Corporate Social Responsibility is Fundamental to Developing a Global Reputation - Essay Example

? Corporate Social Responsibility is Fundamental to Developing a Global Reputation A global company has to invest in corporate social responsibility in order to develop a global reputation. A company cannot develop a global reputation unless it can build sustainable operations. The company can build sustainable operations by investing in corporate social responsibility. Therefore investing in corporate social responsibility is fundamental to developing a global reputation. This is demonstrated by multinational corporations such as Johnson & Johnson and Starbucks. They have invested in different programmes of corporate social responsibility and thus have been able to face the recent financial crisis more effectively than competitors. The objective of developing a global reputation cannot be attained unless the multinational corporation is able to offer products and services which promote social and environmental standards. By enforcing social and environmental standards, a multinational corporation invests in corporate social responsibility which leads to a global reputation. Introduction Globalization leads to increased international trade through the reduction of tariffs. Increased international trade creates global companies which can be defined as those companies which possess production/marketing operations in more than one country. One of the key success factors for global companies is corporate social responsibility, defined as taking into account the impacts of business operations on the society and the environment in addition to the traditional measurement of the company’s profits. This creates an operational framework in which global companies have to take local concerns into consideration. By conducting operations in a manner which takes into consideration their social and environmental impacts, a global company is able to build a good reputation globally. The objective of this paper is to explore how corporate social responsibility enables a multinational corporation to develop a global reputation. Analysis of key issues Globalization increases the volume of international trade by reducing the national barriers to trade such as tariffs and subsidies. This leads to the creation of a multinational corporation which can conduct production and marketing operations in more than one international market. An example of globalization is China’s entry into the World Trade Organization enabling western companies to set up operations in the fast growing Chinese economy. However the Chinese market is still regulated by the government and there is a considerable level of regional fragmentation in the government regulations. Therefore it is essential for foreign organizations to develop a good reputation in the Chinese market so as to create a good image in the local communities. This is one of the key success factors given the rising level of competitive rivalry as the Chinese market has been liberalized enabling foreign companies to set up their operations in the fast growing market. As a result companies need to develop programs of corporate social responsibility to develop a competitive advantage by developing a global reputation. Global companies can implement programs of corporate social responsibility by taking into account the triple bottom line (McConnell & Brue, 2007). First the global company has to take into consideration the costs of managing people when it comes to transferring operations to a foreign market. This focus enables the management to conduct operations in a socially responsible manner so that employee satisfaction is maximized. Second, the company has to take into consideration the environmental costs of global operations. This means that the management takes into account the impact of its operations on the planet. Third, the company takes into account the traditional measurement of profits. Therefore the triple bottom line consists of people, planet and profit, also known as the three P’s. By conducting its global operations according to the triple bottom line, the company develops a global reputation as local concerns are taken into account. Multinational corporations such as Johnson and Johnson have been able to develop a global reputation through corporate social responsibility. Johnson & Johnson actively engages in community service globally through charitable organizations (Scholte, 2005). The company invests in corporate social responsibility in order to create consumer confidence in its products and services. This ensures that the company has sustainable profits. As a result the company is able to build long-term operations in a selected market and this also benefits the local communities. This means that the company’s global operations are given a local focus. In this manner Johnson & Johnson has built a global reputation. Fundamental to this achievement has been the investments that the management has made in programs in corporate social responsibility ensuring that the company conducts its operations in socially and environmentally responsible manner. Johnson & Johnson’s operations are reflective of the triple bottom line. In conducting programs of corporate social responsibility, the global company pays attention to the triple bottom line. This operational framework is similar to the balanced scorecard which measures an organization’s reputation in terms of profit, customer, learning and growth, and internal business processes (Kotter & Schlesinger, 2008). In the same manner, the triple bottom line measures an organization’s performance in terms of people, planet and profit. When the management of a company decides to invest in corporate social responsibility, they take into consideration these three factors so that the global strategy is implemented accordingly. Since the triple bottom line is taken into consideration in all the global markets, the multinational corporation is able to reach a strategic focus that leads to a global reputation (Sundaramurthy & Lewis, 2003). Corporate social responsibility enables a company to conduct strategy implementation in a manner which creates a positive image in the minds of the consumers. In this manner the multinational corporation is able to build a global reputation. Key to attaining this objective is corporate social responsibility. Investments in corporate social responsibility may not enable a company to achieve global reputation unless the management takes into account the triple bottom line. This means that the management has to take into account the costs to people and the planet in conducting global operations. When