National Contexts of CSR in the of Hennes and Mauritz - Case Study Example

Module Number Module of the assignment and number June Word Count: 2482 Executive summary This report considers corporate social responsibility (CSR) for the board of directors within international fashion company Hennes & Mauritz (H&M). To start with, the analysis clarifies the organizational and national contexts that are important for the CSR operation in the case of H&M. Furthermore, the report defines CSR and shows its main characteristics in order to represent the core elements to which corporate management should pay attention. Then, practical part discusses current appearance of H&M’s CSR strategy. In particular, it shows that it is not common for fashion industry to care of CSR, which enables H&M to develop its competitive advantage in this direction. Moreover, this section reveals the main strengths (environmental care and customer’s educating) and weaknesses (lack of trust and practical manifestation) of its CSR strategy. Finally, three recommendations refer to the development of online retailing, cooperation with national leaders, and development programs for emerging countries in order to fix above-mentioned weaknesses of current H&M’s CSR strategy. Theoretical Background: organizational and national contexts of CSR in the case of H&M In organizational context, Crane, Matten, and Spence (2008) differentiate three main sectors: private, public, and social. As for the private sector, the authors discuss the appearance of CSR in either large or small and medium enterprises (SME). For the purpose of presented research, it is crucial to determine the appearance of CSR in large corporations, because H&M is the company that has a huge number of stores all over the world. In this case, CSR requires formal policies and strict organizational control (Crane, Matten, and Spence, 2008, p. 13). For instance, H&M creates annual reports on its sustainability that are available on their corporate website. There, company stresses on the key areas that require its special attention while managing the business. In 2014, H&M clarified its key commitments to stakeholders, meaning ethical behavior, climate smartness, choosing responsible partners and other options (‘H&M Conscious Actions’, 2014). However, this transparency is the outcome of specific organizational context of H&M. Even though operating within private sector, small enterprises do not tend to publicize their CSR activities in the same manner (Crane, Matten, and Spence, 2008, p. 13). In this case, its activity is close to two other organizational groups: governmental and non-governmental organizations. As organizations from public and social sectors, H&M needs to be transparent about its activity for public (Crane, Matten, and Spence, 2008, p. 16). In particular, the size of this corporation includes huge amount people in its direct activity. Consequently, the level of its responsibility becomes closer to government and civic society organizations than to small firms. Moreover, national contexts of H&M activity have different impacts on its corporate management. While being the company that appeared in 1947 in the developed European country, Swedish store Hennes did not concentrate on the problems like healthcare or fighting climate change, because these issues have not appeared until recently on the screen of continental European companies (Crane, Matten, and Spence, 2008, p. 17). In 2014, H&M already includes climate change as “one of the major challenges of our time” and the necessity “to be as climate smart as possible” (‘H&M Conscious Actions’, 2014, p. 68). At the same time, international scope of the analyzed company makes it adjust to different national contexts. In developing countries, H&M finds its source of raw materials due to their cheap price. Here, the most problem of CSR appear; to name a few, low standards of working conditions and environmental pollution enter the stage (Crane, Matten, and Spence, 2008, p. 19). Thus, caring of responsible brand in these countries becomes an incentive of the company itself with no active participation of national government. For instance, H&M take conscious actions in managing potential of children in developing countries (‘H&M Conscious Actions’, 2014, p. 110). The category of emerging/transitional economies is crucial for H&M, because its garment and fabric production concentrates in former communist countries and China (‘H&M Sustainability, 2014). Such a national context includes variety of CSR management options (Crane, Matten, and Spence, 2014, p. 20). Notwithstanding this flexibility, H&M tends to provide sufficient level of social responsibility for all the countries it enters or cooperates with. Theoretical Framework: definition, theoretical variety, and six core characteristics of CSR In general, Battaglia et al. (2014) shared the up-to-date understanding of