Thesis

Abstract:

In todays interconnected world, businesses have become more and more integrated

with society, which is the result of their increasing expansion and involvement on

the international stage. Corporate Social responsibility (CSR) has in that regard

become an important activity to partially manage this globalization and the related

responsibility. Therefore, this paper aims to examine the role of CSR when firms

expand abroad. In the first part of this paper the core themes: CSR, shared value,

internationalization, competitive advantage, firm performance and distances are

explained, where after the different types of CSR and their potential impact on

internationalization is discussed. After explaining the underlying reasoning behind

this literature review, the relationship between CSR and competitive advantage,

firm performance abroad and distances are examined to assess the role that CSR

can play when firms internationalize. The findings suggest that CSR can play a

positive role when firms expand operations across borders.

Key words: Corporate Social Responsibility; CSR; Internationalization; Competitive

advantage; FSA; Distance; Firm performance.

CSR’s role in the internationalization process of firms

Economic and internationalization benefits next to social, environmental and

reputational advantages.

Halil Ibrahim Deniz

s2973863

University of Groningen

Faculty of Economics and Business

BSc International Business

Supervisor: L. Em

Word Count: 5966

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Table of contents

1. Introduction 3

1.1. Background of the study 3

1.2. Problem statement, research question and sub-research questions 4

1.3. Relevance of the study 5

2. Defining the concepts 7

2.1. Corporate social responsibility and Shared value 7

2.2. Internationalization 7

2.3. Competitive advantage 8

2.4. Firm performance 9

2.5. Distance 10

3. Types of CSR and their potential impact 11

4. Methodology 12

5. Analysis and findings 14

Relationship between the concepts 14

5.1. CSR’s role in creating competitive advantages 14

5.2. CSR’s role in achieving higher firm performance abroad 15

5.3. CSR’s role in overcoming distances 17

5.4. CSR’s role in the internationalization process 19

6. Conclusion and discussion 21

6.1. Conclusion 21

6.2. Limitations and future research 21

7. References 22

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1. INTRODUCTION

1.1. Background of the study

Nobel Prize winner Milton Friedman said: “there is one and only one social

responsibility of business--to use its resources and engage in activities designed to increase its

profits so long as it stays within the rules of the game, which is to say, engages in open and free

competition without deception or fraud”(Friedman, 1970: 6). However, this does not entirely

hold anymore in today’s globalized world, in which the interconnectedness between firms and

their business environment makes it inevitable to take decisions without taking in consideration

the firm’s stakeholders (Harris et al., 2009). In that sense has Corporate Social Responsibility

(CSR) become an important activity for firms in order to be ethical and not only legal in their

actions when conducting business.

Prior research (Cegliński & Wiśniewska, 2016; Ebrahim & Rangan, 2014; Porter &

Kramer, 2006; Sprinkle & Maines, 2010) suggests that CSR can be an important mechanism to

attain reputational advantages, while it can also be a source of improvement, innovation and

competitive advantage. Furthermore, Porter and Kramer (2011) have extended the CSR concept

and found out that CSR can also be a source of economic success when it addresses social and

environmental challenges present in the business environment, and this resulted in the

development of the concept ‘’shared value’’, which will be explained in detail later on. Thus,

it suggests that firms can better expand operations and therefore achieve a higher firm

performance when they integrate CSR in their business model.

Hence, when the domestic market stagnates or when the growth potential at home is

limited, CSR can to a certain degree be a mechanism to help firms to internationalize (Feller,

2016). CSR can therefore play a positive role when firms decide to expand operations across

borders.

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1.2. Problem statement, research question and sub-research questions

Engaging in CSR does not suddenly make firms capable to operate in a foreign market.

Several factors (distances, FSAs, local responsiveness, resources and capital) are important to

consider when firms want to successfully internationalize in order to achieve a high firm

performance abroad (Feller, 2016). Initially there are two elements of high importance to

consider when firms are planning to internationalize since they are one the first aspects firms

should evaluate before expanding operations abroad (McCarthy, 2018: 29). Firstly, firms must

either possess or have to be able to develop non-location bound firm specific advantages

(FSAs). Secondly, a firm must be able to overcome the liability of foreignness, which are the

set of costs ‘’based on a particular company’s unfamiliarity with and lack of roots in a local

environment’’(Zaheer, 1995: 343), so they have to the overcome the distance between the home

and host market. Nevertheless, this does not take away that many other factors can influence

the success of an internationalization process.

