Csr Old Copy Dissertation

CSR in Developing Countries

ABSTRACT

Author: XYZ

UOB No.: MCC

Supervisor: Dr. ABC

Project Title: Adoption of corporate social responsibility by developing countries

Keywords: CSR, Corporate Social Responsibility, Developing countries, philanthropy,

activism, Human Resources, Management, Corporate Social Responsiveness, Corporate

Social Performance, Strategy

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ADOPTION OF CORPORATE SOCIAL RESPONSIBILITY BY DEVELOPING

COUNTRIES

By

XYZ

COLLEGE ID: MCC

UNIVERSITY STUDENT NUMNER:

Management Project submitted to the University of Wales in partial fulfillment of

the requirements for the degree ofMaster of Business Administration

2011

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STATEMENT OF AUTHENTICITY, CONFIDENTIALITY

AND WORD COUNT

STATEMENT OF AUTHENTICITY

I have read the University Regulations relating to plagiarism and certify

that this project is all my own work and does not contain any

unacknowledged work from any other sources.

STATEMENT OF CONFIDENTIALITY

I understand and agree, that the dissertation, if successful, may be made available

for inter-library loan or photocopying (subject to the law of copyright), and that

the tile and summary may be made available to outside organizations.

Signed: _____________________________

WORD COUNT: 14,000

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ACKNOWLEDGEMENTS

Writing a project is certainly not an individual effort. Several individuals play

different roles in affecting the completion of the project and I would like to take

this opportunity to convey my profound gratitude to all of them. I certainly am

grateful to all of those researchers, whose works have been cited in this project

and whose insights have directly or indirectly inspired me to initiate this project.

Dr XYZ being my supervisor played a fundamental role in the completion of this

project. She helped me to develop a focused approach, simplified the complexity

of research methodology and also offered her support as a friend. I am extremely

grateful for the, all out, support provided by her, during the course of my project.

Finally, I owe my immense gratitude to --------------------------------------------------

-------------------------------------------------------------------------

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Table of Contents

Sec. Topic Pg. No

List of Tables

List of Figures

1 Inception of CSR and a brief history

1.1 1920s – 1960s

1.2 1960s

1.3 1970s

1.4 1980s

1.5 1990s

2 CSR in the 21st century

3 CSR – components and rationale

3.1 Defining CSR

3.2 Components of CSR

3.2.1 Legal View – expanding focus of accountability

3.2.2 Strategic business case

3.2.3 Strengthening and broadening the engagement level

3.2.4 Widening degrees of influence

4 Generation approach to CSR

4.1 First generation

4.2 Second generation

4.3 Third generation

5 Argument against CSR

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6 Trends in CSR

7 Growth of CSR

8 Importance of CSR

9 Emerging Markets – Developing countries

9.1 Methods of CSR reporting

10 Unique case of SME

10.1 What is SME?

10.2 Role of SME in economic development of the region

10.3 Corporate Social Responsibility and SMEs

11 The stake holder duo in CSR

11.1 Internal Stakeholders

11.1.1 HRM

11.1.2 Work safety and health measures

11.1.3 Adaption to change

11.1.4 Management of Environmental impact

11.2 External Stakeholders

11.2.1 Local communities

11.2.2 Business partners

11.2.3 Human rights

12 Hot issues in CSR in developing countries

12.1 Product responsibility

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12.2 Sustainability

12.3 CSR management / Governance

12.4 Accountability

12.5 Sustainability

12.6 Sustainability reporting

12.7 Climate Change

12.8 Labor exploitation

12.9 Social Exclusion

13 UNIDO and CSR in Developing countries

13.1 What is UNIDO?

13.2 Study on CSR attitude in developing countries

20 Findings

21 Future of CSR in developing countries

Bibliography

Appendices

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List of Tables

Table 1: The dimension of CSR

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CSR in Developing Countries 9


List of Figures

Fig 1: CSR structure for Value creation

Fig 2: Corporate engagement at different levels

Fig. 3: The Axis of strategic development

Fig. 4: The Generations of CSR distribution

Fig 5: Support to SMEs in USD Millions – Technical and Financial assistance

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1 Inception of CSR and a brief history

Corporate Social Responsibility (CSR) the term might seem to be a recent phenomenon

but a short literature review suggests that this term has evolved over few decades in the

corporate world. The term through the same throughout, has evolved but in meaning from

standing for charitable works by companies to taking responsibility of all its actions and

incorporating CSR in the main business model. Globalization and free flow of

information has ensured that CSR is influenced by global trends and international law. 1

1.1 1920s – 1950s 1

It is believed that CSR was invented by a debate between AA Berle and E Merrick Dodd

over the role of managers. In 1953, CSR was conceptualized as a social obligation - the

obligation ‘to pursue those policies, to make those decisions, or to follow those lines of

action which are desirable in terms of the objectives and values of our society’. Peter

Drucker wrote a book ‘The Practice of Management’ where he described in detail CSR as

a part of 8 key areas of business objectives.

1.2 1960s 1

There were a significant group of people who have actively written and described CSR

and its features like Fredrick, Clarence C Walton, and Keith Davis et. al. This decade was

a conscious effort to formalize and document all what CSR stood for in the corporate

world. It was still believed that CSR is only giving back to the society in return of the

gain which corporate make out of offering its products for a profit.

1.3 1970s 1

This was an era of debates and controversies, a big one created by Milton Friedman’s

Minimalist view of corporate responsibility. He had a view that role of businesses is only

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to abide by the law of the land and engage in only profitable activities pertaining only to

its line of business. This decade saw fierce opposition of this view by public, few

corporate and organizations. US Committee for Economic Development in its paper of

2003, Wheeler and Haub described CSR being overlapping with jobs, products, economic

profitability and growth, which is related to societal expectations and to activities aimed

at improving the social environment of the firm.

1.4 1980s 1

By this decade the view of the corporate world started to become wider and wider and

they accommodated more liberal views and meanings of what should CSR constitute.

Alternative terms such as stake holder CSR, corporate social responsiveness and CSP

(corporate social performance) came into picture. More focus was given on sustainable

development and role of CSR in it.

1.5 1990s 1

By this decade enough research was done on CSR and related terms, and hence this was

an era to build upon what existed and put them into practice. Business ethics, corporate

citizenship and CSR thinking took roots right in the deepest corners of the organization

and a top down implementation was taking place to ensure the company was up to the

mark when it came to its CSR. As described by Thomas G. in his working paper,

Swanson (1995) described three types of CSR

1) The Utilitarian perspective – instrument to achieve performance objectives

2) The negative duty approach – compulsory adoptions of social beneficial and

responsible activities under the pressure from the society

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3) The positive duty view – self motivated businesses, trying to do good to the

society without losing focus on overall business objective

2 CSR in the 21st Century

Collapse of Enron, the James Hardie asbestos scandal in Australia and many others big

and small scandals brought CSR in a never before limelight. Corporate and private

enterprises are now no more seen as organizations run by a group of individuals, but are

treated as a going concern and as an individual expected by the society to contribute to

public good as much as any other citizen. People expect them to take the ownership of all

the good, bad and ugly things happening by them and through their organization.

