereby the interaction between R&D and production is critical at early stages of the cycle, whereas cost becomes a competitive imperative at the maturity and decline stages. Practice-oriented discussions have been driven by the assumption that MNEs’ strategic choices enable them to mitigate the conflict between the forces that amplify and attenuate international expansion. They can select multi-domestic or global strategies, local adaptation or global standardization, decentralized or decentralized organizational structure, and they can opt for international, multinational or transnational strategies for managing their international activities (Bartlett & Ghoshal, 1989; Ghoshal & Nohria, 1993; Harzing, 2000; Porter, 1986; Solberg, 2000). Calls for the integration of conflicting forces in the management of the MNE have been made more than two decades ago. Prahalad and Doz (1987) and Doz and Prahald (1991) were explicit in maintaining that polarization is inadequate for a theory that seeks to outline management principles for a complex and multi-dimensional organization as the MNE, nor is it of merit for practice. But the prevailing thinking in discussions of MNE theory and its applications for practice has continued to be dominated by a polarizing approach. A recent article suggests that this is inherent in the Western tendency to classify and categorize things. The article contrasts this approach with the Eastern proclivity for balance between conflicting forces, as is expressed for instance in the yin and yang concepts that characterizes this tradition (Heracleous & Wirtz, 2010). Building on this approach, in the remaining of the chapter we suggest how the combination of supposedly incompatible strategies can become a source of value creation, and illustrate the successful reconciliation of fundamentally contradictory approaches towards international activity. We refer to the hydropower equipment industry where, as we outline below,


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the co-existence of conflicting forces manifests itself compellingly, but has not stopped the internationalization of some firms within this industry. We root the discussion in the context of sustainability and Corporate Social Responsibility (CSR) which represent a renewed source of conflict which has surfaced more recently, and hence received limited if any research attention thus far. MNEs are increasingly subject to demand to balance their business goals with those of their stakeholders and society in large (Kanter, 2009; Porter & Kramer, 2011). Their responses to these pressures have changed dramatically over time (Kolk & Pinkse, 2005; Lee, 2008) and in their more recent configuration represent substantial challenge. The denial and confrontational approaches that were common in earlier decades were recently replaced by collaborative attitudes that embrace the social role of firms and make deliberate efforts to comply with regulations and even voluntarily impose them (Logsdon & Wood, 2005; Ramamurti, 2005). Boli and Hartsuiker (2001) found that in 1977 less than half of Fortune 500 firms mentioned CSR in their annual reports, whereas by the end of 1990s almost 90% of them centrally positioned their CSR efforts and referred to them as essential elements of their goals. Addressing these pressures is particularly challenging for MNEs. By virtue of their activities in many countries, these firms confront multiple and often conflicting pressures for ethical behaviour that create social value (Arthaud-Day, 2005; Bennett, 2002). At the root of these conflicts are different cultural and societal values, accompanied by different political systems, which shape societal expectations from firms and the perceptions of the role they should play in society and in business (Husted & Allen, 2006; Spicer, Dunfee, & Bailey, 2004). MNEs are also subject to dual pressures of local and global communities whose demands for socially responsible behaviour may not always be in agreement. Local communities expect compliance with local norms, whereas global communities require MNEs to respond to universal norms and standards (Donaldson & Dunfee, 1994, 1999).

THE HYDROPOWER EQUIPMENT INDUSTRY Hydropower equipment is used for the production of electricity with water energy in hydropower plants. Due to the simplicity of the technology, whose essence is the employment of the power of water to move a turbine blade, hydropower is one of the oldest sources of alternative energy, and has been in existence for thousands of years (Bonsor, 2012; Madrigal, 2011). The first

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large-scale commercial hydropower plants were built in the last decades of the 19th century, and sparked demand for advanced equipment that can serve commercial production. The demand for hydropower equipment is directly related to demand for hydropower electricity, notably as most of hydropower equipment does not have any alternative use. Demand for hydropower electricity is determined by the general demand for electricity, the demand for electricity from renewable sources of energy and the relative cost of alternative sources of electricity. These demand determinants have been very favourable over the last decades, and have propelled the growth of production and consumption of hydropower electricity. According to data compiled by the International Energy Agency, demand for electricity more than doubled since 1980. The demand for electricity generated from renewable resources has substantially increased during this period, a result of rising concerns regarding depletion of fossil-fuel reserves and global warming, coupled with geopolitical and military conflicts, and recently significant rise of fuel price (Asif & Muneer, 2007; Scheer, 2004). Further, the cost of hydropower electricity is low compared to the cost of electricity, from other sources of renewable energy and from non-renewable ones, making it a competitive source of electricity. Indeed, global consumption of hydropower electricity increased considerably over the last decades. According to PEW Climate statistics, in 2011, 20% of world’s electricity is generated from hydropower sources. It is the most widely used source of renewable energy, accounting for about 90% of electricity generated from renewable resources (Lucky, 2012).2 Growth in demand has increased investment in hydropower plants, which reached in 2010 alone $40–50 billion worldwide (Worldwatch, 2012). This growth has propelled substantial demand for hydropower equipment. Hydropower electricity, as part of the whole sector of renewable energy, is at the forefront of addressing concerns regarding global warming and clean energy, issues that are at the centre of sustainability discussions (UNCTAD, 2010). Hydropower electricity is clean, green and renewable, and provides affordable solution to some major environmental and sustainability concerns. At the same time, the usage of water for the production of hydropower electricity raises severe concerns regarding the impact it has on the environment and on local communities. Water flow and quality, fish passage, habitat protection, as well as the welfare and lifestyle of the local communities, are all subject to demanding environmental and societal standards (Lund, 2002). The production of equipment for the generation of hydropower electricity raises the challenge of pollution by the usage of heavy machinery (Bonsor, 2012). In international context, the concern is


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magnified by the environmental cost of transporting heavy equipment over distance (Madrigal, 2011). World’s supply of hydropower equipment is dominated by three large firms, known as the Big Three – Alstom Power, Andritz Hydro, and Voith Hydro – whose combined world market share in 2011 was about 60% (Table 1). The other 40% of the market is split among large numbers of small providers, the majority of whom are of European, Japanese and Chinese origins, which for the most part operate only in their home markets (Credit Agricole Group, 2012; Schmid, 2010).3 The Big Three differ from smaller competitors in terms of their technological capabilities and the range of products they offer, and hence are usually not in direct competition with them. The Big Three are vertically integrated, providing the design, manufacturing, services and supply of products and systems, and produce the entire range of equipment for hydropower plants. They also offer service of the machines they produce, which account for about a quarter of their revenues and a larger share of their profits (Credit Agricole Group, 2012). To varying degrees, the Big Three are diversified beyond hydropower equipment, notably into production of equipment for other energy sources, as well as transport, marine and others. In contrast, their smaller counterparts tend to be more specialized and focused. In the next chapter we describe the major sources of competitive advantage in the industry, and show how international activity has affected them. Table 1.

Major Producers of Hydropower Equipment. Home Country

Global Market Shares, %, 2011

The Big Three Andritz Hydro Alstom Power Voith Hydro

Austria France Germany

28 23 23

Others Dong Fang Electric Harbin Impsa Zhefu Sinohydro Other Chinese Toshiba

China China China China China China Japan

26 n.a. (no. 1 in China, by sale volume) n.a. (no. 2 in China, by sale volume) n.a. n.a. n.a. n.a. n.a.

Sources: Big Three Annual Reports 2011; Credit Agricole Group.

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COMPETITIVE ADVANTAGES IN THE HYDROPOWER EQUIPMENT INDUSTRY AND INTERNATIONAL ACTIVITY The major sources of competitive advantage in the industry are technological capabilities, cost and size. The equipment used for the production of hydropower electricity is complex and technologically advanced, and this assigns critical importance for the command of state-of-the-art technology and the ability to employ it commercially. Continuous investment in the development of technological capabilities, whereby technological developments are employed as the basis for the development of firm-specific technologies, is the most critical competitive imperative. Moreover, needs are client-specific, and production is based on distinctive specifications of individual clients. This feature undermines, and in relation to many parts of the production removes the possibility of standardization of the production. The ability to handle a vast range of specifications requires advanced technological skills which provide an important source of competitive advantage. At the same time, however, the ability of hydropower equipment producers to differentiate themselves by their technologies is limited because most of the equipment they produce is built on order, according to clients’ specifications. The producers are evaluated by clients based on their ability to develop customized technologies that improve the productivity of the clients’ plants and minimize operating costs. The clients provide detailed specification as to how they expect these goals to be achieved, leaving little room for variations in the features of the products.4 As a result, cost is a major differentiation means, and low-cost offering is a key determinant of competitive success. Two factors of production are used in the production of hydropower equipment – labour and material, and accounting, respectively, for 30% and 70% of the production costs (Schmid, 2010). The labour employed includes highly skilled scientists and engineers, conducting the R&D activities and responsible for the design of the components. The supervisors create the interaction between the R&D and production and ensure the proper implementation of the design. The tailormade nature of the production entails that the supervisors’ role is far from trivial and requires high technical skills and training. The production and assembly are carried out by technically low-skilled labour (welder, electricians, pipe fitters and the like) which also produce in-house some of the standardized parts. The size and weight of many parts often requires a


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machine-assisted production and reduces labour participation. Cost-cutting can be achieved via the efficient use of labour and capital, effectively utilized in the procurement of machines, intermediaries and raw material (Schmid, 2010). The tailor-made nature of the production constrains the ability to reduce cost via standardization and scale, because with the exception of some intermediaries, most of the output is designed and produced based on specifications of individual clients. It also rules out the ability to automate the production, including even the employment of the same machines for different projects. The more standardized parts of the production, such as welding, forging or other single manufacturing step, are often outsourced to specialized suppliers. The importance of technological capabilities and costs as sources of advantages assigns critical value for size. Size enables firms to enhance their technological capabilities via cross-learning and the generation of firm-specific knowledge that is magnified by the number of the projects it handles. Size is also advantageous because it affords firms with the ability to provide clients a one-stop shop for the provision of an entire project. Given the high level of project specification and variation across clients, this is an important advantage. Size provides firms with the financial capacity to handle large-scale projects and the risk involved with them. Size is critical also for the ability to cut costs, via scale economies in the use of labour and in the procurement. It provides firms with strong negotiating power in relation to suppliers, and enhances their ability to reach out to sources of supply of varying quality and costs around the world. Further, size increases firms’ visibility, an important advantage in an industry whereby clients select a small number of producers to bid for a project and select among them, and where reputation exercises strong impact on these choices. Lastly, size creates high barriers to entry and explains the tight oligopolistic structure of the industry which favours incumbents (Caves, 1996). As we will outline below, international activity affects the three competitive advantages considerably. Technological Capabilities The generation and development of technological capabilities in the industry has been closely linked to the home country. The R&D departments of the Big Three have traditionally been based entirely on their home countries,

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and have relied exclusively on the countries’ scientific and engineering talent. There are several notable advantages to this approach. For one, it usually yields the most effective technological developments because firms have developed their specific technological competences based on the nature and type of the human capital in their home countries and human capital in foreign countries often does not serve them as well. Furthermore, firms’ access to foreign country resources is often inferior to the one they enjoy in their home countries (Nachum, 2011). In addition, maintaining the R&D function at home eases the control over technological developments and the protection of proprietary firm-specific knowledge (Bas & Sierra, 2002; Kumar, 2001). Successful technological development in the industry, however, necessitates close interaction between R&D and production. Implementing the R&D in the home countries thus puts constrains on internationalization of the production, including international outsourcing. The technological developments by the research teams have to be tested in use and modified based on feedback from the production. The need for close interaction is such that it turns remote communication ineffective and strongly favours face-to-face physical interaction.5 Furthermore, to the extent that the R&D can effectively be implemented outside the home country, the location requirements of R&D differ from those of the production, resulting in different country selection for the two functions, which imposes geographic separation.

Cost As noted above, there are two major components of cost in the industry – labour and raw material and intermediaries, and accounting, respectively, for 30% and 70% of total cost. Cost saving can be achieved by reducing costs and increasing efficiency of these components. International activity is critical in enabling cost reduction of both components. The cost imperative has forced all the Big Three to move their production overseas early on in their histories. All three originate in high-labour cost home countries, and international expansion has been the major means of cost reduction for the three companies. A typical division of labour is based on home country scientists, engineers and very often also supervisors, whereas the production and assembly labour is recruited locally in foreign countries. Usually about 5–10% of the labour employed in production facilities outside the home countries consists of expatriate supervisors from the home


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country. The potential cost saving by foreign labour recruitment is thus substantial. The cost imperative naturally dictates the selection of countries, and explains the presence of the Big Three in low-cost countries very early on (see ahead). Production facilities in such countries afford the companies’ access to labour at considerably lower costs than in their home countries.6 International activity is instrumental also in reducing the costs of raw materials and intermediaries, in providing access to low-cost alternatives in both outsourcing and procurement. It provides access to low-cost outsourcing targets and suppliers of intermediaries and raw materials. Components that are part of firms’ specialized knowledge are usually produced internally such that firms can guarantee their quality, and control their delivery time. Cost-cutting here could be achieved via the employment of lower-cost labour, as discussed above.

Size International expansion is a major means of growth in the industry and thus enables firms to benefit from the advantages of size. The substantial growth in demand for hydropower electricity, noted above, has opened up many growth opportunities internationally, and propelled the international growth of the Big Three. It has been the major route of growth of all of them over the last decades (see ahead). The importance of international activity for the generation and further development of competitive advantages in the industry has created the tension between the conflicting forces for internationalization. The three sources of advantage create conflicting rationales for international expansion, in several ways. For one, the pressing need to cut costs, combined with apparent size advantages, is a strong driver towards internationalization, which enables firms to access low cost labour and to increase their size. At the same time, such moves undermine the ability to maintain close interaction between the R&D and the production, which is vital in the industry due to the high value of technological prowess and the tailormade nature of the production. Furthermore, under these circumstances, there is a need for close inspection of the production in order to control quality standards, and that too resists internationalization of the production. This is particularly problematic in emerging markets, sought for the cost advantage they provide, whereby quality assurance is often challenging. In addition, the tailor-made nature of the production, whereby

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each project is in some way new and novel, defies centralization that is essential for the materialization of scale advantages, which enable costcutting and growth. CSR issues have complicated international activities in the industry in several notable ways. For one, the movement of jobs, many of them are high-skilled jobs, overseas have subjected the Big Three to substantial criticism at home, particularly as the three originate in Western European slow growing economies where unemployment has been a major concern for years. Job losses have often expanded beyond direct employment in the industry to the home suppliers of these firms (Schmid, 2010). Moreover, international activity brings about strong conflict between different social expectations and subjects firms to severe pressure that often prevents the full utilization of their advantages overseas. The Big Three all originate in Western European countries, where the pressure on companies to operate in a socially responsible manner and create social value has been by far the most severe. Most of the international activities of these firms, however, notably in recent years are geared towards emerging markets, countries that differ considerably in their expectations of firms and in their regard to socially responsible business activities. These conflicts, and their devastating consequences for firms in the industry, have been vividly demonstrated in a series of recent projects that raised major environmental and ethical issues, and subjected the firms involved to severe criticism (Hvistendahl, 2008). Most of these projects took place in emerging markets and the controversy they created, and its damaging consequences for the hydropower equipment producers that were involved in them illustrate the challenge of acting in a sustainable manner and following CSR principles in the face of conflicting expectations and standards across countries. In Table 2 we present a summary of the industrial characteristics that foster and inhibit internationalization before moving on to outline the

Table 2. Industrial Characteristics of the Hydropower Equipment Industry and their Impact on Internationalization. Support Internationalization Price competition - cost pressure Local adaptation – proximity to clients Transportation costs Scale economies

Inhibit Internationalization R&D most effective in home country Different location needs – R&D, manufacturing Interaction R&D/manufacturing Quality control (tailor-made output)


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strategic choices made by the Big Three to address these challenges in the remainder of the chapter.

