Table of contents
1.1 Abstract
2
1.2 Thesis
2
1.3 Delimitation
3
2.1 Corporate Social Responsibility
4
2.2.1 Corporate Image
4
2.2.2 Corporate image and risk
7
2.2.3 CSR initiatives and Compliance
8
2.3 Stakeholder theory
10
3.1.1The OLI framework
13
3.1.2Multinational Enterprise (MNE) incentive
13
3.2 Ownership advantages:
14
3.3 Location advantages
15
3.4 Internalization advantage
17
3.5. Part of the theoretical background
18
3.6 Development of the Eclectic paradigm
20
4.1.1 Can it be argued that CSR policy has a relation with the OLI framework?
23
4.1.2 Google China
24
4.1.3 the above average in industry organization
29
4.2 summary
30
5.1 Is the CSR policy aspect covered by the OLI framework?
32
5.2.1 Strategic implications of CSR policy to resource based theory:
33
5.2.2 Is CSR policy related strategic implication then fully covered in the eclectic paradigm?
33
5.3 discussion of the coverage
34
5.4 Could CSR be incorporated in the eclectic paradigm
34
6. Conclusion
36
7. Bibliography
37
1
1.1 Abstract
Since John dunning presented his Nobel Prize winning symposium the Eclectic
paradigm, it started vast amounts of discussion, in the theoretical literature related to
Foreign Direct Investment (FDI). Many things in the world have arguably changed
since the arrival of the eclectic paradigm. The amount of FDI in the world has been
increasing ever since, so has the openness of many markets around the world, the
technological development have had influence on the environment of business. The
eclectic paradigm is still very relevant in current FDI discussion and literature, because
it has been approaching the developments of the environment in which it is the
grounds for analysis.
Corporate Social Responsibility, a concept younger than the eclectic paradigm. And a
concept that has received increasing media attention in recent years. This paper will
see if it can be argued that it has relevance for FDI, hence has relevance for the Eclectic
paradigm.
Why CSR?
Given the development of information technology, information travels more
widespread, faster and has become more accessible. This has led to an increasingly
transparent business environment; qua it is increasingly difficult to hide information.
Juxtaposed with this development in information technology, CSR has developed as
well. It is a relatively new concept and there is still discussion to what it encompasses.
An increasingly open world information wise, and a social awareness of organizations
and its consumers in development, CSR can potentially bring change to the business
environment .
1.2 Thesis
The chapters 2 and 3 of the paper will explain the Eclectic paradigm and CSR theory
related to corporate image. Some of the grounding theory of the eclectic paradigm and
CSR will be in the same chapters,
That will serve as the basis for understanding FDI and CSR theory. Chapter 4 will be
concerned with arguing the relevance of CSR in the FDI context. Practical examples will
2
be used, it is however not the purpose of the paper to make a thorough case based
analysis of the organization’s mentioned. The point is to highlight some relevant issues
of CSR policy, which potentially could be relevant for a large number of organizations.
In Chapter 5 strategic implications of CSR and its relevance to the eclectic paradigm is
discussed. Together with the potential coverage of CSR in the current eclectic paradigm
is discussed.
1.3 Delimitation
CSR theory is not a narrowly specified concept; many different theories in the realm of
CSR exist. So a few aspects of the total CSR theory is considered in this paper, the
selection criteria was perceived relevance. In FDI theory the Eclectic paradigm is
selected, qua its role in literature. Hence other FDI literature potentially relevant was
not considered. In terms of grounding theory in the Eclectic paradigm, resource based
theory and transaction cost theory receive special attention in terms of explanation.
Other grounding theory could have been chosen as well (e.g. theory of the firm or
internationalization theory), similarly to CSR grounding theory where Stakeholder
theory is selected. The grounding theory considered most relevant was chosen.
The argumentation in chapter 4, is not balanced in the sense that it includes
argumentation for scenarios where CSR is not relevant. Since the purpose is to argue a
possible connection between CSR and FDI and not an investigation of the scope of
relevance. This is a resource based constraint. A similar constraint is chapter 5 subject
to. In the sense that the relevance and coverage is argued, but no investigation of the
scope.
3
2.1 Corporate Social Responsibility
Corporate social responsibility refers to a company's commitment, beyond that
prohibited by law and limited by the economy, to achieve long-term goals to improve
society's welfare. CSR refers to many different types of activities and behaviors, such as
ethical
behavior, sustainable development, eco-friendly behavior and philanthropic activity.
CSR is applied by an organization to build stronger brands, and a positive corporate
image and reputation.
Corporate Social Responsibility (CSR) can be defined as:
a commitment to improve the welfare of society (both human factors
and environmental) through voluntary corporate practices, i.e. activities that are not
obliged by law or ethics that are expected of the organization to
comply with, and contributions of corporate resources (Kotler/Lee, 2005).
In the last decades numerous articles has been written and much research has been
conducted in relation to the topic of CSR, from different points-of-views and in various
areas.