In this literature review several types of CSR will be explained, as well as their impact

upon the pre- and post- internationalization process, in order to determine the role that CSR can

play when firms decide to internationalize. For a CSR strategy to be able to positively affect

the internationalization process, a firm must embrace a broad vision of CSR, in which a

company’s social and environmental activities should be aligned with its business purposes and

values, in which coordination and a logic connecting various CSR programs by senior managers

or even the Corporate Executive Officer are necessary (Rangan, Chase, & Karim, 2015).

Therefore, this research focuses on CSR and the role it plays when firms expand

operations abroad. The reason for this is that in today’s globalized era multinational

corporations (MNCs) are seen as expanding at the expense of the broader society (Porter &

Kramer, 2011) and many global challenges require the expertise and scalable business models

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of the private sector (Kramer & Pfitzer, 2016). Corporate social responsibility has in that sense

become an important tool to tackle these challenges.

Therefore, to theoretically examine the relationship between CSR and

internationalization the research question of this literature study will be as follow:

What role does corporate social responsibility play when firms expand operations

across borders?

To research the impact of CSR upon the internationalization process it must first be

determined what impact CSR has on the development of (non-location bound) FSAs, what role

it plays in overcoming distances and how it helps to increase firm performance abroad, since

these elements influence whether and how successful the internationalization process will be.

Hence, this paper will be divided in several sub-sections in which the following sub-research

questions will be addressed:

I. How does corporate social responsibility help firms to develop a competitive

advantage?

II. How does corporate social responsibility help firms to overcome distances

between home and host country?

III. How can corporate social responsibility help to increase firm performance

abroad?

1.3. Relevance of the study

Various researchers have already investigated the benefits that CSR can provide when

firms deal with social and environmental challenges. Porter and Kramer (2006) already pointed

out that firms can improve their competitive context when pursuing CSR activities, because

they perceive CSR not only as a way to be a good citizen by making donations, but also as a

source of improvement and development. Furthermore, Sprinkle and Maines (2010) describe

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what kind of benefits and costs are involved when firms engage in CSR, for example that CSR

efforts may lead to efficiencies and cost savings in the value chain.

However, even though scholars have already researched the concept of CSR intensively,

as mentioned above, they are mainly concerned with the potential economic successes that CSR

can deliver next to the social and environmental benefits (Porter & Kramer, 2011) and not

specifically how it can help firms to internationalize and overcome potential differences when

conducting business abroad. Additionally, scholars have primarily researched how firms can

get the most out of CSR activities (Kramer & Pfitzer, 2016; Porter & Kramer, 2011; Rangan et

al., 2015; Sasse & Trahan, 2007) , in other words, how businesses can achieve the full potential

that lies within CSR. They overlooked the point of explicitly identifying in which cases CSR

can help firm to internationalize and bridge the gap regarding different business circumstances.

Consequently, the current literature lacks in establishing a relationship between CSR and

internationalization.

The objective of this research is therefore to investigate how CSR’s full potential can

be applied when companies expand abroad. Hence, this paper will contribute in two ways to

the existing literature. First, it provides a new perspective upon the link between CSR and (non-

location bound) FSAs, overcoming distances and firm performance abroad. Secondly, this

literature study provides a new insight upon the linkage between CSR and internationalization.

The outline of the paper will be as follows. Firstly, the definition and explanation of the

core concepts are described. Secondly, the different types of CSR and their potential impact

upon internationalization will be briefly discussed. Thirdly, the methodology used and the

research design will be outlined. Fourthly, the linkages between the concepts of the research

question and sub-research questions will be addressed. Finally, the conclusion of the findings

along with the limitations of the paper and recommendations for future research are presented.