this is made a part of the strategic focus, then the company is able to undertake those projects which enhance the quality of life in the local communities. As a result the consumers have a positive image of the company’s products and services. This enhances the profit level of the company. The ultimate objective of every business is profit maximization (Raffee & Kreutzer, 1999). However this objective is not attainable unless the company has a global reputation. In order to develop the global reputation, the company has to invest in corporate social responsibility. Under this operational framework, a multinational company operates in a socially and environmentally responsible manner so that it has a good reputation among the consumers ensuring a global reputation. By increasing the volume of international trade worldwide, globalization has also enhanced the level of competition. In order to get ahead of the competition, companies are investing in managerial and technological developments (Ross & Perry, 2002). This creates a fast pace of change in the external environment and a business organization has to constantly reinvent itself in order to keep pace with the changes that are occurring in the external environment. This relates to the continuous improvement process (Sirkin, Keenan & Jackson, 2005). This is more relevant for the global companies since they face much more competition than the domestic companies. As a result, they have to create organizational cultures which facilitate continuous change in order to facilitate the continuous improvement process (Stewart, 2004). This process leads to more efficient practices which reduce the cost of operations. However when a company conducts its operations according to corporate social responsibility, then environmental and social costs, in addition to the operational costs, are also taken into account. In this manner corporate social responsibility leads to a continuous improvement process which takes into account local concerns. Global companies have to create operations which are locally tailored in order to develop a global reputation. This objective becomes attainable through corporate social responsibility. The triple bottom line of people, planet and profit creates an operational framework which forces the management to think about the impacts exercised by its decisions and activities on the local social and environmental concerns. An example of how the triple bottom line may be incorporated into the strategic framework is the Fairtrade movement which ensures that production activities are conducted worldwide in an environmentally and socially responsible manner (Viotti & Kauppi, 2007). Starbucks, the world’s leading specialty coffee brand, sources its raw materials which are Fair Trade certified (Stiglitz, 2007). The multinational company also engages in other CSR programs such as purchasing paper cups which have been made from recycled materials and implementing in-store recycling programmes. These programmes have given the company a global reputation for reliability. One of the key success factors for a multinational corporation like Starbucks is to develop a global reputation so that local consumers will trust the brand. This objective can only be attained when the company is able to implement a global strategy that is able to take into account the social and environmental implications locally. When the local consumers perceive the company to be socially and environmentally responsible, then they are more motivated to purchase products and services from that company. By inspiring brand reputation in this manner, the company is also able to build an operational framework which is sustainable in the long term. This is the sustainability challenge. If the company wants to build sustainable operations, then it has to create an operational framework which is socially and environmentally responsible. Therefore it is also related to the triple bottom line. Strategies in resource allocation, as demonstrated by Starbucks’ initiative, must be formulated in such a manner as to promote social and environmental responsibility. The result is global reputation as global consumers perceive the company favourably. The success of a business depends upon its brand reputation. The key to developing a solid brand reputation is corporate social responsibility. When the company invests in this area, as Johnson & Johnson and Starbucks have done, then they are able to create satisfied stakeholders thus creating a positive image in the market (Stair & Reynolds, 2007). The two most important stakeholder groups for a business are employees and consumers. By investing in corporate social responsibility, a global company is able to address the concerns of both groups. Therefore the management has to focus on how to create the most effective programmes in the area of corporate social responsibility. In this effort the management may be guided by the triple bottom line, allowing them to measure the performance of a company in terms of how well the social and environmental costs are measured. The difficulty in this regard is to be able to measure the social and environmental costs in the same financial terms as company profit. By incorporating the triple bottom line into its programs of corporate social responsibility, the management is able to build an organizational culture which leads to a good reputation in the markets that it operates in. Good reputation leads to a sustainable competitive advantage so that the company is able to ensure wealth maximization in the long term. According to Porter’s framework for competitive strategy, an international company can implement the strategies of differentiation, focus or cost minimization (Blanchard, 2005). However the companies which are competing can also implement these strategies, therefore the competitive advantage that results from the implementation of these strategies is not sustainable. However when the competitive advantage results from positive stakeholder perceptions, then it is sustainable. It is possible for a company to earn these positive perceptions only in the long term as the stakeholders come to trust the brand image gradually because of its continuing investments in corporate social responsibility. As mentioned before, the two most important stakeholder groups for a company are the employees and the consumers. It is only when they perceive the company to be socially and environmentally responsible that the company is able to develop a global reputation. This underscores the importance of corporate social responsibility. By investing in this area, the company can create good working conditions for the