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Global Versus Local CSR Strategies
European Management Journal Vol. 24, Nos. 2–3, pp. 189–198, 2006 Ó 2006 Elsevier Ltd. All rights reserved. 0263-2373 $32.00
doi:10.1016/j.emj.2006.03.008
Global Versus Local CSR Strategies ALAN MULLER, University of Amsterdam Business School Perspectives differ on whether multinationals (MNEs) should develop centrally coordinated, ‘global’ corporate social responsibility (CSR) strategies, or whether they should stimulate decentralized, ‘local’ CSR strategies. A global strategy might involve an efficient transmission of (proactive) CSR practices throughout the organization worldwide, but may also lack ownership and legitimacy at the local level. While much more responsive, a local strategy could be fragmented. Moreover, when the local context is a country with lower CSR standards, there is a risk that decentralization will lead subsidiaries to target those lower standards rather than the higher standards expected in their home countries. This paper considers this issue by exploring CSR practices and subsidiary autonomy among Mexican subsidiaries of seven European MNEs in the automotive industry. We explore whether these subsidiaries adopt ‘European’ CSR practices, and whether adoption is more likely under relatively centralized or decentralized parent-subsidiary relationships. Interestingly, the results presented here suggest that in a ‘lower CSR context’ such as Mexico, decentralized decision-making may in fact be associated with higher local CSR performance. The paper also discusses the managerial, policy and research implications of these findings. Ó 2006 Elsevier Ltd. All rights reserved.
the part of firms (Christmann, 2004; Kolk and van Tulder, 2002), which entails the development of proactive CSR strategies that go above and beyond the legal framework. Proactive CSR strategies are generally considered best developed in consultation with salient stakeholders (Mitchell et al., 1997) in ‘local communities’ (Waddock and Boyle, 1995).
Keywords: CSR, MNEs, Organizational structure, Subsidiary autonomy, Mexico, Europe, Automotive industry
Thus far, it remains rather unclear what the nature of the link is between social and environmental practices at the subsidiary level and parent-subsidiary relations in the multinational context. van Tulder and Kolk have suggested that a firm’s international operations have a ‘substantial impact on the formulation and implementation of business ethical principles’ (2001: 267), but it is not yet clear how multinationality – and how it is organized – is related to the formulation and implementation of such principles. While management theory has explored organizational design in the transfer of organizational practices within MNEs (Arias and Guille´n, 1998; Kostova and Roth, 2002), research on the diffusion of CSR-related practices within MNEs has only recently begun to address organizational issues (Christmann, 2004; Watson and Weaver, 2003). Thus we do
Introduction In recent decades, public concern for international issues such as climate change, labor standards and human rights has grown enormously, while the development of national and international policy frameworks to address these issues effectively continues to lag. This increasing gap between societal demand for regulation of such issues and the ability of policymakers to supply an institutional basis for regulation has led to calls for increased self-regulation on
In the multinational environment, however, firms are faced with potentially divergent home-country, host-country and international pressures that affect their self-regulation strategies. As a result, there exist competing views on how self-regulation should be organized in the face of such divergent pressures. Perspectives differ on whether multinationals (MNEs) should develop centrally coordinated, integrated CSR strategies, or whether they should stimulate decentralized CSR strategies that develop locally in consultation with respective host-country stakeholder groups. While centralization can be more efficient, it can lead to a lack of ownership and reduced legitimacy at the local level. At the same time decentralized strategies, while locally responsive, may also be fragmented and ad hoc. In addition, when the local context is a developing country with lower CSR standards and less public pressure, there are fears that MNEs target the lower rather than the higher standards that may be expected from them in their home countries.
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not know much about the role of a firm’s international organization on the CSR practices of its subsidiaries located in countries where CSR is less developed than in the firm’s home country. This paper considers this issue by presenting results of a pilot study on the implementation of CSR strategies and subsidiary autonomy among Mexican subsidiaries of seven major European MNEs in the automotive industry. The objective is to see whether subsidiaries in Mexico, considered a less CSRoriented business context than Europe, adopt ‘European’ performance levels on such issues, and whether adoption is more likely under relatively centralized or decentralized decision-making at the MNE level. Before analyzing the empirical evidence, however, first the theoretical backgrounds and the context of the study will be discussed.
MNEs and Local Versus Global CSR Strategies When exploring the CSR practices of MNE subsidiaries in host countries, the question arises whether subsidiaries tend to adopt CSR practices of the home country of their parent firm (embedded in a ‘global’ corporate CSR strategy), or tailor their CSR responsiveness to the host-country context in which they are located (‘local’ CSR strategy). If companies follow such a global CSR strategy and are able to effectively transmit these practices to their foreign subsidiaries, MNEs have the potential to function as mechanisms for ‘upward harmonization’ of CSR standards internationally (cf. Tsai and Child, 1997; OECD, 1999). If, on the other hand, companies value endogenous CSR development at the subsidiary level through dialogue with local stakeholders and responsiveness to local institutions, the potential exists for a truly ‘responsive’ CSR strategy, yet one that could also be classified as ‘reactive’ and potentially aimed at the minimum level required by law (cf. Meyer, 2004; OECD, 1999). The risk of such a local strategy is that MNEs might, in case of multiple local strategies, be subject to internal tensions and criticized for a lack of consistency. Moreover, it increases the complexities of managing this whole set of divergent approaches from the range of subsidiaries, which even in mainstream business and operations is an issue that requires a considerable degree of coordination and control (Cray, 1984; Martinez and Jarillo, 1991; Porter, 1986). Issues of local responsiveness versus global integration and the accompanying organizational processes and structures (decentralized versus centralized) have received considerable attention in the international management literature (Bartlett and Ghoshal 1989; Prahalad and Doz, 1987). This is, however, not the case in relation to CSR, despite growing recognition that CSR is gaining importance as a dimension 190
of strategic decision-making (Paton and Siegel, 2005). Traditionally the broader CSR debate has been conducted within the frame of stakeholder theory, which positions CSR strategies in iterative dialogue with a firm’s stakeholders (Burke and Logsdon, 1996; Waddock and Boyle 1995). Developing a mutually beneficial relationship with stakeholders at the local level seems to require local engagement, which means that CSR should be contextual and locally responsive. For MNEs, such an argument would suggest that the most effective CSR practices are likely to emerge in decentralized organizations, where subsidiaries in host countries are characterized by a considerable degree of autonomy and develop CSR strategies that are responsive to the local context. At the same time, increasing internationalization means that firms are faced with a wider range of potentially conflicting stakeholders and are thus subject to divergent pressures across home- and host countries, especially when development levels differ (Van Tulder and Kolk, 2001). This greatly increases complexities for MNEs, also because one and the same stakeholder category can be very different from one country to another. This means that a truly locally responsive CSR approach based on extensive subsidiary autonomy in host countries entails a considerable number of risks. The company’s CSR strategy may be fragmented and inconsistent, leading to tensions within the organization, a lack of clear responsibility and to approaches that only live up to minimum hostcountry requirement levels (Christmann, 2004). The result may be pure compliance-based strategies that are tailored to ‘end-of-pipe’ controls instead of truly proactive ‘eco-efficiency’ (Foster Knight 1995). Consequently there has been a shift towards an ‘integrated’ perspective, particularly in the literature on environmental management, by which a firm characterized by a high degree of headquarter control over its foreign subsidiaries would have more ease in disseminating strategy to those subsidiaries (Christmann, 2004). Since corporate strategy is very much defined by the home-country context (Levy and Kolk, 2002; Murtha and Lenway, 1994), this implies that for example the diffusion of ‘European’ CSR practices through MNEs would be more likely if MNEs were relatively centralized. Some have extended this centralized approach to include internal integration between departments in the firm. Hoffman (2000), for example, mentions that lack of integration between departments can be a major obstacle to effective management of corporate environmental issues, which he attributes in part to communication failure between environmental managers and general ‘business’ managers. The implication is that environmental managers, lacking the backing of a clear corporate vision and mandate, will be faced with higher agency costs in embedding CSR practices at the subsidiary level amidst the complexity of an international operating environment (Watson and Weaver, 2003).
