Corporate Social Responsibility (Essay Sample)

2.0 Literature Review
2.1 Mandatory disclosure and business performance
Mandatory Disclosure in business is the act of ensuring full revelation of information through enacting rules and regulation. In respect to corporate social responsibility, the question of mandatory disclosure of corporate social responsibility especially in developing countries is important to answer. According to (Schwart, 2011) corporate social responsibility is the duty an organization has to protect and ensure welfare of the society for mutual benefit. The definition above illustrates that, corporate social responsibility is done on volunteer basis since it has mutual benefit both for the organization and the society. However, when it comes to multinationals the concept of Corporate social Responsibility is in a twist since this organization is not part of the local society. This paper will answer the question whether regulations and rules are made to ensure multinationals provide full disclosure of their corporate social responsibility.
Companies that operate in different countries s face numerous challenges which include culture, economic a political in the host country. Much emphasis is placed on them to fulfill their economic obligation especially when it comes to taxes by the government due to the economic needs of the country. Most countries do not have sufficient laws and regulations relating to issues such as environment or human right. As the results of this, multinational end up operating in lawlessness where they strive to achieve profit maximization at the expense of the society (Gossling, 2011).
China is among the countries that host many multinational due to its rapid grows and the existence of cheap labor. According to (SynTao, 2013) in 2011 there were 730,000 registered multinationals in china and is number is estimated to have surpassed 1,000,000 currently.One of the multinationals in china is Apple, which in March 2012 was accused by the Chinese local media of offering sub-standard after sells service to its customer and portraying an image of arrogance. Luckily enough the companies CEO, Tom cook apologized to the customers of behalf of the company (SynTao, 2013) However many companies rarely get to apologize and correct their deed. This is evident by the rise in global warming, increased concerns of product safety and the fight for the protection of the employee right; as a result, of absence of a legal frame.
Business Performance
One of the fundamental aspects in corporate social responsibility it is the effect it has on business performance. According to (Gossling, 2011) there is a positive correlation between CSR and business performance. He states that the organizations that conduct corporate social responsibility are the more profitable than those that do the vice. This is illustrated in the figure below.
Corporate Social ResponsibilityCorporate financial performance
2.1.1 Competitiveness
Companies engaging in CSR are most likely to be more profitable than those that don’t. This is based on the fact that these companies embrace operational efficiency and, as a result, they are able to utilize their resources efficiently. This gives them operational excellence hence making them more competitive in their respective field. (Soeren, 2012) State that corporate social responsibility practices helped organization improve operational efficiency hence leading to an increase in business performance and as a result competitiveness is achieved.
Every organization strives to ensure competitiveness which is only achieved once an organization does an audit of its functions. The following step is checking on bottlenecks in the organization that hinder performance or are responsible for the high cost of operations. These bottlenecks need to be eliminated for an organization to achieve competitiveness. In addition to that it’s important to check for check on non-value adding activities like lengthy organizational bureaucracy which lower productivity. This also needs to be handled as soon as possible for an organization to outdo its competition. In addition to that, an organization can also do benchmarking with the industry leader locally or globally to check on practices that if adopted do much good to the organization. These practices need to be tailor made to fit the organizational needs and resources, and employees should be trained on them to ensure they fully understand their role (Soeren, 2012).
Companies in developing countries experience great competition that those in developed countries; as a result, of several players in the market who are extremely working hard to ensure they outdo each other and also the rising growth in those economies. As a result, many companies opt to strive to achieve profit margin and hence corporate social responsibility is not emphasized in their organizational objectives. This is based on the assumption that engaging in corporate social responsibility will reduce their margin and lower the business prospects (Schwart, 2011).
In china, it’s estimated that by 2007, almost 70% of lake and river were severely polluted. One resultant of this a multinational corporation that strives to ensure they have good profit margins at the expense of the environment (Bonarrive, 2011). It’s important to develop regulation in developing countries to ensure that all companies whether locally owned or multinational operate in socially responsible manner in order to protect the welfare of the society. In addition to this competition should also be regulated in order to ensure that all companies are treated equally by the respective authority irrespective of the benefit they provide in the society in terms of taxes to the government or employment to the local people. Competitiveness is important for any organization, but this should be achieved using ethical practices (Gossling, 2011).
The goal of each and every multinational is to establish a base in which it can expand its operations and also increase their profits margins. Even with this in mind the society is a critical component for any organization since it’s the society that purchases the products manufactured by these organizations (SynTao, 2013). It’s important to always find a balance between achieving competitiveness and engaging in corporate social responsibility. This became both of them are important for any organization, and one cannot be substituted for the other or done at the expense of the other. Both of them need to work together as they complement each other.
2.1.2 Financial Performance
Performance of a business is usually determined the operations and the strategies which it puts in place. Business performance can be categorized in many modes, finances being one of them. The financial performance of a business can be affected greatly by the corporate social responsibility (Sandra & Samuel, 1997). Corporate social responsibility has been taken as one of the competitive strategies in a market. Especially with globalization and the availability of many MNEs, for a company to survive it has to embrace CSR. CSR is among the strategies which can be used to better the financial performance of a business. Companies which undertake CSR initiatives in the community that they operate they are more likely to better their image. Image leads to increased sales which then lead to increased profits then that lead to better financial performance (Fu-Ju, Ching-Wen, & Yung-Ning, 2010).
Most of the organizations which do not do CSR, they are short-term oriented, and they have no chances of living in the long run. These companies think of how much money they lose to the community, instead of thinking of it as a strategy for goodwill and image from the community. The result for companies of this type is that their reputation is ruined, later on the cash flows that they were protecting sink and are no more (Rabia, 2013).
The multinational enterprises were coming and entering the market anyhow since China signed the WTO. The MNEs were getting into Chinas market in order to get cheap labor which is readily available (Sandra & Samuel, 1997). During the times when CSR was being introduced into China, the Chinese were not concerned with it. What mattered to the Chinese people is that they could get products and services which were rational to their incomes. That has since changed since the crisis which took place at the same country in 2008. It was a food crisis regarding dairy food. Since then, there have been regulations, policies and barriers made by the government of China to ensure that the companies regard CSR (Rabia, 2013).
The companies operating in China meet the minimum requirements of SA8000 that have been set by the MNEs in order to use the China companies to bring in CSR to full opera ionization (Sandra & Samuel, 1997). The MNEs believe that CSR can only be implemented by the China Indigenous companies, and that is the reason they give business to the indigenous which consider social responsibility. The companies too have to stick to the government sustainable development policy, if they do not wish to have their licenses’ revoked (Fu-Ju, Ching-Wen, & Yung-Ning, 2010).
The other indicator of the relationship between financial performance and CSR in China is the actions taken by Shenzhen Stock exchange. This stock exchange company gave guidelines in the year 2006 which encouraged all listed companies to report on their CSR actions when doing the other financial reporting. KPMG shows from the research which they conducted that, 60% of the MNES in Chinas had already reported on their corporate Social responsibility. The results are an indicator that the companies found a relationship between CSR they had done and financial performance in the long term (Fu-Ju, Ching-Wen, & Yung-Ning, 2010).
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