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2. DEFINING THE CONCEPTS

Many people perceive CSR as a source of charity rather than a win-win situation which

can actually be achieved (Porter & Kramer, 2006). Therefore, beside CSR’s philanthropic

intentions, CSR will be mainly considered in terms of shared value. which will be explained

along with the other core concepts in the following part. In section 5 the linkages between these

concepts will be explored in detail.

2.1. Corporate social responsibility and Shared value

To begin with, CSR can be defined as ‘‘the firm’s considerations of, and response to,

issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish

social [and environmental] benefits along with the traditional economic gains which the firm

seeks.’’(Davis, 1973: 312). In other words, CSR is an activity in which organizations

voluntarily incorporate social and environmental challenges in their business operations and in

their interaction with their stakeholders.

The concept of shared value can be defined as ‘’policies and operating practices that

enhance the competitiveness of a company while simultaneously advancing the economic and

social conditions in the communities in which it operates (Porter & Kramer, 2011: 67).

Therefore, it is suggested that besides the reputational advantages that CSR can provide, it can

also help firms to achieve economic success (abroad) when addressing social and

environmental challenges (in a foreign market).

2.2. Internationalization

Internationalization can be described as ‘’the process of increasing involvement in the

international markets’’(Welch & Luostarinen, 1988: 36), in which we can divide

internationalization in import-orientated and export-orientated processes (Mikić, Primorac, &

Kozina, 2016). The focus will be on the latter process, since the aim of this study is to determine

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the impact of CSR when firms enter new markets through export or foreign direct investment,

rather than an import-orientated approach in which firms attain products and services from

foreign markets. Furthermore, in relation to firm performance, successful internationalization

is indicated by a high business performance abroad, encompassing financial, operational and

overall performance (Dörrenbächer, 2000; Mikić et al., 2016).

2.3. Competitive advantage

Barney (1991) wrote that a firm can have a competitive advantage when it implements

a value creating strategy, which is not implemented in a simultaneous manner by any existing

or future rivals. In relation to CSR and internationalization three questions are of importance

when considering competitive advantages: How does a firm create a competitive advantage?

How does a firm sustain a competitive advantage? And are the firm’s competitive advantages

location bound or not? It is important to highlight these processes, because firms can only

successfully internationalize when they are capable of developing (sustainable) non-location

bound FSAs (McCarthy, 2018: 37) and CSR can be a tool to achieve this objective.

The creation of an FSA depends upon the combination of market based outside-in

models and resource based inside-out models. According to Porter (1979), an organization’s

ability to position itself against the following five market forces enables the creation of FSAs:

threat of new entrants, threat of substitutes, bargaining power of customers, bargaining power

of suppliers and industry rivalry. The resource-based view suggests that the special combination

of (internal) resources can be used to explain the source of an FSA, which can in turn determine

firm performance (Barney, 1991).

Resources can become sustainable FSAs, when they satisfy the four conditions of the

VRIN framework, in which a resource must be valuable, rare, inimitable and non-substitutable

(Barney, 1991). FSAs are sustainable whenever they keep existing despite attempts by existing

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and potential competitors to duplicate it. Related to that are isolating mechanisms which are

economic forces that restrict the ability of current and future competitors to imitate FSAs. Two

main types of isolating mechanisms involve impediments to imitation (legal barriers and

superior access to resources and customers) and early-mover advantages (reputation, buyer

switching costs and learning curves).

Firm-specific advantages may be location-bound if they entail substantial costs when

applied in other regions (Dunning, 2009; Rugman & Verbeke, 1992; Shan & Song, 1997), as

to say FSAs are location-bound when they can only achieve their full potential in a specific

location. When a firm’s strength is based in the home country and if the firm cannot develop

non-location bound FSAs, it should not expand operations across borders (McCarthy, 2018:

37).

2.4. Firm performance

Why some firms outperform others on the international stage is a key question within

the field of international business (IB) (Hitt, Hoskisson, & Kim, 1997; Tallman & Li, 1996).