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Thus far, however, there is not much clear evidence, even in the case of more mainstream organizational issues. Watson and Weaver (2003) were unable to support their contention that the agency costs associated with (international) environmental complexity were linked to more formalized structures for managing business ethics. Kostova and Roth (2002), who hypothesized that a subsidiary’s dependence on headquarters would be positively related to the implementation of corporate-level organizational practices more generally, found a negative relationship in their study of quality control systems. On the other hand, Christmann (2004) found strong evidence that MNE subsidiary dependence on the rest of the company for resources was positively related to the MNE’s global standardization of environmental policies. Firms with a relatively centralized organization, she argued, are more likely to engage in self-regulation through corporate-wide environmental policy standardization and thus have the potential to exceed local government regulation in countries with a lower level of environmental regulation. Yet, contrary to expectations, Christmann (2004) found that a globally standardized environmental policy was not linked to a significantly higher minimum level of environmental standards. In the remainder of this paper, we aim to shed more light on these issues by exploring CSR strategies of Mexican subsidiaries of European MNEs in relation to the degree of headquarter control. We will investigate to what extent pro(active) subsidiaries are characterized by tight control (a centralized MNE strategy) or whether the picture is different.
An Exploratory Study: Mexican Subsidiaries of European Automotive MNEs The Mexican subsidiaries that have been investigated fall under seven of Europe’s largest MNEs in the Table 1
automotive industry broadly defined: DaimlerChrysler, Volkswagen, Renault, Volvo, Fiat, Continental and Scania (see Table 1). Although the sample is small, it represents the majority of European MNEs in the industry, with a combined total of more than 21,000 employees (over two percent of total employees and nearly four percent of foreign employees 1). Moreover, with the exception of DaimlerChrysler, most MNEs have only one or two subsidiaries in Mexico. Hence we feel this small sample adequately covers their Mexican operations. The main empirical input for this paper is drawn from in-depth, on-site interviews with (senior) management, conducted in November and December of 2004. The automobile industry is relevant in this context for a number of reasons. First, the sector is characterized by a relatively high degree of technology intensity, allowing for the possibility of real knowledge and skills transfer (Levy and Rothenburg, 2002). Second, it is directly linked to both global warming and the relocation debate (Levy and Rothenburg, 2002), meaning that external pressures for social and environmental policies are real and tangible. Third, the automotive industry is vertically integrated and thus subjected more to integration pressures than local responsiveness, which creates potential for economies of scale in CSR policies and implementation (Christmann, 2000). Fourth, MNEs in the automotive industry are important investors in Mexico and crucial to the Mexican economy. Thus it can be expected that local stakeholders will be relatively focused on foreign investors in the sector. Finally, the industry is highly internationalized, and recent literature suggests that firm-level internationalization is linked to greater management attention for ethical issues (Watson and Weaver, 2003). Exploring European MNEs in Mexico is also relevant in the context of the so-called Global Agreement (GA) signed by the European Union and Mexico in December 1997. Although the GA’s emphasis is primarily on free trade and investment (Zabludovsky 2001), it also encompasses a Cooperation section
An Overview of the Investigated Subsidiaries
Subsidiary
Parent company
# of other subsidiaries in Mexico
In operation since:
Product
Turnover (2003) $US
Mercedes-Benz de Me´xico S.A. de C.V. Volkswagen de Me´xico S.A. de C.V. Renault Me´xico S.A. de C.V. Volvo Bus de Me´xico Continental Tire de Me´xico S.A. de C.V. Magnetti Marelli Me´xico S.A. de C.V. Scania Me´xico
DaimlerChrysler
17
1989
Trucks and buses
NA
Volkswagen
1
1967
$6 billion
Renault
0
1982
Passenger cars and engines Passenger cars
$50 million
2,097
Volvo AB Continental AG
1 0
1998 1973
Buses Tires
$43 million $170 million
1,908 1,400
Fiat
1
1996
Automotive lighting
NA
350
Scania AB
0
1994
Trucks and buses
$30 million
173
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Employees (2004)
957 14,685
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which, among others, consists of 29 articles aimed at encouraging cooperation between Mexico and the EU in areas such as training and education, social affairs and poverty, human rights and democracy, and health (Art. 13-44, Global Agreement, 2000). These areas of cooperation are aimed at ‘upward harmonization’ (Foster Knight, 1995); i.e., raising the level of environmental and social awareness and practice in Mexico by stimulating the exchange of ideas and practice in these areas. The policy effect should be understood to ‘flow’ from the partner where social and environmental practices are the most far-reaching (EU) to the partner where such practices are less the norm (Mexico). The GA is not aimed at companies and is non-binding. However, its very existence underlines not only the divergence between homeand host-country CSR contexts for MNEs, but also an absence of regulation in which MNEs have considerable room for maneuver and adopting (proactive) CSR strategies, either local or global in nature.
Mexican Subsidiaries ‘Benchmarked’ Against European CSR Practices Our first objective is to evaluate the CSR performance of the Mexican subsidiaries relative to ‘European’ levels in terms of seven issues addressed extracted from the Cooperation section of the GA. Since the Cooperation section does not specify any performance levels, we turned to alternative sources to develop to develop a benchmark. For the first four CSR-related issues we identified in the Cooperation section of the GA (development of renewable energy sources; recycling; environmental training and education; conservation and sustainable resource management), European Community (EC) documents on EU environmental programs and targets provided input. For instance, the Sixth Community Environmental Action Program (6CEAP) of the European Commission advocates that at least 12 percent of all energy consumption in the EU should come from renewable energy sources by 2010 (EC, 1997). However, by 2000 only 5.6 percent of total energy consumption in the EU was from renewable sources, up from just 5.3 percent in 1995 (EurObserver, 2002). Similarly, a background study on waste and recycling policy distributed by the EC gives an indication of a recycling baseline for the second issue (EPEC, 2004). Although no clear data is available on the level of recycling in the European automotive industry, note is made of the fact that approximately six percent of automotive plastics were recycled in 2002 (EPEC, 2004), with higher figures being linked to substantial and prohibitive cost increases. On the third issue (heightened awareness of energy consumption), the EU has various programs in place such as SAVE and SYNERGY (EC, 1998) which are designed to enhance energy conservation awareness. At the firm level, the question is 192
thus whether the subsidiary has institutionalized practices or on the job training programs to enhance employee awareness of energy conservation. The fourth issue on natural resource conservation is considered in the European context primarily in terms of the ‘Ecological Footprint’ concept, in which CO2 reduction is considered to be the most important factor (EC, 2001). The question for firms then is whether they have special CO2 reduction measures in place or whether they plan to do so before 2008, when the first quota under the Kyoto Protocol are to be met. The fifth, sixth and seventh CSR-related issues drawn from the GA address questions equal employment opportunities, employee training and employee organization 2. The Community Framework on Gender Equality (EC, 2000) stresses strategies for increasing female employment participation, and notes that about 40 percent of white-collar employment in the EU was female in 2000. We adopted this figure as a baseline for the fifth issue. For the sixth issue (employee training), the EC (2004) notes that the average company expenditure on vocational training in the EU in 1999 was 2.3 percent of total labor cost. This figure formed the baseline for issue six. Finally, the Federation of European Employers (FEDEE, 2004) notes that trade union membership in the EU in 2004 was just over 26 percent. If we apply these criteria to the CSR practices of European auto subsidiaries in Mexico, we find the following results relative to the ‘baseline’ of the European setting (see Table 2). On the issue of renewable energy, the subsidiaries that use renewable energy are Volvo, Volkswagen and DaimlerChrysler. While Volvo sources about five percent of its energy from a nearby hydroelectric plant, Volkswagen and Daimler Chrysler derive a smaller percentage from solar panels (three and two percent, respectively), which according to Volkswagen is more about ‘making a statement than about saving energy costs’ 3. Scania, Fiat (Magnetti) and Renault had no renewable sources and none planned, while Continental had plans for solar energy in the future. A similar pattern emerges in the use of recycling, with Volvo taking the lead (ten percent of waste recycled) together with Scania and DaimlerChrysler and Volkswagen at five percent). Notable is Volvo’s reference to a ‘global standard’ for recycling 4. Renault reported initiating a recycling program in 2004, but as yet no data was available, and Continental and Fiat had minimal recycling programs. On the issue of employee awareness of environmental conservation, four subsidiaries responded positively (DaimlerChrysler, Volkswagen, Volvo and Scania) and three negatively (Renault, Continental and Fiat). Scania, for example, gives presentations and training on energy and water consumption every two months. At Fiat, there is a training program, but it is not aimed at environmental awareness. However, they have plans to develop such a program in the future in connection with ISO
European Management Journal Vol. 24, Nos. 2–3, pp. 189–198, April–June 2006
European Management Journal Vol. 24, Nos. 2–3, pp. 189–198, April–June 2006
Table 2
Performance on CSR-related Issues in the Cooperation Section of the Global Agreement Renewable energy use
Recycling
Environmental awareness promotion
CO2 emissions reduction
White-collar women
Vocational training
Trade union membership
EU Baseline
6% of total energy use
6% of waste
On-the job training
Institutionalized measures pre 2008
40%
2.5% of labor costs
26%
5% waste reduction since 2002 5% of waste
Ca. 50%
13% (supporting)
Initiated 2004; no data
In-house mgmt training inst. By Nissan; no data
100% (automatic)
None and no plans
Ca. 60%
Volvo
Ca. 5% (hydroelectric)
24% (mostly supporting)
In-house obligatory
100% (automatic)
Continental
None, but solar panels planned None and none planned None
‘Global standard’, 10% reduction since 2001 Limited
Measures in line with Mexican gov’t regulations In line with Mexican law and ‘global demand’ According to Mexican regulations 15% reduction by 2007
Ca. 5% of labor costs
Renault
Training to implement recycling on work floor On-job training of good waste mgmt. No special training
21% (supporting)
Volkswagen
2% of total since 2002 (solar) 3% of total (solar)
None
None; ISO 14001 planned
6%
Limited
100%
None; planned as per ISO 14001 Ca. 10% of waste
None but ISO 14001 compliant planned Bi-monthly
Considered ‘not applicable’
21% (supporting)
Est. 25%
In line with Mexican gov’t regulations
20%
Available but not encouraged Reviewed monthly
Subsidiary Mercedes
Magnetti Scania
Targets revised and training given annually
14% (supporting)
100%; monthly meeting w mgmt.