2.2.1 Corporate Image
An association can be described as a cognitive note that is directly or indirectly
connected to a
brand name, in the long-term memory. Image is formed when one has a set
with associations that are connected to the brand. Consumers' cognitive
associations with an organization can be both a strategic advantage and a source of
sustainable
competitive advantages (Brown/Dacin, 1997). Consumers can have numerous
associations with
an organization and its products (Keller, 2003), but according to Gürhan-Canli and
4
Batra (2004)
Three main corporate image associations are incremental:
1) Innovation: a company's research and development activities (R & D),
innovative technology and its ability to produce new and improved
products.
2) Trust: the company's credibility, reliability, honesty and benevolence.
3) Corporate Social Responsibility (CSR)
From previous research, innovation has proven to be an important corporate image
association
concerning the influence of the consumer's evaluation (Brown/Dacin, 1997).
A company with a strong and trustworthy image in a given market, can achieve
advantages related to the consumer response in the market in question.
A high level of trust can enable the organization in question, to build consumer loyalty
and
have higher possibility of managing through a potential crises, and achieve a more
desirable treatment from authorities and news media.
Furthermore, a result could be that the organization to a higher extend can attract
better qualified staff qua a potential above average image. The current employees'
motivation could as well be subject increased productivity and loyalty (Keller, 2003).
Research shows that consumers care about the organization’s efforts to act in a more
socially responsible manner (Sen/Bhattacharya, 2001).
Brown and Dacin (1997) have studied various forms of cognitive associations that
consumers may experience through their product evaluations, of a given organisation.
5
They divide corporate image into two main types, instead Gürhan-Canli and Batra
(2004)'s three.
1) Corporate ability (CA) is the consumer associations
have to an organization ability to produce and deliver
its product.
2) Corporate Social Responsibility (CSR): associations
reflects the organization's status and activities according to
perceived social obligations.
An organization can either choose to build a brand by choosing one of these
associations
or both. CA associations affects the perception of
a product's key attributes. CSR associations are expected to affect the perception of
product social responsibility, and both of the two associations affect the consumer's
evaluation
of the organization, influencing the consumer's evaluation of the product itself.
(Brown/Dacin (1997))
differences between the CA associations and CSR associations
CSR associations do not usually have a relation to an organization’s ability to produce
goods and services, unlike CA associations. thus CSR provides little information with
regards to bridging the gap between a product lacking performance wise and the
desired outcome of a product.
Unless the product or product category is consistently promoted on the basis of
CSR characteristics (Brown /Dacin, 1997). CSR associations are particularly important
in
affecting consumers' attitude towards the organization, qua the influence, attitudes has
on
consumer's evaluation of the product or service.
6
The main difference between CA and CSR is that CA operates on a product level
affecting
consumer's perception of the value of the product), while CSR operates on a
organization
level (affecting consumer confidence in the organization)
CSR can influence the so-called "liking" or trust company (Brown /Dacin, 1997),
and play an important role as a buffer. In this way, a consumer's negative
evaluation of a poorly performing product is muted if the consumer have substantial
confidence in
the organization When CSR associations is impacting the business context, then
positive corporate image associations improves a product or service evaluation, and
vice versa with potential negative CSR associations harms consumer product
evaluation.
2.2.2 Corporate image and risk
research of corporate image within the realm of CSR reflects concern for the society
and are often a
result of Cause-related Marketing. These have shown that an organization corporate
image e.g.
the organization devotes itself to respecting the environment or is engaged in
supporting the local community. Usually doesn’t affect the organization’s expertise
image and thus the perception of the overall quality (Keller, 2003), but there are of
course exceptions. CSR image can shape the product
evaluations in situations where consumers have a high level of social responsibility,
and
products or services with a high potential impact on the environment or working
conditions (Sen/Bhattacharya, 2001).
7
Gürhan-canli and Batra (2004) have shown that the level of the product risk
consumers
experience have an influence which associations of the organisation affect the
consumer's product evaluation to the highest extend. Consumers perceive trust and
innovation as more diagnostic than
associations related to CSR. This means that CA associations have a higher diagnostic
value
than CSR associations. In buying decision where consumers perceive that a high
risk is involved, organizational associations such as innovation and trust (CA
associations) has an incremental role on their evaluation of the individual product. One
of the reasons for this
is precisely that these provide a higher dimension of diagnostic information of
corporate
image.
When consumers perceive a high risks he/she will also increase their information
search
and information processing (Dowling /Staelin, 1994), as well as greater use of
different types of available information (Gürhan-canli and Batra, 2004). The
probability to achieve
direct impact on the organization’s corporate image, in an actual product
evaluation, is thus most likely in the product categories that are perceived as
risky.
2.2.3 CSR initiatives and Compliance
Sen and Bhattacharya (2001) have studied the specific CSR initiatives and in what
context they are
effective. Kotler and Lee (2005) defines CSR initiatives as the main activities an
8
organisation
can perform to support social initiatives, and to fulfill their commitments to CSR. What
can
called labeled as CSR initiatives are very diverse, but Sen and Bhattacharya (2001)
divides CSR initiatives
into six main categories:
1) Social support (health, culture, sports)
2) Diversity (race, gender, family, etc. both within and outside the company)
3) Support for employees (job security, sharing profits, union
relations, employee involvement)
4) Environmental (environmental friendly products, treatment of toxic waste, animal
testing, recycling)
5) Activities outside the country (development aid, human rights)
6) Product (product safety, research and development (innovation))
Many companies are conducting such CSR initiatives in the belief that consumers will
always reward them for their initiative, but this need not always be the case. Previous
research has shown that
consumers will punish organisations that do not appear to be sincere in their social
interest (Sen / Bhattacharya, 2001). In order to achieve positive corporate image with
a CSR initiative, it is therefore important that there is a good
relation between the consumer's own characteristics and the company, called CC
Consumer to Company Compliance (Sen /Bhattacharya, 2001). This is grounded in the
argument that consumers more easily identify with the organization when the it
supports CSR measures they themselves are engaged in, or feel a strong commitment
too. This may in turn affect
consumer product evaluation.