FORCES FOR INTERNATIONALIZATION AND THE ‘BIG THREE’ STRATEGIC CHOICES7 Table 3 presents major milestones in the historical evolution of the Big Three, and Table 4 brings a comparative summary of some features of these firms. Notable are the differences among them in terms of the importance of the hydropower segment in their overall activity, in relation to each other and over time. As the data show, hydropower equipment production has become significant to Alstom and Andritz only during the last decade. This signifies a considerable change in the industry, which was previously dominated by large number of relatively small, mostly domestic and local, producers, and has been transformed in the last decade into a global industry. While the Big Three originate in Western European countries, there are notable differences among their home countries that have left their mark on their international expansion. The production and consumption of hydropower electricity vary substantially across these countries, offering varying opportunities at home. According to U.S. Energy Information Administration data, in 2010 the per capita consumption of hydropower electricity is 40, 9.6 and 2.5 kW/hour in Austria, France and Germany. Consumption propels the development of local production, which likewise varies widely across the three countries. According to the most recently available data, the shares of hydropower electricity in total electricity production correspond, respectively, to 59%, 10.5% and 3.5% in Austria, France and Germany (World Bank Development Indicators).8 Production facilitates the emergence of hydropower equipment producers. The geographic and cultural proximity between the producers and end-users creates feedback loops that are important in developing advanced firm-level capabilities (Porter, 1990). Andritz thus enjoys home environment that appears to be far more munificent than that of its competitors. It might be that Andritz earlier establishment is due in part to this fact. It may also explain its success internationally, where it could build on well-developed home country resources to develop advanced capabilities and strong competitive advantages. Table 5 presents the Big Three’s competitive advantages in the hydropower equipment segment in relation to the major sources of advantages in

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Table 3. Alstom 1928

1932

1955 1969 1976 1979 1989 1995 1998 1999

2004

2005 2006

2010

Andritz 1852 1900 1949

1950s 1960s and 1970s 1980s 1987

Early 1990s

Milestones in the Historical Evolution of the ‘Big Three’. Founded as a result of a merger of two French companies Thomson-Housten and Socie´te´ Alscienne de Construction Mećaniques under the name Althom, with focus on the transport sector. Acquires Constructions Electriques de France to ensure the supply of locomotives. Gained major experiences also at the hydraulic equipment sector. Established production affiliate in Brazil. Followed by further organic growth in Latin America. The majority of Alsthom shares acquired by Compagnie Geńe´rale d’Electricite´ (later known as Alcatel) Acquired Chantiers del Atlantique to expand its business to shipbuilding Entry to China – branch office in Beijing Acquired Compagnie Geńe´rale d’Electricite´ and General Electric Company. Increased its European presence. Establishment of manufacturing facilities in China Acquired Cegelec and changed its name to Alstom. Listed on the Paris Stock Exchange. GEC and Alcatel held the major shares. Created a 50–50 joint venture with ABB energy business, followed by an acquisition of ABB’s share in the ABB Alstom Power forms Alstom Power sector. Sold its heavy duty gas turbine business to General Electric. Sold the transmission and distribution business to Areva and the power conversion sector to the Barclays Private Equity. The French Government acquired 21% of Alstom to support the company. Sold the industrial boiler business to the Austrian Energy & Environment AG. Bouygues acquired the 21% shares of the French Government in Alstom and increased its stake to 24%; Alstom sold 75% of interests in the marine sector to Anker Yards. Acquired the T&D transmission business of Areva and launched the Alstom grid; sold the remaining 25% of its interests in the marine sector to Anker Yards. Founded as an iron foundry in Austria, named after the district in which it is located. Became a stock corporation. Entered into a collaboration agreement with Escher Wyss Group of Switzerland that enables expansion of product line and technological development of existing ones. Focus on water turbines, centrifugal pumps, cranes and steel structures. Organic growth, mostly via product diversification. Received assistance of the Austrian Government that enables it to survive. AGIV AG (a German investment company) purchased majority shares; for the first time in the company history – sells products under its own brand name. Acquired Sprout-Bauer (a supplier for equipment of mechanical pulp and animal feed productions). This acquisition marked a change in the


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1999 2000/2001 2001 2006

2007 2008 2009 Voith 1867

1870 1881 1903

1909 1908 1922 1929 1950 1962 1964 1983 1990 1994 1997

2000

2011

company’s expansion strategy, whereby acquisitions came to supplement internal growth. Shares of AGIV AG in Andritz purchased by a consortium of investment companies and the Custos Private Foundation. Acquired Ahlstrom Machinery Group (pulp production) Listed on the Vienna Stock Exchange. Acquired Va Tech Hydro’s hydropower division, an acquisition that established its position as one of the Big Three in the hydropower equipment industry. Established Andritz Technologies in Foshan, Guangdong as a wholly owned affiliate in an attempt to strengthen Andritz position in China. Purchased GE’s majority interests in GEHI (General Electric Hydro Inepar). This acquisition increased Andritz’s position in Brazil and Finland. Established joint venture with China’s Chengdu Tianbao Heavy Industry Corporation Ltd. to further strengthen the position in China. Established as a locksmith family-owned company in Germany, specializing in the refurbishment of water wheels for mills, and active in two areas: hydrodynamic machinery and paper technologies. Started manufacturing water turbines. Produced the first complete paper machine. Received first international order – to produce 12 Francis turbines for the hydropower station at the Niagara Falls; established a wholly owned affiliate in Austria which served the Austria-Hungarian and Russian markets with paper machines. Established a hydropower manufacturing affiliate in China. Produced the first pump storage power plant in Germany. Produced the first Kaplan turbine (a propeller-type water turbine. Named after Kaplan, an Austrian professor who developed it in 1913). Produced the first hydrodynamic couplings according the Fo¨ttinger principle. Registered as a GmbH (private limited company); built up new plants in Germany. Acquired a stake in Indian Utkal machinery Ltd. Established marketing affiliates in Britain and France and a manufacturing affiliate in Brazil. Entered the United States with the acquisition of Appelton mills and the hydro business of Allis Chalmer. Established a Chinese affiliate to develop position in Asia. Created a joint venture – Voith Sulzer Paper Technology – with the Swiss Sulzer group, and a joint venture with Siemens Hydro. Became a Holding Company, with the paper technology operating as a stock corporation. Voith Turbo and Voith Hydro established as separate companies that are part of the Voith Group. Acquired Deutsche Industriewartung AG and created Voith industrial services as a separate division; acquired majority shares of Sulzer AG and renamed the group to Voith Paper. Switched back to its old GmbH governance structure. One of Europe’s largest family-owned firms.

Austria

Germany

Andritz

Voith

1867

1852

1928

Fully owned by the founding family

Privately owned stock corporation

Public stock corporation

Governance/ Ownership

Paper

Pulp/paper, metals, feed/biofuel

Wind, transporta

Product Scope (in Addition to Hydropower), 2010

15.88

2.83

17.85

2002–5

18.61

33.88

50.24

2006–10

Sales

21.95

38.57

55.75

2011

9.17

6.87

46.44

2002–5

9.73

41.16

52.87

2006–10

Employment

13.13

43.49

52.87

2011

Significance of Hydropowerb,c (% of Firm’s Total)

Characteristics of the ‘Big Three’.

11

21

20

Countries with Hydropower Production Facilities (N) 2010

After the 2003 re-organization, a major element of which was a narrower product scope. Throughout most of its history, Alstom had a broader product range. b Alstom data relate to the firm’s entire power segment. Alstom does not publish data for hydropower alone. In addition to hydropower, Alstom power segment includes gas, steam, nuclear, wind and energy products and services. In 2011we estimate that the share of hydropower in Alstom Power renewable sector order intake was 90%. Order intake and sales are highly correlated (pW.95 in our data), and hence we assume that hydropower accounts for similar shares of sales as well. c 2002 is the first year for which all three firms made financial data publically available. 2011 data was the latest available at the time of data collection. Sources: Big Three Annual Reports, various years.

a

France

Alstom

Nationality Establishment (year)

Table 4.

1.42

4.97

1.69

4.58

4.63

1.43

3.36

218,800

110,729

81,565

230,774

204,259

214,212

Data for the whole firms. Data for hydropower alone are not available.

229,747

243,363

236,116

2011

n.a.

n.a.

n.a.

2002–2005

53.16

7.50

c

63.61

2006–2010

37.74

180.01

9.15

2011

521

39

3,322

2002–2005

861

1,108

8,332

2006–2010

Sales (Mil. Euros)

1,228

1,773

11,666

2011

2,377

354

43,540

3,766

5,239

38,188

2006–2010

5,345

7,285

49,408

2011

Employees (Numbers) 2002–2005

Size

This average is a result of a large negative figure in 2010. The average for 2006–2009 is 42.08%. The negative ROIC is 2010 and 2011 are attributed to large acquisitions that Andritz undertook during these years. Sources: Big Three Annual Reports, various years.

c

3.03

2.96

2006–2010

For Alstom – the entire power sector. See footnote b, Table 4.

b

a

Alstom Power Andritz Hydro Voith Hydro

2006–2010 2011 2002–2005

Labour (Sales per Employee, Euros) Capitalb (Return on Invested Capital, %)

R&D Expenditureb (% Sales)

2002–2005

Cost (Efficiency)

Competitive Advantages of the ‘Big Three’ in the Hydropower Segmenta Annual Averages.

Technological Capabilities

Table 5.

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the industry – technological capabilities, cost and size. Below we examine how the differences outlined in Tables 3–5 have led the Big Three to adopt different solutions to the tension created by the conflicting forces for internationalization, and resulted in varying balances they established to addressed these tensions. Alstom Power Alstom hydropower activity is by far the largest among the Big Three (Table 5). It, thus, benefits from size advantage to a greater extent than its competitors do. As noted, Alstom has increased its hydropower activity significantly recently, with sales tripling during the last decade. The increased activity came together with substantial improvement of labour productivity. It appears that Alstom has benefited from the scale advantage that its large size offers. Alstom has also been the most aggressive of the Big Three in taking advantage of low-cost opportunities that international expansion offers to strengthen its competitive position globally. It was the first to enter India, at the beginning of the 20th century, and Brazil in 1955, an entry that fostered rapid expansion in the coming years in South America. It was also the first to enter modern China, in 1979, and to expand from there to the rest of Asia earlier than its competitors.9 Alstom has successfully capitalized on the lowcost advantage that its strong hold in emerging markets has provided to strengthen its competitive position globally, by using this low-cost base as a production location from which to export to other markets. For instance, Alstom manufacturing facility in China has been used to export low-cost equipment to clients elsewhere. The heavy reliance on emerging markets exposed Alstrom to the challenge of adhering to conflicting CSR and environmental standards to a considerable extent. In recent years Alstrom has been involved in a number of such projects that put it into severe criticism for acting in a manner that is not socially responsible and does not conform to expected ethical standards. The Three Gorges Dam in China and the San Antonio project in Brazil, as well as the Jirau and Belo Monte projects, are examples of such projects. The Three Gorges project was named ‘an environmental catastrophe’ which causes major damage to the environment and the health of local communities in the area (Hvistendahl, 2008), and severely damages the reputation of the firms involved in its building, including Alstrom. Alstom is notable in its preference for organic growth, and for the most part has developed its international activity by establishing fully owned


207

facilities (Table 3). It appears that this approach has been influential in enabling Alstom to adopt strategies that combine the benefits of centralized R&D investment without losing the critical interaction between the production and R&D. Notwithstanding the rapid growth of its international activity, it has continued to implement most of its R&D activities in its home country, and taken advantage of the relatively easy communication and interaction with wholly owned affiliates (Bartlett & Ghoshal, 1989; Noorderhaven & Harzing, 2009) to overcome the geographic separation of the R&D and production functions. This strategy has also enabled Alstrom to address in part the employment challenge in its home country. Fully owned affiliates enable MNEs to employ expatriates, which are most typically nationals sent from the headquarters (HQs), to a greater degree than is the case in relation to expansion via acquisition, and thus have less severe employment consequences in the home country.

Andritz Hydro Andritz has appeared as a global player in the hydropower segment only in the last decade (Tables 4 and 5). This transformation was achieved via aggressive acquisition strategy of previously domestic, independent hydropower producers around the world. Unlike Alstom and Voith, which have shown preference for organic growth, Andritz has expanded primarily via acquisitions. During the last two decades, Andritz acquired about 60 companies, most of them with well-established reputation and developed engineering, manufacturing and marketing facilities. These acquisitions have awarded Andritz production capacity around the world, and enabled it to diversify both its product portfolio and geographic reach. Particularly notable were the acquisitions of Va Tech Hydro in 2006 and of GE-Hydro Inepar in 2008 which have transformed Andritz into a global player (Table 3). Andritz acquisition-based strategy enables it to address some major environmental concerns that are often raised against hydropower equipment producers. In some cases, these acquisitions are accompanied by modernization of manufacturing production of the targets and the replacement of old machines with new ones that are more efficient and environmentally friendly. Andritz international expansion has been furthered also by many international collaboration agreements. Notable among these is a joint venture with Tianbao Heavy Industry Corporation Ltd., an established local

208


manufacturer of heavy machinery in China. This agreement enabled Andritz to offer an entire product and service portfolio in China and played an important role in establishing Andritz position in China. Andritz international growth strategy via acquisitions has often entailed that it acquired R&D facilities of the acquired companies. Typical of European firms, particularly those originating in the smaller European countries that tend to have a polycentric orientation towards international activity (Bartlett & Ghoshal, 1989; Perlmutter, 1969), Andritz has left the acquired R&D operations to operate on their own. This approach resulted in fragmented and decentralized R&D activities. This fragmentation enabled Andritz to maintain close interaction between the production and R&D functions. Andritz size-adjusted R&D investment is the smallest among the Big Three, and has diminished over the last decade (Table 5). It might be that Andritz acquisition and integration strategy in part explains the low level of R&D investment, as it is largely determined by the acquired companies. Particularly as many of these acquisitions, notably those undertaken more recently, have been in emerging markets, where the level of R&D investment tends to be lower than in Europe. The acquisition strategy enables Andritz to cut cost and achieve efficiency and gave Andritz cost advantage relative to the competition (Table 5). Andritz emphasis on expansion to countries with low labour costs combined with its size advantage enabled it to become the most cost effective among the Big Three. In a course of a decade Andritz has emerged as the most efficient in terms of labour utilization among the Big Three. Andritz developed skills in integration of the acquired firms, which provided it a major means of cost-cutting by capitalizing on potential synergies and scale. The magnitude of Andritz acquisition activity has also enabled it to develop skills in identifying financially stable targets that can be successfully integrated with its existing operations.

Voith Hydro By the end of the decade, Voith Hydro is the smallest player in the hydropower segment among the Big Three (Table 5). However, hydropower equipment has been more central for Voith than to its two major competitors during most of its history. Of the Big Three, Voith has maintained the narrowest product range, focusing on hydropower machinery and paper technologies only since its origin (Table 3).