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Issue:
GLOBAL VERSUS LOCAL CSR STRATEGIES
14001 accreditation. Finally, vocational training for employees emerged as a differentiating factor, with all firms providing some training but the relative investment made differing across firms. DaimlerChrysler and Volkswagen both reported around five percent of their expenditures being related to vocational training, followed by Scania and Volvo at around three percent and Continental at two percent.
Renault and Continental reported either no training or an absence of an institutionalized culture of training (i.e., a lack of availability).
Much less variation was evident in the percentage of women in white collar functions and in trade union membership. The percentage of women in white-collar functions was relatively low in all subsidiaries, and substantial differences among the seven subsidiaries are not evident. Moreover, female employment in white-collar functions referred almost exclusively to secretarial and receptionist functions. Most interviewees reported that the situation has ‘simply developed that way’ 5, and that ‘it is hard to find qualified women for management functions’ 6 or ‘in Mexico women traditionally take care of the household’ 7. A second observation is that trade union membership was considerably higher in all locations but one (Fiat) compared to the EU average. Both these observations highlight the continued relevance of institutional factors such as the unavailability of female managers (noted by both Renault and Volvo) and the corporatist bargaining environment in Mexico, characterized by strong labor union participation. Additionally, the prevailing response on CO2 reduction reflected straightforward compliance with Mexican law; only Volvo placed that issue in the ‘global’ context and planned ambitious reductions over the coming years. This issue, however, was clouded by alternate references to emissions standards of the vehicles produced, and the CO2 emissions of the factories themselves.
The evidence on CSR activities within the seven subsidiaries investigated suggests that three firms in particular stand out as more proactive on CSR issues (DaimlerChrysler, Volkswagen, and Volvo), with Scania slightly behind, while three firms appear to show the least proactivity across the board (Fiat, Renault and Continental). The question now is whether these subsidiaries differ at all in terms of their perceived levels of autonomy. Table 3 details the classification of the seven subsidiaries according to subsidiary managers’ perceptions of their own autonomy. Interviewees were asked at the beginning of the interview to describe parent-subsidiary relations as characterized either by relative autonomy or relative control, and then based on what arguments. This question was asked at the beginning to reduce the risk of self-serving attributional bias. 8 Three subsidiaries described themselves as ‘controlled’ by headquarters (Renault, Continental and Magnetti Marelli), and four described themselves as ‘autonomous’ (Mercedes, Volkswagen, Volvo and Scania). In some cases parent-subsidiary relations were qualified in terms of the freedom to make investment decisions, and in other cases in terms of reporting frequency. Although home country characteristics were present (e.g. Renault referring to the Nissan legacy and control as a matter of Japanese custom), the split in the sample does not strictly follow home country divisions. The three German subsidiaries, for instance, characterized their relationships very differently, with the Mercedes and Volkswagen subsidiaries describing themselves as ‘substantially’ or ‘largely’ autonomous, and the Continental subsidiary describing itself as very closely monitored.
The nature of the issues investigated explains at least in part the ability of some issues to discriminate among subsidiaries and the inability of others. In the case of female employment, union membership and CO2 emissions, the lack of variation among the subsidiaries seems related to contingencies external to the firm. The remaining four issues (renewable energy use, recycling, environmental awareness training and vocational training) were primarily companyinternal, and thus less contingent upon external pressures. Table 2 shows how Mercedes, Volkswagen and Volvo all actively engage renewable energy sources, ranging from two to five percent of total energy consumption. This poses a stark contrast to the remaining four subsidiaries, none of which drew on any renewable sources in 2004. The same three subsidiaries were most progressive in their recycling activities, and were in fact surpassed by the Scania subsidiary, which recycles approximately ten percent of its waste. These four companies were also the ones that reported institutionalized environmental awareness promotion programs and the availability of (in some cases required) vocational training. In contrast, Magnetti, 194
Subsidiary Assessments of the Level of Centralized Control
As a check we also asked whether the interviewees were familiar with the Cooperation section of the GA. We assumed that, if control was related to centralized and home-country based CSR strategies, controlled subsidiaries would be more familiar with the Cooperation section, given its home-country (i.e., ‘European’) flavor. On that basis the Cooperation section could potentially form (part of) the foundations of a globally integrated, centralized CSR strategy. However, this turned out not to be the case. Although all were aware of the free trade aspects of the GA, none of the seven managers interviewed had any knowledge of the Cooperation section, even though Volkswagen reported having been closely involved in the trade negotiations. In some cases the lack of familiarity was ‘excused’ on account of
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Table 3
Subsidiary Perceptions of Autonomy
Subsidiary
Interviewee
Decision-making
Evidence
Knowledge of Cooperation section / Free Trade Agreement (FTA)
Mercedes-Benz
PR manager
Autonomous
No; familiar with FTA
Volkswagen
HRM manager
Autonomous
Renault
Marketing director
Controlled
Volvo
PR manager
Autonomous
Continental
Plant manager
Controlled
Magnetti Marelli
PR manager
Controlled
Scania
PR manager
Autonomous
Granted ‘substantial autonomy’ in business operations; reports financials on a quarterly basis ‘Largely autonomous’; only for investment decisions > $US 1 million does parent decide Legacy as Nissan factory means parent firm influence is ‘substantial according to Japanese customs’ Parent firm lacks knowledge of Mexican market. For ‘large’ investment decisions Volvo North America is consulted CEO visits ‘regularly’; must consult parent for ‘every strategic decision’ ‘Strictly monitored’; reports monthly and must ask permission for investment decisions of any ‘reasonable’ amount As a small plant, parent firm is ‘not extensively involved in daily operations’. Permission required for investments over $100,000
having a purely Mexican- or North American focus and therefore concluding that such an international agreement would be ‘irrelevant’.