How consumers evaluate the initiative with relation to the organization (perceived
agreement between the organization’s vision and social initiatives, motive and timing),
9
has also
a significant impact in relation to the initiative alone. ((Sen and Bhattacharya, 2001)
Consumers who believe that corporate CSR efforts happens at the expense of the
company's CA, will react less positively to the company's CSR actions than those who
do not believe this. This impacts both the evaluation of the organization and
intentions of
purchasing of the product or service. The consumers’ evaluation is more sensitive to
negative CSR information (whether derived from the behavior or lack of) than positive
CSR
information. In general, all consumers react negatively to negative CSR information,
whereas only the most supportive of CSR measures yields positive responses to
positive CSR information.
The effects of CSR initiatives to the consumer's intention of buying the product is much
more complex than its effect on the evaluation of the organization. The company's CSR
initiatives may affect
consumer intention to purchase both directly and indirectly (through the evaluation of
company) (Sen / Bharracharya, 2001, Brown / Dacin, 1997).
2.3 Stakeholder theory
A grounding theory in terms of CSR is stakeholder theory.
A central point in stakeholder theory is that whoever is affected by the organization is
supposed to gain from the given organization’s CSR policy (Nyeng, 2007)
The environment that surrounds the organization i. e. the people that are affected by
the actor that is the organization. Not only the directly involved part e. g. shareholders.
People indirectly involved e.g. the civil society that is influenced by the presence of the
10
organization are shareholders as well, qua their lives are to a small or large extend is
related to the organization in question. (Tencati/ Perrini, (2006))
Which implicates that stakeholders are included as an extension of the organization
(Tencati 2006)
The incremental role of CSR is for the main stakeholders to gain (freeman and V)
Stakeholders of the organization needs to be accounted for when implementing the
strategies of the organization, in order for the organization to be achieve the label that
is socially responsible.
Stakeholder theory states that the organization is able to control to whom the value
created is obtained, and the proportions of it. Contra dictionary to orthodox economic
theory consumer/supplier surplus is divided between consumers/suppliers. As a
result of the mechanisms of the market, not by decision making of the organization
(gabel 2009)
A division between primary and secondary stakeholders is made by Freeman
Following subgroups of the extended organization is assumed to have a direct
influence on organizational processes or are directly implicated of strategies
implemented, i. e. primary stakeholders:
Stockholders, wage recipients , consumers, local environment and the supply chain.
Following subgroups of the extended organization is assumed to have a indirect
influence on organizational processes or are indirectly implicated of strategies
implemented, i. e. secondary stakeholders:
Government authorities, NGOS, civil society, media (Tencati/ Perrini, (2006))
11
the justification for stakeholders, primary and secondary, to have an influence on CSR
policy. Thus, an influence on organizational decisions. Is to minimize criticism of the
organizational decisions in the long-run. Since involving the various subgroups in
forming the CSR policy that lay the grounds of how the organization acts, would
suggest that the organization is able to anticipate potentiaL future issues that might
have risen from strategic decisions. In the sense that the potential problems involving
the stakeholders would have been accounted for prior to them taking place (Tencati/
Perrini, (2006)).
Potentially, involvement of stakeholders could lead to the positive scenario, that the
stakeholders builds a trust-grounded coexistence with the organization. Hence
enabeling the a smoother operational environment for the organization i. e. reducing
transaction costs.
Criticism of the stakeholder theory
When giving influence to persons outside the management in terms of how to
strategize, you run the risk of losing control of decision making to an unsatisfactory
level. Even though important, the stakeholder does not have sufficient background
knowledge of the competencies of the organization. Hence strategies with a too high
extend of involvement by incapable actors in terms of organizational decision making.
Could result in unfavorable outcomes for the organizational strategies. (Porter, M. E. &
Kramer, M. R. (2006)
This issue could lead to less benefit for all parties involved, i. e. the organization would
suffer and the surrounding environment as a consequence of that.
12
3.1.1The OLI framework
The OLI framework is used to identify net advantages in the three different sub
paradigms Ownership advantages, Location advantage and Internalization advantages.
and net advantages needs to be present in all three sub-paradigms in order for FDI to
take place. It is a framework which operates in the realm of theories that the eclectic
paradigm is grounded in.
