Corporate Social Responsibility - McDonalds Corporation - Essay Example

International Business al Affiliation Table of Contents Executive Summary 3 Introduction 4 International Business 4 Corporate Social Responsibility Defined 4 The Case of McDonalds 6 Stakeholders Complexity in Internationalization Concept 7 Foreign Direct Investment 9 CSR and FDI in Russian International Corporations 11 Linking Corporate Social Responsibility and Foreign Direct Investment 12 Conclusion 13 References 15 Appendixes 17 Global foreign direct investment (FDI) position of the United Kingdom (UK) from 2004 to 2013 (in billion GBP) 17 Foreign direct investment (FDI) in the United States from 1990 to 2013 (in billion U.S. dollars, on a historical-cost basis) 18 Executive Summary Internationalization of companies is a measure of expansion and success of the company. The more successful companies have established businesses in different countries and have been able to conquer the market and also serve the stakeholders in these environments satisfactorily. However, expanding a business has many challenges, one major challenge is the development of a new stakeholder base. This means that the responsibility to stakeholders by the company changes. In most cases, the more internationalized a company becomes, the more complex its responsibility to the stakeholders become. This paper is a business report that explores the issue of complicating stakeholder responsibility for expanding companies. The paper explores expansion in terms of factors involved and how this exposes companies to increased population and different types of stakeholders. The paper also explores the linkage between stakeholders’ responsibility and the foreign direct investment. Keywords: stakeholders, internationalization, responsibility, foreign direct investment Introduction International Business Expansion of business has become a normal concept today. The emergence of the multinational corporations and the internationalization of existing companies is viewed as an indication of growth. As businesses expand, the revenue is expected to increase and so is the reputation and the customer coverage (Branco & Rodrigues 2006). Further, such an internationalization also affects the responsibility of the business to the community and the people. This means that the more a company expands internationally, its stakeholder responsibility becomes more complex (Melé 2008). This can be viewed to happen for two main reasons. First, the stakeholders’ environment, socially and economically drastically change as the company secures a stakeholder base in the new country. Secondly, the number of people that the company or business has a responsibility towards increases and their demographic characteristics change (Hooijberg & Schneider 2001). Corporate social responsibility (CSR) are the basic strategies that companies conduct their business in a way that is socially friendly, ethical and responsive to the community needs in development and safety. The companies are required to go an extra mile and put up measures to benefit the community that literary accommodate them (Winch 2004). Theories such as utilitarian, managerial and relational theories of CSR supported by works of other scholars in the area could be used to suggest that CSR becomes an international concern due to globalized nature of business that knows no border. CSR is evolving in its meaning and practice. Corporate Social Responsibility Defined Over the years and with the growth of globalization, the importance and significance of corporate social responsibility have increased tremendously. Many countries seek to focus on making the international companies within them to have the responsibility for the peoples’ needs and requirements (Patton 1994). The significance of this is observable in how the CSR issue is critically linked to foreign direct investment. Foreign direct investment refers to the type of investment that a corporation or a business entity makes in another country. Businesses making direct investments into the host country have a degree of influence over the country and the community in which the investments are made. The investments can be in the form of setting sister companies in the country, acquisition of equities of a local company in the country or even merging with the local corporations. This kind of investment significantly assists a corporation to reach out to the community in which they are hosted. An example would be the British company taking stakes in a company in China. This will assist the British entity to reach out and benefit the community through a structured corporate social responsibility. According to McWilliams et al (2006), corporate social responsibility means the legal liability or responsibility that a company has to the service and benefit of the stakeholders and the community in which it is established (McWilliams et al. 2006). To other people, the concept of CSR broadly encompasses charitable, casual and responsible contribution to the benefit of the community which has accommodated the business entity. This community constitutes what is known in business terms as the stakeholders (Patton 1994). Within the perspective of corporate social