Firm performance comprises the achieved outputs or results measured in comparison to its

expected goals, results, objectives or outputs (Richard, Devinney, Yip, & Johnson, 2009). In

order to adequately analyze firm performance it must be evaluated based on three types of

measurements: financial performance, operational performance and overall effectiveness

(Venkatraman & Ramanujam, 1986).

Financial performance includes outcome-based metrics which indicate economic

objectives, including market-based and accounting-based indicators, as to say the overall

profitability of an organization. (Venkatraman & Ramanujam, 1986). In which for example, a

growth in foreign sales after conducting a CSR activity can indicate a relationship between the

two, as to say there could be a link between CSR and a part of firm performance in that case.

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Operational performance refers to the operational success dimensions, which could in

turn lead to higher financial performance, so it includes non-financial aspects such as, market

share, innovation, efficiency, productivity and employee retention (Venkatraman &

Ramanujam, 1986). Where an increase in efficiency after engaging in a CSR project, resulting

in decreased cost or usage of resources, can in turn increase profitability and financial

performance, therefore indicating a positive relationship between CSR and operational

performance.

Finally, overall effectiveness employs a broader approach to the concept of

performance, which is comprised of reputation, achievements of objectives, perceived overall

performance (relative to competitors) and survival (Lewin & Minton, 1986; Venkatraman &

Ramanujam, 1986). Especially reputation refers back to the benefits that CSR can provide, and

once again a partial relationship between employing CSR practices and overall effectiveness

and therefore firm performance can be determined.

2.5. Distance

In the field of IB distances entail the extent of differences present between countries

(Hutzschenreuter, Kleindienst, & Lange, 2016). Therefore, distances present complexity

(Vermeulen & Barkema, 2002) and friction (Shenkar, Luo, & Yeheskel, 2008) by increasing

the difficulties associated with achieving and sustaining cross-border expansions

(Hutzschenreuter et al., 2016).

According to Ghemawat’s CAGE framework (2001), distance can be defined along four

dimensions: cultural, administrative, geographic and economic. The different dimensions

influence the internationalization process of businesses in various manners and CSR projects

affect these dimensions in different ways which will be explained later on.

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Cultural distance refers to the differences in ethnicity, language, social norms and

religion, and influences how entities in different countries interact with other actors in the

business environment (Ghemawat, 2001). Administrative distance refers to the extent of

historical and political ties between countries and arises from the lack of shared

monetary/political associations, colonial ties, government policies, institutional weaknesses

and political hostility (Ghemawat, 2001). Geographic distance does not refer only to the

physical distance present between countries, but also to differences in the size of the country,

absence of a common border, access to sea and river ways, topography and poor transportation

channels (Ghemawat, 2001). While, this distance affect tangible goods in terms of

transportation costs, it also affects intangible costs by means of differences in the level of

communication and information infrastructure between countries, which affects the flow of

cross-border equity (Ghemawat, 2001). Economic distance mainly refers to the differences in

income and wealth, but also to discrepancies in costs and quality of infrastructure, intermediate

inputs and human, financial and natural resources (Ghemawat, 2001).

3. TYPES OF CSR AND THEIR POTENTIAL IMPACT

Despite the gap in the CSR literature with regard to internationalization, it does not take

away the fact that it provides useful insights regarding the concept of CSR and in addition they

can provide important implications for this research as well, since important knowledge can be

gained from these papers. On that account, this part will outline relevant literature upon the

different types of CSR and their advantages in the internationalization process. It is important

to distinguish between different types of CSR activities since they can provide various

advantages (economic, social, reputational and environmental) in the internationalization

process, as will be examined in the following part. According to Rangan, Chase and Karim

(2015) there are three theatres among which CSR activities can be divided.

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Theatre one focuses on philanthropy, which mainly involves gifts and donations, and

therefore no profit or revenue goals are pursued, in most cases the brand image will improve

(Rangan et al., 2015). Hence, from this theatre firms themselves can mainly attain reputational

advantages in the internationalization process, since it may stimulate consumers abroad to buy

a firm’s products or services (Sprinkle & Maines, 2010).