None; familiar with FTA
None; familiar with FTA but produce solely for North America None; familiar with FTA but source and produce for Mexico only None; ‘irrelevant’ due to North American focus
None; familiar with FTA but Brazilian parts are cheaper
(Renault, Magnetti and Continental) clearly emerge as the least proactive in terms of CSR. More importantly, their assumed receptiveness to company-wide standards does not appear linked to CSR performance levels that exceed those of the local Mexican context; in fact the contrary appears to be the case.
Renault Magnetti
Parent-subsidiary relationship
Control
In sum, the three subsidiaries that described themselves as tightly controlled by the parent company
Little to none; extensive knowledge of FTA
Continental
Scania
Volvo Autonomy
Mercedes Volkswagen
Low
High
CSR performance Figure 1 Indicative Positioning of Overall CSR Performance and Level of Control
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At the other end of the spectrum are three subsidiaries that described themselves as autonomous: Volvo, Mercedes and Volkswagen. Even accounting for external institutional factors, these three subsidiaries have overall performance levels more or less on par with the ambitions of the European Commission. An indicative positioning is given in Figure 1. Scania is positioned closer to the middle as its CSR performance lags slightly behind Volvo, Mercedes and Volkswagen (no renewables), and although classified as ‘autonomous’ the interviewee stated that permission was required for investments in excess of $100,000. That figure is relatively small compared to its annual turnover of $30 million.
Discussion and Conclusions In this paper we have reviewed the literature on the role of organizational structure in the diffusion of CSR strategies within MNEs. In general two positions have been taken in the literature. Some argue for local engagement in host countries as the optimal form of proactive CSR, while others argue that the global nature of many social and environmental issues necessitates globally integrated strategies. In the case of the former, host-country stakeholders form the source of company CSR strategies, while in the case of the latter, home-country or international CSR practices form the basis of company-wide CSR strategies that are diffused through a centralized coordination mechanism to subsidiaries in foreign countries. The results of exploratory research described here, although preliminary, suggest that the relationship between self-regulation, parent-subsidiary relations and CSR practices requires rethinking. In this case, subsidiaries that perceive themselves to be autonomous in their overall activities tend to be more proactively engaged in CSR. Paradoxically, proactive CSR strategies among autonomous subsidiaries appear to be predominantly in accordance with home-country and international policies, despite their non-binding character, instead of tailored to the host-country context. The main driver behind autonomous subsidiaries’ proactive stance does not appear to be responsiveness to the local context, but rather that subsidiaries draw from the parent company’s overall CSR vision. This also suggests that subsidiary autonomy does not necessarily imply conflicting agendas with respect to headquarters, particularly where ideals are concerned. Rather, firms may use a ‘soft hand’ approach that induces subsidiaries to adopt practices which they might resist under duress. One argument in this vein is that autonomous subsidiary practices can still be linked to the corporate vision if those subsidiaries are integrated using informal control mechanisms (Watson and Weaver, 2003) such as selection or socialization as a substitute for 196
direct (hierarchical) control (Hennart, 2005). Socialization and selection are relevant control strategies in activities where 1) local managers have an information advantage with respect to management in headquarters and 2) output is hard to measure. These criteria may make selection/socialization more applicable to social and environmental issues than to operational business since Hennart (2005) notes that direct (hierarchical) control is linked to activities (such as assembly line production) where corporate management is well aware of the function and relevant performance measures (output, profits etc.). We may inadvertently have found evidence of socialization in our interviews. Subsidiaries in this study with the best CSR performance across the board are also the ones with environmental and vocational training programs. Although these programs were initially considered as part of CSR performance, they may in fact be the socialization vehicle for CSR diffusion to autonomous subsidiaries. The selection/socialization argument still relies heavily on the role of headquarters and economic cost/benefit considerations. Yet it may be managers perceive CSR as fundamentally distinct from other business activities, and thus that their motivations to engage in CSR may be different from those related to strategy in general. This can have implications for recent attempts to make CSR more ‘mainstream’ that have centered on the ‘business case’ for CSR (Rosen et al., 2003) or CSR as an issue of ‘supply’ in response to societal ‘demand’ (McWilliams and Siegel, 2000). CSR issues may still be sufficiently insulated from direct market signals such as the price mechanism (except in specific cases like Shell and the Brent Spar) that it is not always evident to managers how acting on such issues translates into tangible additional economic advantage (Paton and Siegel, 2005). If managers have non-business related motives for engaging in CSR, this can be linked to Christmann’s (2004) concluding observation that ‘strategic reasons exist for subsidiaries to exceed local government regulations’ (p. 757) even if MNE management does not intrinsically value responsible environmental conduct. While such reasons could simply be a matter of pay or other incentive structures (Russo and Harrison, 2005), there is also evidence that some managers are internally driven to behave ethically (Weaver et al., 1999). Additionally, there is likely a dynamic component to the equation. Present parent-subsidiary relations can be a result of past subsidiary performance. Previous control strategies may have ‘migrated’ towards increased decentralization once subsidiaries earned that right through continued strong (CSR) performance. Birkinshaw and Hood (1998) note in this respect that changes to subsidiary mandates over time can go in both directions. While the preceding arguments may generate insights into the relationship between subsidiary autonomy and diffusion of CSR practices, they still
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do not explain why centralization is not an effective mechanism. Given the hierarchical control setting, it is not surprising that controlled subsidiaries are less likely to take their own CSR initiatives or adopt international non-binding policies voluntarily. At the same time, they are apparently also not subjected to strict mandates in terms of CSR performance. It is still possible that, despite our efforts, some self-serving attributional bias is reflected in these cases, meaning that subsidiary managers that perform poorly may try to ‘blame’ headquarters for that poor performance along the lines of ‘just following orders’. For this to be the case, however, the managers interviewed would need to be very calculating and fully aware of the implications of their answers on the spot. Amidst the hectic day-to-day operational concerns, we consider this unlikely. If indirect mechanisms exist that allow or entice subsidiary managers to adopt corporate level vision and strategy, then there clearly is a place for integrated corporate-level CSR strategies. In practical terms, however, this means that CSR strategies have to be devised and deployed at two levels: integrated at the corporate level and socialized among autonomous managers at the subsidiary level. In an ambidextrous organization of this nature ‘tight and loose coupling’ can exist simultaneously (Russo and Harrison, 2005; cf. also Watson and Weaver, 2003), allowing flexibility within the framework of overall corporate CSR. At both levels, the commitment of top management is essential (Weaver et al., 1999). For policymakers, MNEs of this type can provide an effective diffusion mechanism for international ‘upward harmonization’ of CSR practices. This paper was a pilot study and thus was not meant to be a systematic and comprehensive analysis of the determinants of CSR diffusion and performance in MNEs. Many issues have not been addressed here, and need further attention in follow-up studies. This includes the crucial impact of the institutional context. Although the MNEs included were all European, they covered different countries of origin with to some extent different CSR traditions. Moreover, the subsidiaries in the sample demonstrated considerable variety in the specific products they produce, ranging from automotive lighting and tires to passenger cars, trucks and buses. They also showed considerable disparity in the length of their presence in Mexico (see Table 1). It may be that such firm-specific aspects also are important determinants for the relationships that we explored in this paper. Issues of this nature will be important to address in follow-up research.
Acknowledgement
field, and thanks Ans Kolk for her invaluable comments on earlier versions of the paper.
Notes 1. Percentages of foreign employment excluding Fiat (no data available) and Nissan (Renault only). 2. Although Article 39 in the Cooperation section refers more generally to democratic principles, we translated that to trade union involvement to translate the democratic process to the firm context. 3. Interview with H. Kalisch (Volkswagen), November 16, 2004. 4. Interview with M. Ripa,(Volvo), December 10, 2004. 5. Interview with J. Perez (DaimlerChrysler), November 5, 2004. 6. Interview with C. Porres (Scania), November 19, 2004. 7. Interview with N. Fantin (Fiat), December 3, 2004. 8. Self-serving attributional bias refers to the tendency to attribute negative performance to external causes (circumstances beyond the actor’s control) and positive performance to internal causes (the actor’s own actions).