3.1.2Multinational Enterprise (MNE) incentive
4 categories are brought forward in the OLI framework that highlights
the incentive for MNE to begin activities of FDI:
(Dunning J. H. (1997))
Efficiency seeking:
using the internal resources and capabilities to, together with the presumed
advantages that exist in the specific host country, obtain a more efficient
organization
market seeking:
attempting to meet the demand that is presumed to be, in the abroad market in
question
resource seeking:
exploiting the natural resources of the specific host country in question
strategic asset seeking:
to strengthening own or weaken opponent organization. by means of
the development of assets already present in the current
13
organization, or obtaining assets that opponent organizations could have
benefitted from
3.2 Ownership advantages:
Ownership advantages can be seen as net core competences of a given country, or an
organization. It is resources and assets, regardless of them being tangible or intangible
that are unique to the given country or organization. The greater the amount of O
advantages the larger the incentive for a direct investment in a foreign market.
(Dunning J. H. (1997)
it is argued that FDI takes place in the event that organizations can make use of their
domestic (O) advantages in an aboard market.
The 3 primary ways to obtain an ownership advantage is tied to:
monopoly power, the obtaining of it and the ability to take advantage of it.
(Porter M. E. (1986))
resources and capabilities, that are rare and sustainable.
And intellectual property patents, obtained knowledge and capabilities of employees
in the organization. this would be considered under the umbrella that is core
competencies.
So company assets that are based on superior technology or know how, have to a
higher extend become the focal point when searching for new markets. This combined
with developing skills in integrating global activities. In the search for obtaining these
14
skills for the organization
new development in terms of how to achieve it has been evolving (strategic alliances,
joint ventures, etc.) (Dunning 2000)
over the years that the OLI framework has existed, the emphasis of the different
primary ways to obtain an ownership advantage. Has perhaps been changed qua a
changing surrounding environment. In the infancy of the OLI framework, competitive
advantages of organization
where, to a higher extend, related to competences of finding new markets
that could be entered based on a organization’s proprietary assets.
In recent years, intellectual property rights and innovative capabilities have had an
increasing importance for many organization’s.
(Dunning 2000)
some of Dunnings peers, which have discussed and criticized him, see the ownership
advantages as static or dynamic. And some argue that static ownership advantages
have the purpose of being an element that creates short-term income, whilst others
focus on dynamics of ownership advantages. They are seen as assets that can be
maintained and developed in the long run.
the point of view of the recent discussions of the OLI framework, have a focus on in
what ways the organization can build on and develop the advantages in the long run,
advantages already present in the organization. (Bartlett and ghoshall, 1993)
3.3 Location Advantages
Location advantages are the factors that the given host country possesses compared to
the home markets of the unit of analysis. The location advantages could be a practically
endless list of factors that are specific for the country in question, and range in
abstraction level from wages and infrastructure to socio-economic conditions and the
political climate.
The location advantages relevant to the unit of analysis can be exploited given that
level of O advantages permits it. Hence capitalizing on the core competencies of the
15
firm/country. (Dunning 2001)
the last 15 or so years researches have, with grounds of comparable
location theory, attempted to describe the cross-border engagement together with
types of clustered resource engagement of organizations. Research finds elements such
as geography, political and economic surroundings to
influence FDI (Audretsch, 1998 )
since the introduction of the eclectic paradigm to the world many factors influencing
location advantages are debated by various researchers. and the focus of factors has
evolved over the years. from a focal point of such factors as supply/demand the
logistical cost. increasing
attention is paid to intercultural variation, regulatory government practices, political
risk
this development has approached and highlighted in the OLI framework over time
(dunning 2001)
there has been a shift in views of the nature of locational advantages from a point
where they were seen as a static and specific set of natural resources to now where
locational advantages also can created and evolved a possibility of constructed
locational advantages qua the nature of their
dynamics. in order to attract FDI to a higher extent, from the viewpoint of host regions
or countries,
socio-economic and regulatory conditions can be augmented with the purpose
of becoming an increasingly interesting region or country for the potential
investors. (Porter (1986), dunning 2001)
advantages that are sticky and difficult to place in other regional settings are
competitive advantages, whereas advantages that can be shifted from one location to
the other are not sustainable in the long run. This would suggest that stakeholder
16
authorities, that has an interest in the spillover effects of FDI, works actively to
promote activities that gives
incentive to investors.
3.4 internalization advantages
Internalization advantages are the firms ability to benefit from a potential
internalization of a foreign investment on the basis of the O and L
advantages. If the internalization capabilities are not considered sufficient. The
firm/country O and L advantages would be
better exploited by simple export or a contractual agreement as opposed to a JV,
foreign subsidiary, etc.
when market imperfections are present, Internalization advantages are
seen as advantages that allows the organization to exploit its ownership and location
advantages to a higher extend if it internalizes rather than supplying the market in
question through other
means than direct investment.
(Dunning, 2000)
imagining the scenario where an organization has a set of net comparative
advantages in the ownership and location sense of the OLI framework.
I advantages will determined wheatear or not to internalize
17
3.5. Part of the theoretical background
Two grounding theories that arguably have large influence on the OLI framework is
Resource based theory and transaction cost theory. Qua their incremental role in the
eclectic paradigm they are the subject of further explanation:
Resource based theory
the incitement for Outsourcing and offshoring and the capability. For organizations to
execute this, is attempted unveiled by resource based theory.
