Corporate Social Responsibility and Competitive Advantage - Nike, Body Shop Company - Research Paper Example

Corporate Social Responsibility and Competitive Advantage Name Institution Tutor Date Introduction Globalization has substantially marginalized and weakened different political institutions, businesses are therefore asked to quickly fill the gaps. Contemporary business organizations are asked to lead the way to the more ethical world without the incentive or authority to violate the society. The politicians need to be more confident in setting different standards for the business ventures based on the internationalist approach. Corporate Social Responsibility is used to describe the way in which various business can take into account their financial and environmental actions and impacts that they are involved in. It is a critical issue in business since the managers, consumers and the investors have started to learn how economic growth is linked to the social and well-being of the environment. This paper explores the concept of CSR and the relationship it has to the competitive abilities of the firms and the importance of ethical behavior in the business organizations. Corporate Social Responsibility literature review Corporate social responsibility is a condition where a business organization goes beyond compliance and engages in different actions that can further social good, above the interest of the company and that which is expected by the law. The term corporate social responsibility was first coined in the year 1970s. Different activities that fall under the umbrella of corporate social responsibility fall into three different categories, that is, ecological balance, economic growth and social progress (Mohtsham and Faria, 2012). The influence of corporate social responsibility involves its effects on the firm’s social performance and FP performance. Literature indicates two different schools of thought in the case of corporate social responsibility. The school of thoughts predominantly describes and debates the primary activity of the business organization as that of maximizing profits or society business interaction to attain the welfare of the community. However, the construct can be related to different aspects of the business like these expectations of the stakeholders, increasing the social performance and complying with the rules and regulations of the government. A study conducted by Mohtsham and Faria, (2012) further illustrated that incorporation of the corporate social responsibility in the strategic management of the business venture can lead to better outcomes for the firm (Mohtsham and Faria, 2012). The most dominant paradigm of the proponents of corporate social responsibility starts from Carroll’s work. Carroll described different activities that are included in the corporate social responsibility from the philanthropic activities of the larger social benefits. Carroll suggested that different firms are supposed to generate more profits, operate according to the social norms, obey the laws and do well beyond the expectations of the society where they belong (Carroll, 2003). As to Matten and Crane (2005), corporate social responsibility is meeting different needs of the stakeholders in the community. Hence, corporate social responsibility discourse is quickly becoming more multidimensional, encompassing the social needs, profit maximization and stakeholders management. Some researchers such as Luetkenhorst (2004), recognizes corporate social responsibility from the engagement and compliance to the minimization of harm and to create more value. Jamali and Mirshak (2007), suggests that, several business ventures in the developing countries are considering voluntary corporate social responsibility activities as philanthropy. However, from the management side, the benefits of corporate social responsibility in the human capital management issues and the safety of workers are highly increasing. The theory of corporate social responsibility can be categorized into political, instrumental and value theories. These theories lead to sustained development from all dimensions. The principle of corporate social responsibility is leading various firms in accepting the triple bottom line for different decisions of social responsibilities such as social, economic and climate care (Garrriga and Mele, 2004). Carroll also defined the role of corporate social responsibility as a strategic issue on which corporate social responsibility can be done to fulfill the firm’s strategic objectives and goals and to obtain the long term profit. Mohtsham and Faria (2012) identified the company’s extra-legal responsibilities that can affect the business such as the establishment of respect to the society, communication to all the stakeholders and protection of the moral ecology. In summary, the central thesis of corporate social responsibility is most oriented to the contribution to the FP and towards the normative basis that can incorporate different human values. There are several pieces of research focusing on the relationship between the corporate social responsibility and the economic performance. This might be to advocate for different needs of establishing the strong case of practice for different firms that proves the benefits of corporate social responsibilities. Corporate social responsibility can be seen as a valuable resource for the firms from the resource-based perspective. Companies can capitalize on different unique resources for adequate sustainability. However, the resources should be able to meet different criteria of the resource-based view, that is, it should be inimitable, valuable, immobile and rare. Corporate social responsibility can help the firm create various unique resources like employee’s capabilities