International cultural diversification and corporate social performance in multinational enterprises: the role of slack financial resources.
| Verfasser | Aguilera-Caracuel, Javier |
| Posten | RESEARCH ARTICLE |
Abstract Multinational enterprises face numerous challenges due to the difficulties of operating in various markets and the usual cultural differences between the countries. As opposed to local firms, multinational firms are usually exposed to global pressure groups both in home and host countries. In addition, in order to gain license to operate in foreign markets, they are required to be regarded as socially responsible agents that contribute to sustainable development. Finally, apart from the moral reasons, high levels of corporate social performance will lead multinational enterprises to increase their reputation and legitimacy in the areas where they have operations and consequently increase their revenues and levels of financial performance. Traditionally, the literature has focused on studying the relationship between international diversification and corporate results, with very few studies on the effects of internationalisation on firms' social performance. The aim of this study is to analyse the influence of international cultural diversification of a multinational enterprise on its corporate social performance and to investigate the moderating effect of slack financial resources on this relationship. The present empirical analysis is based on a sample of 113 multinational enterprises from the United States that operate in the chemical, energy and industrial sectors. The results demonstrate that international cultural diversification is positively correlated with the social performance of firms and that a high level of slack financial resources leads multinational enterprises operating in markets with different cultural profiles to improve their corporate social performance. The implications for academia, managers and policy makers are discussed.
Keywords Multinational enterprises * International cultural diversification * Corporate social responsibility * Corporate social performance * Slack financial resources
1 Introduction
The concepts of corporate social responsibility (CSR) (1) and corporate social performance (CSP) have been the focus of considerable attention from scholars and managers in recent years (Turker 2009). CSR has been defined as the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life (World Business Council for Sustainable Development 2004).
In contrast, CSP refers to "the measurement of the general performance of organisations in protecting an improving social well-being, compared to their main competitors, for a given period of time" (Luo and Bhattacharya 2009). CSP measures the capacity of firms to successfully implement actions that are aimed at achieving CSR (see Wood 2010). It is a concept that includes a wide range of corporate behaviour in terms of labour relations, community relations, issues related to women and minorities, environmental responsibility and product safety (Griffin and Mahon 1997; Hillman and Keim 2001). Many firms have started calculating this indicator because they consider it as important, and it will not be long before shareholders and clients will start asking organisations to demonstrate their significant achievements in this aspect in a quantified and sustainable way (Luo and Bhattacharya 2009). In this research, we pay special attention to analyse CSP in order to determine the degree of success and implementation that CSR practices have as a response to stakeholders' social demands.
Multinational enterprises (MNEs) have become important players in the field of CSR (Surroca et al. 2013). Because of the characteristics of MNEs, some authors claim that these corporations can be the engines of economic progress for both developed and developing countries (Matten and Crane 2005; Porter and Kramer 2011). These firms are considered capable of driving social, environmental and ecological changes as they conduct operations in more than one market, a situation that lets them have an impact on more than one society (Bondy et al. 2012). Likewise, considering their financial and technological endowments, they are uniquely placed to contribute to the goals of international development, thereby helping with global regulation and issues relating to social causes (Matten and Crane 2005; Scherer and Palazzo 2008). Thus, some international organisations, such as the United Nations (UN) or International Labour Organisation (ILO), hold that MNEs have a privileged position in helping improve these aspects, often in collaboration with governments and non-governmental organisations (NGOs).
Other research studies consider that the application of CSR practices can contribute to the long-term improvement of a company's financial results. This improvement in financial performance is achieved because CSR can produce a significant increase in a company's reputation, transparency and legitimacy (Bansal 2005; Hah and Freeman 2013; Smith et al. 2010). Likewise, its application differentiates a company from its competitors (McWilliams and Siegel 2001) and improves sales because of the increased loyalty of its customers (Bhattacharya and Sen 2004). Some authors find that when MNEs create internal social and environmental standards, they can transfer best practices across geographical borders, thus improving social justice and the quality of life in the countries in which they operate (Bansal and Roth 2000), above all if they develop proprietary standards that are more stringent than the established regulations in the markets in which they participate (Christmann 2004). Nevertheless, despite considering MNEs as corporations that would, given an adequate scope of their actions, satisfy the increasingly demanding expectations of society, many researchers claim that these firms frequently engage in abusive and unfair behaviour, depending on the territory. Thus, some conduct, such as externalising dirty operations, supplying labour with subsistence-level wages or applying very deficient work conditions, constitutes taking advantage of the very lax social and environmental regulations of foreign countries in which they operate (Strike et al. 2006; Surroca et al. 2013).
Despite the relevance of CSR to MNEs, research on this subject is still at a very early stage of development (Barin-Cruz and Boehe 2010; Kolk and Van Tulder 2010; Rodriguez et al. 2006; Yang and Rivers 2009), particularly for firms that operate in diverse environments and cultures (Hah and Freeman 2013). This lack of research is surprising because cultural differences are key factors that shape CSR activities (Gray et al. 2001). In this context, Hah and Freeman (2013) recently noted the need for and importance of conducting studies on the CSR activities of MNEs that operate in countries with diverse cultures.
To fill this void, we analyse how the international cultural diversification of MNEs can affect CSP. In this context, international cultural diversification refers to the diversity of the national cultures that MNEs face in the different countries in which they conduct activities (Shenkar 2001). Thus, it is not only of importance to identify the number of countries in which MNEs have operations, but it is also vital to ascertain whether these countries are culturally different. Following the seminal study by Hofstede (1980), national culture has become a critical component of international business research (Shenkar 2001). At the macro level, cultural differences between origin and destination countries are said to exist when differences in social or religious norms, languages, or ethnicities can be identified (Shenkar 2001). In this context, by applying CSR policies, MNEs are faced with a problem that is similar to the dilemma that they must resolve when conducting the majority of their operations: To balance local responsiveness with global integration (e.g., Ang and Maasingham 2007; Arthaud-Day 2005; Barin-Cruz and Boehe 2010; Bondy et al. 2012; Christmann 2004; Kakabadse et al. 2005; Mooij and Hofstede 2010; Wang and Juslin 2009). In the cases in which an MNE operates in culturally diverse markets, the company should analyse its CSR strategies and adapt those it deems necessary based on the culture of each country (Arthaud-Day 2005; Kakabadse et al. 2005; Wang and Juslin 2009); i.e. the MNE should adapt practices that account for cultural aspects when necessary for an adequate implementation and standardise other practices that the company deems fit to be globalised (Christmann 2004; Kostova et al. 2008), thereby seeking a balance between the two strategic approaches (Ang and Maasingham 2007). Furthermore, to achieve success, the MNE not only has to decide which policies to adapt and which to standardise, but the policies must also be coordinated to maintain a certain internal coherence, i.e. a set of "ethical principles" that will constitute the general CSR strategy at the global level to convey a brand image and achieve a social image at the international level.
In this study, under the stakeholders' theory (Freeman 1984; Freeman et al. 2007), we aim to demonstrate that the extension of activities to culturally distant countries is an opportunity for MNEs to address the diverse CSR demands that may exist in the different markets they operate in, thereby improving their level of social performance.
Aside from the relationship between international cultural diversification and CSP, studies suggest the existence of other factors that can promote or impede the social behaviour of firms (Rodriguez et al. 2006). Among these factors, the literature has established that slack financial resources can play an important role in improving CSP. Specifically, we analyse the role of slack financial resources held by MNEs in CSP. To do so, we consider that the existence of this type of slack is a consequence of good financial performance (Waddock and Graves 1997). This prior...
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