The primary cause of an organizations profit is its resources and capabilities,
they would lay grounds for the strategy of the organization according to (Grant, 1991)
as opposed to (m. porter) theory of competitive advantages. In porters theory he
proclaims that the exodoneus environment and the specific industry an organization is
a part of, have vast influences in specific organization’s competitive advantages.
internal resources and capabilities are seen as the foundation where
the organization should find its strategy and identity
the incremental factor to undergo analysis are the organization’s most
important resources since they are a vast group of elements in the organization’s,
resources can be both tangible or intangible and a list of possible
resources an organization could possess would perhaps be border lining infinity.
Internal capabilities would be the organization’s ability to engage successfully achieves
a goal
put forward by the organization, with the use of its internal resources. Hence, the
internal resources being the basis for the organization’s capabilities
the capabilities being the basis for competitive advantages. (Grant 1991)
18
Transaction cost theory
Williamson developed a theory that on the grounds of transaction based
characterristics can evaluate where the organizational boundaries are. The settings
under which an organization should involve itself, i.e. within its boundaries or as a
matter of outsourcing. Is found with this theory. The remedies Organization theory and
business economics is merged to do this. (Skjøtt Larsen, 2007)
transaction costs is a reality trough economic exchange, the economic exchange is
based on bounded rationality, opportunistic behavior, uncertainty, frequency and
specificity.
Organizational handling of its economic exchange, is done on the basis of various
modes of governance? I.e. hierarchical, market or intermediate. ( Williamson 2002)
Hierarchical governance would place the exchange within the organizational
boundaries. Whilst market or intermediate governance would place it outside the
present organization. Hence the
various modes of governance dictates the organizational boundaries (barney, 1999,)
individual opportunism and bounded rationality effects the governance
Bounded rationality:
is grounded in lack of information and asymmetric information
regarding the result of an action (skjøtt larsen, 2007)
individual opportunism:
is a humanistic trait, and by individual is meant as an individual person
Individual opportunism is considered as paramount cause of market failure and has an
incremental role in the decay of organizations. It is argued by Williamson that
19
individual opportunism occurs as a participant of an exchange seizes an unfair leverage
at the expense of other participants.Furthermore he argues that participants
will act with increased opportunism as the level of asset specificity
climbs in an exchange. Protection or mineralization of opportunistic acts, can take
place in such forms as: contracts, fines and implementation of control
mechanisms.(Williamson 2002)
the best governance structure of an organization can be obtained through a complex
interplay of the organization, the individuals and the external environment.
(Williamson 2002)
hence, the suggested governance type varies according to different scenarios in terms
of asset specificity, uncertainty and transaction frequency. I.e. scenarios with high asset
specificity, uncertainty and transaction specificity would be best solved with a
hierarchical governance
structure implemented. Intermediate governance is proposed when a scenario with
medium asset
specificity and high transaction frequency. Market governance when in the case of nonspecific assets (Barney 1999)
3.6 Development of the Eclectic paradigm
The eclectic paradigm, has been given vast amounts of attentions since its introduction,
when going through various research in the area of FDI. This widespread discussion of
the eclectic paradigm has led to criticism of aspects of the paradigm; some of the
critique has been approached by dunning. A selected criticism is presented here:
The paradigm approach to FDI theory and the unspecificness it implies. A shopping list
of variables is the label of the criticism. Since the eclectic paradigm consists of various
20
grounding theories opens the opportunity of applying the OLI framework in various
ways.
Qua changes in the business environment, with regards to non-equity alliances and
network theory, criticism of the eclectic paradigm was presented. Since it was argued
that these changes of the business environment, led to a change in the way
organization’s act, e.g. networking could be an ownership advantage. Research and
development in a host country location could be helped by networking and the
management of them.
E-commerce related differencenses leading to potentially different operational
environments for the organization given the host country location, e.g. in the level of
technology related to e-commerce development. Again the e-commerce changing the
environment of business, with varying degree from country/region to country/region
and organization to organization.
It was argued that the OLI framework was static, thus faced validity related problems
in explaining e.g. the development of the increasing investments in especially third
world countries (dunning asger)
This is examples of points of criticisms which was approached and discussed by
Dunning.
The shopping list of variables critique is met by dunning “I have already explained, the
purpose of the eclectic paradigm is not
To offer a full explanation of all kinds of international production but rather to point
To a methodology and to a generic set of variables which contain the ingredients
Necessary for any satisfactory explanation of particular types of foreign value-added
Activity.”(Dunning 2001)
21
The static approach criticism was met by an extension of the paradigm, which first was
presented in 1975. Dunning’s investment development path (IDP), its purpose is to
explain the stages that courtiers go through as investment in the given country is
increasing. At the different stages the countries development has certain
characteristics, which influences the acts of the organization. It is grounded in life-cycle
theory.
E-commerce, non-equity alliances and network theories has been incorporated in the
eclectic paradigm. And as the world of business changes qua the environment
surrounding it historically has been ever-changing. Then, as extensions of the OLI
framework or extensions to the grounding theory, e.g. resource based or transaction
cost theory that lays the foundation for the eclectic paradigm. It would arguably be the
purpose of the eclectic paradigm to approach these potential changes and incorporate
then if they have a relation to the decision of the level of internalization.