and reputation (Mohtsham and Faria, 2012). In line with the previous literature, the study divides the corporate social responsibility into two dimensions, that is, external corporate practices and the internal corporate social responsibility practices. Several operationalization of corporate social responsibility has been covered in the Carrols work. The firm's CSR practices should include ethical, legal and voluntary activities for corporate social responsibility. The internal dimensions of the CSR include the well being of the workers in the working place, specifically their safety and health and the development and identification of their talents. The 2001 Green Paper by the Comission of the European Communities identified a typology of the CSR as its external and internal dimensions. More of the literature has focused on the external CSR such as protection of the environment and development of the community. There is little research on the internal dimension of the CSR (Carroll, 2003). Importance of Ethical behavior to the business organizations Ethical practice in business is ensuring that the company maintains a high level of moral and legal standards in its relationship with different individuals in the business community. This encompasses the most important person in the business, the customer. Making a profit at the expense of losing the customer leads to long-term death for the business. Different firms can benefit from the ethical practices. They take the considerations of the customers and stakeholders and address their needs more effectively. The business organization needs to have good ethical practices towards it customers and the general public. The benefits that the firm can achieve from practicing ethical behavior are as illustrated below (Loe et al., 2000). A reputation for the ethical practices always builds the trust in the business among the customers, stakeholders, suppliers and other business associates. A Strong relationship with the suppliers is very critical for any business organization to prosper and be successful in its operations. The business cannot be able to succeed if they cannot be able to supply the various needs of the customers. The business person is the role model for his or her employees. An entrepreneur whose behavior includes lying to the customers, taking different amount of money from the cash register or going home with some of the supplies and inventories, he or she will be surprised if the employees follow his or her footsteps (Treviño et al., 2006). The members of the community are expecting the business organization to operate in an ethical way that can enhance the entire image of the community. The firm's code of ethics can help hinder or help customer traffic for other related business. A firm that gains reputation through telling their customers whatever kind of information they would want to hear, no matter the truth, hurts the business and other related business. It is not illegal to hide the truth from the customers, but it is all the same, not a good business ethic (O’Fallon and Butterfield, 2005). Ethical behavior helps the business organization in making sound business decisions in the organization. Due to this, the business entrepreneurs need to have a well-written code of ethics that can be used as a framework for making relevant decisions that are made by the employees and the entrepreneur. Many business organizations overlook the ethical issues in the business organization. Most of them have different priorities such as marketing, financial and business ideas. However, good businesses ethics can make the business organization successful in implement all other business strategies. The entrepreneurs can create a positive image of the company that can help boost the sales and growth by increasing the trust of the customers. While breaching of the business ethics can lead to the severe damage making the customers shun away from the business organization (Loe et al., 2000). Several business owners are very aware of the importance of business ethics in their business. The problem is that they may find it difficult to demonstrate the ethics in their daily operations. However, it is in order to do well and possess a lucrative business. Several entrepreneurs are investing more cash and time in different community service and are making various efforts in cleaning the environment. After a long period, their good actions are likely to follow them in the form of increased customer loyalty, the high moral of the employees and improved public relations. This will make the business to be successful in its operations and retain more profits. (Treviño et al., 2006). Joyner and Payne, (2002) assert that engaging in unethical business practices can lead the firm into trouble with the law. The firm mat work to defend itself from the legal actions. This can drain away the profits that the business has gained. Different problems that arise from the unethical behavior can severely impact the ability of the business venture to operate in some markets. Good ethical practice can enable the business organization to overcome such legal challenges since they are operating according to the set standards. The business owners can retain their profits and use for investment purpose rather than using the profits to solve different legal issues Workers with ethical behavior use their ethics in guiding their behavior. They can adhere to the employee rules and policies as they strive to meet the set goals of the organization. They are also able to meet different standards of quality work than can enhance the reputation of the company for quality services and products. Ethical behavior ensures the employees work with high level of integrity and honesty (O’Fallon and Butterfield, 2005). Link between