responsibility, the term stakeholders refer to those people or individuals or even groups of people who interact with the business entity. These people are, therefore, the recipients of benefits or harm arising from the activities of the business. Having a responsibility towards these communities, individuals and groups is a universally accepted concept. With increased expansion of corporations, and hence the emergence of the multinational corporations, the number of people who the business entity is answerable to as stakeholders expand (Rueda-Manzanares et al. 2008). The Case of McDonalds Taking an example of McDonalds Corporation, the global expansion has considerably increased the number of people who interact with the company. Similarly, the demographic differences and the socio-cultural factors that makes the relationship with the stakeholders rather complex. In this example, the number of restaurants that McDonalds has established over the years makes its stakeholders population (Messer & Petrov 2012). Within a two year period, the corporation had opened close to 2000 restaurants in its multinational expansion strategy. This has resulted to the company having to adopt different strategies in different places to cope with the complex stakeholders’ base. Table 1. McDonalds International Expansion Data Restaurants 2014 2013 2012 Conventional franchised 20777 20355 19,869 Developmental licensed 5,228 4,747 4.350 Foreign affiliated 3,542 3,589 3,556 Franchised 29,544 28,691 27,882 Company operated 6,714 6,738 6,598 Systemwide Totals 36,258 35,429 34,480 In this example, McDonald can be said to be a successful company. This is because it has consistently increased its foreign investment through franchise and direct operations. From their perspective, the entry into these markets was not an easy move. This is because for most of the food products, the company had to change the recipes in some countries, use different marketing strategies and focus on addressing and abiding to different environmental and sanitation policies in each of the countries (Mujtaba 2007). The social responsibility that a company has to its stakeholders determines its strategies of marketing and relationship with other companies in the environment (Schwartz & Carroll 2003). Further, the complexity of stakeholders also determine the kind of foreign investment strategy that a corporation willing to exist in the international market. A company may choose Greenfield entry strategy, where the company establishes new investments in the host country (Rugman 1978). This is possible with a relatively welcoming stakeholder base which will accommodate the expansion. The stakeholder base is, however, not as simple as to allow speedy and virgin expansion. With globalization, internationalization and international expansion of companies, the stakeholders become more complex and normal strategies no longer work. In such cases, Brownfield investments seem to work better. This means that the company has to partner with existing corporations and learn the local CSR concepts. Stakeholders Complexity in Internationalization Concept Stakeholders have the inherent ability to influence any business. This kind of influence is based on to what extent the business depends on the stakeholders (Melé 2008). For instance, a food company such as McDonalds has customers at the central key aspect of its stakeholder base. The satisfaction of these consumers influences the business reputation and success. The influence can be said to happen in two different situations according to the dependency model. First, the kind of stakeholder-company relationship has the capacity to affect the flow of resources and supplies to the company (Busse & Hefeker 2007). Even with a related foreign investing company as a subsidiary, a client or a customer has the ability to influence the revenue by choosing to buy or not to buy a commodity from the company. In addition, the experience of this customer is also attached to the positive or negative influence that the customer will have on others who form the potential market for the company. The second situation of influence occurs when the stakeholders affect how the company uses its own resources. The stakeholders have the power to impact regulations and hence demand that the company or its subsidiaries adopt and abide by certain clauses in the contract. This may have negative social and economic impact to the company as this adoption may require a realignment of the human resource, installation of expensive machinery such as those related to environment and health issues as well as seeking certifications for operations (Aitken & Harrison 1999). Worldwide, having multiple stakeholders is one of the most disturbing complexity in the international market. In a survey conducted in 2013, 57% of the respondents indicated that having multiple stakeholders is complex. This is because satisfying the stakeholders in a normal environment is a task. The increased complexity is even higher than that resulting from budgetary and resources constraints, political forces, and uncertainties. (Figure 1). Figure 1. Most defining characteristics of complexity in Businesses When, therefore, the situation is interpolated into a