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Introduction
Business invariably responds to the needs and demands of the community within which it operates. In the last several decades, such issues as climate change, pollution, and the impact of business operations on the environment and the public have come to the forefront of the discussion (Ghardallou & Alessa, 2022). The increased focus on community relations and the realization of the need for business accountability spurred numerous ventures, particularly multinational enterprises (MNEs), to adopt corporate social responsibility (CSR) practices (Ghardallou & Alessa, 2022). The current business environment dictates that companies act in a way that maximizes their bottom line and shareholder value while benefiting society. Although CSR practices are associated with significant advantages to companies, their implementation brings potential risks to performance. It is particularly important to consider CSR in an international context, as ventures from different cultures collaborate. This paper will examine the relationship between CSR and MNEs performance as well as positive, negative, and neutral issues arising from CSR campaigns. It will be argued that CSR practices can positively impact MNE performance. However, companies should prepare to address the negative consequences of CSR and issues arising from it.
Defining CSR
Business ventures, in particular, enterprises that hold assets in more than one country, have a significant impact on the global economy, the environment, and society as a whole. CSR can be defined as the consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social benefits (Peng & Meyer, 2019:276). CSR practices are primarily undertaken on a voluntary basis and are put into effect in order to address the central concerns of the consumers and the wider society (Peng & Meyer, 2019). Thus, CSR can be viewed as a direct response of companies to the critical interests and demands of the public.
It should be noted that in the current global business environment, MNEs focus their CSR efforts on a variety of issues. The most often addressed concerns include sustainability, human rights, and the economic, social, and environmental performance of a venture (Peng & Meyer, 2019). Furthermore, MNEs, as enterprises with branches in multiple countries, have to consider what CSR practices are appropriate in different economic, legal, social, and cultural contexts. Socially responsible commitments applicable in one country may not be well accepted and even disparaged in another. Unlike organizations that operate in a single market, they are encumbered by the operational complexity of executing CSR activities on a global scale (Peng & Meyer, 2019). Peng and Meyer (2019) highlight that companies may install their own standards when implementing CSR initiatives or signing up for existing programs. Regardless of the chosen area of focus and the adopted standards, CSR practices are often made public by various corporations in order to secure support and show commitment to the cause, customers, and society.
CSR Practices on the Global Market: Stakeholders and Regulations
Multinational organizations have to consider the influence of their operations on a multitude of stakeholders. Although CSR practices are aimed at benefiting society at large, the impact on individuals involved with the company and who have the power to affect it is to be considered (Peng & Meyer, 2019). The primary stakeholders in any business venture are its employees, including managerial and non-managerial staff, customers, shareholders, and suppliers (Peng & Meyer, 2019). Social groups, trade unions, environmental groups, and industry associations can be considered secondary stakeholders in a business (Peng & Meyer, 2019). In addition, Peng and Meyer (2019) view governments and communities as essential stakeholders. MNEs have a complex map of stakeholders and need to cater to primary and secondary interest groups located in several countries, as well as adapt to distinct legal guidelines and requirements.
It should be noted that the primary stakeholders are persons and organizations that can directly impact the business and are involved in its prosperity. Thus, employees, suppliers, and customers contribute to the financial performance of a company through the continuous exchange of goods and services. Meanwhile, secondary stakeholders do not necessarily engage with a business but perform a monitor function by setting industry-specific standards (Peng & Meyer, 2019). Non-governmental organizations, in particular, play a crucial role as they provide guidelines companies are encouraged to follow by other stakeholders, including customers and communities. Therefore, it can be argued that CSR practices are aimed generally at secondary stakeholders but contribute to and have an appreciable impact on all stakeholders.
Although the majority of CSR endeavors are voluntary, some regulatory organizations exist to encourage and monitor social responsibility in multinational corporations. Furthermore, international regulative bodies strive to develop general guidelines that could coordinate and integrate different CSR practices and set standards for various industries (Ghardallou & Alessa, 2022). For example, in 2021, the International Financial Reporting Standards (IFRS) Foundation set up the International Sustainability Standards Board (ISSB) to develop standards for sustainable business operations, sustainability disclosure, and reporting (Ghardallou & Alessa, 2022). The IFRS Foundation is a non-profit, non-governmental organization that aims to bring transparency and accountability to the global financial market (IFRS Foundation, 2022). Meanwhile, the US government established a Climate and Environmental, Social Sustainability, and Governance (ESG) Task Force to control the domestic marketplace (Ghardallou & Alessa, 2022). The founding of these regulatory organizations indicates the increasing interest of the public and world governments in CSR. Thus, engagement in a variety of CSR practices is rapidly becoming a common expectation of MNEs regardless of their industry and ability to subscribe to them.