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ALAN MULLER, University of Amsterdam Business School, Department of Business Studies, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands. E-mail: [email protected] Alan Muller is Assistant Professor in Management at the University of Amsterdam Business School. His research centers on the role of firms in society, encompassing issues of international strategy, globalization processes, institutions and corporate social responsibility.
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doi:10.1016/j.emj.2006.03.008
Global Versus Local CSR Strategies ALAN MULLER, University of Amsterdam Business School Perspectives differ on whether multinationals (MNEs) should develop centrally coordinated, ‘global’ corporate social responsibility (CSR) strategies, or whether they should stimulate decentralized, ‘local’ CSR strategies. A global strategy might involve an efficient transmission of (proactive) CSR practices throughout the organization worldwide, but may also lack ownership and legitimacy at the local level. While much more responsive, a local strategy could be fragmented. Moreover, when the local context is a country with lower CSR standards, there is a risk that decentralization will lead subsidiaries to target those lower standards rather than the higher standards expected in their home countries. This paper considers this issue by exploring CSR practices and subsidiary autonomy among Mexican subsidiaries of seven European MNEs in the automotive industry. We explore whether these subsidiaries adopt ‘European’ CSR practices, and whether adoption is more likely under relatively centralized or decentralized parent-subsidiary relationships. Interestingly, the results presented here suggest that in a ‘lower CSR context’ such as Mexico, decentralized decision-making may in fact be associated with higher local CSR performance. The paper also discusses the managerial, policy and research implications of these findings. Ó 2006 Elsevier Ltd. All rights reserved.
the part of firms (Christmann, 2004; Kolk and van Tulder, 2002), which entails the development of proactive CSR strategies that go above and beyond the legal framework. Proactive CSR strategies are generally considered best developed in consultation with salient stakeholders (Mitchell et al., 1997) in ‘local communities’ (Waddock and Boyle, 1995).
Keywords: CSR, MNEs, Organizational structure, Subsidiary autonomy, Mexico, Europe, Automotive industry
Thus far, it remains rather unclear what the nature of the link is between social and environmental practices at the subsidiary level and parent-subsidiary relations in the multinational context. van Tulder and Kolk have suggested that a firm’s international operations have a ‘substantial impact on the formulation and implementation of business ethical principles’ (2001: 267), but it is not yet clear how multinationality – and how it is organized – is related to the formulation and implementation of such principles. While management theory has explored organizational design in the transfer of organizational practices within MNEs (Arias and Guille´n, 1998; Kostova and Roth, 2002), research on the diffusion of CSR-related practices within MNEs has only recently begun to address organizational issues (Christmann, 2004; Watson and Weaver, 2003). Thus we do
Introduction In recent decades, public concern for international issues such as climate change, labor standards and human rights has grown enormously, while the development of national and international policy frameworks to address these issues effectively continues to lag. This increasing gap between societal demand for regulation of such issues and the ability of policymakers to supply an institutional basis for regulation has led to calls for increased self-regulation on
In the multinational environment, however, firms are faced with potentially divergent home-country, host-country and international pressures that affect their self-regulation strategies. As a result, there exist competing views on how self-regulation should be organized in the face of such divergent pressures. Perspectives differ on whether multinationals (MNEs) should develop centrally coordinated, integrated CSR strategies, or whether they should stimulate decentralized CSR strategies that develop locally in consultation with respective host-country stakeholder groups. While centralization can be more efficient, it can lead to a lack of ownership and reduced legitimacy at the local level. At the same time decentralized strategies, while locally responsive, may also be fragmented and ad hoc. In addition, when the local context is a developing country with lower CSR standards and less public pressure, there are fears that MNEs target the lower rather than the higher standards that may be expected from them in their home countries.
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not know much about the role of a firm’s international organization on the CSR practices of its subsidiaries located in countries where CSR is less developed than in the firm’s home country. This paper considers this issue by presenting results of a pilot study on the implementation of CSR strategies and subsidiary autonomy among Mexican subsidiaries of seven major European MNEs in the automotive industry. The objective is to see whether subsidiaries in Mexico, considered a less CSRoriented business context than Europe, adopt ‘European’ performance levels on such issues, and whether adoption is more likely under relatively centralized or decentralized decision-making at the MNE level. Before analyzing the empirical evidence, however, first the theoretical backgrounds and the context of the study will be discussed.
MNEs and Local Versus Global CSR Strategies When exploring the CSR practices of MNE subsidiaries in host countries, the question arises whether subsidiaries tend to adopt CSR practices of the home country of their parent firm (embedded in a ‘global’ corporate CSR strategy), or tailor their CSR responsiveness to the host-country context in which they are located (‘local’ CSR strategy). If companies follow such a global CSR strategy and are able to effectively transmit these practices to their foreign subsidiaries, MNEs have the potential to function as mechanisms for ‘upward harmonization’ of CSR standards internationally (cf. Tsai and Child, 1997; OECD, 1999). If, on the other hand, companies value endogenous CSR development at the subsidiary level through dialogue with local stakeholders and responsiveness to local institutions, the potential exists for a truly ‘responsive’ CSR strategy, yet one that could also be classified as ‘reactive’ and potentially aimed at the minimum level required by law (cf. Meyer, 2004; OECD, 1999). The risk of such a local strategy is that MNEs might, in case of multiple local strategies, be subject to internal tensions and criticized for a lack of consistency. Moreover, it increases the complexities of managing this whole set of divergent approaches from the range of subsidiaries, which even in mainstream business and operations is an issue that requires a considerable degree of coordination and control (Cray, 1984; Martinez and Jarillo, 1991; Porter, 1986). Issues of local responsiveness versus global integration and the accompanying organizational processes and structures (decentralized versus centralized) have received considerable attention in the international management literature (Bartlett and Ghoshal 1989; Prahalad and Doz, 1987). This is, however, not the case in relation to CSR, despite growing recognition that CSR is gaining importance as a dimension 190
of strategic decision-making (Paton and Siegel, 2005). Traditionally the broader CSR debate has been conducted within the frame of stakeholder theory, which positions CSR strategies in iterative dialogue with a firm’s stakeholders (Burke and Logsdon, 1996; Waddock and Boyle 1995). Developing a mutually beneficial relationship with stakeholders at the local level seems to require local engagement, which means that CSR should be contextual and locally responsive. For MNEs, such an argument would suggest that the most effective CSR practices are likely to emerge in decentralized organizations, where subsidiaries in host countries are characterized by a considerable degree of autonomy and develop CSR strategies that are responsive to the local context. At the same time, increasing internationalization means that firms are faced with a wider range of potentially conflicting stakeholders and are thus subject to divergent pressures across home- and host countries, especially when development levels differ (Van Tulder and Kolk, 2001). This greatly increases complexities for MNEs, also because one and the same stakeholder category can be very different from one country to another. This means that a truly locally responsive CSR approach based on extensive subsidiary autonomy in host countries entails a considerable number of risks. The company’s CSR strategy may be fragmented and inconsistent, leading to tensions within the organization, a lack of clear responsibility and to approaches that only live up to minimum hostcountry requirement levels (Christmann, 2004). The result may be pure compliance-based strategies that are tailored to ‘end-of-pipe’ controls instead of truly proactive ‘eco-efficiency’ (Foster Knight 1995). Consequently there has been a shift towards an ‘integrated’ perspective, particularly in the literature on environmental management, by which a firm characterized by a high degree of headquarter control over its foreign subsidiaries would have more ease in disseminating strategy to those subsidiaries (Christmann, 2004). Since corporate strategy is very much defined by the home-country context (Levy and Kolk, 2002; Murtha and Lenway, 1994), this implies that for example the diffusion of ‘European’ CSR practices through MNEs would be more likely if MNEs were relatively centralized. Some have extended this centralized approach to include internal integration between departments in the firm. Hoffman (2000), for example, mentions that lack of integration between departments can be a major obstacle to effective management of corporate environmental issues, which he attributes in part to communication failure between environmental managers and general ‘business’ managers. The implication is that environmental managers, lacking the backing of a clear corporate vision and mandate, will be faced with higher agency costs in embedding CSR practices at the subsidiary level amidst the complexity of an international operating environment (Watson and Weaver, 2003).