Globalization, privatization and deregulation in developing countries have given

immense power to corporate world and CSR is one way to ensure that the companies not

only give back to society as a philanthropic act, but also as a duty with well defined

rights, structure and accountability.

The world is becoming more and more integrated and the flow of information is seamless

from companies, to the stake holders to general public. Availability of data is regarding

activities of companies, legislations and governing rules is relatively easy and wide

spread as compared to the era without ICTs (Information and Communications

Technologies). This has led to emergence of new types of CSR, with companies

recognizing that addressing the social aspect is an indispensable component of their

business and crucial for achieving long term economical success. 1

In depth work was created to put CSR into perspective with the purpose, impact and the

benefits of philanthropic CSR, risk management CSR and value creation CSR. the same

is beautifully described in the table below.

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Fig 1: CSR structure for Value creation 32

Basic driver of CSR consists of

1) Values – of doing good to the society, nature and the environment in general

2) Strategy – of being more responsible towards the society and the environment and

using that as a strategy towards growth and profits

3) Public pressure – consumers, media, govt., overseeing bodies and international

organizations are constantly pressurizing companies to be more empathetic to the

society and environment and more so urging them to do the right things.

Throughout history CSR has been a focus of discussion among public, government and

only TNC (Trans National Corporations). Recently a gradual shift has been observed in

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participation of SME (Small and Medium Enterprise) segment in proactively engaging

themselves in CSR activities.

3 CSR – components and rationale

3.1 Defining CSR

CSR is variously defined as

‘‘ The continuing commitment by business to behave ethically and contribute to

economic development while improving the quality of life of the workforce and their

families as well as of the local community and society at large’’. (World Business

Council for sustainable Development) 5

‘‘ Being socially responsible means not only fulfilling social expectations, but also going

beyond compliance and investing more into human capital, the environment and relation

with stake holders.’’ (The European commission) 6

Hence CSR is best looked not from just a social perspective or a business perspective. It

needs a holistic approach and is much more than just social service by corporate. It

effects the corporate, the profits, the business processes, the business ideology, the

society, people at large and all stake holders including the environment.

3.2 Components of CSR

This section is an attempt to put CSR into a definitive structure as per the current

meaning of CSR. As we have seen how the meaning and implication of CSR has changed

over last few decades it is important to keep the structure flexible and keep updating it by

including and excluding factors as per the existing demand of business and society.

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Table 1 describes how CSR is changing from having a legal and binding form to a broad

range stakeholder involvement model. From business perspective it is changing from pain

alleviation to cost benefit and eventually to strategic alignment.

Focus of accountability

FromLegal and traditional

stakeholdersto

Direct stakeholders,

short term impacts

to

Broad range of stakeholders,

long term impact

Business case From Pain alleviation toCost benefit

rationaleto

Strategic alignment

Level of engagement

FromCompliance with legal

responsibilitiesto

Harm minimization

toSocial value

creation

Degree of influence

From Market actions toMarket

remoldingto Policy influence

Table 1 – The dimension of CSR4

3.2.1 Legal View – expanding focus of accountability

The question to ask is who are the stake holders in CSR and its implementation. Few

decades ago CSR was only a legal binding with traditional stake holders like government,

statutory organizations and legal bodies having regulatory powers. But this changed to

involving the customers and the business partners as the stake holders in CSR and

eventually what we see today is the more evolved form of CSR including almost

everyone from share holders, public in general, management of the corporate,

government, legal authorities and environment as a whole. CSR

3.2.2 Strategic business case

The thought by Milton Friedman’s Minimalist view of corporate responsibility started a

never ending debate if business are meant only for profit and practicality of life, or does it

owe anything to the society. But today things seen from the eye glass of CSR shows that

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principles, values and social responsibility can go hand in hand with profitability and

business acumen.

Pain alleviation is used by organizations when they are under compulsion and pressure by

the virtue of legal binding, public pressure or peer pressure. this is because the corporate

is worried about its reputation and brand image under which it abides by the CSR. But if

CSR looked deeper can lead to cost benefit. To quote a small example, More and more

organizations, both SME and large organizations are taking part in ethical trading

ensuring that the poor farmers who produce the raw materials get the required

remuneration for their labor and hard work. The Sainsbury’s group is one of UKs largest

retail chain who has taken part in the Ethical Trading Initiative (ETI) which covers the

code and conduct of international labor market. Many of the retailers withdrew from this

initiative bearing in mind the legal risk, but Sainsbury stuck to its word and came out

with flying colors. It works closely with Oxfam (UK) the most significant Non

governmental organization in ETI. 7 Hence this has lead to improvement not only in

brand image but also lead to decrease in cost as more producers are willing to do business

with Sainsbury’s for the reason of trust and belief. And eventually CSR can become a

part of the core strategy of business. Indira Noyee, CEO of Pepsi Co. mentioned in one of

her interview to NDTV ltd., India that Pepsi co. wants to eventually become a health food

company. company is constantly devising product range which has health benefits or at

least it does not have any side effects, and hence you can see how CSR can eventually

become the strategy for growth which people will embrace with both hands as eventually

it is for their benefit and the overall good of the company. 8

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Sustainability ltd. carried out a comprehensive research on how CSR is benefiting SMEs

in developing countries and it concluded that there is a strong correlation between

profitability and incorporation of CSR in business strategy. however it states that the

profit is not in short term, and there might be significant investments to be made but

eventually when looked in long run this is a better strategy. 9

Hence the three ways, in which organizations engage in business case, namely pain

alleviation, cost benefit and strategic benefit the business in long run. But to achieve this

the level of engagement needs to broaden by the corporate and hence the next point of

discussion

3.2.3 Strengthening and broadening the engagement level

Any organization works in CSR by engaging with the local authorities, government and

legal bodies at their level. It then engages to decrease the negativity of the society and

managing the risk of reputation and finally engages in a positive manner to create value

for the society through innovation, investment and overall environmental good.

Fig 2: Corporate engagement at different levels4

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3.2.4 Widening degrees of influence

Why are companies always behind more and more growth, why is it always behind

mastering best practices, huge profits and no. 1 position in market? The answer possibly

lies in expectations of people. At one side the social angle of CSR where people expect

companies to give back to the society, but at the other end they want companies to do

well on stock markets, have an impeccable balance sheet and make huge profits. Hence a

change has to come everywhere if CSR were to be implemented for overall good of the

society. Especially in case of SME, monopoly is rate, competition is driven by price and

hence CSR is sidelined and no body wants to sacrifice its cost structure in order to do

some good to society. Widening degrees of influence is all about how market influence

CSR decision and how markets can be remold to understand that less profitability with

worthwhile CSR ventures is better than doing nothing with huge profits sitting on the

balance sheet. And finally this has to evolve to a stage where the policy can be influenced

so that there no SME company in a conflict of better profitability and price war or of

implementing CSR for long term benefits.