Impact of CSR Practices on MNE Performance
Positive Effects of CSR on MNE Performance
The implementation of CSR practices is associated with numerous advantages for multinational business ventures and is positively correlated with MNE performance. Corporate financial performance is an important measure of a companys financial health and success in the market. According to Peng and Meyer (2019), the relationship between CSR practices and MNE performance depends on the market segments within which the companies operate. Furthermore, a positive correlation between CSR and company performance is dependent on the country of business. For example, research indicates that enterprises that introduce social responsibility schemes within a developed countrys context benefit from increased financial performance (Ghardallou & Alessa, 2022). It is suggested that involvement in CSR practices attracts additional resources to the organization, leading to improvements in its operations and processes (Ghardallou & Alessa, 2022). Consequentially, enhanced operational success can translate into healthier financial performance due to fewer expenditures on unproductive equipment and workplace practices.
CSR practices can substantially strengthen the relationship between a business and its customers. Ghardallou and Alessa (2022) note that socially responsible companies have higher customer loyalty and satisfaction rates. Enterprises that employ CSR schemes that address the concerns of the target market can secure the loyalty of the existing customer base and attract new clients. Engagement in CSR is a measure that evokes specific behavioral responses from customers. Genuine social responsibility demonstrated by companies contributes to the public viewing the company as an extension of the self (Abbas et al., 2018:11). Therefore, the customers are more likely to remain loyal to it and spread word of mouth about it, its products, or services (Abbas et al., 2018). CSR practices invite customer feedback and affect their overall attitude towards a company, fostering positive feelings and encouraging greater customer engagement (Abbas et al., 2018). Furthermore, CSR has been shown to impact customer purchasing decisions directly contributing to the financial performance of the venture (Abbas et al., 2018). The increased loyalty of the existing customers, the influx of new clients, and an overall stronger relationship with the target market positively affect business ventures.
CSR commitments undertaken by MNEs meaningfully impact the internal stakeholders of the company, including managerial and non-managerial personnel. Active support of important issues and engagement in socially responsible behaviors promote greater work engagement, organizational commitment, and higher employee retention rates (Ghardallou & Alessa, 2022). In addition, CSR practices are positively correlated with increased productivity and job satisfaction of the company personnel (Ghardallou & Alessa, 2022). Implementation of CSR schemes can motivate employees to perform better in their positions and engage more with their colleagues, managers, and the company as a whole. Thus, Kunz (2020) indicates that CSR positively affects employees intrinsic motivation without any positive or negative effect on their extrinsic motivation. Therefore, employees of socially responsible companies feel compelled to enhance their performance without any additional incentives being offered. It is suggested that CSR can attract and retain talented young staff that can further the goals of the company in the market (Kunz, 2020). Overall, the higher engagement of the working force, as well as increased organizational commitment and productivity, translate into improved company performance.
Moreover, CSR positively impacts the reputation of business ventures and allows MNEs to assimilate better in host communities. According to Ghardallou and Alessa (2022), the social dimension of CSR, which focuses on providing to different societies, is associated with improved reputation and increased financial performance. Contributions towards projects aiming to better vulnerable communities foster stronger connections with customers and creates inherent trust in the company. CSR presents valuable press opportunities that further knowledge of the company, attract potential customers, and strengthen its standing in the market. In addition, consistent CSR engagement protects the companys reputation from complete ruin if severe mistakes are made or any problematic issues arise (Ghardallou & Alessa, 2022). Furthermore, local community-oriented CSR undertakings allow MNEs to form strong company-community relationships, enhance business legitimacy, and ease entry into a new market (Awuah et al., 2021). Transparency with local communities and customers about business operations and the different dimensions of MNEs CSR leads to the formation of a healthy relationship with host communities and improved global reputation of the brand.