Corporate Social Responsibility and gaining competitive advantage for the firm The competitive advantage of a firm is the advantage of the firm in the external and internal parts of the company. Competitive advantage is dealing with competition between the company and its competitors. Different firms may use Corporate Socials Responsibility to improve their competitive advantage. The company can control the cost and prices of the company using the cost management strategies. According to the Fortune survey, competitive advantage was considered as one of the first two justifications of corporate social responsibility. In this context, the needs of the stakeholders are considered as opportunities but not constraints. Different companies manage their resources to achieve these demands and exploit different opportunities that are associated with them which are beneficial to the firm. In this approach, the firm needs to integrate their initiatives for social responsibility with wider business strategies (Morgan and Covin, 2000) Different companies that can build their competitive advantage using unique Corporate Social Responsibility techniques can have a superior competitive advantage. This is because; their unique Corporate Social Responsibility strategies can serve as the basis for setting the company apart from its competitors. For example, statement of EEO policies can have more benefits in reducing risks and cost using cost management strategy. The policies can give the firm competitive advantage since firms without well-elaborated policies cannot be able to compete favorably in retaining and recruiting workers from the wider pool of talents. Through these techniques, the firm can be able to identify the benefits of social responsibility in making them more competitive than their competitors. This can make a company compete favorably in the global market (McWilliams et al., 2006). The next link is the establishment of the investor customer relations programs. Corporate social responsibility initiatives may contribute to the strengthening of the company’s competitive advantage, its consumer patronage and its loyalty to brands. Corporate social responsibility initiatives can also create a positive impact in attracting different investors to invest in the company. Several institutional investors tend to avoid such companies or industries that do not honor their organizational values, mission, and principles. The investors also look for those companies having good records on the relations of the employees, environmental stewardship, corporate governance and involvement of the community. This is an important link between the corporate social responsibility and competitive advantages of the firm (Morgan and Covin, 2000) The other link between corporate social responsibility and competitive advantage is the corporate philanthropy. Different companies can align various philanthropic activities with their core competence and ability. By doing so, the firm can avoid various distractions from the business; they can enhance their efficiency of the charitable activities and create unique value creation for their beneficiaries. To take an example, the McKinsey & Co. Provides free consultation services to the nonprofit organizations in cultural, social, and educational fields. The beneficiaries of the company encompass the public art galleries, charitable institutions, and colleges. On the other hand, the Home Depot Inc Offered know how to the communities who were victimized by the Hurricane Katrina. The strategic philanthropy can help different companies to gain competitive advantage and as well boost their bottom line (McWilliams et al., 2006). The corporate social responsibilities initiatives can enhance the competitive advantage of the firm to the extent they can be able to impact different decisions made by the stakeholders of the firm in its favor. Various stakeholders and investors are more likely to prefer a company with a more competitive advantage over its competitors especially due to the engagement of the business in various corporate social responsibility initiatives. The corporate social responsibility initiatives can create a reputation in the eyes of the stakeholders; this will in turn creates the perception of the firm’s performance (Armando et al., 2013). A firm that can have a good relationship with the society and have business responsibility for the societies welfare as they improve on their profits can win more customers than its competitors. Corporate social responsibility is an incremental gain to the business organization. It offers long-term sustainability and economic development in the firm. Corporate social responsibility initiate such as the provision of reputation insurance can make the stakeholders and investors have more confidence in the business this can in turn increase the development of the firm financially (Françoise, 2011). The organization's reputation is a critical intangible resource for the firms when the competition is not able to match the prestige or value that is associated with a given organization. Social capital also creates network association, reciprocity and trust among the members of the company. This can in turn create a workforce that is unbeatable for the firm to gain competitive advantage. Good reputation has been identified by several researchers to come from the good behavior of the business organization. The responsibility of the firm to the citizens will help build its reputation. This will make the company gain more competitive ability than the other competitors (Mohtsham and Faria, 2012). There is a developed model of creating intangible strategic resources for the firm through the inclusion of the social responsibility initiatives in different activities of the firm business