Why companies engage in CSR?

In the academic field CSR has been developed for more than fifty years, but business community have not been articulated with the concepts, as we mentioned before. The business community is interested in what CSR means for them in practice, so an instrumental question like: Why the companies need to engage in CSR? need to be answered before companies adopt CSR practices.

About the question of why companies engage in CSR, several studies suggest three general reasons related to: 1) economic benefits; 2) external pressures; and 3) conscious of their social and environmental impacts (^{Graafland & van de Ven, 2006}; ^{Valentine & Fleischman, 2008}; ^{Basu and Palazzo, 2008}; ^{Matten, 2006}). Many companies use a CSR as a differentiation strategy, so they are based on economic reasons. The interests are oriented to improve the company reputation, achieve consumer loyalty, built, recover, or increase brand name recognition, among others. According to ^{Gallego-Alvarez, et al. (2010}, p. 2) “many corporations could well use CSR practices as a marketing tool or for Public Relations purposes”.

Other companies must involve in CSR because external pressures from socially and environmentally conscious customers, political actors, multilateral organizations, activist groups. ^{Reinhardt and Stavins (2010}, p. 168) affirm, “In some case firms engage in CSR only under pressure from market participants or other social forces”. While other companies, are more conscious of their impacts to society and environment, and strengthen relationships with their stakeholders (^{do Nascimiento, 2004}).

Mnes and CSR in developing countries

Multinationals have been extensively studied from different theoretical approaches, namely agency theory, institutional theory, and transaction cost theory (^{Mudambi & Pedersen, 2007}; ^{Thite, et al, 2011}). Even though, there is relatively little research about MNEs from developed and developing countries in emerging economies (^{Wright, et al., 2005}). Consequently, there are little less taking about SRP in MNEs from developed and developing countries.

Nevertheless, there are some articles, especially, case studies that demonstrate important evidences about the ethical behavior and social responsibility of MNEs in emerging economies and the negative externalities generated to society and environment. Developing countries are characterized, in most of the cases, by corruption, economic inequality, weak institutions, lack of market’s regulation, etc. (^{Sarmiento, 2008}). ^{Bennett (2002}, p.1) says, “Multinational corporations have both the power and the responsibility to foster good will among the people of the nations where they operate”.

Given the influence of MNEs they are able to contribute to a more sustainable development and a range of issues with their stakeholders and institutions, in both home and host countries (^{Kolk & Tulder, 2010}; ^{Bennett, 2002}). Although, real facts demonstrate that some prominent corporations have been accused of fueling wars and violence through their business operations (^{Bennett, 2002}).

CSR experiences of MNES in developing countries (Colombia)

^{Kenner et al. (1992)} use the corporate social performance (CSP) framework to analyze the response scenarios or reactions of the American multinationals operating in Colombia, making a theoretical long run study. They describe three kind of company who are making his job in another country, an example happening in Colombia, where these three companies: Alpha, Beta and Gamma take part in the behavior of a company in a specific situation, which in this case is the violence.

The first one focuses on the safety of employees who are Colombian national, because they replace all American executives. The second one is Beta which does not make any contact or as less is possible with Colombian security. And Gamma they emphasize is the best one, because it works toward with Colombian forces for making solutions to social problems. The way in each one MNEs respond are presented in Table 1.

Table 1 MNEs Response according to ^{Kenner et al. (1992)}  

^{Watson and Weaver (2003)} researched about how the degree of internationalization of a firm affects the way MNEs and their executives approach ethics. And they find two means by which companies can try to reduce the risks associated with the ethical variability attendant to a firm’s internationalization: First, formal ethical programs can be established in an effort to suggest the ethical behavior expected of employees at all levels of the MNEs. Second, for reducing ethical incongruence, top management can show its own concern to promote concern for ethics to other organization members (promote from their own behavior). The results indicate that top managers in greatly internationalized firms show more visible concern for ethical issues than do their counterparts at less internationalized firms.

Dramatically opposite, ^{Maurer, (2009)} explicate the Chiquita’s history in Colombia, and compares with formal firm’s commitment to corporate responsibility. She demonstrates that major corporate activities diverged dramatically from the core values of the firm. Chiquita´s in Cincinnati by 2002, according to Maurer (p. 596) “It had made demonstrable progress in reducing accidents, improving worker safety and health, improving industrial relations, reducing the use of pesticides, recycling plastics, planting trees, and according comprehensive attention to sustainable production and distribution practices”. But, from 1989 to 2004, it provided financial support and cocaine for weapons exchange to guerilla and paramilitary organizations in Colombia (^{Maurer, 2009}).

On the other hand, ^{Sarmiento (2008)} researched about the motivations of multinational corporations in adopting Social Responsibility policies in developing countries and compares the case of Drummond and Carbones del Cerrejón in Colombia. The study showed that these companies respond in different ways to the institutional restrictions and pressure and that therefore their initiatives in social responsibility depend on institutional contexts. It concludes that the motivations that both multinationals must adopt social responsibility policies are alienated in two categories: internal and external.