209

The narrow industrial base has entailed that international expansion has represented a major growth opportunity. Indeed, Voith expanded internationally very early on. It established its first hydropower manufacturing plant outside Germany in 1909 in China, and although had to withdraw from the country after the revolution, this early experience was valuable when it returned to China in the 1990s. Voith position in China was substantially strengthened by its participation in the mega-project Left Bank Station of the Three Hydropower Stations and by its joint venture with Hydro Shanghai, which was one of the three major joint ventures established in China between foreign and local producers (Credit Agricole Group, 2012). Additional foreign production facilities were established early on in Turkey and Portugal. Voith early entry and extensive expansion into low-cost countries enabled it to establish strong position as a low-cost provider of hydropower equipment. Voith stands out among the Big Three in relation to its ownership and governance, and has been owned and managed by the founding family throughout its entire history. As is typical of a family-owned company, Voith has displayed a preference for organic growth (Table 3). This is common among family-owned companies, which are often reluctant to take the risk associated with rapid expansion via acquisitions and to share the management of the company with foreign, remotely residing managers (Poutziouris, Smyrnios, & Klein, 2006). The stability of Voith activities compared to its competitors, as is apparent in the figures for both indicators of cost efficiency, is also typical of family-owned companies. The family ownership may also explain the smaller size of Voith, a result of both the preference for organic growth and limited resources to finance rapid and large-scale growth. Voith ownership probably explains also its high commitment to CSR and broad societal values. This commitment might explain in part its reluctance to take part in projects that could compromise its societal values. For instance, it is the only one of the Big Three that was not involved in China’s Dam Three Gorges project. Voith size-adjusted R&D investment is the largest among the Big Three, reflecting a long tradition of technological innovation that has been typical of Voith since its origin (Table 3). Voith emphasis on the generation and development of technological capabilities has resulted in a large stock of patents, far larger than those of its competitors. This incremental internal capability development has for the most part taken place in the home country, taking advantage of Germany’s advanced labour pool in engineering-related areas. Voith has developed internal capabilities to

210


establish the interaction between its geographically separated production and R&D facilities. The discussion thus far outlined the different international strategies pursued by the Big Three in the hydropower segment in response to the challenges that arise from the conflicting forces for internationalization, and the demands of CSR and sustainability. Table 6 presents absolute and sizeadjusted indicators of their performance. The data show that during most of the last decade, Andritz Hydro is the best performer of the three. This performance is particularly impressive given Andritz aggressive acquisitiondriven expansion strategy. As noted in the previous discussion, Andritz Hydro stands out among the Big Three in its acquisition-based international expansion strategy, and the way it employs these acquisitions to cut costs, as well as in its low investment in R&D. The data in Table 6 suggest that these pay off in terms of improved performance. It is somewhat surprising that Andritz achieved this performance despite having the lowest R&D investment among the Big Three. This might be attributed to a longitudinal lag between R&D investment and financial outcome. It could also be that the geographic fragmentation and decentralization of Andritz R&D provide advantages that outweigh the low investment. This organization of the R&D affords learning opportunities and access to a variety of skills, drawn from around the world, which could be of considerable value (Argyres & Silverman, 2004). It also fosters close interaction between the R&D and production, which might be more appropriate than the solutions established by Alstom and Voith. Lastly, it enables greater embeddedness in foreign countries, which in turns enhances the ability to serve them effectively.

Table 6.

Performance of the ‘Big Three’ in the Hydropower Segment Annual averagesa. Earnings, Mil. Euros

Alstom Power Andritz Hydro Voith Hydro a

Marginal profitability (%)

2002–2005

2006–2010

2011

2002–2005b

2006–2010

2011

134.67 3.87 144.66

520.40 76.20 247.14

690.00 147.70 321.69

1.87 9.99 4.68

5.57 6.57 5.58

9.02 8.33 5.75

Alstom – EBIT; Andritz – EBITA; Voith – EBT. Alstom 2003-2005; Voith – 2005. Data for other years are not available. Sources: Big Three Annual Reports, various years.

b


211

Voith Hydro exhibits the lowest marginal profitability among the Big Three. Voith Hydro is notable in its small size, its technological prowess and its family ownership. These attributes, however, do not seem to confer performance benefits. Taken together with the low R&D investment and strong performance of Andritz, this may suggest that R&D investment by itself is not the critical issue, but rather the way it is managed internationally, such that the critical interaction between the R&D and production functions can be successfully achieved. The low profitability could also be interpreted as indicative of the importance of scale in the industry. Alstom Power performance has substantially improved after it recovered from the 2003 crisis that had threatened its very survival (Table 3), and in 2011 was the best among the Big Three. The strong preference for organic growth appears to enable Alstom Power to build on its core competencies in its international activities. This entry mode is also more in tune with strengthening its competitive advantages via international activity. It also enabled Alstom to maintain internal integration and centralization of decision-making that supported activities in individual countries and globally. Furthermore, Alstom Power has employed the cost advantages of internationalization to strengthen its global competitive position to a greater extent than its competitors, and due to its large size, has been able to benefit from scale economies that further enhanced its performance.

DISCUSSION AND CONCLUSION In this study we sought to examine the ways by which MNEs operating in industries whereby the rationale for internationalization is mixed and conflicting address the tension between these forces. We stressed the impact of the demanding forces for sustainable investment in magnifying the tension that international activity represents. We addressed this issue via case studies of the three largest MNEs in the hydropower equipment industry – Alstom Power, Andritz Hydro and Voith Hydro. As this study has shown, these firms have adopted different approaches to addressing the tension and have established their international activities in different ways, and to varying degrees of success. This variation appears related to differences among the firms in their ownership structure and the characteristics of their home countries, which gave rise to different combinations of competitive advantages that favour varying balances between the conflicting forces for internationalization and different ways to address sustainability and CSR issues.

212


Taken together, the study suggests that it is possible to create value via international activity when the forces for internationalization are inconclusive. This stands in contrast with the commonly expressed views that suggest that international activity may not be suitable for such industries. Our study rather entails that at issue is firms’ ability to strike a balance between opposing forces. The appropriate balance appears to vary across firms, in line with their distinctive attributes, and could by itself be a critical source of competitive advantage. This suggests that within an industry there is a plurality of ways to achieving this goal. A notable contribution of our study lies in the discussion of these issues in the context of the need by MNEs to strike a balance between economic goals and the creation of social value. The growing awareness of these issues in the contemporary world, and the embracement of these needs by MNEs, make our contribution very timely and most important. We believe that the validity of our study extends beyond the hydropower industry and the renewable energy sector. In many contemporary competitive situations conflicting forces play simultaneously and the ability to operate internationally critically depends on an integral approach that strikes a delicate balance among them. In many such industries international expansion is essential for the ability to cut costs where price competition is intense, but the critical importance of the synergy between R&D and production, combined with the challenge of internationalizing and decentralizing the R&D function, inhibits such moves. The insight we provide is of value in such industries. Furthermore, the demand for sustainable investment and activities that are guided by CSR in addition to corporate goals, while takes on specific nature across different industries, is notable across all of them. Future research may further develop our understanding of such circumstances in several directions. For one, there is a need to test systematically the dynamics we outlined based on large samples and developed statistical methods that allow establishing causality and order of magnitude of the forces at play. There is also a need to extend the knowledge of the repertoire of strategic responses adopted by firms to address the tensions we described, and identify the myriad of firm, industry and country attributes that affect them.

ACKNOWLEDGEMENT The chapter is based on Mr. Schmid MBA thesis, written under the supervision of Professor Nachum, as part of the requirements towards an


213

MBA degree from the Technical University of Vienna and Danube University Krems. We acknowledge with gratitude excellent comments of Professor Andreas Grein on earlier drafts of this chapter. This is to confirm that anyone who has assisted in the preparation or the funding of the manuscript has been appropriately acknowledged. There are no possible conflicts of interest.

NOTES 1. Hydropower is electrical energy derived from the kinetic energy of moving water. It is part of the renewable energy sector that also includes energy creation from sources such as wind, solar and biomass, among others. 2. There is a considerable variation across countries in the reliance on hydropower electricity. As of 2011, Europe, North America and Asia account, respectively, for 27%, 18% and 37% of world’s total installed hydropower capacity (Credit Agricole Group, 2012). Five countries – China, Brazil, the United States, Canada and Russia – account for more than half of the world’s installed hydropower capacity in 2010 (Bonsor, 2012). These differences, which are apparent also in relation to other sources of renewable energy (see Jones & Bouamane, 2011, 2012), are determined by varying public attitudes and government policies towards the use of renewable technology as a source of energy, as well as by water abundance and their flows in rising rivers (Bonsor, 2012; Worldwatch, 2012). 3. Although the Big Three dominate the global market, in some markets, notably in China, local suppliers lead. Chinese firms benefit from their ability to produce at low costs, and from tax on imported hydropower equipment (about 8% in 2010) that protect them from import competition. Due to their low standards, however, they are not competitive outside China, including in the neighbouring Asian countries (Schmid, 2010). 4. The major exceptions for this generalization are some variations in relation to the efficiency of the whole system and to the weight of the components. 5. There is certain variation in the need for close interaction between the R&D and manufacturing across different products. While it is very high in most of them, in some cases, the two can operate more independently. Hydraulic layout for turbine manufacturing is a case in point. 6. Overseas production activity has been implemented via the establishment of long-term production facilities as well as via temporary production and assembly on clients’ sites. The size and weight of the equipment (such as generators, turbines and steel penstocks, gates, draft tubes) often make their transportation uneconomic and favour onsite production and assembly. 7. This section is based on published and unpublished material of the Big Three. For details see Schmid (2010). 8. The world per capita consumption averages are 7.2 kW/hour and 35% of total electricity production.

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9. Alstom position in China was substantially strengthened by its participation in the first consortium for the building of the mega-project Three Gorges Hydropower Station, and by the joint venture it established with Tianjin Hydropower (Credit Agricole Group, 2012).

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REVIEW OF STRATEGIC POLICY FRAMEWORK FOR RE-EVALUATING ‘CSR’ PROGRAMME IMPACTS ON THE MINING-AFFECTED AREAS IN INDIA A. N. Sarkar ABSTRACT Purpose – To review the performance and growth of mining industry in India against current global vision and trend of the industrial growth internationally. Also, to evolve the strategic policy for evaluating Corporate Social Responsibility (CSR) programme initiatives taken by the Indian mining industry at large as well as the impacts thereof, with special reference to affected and most vulnerable mining belts in India. Design/methodology/approach – An attempt has been made in the chapter to have a holistic sectoral review of the overall performance of the mining industry in India for the past one decade, as well as its claimed impact on improvement of ecological quality and socio-economic growth


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in the mining belts. The chapter reviews the state of the impact of ‘CSR’ initiatives and programmes on environment as well as the mining community in terms of stakeholders’ involvement and protection of rights in developing socio-economic business equity. The chapter also critically analyses the policy dimensions – including mining industry’s operational framework, which can attribute towards developing future strategy for sustainable development of the mining industry at large, through evolving a series of reform processes, adequately backed up by innovative CSR policy and programme initiatives, together with well-defined implementation, monitoring, evaluation strategies and standards. Findings – The mining industries in India have a huge potential for growth to support the other industries for which bulk of the raw materials are derived from this industrial segment. Several research and developmental studies conducted by different organisations spread across the globe have convincingly been able to link the prospect of industrial growth and longterm sustainability with the stakeholders’ participatory and proactive roles along with those of the industry for holistic and integrated socioeconomic development of the mining areas. This has been possible through careful designing of the CSR programmes and initiatives by several mining companies in India (with varying degree of success and failures) with close monitoring and performance evaluation of the impact of the programmes in ecological, economical and sustainability terms against certain pre-designed standards. Such standards – as they are constantly evolving – should inter alia include ethical and transparency dimensions to ensure total involvement of the local community in the mining-affected areas. Proper compensation mechanisms and socio-economic growth of the mining community will not only improve productivity, but will also take care of ecological and economic safeguard of the mined coal blocks that are highly vulnerable to ecological degradation and economic exploitation. As for future strategy for sustainable industrial growth of the mining industry in India, there should be constant monitoring and evaluation of the various provisions of the various Acts related to mining, minerals, metals, energy, power, environment, etc. that are constantly under review and reforms processes with a view to guiding the future strategy. International co-operation in the mining sector will go a long way for sustainable growth and development of the mining industry in India for boosting the economic growth of the country. Research limitations/implications – Future research on the theme should focus on identification of replicable and sustainable model of CSR

Re-evaluating ‘CSR’ Programme Impacts on the Mining-Affected Areas

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practices in the mining industry by developing illustrative business models on the basis of global experiences. Sustainability reporting and identification of better qualitative as well as quantitative parameters, tools and techniques to study the impact of CSR practices on the socioeconomic growth of the affected mining community should be the focus of future research. Social implications – The findings (serving as messages) of this piece of research will certainly have an impact on society. This in turn, will, hopefully influence public attitudes, and by implications, it will also influence (corporate) social responsibility or environmental issues. Originality/value of the chapter – The chapter is innovative and, among other things, addresses some of recently reported burning issues affecting the interests of the mining industry on one hand, and the national economy of the affected countries on the other. Keywords: Indian mining industry; corporate social responsibility; strategic policy framework; mining community; environmental impact; socio-economic impact

INDIAN MINERAL SOURCES AND PRODUCTION The world economy today depends to a very great extent on natural resources derived from the energy and mining industries. The metallurgical and mineral industries constitute the bedrock of industrial development as they provide the basic raw materials for most of the industries contributing to economic growth There has been a phenomenal growth in the Indian mining industry, and the growth in the past five years is estimated at 13% CAGR per annum in terms of revenue earnings from minerals produced by Indian mines. India produces 87 minerals, which include 4 fuel minerals, 10 metallic, 47 non-metallic, 3 atomic and 23 minor minerals. Their aggregate production in 1999–2000 was about 550 million tonnes, contributed by over 3,100 mines (reporting mines) producing coal, lignite, limestone, iron ore, bauxite, copper, lead, zinc, etc. More than 80% of the mineral production comes from open-cast mines. The country has abundant reserves of key minerals such as iron ore, bauxite, dolomite, gypsum, limestone, mica and adequate reserves of chromite, manganese, zinc and graphite. In fact, India is a leading producer of key minerals such as iron ore and bauxite.

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Though the industry is largely fragmented – comprising several small scale operational mines, it is still dominated by the public sector, which accounted for 74.5% of the total mineral production in India in 2011. The total value of mineral production (excluding atomic minerals) during 2010–2011 was estimated at INR 2,006 billion – an increase of around 11.83% over the previous year. The total mineral production in India was reported at 2,628 mines during 2011. Of these mines, 574 are involved in the extraction of coal and lignite, 608 in metallic minerals and 1,446 in non-metallic minerals. Mineral production in India is primarily concentrated in five states, namely Andhra Pradesh, Chhattisgarh, Jharkhand, Orissa, and Rajasthan, which together contributed more than 40% of the national mineral production during 2011 (Ministry of Mines, 2010–2011). The state-wise position of mineral production contributions during 2010– 2011 is given in Fig. 1. The number of mines and the production of minerals have been on a continuous decline since 2009, with a drastic decline witnessed in non-metallic mineral producing mines. This was broadly linked to the domestic policy relating to auctioning of coal and minerals extraction blocks and the regulatory regime restricting mining operations, in view of stringent environmental protection policy of the government. This is clearly evident from the fact that during 2011, 1,446 mines reported the production of non-metallic minerals, as against 1,857 in 2009, a decline of around 12% per annum over the last two years (Exploring India) Mining operations in India are done to a great extent in waste non-arable lands acquired by the mining corporations on a long-term lease-contract basis. The mining leases, numbering 9,244, are spread over 21 states on about 13,000 mineral deposits, occupying about 0.7 million hectares which is 0.21% of the total land mass of the country. The aggregate value of

Fig. 1. Share of States in Value of Mineral Production 2010–2011 (Estimated) Excluding Offshore Areas. Source: Ministry of Mines Annual Report (2010–2011).