employees and deliver greater value to the consumers who are increasingly environmentally conscious. The modern consumer will favour those companies which he knows conduct their operations in a manner which takes into account the environmental and social impacts. Therefore a company which conducts its operations according to the triple bottom line of people, planet and profit will be in a position to develop a global reputation. A multinational corporation like Starbucks has been able to weather the recent financial crisis because of its global reputation which has resulted from satisfied employees and customers. Both employees and customers have a positive experience with the brand leading to a global reputation. As mentioned before, it is not possible to measure the social and environmental costs in the same terms as company profit. However some measure of the effectiveness can be gained by gauging employee and consumer perceptions of the company’s products and services. If the employees are satisfied in working for the organization then the organization will have a good reputation in the market. If the consumers are satisfied about the company’s operations being social and environmentally sustainable, then they will also create a good reputation for the company. For example, it is employee and consumer reviews which determine whether a company can be listed in the top companies of Fortune magazine. Therefore the strategic focus of a global company must include corporate social responsibility. By investing in this area, a company is able to build a cultural orientation which is tailored to the local norms and mores. This means that through the programmes of corporate social responsibility the company is able to create an organizational structure which promotes a culture of responsibility that leads to a global reputation. Employees are the most important assets for an organization. Therefore it is essential for the management to create an organizational culture in which the employees are satisfied in working for the company. By creating an organizational culture which is positively perceived by the employees, the company is admired and the consumers are motivated to trust its brand. This is particularly important for a global company because it operates in international markets. When its first opens up its operations in a foreign market, the consumers in that market are not familiar with the brand unless it has a global reputation. Therefore the key to achieving effective international operations is to attain the objective of global reputation. The management of a global company cannot reach this objective unless they have invested in corporate social responsibility. This investment communicates with the local consumers that the company is committed to preserving social and environmental interests. As a result both employees and consumers come to trust the brand. When a global company enters a foreign market, it has to invest in marketing in order to promote its products and services which are relatively unknown in the local market conditions. In this respect, the programmes in corporate social responsibility can also be regarded as marketing tools since they inform the market about the company’s practices. When the company invests in corporate social responsibility, the local consumers can see that the company’s operations are responsible, transparent and sustainable. As a result the company develops a good reputation. The triple bottom line guides the management in how to create effective programmes of corporate social responsibility. By creating a people account, a planet account and the traditional account of corporate profit, the company takes into account the full cost of conducting global operations (Mankiw, 2005). As a result the company is able to implement the strategy of cost minimization to a greater extent. Because the management has a complete picture of the cost structure, it can take strong initiatives to minimize costs and maximize profits. In the process the company is able to offer greater quality to both the consumers and the employees. The consumers get products and services which are produced in a socially and environmentally responsible manner and the employees get working conditions which maintain ethical standards (Moss, 2005). As a result the company enjoys a global reputation. Quality leads to this reputation and the global company creates this quality by investing in corporate social responsibility. For this reason, fundamental to developing a global reputation is corporate social responsibility. Conclusions and recommendations Global companies should take the costs of social and environmental impacts into consideration when measuring corporate profit. In order to measure these costs, a global company should enforce social and environmental standards in selecting international suppliers (Kotter, 1995). In areas where labour markers are unregulated, the manufacturers are able to ignore the social and environmental standards. Therefore global companies should check to see that their suppliers also enforce the social and environmental standards. In general the global companies should take into account the ethical standards of the suppliers. It is not just low-cost which should guide the selection. Factors related to corporate social responsibility, in the nature of climate change or fair trade should also be important selection criteria. Suppliers who themselves consider the social and environmental costs can offer sustainable operations. Therefore global companies should select these suppliers. They should define performance in terms of social and environmental factors as well. Corporate social responsibility is fundamental to developing a global reputation because it enables the company to measure the full costs of conducting global operations. Corporate social responsibility forces a multinational company to act in a socially and environmentally responsible manner so that its operations develop a global reputation of efficiency and effectiveness. The triple bottom line consisting of people, planet and profit can guide the management in how to create effective programs of corporate social responsibility. This creates an operational framework which is socially and environmentally responsible and sustainable. It also creates satisfied employees and consumers. The employees are satisfied in working for a company which is socially responsible. The consumers are motivated to trust the brand of a company which operates in a socially and environmentally responsible manner. As a result the company gets a global reputation. 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