strategies. This can help increase the company’s competitive ability and profitability (Figure 1). Corporate Social Responsibility as source of creating competitive advantage of the firm through creation of intangible resources (Mohtsham and Faria,2012). Firm that demonstrates failure in their CSR practices Nike, Inc. Nike Inc Company is one of the largest sellers of foot wares for athletics and different apparels in the world. Phil Knight in 1964 founded the company through selling of running shoes in his car at the track meets. From that time, Nick Company has significantly grown and is currently operating in over 110 countries. Products of Nike are sold through Nike brand name to more than nineteen thousand retail traders in the United Kingdom alone. Close to fifty percent of Nike’s products are produced by different contractors dealing in the foreign market such as China, Mexico, Indonesia, and Singapore (Husted and Allen, 2006). There have been significant oppositions attacking the company. In the last few years, many Protesters have been very vocal on the labor practices of the Nike Company. The protesters have taken different actions against the company including organizing different boycotts of their products, arranging various media attentions on their claims and creating different websites to dishonor the labor practices of the Nike Company. The claims of the protester are that the company operates slave factories in different countries. Through sub-contractors, the company operates close to 150 plants and provides employment opportunity to over five hundred thousand people. The protestors claim that the workers are subjected to poor working conditions like long working hours, mental and physical abuse, and unsafe conditions for working and very low wages (Husted and Allen, 2006). Different stories about the working conditions in the Nike Company are well illustrated. In its various plants, the workers are made to work for sixty-five hours per week. They are not paid for overtime work. To add, many of the workers are paid less than the required minimum wage. The poor working conditions such as poor air quality. Many of the workers in the Nike plant complain of respiratory diseases. They have also complained of dangerous working conditions that have caused injuries on their hands and limbs (Husted and Allen, 2006). Many workers also complain of mental and physical abuse on their job. In the past, there have been several reports of sexual harassment of the female workers by the male supervisors. Again, physical punishment for product defect or tardiness is common. For instance, one group of women was made to run several laps around the company for four hours since they were late for work. After that, one of the women collapsed and was not given any medical attention. Later that day, the woman passed on. There is also physical abuse to male workers. One research indicates that male workers were whipped using shoe soles for using the wrong color to paint shoes (Husted and Allen, 2006). Again there is no improvement in the life of the Nike factory workers when they get out of the company. In several countries, a high percentage of the workers live near the factory or in housing. The situation of the houses is very horrific. There is poor sanitation and overcrowding in the houses. The workers are also not given the opportunity to complain to the top management. Any attempt by the employees to organize walkouts or unions is strictly dealt with and may make them lose their jobs. The company needs to consider corporate social responsibility and address various needs of its employees and conserve the environment (Husted and Allen, 2006). Firm that demonstrates success in their CSR practices The Body Shop, PLC The Body Shop Company for a long period has been identified as the best example of environmental and social responsibility. The company is supporting different environmental groups; the company engages in different social responsible activities that help run money in the disadvantaged communities and various campaigns against abuse to human rights. The survey conducted by the financial times indicates that, the body shop, plc was considered as the twenty-seventh most respected firm in the whole world as seen by CEOs (Edvardsson and Enquist, 2011). The body shop was founded by Roddick Anita in 1976 when she recognized a space in the market for beauty products. The business grew quickly from a small shop to a worldwide network of over one thousand five hundred shops. The vision of Roddick encompasses different aspects of the community in the world. The concept states that the success of the Body Shops is dependent on the relationship with all the employees, stakeholders, customers, franchisees, suppliers, communities, shareholders and the NGOs. As to this, the company has conducted several crusades in several places. For example, they have led a campaign for the ban against the cosmetic testing on the animals, different campaigns on the human rights in Africa and Eastern Europe and establishment Foundation for the Body Shop. They did as they increased the profits and sales and providing more returns to the shareholders (Edvardsson and Enquist, 2011). The company has one thousand six hundred and sixty-three stores in forty-seven countries globally. More of the companies drive is stipulated in its value report. The Body Shop believes that it possesses the moral responsibility to be honest and open about their operation and improve all that which needs improvement. In the Value Report, the firm reviews all the actions it has taken in the political, social and environmental arenas. They are also able to propose for the future. They issue value reports after every two years. The UNEP hailed this report as trailblazing. It received the top