Theatre two is concerned with improving operational effectiveness, in which delivering

social and environmental benefits can in turn lead to improved efficiency and effectiveness,

such as waste reduction or improved productivity (Rangan et al., 2015). Showing environmental

and social concern when internationalizing, can decrease production costs abroad through cost

efficiency and effectiveness (Sprinkle & Maines, 2010).

Finally, theater three involves transforming the business model, in which again social

and environmental challenges are addressed, however this time with improved firm

performance as a requirement (Rangan et al., 2015). Theatre three activities can generate

benefits in the internationalization process with regard to procurement, distribution, local

connections, employee productivity, energy use and logistics (Porter & Kramer, 2011). In

addition, firms can engage in multiple theatres at the same time, the categorization does not

indicate that firms can only purse activities in one theatre at the time (Rangan et al., 2015).

4. METHODOLOGY

The aim of this research is to review how CSR can help firms when they internationalize

and to find out in which parts of the internationalization process the influence of CSR is

substantial. This exploratory study is conducted by performing a literature review in which

existing literature upon the study’s main themes were analysed to develop an integrated

research in order to shed a new light upon the core concepts, CSR and internationalization, to

come up with a theoretical understanding regarding their relationship.

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A literature study extracts the existing literature in a subject area. The objective of a

literature review is therefore also to summarize the state of art in that subject field that support

the identification of specific research questions (Rowley & Slack, 2004). By reviewing the

existing work of scholars, researchers become able to identify gaps in the literature in which

future research would be beneficial (Rowley & Slack, 2004). Therefore, a literature study must

help the reader to understand the underlying theoretical concepts and terminology, and the

discussion and conclusion paragraphs should eventually lead to recommendations for future

research and methodologies (Rowley & Slack, 2004).

Relevant literature was found by performing an initial review of paper abstracts related

to the research topic, after which in depth research and reading were conducted whenever a

source was deemed as relevant.

This study was build up by first explaining the core concepts, after which the different

types of CSR along with their benefits in the internationalization process were identified

(Rangan et al., 2015) in which the main categorization involves the three theatres of CSR: first

theatre (philanthropy); second theatre (improving operational effectiveness) and; third theatre

(transforming the business model). Where after, the linkages between CSR and creating FSAs,

overcoming distances and achieving a higher firm performance abroad were established based

on theoretical reasoning and practical application in order to properly assess the impact of CSR

in the internationalization process.

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5. ANALYSIS AND FINDINGS

Relationship between the concepts

5.1. CSR’s role in creating competitive advantages

The link between CSR and competitive advantages can be mainly established when

firms engage in CSR in terms of shared value, since in that case CSR is not only a cost or a

donation, but it also generates opportunities, innovations and FSAs (Porter & Kramer, 2006).

As mentioned in section 2.3, a competitive advantage can be created by the combination of

inside-out and outside-in practices. In the case of CSR this can done by looking at the firm’s

value chain and its social dimension of competitive context, this can be analyzed by considering

Porter’s diamond framework, which includes: local demand conditions, factor input conditions,

related and supporting industries and context for firm strategy and rivalry (Porter, 1990).

Firms should aim to decrease as much of the negative social impacts of their value chain

as possible, which can set out a path that can offer strategic and social opportunities. When

considering the competitive context, firm cannot not engage in every dimension of the diamond.

Therefore, firms should take on areas in the social competitive context, which can deliver the

greatest strategic value. Hence, a firm should choose a social initiative that will have a positive

impact in the value chain and one that is also related to the own business domain, this will result

in the greatest shared value and the creation of competitive advantages. Porter and Kramer

(2006) suggest several steps to create a competitive advantage with CSR: identifying points of

intersection between firm and society; selecting social issues related to the own business

practices; creating a corporate social agenda by incorporating CSR in the core business

operations; integrating inside-out and outside-in practices and adding a social dimension to the

set of needs that firms can meet for their customers that others cannot (value proposition).