CSR, which is no longer only a “moral” responsibility of corporate managers but rather a “strategic resource to be used to improve the bottom line performance of the corporation” (Battaglia et al., 2014, p. 872). In this context, attention to CSR has potential to reduce costs on maintaining personnel, enhance product differentiation in terms of quality and positive environmental impact, create business value, and implement stakeholder engagement (Battaglia et al., 2014, p. 876). In its essence, CSR has six core characteristics. Firstly, it includes voluntary activities that go beyond law prescriptions and mean self-regulation and freedom (Crane, Matten, and Spence, 2008, p. 10). In H&M, The Code of Conduct acknowledges this element within the CSR by stating that overtime work in this company is voluntary. At the same time, it must be “compensated in accordance to law’ (‘The Code of Conduct’, 2010, p. 4). In short, presence of both voluntary and law elements cause ambiguity in CSR. Secondly, CSR is internalizing and managing externalities. In this respect, it invests in caring of side-effects of economic behavior that are borne by others (Crane, Matten, and Spence, 2008, p. 10). Such a responsible approach includes attention to environmental impact of business by sustainability in corporate development (Idowu and Filho, 2009, p. 440). For instance, section of environment H&M management discuss the concern on environmental permits, handling of chemicals, water management, and waste management (‘The Code of Conduct’, 2010, p.4-5). Thirdly, multiple stakeholder orientation is the characteristic that enables analysis of CSR from stakeholder theory perspective. In this case, “firms conducting business with stakeholders on the basis of trust and corporation have an incentive to demonstrate a sincere commitment to ethical behavior” (McWilliams and Siegel, 2001, p. 118). H&M recognizes the challenge of tackling corporate activity “together with a whole range of different stakeholders” (‘H&M Conscious Actions’, 2014, p. 3). In fact, it is impossible to demonstrate sufficient level of CSR without taking into account relations with multiple stakeholders. Furthermore, Crane, Matten, and Spence (2008) write about alignment of social and economic responsibilities as balance between attention to social concerns and business profits (p. 11). In this case, CSR means investment in socially responsible attributes that stakeholders reward by returning resources (McWilliams and Siegel, 2001, p. 119). For instance, H&M invests in farmers’ organic production in order to improve their profitability and environmental situation (‘H&M Conscious Actions’, 2014, p. 17). In this element, CSR goes beyond moral aspects and includes financial benefits. Then, fifth core element of CSR is existence of certain practices and values that deal with social practices (Crane, Matten, and Spence, 2008, p. 11). As for the definition this strategy, it means “understanding and addressing issues that impact on a firm’s ability to achieve its mission, so that products/services can be produced to meet the needs of markets it serves through effective resource configuration, in order to build and sustain competitive advantage” (Galbreath, 2009, p. 110). In other words, CSR strategy includes both theoretical understanding and practical realization of certain beliefs. It is challenging, because it is hard to convince customers in maintaining social responsibility. On H&M, it requires to not only build this strategy in annual reports but also make it as a background of corporate activity in practice. The regard of solving this problem is appearance of competitive advantage in fashion business. Finally, CSR means philanthropy. Precisely, Crane, Matten, and Spence (2008) explain this characteristic by arguing the term ‘core business functions’ as those which “include production, marketing, procurement, human resource management, human resource management, logistics, finance, etc.” (p. 12). In this part, H&M claims that they sacrifice short-term profits to being socially responsible (‘H&M Conscious Actions’, 2014, p. 5). On the contrary, Zollo (2004) differentiates terms ‘corporate philanthropy’ and ‘corporate social responsibility’, because they have different motivation background in terms of economic benefit (p. 18). Nevertheless, the presence of voluntarily activities and underlying values of dealing with social issues makes it reasonable to include philanthropy as one of the parts that result in CSR. In sum, the essence of CSR due to the complications in its defining and diversity of its core elements can cause numerous debates. At the same time, the necessity of its analysis has practical importance, because it affects both business actors and supply chain processes. In addition, it requires comprehensive methodology in terms of understanding the meaning of CSR strategy, importance of stakeholder theory, and