22
4.1.1 Can it be argued that CSR policy has a relation with the OLI framework?
In the light of the development in emphasis on CSR, and the assumed incorporation of
CSR policies in a growing number of organizations. Then it would be relevant to
discuss whether or not an organization’s position on CSR could have an effect on the
choice of whether or not to enter a market. It would be relevant to discuss the
possibility that CSR policy could have an impact on factors decisive for FDI
engagement. If the argument that it does is reasonable to state, then it would suggest
that CSR has relevance in the eclectic paradigm.
To have a discussion of CSR theory and its possible relation with the eclectic paradigm,
it is incremental to look what CSR theory covers and if/how it relates to foreign direct
investment.
As covered earlier CSR is a part of the corporate image that organizations have. An
image which is dynamic by nature, qua the corporate image is the yield of how the
organization acts on in term of Trust, CSR and innovation, especially, in the eyes of
their current and potential market base. Hence, in order to achieve a desired image. An
organization must act accordingly and consistent. (Gürhan-Canli and Batra (2004))
in the context of how information is shared and spread in the information age, it is
assumed that the corporate image is influenced by all the organization’s activities,
regardless of which or how many countries or regions in the world an organization
operates. This implicates that an organization must act accordingly and consistent in
23
all its activities, to achieve a desired image.
The argument that an organization’s corporate image (derived partially by its CSR
policy) is created from its worldwide activities. Doesn’t necessarily mean that CSR has
any relation to the OLI framework, if:
An organization’s can enter a new market and act accordingly to their potential CSR
policy and their corporate image. without it influencing the factors that constitutes the
net advantages that is evaluated according to the OLI framework.
Because that would suggest that the corporate image and the strategy that is applied to
achieve this image can exist independently without it coinciding with any FDI strategy
based on the OLI framework.
Looking at CSR activities as defined by (Sen /Bhattacharya, 2001):
1) Social support (health, culture, sports)
2) Diversity (race, gender, family, etc. both within and outside the company)
3) Support for employees (job security, sharing profits, union
relations, employee involvement)
4) Environmental (environmental friendly products, treatment of toxic waste,
animal testing, recycling)
5) Activities outside the country (development aid, human rights)
6) Product (product safety, research and development (innovation))
4.1.2 Google China
the argument:
Entry of certain markets can prohibit an organization from fulfillment of its
commitment to a CSR policy, in any of these broad categories listed qua specific
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characteristics of the host country/regions market.
and if it can, would it be damaging to the corporate image? seeing that they are
prohibited by the host country to do so. i. e. can the organization be blamed?
Is it reasonable to state?
For a country/region to directly or indirectly prohibit an organization in up keeping its
policy in one or more of these categorized activities would seem as an extreme case.
Because under which circumstances would a country/region benefit from obstructing
an organisation in this regard.
But consider the category of human rights(united nations human rights) in the context
of a society where the governing regime considers controlling and managing accessible
information as a source of power.
a markets that have been subject to vast amounts of FDI (unctad.org) is the Peoples
republic of China (PRC).
the PRC has been criticized for human rights related breaches towards its population. a
focal point of this criticism has been accessibility and control of information.
(amnesty.org)
To discuss a concrete example of this problem consider the case of Google China:
what relevant issues in the Google china case:
Google CSR policy
PRC has a censorship laws, which prohibits their population to access certain
information and controls what is posted on the internet. arguably a violation of human
rights
PRC uses the internet to investigate what it considers to be opponents of the regime.
arguably a human rights violation.
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implications for Google
In the context of PRCs policies regarding information and censorship. Google is forced
to make a choice. since they cannot operate, with regard to censorship of information
and freedom of speech, as they do in markets which are not under similar restrictive,
and arguably human rights violating, regulations as the PRC.
the choice that Google has to make, given the context they are in, is what strategy to
pursuit in the PRC market within the spectrum of:
No cooperation with the PRC authorities to Full cooperation with the PRC
authorities.
No cooperation:
would allow Google to act exactly according to their assumed CSR principals with
regards to human rights, as they would not have to consider the regimes position on
issues that is related to Google’s CSR policy. Hence their corporate image would remain
at least intact, keeping all other factors of corporate image constant. you could even
argue that there would be public relations value in defying the PRC authorities on the
issue of human rights.
It would however be reasonable to assume that pursuing a no cooperation strategy
would lead to difficulties for an organisation operating in the PRC market. As Google
experienced when they made the decision to disregard the PRC censorship policy. Here
the PRC authorities showed Google that they had the ability to shut down their access
to the PRC market.
So a No cooperation strategy could lead to a scenario where the organisation is unable
to operate in the host country/region. Hence losing their market share in the host
country/region.
Full cooperation:
Would mean that Google was willing to disclose all Google user related activities
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(Gmail, android) and information. to the PRC authorities. and follow the PRC policy on
censorship. based on the argument that the PRC authorities would prefer to be in
control of what is accessible information and possess as much information possible
about its population, with the primary purpose intelligence gathering with regards to
people in opposition of the regime. (amnesty.org)
Image wise, a full cooperation strategy as described above would according to theory
(Gürhan-Canli and Batra (2004)) be damaging. Qua breaches of trust and the CSR
activity of human rights.
A worst-case scenario image wise could be that human rights activists in PRC where
captured and imprisoned by the PRC authorities on the basis of information retrieved
from cooperation with Google.