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the mineral production in 1999–2000 was more than INR 450 billion (approximately $10 billion). The distribution of the value of mineral production shows that fuel minerals accounted for about 82% (of which solid fuels 44% and liquid/gaseous fuels 38%), metallic minerals about 8%, non-metallic minerals 4% and the balance 6% is contributed by minor minerals (TERI, 2001).

IMPACT OF MINING ON ENVIRONMENT AND SOCIO-ECONOMICS OF LOCAL COMMUNITIES Mining activities have a significant adverse environmental impact. Managing this impact effectively requires dealing with issues such as handling of immense quantities of waste, acid drainage, environmental impact assessments (EIAs), environment management systems (EMS), effective mine closure planning, and restoration of the ecological balance. Though modern practices in mining operations represent a great improvement over the past due to modernisation and built-in system checks that are HSE compliant, but these have not spread to all parts of the industry In India and for that matter other major mining belts of the world. The objective of best practice would therefore be to ensure that the critical natural capital is maintained, that ecosystems are enhanced where possible and that mineral wealth contributes to net environmental continuity without many disruptions to regular mining operations. Mining produces very large quantities of wastes. Some of them are toxic and hazardous to plant, animal and human health; and decisions about where and how to dispose the wastes are among the most important in the mineral extraction cycle. In this context, the longterm mining plan becomes vital in that it must not only enable optimal mining to prevent wastage of national resources but ensure that extraction processes do not damage the environmental quality and threaten the biodiversity in the mining belts. Under the given scenario, perhaps the best way to protect the environment would be to ensure the development of a mine closure plan much before the start of the active mining operations based on geotechnical survey. Environmental impact assessments (EIAs) and environmental management systems (EMSs) are perhaps the most widely used tools for regular monitoring and correct assessment of environmental impact in the mineral sector. But in order to minimise the possible adverse environmental impact of all conceivable kinds at various stages of mining activities planned on a long-term horizon, EIA, as part of EMS, should be ideally integrated and

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dovetailed with environmental accountability and responsibilities into everyday management practices through changes in organisational structure, procedures and processes. The second most serious concern is the loss of biodiversity – especially of the endangered species – and such loss of natural capital is irreversible. The Convention on Biological Diversity provides the mineral sector with a sound base for taking appropriate steps towards preserving and enhancing biodiversity in its areas of operation and engaging in constructive dialogue and partnership both with the mining and the biodiversity community. At the apex level, over the years, the government has been playing a significant role by introducing eco-innovation as the core concept to effectively regulate and monitor the mining operations. For instance, the MMSD (Mining Mineral and Sustainable Development Report, 2002) of the Ministry of Environment and Forests recognises eco-innovation as a key instrument of the global programme for long-term sustainable development. The impact of mining activities on of air, water, land, soil quality, vegetation including forest ecosystems, and on human health and habitation has become a matter of serious concern. Any deterioration in the physical, chemical and biological quality of the environment affects human health and flora and fauna. The health problem of miners arising out of on-site pollution due to dust, gases, noise, polluted water, etc. is receiving increasing attention. Some of the negative impacts on the landscape and the human environment can effectively be permanent and even incurable. While some segments of the mineral industries, governments and others are much more conscious of these issues, effective sector-wide management of these problems is neither universal nor adequate. The worst still is the fact is that the majority of the mining corporations in India, South Africa and elsewhere is oblivious, dormant and elusive on this issue. The magnitude and significance of impact on environment due to mining varies from mineral to mineral and also depends on the potential of the surrounding environment to absorb the negative effects of mining, geographical disposition of mineral deposits and size of mining operations. The state of technologies used for mineral extraction, transport, storage, processing, waste disposal/recycling techniques, etc. can also be a contributory factor in ecological damage caused by mining. The Department of Environment, Government of India, has prepared a list of minerals whose mining is supposed to have a serious impact on the environment. These minerals include coal, iron ore, zinc, lead, copper, gold, pyrite, manganese, bauxite, chromite, dolomite, limestone, apatite, rock phosphate, fireclay, silica sand, kaolin, barytes and steatite. Mineral production generates enormous quantities of waste/overburden and tailings/slimes

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which are listed in Table 1 with respect to some minerals. These details have been worked out with the help of actual production figures and the projections made in respect of overburden/waste and tailings/slimes. Table 1 shows that coal and limestone are the major polluters, followed by bauxite and iron ores in terms of the areas of land affected by the respective mining activities. The total area of mining lease with active mining operations is the minimum area which is being affected by waste generation. However, the actual off-site area affected by pollution and degradation by the accumulation of waste material will be far more than the area of the lease in which the operations are in progress. In such cases, one good example is the collateral damage done to the quality of the underground water regime which has a widespread flow in three dimensional sub-terrains. The Ministry of Environment and Forests (MoEF) while giving environmental clearance for a project should ideally approve plans for reclamation work to be carried out on closure of mines as indicated in the EIA/EMP of the project. Recently, MoEF has introduced a system of demanding a closure plan from the mine operators, which should be submitted 5 years before actual closure of mining operations (TERI Report, 2001). This is basically introduced with the objective of preventing occurrences of anticipated damage to the environment. Looking from the socio-economic perspective, mining has a huge impact on local communities; positive effects include the creation of new communities and wealth, income from export revenues and royalties, technology transfer, skilled employment and training for local populations and improvements in infrastructure such as roads, schools and health clinics Table 1. S. No.

1. 2. 3. 4. 5. 6. 7.

Mineral Production, Waste Generation and Land Affected in 1999–2000.

Mineral

Production (MT)

Overburden/ Waste (MT)

Tailings/ Slimes (MT)

Estimated Land Affected (Ha.)

Norms Used (Land in Ha/MT of Coal Ore)

Coal Limestone Bauxite Iron ore Copper ore Lead–Zinc ore Manganese ore

300 129 7.1 75 3.1 2.8 1.6

1,100 135 4.3 69.9 3.6 4.1 6.8

5 1.06 3.5 23.8 1.4 2.6 –

7,500 1,300 700 700 – – 160

25 10 10 10 – – 10

Source: TERI Report (2001).

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(CAFOD, 2006; MMSD, 2002). However, several negative impacts of mining on local communities have been well documented (Box 1) to create awareness among the miners. The numerous social and environmental issues associated with the mining industry include access to land issues at the exploration and mining stages, environmental pollution, damage to the health of affected communities and increased mechanisation of the industry, which negatively impacts employment levels (Cottrell & Rankin, 2000; Hilson & Murck, 2001). These issues have been discussed and openly debated in several national and international fora, focusing attention on the desirability of introducing the built-in concepts of Corporate Social Responsibility (CSR), greater transparency and accountability in the reporting systems. For a fair assessment of the CSR approach to address environmental concerns and be able to mitigate the potential as well as the de facto environmental damage, social impact assessment (SIA) measures and tools have been found to be

Box 1. The Possible Negative Social Impacts of Mining on Communities (Adapted from MMSD, 2002). Social impacts of mining companies on communities Any benefits to the community may be unequally shared. Corporate community initiatives may be seen as poor recompense for damage to livelihoods, the environment and community. Social tensions in communities due to the changes brought about by mining can give rise to violent conflict. Technical improvements in the mining industry can lead to a decrease in employment and an increase in the level of skills needed. The mining sectors isolation from other sectors can negate the multiplier effect often associated with the location of a major industry in an area. Land title disputes may occur between local groups, mining companies and the government. Traditional cultures may have difficulty coping with vast industrial operations and the influx of outsiders. Poor local and national governance can lead to a company having too much power in the local context.


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handy and effective universally in the mining development (MMSD, 2002). This also considerably facilitates planning development needs with the active participation of the community. However, there are many inadequacies in the SIAs currently employed that need to be addressed so that the social and economic issues are fully understood and that the SIA process becomes fully operational, dynamic and fully consultative (MMSD, 2002). Drawing the experiences from several mining industries it is now increasingly realised that inequitable distribution of resource-based benefits can cause tension and conflict within and between communities and the funds for community development projects may be misappropriated. In many mining communities the systems in operation require ‘top men’ (Auty, 1998) or local chiefs to disperse mining revenues throughout the community. Such funds are often used on immediate consumption rather than long-term projects and the accumulation of social capital needed to sustain communities.

MINING INDUSTRY: CONCERNS FOR ENVIRONMENT The mining companies, besides mineral production as key function, should try to place an equal emphasis on concerns related to the environment, the economy and the community. This should be logical since the natural resources are basically scarce; and secondly, in lieu of land there may be an immediate opportunity to provide alternate livelihood support system by the mining company or the government as compensation to the envisioned losses to be borne by the community. The representatives of companies, government officials and community members should be involved in resolving problems that arise because of mining activities. All the same, the basic fact remains that most of the time, local communities, governments and mining companies are quite uncertain about their respective roles and responsibilities in the development of mining, and hence they are unable to act or participate effectively in decisions related to mining as well as related activities affecting the interests of the mining community (Conway, 2003). Taking a cue from this, some of the core issues, which the company should deal with, may include the following to give a reprieve to the community: (a) Rehabilitation and compensation issues should be dealt with equitably. The company should provide all infrastructure facilities to the

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(b)

(c)

(d)

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rehabilitation colony. They should take into consideration the plight of landless households. Proper care should be taken of the environment. Concerns about air pollution, water pollution and degradation of lands and forests should be given proper attention. Planned investment should be made in improving human and physical capital of the region. Education, basic amenities, health care, training opportunities should be provided not only to the employee’s family but to the community as a whole. Issues of post-mine closure like unemployment, income potential, migration, environmental clean-up should be discussed and addressed much in advance. Rendering effective administration, rule enforcement and accountability should be keywords in the process of rehabilitation as well as in the functioning of the mines.

Minerals of a region, extracted from mines, are a valuable resource and measure of the potential for economic and industrial growth. Historically, in India, the extraction of mineral reserves has always resulted in varying degrees of environmental resource degradation and social impacts, including displacement – creating thereby, among other things, rehabilitation and employment problems. As a matter of fact, most of the minerals mined in India are largely located either in tribal areas or in forest areas or both, and hence any mining associated activity would have to address issues relating to the impact on the environment, socio-economic life as well as welfare of the tribals in a sustainable manner. The Indian mining industry has become increasingly aware of its corporate responsibility towards the society. It has taken full cognizance of the problems associated with mining and has addressed the local needs of the community. CSR includes environmental, social, and human rights-based impacts and initiatives of companies. CSR is playing an increasingly significant role in companies’ narratives and practices, particularly in the case of mining. CSR also plays a special role in mining because of the inherent finiteness of the resource body and the environmental and social impacts related to mine closure. With the increasing awareness level and consciousness towards social welfare as a part of the corporate responsibility towards the local community, of late, many initiatives have been taken by the industry voluntarily as part of CSR. There is a considerable expectation – both from the government and the society that mining industry accepts its role in the development of socio-economic status in the rural and tribal areas.


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A number of mining companies have taken the responsibility by amalgamating environmental concerns and community development in their corporate policy for ‘Integrated and Sustainable Development’ of the mining-affected areas. In Indian context, these prominently include Coal India Limited (CIL), SAIL, NALCO, MECL, NCDC, NMDC, BALCO, PPCL, HZL, NLC, HCL, BGML, etc.

DEFINING CSR IN THE MINING CONTEXT In early 1950s and 1960s the literature was not heavily represented in CSR discourse. However, this decade ‘marked a significant growth in attempts to formalise, or more accurately, state what CSR means’ (Caroll, 1999). According to Carroll, ‘CSR encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organisations at a given point in time’. CSR is ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’ (European Commission, 2005). In its Communication to re-launch the Lisbon Strategy in 2005, the Commission stated that CSR ‘can play a key role in contributing to sustainable development while enhancing Europe’s innovative potential and competitiveness’ (European Commission, 2005). In March 2006, the European Commission adopted a Communication on CSR which reaffirmed CSR as a business contribution to the Growth and Jobs Strategy and to sustainable development (European Commission, 2006). In the Integrated Guidelines for Growth and Jobs, the Council recommends that Member States should ‘encourage enterprises in developing their corporate social responsibility’ on the following accounts. Firstly, the fact that CSR is the integration of social and environmental concerns within business operations means that CSR is not just philanthropy. The emphasis is on how enterprises do their daily work, how they treat their employees, how they produce goods, how they market them and so on. CSR is not so much about what enterprises do with their profit, but how they make that profit. Secondly, interaction with stakeholders is a crucial aspect of CSR. Effective CSR requires dialogue and partnership with stakeholders such as trade unions, public authorities, non-governmental organisations (NGOs), and business representative organisations. Thirdly, by describing CSR as voluntary, this definition implies that CSR relates to what enterprises can do in the social and environmental fields over and above what they are required to do by law. This aspect of the definition

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works well within the European Union and in other contexts where the rule of law generally applies. However, in the developing economies, the legal and regulatory standards to monitor the implementation of CSR initiatives are somewhat short of expectation as yet. This needs to be evolved over a period of time by developing sustainable business models. In some countries, however, CSR can in the first place be a question of getting enterprises to comply with their legal obligations. CSR is a very wide-ranging concept, which is one reason why measuring its uptake and impact presents complex methodological problems. It is often divided into four main areas: workplace, marketplace, environment and community. The term CSR encompasses a variety of issues revolving around companies’ interactions with society. The sorts of issues covered include ethics, governance, social activities such as philanthropy and community involvement, product safety, equal opportunities, human rights and environmental activities. CSR has been in use since the 1950s, but has really come to the fore in the past decade, along with terms such as the ‘Triple Bottom Line’ and ‘People, Planet, Profits’ (i.e. social, environmental, economic). Although CSR is frequently discussed, it is not always clearly defined. The publication in October 2010 of the International Organization for Standardization (ISO) Guidance on Social Responsibility furnished an internationally acknowledged definition. The working group that developed ISO 26000 comprised a broad base of stakeholders across industry, government, labour, consumers, and NGOs, with 450 participating experts and 210 observers from 99 ISO member countries and 42 liaison organisations. This inclusive and extensive approach lends credibility to the ISO interpretation of social responsibility. Social responsibility is the responsibility of an organisation for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that: contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behaviour; and is integrated throughout the organisation and practised in its relationships (ISO, 2010). The World Business Council for Sustainable Development (WBCSD) defines CSR as ‘the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life


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of the workforce and their families as well as of the local community and society at large’ (www.wbcsd.com, 2000). CSR-based accomplishment centres on the relationship between business and society and how businesses behave towards their key stakeholders, such as employees, customers, investors, suppliers, communities, and special interest groups (Hick, 2000). CSR represents an interesting evolution and culmination of philanthropy and ethics. Specifically, corporate philanthropy has evolved from the donation of cash and products to charitable organisations because ‘it’s the right thing to do’ to more strategic philanthropy where donations are focused on a theme that has some relationship to the company’s core business (Weeden, 1998). Similarly, ethics has evolved from the company’s obligations to society to abide by the law, pay taxes, and provide employment to a more proactive approach where the firm is expected to adhere to high international codes of conduct that exceed these traditional obligations (Nelson, 1996). The specific roles of the stakeholders as well as investors are now being seen as a critical success factor to applications of CSR principles. Presently, stakeholders are expecting companies to go beyond the notion of strategic philanthropy and international codes of conduct. Investors, on their part, want to see financial gains from their firms’ investments in CSR initiatives in order to be able to stay and continue in the business.