deep connection with marketing practices. H&M: current CSR strategy in conditions of fashion industry To start with, Blomqvist and Posner (2004) refer to the role of CSR in fashion industry in context of interconnection with brand-building activities. In their opinion, most of investments made on the development of attractiveness in CSR terms fail, because investors cry for their money and customers who receive more words than actions (Blowqvist and Posner, 2004, p. 33). However, comprehensive implementation of CSR strategy leads to innovation, because it works in “activating drivers that can create new ways of working, innovate products, services, processes and new market opportunities” (Battaglia et al., 2014, p. 881). In the circumstances of fashion industry, the innovative potential of CSR is even higher, because it is common for this industry to eliminate certain elements of social responsibility in favor to reducing prices for cloths. Thus, the reality of fashion market seemingly neglects the importance of CSR in choosing one brand among the others. In the given circumstances, fashion brands pursuit reduction of production costs because of looser environmental regulatory system (Shen, 2014, p. 6236). Thus, revealed attention to CSR in H&M Sustainability Report is rare for the market in operates in. Among the main elements of value-based business model in H&M, Edvardsson and Enquist (2008) mention eco-friendly products, easy and friendly shopping, and referring to employees as ‘colleagues’. Furthermore, it supplements such value-based intention with the growing consciousness of customers in terms of buying eco-friendly products and caring of the materials of clothes (Shen, 2014, p. 6236). In this context, it successfully deals with customers’ claim of green retailing. In Shen’s opinion (2014), such willingness that is untypical for fashion industry appears due to the intention of certain firms like H&M to increase the level of ethical education among their buyers. In other words, successful green marketing evokes the willingness in customers to purchase eco-fashion products (Shen, 2014, p. 6239). In addition, H&M cares of its image in terms of improvement techniques to cotton farmers, saving water, recycling, green distribution and retailing (Shen, 2014). In fact, it manages to turn caring business into the short-term driver for sales, because it selects minimalist advertisement and provides freedom for retailers (Blowqvist and Posner, 2004, p. 36). As Blowqvist and Posner (2004) noticed this impact on sales by stating, “Shoppers choose H&M because the company offers fashion and quality at reasonable price” (p. 36). Finally, this example shows how firms promote their responsibility as competitive advantage (Shen, 2014, p. 6237). While meeting the requirements of eco-friendly brand, H&M as well as Zara modified the expectations of customers, because it offers speed, variety, and low prices at once (Rohwedder, 2004, p. 1). In overall context of creating sustainable CSR within H&M, Shen (2014) defines corporate “Conscious Action” sustainability program, which offers more job opportunities in less developed countries, more recyclable resources in production and more ethically educated costumers. In short, H&M is an untypical example of caring CSR in fashion industry that constantly changes the context in which it operates. Nevertheless, CSR achievement is hard, because H&M constantly faces challenges on every stage of its supply chain process. Among the precise spheres of conflict, Shen (2014) mentions material production, garment manufacturing, transportation/distribution, consumer education, and retailing (p. 6237). On the main complications for H&M in maintaining CSR, Blowqvist and Posner mention customer’s trust, danger of child labour, labour ethics, and safety of materials (p. 36). In fact, all these challenges are the part of fashion industry; thus, they are identical for all the competitors in this sphere. Among these difficulties common for fashion market, Shen (2014) discusses in detail social and environmental impact within supply chain. In particular, he mentions intensive use of chemical products and large quantities of water and pesticides that affect ecological situation (Shen, 2014, p. 6236). In addition, Blomqvist and Posner (2004) argue that this fashion giant “is an example of a company which, though deeply serious about CSR in all aspects, does not flaunt it in communications” (p. 36). In other words, H&M management does not fully realize the intention to guarantee a sufficient level of CSR within the company’s structure. In other words, people do not fully believe in H&M care of CSR in its appearance as practical philosophy. Strategy Development and Recommendations On the improvement of ecological environment, it is reasonable to recommend developing online retailing as the strategy of increasing CSR within H&M. In this