Google would arguably have no difficulties operating in the PRC market, with respect
to obstruction from the PRC authorities, in a full cooperation scenario. Since that
Google would meet every policy and regulation presented by the PRC government, and
could be a partner in accessing information about the population.
Where in this spectrum exactly Google decide to place itself is unknown. But given the
fact that Google operates in the PRC market again suggests that a compromise was
made between Google and the PRC authorities.
a compromise somewhere in between these two extremes is presumed to have been
chosen by Google. Since they still are in the market
thinking about where they stood before operation Aurora (googleblog) and took their
stance of challenging the authorities.
The main point of the Google example is however to verify that an organisation can be
put in a situation where it has to respond to a CSR activity related dilemma in a FDI
context.
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So Is it reasonable to state that:
Entry of certain markets can prohibit an organisation from fulfillment of its
commitment to a CSR policy, in any of these broad categories listed qua specific
characteristics of the host country/regions market.
and if it can, would it be damaging to the corporate image? seeing that they are
prohibited by the host country to do so. i. e. can the organisation be blamed?
based on the argumentation above, yes
Even so, this would only be relevant in an FDI decision context if:
The fact that an organisation which due to host country/region government, is not
able to operate in the host country/region market under the organization’s normal CSR
policy. Effects its corporate image.
Can the organisation be blamed, and suffer image related consequences.
In the Google case, Google was forced to deviate from their normal policy in regards to
the CSR activity human rights. They where forced to a compromise of cooperation with
the PRC authorities, to avoid being unable to act in the PRC market.
The reasoning that Google had for complying with the censorship policy of PRC at the
start of the Google China era was that “"While removing search results is inconsistent
with Google's mission, providing no information is more inconsistent with our
mission," (BBC)
this reasoning and communication seems based on a Kissinger doctrine or realpolitik
grounded mentality.
which could be argued has been a paradigm basis for how the western world has acted
politicly and business wise since the last decades. They are arguably defending their
actions on the basis of their CSR policy related mission “don’t be evil” (Google, code of
conduct)
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Does the realpolitik argument clear them image wise?
It is likely that it is difficult to measure exactly how big of an effect this case has on
Google’s image.
However, it is a fact that it was brought in various media as an image related problem
for Google. (BBC)
And Google defended itself on this image related matter.
the point of this argumentation is to establish if it is reasonable to assume that image
related consequences are possible for acting uncustomary CSR activity wise. So even if
no specific measurement have been conducted in this regard in the Google case, the
fact that it was even broadcasted in the media and defended by Google makes it
reasonable to assume that the matter of Google’s deviance from policy has a
potential corporate image consequence. on the basis that Google and the media that
broadcasted this assed it to be.
So yes it is reasonable to argue that an organisation can be blamed, even though that it
is subject to act under a regime that obstructs it from acting according to their CSR
policy.
the possible fact that its is a mitigating circumstance image wise, is related to the
specific image impact of this case and is beside the point.
4.1.3 the above average in industry organisation
the argument:
Entry of certain markets whilst up keeping a potential CSR policy, can effect net
advantages of the organisation compared to the local competition. qua the fulfillment
of its commitment to a CSR policy and thus the corporate image.
and if it can, would it be damaging to the corporate image if the company where to act
as the generic local organisation in terms of these listed categories of CSR activities i. e.
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not upkeeping the CSR policy
Is it reasonable to state?
Take the case of Statoil, an organization which highlights its CSR policy
An organization like Statoil has made it part of their strategy to achieve an image of
having an above average CSR policy compared to peers in the market they operate in.
When entering a foreign market Statoil would have to take into account that their
efforts in terms of CSR has some implications on the costs that they incurred in that
particular market. Costs that peer organization’s with lower standard or no CSR policy
does not incur.
A discussion of which potential advantages a above average CSR policy can bring, in a
particular market and other markets which the organisation in question has
engagements. would be a discussion about the impact of corporate image and CSR, and
is not the point of this argumentation.
The point is that a CSR policy has an effect in terms of net advantages when looking at
market entry. hence can not be considered irrelevant.
4.2 summary
Based on the above argumentation CSR policy can have relevancy when entering
foreign markets. Hence CSR policies can not be considered irrelevant when analyzing
market entry.
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This argumentation can be criticized for being very narrowly concerned in terms of
organizations. It does not hold any validity as an empirical presentation of
organization’s in general. The examples of how CSR policy effects Google and Statoil
are to present how CSR policy can have strategic implications. Google is an example of
an organization involved with handling and delivering of information. This is arguably
a growing industry, qua the increasing usage and accessibility of the internet. Google
china is an example of an CSR and FDI related issue of that industry. It is an the FDI
related issue only because it is an issue CSR wise to cooperate with a regime that is
considered to act unethical in certain aspects. The example illustrates the connection it
does not claim to be a generic scenario of the industry, whether it is or not is beside the
point.
The Statoil example, illustrates a generic CSR policy scenario. And shows that even if
there is no regime to prevent the organization from up keeping its CSR policy, it can
still lead to FDI related net advantages. Again this chapter does not attempt to imply
the CSR level of any industry in terms of percentage engaged or the depth of the CSR
policy of those that are committed to a CSR policy.