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A prime example in this regard is Nestlé’s entry in the Indian market. By collaborating

with small local farmers, they have ensured a stable and reliable supply of milk, coffee and

cocoa which are key inputs to their operations. Investing in local infrastructure and transferring

knowledge and technology over time resulted in a tremendous social impact through better

health care, improved education and economic prosperity for the community. Therefore,

Nestlé’s business strategy has become interwoven with its social impacts (Porter & Kramer,

2006)

As mentioned before a sustainable FSA can be created when the different conditions of

the VRIN framework are satisfied and when isolating mechanisms (impediments to imitation

or early mover advantages) are present, a clear illustration regarding early mover advantages

concerns the pharmaceutical firm Novo Nordisk. While diabetes was relatively undiagnosed

and therefore untreated in China, a country with around 10 million diabetes patients, Novo

Nordisk entered China by creating the World Diabetes Foundation and worked with the Chinese

government and other (non-governmental) agencies to treat these patients by funding medical

research and challenging the social stigma related to the disease through an extensive media

campaign. While addressing a social problem and making a social impact, Novo Nordisk also

created a market worth over a billion dollars and attained an advantage which later entrants

have not been able to duplicate or neutralize. Novo Nordisk has nowadays a market share of

around 60%, while it closest competitor, Eli Lilly, has to do with an 15% market share (Kramer

& Pfitzer, 2016).

5.2. CSR’s role in achieving higher firm performance abroad

While previous research (Arlow & Gannon, 1982; Cochran & Wood, 1984) indicated

mixed results or did not find a significant relationship between CSR and firm performance at

all, a recent paper (Foote, Gaffney, & Evans, 2010) indicates that CSR may actually lead to

performance excellence. Evans, Foote and Gaffney (2010) conclude that CSR can have a

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significant impact on performance, because it can lead to an advantage when CSR is used in a

strategic manner and this advantage can be exploited fully when a company engages in CSR

for the right reasons and when firms address decisions regarding CSR activities proactively and

strategically as it would be with other core business decisions. As mentioned in part 2.4, firm

performance consists of financial performance, operational performance and overall

effectiveness and below their relationship with CSR is illustrated with real-life examples.

An example related to financial performance involves Unilever’s entry in rural India,

where they employed village women instead of wholesaler-to-retailer distributors to reach the

rural areas, by providing them with loans and training the income for more than 65,000 village

women doubled, while at the same time Unilever gained more than $100 million in revenue

from this CSR project (Rangan et al., 2015). This example also relates back to the third theatre

of CSR initiatives as mentioned before, namely transforming the business model.

Secondly, operational performance, in terms of market share becomes most clear in our

previous example, in which Novo Nordisk had attained a market share of 59% in China, while

it biggest rivals, Eli Lilly and Sanofi, have to do with a share of 15% and 5% respectively. In

terms of productivity and efficiency, the agricultural company Yara grow its business by

improving the logistical infrastructure when entering Mozambique through investments in ports

and roads in order to provide local farmers with more efficient access to agricultural inputs,

while this led to the creation of more 300,000 jobs, it also increased the productivity and

efficiency of the both the farmers and Yara in sourcing inputs and producing at much lower

costs (Porter & Kramer, 2011). These examples illustrate that efficiency and effectiveness can

in turn increase financial performance and can therefore be positioned in theatre 2 of CSR

activities (improving operational effectiveness).

Finally, in terms of overall effectiveness, all previous examples illustrate how CSR can

help firms to improve overall performance and performance relative to competitors, by either

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improved efficiency, effectiveness, financial performance and/or reputation (Janssen, Sen, &

Bhattacharya, 2015). In addition, as Nespresso engaged in CSR related to its business, by

helping and educating coffee bean farmers in Africa and Latin America, they simultaneously

obtained a reliable source of specialized coffee beans and experienced annual growth of 30 %

since 2000 (Porter & Kramer, 2011).

Nevertheless, engaging in CSR for the sake of ‘’window dressing’’ and insincere

reasons, may heavily backfire in terms of firm performance and reputation, as it was the case

with tobacco company Philip Morris, who supported a youth smoking prevention campaign,

while it was related to its business it received heavy critics and damaged firm performance,

because the public was of opinion that this support had high benefit salience for Phillip Morris

(Yoon, Gürhan-Canli, & Schwarz, 2006).