Simon Zadek has beautifully described the development of CSR in three distinct stages

or generations as he calls as follows 10

4 Generation approach to CSR

4.1 First generation

First generation CSR says the organizations can be responsible along with being

commercially focused. This is the most simple form of CSR which became highly

popular in 1990s whereby top management of organizations and corporate themselves

donated huge sum of money to NGOs for good causes. This directly does not affect the

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business, but adds the reputation and improve the perception of the co. and the brand in a

positive manner in eyes of all the stakeholders. People also term this as reputation

protection strategy whereby the negative effects of business on society is tried to be

overshadowed by donating money and getting media attention more than the harm done

by those corporate / individuals.

4.2 Second generation

This has now developed where companies incorporate CSR in the core strategy for long

term and take lead without any pressure form government or public. There are

innumerable examples listed in the business case study to prove that this strategy works

well for small, medium as well as large organizations alike. CEOs are seen as the torch

bearers of such strategies and are often called ‘Citizen CEOs’, a coin termed by

Elkington. 11

4.3 Third generation

Third type of CSR is what is needed really in today’s globalized and interconnected

world, a global village in true sense. Still there are parts of civil society untouched by the

benefits of the products and services the companies have to offer, or the philanthropic

deeds done by them for societies benefit. CSR needs to be integrated in the network in

such a way that it reaches the most unfortunate parts of the society, who need help the

most in education, health, sanitation and basic amenities of water, food and electricity.

Sustainability will play a major role and only those organizations which are sustainable in

true sense will be able to make this possible.

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All three phases of CSR can be described by use of a diagram, which shows how third

generation of CSR can be used to achieve maximum societal benefits as well as

maximum commercial benefit.

Dave Stangis, Vice president for CSR for Campbell’s spoke about 9 points which

companies can use to start their march towards third generation CSR. Unlike past

generations mentioned above which can be summed up in words like philanthropy and

compliance, the differentiating factor according to him for corporate willing to

incorporate CSR in their strategy will be the following nine points

Integrated into culture

Integrated into your company’s innovation cycle

Integrated into recruitment and leadership development

Integrated into performance management and compensation systems

Differentiate your company and be identifiable to employees, customers,

suppliers and consumers

Integral to your mission, values and strategies

Reflect discipline and distinctions between “participation” and “demonstrated

leadership”

Provide strategic, policy and operational focus

Leverage unique strengths and intellectual capital

Campbell’s has taken CSR to a new level by even engaging its media and marketing

partners and ad agencies with its mission and vision with CSR strategy. 12

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Fig. 3: The Axis of strategic development 7

5 Argument against CSR

Of the innumerable articles and books written on CSR the words of Milton Friedman

holds true even today that ‘the social responsibility of business is to generate profits’.

Those words made such big impact that it was the headline of New York Times in 1970.

13. he went to clarify himself by writing ‘I have said that 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 rule of the game, which is to say,

engages in open and free competition without deception or fraud’.

On 16th May 2001, an article appeared in Financial Times London, about how CSR is

holding back companies and hindering growth14. This article was based on a pamphlet by

David Anderson, the then Chief economist of OECD which said that CSR is conducted

mainly by activists, most of them who are critics of free market economy, growth and

multi national companies. Eventually this leads to the birth of neo – corporatism and

leads to companies making highly debatable environmental and political judgments. The

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end result is the corporate, the government and few NGO or activists groups promoting

CSR becomes so powerful that their cartel itself becomes a power centre and threatens

everything which ought to be the right way. Wolf concluded the article by saying ‘‘the

role of well run companies is to make profits, not save the planet. Let them not make the

error of confusing the two.’’ 14

An immediate response came from many individuals, groups and corporate, pro CSR,

about the misguiding nature of the article. One notable argument against Wolf’s article

came from Michael Hopkins, mhc international ltd. who stated that Wolf did not define

CSR at the first place; one school of thought is treating the stake holders ethically. Stake

holders can be internal – employees, or external – environment, people, other

organizations and customers. Wolf implied that CSR leads to decrease in profits, but

Hopkins argues that profits at what cost? Needs to be looked into deeper. Wolf stated

about triple bottom line, one that comprises of profits, environment and society and said

that this is against the free market economy which considers only profit. But there are

many examples stated by Hopkins about how a company can maintain a balance between

all three and be successful for a long period of time. 14

CSR leads to increase in costs. True, but the supporters claim that the long term benefit to

the society, environment and everybody eventually outweighs the cost. Not only the

internal and external stake holders, but the company itself benefits by way of better

reputation, loyal customers and better brand image leading to more business.

Keeping aside the argument of the 1970s, the rules of CSR are very dynamic and subject

to change all the time. It is a process, which is evolving towards perfection, but what is

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perfect no body knows. Hence follow the best practice available and make the most of

CSR is what experts suggest. It not only the external stakeholders like the

environmentalist and poor countries who are evaluating company through the watch glass

of CSR but the investors and employees are not behind. As the competition increase,

talent pool becomes limited as compared to the demand for skilled labor; employees are

ever choosier to see if the company values fit their own values. A reputed bank analyzed

the clicks of their website and found that around 75% of its applicants who visited careers

section, never failed to visit the CSR page and see what the ideology of the bank is when

it comes to being socially responsible. Investors are slowly changing their attitude

towards core profitability and slowly accepting companies with moderate profits but

better CSR strategy, making them a value pick in long run.

The criticism for CSR actually helps to prevent two major side effects of CSR:

Imposing stringent standards which hinders value creation role of corporate and

eventually lead to job loss, under investment and lack of services which widens

the gap between developed and developing countries (UNIDO, 2002)

Huge amount of criticism, pressure for change away from human rights violation,

environmental abuse and cultural adulteration while doing little to actually

improving things

To avoid these flaws to over power the benefits of CSR the business accountability

process need to be

Based on legitimate and reasonable rules and legislation and the decision making

body should include participation from organizations of developing countries

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Backed up by robust measurement, control and reporting methods. To effectively

and efficiently measure the impact of CSR on environmental, social and

economical areas.

Flexible enough to allow business to create better value along with following CSR

and best practices solve problems and develop opportunities.

Milton Friedman was right about mentioning to stick to the rules of the game, which is

‘profit’ for corporate, but he wouldn’t have imagined that the rules will evolve so quickly

including such a vast range of issues which the corporate world is expected to address.

There are many researches which indicate that doing CSR motivates staff, improves

brand image and eventually increases profit. 13

6 Trends in CSR

it is easy to find out first generation CSR deployed by companies and individuals alike,

with little efforts you can find handful of companies involved in second generation CSR,

but it is difficult to find a true example of third generation CSR. Especially in developed

economies, the SME segment is wary of CSR as it is, and prefers to stick to first

generation CSR at best. A study shows 95% of the companies are following first

generation CSR, with only 5% involved in second generation CSR. This 5% is a ray of

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hope that market is changing its attitude towards CSR to move in the right direction.