CORPORATE SOCIAL RESPONSIBILITY TOWARDS MINING-AFFECTED COMMUNITIES CSR includes environmental, social and human rights-based impacts and initiatives of companies (Ward & Fox, 2002), and many countries in both industrialised and the third world take this concept and practices seriously (Hopkins, 2003). CSR is playing an increasingly significant role in companies’ narratives and practices, particularly in the case of mining (Hamann & Kapelus, 2004). The international prominence of CSR in mining can be traced to mining’s potentially significant negative social and environmental impacts, and the related criticism levied at mining companies from governments, NGOs and local community organisations (Banerjee, 2001; MMSD, 2002). CSR also plays a special role in mining because of the inherent finiteness of the resource body and the environmental and social impacts related to mine closure (Warhurst & Noronha, 2000). Though in a slightly rudimentary form, the essential elements of

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CSR and its linkage to sustainable development were first conceived in the Agenda 21 of the Earth Summit held at Rio. The reasons for corporate environmental and social reporting are also rooted in Agenda 21, and adopted by the United Nations Conference on Environment and Development at Rio in 1992. As a follow-up measure, this called for a number of actions by industry to work towards sustainable development. For example, Principle 10 promotes the disclosure of environmental performance information by industry (Warhurst, 1998). Increased and concerted global efforts have been underway since 1998, which began with the formation of Global Mining Initiative (GMI) and the subsequent design of Mines, Minerals and Sustainable Development Project supported by nine major mining companies. The International Council for Mining and Metals (ICMM) has been established as an industry peak body and the Extractive Industries Review (EIR) findings have led to the ‘Extractive Industries Transparency Initiative’ (Lahiri-Dutt, 2007). These global processes have forced some of the global mining companies to accept that they need a ‘social licence to operate’ in developing countries (Lahiri-Dutt, 2007). The company’s CSR policy stems largely from its commitment to address these issues. As an expression of this commitment, the company formulated a policy statement that states: ‘a socially responsible Filipino company striving for excellence in mining’. Cochran described how the workplace dimension of CSR helps to provide a large IT company with an ideal environment for high labour productivity and innovation (2007). Evidence from econometric investigations is also compelling as far as the positive effects of CSR on human resource performance are concerned. In India, among other mining companies, the Goa Mineral Foundation has set up a fund, into which a certain amount per tonne is deposited by each member mining company, which is then used for building social infrastructure in the area such as schools and hospitals. ‘Sesa Goa’ runs community and social development programmes, such as providing drinking water to surrounding villages, training local youth in maintenance and operation, providing community health and first aid, etc. The Tata Group of companies has for long been investing extensively in social infrastructure in their mining areas. Their Tribal Cultural Society works in 80 habitats and the Tata Steel Rural Development Society works in 710 villages, running balwadis (kindergarten schools), granting scholarships in schools and colleges, running adult literacy programmes, giving vocational training, assisting self-help groups with microfinance credit, promoting micro enterprises, running cultural heritage centres and implementing a number of health and hygiene programmes.


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Essel Mining, a part of Aditya Birla Center for Community Development, has adopted 19 villages in the vicinity of its mines in the tribal dominated and backward areas. The initiatives taken by this centre include providing primary health, promoting education through primary schools and literacy programmes, setting up a drive against superstition, implementing family welfare programmes, setting up of self-help group for the empowerment of women, etc. Maihar Cement of Madhya Pradesh (limestone miners) has been arranging free medical camps in the villages surrounding its mines and carrying out immunisation programmes, as well as running three schools in addition to providing ambulance and fire tender services to these villages. According to a report published by the Planning Commission, Government of India, there are several examples where miners have taken CSR initiatives in the interest of local communities and indigenous people. Mining intervention can provide genuine development opportunities for indigenous populations because of the direct streams of revenue generated by the mineral production, which is not necessarily the case with infrastructure projects (Planning Commission, 2006).

SUSTAINABILITY DIMENSIONS OF CSR APPROACH: FOCUS ON MINING The term ‘sustainable development’ was coined by the United Nations which convened the Brundtland Commission (formally the World Commission on Environment and Development) in 1987. In the Brundtland report, Our Common Future, ‘sustainable development’ is defined as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’. At the core, the principle of sustainable development aims to promote harmony among humans and between humanity and nature. The integration of the three components – economic development, social development and environmental protection has been promoted as interdependent and mutually reinforcing pillars of sustainable development (United Nations, 1996). However, at that conceptual stage there was no clear delineation between sustainable development and ‘CSR’ in terms of definition, interpretation and implementation. Hence, the concept of sustainable development often overlaps with the concept of CSR, which specifically describes the important role of the private sector in contributing to sustainable development. Since the creation of WBCSD at the Rio Earth Summit in 1992, the business community has acknowledged its responsibility to contribute to the dialogue concerning

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economic, environmental and social issues through systematic public reporting on their environmental and social performance, together with economic performance (IISD, 2004). Effective communication with stakeholders towards economic prosperity, environmental quality and social justice has been recognised as a defining characteristic of corporate responsibility in the 21st century (Wheeler & Elkington, 2001). This, in many ways, has created new ways of designing innovative CSR programmes that harmonise protection of environment on one hand and render social justice on the other. Ideally, as a matter of broad principle, at the macro level, CSR policies and programmes need to be more holistic, inclusive and integrated to bring in more synergy for achieving greater economic gains through social involvement. In pursuing sustainable development and social responsibilities of private sectors, specific sectoral issues should be addressed for better integration of policies dealing with the various dimensions and sectors. The industry-specific information is perceived to be more relevant to stakeholders assessing sustainable performance in a specific industry (Dong & Burritt, 2010). Hence, the involvement of all stakeholders right from the planning stage and subsequent implementation processes of the mining project is becoming critical with time. The extraction and depletion of nonrenewable resources in the mining and minerals industry has been a major concern in debates about sustainability development due to the finite nature of non-renewable, and negative social and environmental legacies within the industry (Cowell, Wehrmeyer, Argust, & Robertson, 1999; MMSD, 2002). To secure the long-term financial viability and the social license ‘to operate, mining companies yearn to be recognised as sustainable’ by measuring, assessing their sustainability performance, and demonstrating continuous improvement over the long term (Jenkins, 2004). In the global context, mining companies are approaching sustainability initiatives with greater rigour than in the past, leading to streamlining and improving sustainability reporting practices to meet spiralling stakeholder demands (Deloitte, 2012). This is precisely the reason why in recent years, there has been a significant growth in the number of enterprises that have an explicit policy on CSR, especially in the mining and allied industrial sectors. At the same time, the practice of CSR has evolved considerably in most sectors of the developing economy to recognise and appreciate the significance of CSR in emerging economies with perceived threats on environment, such as mining. In an increasing number of companies, CSR and sustainability have become cross-cutting issues that are deeply integrated within both operations and strategy aspects to get better results and impacts.


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Before moving on to more practical aspects of socially responsible approaches for minerals companies, however, we should discuss the key term of ‘sustainable development’. There is a difference between ‘sustainable development’ and ‘social responsibility’ (ISO, 2010), although the terms are related. Sustainable development is a widely accepted concept and guiding objective that gained international recognition following the publication in 1987 of the Report of the United Nations World Commission on Environment and Development: Our Common Future. A working definition for ‘sustainable development’ in the context of mining sector can be stated as: ‘Mining that is financially viable; socially responsible; environmentally, technically and scientifically sound; with a long-term view of development; using mineral resources optimally; and ensuring sustainable post-closure land uses. Also, one that is founded upon creating long-term, genuine, mutually beneficial partnerships between government, communities and miners, based on integrity, co-operation and transparency’. In the mining industry, progress within the three dimensions of sustainable development (economic, environmental and social) could be achieved through economic development, which is investing generated revenues to ensure future development and long-term livelihood of the communities; environmental protection, which is minimising the environmental impact of natural resource exploitation and land rehabilitated to allow successive use; and social cohesion, which is reducing the social and cultural disruption to communities, maintenance of stakeholder dialogue and transparency of operation. For mining companies, CSR practices should essentially aim at gaining greater sustainability in the industry through well-defined goals leading eventually to sustainability. CSR is a means by which companies can frame their attitudes and strategies towards, and relationships with, stakeholders, be they investors, employees or, as is salient here, communities, within a popular and acceptable concept. In their efforts to embrace CSR, companies must identify the interests, concerns and objectives of various stakeholders (including national, regional government, local authorities, indigenous people, local communities, employees and competitors) and address their often-varying needs (Guerra, 2002). This, in effect gave birth to the concept of ‘sustainable mining’. In this context, Frynas (2005) had outlined a number of reasons why company CSR programmes may fail to address the needs of communities and therefore detrimentally affect their sustainable development. Country-/context-specific issues (corruption, conflict, bureaucracy) – for example, in Ghana conflict exists between large-scale mining companies

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and illegal small-scale miners who mine on their concessions. This, in effect, impacts as to how companies perceive the community and how they develop their community involvement initiatives. Failure to involve the beneficiaries of CSR – communities need to be given the opportunity to help themselves through ongoing participation in community development projects rather than being recipients of topdown ‘gifts’ from the company. Lack of human resources and appropriate skills – mining company employees tend to have technical, engineering or managerial backgrounds and are not the most appropriate people to deal with complex social issues. Also, long-term CSR initiatives may be hampered by the turnover of staff. The often micro-level perspective of companies – the impacts of mining have far-reaching effects beyond the immediate location of the mine. A macro-level perspective is needed to integrate CSR initiatives such as community involvement into a larger sustainable development plan. Consultation with communities – where consultation with communities does take place it is often superficial and inadequate. Consultation is rarely all inclusive, leading to some members of the community being given more ‘voice’ than others, usually those who hold power in the community such as men and tribal leaders.

The formation of the Global Mining Initiative (GMI) was an important milestone in this respect to address the above issues for pragmatic solution. The GMI was launched at the 1999 Annual Meeting of the World Economic Forum (WEF) in Davos, Switzerland by executives from nine of the largest mining firms in the world: Anglo American, BHP Billiton, Codelco, Newmont, Noranda, Phelps Dodge, Placer Dome, Rio Tinto and WMC Resources. According to its members, this initiative constituted ‘a leadership exercise with the objective of reaching a clearer understanding of the positive role the mining and minerals industries can play in managing the transition to sustainable development’ (Danielson, 2006).

Sustainable Development Framework for the Mining Sector The mining sector in India has shown tremendous scope for growth keeping in view the fact that the country has sizeable potential for mineral wealth and demand from manufacturing sector continues to expand. It is however


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recognised that mining, unless properly regulated, can have serious adverse environmental and social consequences. On one hand, mining disturbs the soil, water and ecological regimes and on the other hand, unless accompanied by proactive measures to promote inclusiveness through social, education, health and other interventions, it can lead to alienation of the local population, and assume socially unacceptable dimensions. This has necessitated fresh thinking on policy approaches and systems that ensure that mining is done in a way that causes least damage to the natural resources such as air, water, soil, biomass, and also benefits local communities in the most appropriate way. One of the greatest challenges facing the mining sector today is integrating economic activity with environment integrity, social concerns and effective governance systems. The goal of that integration can be seen as more sustainable development. This requires a robust framework based on an agreed set of broad principles, an understanding of the key challenges facing the sector at different levels and in different regions and the action needed to meet or overcome them; a process for responding to these challenges for protecting the rights and interest of all involved, ability to set priorities, ensure that action is taken at appropriate levels, and an integrated set of institutional and policy instruments to ensure minimum standards of compliance as well as responsible voluntary actions. It also requires variable measures to evaluate progress and enable consistent improvements. To address the above concerns of the mining industries, a High Level Committee which was set up under the chairmanship of Shri Anwarul Hoda, Member, Planning Commission in the year 2005 to review the National Mineral Policy recommended that apart from introducing best practices in implementation of environment management, there was also a need to take into account the global trends in sustainable development. The High Level Committee specifically studied the impact of mineral development with the need to develop principles in mining, best practices and reporting standards which may be measured objectively. The Committee held that one of the challenges faced by the Indian mining sector in developing in a sustainable manner was identification of the appropriate use of land within a Land Planning framework through a democratic decision-making process on the basis of integrated assessment of ecological, environmental, economical and social impact. The High Level Committee also held that mining should contribute to economic, social and cultural well-being of indigenous host population and local communities by creating stakeholder interest in mining operations for the Project Affected Persons (PAP). In their assessment the

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High Level Committee delved quite extensively into the sustainable development framework (SDF) modelled by the International Council of Mining and Metals (ICMM)/International Union for the Conservation of Nature and Natural Resources (IUCN). The High Level Committee recommended development of an SDF specially tailored to the Indian context. The said SDF, it was envisaged, would be composed of principles, reporting initiatives and good practice guidelines for the three sectors of Indian mining, that is SME, Captive and large stand-alone sectors. Such an SDF would be applicable to mining operations in India, and would be monitored through a regulatory mechanism. The recommendations of High Level Committee have been accepted by the government. The National Mineral Policy, 2008, which led to the High Level Committee recommendations, recognised the fact that extraction of minerals closely impacts other natural resources like land, water, air and forest and those areas in which minerals occur often have other resources, thereby presenting a choice of utilisation of the resources. The Mineral Policy holds that it is necessary to take a comprehensive view to facilitate the choice or order of land use keeping in view the needs of development as well as needs of protecting the forests, environment and ecology. Both aspects have to be properly coordinated to facilitate and ensure a sustainable development of mineral resources in harmony with environment. In doing so the Policy lays emphasis on the need to address issues pertaining to prevention and mitigation of environmental problems like land degradation in open-cast mining and land subsidence in underground mining, deforestation, atmospheric pollution, pollution of rivers and streams, soil erosion due to disposal of solid wastes/ overburden and so on, all affecting the ecological balance of the area. The Policy enunciates that guiding principle shall be that a miner shall leave the mining area in better ecological shape than miner found it. The Mining Ministry subsequently constituted a Committee under the chairmanship of Special Secretary (Mines) on 4 March 2009 for overseeing the preparation of SDF for the Indian mining sector. The committee included representatives of Ministry of Environment of Forest, Indian Bureau of Mines, Geological Survey of India, Federation of Indian Mineral Industries National Environment Engineering Research Institute (NEERI). In order to prepare a draft SDF, the Ministry invited bids for consultancy from known experts in the field, and after a process of evaluation selected M/s ERM India Private Limited as the consultant for preparing the draft Sustainable Framework Development document. As per the Terms of Reference for the consultant, the draft SDF covered the following aspects


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among others, with regard to all non-coal, non-fuel minerals (both major and minor minerals): Factors and parameters influencing sustainable and scientific mining (and indicators thereof). Broad criteria beyond which mining may not be deemed sufficiently sustainable and scientifically manageable. Systemic measures needed to be taken or built in to increase sustainability of mining operations considering its entire life cycle inter alia: (a) Ensuring minimal adverse impact on quality of life of the local communities. Protecting interests of affected persons including host populations. (b) Creating new opportunities for socio-economic development including for sustainable livelihoods. (c) Conserving minerals (both in terms of mining technologies/practices and mineral beneficiation). (d) Reducing waste generation and implementing related waste management practices. (e) Minimising and mitigating adverse environmental impacts particularly on surface as well as ground water (both in terms of its quality and availability as resource), air, ambient noise and land. (f) Ensuring minimal ecological disturbance, in terms of biodiversity, flora, fauna and habitat. (g) Promoting restoration and reclamation activities so as to make optimal use of mined out land for the benefit of the local communities. Systems to devise measurable indicators of sustainable development and draft contours of Sustainable Mining Management System. The regulatory and other mechanisms to ensure that the systemic measures are in place and are working. Consultative mechanisms with stakeholder groups right from pre-mining stages (including exploration) through the life cycle and upto post-closure stages to ensure the stakeholder groups’ involvement and participation in identifying and addressing the sustainability issues, in developing the broad contours of the approaches to the sustainable management of all the activities including formulation of the measurable indicators and monitoring mechanisms for the purpose. A system of public disclosure of mining-related activities and environmental parameters including indicators and mechanisms to facilitate formal and informal sustainability audits.