5.3. CSR’s role in overcoming distances

Most of the literature in this regard is focused on the effect of the different dimensions

of distance (cultural, administrative, geographic and economic) upon the type of CSR practices

(global vs. local) pursued rather than on the role of CSR in overcoming distances when firms

internationalize (Campbell, Eden, & Miller, 2012; Jacqueminet, 2017; Yang & Rivers, 2009).

However, Yang and Rivers (2009) indicates that the effect of administrative distance upon

internationalizing firms can be eased when firms engage in locally responsive CSR rather than

in global CSR initiatives, since institutional differences are mainly country-based and therefore

less likely to be overcome with a global approach. Moreover, Feller (2016) noted that cultural

distance can be partly overcome when firms pursue global CSR initiatives. Moreover, by

logically and critically assessing the benefits of CSR and existing CSR projects, more specific

links between CSR and overcoming administrative, geographic and economic distances were

explored, while no specific examples related to cultural distance were found.

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CSR can be a mechanism of risk management, in which for example a car manufacturing

company can mitigate the risk of future legislation in which stricter rules could apply (Sprinkle

& Maines, 2010) by reducing its emissions or building more environmentally friendly cars, and

they could therefore potentially overcome a part of the administrative distance, when they for

example expand operations to a host country with tighter emission standards. Toyota for

example developed a non-location FSA with its hybrid technology arising from the

environmental benefits it generates (Porter & Kramer, 2006). Their hybrid vehicles only

emitted 10% of the harmful pollutants that standard vehicles emitted and therefore provided

Toyota with a positive value chain impact and addressed a competitive context challenge,

leading them to develop a unique position among customers. Therefore, Toyota’s early socially

responsible actions in response to public concern about emissions, made them able to develop

an early-mover advantage, while also being able to cope more easily with administrative

differences with regard to emission regulations in foreign markets.

Yara’s program to improve the logistical infrastructure in Mozambique as mentioned in

the previous part illustrates the impact of CSR upon the tangible side of geographic distance

with regard to improvements in the transportation infrastructure. Whereas, Vodafone’s CSR

project in Kenya proved that CSR can ease the intangible aspect of geographic distance, in

terms of differences in the level of information infrastructure and communication channels.

Vodafone provided cheap mobile phones in Kenya which included a mobile banking service,

that made it possible for the poor to safe their income in a secure way, while also making

farmers able to produce and market their products more effectively. Already over 10 million

customers are making use of this initiative called Vodafone M-PESA (Porter & Kramer, 2011).

With a similar social impact, the Canadian Multinational Thomas Reuters provides farmers in

India information on the weather and crop pricing and gave them agricultural advice at the cost

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of $5 per quarter, this project reached over 2 million farmers already, who saw their incomes

grow with more than 60% (Porter & Kramer, 2011).

Considering the effect of CSR upon economic distance it can be seen that it mainly

decreases discrepancies in income and wealth, while it also helps to attain (intermediate) inputs

and improved access to human and natural resources in a host country. From the previous

examples (Nestlé, Unilever, Nespresso, Yara, Vodafone and Thomas), it can be observed that

these CSR projects had and have a substantial impact upon the increase of income and wealth

and therefore upon the partial decrease of the economic distance in the countries/regions where

these firms conduct business. Furthermore, as a result of Nestlé’s and Nespresso’s CSR

projects, their cost of intermediate inputs and natural resources decreased while the quality and

access to these inputs increased substantially, making the economic distance for these

companies decline partially. Finally, CSR can be a source to attract, recruit, motivate and retain

employees (Sprinkle & Maines, 2010) and can therefore be a source to lessen the economic

distance with regard to human resources, where in addition CSR initiatives involving education

and training can also contribute to ease this distance.