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Thus far, however, there is not much clear evidence, even in the case of more mainstream organizational issues. Watson and Weaver (2003) were unable to support their contention that the agency costs associated with (international) environmental complexity were linked to more formalized structures for managing business ethics. Kostova and Roth (2002), who hypothesized that a subsidiary’s dependence on headquarters would be positively related to the implementation of corporate-level organizational practices more generally, found a negative relationship in their study of quality control systems. On the other hand, Christmann (2004) found strong evidence that MNE subsidiary dependence on the rest of the company for resources was positively related to the MNE’s global standardization of environmental policies. Firms with a relatively centralized organization, she argued, are more likely to engage in self-regulation through corporate-wide environmental policy standardization and thus have the potential to exceed local government regulation in countries with a lower level of environmental regulation. Yet, contrary to expectations, Christmann (2004) found that a globally standardized environmental policy was not linked to a significantly higher minimum level of environmental standards. In the remainder of this paper, we aim to shed more light on these issues by exploring CSR strategies of Mexican subsidiaries of European MNEs in relation to the degree of headquarter control. We will investigate to what extent pro(active) subsidiaries are characterized by tight control (a centralized MNE strategy) or whether the picture is different.
An Exploratory Study: Mexican Subsidiaries of European Automotive MNEs The Mexican subsidiaries that have been investigated fall under seven of Europe’s largest MNEs in the Table 1
automotive industry broadly defined: DaimlerChrysler, Volkswagen, Renault, Volvo, Fiat, Continental and Scania (see Table 1). Although the sample is small, it represents the majority of European MNEs in the industry, with a combined total of more than 21,000 employees (over two percent of total employees and nearly four percent of foreign employees 1). Moreover, with the exception of DaimlerChrysler, most MNEs have only one or two subsidiaries in Mexico. Hence we feel this small sample adequately covers their Mexican operations. The main empirical input for this paper is drawn from in-depth, on-site interviews with (senior) management, conducted in November and December of 2004. The automobile industry is relevant in this context for a number of reasons. First, the sector is characterized by a relatively high degree of technology intensity, allowing for the possibility of real knowledge and skills transfer (Levy and Rothenburg, 2002). Second, it is directly linked to both global warming and the relocation debate (Levy and Rothenburg, 2002), meaning that external pressures for social and environmental policies are real and tangible. Third, the automotive industry is vertically integrated and thus subjected more to integration pressures than local responsiveness, which creates potential for economies of scale in CSR policies and implementation (Christmann, 2000). Fourth, MNEs in the automotive industry are important investors in Mexico and crucial to the Mexican economy. Thus it can be expected that local stakeholders will be relatively focused on foreign investors in the sector. Finally, the industry is highly internationalized, and recent literature suggests that firm-level internationalization is linked to greater management attention for ethical issues (Watson and Weaver, 2003). Exploring European MNEs in Mexico is also relevant in the context of the so-called Global Agreement (GA) signed by the European Union and Mexico in December 1997. Although the GA’s emphasis is primarily on free trade and investment (Zabludovsky 2001), it also encompasses a Cooperation section
An Overview of the Investigated Subsidiaries
Subsidiary
Parent company
# of other subsidiaries in Mexico
In operation since:
Product
Turnover (2003) $US
Mercedes-Benz de Me´xico S.A. de C.V. Volkswagen de Me´xico S.A. de C.V. Renault Me´xico S.A. de C.V. Volvo Bus de Me´xico Continental Tire de Me´xico S.A. de C.V. Magnetti Marelli Me´xico S.A. de C.V. Scania Me´xico
DaimlerChrysler
17
1989
Trucks and buses
NA
Volkswagen
1
1967
$6 billion
Renault
0
1982
Passenger cars and engines Passenger cars
$50 million
2,097
Volvo AB Continental AG
1 0
1998 1973
Buses Tires
$43 million $170 million
1,908 1,400
Fiat
1
1996
Automotive lighting
NA
350
Scania AB
0
1994
Trucks and buses
$30 million
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Employees (2004)
957 14,685
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GLOBAL VERSUS LOCAL CSR STRATEGIES
which, among others, consists of 29 articles aimed at encouraging cooperation between Mexico and the EU in areas such as training and education, social affairs and poverty, human rights and democracy, and health (Art. 13-44, Global Agreement, 2000). These areas of cooperation are aimed at ‘upward harmonization’ (Foster Knight, 1995); i.e., raising the level of environmental and social awareness and practice in Mexico by stimulating the exchange of ideas and practice in these areas. The policy effect should be understood to ‘flow’ from the partner where social and environmental practices are the most far-reaching (EU) to the partner where such practices are less the norm (Mexico). The GA is not aimed at companies and is non-binding. However, its very existence underlines not only the divergence between homeand host-country CSR contexts for MNEs, but also an absence of regulation in which MNEs have considerable room for maneuver and adopting (proactive) CSR strategies, either local or global in nature.
Mexican Subsidiaries ‘Benchmarked’ Against European CSR Practices Our first objective is to evaluate the CSR performance of the Mexican subsidiaries relative to ‘European’ levels in terms of seven issues addressed extracted from the Cooperation section of the GA. Since the Cooperation section does not specify any performance levels, we turned to alternative sources to develop to develop a benchmark. For the first four CSR-related issues we identified in the Cooperation section of the GA (development of renewable energy sources; recycling; environmental training and education; conservation and sustainable resource management), European Community (EC) documents on EU environmental programs and targets provided input. For instance, the Sixth Community Environmental Action Program (6CEAP) of the European Commission advocates that at least 12 percent of all energy consumption in the EU should come from renewable energy sources by 2010 (EC, 1997). However, by 2000 only 5.6 percent of total energy consumption in the EU was from renewable sources, up from just 5.3 percent in 1995 (EurObserver, 2002). Similarly, a background study on waste and recycling policy distributed by the EC gives an indication of a recycling baseline for the second issue (EPEC, 2004). Although no clear data is available on the level of recycling in the European automotive industry, note is made of the fact that approximately six percent of automotive plastics were recycled in 2002 (EPEC, 2004), with higher figures being linked to substantial and prohibitive cost increases. On the third issue (heightened awareness of energy consumption), the EU has various programs in place such as SAVE and SYNERGY (EC, 1998) which are designed to enhance energy conservation awareness. At the firm level, the question is 192
thus whether the subsidiary has institutionalized practices or on the job training programs to enhance employee awareness of energy conservation. The fourth issue on natural resource conservation is considered in the European context primarily in terms of the ‘Ecological Footprint’ concept, in which CO2 reduction is considered to be the most important factor (EC, 2001). The question for firms then is whether they have special CO2 reduction measures in place or whether they plan to do so before 2008, when the first quota under the Kyoto Protocol are to be met. The fifth, sixth and seventh CSR-related issues drawn from the GA address questions equal employment opportunities, employee training and employee organization 2. The Community Framework on Gender Equality (EC, 2000) stresses strategies for increasing female employment participation, and notes that about 40 percent of white-collar employment in the EU was female in 2000. We adopted this figure as a baseline for the fifth issue. For the sixth issue (employee training), the EC (2004) notes that the average company expenditure on vocational training in the EU in 1999 was 2.3 percent of total labor cost. This figure formed the baseline for issue six. Finally, the Federation of European Employers (FEDEE, 2004) notes that trade union membership in the EU in 2004 was just over 26 percent. If we apply these criteria to the CSR practices of European auto subsidiaries in Mexico, we find the following results relative to the ‘baseline’ of the European setting (see Table 2). On the issue of renewable energy, the subsidiaries that use renewable energy are Volvo, Volkswagen and DaimlerChrysler. While Volvo sources about five percent of its energy from a nearby hydroelectric plant, Volkswagen and Daimler Chrysler derive a smaller percentage from solar panels (three and two percent, respectively), which according to Volkswagen is more about ‘making a statement than about saving energy costs’ 3. Scania, Fiat (Magnetti) and Renault had no renewable sources and none planned, while Continental had plans for solar energy in the future. A similar pattern emerges in the use of recycling, with Volvo taking the lead (ten percent of waste recycled) together with Scania and DaimlerChrysler and Volkswagen at five percent). Notable is Volvo’s reference to a ‘global standard’ for recycling 4. Renault reported initiating a recycling program in 2004, but as yet no data was available, and Continental and Fiat had minimal recycling programs. On the issue of employee awareness of environmental conservation, four subsidiaries responded positively (DaimlerChrysler, Volkswagen, Volvo and Scania) and three negatively (Renault, Continental and Fiat). Scania, for example, gives presentations and training on energy and water consumption every two months. At Fiat, there is a training program, but it is not aimed at environmental awareness. However, they have plans to develop such a program in the future in connection with ISO
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Table 2
Performance on CSR-related Issues in the Cooperation Section of the Global Agreement Renewable energy use
Recycling
Environmental awareness promotion
CO2 emissions reduction
White-collar women
Vocational training
Trade union membership
EU Baseline
6% of total energy use
6% of waste
On-the job training
Institutionalized measures pre 2008
40%
2.5% of labor costs
26%
5% waste reduction since 2002 5% of waste
Ca. 50%
13% (supporting)
Initiated 2004; no data
In-house mgmt training inst. By Nissan; no data
100% (automatic)
None and no plans
Ca. 60%
Volvo
Ca. 5% (hydroelectric)
24% (mostly supporting)
In-house obligatory
100% (automatic)
Continental
None, but solar panels planned None and none planned None
‘Global standard’, 10% reduction since 2001 Limited
Measures in line with Mexican gov’t regulations In line with Mexican law and ‘global demand’ According to Mexican regulations 15% reduction by 2007
Ca. 5% of labor costs
Renault
Training to implement recycling on work floor On-job training of good waste mgmt. No special training
21% (supporting)
Volkswagen
2% of total since 2002 (solar) 3% of total (solar)
None
None; ISO 14001 planned
6%
Limited
100%
None; planned as per ISO 14001 Ca. 10% of waste
None but ISO 14001 compliant planned Bi-monthly
Considered ‘not applicable’
21% (supporting)
Est. 25%
In line with Mexican gov’t regulations
20%
Available but not encouraged Reviewed monthly
Subsidiary Mercedes
Magnetti Scania
Targets revised and training given annually
14% (supporting)
100%; monthly meeting w mgmt.