Negative Effects of CSR on MNE Performance
Despite the numerous advantages of CSR practices implemented by MNEs and the proven positive relationship between CSR engagement and performance, several adverse effects should be considered. Although CSR positively impacts the standing of a company in the market, reputation takes time to build and may not be advantageous in specific sectors of the market. For example, companies that compete in price-sensitive segments may not benefit from CSR involvement as much as companies that rely on their reputation to sell goods and services (Peng & Meyer, 2019). Thus, for some business ventures, the relationship between CSR and performance may be negligible or even damaging. It should be noted that CSR requires substantial time and monetary investment and can negatively impact financial outcomes. If the target market does not find the firms dedication to social, environmental, or other objectives valuable, its competitive advantage and profitability may suffer (Ghardallou & Alessa, 2022). In addition, CSR expenditures may substantially deplete the firms available cash. Overall, financial investment in CSR may not be beneficial for MNEs and correlate negatively with performance and bottom line.
Furthermore, the interests of all stakeholders should be considered when engaging in socially responsible practices. New programs and undertakings inevitably lead to increased workloads for employees. If the additional CSR-related workload is not adequately handled, it can translate to burnout, decreased organizational commitment, and reduced retention. Internal stakeholders, such as employees and shareholders, may find resource expenditures on CSR practices unnecessary, adversely impacting the companys relationship with them. Although the majority of MNEs engage in CS on a voluntary basis, they may not provide a similar option to their staff. Managerial pressure to participate in the firms social responsibility projects was found to decrease motivation and engagement (Kunz, 2020). MNEs have numerous stakeholder groups, making it increasingly challenging to cater to internal and external shareholders. Therefore, some groups may be favored or disregarded during the decision-making process, leading to adverse outcomes, including decreased financial performance (Awuah et al., 2021). Thus, inappropriate selection of CSR and excessive costs can damage relationships with different stakeholder groups.
CSR-Related Issues
CSR practices can cause various issues for MNEs engaging in them that can affect their performance as well as the involved stakeholders. Specifically, to meaningfully participate in social responsibility undertakings, companies need to collaborate with external agencies to set and follow standards and report their practices. Business ventures need to foster a collaborative relationship with non-governmental regulatory bodies and invest resources in cultivating mutual trust and aligning CSR goals with them (Liu et al., 2020). A variety of issues can arise from these collaborations if there is an imbalance of power between the organizations (Liu et al., 2020). For example, if a new MNE enters into cooperation with a well-established non-governmental organization (NGO), the company may be undermined by the position of the NGO and follow their standards regardless of the impact. Thus, the interests of the party with less power in the partnership can be overlooked, and its autonomy can be impeded. Therefore, it is crucial to establish a healthy business relationship between MNEs and monitoring bodies.
Furthermore, business ventures should approach CSR cautiously in order not to deter potential and existing customers. CSR can be viewed as a public relations (PR) tool for enterprises known for engaging in unethical practices. Although CSR does not equate to PR, positive CSR undertakings can be shared via company PR. However, if a company announces engagement in CSR practices after a damaged brand image, the firms reputation can be damaged further (Thacker, 2018). CSR should not be considered a mere tool for enterprise promotion, and a variety of issues that can negatively impact company performance may arise if viewed as such. Overall, social responsibility requires a consistent and comprehensive approach and should not be utilized as a PR opportunity.
Moreover, the complexity of MNEs map of stakeholders should be carefully considered. MNEs work with different stakeholders in their branches, including suppliers, international partners, local customers, and communities (Surdu, 2022). The interests of these stakeholders are often misaligned, and head companies may lack the necessary information to address the critical issues in local communities. In turn, other stakeholders, such as suppliers, may lack the motivation and capabilities to assist MNEs in their CSR responsibilities (Surdu, 2022). Furthermore, if the goals of all stakeholders align, an issue of the overreliance of communities on company support arises (Awuah et al., 2021). It can also be argued that the involvement of international businesses in social issues alleviates the governmental responsibility of care for its citizenry. Thus, enterprises should strive to find a sustainable way to be socially accountable.
Conclusion
MNEs are uniquely positioned to help and support numerous global communities. CSR practices allow business ventures to play a positive role in numerous countries, work towards protecting the environment, and develop and commit to sustainable business operations. CSR can have an overwhelmingly positive impact on MNEs, improving their performance through increased employee engagement, customer loyalty, and enhanced relationships with host communities. However, it should be noted that CSR projects can damage MNEs image if they do not serve the interests of all stakeholders and demand high costs and resources investment. Overall, MNEs should carefully design CSR programs aimed at local communities to avoid negative consequences and benefit all the involved parties.
Reference List
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