foreign environment with new people and new regulations, the complexity can only be thought to escalate upwards (Borensztein et al. 1998). This significantly shows that with globalization and growth of businesses internationally, the complexity of the stakeholders increases tremendously. Foreign Direct Investment Multinational corporations and businesses seeking establishment in foreign countries always seek to establish themselves in a country whose corporate social responsibility does not complicate the corporation’s strategies (Habib & Zurawicki 2002). As a result, the countries with the largest flow of foreign direct investments are those with small populations and relatively weak cultural backgrounds. A report by UN Conference on Trade and Development in 2011 indicated that the top five countries in this category were Liberia, Mongolia, Hong Kong SAR, Sierra Leone and Luxembourg (UNCTAD 2011). This is an indication that corporations tend to avoid the complexity of increased stakeholder base in the establishment of the investments. However, this does not mean that these countries receive much of the $1 trillion annual budget of FDI. It only implies that most companies seeking internationalization opt to establish in these environments to avoid the complexity of multiple stakeholders. United States and Britain are countries which have been big recipients of the foreign direct investment. This is because by the virtue of being developed countries, the economic gain from such investments is high. Further, the needs of the community and the diversification is not as wide as to threaten the application of corporate social responsibility (UNCTAD 2014). The growth of investment in these two countries is as shown in the figure below. Figure 2. Foreign direct investment (FDI) in the United States and UK in Billion US$ from 2009-2013 The difference in the environment, therefore, determines the complexity of the stakeholders. This in turn affect the number of companies that wish to invest and expand their market in the country. With USA and UK, the cultural environment is very allowing. This implies that large companies can risk investing in these market. As for the other listed countries, the cultural environment is allowing, and hence the large number of companies interested in the market. However, the economic conditions are limiting and hence even with the highest number of investors, the size of investments is not comparatively large. CSR and FDI in Russian International Corporations With the emergence and development of globalization, the internationalization of the Russian companies has been a topic hitting headlines (Moosa 2002). Ranging from the energy, technology, manufacturing and mass media sectors, Russian companies have expanded beyond the European region to other parts of the world strategically establishing themselves in emerging markets of Africa and other parts. To critically examine the linkage between the corporate social responsibility and foreign direct investment, it is important while focusing on Russian companies to review the recent Russian outward foreign direct investment (OFDI) in Africa, Eastern Europe and other developed economies (Dekker et al. 2011). Many Russian companies can be viewed to have a comparative advantage investing in countries that are near the home nation. When these companies invest in far countries as RUSAL in Australia, Norilsk Nickel in Finland, they have had to deal with expectations related to their responsibility towards the community and the stakeholders (; Vahtra, P. and Liuhto, K. (2005)Dekker et al. 2011). The type of FDI that Russian companies practice, according to Kalotay (2008) is different from what would be expected of a multinational corporation. While comparing it to the Dunning’s model (1988), it would be expected that with a less developed home country, they would be more likely to reinvest in their own market (Gorynia et al. 2010). The result of this would be the development of a country level comparative advantage. However, Russian corporations have focused more on expanding internationally rather that reinvesting in their own base country. International investment theory may be an important tool in predicting that Russian firms would first put into their own particular commercial center, and, as these organizations developed to worldwide levels of improvement, they would utilize their firm-particular focal points to contribute globally. In any case, as outward FDI of Russian firms shows Russian firms are not taking after this way (Fedderke & Romm 2006). Actually, because of the methodology of privatization and merging Russian firms have multinational economies of scale profiles. These substantial companies have solidified the Russian advertize and contend in commercial ventures that are really universal in scale and extension. While their innovation, human capital, and administration abilities may not coordinate their global rivals, the benefit of the Russian market with its high boundaries to entrance by outside firms has given noteworthy monetary assets at the transfer of numerous Russian organizations. The decision for these organizations is either to reinvest in the Russian market or to grow abroad. Russian