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5.1 Is the CSR policy aspect covered by the OLI framework?
So the overlap relation between CSR policy has been argued to have an influence on
market entry. Thus looking at its relation to Dunnings OLI frameworks seems relevant.
When going through the work of dunning, I could not find any direct mentioning of
CSR. In papers which concerns the work of dunning and discussions in this regard,
there are research that touch upon what could be considered relevant in CSR policy.
However this does not necessarily implicate that CSR policy is not considered in a
potential application of the OLI framework.
Since the eclectic paradigm is grounded in several different theories, all relevant to the
decision whether or not to internalize in the context of foreign market entry. Hence,
extensions or modifications of the grounding theories of the eclectic paradigm is an
extension or a modification to the application of the OLI framework.
In order to establish an indirect coverage of CSR policy in the eclectic paradigm, it is
then assumed reasonable to look at strategic implications of having a CSR policy in an
organization, that is connected to the grounding theories of the eclectic paradigm.
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5.2.1
Strategic implications of CSR policy to resource based theory:
Resource based theory is extended to be applied in analysis of effectiveness of
competitive strategies.
Political strategies with the intent of raising the cost of rival organization’s. Which can
lead to sustainable competitive advantages. (mcwilliams, 2002)
Propositions of strategies, with relation to e.g. sustainable development and (product
stewardship) with the intention of creating sustainable competitive advantages. In the
context of resource based theory. (hart,1995)
These are examples of articles that use CSR policy related strategies in order to create
sustainable competitive advantages. This would indicate that CSR policy connected to
resource based theory is covered by the OLI framework. The validity of the individual
articles is not the issue, the issue here is that CSR research in connection with
resource-based theory is explored and can be applied through the assumption that
resource based theory is part of the foundation of the eclectic paradigm
5.2.2
Is CSR policy related strategic implication then fully covered in the eclectic
paradigm?
Argueably not, as CSR related strategic implications are found with basis in theories
that lay grounds for the eclectic paradigm. Research which argues CSR related strategic
implications for the organization is based in CSR grounding theory such as stakeholder
theory:
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Stakeholder articles:
The potential connection of stakeholder related implications to transaction cost, which
is arguably an incremental part of the eclectic paradigm, was made in section (2.4).
Stakeholder theory is however not covered in the eclectic paradigm.
5.3 discussion of the coverage
CSR policy is not covered in the eclectic paradigm. It is however argued that parts of it
is indirectly covered. Qua CSR policies strategic implications which has led to
expansions in theories such as resource based theory and theory of the firm.
could it be directly covered?
The eclectic paradigm is a paradigm and not a specific theory. Hence the criticism of a
shopping list of variables (dunning 2001). The argument that this condition on the
contrary ads value to the OLI framework, qua that no specific theory can fully explain
an organization’s decision to engage in FDI. Furthermore, this condition makes it
possible for the OLI framework to develop and expand as research of the grounding
theories is developed and expanded. (dunning answer source)
Associations between the eclectic paradigm and CSR can be argued, in terms of them
being an umbrella of related theories and not a specific theory that can be applied.
Hence there is no specific CSR theory to be applied in the OLI framework.
5.4 Could CSR be incorporated in the eclectic paradigm
One could argue that to a relevant extend CSR is covered by its influence in the
grounding theory of the eclectic paradigm. And CSR influence on new or assumed to be
unrelated theories is irrelevant to the eclectic paradigm.
However, what is considered relevant to the eclectic paradigm, hence FDI related
decision-making, is derived from the context the business world operates in. Thus a
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perceived change in the context that business operates in should, for the eclectic
paradigm to maintain the same perceived level of validity, lead to similar adjustments
in the Eclectic paradigm
History shows that the eclectic paradigm has been adjusted and extend as a perception
change of the business environment. Business environment in terms of e-commerce
and alliance and strategic networks, was assumed to have implication on FDI decisions.
(dunning 2000) as the context organization’s where in changed, extensions of the
eclectic paradigm was made in order to approach this change.
So I would argue that CSR related change to the internal and external environmental
context of the organization’s, potentially could have a similar impact as e-commerce
and (alliance and strategic networks.
Presumably it is difficult with accuracy to establish the precise impact of CSR, and does
it have sufficient impact to receive attention by FDI theory researchers. There is no
unified answer to that question. But what is relevant in that context, is that the impact
and attention of CSR is perceived to be growing.
Which would indicate that if CSR theory does not have enough perceived relevance, at
the present date, to expand the eclectic paradigm in similar fashion as e-commerce and
alliance strategy, it might have in the future.
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6. Conclusion
The connection between FDI and CSR was argued and with the intend of finding a
connection and not further. The strategic implications of CSR on various theory opened
the discussion of the indirect coverage of CSR by the eclectic paradigm. The discussion
would suggest that CSR potentially could change the business environment, in the
same way as e-commerce or strategic alliances. Qua limitations to this thesis no
conclusive answer can be given whether or not CSR theory is sufficiently covered by
the eclectic paradigm, or if work could be done to incorporate it. With the development
of CSR in terms of awareness, It can however be concluded that it is relevant to
consider potential incorporation to a higher extend in Dunnings paradigm.
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