CUHK Business School Research Shows CSR Activities by a Corporate Parent Can Help Subsidiaries Build Trust in Overseas Markets

HONG KONG SAR
-�Media OutReach - 10 December 2020 - In
the post COVID-19 world, managing a corporate social responsibility (CSR)
programme that makes a meaningful difference, balances the views and concerns
of diverse stakeholders, and is cost effective can be a difficult tightrope to
walk even for companies looking at their home market.

 

This task likely becomes even more complicated for
multinational organisations operating in far flung locales and across diverse
cultures, and as companies are increasingly being assessed on their willingness
to demonstrate a commitment to helping fight the pandemic and to provide relief
to affected stakeholders.

 

In light of this, new research conducted by a team,
including at The Chinese University of Hong Kong (CUHK) Business School, found
that CSR activities conducted by the parent organisation of a multinational
company can positively influence the ability of overseas subsidiaries to
operate in their respective markets.

 

While prior research tended to focus on the effect of CSR at
the corporate group level, the new study; conducted by Shige
Makino, Professor of Management at CUHK Business School, in collaboration
with Prof. Frank Jiang Guoliang at Carleton University and Prof. Jae C. Jung at
the University of Missouri — Kansas City; dives down to how it affects
subsidiaries across different countries.

 

Titled Parent
Firm Corporate Social Responsibility and Overseas Subsidiary Performance: A
Signaling Perspective, the study cross-referenced and
analysed the financial information, foreign domestic investment and CSR
activities of 196 Japanese firms between 2002 and 2014 across three databases.

 

Local
Stakeholder Buy-in

Stakeholder buy-in is crucial for companies that operate
across diverse borders. A company operating in different jurisdictions must
deal with local stakeholders in each of its markets, and these can include
government and public and private sector organisations, not to mention the
wider community. Altogether they influence crucial parts of subsidiary
operations, such as through granting of permits and licenses, as well as
forming key suppliers or customers.

 

Only when these stakeholders are satisfied that a company’s
social and environmental practices align with their own, would they be willing
to grant access and support the subsidiary’s local operations.

 

The problem for some multinational organisations is because
they are able to deploy vast resources to expand in new markets quickly, they
sometimes lack the local track record needed to build a working relationship
with regional stakeholders.

 

This can be addressed to a certain degree by parent
companies providing information such as its social and environmental stance,
its commitment to building a positive working environment and to product
quality, and to maintain development in a sustainable way. Such so-called
long-range “signaling” can give the stakeholders of a local
subsidiary information that is conducive to building the foundations of a good
working relationship, especially when the subsidiary is not yet a known entity
in that particular market.

 

The researchers further found that this effect varied
depending on the activity of the subsidiary.

 

“We find that the manufacturing subsidiaries of
multinational organisations tend to have more diverse stakeholders, and that
means they are both more incentivised to learn about the CSR values of
companies that operate there and have better means to do so,” says Prof.
Makino.

 

He adds that the stakeholders of manufacturing operations
typically range from labour unions, to local suppliers and environmental
non-government organisations, all of which are highly invested in how
multinational companies operate from an ecological, economic and social point
of view.

 

“In another words, they don’t rely much on the
messaging from corporate headquarters,” he says. Manufacturing units also
typically have bigger environmental footprints, and they generate more skilled
and higher-paying jobs, meaning they have a bigger impact on local economies
and communities.

 

The higher stakes mean local stakeholders of manufacturing
subsidiaries are likely to find the CSR messaging communicated by a faraway
corporate headoffice insufficient. Because these stakeholders are more
organised, they also have the means to find out more about the company
operating in their jurisdiction.

 

On the other hand, the stakeholders of sales subsidiaries
consist mainly of consumers, who are typically more receptive to CSR signalling
on a corporate level, Prof. Makino says.

 

Press
Freedom and Local Information

The study also found that a multinational company tends to
be better able to communicate its group-wide CSR values when the countries
where their subsidiaries operate have a high degree of press freedom.

Having a free and open media allows multinational companies
to not only communicate to its stakeholders its CSR values, it also makes
stakeholders more receptive and for the message to be understood, says Prof.
Makino.

 

The other key factor that researchers looked at was how
local information about a subsidiary (once a company has established broad
operational presence in-country) interacted with the CSR messaging from the
corporate parent. It found that availability of information on a local
subsidiary diminished the “halo” effect of parent CSR reputation.

 

“If a local stakeholder sees that a subsidiary walks
the talk, then that information is likely to be more actionable to them than a
press release put out by executives sitting on another continent,” the
professor says. When a company has operated long enough in a market for there
to be a track record, this localised information provides a better way for
stakeholders to judge the social, environmental and ethical values of the
company, he adds.

 

Looking at the bigger picture, Prof. Makino says the
findings mean that CSR signalling from a parent firm can be a source of
competitive advantage for overseas subsidiaries, one corporate managers should
actively exploit.

 

“In particular, senior corporate executives should seek
to fine tune the amount, quality and ways group-wide CSR information could be
accessed in order to build trust and support with stakeholders in places where
its subsidiaries operate,” he says.

 

Lastly, he says multinational companies should seek to
tailor their CSR messages to the individual markets rather than adopt a
one-size-fits-all approach. “Each market is different, so by tuning their
CSR messages to specific markets, multinational companies can provide a more
accurate way for stakeholders in specific countries to learn directly about the
values of their subsidiaries that operate there.”

 

“This more direct route is preferable to having
stakeholders try to speculate about the values of local subsidiaries from the
actions and words of a corporate head office, which could be located thousands
of miles away.”

 

Reference:

Guoliang
Frank Jiang, Jae C. Jung, Shige Makino, Parent Firm Corporate Social Responsibility and
Overseas Subsidiary Performance: A Signaling Perspective, Journal of World Business, Volume 55,
Issue 6, 2020

 

This
article was first published in the China Business Knowledge (CBK) website by
CUHK Business School: https://bit.ly/3otZ7zj.

 

About CUHK Business School

CUHK
Business School comprises two schools — Accountancy and Hotel and Tourism Management — and four
departments — Decision Sciences and
Managerial Economics, Finance,
Management and Marketing. Established in Hong Kong in 1963, it is the first
business school to offer BBA, MBA and Executive MBA programmes in the region.
Today, the School offers 10 undergraduate programmes and 18 graduate programmes including MBA, EMBA,
Master, MSc, MPhil and Ph.D.

 

In the Financial
Times Global MBA Ranking 2020, CUHK MBA is ranked 50^th. In FT‘s 2020 Executive MBA ranking, CUHK EMBA is ranked 15^th in the world.
CUHK Business School has the largest number of business alumni (40,000+) among
universities/business schools in Hong Kong
— many of whom are key business leaders. The School currently has more than 4,800
undergraduate and postgraduate students and
Professor Lin Zhou is the Dean of CUHK Business School.

 

More information is available at http://www.bschool.cuhk.edu.hk or by
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