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Issue:
GLOBAL VERSUS LOCAL CSR STRATEGIES
14001 accreditation. Finally, vocational training for employees emerged as a differentiating factor, with all firms providing some training but the relative investment made differing across firms. DaimlerChrysler and Volkswagen both reported around five percent of their expenditures being related to vocational training, followed by Scania and Volvo at around three percent and Continental at two percent.
Renault and Continental reported either no training or an absence of an institutionalized culture of training (i.e., a lack of availability).
Much less variation was evident in the percentage of women in white collar functions and in trade union membership. The percentage of women in white-collar functions was relatively low in all subsidiaries, and substantial differences among the seven subsidiaries are not evident. Moreover, female employment in white-collar functions referred almost exclusively to secretarial and receptionist functions. Most interviewees reported that the situation has ‘simply developed that way’ 5, and that ‘it is hard to find qualified women for management functions’ 6 or ‘in Mexico women traditionally take care of the household’ 7. A second observation is that trade union membership was considerably higher in all locations but one (Fiat) compared to the EU average. Both these observations highlight the continued relevance of institutional factors such as the unavailability of female managers (noted by both Renault and Volvo) and the corporatist bargaining environment in Mexico, characterized by strong labor union participation. Additionally, the prevailing response on CO2 reduction reflected straightforward compliance with Mexican law; only Volvo placed that issue in the ‘global’ context and planned ambitious reductions over the coming years. This issue, however, was clouded by alternate references to emissions standards of the vehicles produced, and the CO2 emissions of the factories themselves.
The evidence on CSR activities within the seven subsidiaries investigated suggests that three firms in particular stand out as more proactive on CSR issues (DaimlerChrysler, Volkswagen, and Volvo), with Scania slightly behind, while three firms appear to show the least proactivity across the board (Fiat, Renault and Continental). The question now is whether these subsidiaries differ at all in terms of their perceived levels of autonomy. Table 3 details the classification of the seven subsidiaries according to subsidiary managers’ perceptions of their own autonomy. Interviewees were asked at the beginning of the interview to describe parent-subsidiary relations as characterized either by relative autonomy or relative control, and then based on what arguments. This question was asked at the beginning to reduce the risk of self-serving attributional bias. 8 Three subsidiaries described themselves as ‘controlled’ by headquarters (Renault, Continental and Magnetti Marelli), and four described themselves as ‘autonomous’ (Mercedes, Volkswagen, Volvo and Scania). In some cases parent-subsidiary relations were qualified in terms of the freedom to make investment decisions, and in other cases in terms of reporting frequency. Although home country characteristics were present (e.g. Renault referring to the Nissan legacy and control as a matter of Japanese custom), the split in the sample does not strictly follow home country divisions. The three German subsidiaries, for instance, characterized their relationships very differently, with the Mercedes and Volkswagen subsidiaries describing themselves as ‘substantially’ or ‘largely’ autonomous, and the Continental subsidiary describing itself as very closely monitored.
The nature of the issues investigated explains at least in part the ability of some issues to discriminate among subsidiaries and the inability of others. In the case of female employment, union membership and CO2 emissions, the lack of variation among the subsidiaries seems related to contingencies external to the firm. The remaining four issues (renewable energy use, recycling, environmental awareness training and vocational training) were primarily companyinternal, and thus less contingent upon external pressures. Table 2 shows how Mercedes, Volkswagen and Volvo all actively engage renewable energy sources, ranging from two to five percent of total energy consumption. This poses a stark contrast to the remaining four subsidiaries, none of which drew on any renewable sources in 2004. The same three subsidiaries were most progressive in their recycling activities, and were in fact surpassed by the Scania subsidiary, which recycles approximately ten percent of its waste. These four companies were also the ones that reported institutionalized environmental awareness promotion programs and the availability of (in some cases required) vocational training. In contrast, Magnetti, 194
Subsidiary Assessments of the Level of Centralized Control
As a check we also asked whether the interviewees were familiar with the Cooperation section of the GA. We assumed that, if control was related to centralized and home-country based CSR strategies, controlled subsidiaries would be more familiar with the Cooperation section, given its home-country (i.e., ‘European’) flavor. On that basis the Cooperation section could potentially form (part of) the foundations of a globally integrated, centralized CSR strategy. However, this turned out not to be the case. Although all were aware of the free trade aspects of the GA, none of the seven managers interviewed had any knowledge of the Cooperation section, even though Volkswagen reported having been closely involved in the trade negotiations. In some cases the lack of familiarity was ‘excused’ on account of
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Table 3
Subsidiary Perceptions of Autonomy
Subsidiary
Interviewee
Decision-making
Evidence
Knowledge of Cooperation section / Free Trade Agreement (FTA)
Mercedes-Benz
PR manager
Autonomous
No; familiar with FTA
Volkswagen
HRM manager
Autonomous
Renault
Marketing director
Controlled
Volvo
PR manager
Autonomous
Continental
Plant manager
Controlled
Magnetti Marelli
PR manager
Controlled
Scania
PR manager
Autonomous
Granted ‘substantial autonomy’ in business operations; reports financials on a quarterly basis ‘Largely autonomous’; only for investment decisions > $US 1 million does parent decide Legacy as Nissan factory means parent firm influence is ‘substantial according to Japanese customs’ Parent firm lacks knowledge of Mexican market. For ‘large’ investment decisions Volvo North America is consulted CEO visits ‘regularly’; must consult parent for ‘every strategic decision’ ‘Strictly monitored’; reports monthly and must ask permission for investment decisions of any ‘reasonable’ amount As a small plant, parent firm is ‘not extensively involved in daily operations’. Permission required for investments over $100,000
having a purely Mexican- or North American focus and therefore concluding that such an international agreement would be ‘irrelevant’.
None; familiar with FTA
None; familiar with FTA but produce solely for North America None; familiar with FTA but source and produce for Mexico only None; ‘irrelevant’ due to North American focus
None; familiar with FTA but Brazilian parts are cheaper
(Renault, Magnetti and Continental) clearly emerge as the least proactive in terms of CSR. More importantly, their assumed receptiveness to company-wide standards does not appear linked to CSR performance levels that exceed those of the local Mexican context; in fact the contrary appears to be the case.
