International Business Compatibility with Corporate Social Responsibility - Literature review Example

THE INTERESTS OF INTERNATIONAL BUSINESS ARE INCOMPATIBLE WITH CORPORATE SOCIAL RESPONSIBILITY by Student’s Name Code+ course name Professor City and State Course Date Introduction According to McWilliams and Siegel (2001, p.8), many international businesses put much efforts to achieve their business goals and at the same time maintain their corporate social responsibility. However, many researchers have argued that it is a challenging task for many international corporations to achieve most of their interests and simultaneously conform to their CSR. This is because most international business interests are focused on minimizing cost and maximizing profit. On the other hand, CSR can be described as the actions of a business that focus on the wellbeing of the stakeholders, employees, customers, and the wider society as required by law and not just the interests of the business (Egri & Ralston 2008, p. 320). From this definition, it is quite clear that there are many instances whereby, the interests of international business are incompatible with corporate social responsibility. This is because many are the times international business owners will make decisions that are profit oriented even though they might be going against their social corporate responsibility. Alternatively, other researchers have proposed that corporate social responsibility is an important tool that can enhance the image of an international business in the highly competitive markets. Due to the increasing importance of corporate social responsibility in a business, many international businesses are integrating their interests with corporate social responsibility in order to achieve their interests and at the same time maintain corporate social responsibility. In line with these arguments, this paper aims to explain how the interests of international business are incompatible with corporate social responsibility. Factors that make International Business interests Incompatible with Corporate Social Responsibility The main interest of international business is to maximize profit which is incompatible with corporate social responsibility In risk management terms, there are various reasons why businesses should enhance their corporate social responsibility. Involving in CSR activities will mitigate the risks and cost for an international business and hence enable it to realize much profit. It is argued that an international business’s stakeholders present demands that pose various potential threats to the business. Therefore, these threats can be overcome through improving social and environmental performance. According to McLaren (2004, p.193), international businesses should involve themselves in multiple CSR activities, such as equal employment opportunity and practices that are environmental friendly in order to improve the value of the shareholders by mitigating risks and costs. Despite that CSR activities, such as providing jobs to local people have been argued to help businesses reduce risks and costs, few of these businesses involve in such activities (World Economic Forum 2002, p.56). Many of the international business interests are to use cheap labour, use cheap means of production in order to maximize their profit. Therefore, instead of employing local people, they source for cheap labour from developing countries. Some researchers have also identified that other companies fail to employ people from the surrounding areas of their operations on the grounds that they have limited expertise. Since the main interest of an international business is to maximize profit, it imports personnel who they deem qualified in order to steer their organization towards achieving its interests. By failing to offer job opportunities to local people, these businesses do not adhere to their corporate social responsibilities but instead aim only at achieving their business interests. Corporate social responsibilities increase costs that hinder many international businesses from maximizing profit Research has also argued that international businesses can mitigate risks and costs through involving in CSR activities directed at enhancing community relations. Through building positive community relations, an international business stands to benefit through various ways such as reduction of taxes imposed on the business, less strict regulation imposed on the business as it perceived as an endorsed member of the society (McLaren 2004, p.193). However, many international business owners do not believe that by being socially and environmentally responsible, they stand to benefit much. Many of them believe that the consumers have limited ability to support businesses that are socially and environmentally responsible owing to their limited powers both at the local and international markets. According to them, the various CSR initiatives go unrewarded and hence they gain nothing by putting extra efforts in such initiatives. Due to this, many international businesses leave out many of the CSR activities in their priorities on the grounds that they increase costs instead of enhancing the business achieve its interests which are to maximize profit. According to Griffin and Mahon (1997, p.11), many businesses be they local, national or international aim at maximizing profits and minimizing costs. This argument originated from Milton Friedman in 1962 who pointed out that the main aim of any business is to maximize profit for its owners and shareholders. According to Friedman, business owners should not be concerned with social issues. These social issues should be solved within the activities that take place in free market system. According to this argument, if these social issues cannot be solved within a free market system, then it is not the responsibility of business owners to solve them but the government’s legislation. This is because international businesses do not equip themselves to handle social issues but ensure that their executives have enough expertise, which will enable them to maximize profit which is their main interest. In relation to this fact, many researchers have argued that businesses that put a lot of effort to maximize profit end up diluting their primary goal which is to maximize profit. Griffin and Mahon (1997, p. 36) point out that there is a misconception that all CSR activities align with businesses’ efforts to maximize profit. There are