Fig. 4: The Generations of CSR distribution 4

7 Growth of CSR

Only by browsing the web for a mere hour will make one realize that CSR is not just one

topic of discussion or a department with few people working in it, but it’s a full fledged

mainstream strategic work involving attention of the top management of both big and

small organizations. BiTC Omnibus survey on CSR attitudes proved that CSR is not a

passing activity or just a fad of the philanthropic and activist world. CSR has gradually

now shift from ‘nice thing to do’ to ‘good thing to do’ to ‘you should do’ till ‘we need to

do’. Third generation CSR will see through this and lead us to a ‘will do’ attitude. 15

8 Importance of CSR

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Increase in number of companies reporting global environment reports and CSR activities

and including them in the AGM and balance sheet. Over half of world largest companies

produce global environment report as a part of CSR. 16

Increase in number of people who are interested in what the corporate are taking from the

environment and society and what are they getting back in return in terms of value.

Health and safety, equal opportunities, environment, bribery, racism, sexual assault at

work place, glass ceiling effect, child labor, corruption are few issues cited by every two

our of three individuals who took part in the survey. 17

Public pressure for CSR is increasing by day and companies are forced to take action as

soon as possible, sometimes even when not possible. Like in the recent case of British

petroleum that was held responsible for oil spill which took the natural balance of the

Gulf of Mexico and many nearby areas went for a toss. 17 to 39 million gallons of crude

oil was spilled, around 150 endangered species of sea turtles are feared extinct, entire east

coast was damaged even effecting the west coast of Florida and a large number of people

living in that area are now see the ill effects of the oil spill on their health. 18 Had BP

followed strict CSR involvement in its corporate strategy it would have thought through

the ill effects of such a disaster on the environment and possibly taken more steps to

prevent it? Estimated costs of clean up went up from $5 bn. To roughly $34 bn. When the

US senators demanded BP to put $20 bn as a deposit. 19

9 Emerging Markets – Developing countries

There is a reason why now the term ‘emerging markets’ and ‘developing countries’ is

used interchangeably, because developing countries are seeing a never before growth rate

and are developing at a far better pace than western developed world. ‘emerging markets’

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was a term coined by IFC to describe those economies where international funds could

buy securities but now it stands synonymous for developing countries.

a world bank report defines developing countries as those with Gross National Income

(GNI) per capita of $9265 or less. They also classify economies as low income ($755 or

less GNI per capita), middle income ($756 - $9265 or less GNI per capita) and high

income ($9266 or more GNI per capita). The low and middle income countries are called

developing countries. 20

evolution of CSR in such economies is a topic of debate as there are contradictory views

and data available. Evaluation of 7 Asian economies was carried out (Indonesia, India,

Thailand, South Korea, Philippines, Malaysia and Singapore) and a conclusion was made

that CSR in these economies was still in very juvenile stage and that necessary

mechanism and procedures did not exists in corporate and governmental organizations

other than a mere charitable outlook. one of the reason stated in the research was the lack

of necessary legislations and appeal procedures for both general public, activist bodies

and corporate unlike the case with north America and Europe. Mean value for these

seven economies came out to be just 41% penetration of CSR as compared to 98% in

developed nation like UK. however India stood at a mean score of 72% as compared to

Indonesia at mere 24%.21

one of the reason for low penetration, apart from lack of proper legislation is community

involvement only to the extent of philanthropic deeds by corporate, and the corporate

strategy to implement CSR only at an absolutely necessary basis rather than a voluntary

strategic basis. Unlike the EU and US, developing countries see CSR as a part of

corporate philanthropy and help government superficially to fund, let alone execute social

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development strategies. Though there are exceptions in each economy which we shall

look in detail later, most of the organizations look at CSR as a small, trivial part of the

whole business aspect.

9.1 Methods of CSR reporting

Moon (2002) presented a paper where he describes three methods of CSR reporting

namely ‘community involvement ’, ‘socially responsible production processes and

‘socially responsible employee relation’. Thought these does not cover all aspects of CSR

like we saw in previous sections and is not exhaustive, it serves a good measuring scale

to see how developing countries fare against developed. In developing countries the

community involvement parameter is fully met in most of the organizations, but only at

the philanthropic level. Rest of the two parameters is internal to the company and are

often not incorporated in the strategy of the company or discussed with other

stakeholders. The end result of the study showed that developing countries through strong

on first method, lack vision and processes for CSR to achieve the second and third

method of CSR reporting. 22

10 Unique Case of SME

Across the world CSR has been tried, tested, used and implemented by predominantly

large companies who are so big that they can afford to have a different section on CSR

working consciously on its growth and development. All eyes are always on what these

large corporations are doing and hence they are under constant threat of their reputation

and losing its market leadership. SME (Small and Medium Enterprises) are the ones

which can make a real difference to CSR development because of the number of them

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present in developing countries and the business share which they have in developing

countries. Hence it is worth having a closer look at them in relation to CSR.

10.1 What is a SME?

Small and Medium Enterprises (SME) are predominantly a large group of heterogeneous

organizations which are either privately owned or the stake holders have a limited

liability. Often they termed a SME based on their market capitalization or annual

turnover. They include a wide variety of firms in field of manufacturing, service,

handicraft, computer software, machining firms, agri business firms and even

construction companies. Some are completely family owned and not much change when

the management is taken over by the next generation, but few are dynamic growth

oriented organizations who prefer to hire professionals and move towards better

profitability and growth. 3

Definition of SME largely depends on the defining parameter, but it is important to note

that every large company we see today was at some point in time a SME. Not many

companies are directly born of the size of the national federal bank or proctor and

gamble. Every company has a modest start, like Vodafone was a little co. from racal,

Microsoft started from a garage and Google was just an idea with a bunch of youngsters

who did it the way they wanted to. Face book, Hewlett Packard and even Volkswagen

has very humble beginnings and hence its worth to study the SME segment as this is

where the real jewels can be identified and grown. 3

Latin America has 80% of its market dominated by SMEs and government has drastically

reduced red tape to ensure their growth. Except Argentina all other regions including the

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flagship economy Brazil and Mexico increased in size due to SMEs. Colombia’s

chambers of commerce rose from an average of 20% in 2000 to 93% in 2002.

Asia and Africa also has a significant portion of its economy driven by SMEs.

A step deeper into the status of SMEs in the developing world indicates that even today

these enterprises are serving small markets, with less productivity and poor quality.

technologically they are good but not as advanced as they can by with correct help from

the government and funding from market. Apart from financing, technological help is a

very big factor for development of SMEs which is evident from the proportion of funding

given by IFC (International Finance Corporation, world Bank).