organizations are progressively contributing abroad to expand their benefits base, secure new advancements, and human capital, and support against Russia-particular danger. Linking Corporate Social Responsibility and Foreign Direct Investment The improvement Corporate Social Responsibility (CSR), Corporate Social Policy, and Socially Responsible Investment (SRI) in Russia has taken its own particular way from that in the rest of the world. This has happened as Russian organizations have tried to incorporate global practices into their long haul corporate methods (Rugman 1978). Globally, there have been awesome walks in action identified with advertising endeavors of multinational organizations as to CSR and social approach advancement. In the Russian situation, while SRI speculation trusts are fairly restricted in the Russian commercial center bi-parallel and multi-sidelong organizations working in Russia have pushed for the incorporation of socially and naturally mindful necessities when financing or ensuring interests in Russia (Borensztein et al. 1998). The substantial results in Russia show that Russian business has been presented to CSR ideas, government foundations are keen on the social conduct of organizations, and real companies are writing about their CSR exercises (Vahtra & Liuhto 2005). In internationalization terms, corporate social responsibility is a component in the creation of legitimacy, competitive position and reputation for a company. This, therefore, means that with a properly positioned CSR, a company has a positive reputation among the community where its operations are. The implication of this is that the company will have an easier time establishing a foreign direct investment. Corporate social responsibility, corporate citizenship and development of foreign asset are linked. The impact of these concepts is however affected by the organizations position in the market and the appropriateness of the activities that the firms engage in terms of the benefits to the community (Chang & Rosenzweig 2001). Conclusion There are three possible perspectives on business ethics. First, the instrumental perspective which seeks to study the responsibilities that are beneficial to a business and how the business may pursue them. Secondly, there is the normative perspective whose main aim is to identify the responsibilities that a corporation or a business has and to whom. In this perspective, the corporate social responsibility or the responsibility to benefit the stakeholders is eminent. The third perspective is the descriptive perspective which focuses on all the activities of the business in general (Fedderke & Romm 2006). From the normative perspective, it is clear that any business has the responsibility towards the stakeholders. Since the social responsibility of any business, according to Milton Friedman is to increase its stakeholders’ profit, the benefits that stakeholders enjoy from the business must be defined (Soh et al. 2011). This implies that each of the stakeholders with their diverse needs must enjoy having the business. With companies operating in a local environment, satisfying the population and groups of stakeholders is easy. This is because a single strategy is applicable over a long time and once an activity is complete, there is no more cost in the same. However, with expansion, the company encounters different types of stakeholders. These come with different needs and occur in different environments (Latva-Koivisto 2001). The implication of this is that the companies have to adopt new strategies and employ different moves. The complexity of the stakeholders therefore increase with expansion and internationalization of businesses. Further, the responsibility that a business has on the community of people also change. This is because the environment and the needs of the people change. Some companies are therefore unable to establish themselves in countries and communities where corporate social responsibility would cost them more than their foreign direct investment would give in return. Apparently, countries with simple cultural structures, are westernized or largely civilized become soft targets for foreign direct investments and establishment of multinational corporations. This therefore means that the more a company becomes internationalized, the more its corporate social responsibility becomes complex. References Aitken, B.J. & Harrison, A.E., 1999. Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89, pp.605–618. Borensztein, E., De Gregorio, J. & Lee, J.-W., 1998. How does foreign direct investment affect economic growth? Journal of International Economics, 45, pp.115–135. Branco, M.C. & Rodrigues, L.L., 2006. Corporate social responsibility and resource-based perspectives. 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Winch, G.M., 2004. Managing Project Stakeholders. In The Wiley Guide to Managing Projects. pp. 321–339. Available at: http://dx.doi.org/10.1002/9780470172391.ch14. Appendixes Global foreign direct investment (FDI) position of the United Kingdom (UK) from 2004 to 2013 (in billion GBP) Foreign direct investment (FDI) in the United States from 1990 to 2013 (in billion U.S. dollars, on a historical-cost basis) Read More