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Measures to ensure industry acceptance and adoption of the SDF including indicators for benchmarking the nature and extent of SDF adoption. Roll out mechanism for adoption of the SDF at the grassroots level including training, publicity, conducting workshops, handholding, etc. and time frames for the roll-out. As can be seen from the above aspects, the SDF provides guidance for the mining companies to improve performance on environmental and social aspects. However, over time it can also become the common benchmark against which all mining operations may be evaluated in terms of their comparative performance on sustainable development terms. The SDF will need to be used by mining companies to demonstrate commitment to sustainable development. There is a proliferation of CSR frameworks, norms and reporting formats – some legislated, but mostly guidelines or voluntary codes. Although the objectives of these frameworks frequently overlap, reporting formats often differ. Intergovernmental frameworks have emerged from United Nations conferences, from organisations such as the International Labour Organization (ILO), the Organisation for Economic Co-operation and Development (OECD) and the World Bank and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development. Frameworks have also been established by financing bodies such as the International Finance Corporation (IFC), where all private sector projects that are financed even partly by the IFC have to comply with its performance standards. The SDF cannot have a universal application as this is merely a broad indicative guideline integrating several elements that are the fabric of sustainable development. Specific programme design to be drawn-up, based on the framework, should be aligned and specific to the project objectives and targets in a mission-mode and should be implemented in a time-bound manner.

ROLES OF THE MINING COMPANIES IN DEMONSTRATING CSR INITIATIVES In a global CSR study undertaken in seven countries (viz. India, South Korea, Thailand, Singapore, Malaysia, The Philippines and Indonesia) by the UK-based International Centre for CSR in 2003, India has been ranked second in the list. This ideally shows the value that is important to customers in India. Bharat Petroleum and Maruti Udyog have been ranked as the best companies in the country. The next in the list are Tata Motors and Hero


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Honda. Canara Bank, Gujarat Ambuja and Wipro are involved in community development work, building roads, and running schools and hospitals. ACC has been rendering social service for over five decades. They are setting up schools, health centres, agro-based industries and improving the quality of rural life. BHEL’s active involvement in the welfare of the surrounding communities is helping the organisation to earn goodwill of the local people. BHEL is also providing drinking water facilities, construction of roads and culverts, provision of health facilities, educational facilities, and so on. Companies like ONGC are encouraging sports by placing good players on their pay rolls. TISCO, TELCO and HINDALCO won the award for excelling in CSR, jointly given by FICCI and Business world for 2003. ONGC has also committed resources by adopting a few villages to implement President Dr Abdul Kalam’s idea of ‘PURA’ (Provision of Urban Amenities in Rural Areas). NTPC has established a trust to work for the cause of the physically challenged people. Similarly in the private sector, companies like Infosys, Wipro and Reliance are believed to be most socially responsible corporations. The role of governments and companies in developing projects related to minerals can vary from country to country and may be subject to negotiation. This should help and guide in preparing country and regionspecific programmes that gel well in the social and macroeconomic context to create greater impacts. In some instances, mineral companies may be obliged to undertake certain functions that might be expected to be performed by a host government. In this case, the company’s role may be to assist host communities in organising themselves to a stage of selfsufficiency where they are able to manage their own community development priorities after the project is either completed or withdrawn and the mines are closed. In order to facilitate and support the development of a sustainable mining sector, and thus maximise the economic, social and development benefits to their countries, governments should put in place effective policies, and legislative, regulatory, monitoring and enforcement regimes at all steps in the decision chain. These should essentially include discovery and the decision to extract; setting up of the fiscal and contracting regime; the award of contracts and monitoring of operations; collection of taxes and royalties; revenue management and distribution; and sustainable development policies and projects, including the social responsibility aspects. Successful companies have learned that supporting training and capacity-building initiatives that develop income and employment options, quite independent of the minerals project, is the best way to enable host communities to receive sustainable benefits from the exploitation of the

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finite mineral resource. Ensuring that all community development initiatives are broadly based and include opportunities for women and other historically disadvantaged groups will improve the likelihood that these initiatives are sustainable in the long term. This will not only ensure sustainability but greater social involvement, commitment and income through gender equity. The role of national governments and corporations has been the subject of particular focus since the endorsement by the United Nations Human Rights Council (UNHRC) on 16 June 2011. The main components of respecting human rights lie in treating employees and local communities fairly and with respect, paying fair compensation for work done or impacts caused, and dealing with complaints as per set process and with transparency. In addition, due care must be paid to the behaviour of the partners and suppliers of a business, ensuring that they, too, are behaving in a socially responsible manner, or seeking alternative partners if it happens that they are not. In addition, the remedy aspect of the ‘UNHRC Framework’ can be addressed by a minerals operation ensuring that it has an accessible and functioning complaints procedure, both for employees and for external parties. This is a standard part of socially responsible operations in the mining and metals sector. For ethical, financial and reputational reasons, minerals companies should place a strong emphasis on safety in all aspects of their operations and employ leading practice in ‘Occupational Health and Safety Management’, regardless of the regulatory environment present in the host country. Though many companies have in-house built-in system of observing HSE regulatory standards, this has not necessarily been extended to the employees or the local community as an integral part of the CSR policy. Characteristics of safe projects should therefore ideally include strong risk identification and management culture, appropriate management attitudes and behaviours, robust reporting systems and a focus on education and training. International Finance Corporation’s (IFC) Performance Standard 2: Labour and Working Conditions notes the requirement to provide workers with a safe and healthy work environment, taking into account inherent risks in the particular sector and specific classes of hazards in work areas, including physical, chemical, biological, and radiological hazards. It discusses, among other things, the importance of identifying potential hazards to workers, particularly those that may be life-threatening; provision of preventive and protective measures, including modification, substitution, or elimination of hazardous conditions or substances; training of workers; documentation and reporting of occupational accidents,


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diseases, and incidents; and emergency prevention, preparedness and response arrangements (IFC, 2006). The National Aluminium Company (NALCO) of India has attempted to address the problems of rehabilitation of displaced families with adequate compensation, housing and employment to the extent feasible. Creation of infrastructure in the surrounding villages for communication, education, health care and drinking water gets priority in the periphery development plans of the company. Apart from community participation in innovative farming, pisciculture, social forestry and sanitation programmes, encouragement to sports, art, culture and literature are all a part of NALCO’s involvement as a responsible corporate citizen. As a policy, NALCO has been allocating 1% of its net profit of the year for peripheral development activities of the succeeding year. Out of this allocable fund, 40% is for Damanjodi (Mines and Refinery) sector; 40% is for Angul (Smelter) sector; and 20% is for Bhubaneswar and rest of Orissa. The CSR activities of the company mostly cover the peripheral villages of smelter and power complex, Angul and mines and refinery complex, Damanjodi and the district headquarters of Angul and Koraput. The Government of Orissa has constituted Rehabilitation and Peripheral Development Advisory Committee (RPDAC) for Damanjodi and Angul separately under the chairmanship of concerned Revenue Divisional Commissioner (RDC). The RPDAC finalises the annual peripheral development projects and its estimates. The RPDAC also decides the projects to be executed by the District Administration and by NALCO. During the financial year (i.e. 2009– 2010), the total allocation for CSR activities by the NALCO is INR 1272.27 lakhs. Out of this, as per Company’s policy, an amount of INR 508.91 lakhs each for mines and refinery complex, Damanjodi and smelter and power complex, Angul has been allocated and conveyed for finalisation for projects in the RPDAC meeting. NALCO is also considering establishing a Corporate Social Responsibility Foundation for taking up various peripheral development activities over and above the activities being undertaken through RPDACs. The company has approved in principle for allocation of another 1% of its profit to be spent by this foundation (Sustainable Development Framework for the Mining Sector).

Socially Responsible Investment (SRI) Measures to reduce energy consumption and material inputs are frequently cited as an aspect of CSR that can lead to cost savings. However, academic

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studies of the cost-saving effects of the environmental dimension of CSR give mixed results. According to Miles and Covin (2000), CSR-related environmental expenditures constitute investments that pay off due to cost savings from, for example, continuous improvements, low potential litigation expenditures, lower insurance and lower energy costs. In contrast, Chapple, Morrison Paul, and Harris (2005) find significant costs associated with CSR-related waste reduction practices when applying a cost function approach to UK manufacturing at county level. Little evidence is available for CSR impacts on the cost structure of SMEs, although few of the SMEs interviewed by Jenkins reported CSR-induced cost savings. In spite of the sometimes contradictory evidence from past studies, the cost-saving potential of the environmental dimension of CSR is likely to be strengthened by rising energy costs and the prospect of stronger mechanisms for the pricing of carbon emissions. But, in that case it may be outside the original project objective, which may not essentially include those activities that can determine pricing of carbon emissions by carbon taxing mechanisms. There have already been a number of extensive reviews of the Social and Environmental Accounting (SEA) literature (Thomson, 2007) for a recent and novel approach, notably by Gray, Kouhy, and Lavers (1995) and Mathews (1997), emphasising the critical aspects of CSR programmes such as Corporate Responsibility, Accounting and Accountants. They reviewed 25 years of academic work in the area from the early 1970s, classifying it into empirical, normative, philosophical, and various other forms of research. Mathews (1997) provides an excellent history of the early work undertaken on SEA, noting that in these early stages, SEA research predominantly reported ‘fairly unsophisticated empirical studies, which attempted to measure the amount of new information being produced and published by a limited number of enterprises’. Gray et al. (1995) show that over the period 1979–1991, social and environmental reporting steadily increased, both in terms of the number of companies choosing to report, and the amount they reported. However, they point out that the level of social reporting was still relatively low compared with other forms of discretionary disclosure, concluding that ‘social and environmental performance is still a relatively low priority for companies’ (Gray et al., 1995). The Global Reporting Initiative (GRI) was established to provide global guidelines for the reporting of social and environmental information, and to ensure consistent reporting. In Australia, a guide to triple bottom line reporting to complement the GRI was developed in 2003 by Environment Australia (Adams & Frost, 2007). The GRI states its vision as being ‘that


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reporting on economic, environmental and social performance by all organisations is as routine and comparable as financial reporting’. They provide a Sustainability Reporting Framework ‘of which the Sustainability Reporting Guidelines are the cornerstone’ and ‘provides guidance for organisations to use as the basis for disclosure about their sustainability performance, and also provides stakeholders a universally-applicable, comparable framework in which to understand disclosed information’. There are 11 reporting principles, encompassing similar attributes to those espoused for financial accounting, such as, auditability, completeness, relevance, accuracy, neutrality, comparability and timeliness; and also includes transparency, inclusiveness, clarity and context (Stanwick & Stanwick, 2006). No concerted effort has been made in India so far to avail the international platform of GRI, which inter alia provides the Sustainability Reporting Framework, especially with specific reference to the mining industry. However, a similar framework has been developed by the Ministry of Environment and Forests to provide comprehensive guidelines to develop CSR programmes with strong sustainability reporting components that are essentially monitorable and measurable to determine the quality of the projects on ground.

CSR STRATEGY LINKAGES WITH BUSINESS DEVELOPMENT Mining is a concurrent subject in India and is the responsibility of the Central Government and the State Governments as per the Constitution of India. The Mines and Minerals (Regulation and Development) Act, 1957 lays down the legal framework for the regulation of mines and development of all the minerals. The health, safety and welfare of the worker are governed by various rules and regulations framed under MMRD Act, 1957 and Mines Act, 1952. The Director General of Mines Safety (DGMS), Government of India, is responsible to enforce the provisions of the Mines Act. DGMS certifies all the equipment that is used in mining and it is mandatory to take the required approval before utilising any new technologies. CIMFR, a Government of India laboratory is the nodal agency to test all such equipment and DGMS certifies it based on CIMFR report. The company’s marketing, manufacturing, operations and other linemanagement functions are rarely involved in CSR programmes. In fact, the lack of integration of CSR into mainstream business strategy seems to be where the field of human resources management (HRM) was several years

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ago. In recent years, many companies have been pushing towards strategic HRM that emphasises a more integrated and proactive role where HR managers collaborate with line management to help formulate strategic business plans and develop an array of programmes to ensure the success of the business strategy (Fisher, Schoenfeldt, & Shaw, 1999). This is the same direction that the CSR function needs to take. While some companies are making progress at aligning their business and CSR functions in ways that maximise benefits to society and their financial performance, often missing is a practical framework that can help them achieve better strategic alignment. To address this gap in the literature, the following section presents a model that shows how a company’s core competencies can be leveraged to achieve greater alignment between CSR and business functions. This alignment can maximise both the social and business impact of CSR programmes and avoid reputation-damaging decisions.

The Socially Anchored Competencies (SAC) Model The SAC model represents a complex process of taking core business competencies, blending them with stakeholder analysis, and getting a set of competencies that are socially anchored (Porter, 1990). This model provides a new lens that companies can use to identify opportunities they would have missed using the traditional corporate philanthropy lens. By integrating SACs into the business environment, companies can increase their profitability by introducing new socially responsible products or services, reducing waste and costs, and adding new ‘social’ value to existing products and services (Porter, 1990). This model is viewed as the Porter’s extended value-chain model with focus on leveraging socially anchored competencies. This model needs to be locally tested to suit the local conditions and the involved community as well as the stakeholders before this can be extrapolated for replication and wider adaptation. Competitive strategy is the means by which companies increase profitability. While strategic decisions are long term in nature, managers tend to focus on short-term profitability to meet the expectations of analysts and institutional shareholders. When pressured to meet short-term goals, managers often ignore patient investments in long-term value creating activities such as CSR. The more important action a company can take is build a strong foundation to guide the business in the future and sustain profitability in the long term. This is where SACs can play an important


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role. Integrating SACs throughout the fabric of the company and learning from the experience creates new ways of thinking about products and CSR programmes. It also allows the company to leverage existing skills and capabilities, while developing new ones. This process can improve the company’s ability to spot and pursue emerging opportunities in the market or venture into new market arenas, which can enhance the company’s overall competitiveness. Once SACs are successfully integrated throughout the company, its CSR programmes should achieve strategic alignment with the business strategy in order to leverage greater social benefits (Fisher et al., 1999). But, in that the most important dimension would be how to exactly measure the social costs vis-a`-vis social benefits. Apparently, no microeconomic models on CSR programmes have yet been developed or attempted by the mining industry at large insofar as India is concerned. Thus, instead of encouraging isolated corporate contributions units or foundations allocating cash and product donations to charities, the CSR programmes can be so designed that they use the local skills and assets that help make the company competitive over a long period of time in order to be able to be self-sustaining and show measurable returns equally to the business and society.

CSR AND THE ISSUE OF ETHICS AND TRANSPARENCY The last decade has witnessed a tremendous agitation for embracing CSR, and Transparency (absence of corruption), in the development of energy and mining projects especially in emerging markets. This is seen as a way of not only encouraging sustainable development, but also mitigating social risks that have profound impact on a project’s bankability (acceptance for funding) and its rate of return (Nwete, 2003). It has also been seen on a wider scope, as a way around the age long problem of infrastructure decay, environmental degradation, human right abuses, corruption and stagnated development that have become synonymous with resource-rich emerging economies. The World Bank defines CSR as the ‘commitment of business to contribute to sustainable economic development, working with employees, their families, local community and society at large to improve the quality of life, in ways that are both good for business and good for development’ (Ward, 2004). The fact however is that business is not under any obligation to do this, no matter how noble such acts may appear, as these do not directly enhance profit which many argue is the primary motive of business.