Fig 5: Support to SMEs in USD Millions – Technical and Financial assistance 33

10.2 Role of SME in economic development of the region

31


The government of the country cannot be entirely relied upon for creation of job and

providing the citizens with equal opportunities to work. Private sector bears the most

importance in such scenario and SMEs form a huge part of this private sector that create

jobs and support the economy. SMEs make up around 90 percent of business world wide

and about 50 percent of employment is due to SMEs 4. There is an array of data available

on SME contribution but the following points tries to summarize if not state each of them

in detail.

They act as the much needed building blocks to link government, public and other

larger organizations. A country cannot operate with only gigantic companies

catering to all people need. SMEs provide with vital services which big

companies might not be interested in or are not as profitable to them.

SMEs are starting point for any large organization to take birth and it is only

through SMEs that the sprit of entrepreneurship is thriving and alive.

SMEs deploy more labor and create more jobs than larger organizations. They are

not technologically so advanced and hence they need more labor than bigger

corporations.

SMEs are key for a developing country to get converted from agriculture

economy to an industrial economy

Income distribution is equitable when SMEs are operating and this avoids

concentration of money and resources in hands of handful of rich people.

32


They are highly flexible, innovation driven and changes can be made at a much

faster pace than larger organization due to which they are more adaptable and

customizable.

10.3 Corporate Social Responsibility and SMEs

CSR is being implemented at a multiple stage in the SME segment via the government

legislation, involvement of civil society organizations (CSO), TNCs and public

involvement and self interest in general. There is a school of thought that the pressure

created by the unison of the above mentioned bodies creates an unfair pressure on SME

and that the net effect of this close monitoring will lead to a decrease in welfare of the

society. But on the other hand, we have examples of how CSR has provided SMEs with

greater market opportunities, reductions in costs and improving its marketability and

profitability. It also leads to social benefits of education and health facilities where the

SME operates and takes care of the local community support it via labor and other

resources.

Hence it’s a debatable relationship of SME, CSR, government and society. It is very

important that all the bodies involved in driving CSR forward understand the implications

of the implementation of CSR and the pros and cons which we will see in the latter half

of the report. It is important the CSR be implemented not because of compulsion of the

legislation but by willingness to incorporate CSR as an integral part of the business

model. Without the involvement of SME in the whole CSR approach, the developing

countries and the SMEs themselves will stand to lose more than what they might gain by

not implementing CSR and saving costs and efforts.

11 The stake holder duo in CSR

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There are two dimensions of CSR when looked from a perspective of the beneficiaries of

CSR. Internal stakeholders, which include the employees, the company itself, all the

parties involved with that company in business, suppliers and the top management

themselves. It is worth to have a closer look at each parameter as below

Fig 6. internal dimensions 31

11.1 Internal Stakeholders

11.1.1 HRM

This element includes employee relations, employee satisfaction, fair labor treatment, fair

payout rules, improving work and family balance for employees, diversified workforce,

profit sharing, equity stock options to be distributed fairly and fair recruitment policy. In

context of developing countries, this component of CSR is most important due to the

following factors

Lack of fast, effective and cheap judicial system due to which employees subject

to racism, discrimination or neglect are unable to fight for themselves

34


Availability of cheap labor in developing economies make companies less

dependent on its employees and hence care less about HRM CSR component

In developing economies, technological advancement and its use is not as

widespread as in western countries. Coco cola co. in India has not invested

heavily in vending machines, as it has done in EU, UK and USA because labor is

cheap, people are not tech savvy and using that labor is cheaper for the company

than making capital investment in vending machines. Almost 10% of sales in

India happen through coke fountains where an individual manually dispenses

coke and serves. Similarly in china an experiment was carried out to install

vending machines, but with a human inside to dispense a bottle of coke called the

push cart program. 23

11.1.2 Work safety and health measures

This has a very important role to play as this might be a question for life and death for

vulnerable employees or people at risk. This factor has a direct impact on the productivity

of the work force and hence affecting the profitability. Most of the developing nations

have their policies in place for this factor, but companies need to be more proactive in

forming internal processes and policies for an emergency to ensure the health of the

employees are not put to risk in any instance. Companies like Unilever, Cipla

Pharmaceutical and Coco cola ensure that not only them, but the companies related to

them in the work environment also adhere to the strict standards of health and safety

parameters. Since this factor is so important even without considering CSR, most

companies in developing nations have well documented reporting structure, control

measures and action plan in cases where care is needed.

35


11.1.3 Adaption to change

Developing countries are a hot hub for mergers and acquisitions in corporate world. This

inevitably leads to job losses, or technological changes in the company due to which the

interests of the internal stake holders might be jeopardized. Hence it is important to

restructure in a socially responsible manner. TATA Steel, one of the top 10 business

groups in India acquired Corus Steel in Europe in 2009 and was very careful in

downsizing the labor force for cost cutting and getting back the ailing co. in profit. 24

11.1.4 Management of Environmental impact

This is the most important and the oldest parameter of CSR which just cannot be ignored

or taken lightly. In today’s globalized world run by the single most powerful resource

called ‘oil’ it is of utmost important to think about the environment and global warming.

Companies must remain conscious of their impact, carbon footprint, on the globe by the

activity they engage in their business. Optimization of resource utilization, reduction in

carbon emissions, reuse and recycle can reduce the environmental impact. Since

developing nations are the biggest source of carbon emissions in the world, it is better for

long term success of the country as a whole to take carbon emission levels seriously and

act on it. 25

After internal, the External stakeholders involve customers, dealers, distributors,

government, local authorities, civil bodies and common public. This dimension had three

major divisions as follows

36


Fig 7 external source 31

11.2 External Stakeholders

11.2.1 Local communities

Developing countries is where more than half of the world’s populations reside, and

hence most of the multinational companies flock there in search for business. This leads

to a lot of foreign origin companies being established in those nations and the need for

keeping positive relation with local community, local authority and the state and national

government arises. TNCs cannot afford to exploit the resources of the nation, sell them

their products and eventually siphon off the profits away from them. They will need to

have a deeper understanding of the local community, the local flora and fauna and help to

maintain the balance. Many TNCs have setup large manufacturing plants in rural areas of

developing nations as they provide with cheap labor and hence cost efficient

manufacturing. Whirl pool, a TNC in manufacturing of white goods saw that it was

37


unable to sell its fully automatic machines in developing countries and hence it had to

actually buy the obsolete technology which had disappeared from western world from

Korea and sell semi automatic twin tub machines. 31

11.2.2 Business partners

They are the most important parameter from business perspective, but it surprising to

know that even looking from the CSR point of view, it happens to be an important factor

in external stake holders. Smaller companies who work with large TNCs would like to

see the large company following CSR guidelines of the country and not exploiting the

resources in their country. It is important to develop and manage healthy relations with

business partners, local and international for long term growth. And since there are

smaller companies who dedicatedly supply only to one big organization, will definitely

be touched by the CSR practices which the large organization follows. This leads to a

trickle down effect in the whole supply chain and leads to an overall positive outlook for

business and society alike.