instances whereby strategies that are aimed at maximizing profits are directly opposite of corporate social responsibility. In such instances, business owners cannot act in ways that will fulfil public interests at the expense of their business and shareholders’ interests. A study carried out by Harrison and Freeman (1999, p.481), shows that many managers of international businesses perceive many social responsibilities as hindrances to maximizing profits. According to Aguilera, Rupp, Williams and Ganapathi (2007, p. 838), many international businesses hire executives who will enable them to attain maximum profits. This means that the business executive should at all time act in the best interests of the business’s owners and not for public interest in order to safeguard his or her job. The decisions as to whether the business should use some of its profits to contribute to charitable activities in order to give back to the society is not made by the business executive but the business owners. Researchers argue that it is rare for any business stakeholder to forego some business profit for charitable activities that do not benefit the organization in any way (Carroll 2004, p.115). The main duty of these business executives is to create strategies that will paint a force impression to the public that the organization is socially responsible but in real terms does nothing about it, a scheme that has come to be termed as greening. International businesses involve in various corporate social activities in order to gain societal and governmental support and not just to promote social welfare As international businesses pursue their interest through globalization, they are encountering various challenges that limit their mode of production and hence limiting their ability to maximize profits (Lantos 2001, p.598). Violating various environmental restrictions and government regulation on corporate social responsibilities may cost an international business owner million of dollars. As such, many of these businesses perceive CSR as costs that hinder them from achieving their interests. To avoid such costs, many international businesses are using CSR as an approach to achieve support for their existence in international markets. Many of these businesses involve in CSR activities in order to cover up their environmental damaging activities such as oil drilling and coal mining companies. These are the companies that will involve in various CSR activities in order to enhance their competitive advantages in the global markets by creating a good image for their organizations (Antunes & Thomas 2007, p.386). This is the case with companies such as British American Tobacco and McDonald’s which are involved in various CSR activities. Such companies are involved in CSR undertakings to distract the public attention from the various negative impacts that their core operations have on the environment and the society at large. This shows that most international businesses only involve in CSR activities in order to gain through enhancing their reputation with the public and the government and hence avoid taxes and tight regulations (Hall & Soskice 2001, p78). According to Griffin and Mahon (1997, p. 41), if international business interest were compatible with CSR, there would be no environmental problems, e.g., “air and water pollution, land degradation and malnutrition due to poverty”. These problems have been in consistence because international businesses only preach CSR activities while engaging in operations that are environmental damaging and do not aim at improving the social welfare of their employees, customers and the society at large. If these international businesses were to make their interests become compatible with CSR, they would be forced to sacrifice their profit-making operations in order to stop polluting and degrading the environment. This is impossible since the businesses have to continue operating in order to make profit. This means that the businesses continue operating at the expense of the environment and the social welfare of the society but involve themselves in various CSR activities in order to cover up for their environmental damaging operations. Many international businesses cannot sacrifice their savings for employee and societal welfare Various researchers point out that if international businesses are to conform to corporate social responsibilities, most of the times, they will end up eating into their profits and hence unable to achieve their interests. For instance, during times of economic recession, it is the social responsibility for international businesses to lower the prices of their commodities in order to make them easily accessible by their customers (Cassel 2001, p.265). However, this is not the case experienced with many international businesses during this time. Instead of lowering their prices, the businesses come up with strategies that can make them gain profits in order to compensate the increased cost of production. As such, they raise their prices and make these commodities so expensive for the common people to access them. Research also shows that some international businesses cut off their employee’s salaries or lay off some of their employees during economic recession times in order to reduce their cost of operation and hence maximize profit. This is totally against corporate social responsibility values. By cutting off employees’ salaries or getting rid of some of their employees, the business will be acting in its own interests of maximizing profit without caring about the welfare of its employees. The reduced salaries or the employees who lose their jobs at this period of time are left struggling to access the expensive goods and services of these international businesses. From the definition of corporate social responsibility, during economic recession periods, businesses should ensure that their employees are well catered for in terms of finances in order to enhance their welfare. In addition, the businesses are required to give out some of the accumulated profits to charitable activities such as feeding the hungry people. However, according to Baumgartner and Steenkamp (2001, p.147), few if any international businesses put public interest before their business interest during such times. This is because by increasing their employees’ salaries in order to enhance their welfare during economic recession periods, the business will incur more cost on top of the increased cost