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The recognition however, of the intrinsic value of CSR and Transparency to the business bottom line, coupled with the clamour by the international media and civil society, for a much more regulated and controlled business environment, especially in relation to human and environmental rights, and corruption, seems to have witnessed certain changes in this respect. These have led to the emergence of several CSR voluntary codes of corporate conduct, declarations, Memoranda of Understanding (MoU), Good Neighbour Agreements (GNAs), norms, like the norms on the responsibilities of transnational corporations and other business enterprises with respect to human rights, etc., which are at best soft law that has little or no binding effect, and therefore attracts no sanction when breached. Milton Friedman’s assertion that the ‘social responsibility of business is to increase its profits’, has had many followers who have continued to insist that the proper business of business is business, and that the role of well-run corporations is to make profit and not to save the planet. Furthermore governments were recognised as having the sole power, authority and capacity to deal with issues of governance, human and environmental rights, despite arguments that the Universal Declaration of Human Rights (UDHR) requirement, that every organ of society should promote respect for human rights and fundamental freedom is applicable to businesses. As a result, the issue of CSR and Transparency occupied no place on the boardlevel agenda of businesses, until about a decade ago. Businesses were more concerned with priorities that seemed to be more important than issues encapsulated in the broader framework of CSR, which include maximisation of shareholder value and profit, risk management, transfer pricing, mergers and acquisitions, and senior management selection and remuneration, etc. and for oil companies, the additional concern about reserve replacement.

DRIVERS AND TRENDS IN CSR INITIATIVES IN MINING INDUSTRY CSR is the realisation of business contributions to sustainable development goals. It refers to how business takes account of its economic, social and environmental impacts in the way it operates. CSR undertakings are the voluntary actions that business can take, over and above compliance with minimum legal requirements, to address both its own competitive interests and the interests of wider society. The breadth of business CSR strategies and initiative has expanded dramatically over the last decade. Activities


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embraced under the rubric of CSR vary from one-off philanthropic contributions to measures more centrally integrated as part of core business performance. KPMG’s International Survey of CSR Reporting (2011) provides a means to assess drivers and trends of global CSR programmes. The 2005 survey included the CSR reporting of the top 250 of the Fortune 500 companies (G-250) as well as the top 100 companies of 16 key industrialised economies. In this survey, KPMG has analysed the reports of more than 3,400 companies globally – including the world’s 250 largest companies – to paint a clear picture of the state of CSR reporting and assurance around the world. We examine a variety of key issues, including the benefits of CSR reporting, the adoption of integrated reporting, the drive for global standards and the use of third-party assurance providers. Some of the key observations made in the report include the following statements: Companies are increasingly realising that CSR reporting is about more than just being a good corporate citizen; it drives innovation and promotes learning, which helps companies grow their business and increase their organisation’s value. Where CSR reporting was once seen as fulfilling a moral obligation to society, many companies are now recognising it as a business imperative. Today, companies are increasingly demonstrating that CSR reporting provides financial value and drives innovation, reflecting the old adage of ‘what gets measured gets managed’. Companies are also quickly evolving the method by which they communicate their CR information to their various audiences. As more and more companies start to employ multiple vehicles for communication (above and beyond their printed annual report), one would expect to see companies focus on developing and implementing a comprehensive communication strategy that enhances trust and value for the company within its different stakeholder groups. The CSR agenda is a dynamic one that stirs and provokes considerable debate. CSR is subject to many varied interpretations and can include a range of corporate activities and interest from labour and environmental practice to corporate philanthropy. Nevertheless, a survey of CSR reports of major companies highlights the following key trends: Mainstreaming: CSR considerations have become a concern for the majority of companies and social and environmental reporting has entered the mainstream. Increasingly, companies include under this umbrella corporate

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governance issues and report on economic and social impacts on society throughout their value chain. Social and development agenda: CSR has ceased to be motivated by environmental issues alone; sustainable development with a balance of social, economic and environmental concerns has become widespread. Implementation and monitoring: CSR actions have moved progressively away from a unique concentration on codes of practice and business conduct to equal focus on implementation and reporting on compliance and good practice, including third-party independent verification, often through civil society partnerships. Business case: Economic reasons are the predominant drivers for CSR. Increasingly, companies have recognised the business case behind CSR. In a global economy where companies source raw material internationally and relocate components of production to low cost locations, the responsibility agenda is growing and becoming more complex. Increasingly, companies are pressured by NGOs, media or their own shareholders to take responsible action in their supply chain. In most cases this cannot be accomplished by a company alone. Over the last decade, a wide range of multi-stakeholder initiatives has emerged to address these issues. Many have produced codes of conduct, standards and certification schemes for commodities and ethical supply chain management. The sectors most advanced in establishing supply chain schemes are forestry, textiles and fair trade schemes in key agriculture commodities such as coffee, tea and bananas. Most of the schemes include national stakeholder consultations reaching down to representatives of the producing communities or communities affected by its sourcing. The Business Case for CSR The top drivers for CSR can be depicted as encompassing (i) managing risks to earn/maintain a license to operate; (ii) enhanced corporate reputation and brand image; (iii) improved relations with shareholders and other investors; (iv) improved access to markets and customers; (v) increased employee morale and productivity; (vi) enhanced relations with communities and regulators. These drivers are reinforced on the basis of the following: Growth opportunities: As markets in developed countries become saturated, many companies see key growth opportunities in emerging markets, especially those with young populations.


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Governance: Governance, political risk, legal and investment infrastructure have improved in many developing countries and corporates have been drawn in as partners in governance mechanisms, especially in resource course contexts. Technical innovation: Innovations in communication technology and transport have lowered costs of accessing diverse and remote markets. Globalisation has changed public expectations and awareness: Poverty, political instability, the spread of communicable diseases is of growing concern. Increasingly, companies, particularly MNCs, are expected to mobilise to become part of the solution. Partnerships and multi-stakeholder initiatives have matured: There is a growing recognition of the need for partnerships in order to tackle the complex and long-term problems of development. With the growing experience the rules of engagements and specific roles of the different partners are better understood.

CSR: General Concerns for Audit Coverage CSR programmes can operate at different levels according to the policy adopted by the organisation. At the basic level, organisations have some level of community awareness, public service, or charitable contributions as part of good corporate citizenship. Examples include scholarships for students, adoption of parks or highways, sponsorship of charity events, and gifts to the arts. Such initiatives are also subject to internal controls and should be considered for periodic review of their accounting and oversight processes. At a more sophistication level, CSR activities may cover a variety of additional issues, including those of: Protection of human rights in the form of denial or prevention of legal or social rights of workers. Examples include fair wages for factory workers with reasonable work conditions, including restrictions on child labour. Destruction of natural habitat or resources – Depletion of natural habitats, wildlife and land surfaces. Examples include strip mining, protection of endangered species, deforestation and pollution. Free market development – The mega corporations that significantly impact developing market economies are under fire regarding fair-trade policies. Less-developed countries and their marketplace communities should have opportunities for healthy economic growth that do not exacerbate wealth disparities or exploit people.

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At the highest level, CSR strategy is closely integrated with the business objectives, creating a ‘virtuous circle’ for all the stakeholders. The auditor should develop a general understanding of the social responsibility issues that affect their organisation and industry. The challenge of developing a socially responsible organisation is creating the balance between profitability and other public goods. Management must reconcile these sometimes contrary needs. On the one hand, management is responsible to shareholders and investors to deliver a financial return. On the other hand, management is responsible to the society that invests the modern corporation with control over its resources and employees. The risk of not paying adequate attention to social responsibilities is clear – reputation damage, lawsuits, and government scrutiny. Internal audit should focus on these risks and assist management to identify appropriate actions. A CSR audit programme can cover all or any of the following risks: (i) effectiveness of the operating framework for CSR implementation; (ii) effectiveness of implementation of specific, large CSR projects; (iii) adequacy of internal control and review mechanisms; (iv) reliability of measures of performance; (v) management of risks associated with external factors like regulatory compliance, management of potential adverse NGO attention, etc. An organisation’s social responsibility initiative may include many component programmes addressing both internal and external considerations which include: Donating funds and resources – Management should ensure that donations are carefully reviewed and based upon sound judgement. Although this is a very common type of community involvement the timing, amount of funds and type of gifts should be considered. Some companies allow personnel to volunteer in the community on paid time. Project implementation – Companies often embark on large CSR projects that are aimed at delivering high brand or business impact. These projects may typically run over a long time horizon and involve significant investment of time and resources, both monetary and resource related. Setting of clear objectives, adequate resourcing, effective monitoring and independent review of project performance are critical to success. Communications – Establishing effective plans to communicate to employees and the public to describe the organisation’s actions and the related impact to the community. Assessing public relations and the adequacy of the PR function in addressing social issues.


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Social responsibility analysis – Organisations can allocate dedicated resources to identify, evaluate and research social responsibility issues. Establishing liaisons with community groups and working with those responsible for public welfare or the environment will help the organisation understand and address appropriate issues. Managerial policies and decision support – All organisational levels and objectives should incorporate social responsibility plans. These intentions may be included in policy and procedures, statements to the public, marketing campaigns, and made transparent to the public (where appropriate). Management decisions should incorporate social responsibility considerations especially those that directly impact the community. For example, operations or plants that create noise, traffic, or pollution, or that impinge on any part of the community should include a social responsibility component. Research and development – Organisations can conduct research into alternative methods or approaches to operations or products that reduce or remove undesirable impacts or by-products. For example, manufacturing companies can support recycling programmes for printer ink cartridges and other products to ensure proper disposal or reuse. Government program participation – companies collaborate with government agencies to provide research on issues often along with their industry competitors. Organisations that better understand the problems at hand and the governments’ responsibilities can help ensure they are part of the solution rather than part of the problem. Companies can also ensure that related legislation and regulatory mandates are sound, effective and incorporate common interests.

CSR PERFORMANCE STANDARDS AND PARTNERSHIP INITIATIVE FOR FUNDING SUPPORT A CSR standard provides transparency and evidence of accountability. It embodies two types of challenges: the first challenge concerns the society’s expectations and the second one incorporates the implementation activities in order to satisfy these expectations. However, none of the proposed CSR standards can satisfy these challenges simultaneously (International Institute for Sustainable Development, 2004). The concept of CSR and

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CSR-performance measurement has gained increasing attention from numerous business-analysis authors, businesses, NGOs and other bodies. A number of CSR standards have been established in order to homogenise the different aspects of CSR in each country and sector. This would help in making the aspects more reliably comparable. The development of CSR standards represents a new framework of corporate governance. They provide instructions as to how a responsible company should act with regard to its stakeholders’ expectations. However, there still remain a vast number of standards that take into account regional, national and sectoral characteristics in order for companies to correspond to specific challenges. By assessing CSR performance, companies have the opportunity to identify both their strengths and weaknesses, modify their strategies and define opportunities for improvement (Kok, van der Wiele, McKenna, & Brown, 2001; Sirgy, 2002). There are five different approaches to assess CSR performance: measurements based on the analysis of the contents of annual reports, pollution indices, perceptual measurements derived from questionnaire-based surveys, corporate reputation indicators and data produced by measurement organisations (Igalens & Gond, 2005). Maignan and Ferrell (2000) arrange similar measurement approaches into three main categories: expert evaluations, single- and multiple-issue indicators and surveys of managers, while Turker (2009) proposes approaches such as reputation indices and databases, single- and multiple-issue indicators, content analysis of corporate publications scales measuring CSR at the individual level, and scales measuring CSR at the organisational level. In regard to the multiple indicators approach, there is no single way of assessing CSR performance (Wolfe & Aupperle, 1991), as different rating methods are available. However, there are cases of companies that prefer internal evaluation procedure for their performance in order to protect valuable internal information that could affect their competitiveness advantages. Gjolberg (2009) introduces a CSR standards performance measurement on national level using different standards and initiatives such as DJSI and FTSE4Good, Global 100 Most Sustainable Corporations, membership in UNGC and WBCSD, sustainability reporting practices in KPMG Sustainability Reporting Survey and the GRI and certification by ISO 14001. A national CSR index of CSR standards is elaborated by Gjolberg (2009) for each of the 20 countries in order to measure the performance of corporate practices and activities. In the past decade, governments have become increasingly proactive in promoting CSR through their public policies. Most recently, companies have seen increased government involvement in the business sector –


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partially due to the global financial crisis – and this trend is expected to continue into the future. Keeping this in mind, it is likely that government promotion of corporate responsibility and good governance will continue to grow in the coming years. With the implementation of these public policies, companies must now look at governments as key stakeholders of their operational structures and become more aware of the public sector’s efforts to promote CSR. By engaging with governments, companies can increase the impact of their CSR strategy and improve the sustainability of their programmes. Joining efforts across sectors can lead to more efficient solutions to social problems that are a concern to both companies and governments. Companies that proactively engage in public policy have a new opportunity to become leaders in the countries where they operate and to shape the future of how governments promote CSR. Several researched countries enact policies allocating government funds for the implementation of CSR programmes, and various government agencies also rely on ethical guidelines as part of their resource allocation decisions. These policies distribute funds based on a screening of companies’ CSR programmes. The policies are championed by various sectors of the government, including the ministries of labour, agencies of international development, and national banks. Policies such as these include the Brazilian National Economic Development Bank’s ruling ethical code, which requires that all funded entities comply with national labour codes. Although this qualifies as legal compliance only, it nonetheless promotes the improvement of labour practices. The bank’s contracts include a social clause requiring compliance with child labour, forced labour, and discrimination laws. A violation of this clause can lead to the suspension of the contract. Another example is in Sweden, where the Business Development Agency has disbursed funds to 50 small and medium enterprises to promote CSR through the creation of business development tools, case studies, and regional incubators. Allocating funds for the implementation of CSR programmes is an important and valuable tool in spreading CSR awareness throughout the private sector. In some cases, it also allows governments and private parties to debate CSR issues and collaborate on implementation. This collaboration helps improve the relationship between government and companies in countries where the two sectors are not usually engaged. There are challenges with this type of policy, however. For instance, it can be difficult to verify compliance and implement evaluation mechanisms. This research did not reveal any examples of how entities verify compliance with ethical codes or with fund allocation requirements. The lack of a reliable

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compliance mechanism could severely undermine the initiative. Furthermore, it is difficult to quantify the benefits of such policies when evaluation mechanisms do not exist. Issuing suitable guidelines in this regard by implementing agencies would allow governments to decide which types of programmes are more efficient in promoting CSR. The Union Government may make it mandatory for coal mining companies to spend a part of their net profit on the welfare of local people affected by the activities. The move, a part of the competitive bidding guidelines being framed by the Coal Ministry of the Government of India, is in line with the ongoing wave of policy decisions aimed at integrating the ownership issues of the land holdings in development projects within the broader ‘inclusive’ economic growth agenda. Currently, CSR practices are dictated by guidelines notified by the ministry of corporate affairs in December 2009. These are, however, voluntary. Under these, business entities formulate their own CSR policy, approved by the company’s board. The guidelines state that companies ‘should’ allocate specific amounts in their budgets for CSR activities. ‘This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter’, the guidelines state. The corporate affairs ministry is also reportedly planning to make mandatory CSR a part of the amendments to the Companies Bill, 1956. The Bill is likely to be placed in the monsoon session of Parliament. Coal India Ltd, the state-owned near-monopoly under the coal ministry and the largest producer of dry fuel in the world, already spends around 5% of its retained profits on CSR activities.