11.2.3 Human rights

This is by far the most debatable issue in many different subjects of study and can be

viewed from many different perspectives. According to robbins (2000), “Companies

operating in countries where human rights are regularly violated may experience a climate of

civil instability and corruption that makes for uneasy relations with government officials,

employees, local communities and shareholders.” 26 amnesty international always mentions

that corporate have a direct responsibility to protect human rights and obligation to report any

violations. They are urged to use their influence on govt., local bodies and general public to

eradicate any differences and human rights violations if any as far as possible. The caux

round table conference stated that companies have responsibility to respect human rights and

38


civil liberties and respect the democratic nature of institution and promote it wherever they

can.

In developing countries, TNCs are developing large infrastructure projects for betterment of

that nation. But this leads to relocation of thousands of poor people, which needs to be

handled with sensitivity. Firm needs to build confidence in the local community of the

positive effects of the project and that their human right of land shall not be compromised.

Companies must ensure that instances of forced labor, child labor or not providing with basic

facilities to workers in their factories do not occur in their company. there are cases where

nike, Addidas, Puma, Reebok etc were found to be involved in forced labor, paying minimal

wages and exploiting the labor class in Indonesia, China and India among other countries

which had a strong negative impact on the image and a long term dent in their top and bottom

line. In 1984 Nike closed its last running factory for manufacturing shoes in USA which lead

to loss of approx 65000 jobs in USA. In turn they did create employment in other developing

countries but at the cost of exploiting them. Most shoe manufacturing labor workers are

young, unmarried girls in Asian sub continent who are paid as low as $2.50 a day in

Indonesia. Minimum wage to service in Indonesia is around $4 to $4.5 a day, and even then

Nike is ignoring this statistic. More than 60% of labor of Nike lives in quarters provided by

Nike. They are one storey barrack like buildings, dark, less ventilation and very poor

sanitation facilities. Total of 350000 people work for Nike in Asia and there is nothing much

nike has done for its welfare as compared to what it can give the scale and profits of the

company. Nike spends roughly $250 - $280 Million dollars a year on athletic sponsorships

and media marketing, which suggest that nike can, if they want, plunge into third generation

CSR to give back to the society. 27. there are reports of Gulags or prison labor camps in

many regions of china where they produce products for not wages and those products are

39


sold locally or exported. 26 building of a gas pipeline in Burma is an example of how

big corporations are abusing the power of the local ruling people for its own good.

12 Hot issues in CSR in developing countries

12.1 Product responsibility

There is an increased in number of people and organizations fighting for the newly

discovered consciousness of the quality and ethicalness of the product any company has

to offer, let alone the way it treats its employee, society or environment. They include

genetically modified food, AIDS drug testing, animal right, cigarettes and government

policy on it, junk food and its effect on population etc. these issues are difficult to solve

because they are ingrained in the core of the business for many organizations. Few

companies are working on this and have realized the fact that first and second generation

CSR will not help here and a more holistic view of the product they deal with has to be

taken.

Cadbury in India was under tremendous fire when one of its factory vessels full of

chocolate was found with worms in it. There was an immediate debate between FDA

(Food and Drug Administration) and a fact find mission by Govt. of state. Cadbury’s

tried to blame it on the storage by the retailers and stockiest, but immediate reaction was

that the packaging was so weak for it to be infiltrated by worms. It was a serious breach

of health and safety policy laid by government of India and so drastic was the retaliation

by public and civil bodies that Cadbury had to redesign it poly flow packaging to

reinstate trust in its products. There was a drop of 30% in sales in that quarter for

Cadbury’s which was so acute an impact on the bottom line and the image of Cadbury’s

40


that it launched a special media campaign within three months of the instance on national

television saying that their products are top in quality and have been serving Indian

markets for decades now. Bharat Puri, managing director, Cadbury's India said, "While

we're talking about a few bars of the 30 million we sell every month - we believe that to

be a responsible company, consumers need to have complete faith in products. So even if

it calls for substantial investment and change, one must not let the consumers confidence

erodes." Whether this was proactive CSR or reactive CSR by Cadbury’s is best left to the

experts, but this shows that CSR if not a core part of the business strategy can make or

break you in matter of months, as in this small instance which risked taking the whole

multi million company down to the dogs. 28

Brazil is known for its ‘Brazilian blowout’, a keratin hair straightening process which

leaves you hair ever beautiful, straight and shiny. Keratin is a protein, and since hairs are

made of protein, the authors of the article ‘Brazilian blowout gone bad and other

chemical misdemeanors’ thought it would be safe to do this treatment. Within weeks the

shine had long gone and customers suffered severe problems with their hair, nose, throat

and eyes. Their research took them to discovering that actually the product used on their

hair was not only keratin but many chemicals were included in it, the most harmful being

formaldehyde. It was stressed that only ’11 out of the 10500 ingredients used in the

cosmetic industry in brazil are determined by the FDA to be fit to use in cosmetics. Skin

is porous and hence the nicotine patch works by absorbing the nicotine and giving it to

the blood. Similarly if such cosmetic products are used on skin, it might get in to the

blood stream and cause cancer and many unidentifiable complications. Formaldehyde is a

known carcinogen and this was a clear case of lapse of CSR on the part of the

41


manufacturing company and the company which was selling the service of Brazilian

blowout. 29

Why it is important that CSR be implemented across the globe with similar and

preferably same standards is because in today’s globalized world, everything is

interconnected and every single product is made of raw materials sources from different

countries. Each country has its own laws, processes of manufacturing and processing and

packaging it. Hence there can be a case of a lapse not because of faulty product, but

because of a faulty part or ingredient. In June 2007, Foreign tire sales inc. recalled all

tires imported from china. The tyre had problem of tread separation which led to

accidents and jeopardized lives of thousands on road. Nations largest recall was made by

ford motor co. in the year 2000 as well with similar problems. In this instance Hangzhou

Zhongce Rubber Co., of Hangzhou, China was left unaffected due to no rules and

regulations of accountability or CSR in global transaction and that the co. is solely based

in china and sold in foreign countries though third party dealers. 30

12.2 Sustainability

In the words of Sanjay Agarwal, a faculty at Indian Institute of Management (IIM-K), ‘In

these turbulent times, when almost all corporate entities are searching for sustainable

ways of doing business in globally connected societies, the book under review spells out

the how and what of social responsibilities of corporate entities operating in India’ while

talking about a recently published book. High level of use of non renewable sources, use

of destructive technology for production and delivery of service, damaging the

environment and hence endangering lives of thousands of species are few examples how

greed of large organizations is endangering their own existence at the end of the day. To

42


ensure that business run for long term, and are profitable, they need to be made

sustainable at the first place. Management has to think long term, and in terms of worst

case scenario and then act accordingly to create a sustainable business environment.34

As per Rosser (2010) the full definition reads: ‘CSR is a company’s commitment to take

part in sustainable economic development in order to improve the quality of life and the

environment, benefiting the company itself, the local community and society in general.’