A current case that confirms the fact that “MNEs initiatives in CSR depend on social and institutional pressure” is Pacific Rubiales (Canadian Oil Company) in Colombia. In july and august of 2011, employees and community led a large protest that stops oil production (losses amounted to 70 million dollars). The employees were demanding better working conditions, while the locals demanded investment in health care, education, housing, and roads. After that, Pacific Rubiales (PR) announced that in 2012, PR would invest 25 million dollars in social and development activities (^Portafolio, october 4th 2011). An Asian study by ^{Chapple and Moon (2005)} found that ‘multinational companies are more likely to adopt CSR than those operating solely”. In the absence of strong governmental controls over the social, ethical, and environmental performance of companies in developing countries, MNEs will keep taking advantage and becoming bigger. ^{Visser (2010)} affirms that CSR in developing countries tends to be less formalized or institutionalized in terms of the CSR benchmarks, commonly used in developed countries, and multinational that practiced formal CSR in developing countries are those with recognized international brands or those aspiring to global status. Additionally, for MNE´s CSR increases the potential cost of opportunistic behavior and thus signals quality or reliability (^{Fisman et al., 2006}; ^{Elfenbein et al., 2010})

CSR experiences of MNES from developing countries

^{Vives (2006)} surveyed over 1,300 small and medium-sized enterprises in Latin America; he found that the region’s religious beliefs are one of the major motivations for CSR. Similarly, ^{Nelson (2003)} shows how Buddhist traditions in Asia are aligned with CSR.

About 1997 in Latin America raised some CSR initiatives, and most of them are supported by The Inter-American Development Bank. Those initiatives are organizations such as Peru 2021, Ethos Institute in Brazil, RSE in Chile, Costa Rica’s Asociación de Empresarios para el Desarrollo and Red Puentes, CompormeteRSE program in Colombia, etc. They are all looking for a contribution to the development of their own society and closer work with stakeholders (^{Casanova and Dumas, 2010}).

Brazilian companies are one of the most active in the region. According to ^{Casanova and Dumas (2010} p. 4) “Brazil has become a hotspot for social entrepreneurs, and more than half of all Brazilian companies have embraced social policies according to the Ethos Institute. Entrepreneurs and executives alike are leaving traditional businesses and embarking in entrepreneurial projects with a social development priority”.

Latin American companies (and companies from emerging markets in general) operate in a severe economic and social context. Despite these conditions, many Latin American firms have succeeded globally with strong leadership, agility in decisionmaking and flexibility in action. ^{Casanova and Dumas (2010}, p. 4) affirms that: “most of these emerging market multinationals have a social dimension as part of their DNA and engage with employees and local communities to improve their social life (by providing housing, education and special health benefits)”.

Some examples, are the cosmetics company Natura from Brazil is based on an environmental concept, in which its products are created through the sustainable use of natural products sourced from the Amazon rainforest from poor indigenous communities; and the Peruvian chain of restaurants Astrid and Gastón, they want Peruvians to rediscover the value of their unique local agricultural products and through them improve the image of Peru.

^{Drayton and Budinich (2010)} affirm that the union between big business and the average citizen could create great benefits for both, generation of employment, reduction of costs and taxes, increased profit. They find a specific example in Colombia with the union between Colcerámica and Kairos Company. Colcerámica (a Colombian subsidiary of Corona) wanted to acquire more about the low-income market for ceramics and home products. Kairos sent Haidy Duque, one of the company’s executives to train unemployed women in the manufacture of the product (tile). According to these authors “Colcerámica provided the product it’s Iberica tile line-and the technical and business know-how” (p.41).

Some results of that model were the generation of income for previously unemployed women and impulse the product to potential customers. Drayton and Budinich (p. 42) sustain that “it reduced Colceramica’s distribution costs by third, so the company could afford to pay a percentage of its profits to the women sales promoters and community partners”.

In sum, we can say that MNEs face in different ways CSR; some demonstrate good examples about the practices across countries. In the other hand, there are many empirical studies that reveal how big companies (from developed countries) change their ethical behavior in host countries, especially if they are in developing countries.

Multinationals experiences facing CSR in Colombia

Many multinational corporations have an annual income greater than the GDP of several small-tomedium sized countries, so it gives them power and political influence in this context. Neither governmental institutions, nor society request about the social and environmental impact from these MNEs, they are only interested about the economic benefits or quantification of the Foreign Direct Investing (FDI). MNEs in developed have strong social and environmental commitment; this statement is demonstrated in several empirical studies. In this section, we want to compare CSR practices implemented by MNEs from developed and developing countries in a developing country (Colombia), to identify differences in their practices.