context, Shen (2014) mentions online stores in context of increasing sustainability, because they “save public energy and resources” (p. 6245). In addition, H&M in its Sustainability Report mentions the availability of this option for the company. In fact, it provides an example of online clothing rental model as one that “would help to optimize the use of the products while ensuring the recovery” (‘H&M Conscious Actions’, 2014, p. 82). In other words, development of online retailing will not only optimize organizational process but also fix the problem of overusing the resources that have public value and affect environment (like using paper and creating transport emissions). In context of enhancing social welfare, H&M is better to cooperate with national leaders in developing and emerging countries in order to guarantee the real operation of its CSR strategy. As it was mentioned in previous sections, creating CSR practical philosophy is the hardest task for each company. In this context, CSR weakness in the case of H&M refers the partial appearance of its strategy for public. Thus, guaranteeing the reality of H&M’s CSR claims in these national contexts is not full without cooperation with politicians in the critical countries. Finally, recruitment and employee retention improvement is possible for H&M if this company creates not only clear program of quality standards but also helps social development for its suppliers. While being a large company, H&M requires the high level of formality on each stage of its CSR application. At the same time, national context of transitional countries raises the issues of the lack of trust and overall corruption. Thus, only transparent and highly responsible program of national development created by Directors Board can attract the talented youth that has no access to education and quality medicine. In short, the future of H&M suppliers depends on the attention of this company to current children and youth in transitional countries that suffer from changing regimes. Conclusion In sum, current theoretical appearance of CSR and operation of CSR strategy within H&M requires this company to make people share its responsible vision by not only stating it but also acting in its terms on a regular basis. In the circumstances of fashion industry, it is a hard task, because such a behaviour is not common for it. Nevertheless, if H&M invests in online retailing, cooperates with national governments in developing countries, and provides children and youth development in transitional countries, these actions will facilitate the understanding and believing in its CSR guarantees in all the national contexts. References: Battaglia, M., Tesla, F., Bianchi, F., and Frey, M. (2014). Corporate Social Responsibility and Competitiveness within SMEs of the Fashion Industry: Evidence from Italy and France. Sustainability, 6 (2), pp. 872-893. Blomqvist, K. and Posner, S. (2004). Three strategies for integrating CSR with bran marketing. Market Leader, Summer, pp. 33-36. Crane, A., Matten, D., and Spence, L. (2008) Corporate Social Responsibility: Readings and Cases in Global Context. London: Routledge, pp. 3-20. Edvardsson, B. and Enquist, B. (2008) Values-based service for sustainable business: Lessons from the retailers IKEA, Starbucks, H&M and Body Shop. Retrieved from: http://www.ep.liu.se/ecp/033/018/ecp0803318.pdf [Accessed 19 June 2015]. Galbreath, J. (2009). Building corporate social responsibility into strategy. European Business Review, 21 (2), pp. 109-127. ‘H&M Conscious Actions: Sustainability Report’ (2014). H&M Sustainability. Retrieved from: http://sustainability.hm.com/content/dam/hm/about/documents/masterlanguage/CSR/reports/Conscious%20Actions%20Sustainability%20Report%202014.pdf [Accessed 20 June 2015]. ‘H&M Sustainability Menu’ (2015). H&M Sustainability. Retrieved from: http://sustainability.hm.com/en/sustainability.html#cm-menu [Accessed 21 June 2015]. Idowu, S. and Filho, W., eds. (2009). Global Practices of Corporate Social Responsibility. Berlin: Springer-Verlag. McWilliams, A. and Siegel, D. (2001). Corporate Social Responsibility: A Theory of the Firm Perspective. The Academy of Management Review, 26 (1), pp. 117-127. Rohwedder, C. (2004). Making Fashion Faster: As Knockoffs Beta Originals to Market, Designers Speed the Trip from Sketch to Store. The Wall Street Journal. Retrieved from: http://www.kellogg.northwestern.edu/course/opns430/modules/supply_chain_management/WSJFastFashion.pdf [Accessed 20 June 2015]. Shen, B. (2014). Sustainable Fashion Supply Chain: Lessons from H&M. Sustainability, 6 (9), pp. 6236-6249. ‘The Code of Conduct’ (2015). H&M. Retrieved from: http://about.hm.com/content/dam/hm/about/documents/en/CSR/codeofconduct/Code%20of%20Conduct_en.pdf [Accessed 27 June 2015]. Zollo, M. (2004) Philanthropy or CSR: a strategic choice. Business Imperative. London: European Business Forum, pp. 18-19. Read More