Hence the work the company is doing might be very good in all aspects, but if cannot be

sustained on long term basis, this business can be actually deemed as wasting resources

for short term gain. 35

A very different approach is taken by China in this case where it believes that if proper

education is imparted to its citizens, sustainability will come naturally to an extent. Banks

are encouraged to educate people on financial stability and decision, as well as create a

micro lending initiative in rural areas. Agricultural firms are encouraged to train farmers

and their families how best to cultivate for maximum productivity. If people are educated

and trained properly by existing corporations to maximum extent possible, one the load

of government will drastically decrease and two will lead to a much more sustainable

development of the country.36

Brazil, already is a champion on production of sustainable hydropower and biofuel

industries, is among the worlds greenest and most sustainable economies. 43% of its

reasources used are coming from renewable sources of energy, and hence it safe to

assume that each corporate using resources to produce goods and service uses 43% of

clean energy while delivering it. The size of investments for sustainable energy rose to

$7.9 B in 2007, up from $0.5 Bn in 2005. The due credit goes to the government of brazil

43


which has approved regulatory framework for water, sanitation, waste management,

renewable energy, public investment in infrastructure and sustaibanle GDP growth.

Imagine if the corporate of brasil join hands with the government, can actually turn the

table for CSR management and sustainability question marks from everything. Brazil has

a carbon credit market operating since 2005 where many companies have entered brazil

arket with carbon credit certified projects like BRF Brasil Foods and NocaGerar, a JV

between EcoSecurities and a Sao Paulo constructon firm.

12.3 CSR management / Governance

This is one of the most talked about topic at various forums, internet, internally in the

country as well as outside. Developing countries have seen unprecedented growth over

the last decade and their economies are thriving like never before. Businesses are

growing huge, with number of employees in hundreds of thousands and turnover in

billions, management is becoming a key issues. Specially when the topic of CSR, which

is relatively new, less researched specially in developing countries and still under

evolution is asked to be managed. Managing CSR, and its various components is

becoming an arduous task for organizations.

To tackle this, china has taken this issues hands on by appointing executive level CSR

committee like all other corporate does in all other countries. But in addition to it, a mid

level CSR position is created at each office, each manufacturing unit and each

warehouse. This would be the key person who will be actually implementing things and

reporting to the top management on regular basis. For example if the company has

operations 4 cities in china, there will be four mid level managers to look after CSR

44


initiatives and activities in their regions. This will ensure maximum accountability, easy

communication between top management and CSR manager and the general public.

A Community Outreach Council (COC) is proposed to be established at each location in

china for planning, execution and monitoring all CSR initiatives. COCs will contain

employees at all levels and will try to involve local people in local projects. This will

help the employees to relate more to the needs of their own community hence delivering

better results. 36

12.4 Accountability

There have been many scams and many frauds throughout the world, directly or

indirectly as a consequence of activities of corporate. Millions of people have been

affected by this but for the fact that they are healthy and alive has given them one chance

to restart and follow their quest for success. But Bhopal Gas Tragedy, which happened on

Dec. 3, 1984, whereby a pesticide plant run by the then company called Union Carbide

spilled out approx. 40 tons of poisonous deadly chemical called Methyl Isocynate quickly

killing around 4000 people. The death toll gradually increased to 15000 over the next

decade as per various government reports. It’s been 25 years now and still people in

Bhopal city of India are taking to the streets to protest about no action on part of

government of India and union carbide getting free very easily. There is no accountability

in the company, the group of companies or the government of a disaster which is termed

as world’s worst industrial disaster. Roughly half a million people were affected by this

disaster due to contamination in air, water and food. Even today one can see the side

effects and mutation which occurred in the growing generation due to this spillage. The

45


Prime Minister of India, Mr. Manmohan Singh gave a statement recently stating ''The

enormity of that tragedy of neglect still gnaws at our collective conscience, I reaffirm our

government's commitment to resolving issues of safe drinking water, expeditious cleanup

of the site, continuation of medical research, and any other outstanding issues connected

with the Bhopal gas tragedy,''. But when it comes to the corporate, it does not exist. Not

literally, but because it was taken over by Dow Chemicals Co. in 2001. Dow has taken a

stand that it does not owe anything to the public as the legal case was cleared in 1989

where it was settled between Union Carbide and government settled for $470 Million and

all the responsibility was transferred to the state government of Madhya Pradesh, India. 37

In a very recent case of non accountability of a companies actions was seen when

Wikileaks cables were released where USA was shown to be pressurizing the Bangladesh

Government for approving the 6000 hectares of a open coal mining project. This project

is said to have a life of 36 years and roughly 16 million tons of coal can be extracted

annually. But this is coming at the cost of relocation of 5000 people according to GCM

(Global Coal Management Resources) formerly known as Asia Energy Corporation. But

the government of Bangladesh severely contests those figures and an expert committee

report in 2006 says roughly 130000 people will get directly affected.38 There will be

severe water shortage for irrigation and hence food shortage as well. Secondly GCM says

2200 indigenous people will be replaced, however Bangladesh's Jatiya Adivasi Parishad

(National Indigenous Union) estimate that 50,000 people belonging to 23 different tribal

groups would be evicted.39

12.5 Sustainability

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Global reporting initiative and NYSE Euronext hosted a conference where who’s who of

the CSR world participated and it came out that top 11 challenges for corporate in no

particular order are

1. Doubt

2. Liabilities

3. Denial

4. Resources

5. Causality

6. Lack of Global Standards

7. Benchmarking

8. Lack of comparative credibility

9. Uncertainty

10. Fear of the unknown

11. Fear of the known

It these are given the much needed and long due attention, many problems can be

solved.40

There are companies now revolving around providing service to make other companies

more sustainable, because they believe at the end of the day, all the resources which the

globe has to provide are absolutely finite and there is now two doubt about it. One such

company called article 13 based in UK writes about sustainability as a whole reason for

existence. When it comes to sustainability, the main question that it takes form into is a

question of resource allocation. How much resource is the company using, can it reduce

it, can it reuse it, can it make it more efficient and once it answers all these questions, it

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takes one step nearer to sustainability. Because it is the limited resources and sometimes

lack of it which makes us discuss sustainability as hot topic in CSR.

Coco cola has been a pioneer in CSR in most parts of the worlds. It has got its share of

criticism as well in many sectors in different parts of the world. It was awarded the

coveted ‘Vishwakarma Award’ for its role in environment conservation, water

stewardship and sustainability on world water day. It put in efforts in rain water

harvesting in association with CIDC, a body by Planning commission of India. Now that

can be termed as a sustainable business or a strategy. coco cola needs waters as the

largest ingredient in its plant, and steps taken to conserve water, rain water harvest and

water saving techniques can go a long way in helping coco cola recover the costs

incurred in these projects as well as make profit out of it.