5.4. CSR’s role in the internationalization process

Finally, CSR can actually help firms to expand operations across borders through

various means. To begin with, in the pre-internationalization stage, CSR initiatives can set out

a path for firms to develop non-location bound FSAs which are necessary for firms who are

planning to internationalize. For example, one of Nestlé’s FSAs came from the local sources of

milked derived from the relationship with small farmers in Switzerland, while this FSA was

location-bound, Nestlé achieved to make this FSA non-location bound in India by engaging in

CSR to improve the social and business environment in the region. The same applies for Toyota

who managed to develop a non-location bound FSA with is hybrid electric/gasoline technology

(Porter & Kramer, 2006). Moreover, in order to successfully internationalize firms have to

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overcome certain distances and the related liability of foreignness. Hence, CSR can be a

mechanism to reduce the effect of administrative distance in the pre-phase, when firms mitigate

the risk of future or different legislation, since administrative differences are important to take

into account before expanding operations abroad.

In the post-internationalization phase, CSR can be a source to create a competitive

advantage at the location where the firm has expanded to. Unilever, managed to establish a FSA

in their distribution channel by employing village women in India rather than using expensive

middle-men; and by being the first to show concern for diabetes in China, Novo Nordisk

managed to attain a sustainable FSA. In the post-internationalization stage the impact of

geographic and economic distance was mainly lessened, as a result of improvements made by

firms in the tangible and intangible infrastructure, in the income, wealth and human and natural

resources at the locations where they expanded to. Whereas Nestlé and its subsidiary Nespresso

mainly improved the access to factor input conditions and related and supporting industries,

Vodafone and Thomas Reuters did this by improving the information and communication

infrastructure and Yara by improving the transportation channels.

The combination of all these factors led to the improvement of firm performance abroad,

mainly in terms of cost savings and revenue, meaning that CSR can (partially) help firms to

successfully internationalize, which is indicated by a larger (global) market share and a higher

business performance (abroad) as a result of CSR. Nevertheless, the additional reputational

benefits that CSR can generate to help in the global expansion process should not be

disregarded, while the social impact of these CSR activities upon the community should not be

forgotten either.

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6. CONCLUSION AND DISCUSSION

6.1. Conclusion

This literature study has explored CSR’s role when firms internationalize in the

following way. To begin with, the core themes of this study were defined, after which the

different types of CSR and their potential role in the internationalization process was discussed,

where after in the final part the linkages between the core concepts were examined to establish

a relationship between them. This was done through theoretical and practical assessment, in

which it was found that CSR can actually help firms to expand operations across borders.

Firstly, CSR can assist firms to develop non-location bound competitive advantages needed to

internationalize and CSR can stimulate firms who settled in a foreign market to develop

location-bound FSAs to attain a strong local competitive position. Secondly, CSR can play a

role in overcoming distances, since it provides firms with an opportunity to improve the

economic and social circumstances at the locations where they operate, while it also prepares

the firm to adapt to challenges in the geographic and administrative environment. Finally, a

firm’s ability to create (non-location bound) FSAs and overcoming distances by engaging in

CSR could lead to higher financial, operational and overall firm performance and can make

them capable to increase involvement in the international markets.

6.2. Limitations and future research

Although I have shed a new light upon the relationship between CSR and

internationalization, this literature study still remains limited in scope. Firstly, due to a limited

timeframe and word limit, it was not possible to take this research a step further by assessing

the relationship between CSR and different types of internationalization, such as gradual vs

radical expansion. Therefore, to further extend this study, future research upon the relationship

between CSR and different types of internationalization is needed. Secondly, in the practical

22

examples it was mainly found that CSR had benefits for firms that internationalize to

developing countries, which can decrease the study’s generalizability, therefore future study

should include examples that also involve developed countries. Thirdly, as mentioned before

the effect of CSR upon overcoming distances remains an underdeveloped field in the IB

literature, this may set out a path for researchers to fill up this void. Fourthly, other moderating

and mediating factors could have a substantial influence upon the linkages between the core

concepts, for example previous experience in CSR and/or internationalization might imply that

CSR can have even more benefits in the internationalization process, this should be considered

in future empirical research. Finally, Ebrahim and Rangan (2014) noted that credible and

measurable claims about outcomes can only be made under two conditions: first, if firms

implement a narrow scope of activities where the casual link between inputs and outcomes is

clearly established through evidence; secondly, when firms implement a broad scope of

activities that are vertically integrated to increase control over outcomes.

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