award for environmental and social reporting. The report has three subdivisions that illustrate the responsibilities of the company, audit on animal protection and environmental review (Edvardsson and Enquist, 2011). The company has had different efforts to improve the global environment. In the early 1986, the company had been involved in the “Save the Whales” campaign. Since that year, the company has conduct more similar campaigns. The company also follows and endorses different guidelines that are provided by the Audit Scheme and the European Union of Eco- management system. The company has directed all its policies of the environment in the use of green sources of energy and limiting the use of water and recycling of water (Lance, 2001). The company’s most impressive achievement is in the social arena. It is engaged several programs that range from the monetary aids to the establishment of production facilities in the impoverished areas. The company provides consulting services and counseling different individuals infected by AIDS. Globally the company has conducted several campaigns against pollution by the oil companies and championing of women rights. The company has also conducted health and education programs in different communities globally. One of the most successful programs initiated by the company is the Community Trade Program. This program allows for trading partnerships with different communities around the world. The primary objective of the program is exploring different trade approaches and supporting sustainable development in the environment by creating accessories and ingredients in economically and socially developed countries (Edvardsson and Enquist, 2011). Conclusion Corporate social responsibility is indeed necessary for any business organization that aspires to be successful in its operations. It makes the business organization to compete favorably with its competitors. The business ventures should also consider ethical behavior in their operations. The ethical behavior will ensure the business enterprise in operating in a free environment without any fear or favor. Through this, the business enterprise can retain more profits than expected. There needs to be more research on the internal CSR possesses since there are fewer studies that address the problem, most of the researchers dwell around the external CSR process. References Armando C, Costa R, Menichini T, Francesco R, and Gaetano S, 2013, Turning Corporate Social Responsibility in Competitive Advantages: a Two-dimensional Model, Knowledge, and Process Management.Volume 20, Issue 1, pages 50–58. Retrieved From:  10.1002/kpm.1401 Carroll, A, 2003, A three-dimensional conceptual model of corporate performance. Academy of Management Review.vol 13, no 4: p 503–530 Edvardsson B and Enquist B, 2011, service innovation and excellence model: Lessons from IKEA and other service frontiers. Total Quality Management & Business Excellence. Volume 22, Issue 5. Pp, 535-551. Retrieved from 10.1080/14783363.2011.568242 Françoise Q, 2011, Are competition and corporate social responsibility compatible, Society and Business Review, Vol. 6 Iss: 1, pp.77 – 98.Retrieved From:10.1108/17465681111105850 Garriga, E. and Melé, D, 2004, The Corporate social responsibility theories: Journal of Business Ethics, Vol 53, no1–2: pp 51–71 Husted B and Allen D, 2006, Corporate social responsibility in the multinational enterprise: strategic and institutional approaches. Journal of International Business Studies.Vol 37, p.838–849. Retrieved from 10.1057/palgrave.jibs.8400227 Jamali, D., and Marshak, R, 2007, the Corporate social responsibility: the Theory and practice in a developing country context. Journal of Business Ethics. Vol 72, no 3: p.243–262.  Joyner, B, and Payne D,2002, the Evolution and Implementation: A Study of Values, Business Ethics, and Corporate Social Responsibility. Journal of Business Ethics.Volume 41, Issue 4, pp 297-311.Retrieved From: 10.1023/A:1021237420663 Lance M, 2001, What do we mean by corporate social responsibility, International Journal of business in the society, Vol. 1 Iss: 2, pp.16 – 22. Retrieved from http://dx.doi.org/10.1108/EUM0000000005486 Loe T, Ferrell, L and Mansfield, P, 2000, A Review of Empirical Studies Assessing Ethical Decision Making in Business, Journal of Business Ethics Volume 25, Issue 3 , pp 185-204.retrieved from: 10.1023/A:1006083612239 Luetkenhorst, W, 2004, the Corporate social responsibility and the development agenda. Intereconomics vol 39, no, 3: pp157–168 Matten D, and Crane, A,2005, the Corporate Citizenship: Toward an Extended Theoretical Conceptualization. Academy of Management Review. VOL.30. no.1. p.166-179.retrieved from: http://amr.aom.org/content/30/1/166.short McWilliams A, Siegel D, and Wright P, 2006, Corporate Social Responsibility: Strategic Implications. Journal of Management Studies.Volume 43, Issue 1, pages 1–18.retrieved from: 10.1111/j.1467-6486.2006.00580.x Mohtsham M, Faria a, 2012, the Corporate social responsibility as the source of competitive advantage: Journal of Database Marketing and the Customer Strategy Management .volume 19, p.219–232. Retrieved from:10.1057/dbm.2012.19 Morgan P, and Covin G, 2000, Environmental Marketing: A Source of Reputational, Competitive, and Financial Advantage, Journal of Business Ethics.Volume 23, Issue 3 , pp 299-311.Retrieved from 10.1023/A:1006214509281 O’Fallon, M and Butterfield, K, 2005, A Review of The Empirical Ethical Decision-Making Literature: 1996–2003, Journal of Business Ethics. Volume 59, Issue 4, pp 375- 413.Retrieved from: 10.1007/s10551-005-2929-7 Treviño L, Weaver G and Scott J, 2006, Behavioral Ethics in Organizations: A Review, Journal of Management vol. 32 no. 6,951-990.Retrieved from http://jom.sagepub.com/content/32/6/951.short Read More