The Trouble with Being Average

Companies are more likely to achieve profitable sales overseas if their level of corporate social responsibility is either above average—or below it.

Courtesy of Autobloggreen.

Many researchers and senior executives now agree that under the right conditions, corporate social responsibility initiatives can simultaneously create value for society while also producing valuable rewards for companies. But can multinational corporations capitalize on their corporate social responsibility investments when they expand overseas? Do multinationals profit in foreign markets by investing in corporate social responsibility? Or are social initiatives simply a costly distraction for companies seeking to generate returns from their international ventures?

The leading question

Can multinational corporations capitalize on their corporate social responsibility investments when they expand overseas?

Findings
  • U.S. public companies with low or high levels of social performance achieved greater degrees of international success than those with moderate levels.
  • One implication of these findings: Investments in corporate socialresponsibility may lead to competitive disadvantages internationally unless a high level of social performance can be attained.

On the one hand, investments in corporate social responsibility programs can enhance the legitimacy of a company operating outside of its domestic market by establishing a strong reputation for good citizenship. This reputation can smooth the path of international expansion and provide a solid foundation for international success. On the other hand, a commitment to corporate social responsibility can inhibit the ability of companies to reap cost advantages that may be available overseas. Our research set out to investigate the relationship between corporate social performance and a company’s ability to achieve profitable sales outside its domestic market. We looked at both social performance ratings and accounting and financial data for more than 800 U.S. public companies between the years 1991 and 2003; we had an average of more than five years of data per company. (A full description of the study was published in the July 2008 issue of the Journal of Business Ethics in an article titled “The Impact of Corporate Social Performance on a Firm’s Multinationality.”) Our analysis produced some intriguing results. Companies in our sample with low or high levels of social performance achieved far greater degrees of international success than those with moderate levels. In other words, the relationship between social responsibility and profitable sales in foreign markets is U-shaped.

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