STRATEGIES TO ENHANCE MINING SECTOR IN INDIA Ministry of Mines is responsible for survey and exploration of all minerals, other than natural gases, petroleum and atomic minerals; mining and metallurgy of non-ferrous metals like aluminium, copper, zinc, lead, gold, nickel, etc. and for administration of the Mines and Minerals (Regulation and Development) Act, 1957 in respect of all mines and minerals other than coal, natural gas and petroleum. The Mines and Minerals (Development and Regulation) Bill, 2011 prepared by the Ministry to replace the existing Mines and Minerals (Development and Regulation) Act, 1957 has been approved by the Cabinet and the bill has been introduced in the Winter Session of Parliament. The bill has been prepared after several rounds of


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consultation and workshop with all stakeholders. The Bill seeks a complete and holistic reform in the mining sector with provisions to address issues relating to sustainable mining and local area development, benefit sharing mechanism to the people affected by mining operations. The Bill also aims to ensure transparency, equity, elimination of discretions, effective redressal and regulatory mechanisms along with incentives encouraging good mining practices, which will also lead to technology absorption and exploitation of deep seated minerals. Amendment of Rule 45 of MCDR 1988 The Ministry of Mines has notified amended Rule 45 in Mineral Conservation and Development Rules, 1988, which stipulates mandatory registration of miners, stockists, traders, exporters, and end-users of minerals, and stringent reporting norms for ensuring end-to-end accounting of the mineral produced. In this system it is mandatory for the miners, traders, exporters, and end-users of the minerals to send a copy of the reports to State Governments also. The State Governments have also been advised to ensure that any automation in the reporting system developed at the state levels should be compliant with the amended Rule 45 of the MCDR. The registration system has already started and the Ministry of Mines is working closely with IBM to commence the online submission of monthly and annual returns of production to be filed by the mining lessee at the earliest. Strategic Plan The Ministry of Mines is preparing a detailed Strategic Plan document ‘Unlocking the Potential of the Indian Minerals Sector’ in order to systematise the functioning of the Ministry and align it more directly with the vision emanating from the National Mineral Policy. The Strategic plan has identified that the Indian minerals sector holds a huge potential for all stakeholders, including the central government, state government, community and the entire economy. With the right kind of support, the mining sector has the potential to significantly contribute to the GDP and also improve the revenues of royalty and taxes. The Strategic Plan has identified six priorities to achieve the objectives. These priorities are – expanding resource and reserve base by stepping up exploration and aiding international acquisition of strategic minerals; reducing permit delays to

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create a more favourable policy environment; setting up core enablers for mining – infrastructure, human capital and technology; ensuring sustainable mining and development; creating an information, education and communication plan and establishing the right governance structure for effective implementation.

International Cooperation The Ministry of Mines and the Ministry of Energy and Resources of the Province of Saskatchewan, Canada, signed a Memorandum of Cooperation for co-operation in the field of Geology and Mineral Resources, on 15 March 2011, during the visit of the Saskatchewan Premier to India. The Ministry of Mines and the Ministry of Energy and Mines of Colombia signed a Memorandum of Understanding (MoU) on co-operation in the field of Geology and Mineral Resources on 4 May 2011 at Bogota. Shri Dinsha J. Patel, Minister of State for Mines (Independent Charge) signed the MoU on behalf of the Government of India. Mr Carlos Rodado Noriega, Minister of Mines and Energy signed the MoU on behalf of the Government of Colombia. The Ministry of Mines of Indian and Afghanistan governments has signed an MoU on co-operation in the field of Mineral Resources Development on 4 October 2011, during the visit of the Afghanistan President to India. The MoU was signed by Shri Dinsha J. Patel, Minister of State for Mines (Independent Charge) for the government and H.E. Mr Waheedullah Shahrani, Minister of Mines, on behalf of the Afghanistan Government. The signing took place in the presence of the Indian Prime Minister Dr Manmohan Singh and H.E. Mr Hameed Karzai, the President of Afghanistan. The Ministry of Mines and the Ministry of Energy and Mines, Government of British Columbia Province, Canada have signed an MoU on co-operation in the field of Geology and Mineral Resources on 17 November 2011, in the presence of Shri Dinsha J. Patel, Minister of State for Mines (Independent Charge) and H.E. Ms Christy Clark, Premier of British Columbia Government. A meeting of the Joint Working Group on co-operation in the field of Geology and Mineral Resources was held with the Province of Ontario, Canada on 1 March 2011, through video conferencing. The seventh meeting of the India–Australia Joint Working Group on Energy and Minerals was held in Australia on 17–18 May 2011, at Sydney, Australia. Ministry of Mines is the nodal ministry from the Indian side for this Working Group. The Protocol signed at the end of the


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meeting endorsed the activities under the Action Plans on Mining and Minerals, Power, Petroleum and Natural Gas and Coal sectors. The second meeting of the India–Uzbekistan Joint Working Group on Geology and Mineral Resources was held in New Delhi on 15 September 2011. A Protocol was signed at the end of the meeting which listed the future course of action for furthering the co-operation programme.

Reforms in Mines and Minerals (Development and Regulation) Act and Regulations The Mines and Minerals (Development and Regulation) Act, 1957 (MMDRA), was inadequate to realise the vision of economic growth as mines in poverty-stricken regions showed no sign of development. The present status remains more or less the same or even worse as labour rights and regulation are absent. Moreover as a result, a system of bonded labour has cropped up and the poor miners, mostly local tribal people, are unaware and even helpless to voice their concern. The major roadblocks which need reforms are: Firstly, mining as an occupation is done in the most inhuman way where the miners risk their lives for a meagre sum of money whereas the minerals’ worth is beyond imagination. Secondly, the mining activity is directly proportional to demand and thus non-scientific practices and ill-mannered mining and absence of training for miners are an issue at large. The recent rescue operation of 33 miners in Chile has brought the world’s attention towards these unsung heroes. National responsibility towards this high-risk occupation is the next major issue in mining policy the world over. Thirdly, land ownership and mass migration become a major concern in addressing rehabilitation issues. Fourthly, the FDI entrants like MNCs find it very difficult to operate owing to the uncooperative attitude of locals, governments, media, etc. The recent global showdown against Vedanta’s Niyamgiri Hills in Orissa which are opposed by tribal inhabitants for community principles can be a setback for MNCs interested in entering this sector. Fifthly, today when environment is a major concern there is conflict of miners and environment regulation where due to environmental concern or emerging ‘green tape-ism’, activities are shut down leading to unemployment of miners and loss of investors.

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Sixthly, mining activities are scientifically done the world over and use of advance geological instrumentation in the process has resulted in increased production in a sustainable way. Such practices are yet to be implemented on field in India. Finally, corruption is a cancer which infects all organisations. It leads to non-transparency, delay and vindictive attitudes of officials, which is primarily responsible for non-acceptance of reforms in practice. At the policy front government has time and again proved its meticulous ability to lay a framework projecting a simple strategy. The New Mineral Policy 2008 and Sustainable Development Framework 2010 enunciate measures like assured right to next stage mineral concession, transferability of mineral concessions and transparency in allotment of concessions, in order to reduce delays which are seen as impediments to investment and technology flows in the mining sector in India.

CONCLUSIONS Mining industries in India have a huge potential for growth; it will help them support other industries for which bulk of the raw materials is derived from this industrial segment. Several research and developmental studies conducted by different organisations spread across the globe has been able to convincingly link the prospect of industrial growth and long-term sustainability with the stakeholders’ participatory and proactive roles along with those of the industry for holistic and integrated socio-economic development of the mining areas. This has been possible through careful designing of the CSR programmes and initiatives by several mining companies in India (with varying degrees of success and failure) with close monitoring and performance evaluation of the impact of the programmes in terms of ecological, economical and sustainability against certain predesigned standards. Such standards – as they are constantly evolving – should inter alia include ethical and transparency dimensions to ensure total involvement of the local community in the mining-affected areas. Proper compensation mechanisms and socio-economic growth of the mining community will not only improve productivity, but will also take care of ecological and economic safeguard of the mined coal blocks that are highly vulnerable to ecological degradation and economic exploitation. As for future strategy for sustainable industrial growth of the mining industry in India, there should be constant monitoring and evaluation of the various


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provisions of the various Acts related to mining, minerals, metals, energy, power, environment, etc. that are constantly under review and reform processes with a view to guiding the future strategy. International cooperation in the mining sector will go a long way in ensuring sustainable growth and development of the mining industry in India for boosting the economic growth of the country.

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WEBSITES http://www.foei.org/mining/index.html (Accessed on 8 October 2004). http://www.minesandcommunities.org/Action/press437.htm (Accessed on 8 October 2004). http://www.oxfam.org.au/campaigns/mining/index.html (Accessed on 8 October 2004).

ABOUT THE CONTRIBUTORS Frederick Ahen is a PhD candidate at the University of Turku, Finland. Frederick holds a BSc in Economics and International Business from the Universita` Politecnica delle Marche, Italy and an MSc in International Business from London South Bank University. Frederick’s main research interests include strategic corporate responsibility, global sustainability and global health diplomacy with particular focus on the comparative institutional analysis of emerging economies in West, East, Central and Southern (WECS) Africa and selected European economies. Mark Argar Mark is Joint Managing Partner of South-South Capital Partners (SSCP), a boutique consulting firm, focused on the Sustainability, Healthcare & Infrastructure industries, specializing in Latin American and Asian market entry outcomes, through delivery of the agreed Partner Transaction (PACT). Mark has spent 15 years working in the international markets of Asia and Latin America, while earning an MBA and CBE. Mark has lived in Latin America for the past 10 years, three years as ConsulGeneral and Trade Commissioner, Andean community, based in Peru; seven years in Saõ Paulo. In Saõ Paulo he spent three years as ConsulGeneral and Senior Trade Commissioner for Latin America and most recently, four years as General Manager, Pacific Hydro (Brazil). Mark is concurrently President and CEO of ENDEC, Inc. He is based in Manila, Philippines. Emel Esen completed her master’s degree in Human Resources Management of Business Administration Department from Yildiz Technical University. She earned her PhD in Organisational Behaviour at Marmara University, Turkey. She is currently research assistant in Yıldız Technical University, Turkey. Her research interests include Positive Organisational Behaviour, Business Ethics, Corporate Social Responsibility and Corporate Reputation. Maria Alejandra Gonzalez-Perez (Psy, MBS, PhD) is Full Professor of International Business, Director of the International Studies Research Group, and in the period 2009–2012 was the Head of the Department of International Business at Universidad EAFIT (Colombia). Professor 263

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Gonzalez-Perez is also the coordinator of the Colombian Universities in the virtual institute of the United Nations Conference for Trade and Development (UNCTAD), Editor-in-Chief of the business journal AD-minister, and in the period 2008–2012 was the Editor-in-Chief of Revista de Negocios Internacionales. She holds a PhD in globalisation and corporate social responsibility (international business), and a master’s degree in Business Studies in Industrial Relations and Human Resources Management from the National University of Ireland, Galway. She did postdoctoral research at the Community Knowledge Initiative (CKI) in NUI Galway. Prior to her position in Colombia, she worked as a researcher in various organisations such as the Centre for Innovation and Structural Change (CISC), Irish Chambers of Commerce and the Economics of Social Policy Research Unit (ESPRU) in Ireland. Dr Gonzalez-Perez has published several academic papers and book chapters in the areas of internationalisation, corporate social responsibility and international migration. She is a regular contributor to business media, and has written over 50 business articles in the past year. Her research results have been presented in over 40 international academic conferences in all the continents. Craig Hume is a PhD student in the Department of Marketing in the Griffith Business School at Griffith University, Queensland, Australia. Margee Hume is currently an Associate Professor and School Research Director in the School of Management and Marketing Faculty of Business and Law. She is also a member of the Leadership Group of the Australian Centre for Sustainable Business and Development University of Southern QLD. Her research interests include sustainability and service innovation, interactive technology and consumption of online interactive services, and visitor studies and service management: experiential services and interactive technology research. Paul Johnston Paul is Joint Managing Partner of South-South Capital Partners (SSCP), a boutique consulting firm, focused on the Sustainability, Healthcare & Infrastructure industries, specializing in Latin American and Asian market entry outcomes, through delivery of the agreed Partner Transaction (PACT). Paul gained his MBA in Technology Commercialisation & New Venture Creation from the University of Queensland. Since this time, he acts concurrently in sales & marketing director roles. Currently, Paul acts for Care Systems, an Aged Care IT provider entering Asia & e-cofueling, an innovative biofuels transport technology entering Latin America.

About the Contributors

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Liam Leonard (PhD, MPhil, BA) is the former President of the Sociology Association of Ireland, Lecturer with the School of Humanities in Sligo IT in Sociology, Environmentalism, Criminology and Human Rights, and Senior Editor: Ecopolitics Book Series with Emerald Group Publishing. Conferred with a PhD degree at NUI Galway in 2005, Dr Leonard is the author or editor of over 10 books and numerous academic articles, he is also Editor of the CRIMSOC: The Journal of Social Criminology. Dr Leonard has edited special issues of Environmental Politics, the Irish Journal of Sociology and the Prison Journal Dr. Leonard is the Senior Editor of the Advances in Sustainability and Environmental Justice Series with Emerald Publishing. He received the Sage Publishing Research Excellence Award and the NAIRTL Award for Teaching and Research in 2012, and has 10 years’ experience as an academic and lecturer in the National University of Ireland and the Institute of Technology, Sligo, Ireland. Lilach Nachum, Professor, International Buinsess, Baruch College, City University New York. research interests include the competitive advantages of MNEs, MNE location strategies, and value creation over distance. Her research has been published in two books and in many articles, including in Management Science, Strategic Management Journal and the Journal of International Business Studies, among others. She is a Board Member of the leading journalsin international business, and a few other journals. Professor Nachum has acted as consultant to several national and international governmental agencies, including the United Nations, the World Bank, the European Union, and the Turkish government. She has been teaching on MBA and executive education programs around the world, including Austria, Hong-Kong, India, Poland, Singapore, Sweden, Switzerland, Taiwan, and the UK. A. N. Sarkar is Senior Professor of International Business at the Asia Pacific Institute of Management. He has worked for over 30 years in different Central Ministries of the Government of India. Subsequently, Dr Sarkar worked as the Chair Professor NABARD and Professor at the University of Petroleum and Energy Studies for 10 years. He acted as the Convener and Member Secretary of several inter-ministerial committees of the Government of India in the sphere of socio-economic development and renewable energy. He also served as the National Programme Coordinator for various internationally sponsored projects and programmes on Sustainable Development. Dr Sarkar has so far authored 11 books and over 100 research articles which have been published in reputable national and international journals. Dr Sarkar’s areas of interest include: International Business,

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Global Business Negotiations, Oil, Gas, Energy and Petrochemical Industry, Global Climate Policy and Sustainable Development. Michael Schmid holds an engineering degree from the Vienna University of Technology, where he studied energy engineering, and a graduate degree in General Management from the Vienna University of Technology and Danube-University Krems, Austria. He has worked as an engineer in a number of Austrian companies. Duane Windsor, PhD (Harvard University), is the Lynette S. Autrey Professor of Management in the Jesse H. Jones Graduate School of Business at Rice University. Much of his recent work focuses on corporate social responsibility and stakeholder theory. His articles have appeared in journals such as Business & Society, Business Ethics Quarterly, Cornell International Law Journal, Journal of Business Ethics, Journal of Business Research, Journal of Corporate Citizenship, Journal of International Management, Journal of Management Studies, Journal of Public Affairs, and Public Administration Review. His published books include The Rules of the Game in the Global Economy: Policy Regimes for International Business (Kluwer Academic Publishers, 1997, 2nd ed.) with Lee E. Preston. Peter Zettinig is currently University Research Fellow at the University of Turku in Finland. His research interests revolve around change happening to internationally active organisations with special emphasis on multi-level implications of change and in context of sustainability in the widest sense.

International Business, Sustainability & Corporate Social Responsibility by

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