Renault Magnetti
Parent-subsidiary relationship
Control
In sum, the three subsidiaries that described themselves as tightly controlled by the parent company
Little to none; extensive knowledge of FTA
Continental
Scania
Volvo Autonomy
Mercedes Volkswagen
Low
High
CSR performance Figure 1 Indicative Positioning of Overall CSR Performance and Level of Control
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At the other end of the spectrum are three subsidiaries that described themselves as autonomous: Volvo, Mercedes and Volkswagen. Even accounting for external institutional factors, these three subsidiaries have overall performance levels more or less on par with the ambitions of the European Commission. An indicative positioning is given in Figure 1. Scania is positioned closer to the middle as its CSR performance lags slightly behind Volvo, Mercedes and Volkswagen (no renewables), and although classified as ‘autonomous’ the interviewee stated that permission was required for investments in excess of $100,000. That figure is relatively small compared to its annual turnover of $30 million.
Discussion and Conclusions In this paper we have reviewed the literature on the role of organizational structure in the diffusion of CSR strategies within MNEs. In general two positions have been taken in the literature. Some argue for local engagement in host countries as the optimal form of proactive CSR, while others argue that the global nature of many social and environmental issues necessitates globally integrated strategies. In the case of the former, host-country stakeholders form the source of company CSR strategies, while in the case of the latter, home-country or international CSR practices form the basis of company-wide CSR strategies that are diffused through a centralized coordination mechanism to subsidiaries in foreign countries. The results of exploratory research described here, although preliminary, suggest that the relationship between self-regulation, parent-subsidiary relations and CSR practices requires rethinking. In this case, subsidiaries that perceive themselves to be autonomous in their overall activities tend to be more proactively engaged in CSR. Paradoxically, proactive CSR strategies among autonomous subsidiaries appear to be predominantly in accordance with home-country and international policies, despite their non-binding character, instead of tailored to the host-country context. The main driver behind autonomous subsidiaries’ proactive stance does not appear to be responsiveness to the local context, but rather that subsidiaries draw from the parent company’s overall CSR vision. This also suggests that subsidiary autonomy does not necessarily imply conflicting agendas with respect to headquarters, particularly where ideals are concerned. Rather, firms may use a ‘soft hand’ approach that induces subsidiaries to adopt practices which they might resist under duress. One argument in this vein is that autonomous subsidiary practices can still be linked to the corporate vision if those subsidiaries are integrated using informal control mechanisms (Watson and Weaver, 2003) such as selection or socialization as a substitute for 196
direct (hierarchical) control (Hennart, 2005). Socialization and selection are relevant control strategies in activities where 1) local managers have an information advantage with respect to management in headquarters and 2) output is hard to measure. These criteria may make selection/socialization more applicable to social and environmental issues than to operational business since Hennart (2005) notes that direct (hierarchical) control is linked to activities (such as assembly line production) where corporate management is well aware of the function and relevant performance measures (output, profits etc.). We may inadvertently have found evidence of socialization in our interviews. Subsidiaries in this study with the best CSR performance across the board are also the ones with environmental and vocational training programs. Although these programs were initially considered as part of CSR performance, they may in fact be the socialization vehicle for CSR diffusion to autonomous subsidiaries. The selection/socialization argument still relies heavily on the role of headquarters and economic cost/benefit considerations. Yet it may be managers perceive CSR as fundamentally distinct from other business activities, and thus that their motivations to engage in CSR may be different from those related to strategy in general. This can have implications for recent attempts to make CSR more ‘mainstream’ that have centered on the ‘business case’ for CSR (Rosen et al., 2003) or CSR as an issue of ‘supply’ in response to societal ‘demand’ (McWilliams and Siegel, 2000). CSR issues may still be sufficiently insulated from direct market signals such as the price mechanism (except in specific cases like Shell and the Brent Spar) that it is not always evident to managers how acting on such issues translates into tangible additional economic advantage (Paton and Siegel, 2005). If managers have non-business related motives for engaging in CSR, this can be linked to Christmann’s (2004) concluding observation that ‘strategic reasons exist for subsidiaries to exceed local government regulations’ (p. 757) even if MNE management does not intrinsically value responsible environmental conduct. While such reasons could simply be a matter of pay or other incentive structures (Russo and Harrison, 2005), there is also evidence that some managers are internally driven to behave ethically (Weaver et al., 1999). Additionally, there is likely a dynamic component to the equation. Present parent-subsidiary relations can be a result of past subsidiary performance. Previous control strategies may have ‘migrated’ towards increased decentralization once subsidiaries earned that right through continued strong (CSR) performance. Birkinshaw and Hood (1998) note in this respect that changes to subsidiary mandates over time can go in both directions. While the preceding arguments may generate insights into the relationship between subsidiary autonomy and diffusion of CSR practices, they still
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do not explain why centralization is not an effective mechanism. Given the hierarchical control setting, it is not surprising that controlled subsidiaries are less likely to take their own CSR initiatives or adopt international non-binding policies voluntarily. At the same time, they are apparently also not subjected to strict mandates in terms of CSR performance. It is still possible that, despite our efforts, some self-serving attributional bias is reflected in these cases, meaning that subsidiary managers that perform poorly may try to ‘blame’ headquarters for that poor performance along the lines of ‘just following orders’. For this to be the case, however, the managers interviewed would need to be very calculating and fully aware of the implications of their answers on the spot. Amidst the hectic day-to-day operational concerns, we consider this unlikely. If indirect mechanisms exist that allow or entice subsidiary managers to adopt corporate level vision and strategy, then there clearly is a place for integrated corporate-level CSR strategies. In practical terms, however, this means that CSR strategies have to be devised and deployed at two levels: integrated at the corporate level and socialized among autonomous managers at the subsidiary level. In an ambidextrous organization of this nature ‘tight and loose coupling’ can exist simultaneously (Russo and Harrison, 2005; cf. also Watson and Weaver, 2003), allowing flexibility within the framework of overall corporate CSR. At both levels, the commitment of top management is essential (Weaver et al., 1999). For policymakers, MNEs of this type can provide an effective diffusion mechanism for international ‘upward harmonization’ of CSR practices. This paper was a pilot study and thus was not meant to be a systematic and comprehensive analysis of the determinants of CSR diffusion and performance in MNEs. Many issues have not been addressed here, and need further attention in follow-up studies. This includes the crucial impact of the institutional context. Although the MNEs included were all European, they covered different countries of origin with to some extent different CSR traditions. Moreover, the subsidiaries in the sample demonstrated considerable variety in the specific products they produce, ranging from automotive lighting and tires to passenger cars, trucks and buses. They also showed considerable disparity in the length of their presence in Mexico (see Table 1). It may be that such firm-specific aspects also are important determinants for the relationships that we explored in this paper. Issues of this nature will be important to address in follow-up research.
Acknowledgement
field, and thanks Ans Kolk for her invaluable comments on earlier versions of the paper.
Notes 1. Percentages of foreign employment excluding Fiat (no data available) and Nissan (Renault only). 2. Although Article 39 in the Cooperation section refers more generally to democratic principles, we translated that to trade union involvement to translate the democratic process to the firm context. 3. Interview with H. Kalisch (Volkswagen), November 16, 2004. 4. Interview with M. Ripa,(Volvo), December 10, 2004. 5. Interview with J. Perez (DaimlerChrysler), November 5, 2004. 6. Interview with C. Porres (Scania), November 19, 2004. 7. Interview with N. Fantin (Fiat), December 3, 2004. 8. Self-serving attributional bias refers to the tendency to attribute negative performance to external causes (circumstances beyond the actor’s control) and positive performance to internal causes (the actor’s own actions).
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ALAN MULLER, University of Amsterdam Business School, Department of Business Studies, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands. E-mail: [email protected] Alan Muller is Assistant Professor in Management at the University of Amsterdam Business School. His research centers on the role of firms in society, encompassing issues of international strategy, globalization processes, institutions and corporate social responsibility.
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