Social Responsibility and Profitability of Multinational Corporations - Essay Example

Lecturer: presented: Introduction Multinational corporations mainly arise in the quest of investors to improve on marketing, reduce production costs, and explore potential areas for expansion of the production base as well as to utilize various opportunities arising in foreign countries. They are companies with branches in several countries. A multinational corporation produces in foreign countries through its branches or partners situated in several countries. Activities include; product marketing, personnel, financial matters as well as production strategies. The policies may have host country orientation or parent country orientation (Held and Mcgrew, 2000 pp.122-127). Social responsibility is a practice in which multinational corporations observe and make sure that they stick to the laws, moral as well as the international standards that govern global trade. The corporations ensure that they are responsible of their actions in regard to the environment and all the people who might be affected by these activities. This is a critical evaluation of whether multinational corporations can be socially responsible and maintain their profitability. The main drivers as well as the benefits of social responsibility have been discussed. Social Responsibility and Profitability of Multinational corporations The phenomenon of ethical consumerism is a major issue of concern for multinationals. Consumers usually prefer to purchase products with a particular believe that they are of good quality and that they have been produced according to the accepted standards. In order to build the confidence of consumers in regard to the services of a multinational corporation, it has to proof to them that there are no dangers posed by the products to their health or deficiencies in the quality of products that they offer. This change in the attention of consumers to the quality of products has been facilitated by advancement in technology, which has led to the emergence of counterfeit products (Held and McGrew 2000 pp. 91-92). Consumers are therefore wary in regard to purchases from new suppliers. If consumers realize that a multinational corporation offers quality products, it is most likely that they will not purchase from new companies in the market, which boosts the competitiveness of the corporation. It can therefore maintain its profitability through social responsibility, which helps in enhancement of its relationship with its customers. Starbucks is one of the multinational companies that capitalize on ensuring the observance of laws and ethical standards to maintain its customers. Internationalization of operations as well as market forces is a major factor that affects the profitability of multinational corporations. However much they may be determined to expand, there are usually forces exerted on them by the host regimes, environmental laws and regulations that set minimum standards that must be accomplished in order for the business to operate. Lack of adherence to local policies may lead to fines or cancellation of operating licenses. This may cause a decline in profitability of the corporation. In order to avoid such circumstances and remain profitable, multinational corporations are obliged to be socially responsible, which reduces the risk of unfavorable conditions within the host country (Stiglitz 2006 p. 192). More over, it helps in creating awareness in the host country regarding their presence. They contribute in social matters such as environmental protection and supporting human services, which is a major advertising and promotion technique. Social responsibility provides an avenue for multinationals to escape generalization of businesses in particular issues by the public as well as the government. Such situations include cases whereby people view a particular group of industries to be polluting the environment or causing a particular health hazard. Participating in social contributions in terms of sponsorship of particular activities may help the multinational corporations to give the impression of a difference between it and similar multinationals that have created a negative perception amongst the consumers and host governments (Held and McGrew, 2000 p. 96). They build consumer confidence under such situations, thereby enhancing their competitiveness, hence profitability. They can for example engage in environmental awareness campaigns, to demonstrate to the public and stakeholders that they are opposed to environmental pollution in contrast with the policies of similar industries that engage in activities that cause environmental pollution. In such cases, they are capable of maintaining profits through social responsibility Many host governments require multinationals to engage their employees in training on ethics. This is usually done in order to facilitate the fight against unethical behaviors in the work place which create an enabling environment for corruption to take place. The main objective is to ensure that the labor market is free of corrupt workers. Social responsibility can be achieved through organizing ethical training seminars which develop the ability of the employees in decision making and career development. This leads to organizational learning which has positive impacts on the employees’ productivity. In such a case, the management usually improves its profitability while engaging in social responsibility. On the other hand, it fulfils the local demands of the host country, earning it a favorable investment climate. There is also a likelihood of developing loyalty amongst the labor force (Stiglitz 2006 p. 195). Crises that may result from lack of adherence to social responsibility may lead to closure of business or huge fines that may not be favorable for the operations of the company. Cavett-Goodwin and David (2007 p.79) cites Megellan Company in Esperance Australia that deals with metal production. The company was accused of exposing the local bird population to lead effluents in the environment. The consequences involved suspension of operating license and mandatory clean up of the environment after there a massive death of birds in 1989 (Carroll and Buchholtz 2006 p. 76). Such huge losses could have been avoided if social responsibility was adhered to in the company’s operations. Many other companies have faced closure due to lack of adherence to social responsibility. Avoidance of such situations can be enhanced through ensuring that each stage of operation is assessed regularly to ensure that such circumstances do not occur. More over, social responsibility involves actions such as mobilizing workers and the community to clean up the environment. Under such circumstances, it is difficult for pollution to pass unnoticed, and the necessary measures taken. In terms of work place performance, social responsibility enables the multinational corporations to minimize the risks associated with unpleasant incidents such as accidents. They ensure that professional ethics are observed, with minimum risks in regard to the daily routine. The relationship between the management is usually a collaboration to achieve a particular goal, rather than the management playing a supervisory role. Social interactions in the corporation ensure effective communication between the employees and the management, enhancing employee satisfaction and provision of safe working conditions (Cavett-Goodwin and David 2007 pp. 56-58). This is important in improving profitability of the organization. More over, the multinationals can play a significant role in promoting the local communities especially in identifying markets abroad. Although they may not acquire direct benefits, they may benefit indirectly through outsourcing from the local talents. Due to the increased awareness in social responsibility, coupled with increasing demand for collaboration in the multinational corporations, it becomes necessary for multinational corporations to adhere to the demands of stakeholders that are significant in the success of their operations. If three key stakeholders have a particular interest in social responsibility, the multinational corporation is obligated to adhere to their policies in order to benefit from them (Stiglitz 2006 pp. 192-193). They can therefore fulfill their needs or acquire assistance through engagement in social responsibility. More over, they can retain employees through this practice. New recruits in to the labor market usually target the employers who engage this practice in their operations and therefore there is a chance of making the job interesting for them, hence the corporation acquires the most qualified staff in the labor pool, while it retains the highly experienced ones. Conclusion Social responsibility is an important aspect in the operations of multinational corporations. They usually establish in foreign nations, where they face the challenge of new rules and cultures. Failure to put these in to consideration while planning their operations may hamper their endeavors to make profits. Technological progress has led to increased productivity. This has caused a rise in competition, which necessitates multinational corporations to establish a strong base in the foreign markets through satisfying consumers as well as attracting the desired support from the government of the host countries. Social responsibility facilitates profitability of the corporations. It is therefore clear that multinational corporations can be socially responsible, and still remain profitable. Bibliography Carroll, A.; A. Buchholtz. Business and Society: Ethics and Stakeholder Management, 6th ed. Mason, OH: Thomson/South-Western, 2006. Cavett-Goodwin, David. “Making the Case for Corporate Social Responsibility”. Cultural Shifts, 16.2 (2008): 56-79 Held, D., and McGrew, A. Globalization/Anti-Globalization. Cambridge: Blackwell Publishers; Cambridge: Polity, 2002. Joseph Stiglitzs. Making Globalization Work, W.W. Norton, 2006. Read More