of production. This makes it highly difficult for them to gain their business interest which is to make as much profit as possible. International businesses only embrace corporate social trends that help them achieve their business goals. There are instances that international businesses uphold trends that are aimed at improving social welfare of the society (Crane & Matten 2004, p.76). However, the businesses do not involve in these CSR activities because they benefit the public and are environmental friendly but because the businesses stand to maximize profit through involving in such activities. For instance, in most developed nations, automotive international businesses make cars that are fuel efficient and less pollutant to the environment. However, they only started making these environmental friendly cars after their demand went up. This meant that by manufacturing such vehicles, they would sell them at a higher price to the consumers compared to the old model cars since the demand was high. This is the same case with international businesses which are food oriented. These businesses started making healthier foods not to improve social welfare but because the demand for healthier foods had gone high, and therefore by producing healthier foods, the businesses would make maximum profit. Energy consumption did not become important to international energy companies not until it became highly expensive for them to access the depleted energy sources. Therefore, in order to reduce the cost of accessing these energy sources, the businesses are left with no option but to advocate for energy conservation in order to mitigate depletion. The above examples clearly demonstrate that many times that international businesses involve in CSR activities, they do so in order to seize the opportunities to maximize profit and not because they aim to be socially responsible. International businesses operate across nations with differing corporate social responsibilities According to Aguilera and Jackson (2003, p.449), the other factor that makes the interest of international business incompatible with CSR is because they operate across nations with differing corporate social responsibilities. This makes it highly difficult for these businesses to align their interests with differing CSR of the various countries they operate in. There are instances where the interest of an international business may be advantageous to the society in one country but be disadvantageous in another nation. Take for instance an energy-oriented international business based in both developed and developing countries. By advocating for cleaner energy at an increased cost, it will be acting in the best interest of the society of the developed country because they can afford it and hence eliminate various negative impacts of cheap, environmental damaging forms of energy. On the other hand, such a CSR approach would not benefit the society in the developing nation as much since few will be able to afford the expensive clean energy. As a result, the business is forced to continue producing the other forms of cheap environmental damaging forms of energy in order to meet the customer demands and hence make profit. Christie, Kwon, Stoeberl and Baumhart (2003, p.271), point out that international businesses own various branches which are managed by managers who have varying ethical attitudes. This is another factor that hinders the compatibility of international business interests with corporate social responsibility. In some nations especially the developing ones, businesses do not adhere to all the set CSR regulation due to corruption and unequal distribution of resources. Therefore, the businesses in these nations involve in operations that are profitable without caring whether they are environmentally friendly and enhance social welfare of the society since the government regulations are impractical due to corruption. This means that managers of international businesses in such nations are tempted to put their business inertest first by maximizing profits through engaging in environmental damaging operations just like other competing companies. Conclusion The paper has critically evaluated the preposition that international business interests are irreconcilable with CSR. From its definition, CSR requires businesses to involve in activities that enable them to make profit but at the same time increase the benefits of its shareholders, improve the social welfare of the employees and the society at large and protect the environment from degradation. Therefore, international businesses activities are not only supposed to focus on maximizing profit but improving the social welfare of the society. However, various theorists have argued that the main interest of business owners be they local or international, is to minimize cost and maximize profit. Businesses whose main interest is to maximize profit can rarely involve in CSR activities. This because most CSR activities require businesses to avoid engaging in operations that are environmental damaging or those that do not promote social welfare even though they may be profitable to the business. There is enough evidence that many international businesses aim to maximize profit and hence will not forego their profitable operation for public and environmental welfare. Most of the times that the interests of international businesses seem to align with corporate social responsibility are when the businesses stand to benefit from the CSR activities. In other situations whereby the businesses stand to lose by involving in corporate social responsibility activities, they will use the tactic known as greening whereby they preach corporate social responsibility but do nothing about it. Most international businesses involve themselves in corporate social responsibilities not to promote social welfare but to benefit themselves by enhancing their corporate image to the public and the government. The primary goal of international businesses is to maximize profit and not solve social issues. Therefore, they employ executives who have the expertise to enable their businesses maximize profits and not to solve social issues and promote social welfare. These businesses only involve in some profitable corporate social activities in order to distract the public and the government from the negative impacts that their operations have on the environment and the society at large. 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