Unlike other countries where governments encourage companies to do CSR and give a

hand in improvement of society and make a better and sustainable place, China has taken

a slightly different approach. China CSR Map (CCM) is a project launched with the help

of Chinese govt., GIZ, Syn Tao and China Credit Information Service (CCIS) since 2006.

the project introduction on their website goes on to describe its existence as “The CCM

directory contains profiles on government, international organizations, enterprises,

service providers, non-government organizations (NGOs), media, academic institutions

and online resource providers. Our CSR definition consequently covers diverse fields,

such as labor standards and supply chains, anti-corruption and transparency,

environmental protection, health and safety, philanthropy, education, arts, women and

children protection, social responsible investment (SRI), etc. Profile of organizations

provides information on their background, summaries of relevant CSR activities, project

48


partners and publications. Profile of practitioners provides their CSR background and

experiences.” 41

Unimaginable and unrestrained growth seen my top 10 developing countries in past

decade has lead to issues as well for them. China alone produces 14% of world’s carbon

emissions. BRIC countries together account for roughly 25% of carbon emissions of the

world. China had highest population on earth, and has only 7% of fresh water resources

for its people 42. Samsung has used its sustainability report (2009) to describe the way it

has dealt with this issues and tried to understand, comply and communicate business

changes in operation and strategy to address China’s environmental crisis. Pepsi Co. is

not far behind when it created its first State-of-art ‘Green Beverage’ Manufacturing plant

in China which will roughly use 20% less resources for manufacturing the same thing. 43

As per the experts in the field of sustainability, affiliated with article 13, sustainability

can be achieved by educating employees, innovating products and processes, changing

corporate culture, coaching teams and groups to integrade sustainability and pushing

legislations even for sustainability.

12.6 Sustainability reporting

This is again a very pertinent and hot topic in ongoing times especially in developing

countries because they are still discovering their true potential in terms of growth and

CSR. This can be used interchangeably with the term CSR reporting and deals with ways

and mean of reporting CSR initiatives, activites and results. This report is for all the

interanal as well as external stake holders alike. Reports typically cover social impact,

environmental impact, cultureal impact, ecomonic impact on society, ethical performance

review, carbon footprint, staff satisfaction, community investment etc. After many

49


decades a phase has come once again when there is equal in interest in what is being

reported as much as how it is being reported. There are multiple frameworks which can

be utilized on its own or in conjunction with others to create a wholistic CSR report. The

most faouvred structure or framework is the one called Global Reporting Initiave (GRI),

first used in 1990s, and now is called G3 and is the most recognized. It tries to

incorporate multi stakeholders, multiple organizations, governemtn and environment as

well. Developing countries are well embracing this new framework but not as seriously

as their financial reporting. 44

A survey conducted by GRI and KPMG for what the readers want in a CSR report, the

top things which came out was hearing bad news?. This gave the readers a sense of

confidence in the company for the fact that company is openly accepting the problems it

is facing and hence is more prepared and ethical than those who do not directly report.

But the trend of reporting is in very nascent stage in developing economies as compared

to the highest rate of EU. GRI has been adopted in South America and South Asian

economies pretty well, and that of Japanese, French and Spanish companies are reporting

CSR for long term and get them audited by third parties.44

12.7 Climate Change

We have seen a bit about global warming and climate change in light of CSR and the

situation in developing countries. But why is Climate change a hot topic in CSR,

especially in developing countries? It is because more than 75% of the population live in

developing countries. They emit huge amount of green house gases (predominantly

carbon dioxide) and hence they are the major threat to world environment stability. But

this growth in driven by the thriving population which has buying power and the

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corporate which prodivdes the public with the products to buy. Its is the end

responsibility of both consumers and companies to realize that climate change is a big

issues which can only be tackled by joining hands and correct CSR steps.

There is a study which was first of its kind to reveal that plants have much more capacity

to absorb CO2 and hence the global warming is not because of green house gases. But it

was also mentiond that the capacity to absorb CO2 depends on availability of water.

Hence the problem of water needs to be tackled first. But the amount of uncontrollable

population growth the globe has seen, people are dying for basic needs like electricity

and hence there are dams being built for generating electricity. These dams not only

disrupts the water supply in hunders of square miles of ares, but also has an ecological

impact. 44Hence this is a very sensitivie topic and needs much more attention that the

scope of this report allows.

A recent study on what FTSE250 companies are doing in arena of climate change and it

was interesting report to see many different and innovative, but farily easy and simple to

implement methods are available. Still the numbers are low as only 12.4% of FTSE250

companies display information about climate change on their corporate website or in

CSR reports. Developing countires needs to look at initiating small things at

implementation level and start giving their contribution in the climate change issue. They

need to take more part in global events on climate change like Carbon Disclosure Project

in 2007, where only 17% of the FTSE250 companies responded with verifiable data.

The biggest challenge while tackling climate change is development and excution of

clean energy. This can be solar energy, wind energy, tidal energy, nuclear energy to an

extent and geo thermal energy. Brazil has higest use of ethanol in its fuel consuming

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population using vehicles and public transport. It is rich in stock of sugar cane which is

better than corn for producing ethanol. China is very actively working and promoting

companies who are into manufacturing electric vehicals (EVs) and e vehical

infrastructure. This is much needed as china is worlds highest emitter of CO2 at 20%

annually. China faces water scarcity with 20% of worlds population resideing in a

country with only 7% of freash waters at their disposal. China has launched Top 1000

Energy Consuming Enterprises Program (2006 -2010) which focused on raising energy

efficiency as it is these organizatons which contribute to 33% of consumption of

resources and 43% of Chinas emissions. But the way Chinese government has taken the

problem of sustainability and climate change hands on, china is poised to become the

leading manufacturer of clean energy technology for the rest of the world.

India on the other hand is still a little behind china in terms of providing better quality of

life to its poor population. Worlds number two in population, some skeptics argues it cant

afford to invest in sustainable projects and should focus more on food, water, health and

electricity problems for most of its population. But Indian government is planning to

invest a total of $250 Billion by 2017 in promoting green business and sustainable

business practices. 44

12.8 Labor exploitation

since developing countires are the focus here, labor exploitation becomes a more

pertinent point, as these countries are thriving because of its cheap labor and a small

educated working class. Child labor, boded labor, working single young women and old

dependend labor are always exploited and a strong intervention of government and NGOs

is invariably required to stop it.

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India is the largest market for child labor, right from domestic jobs till working in heavy

metal industries children are subject to harsh working condition, with no health and

safety rules and no consideration of him or her being 10 year old or so. There is an anti

child labor law presnt in India now, but the media is reporting that this law is double

edged sword which is making things worse for others. There are children who are

working in retail and at restaurant who are losing jobs due to the strict rule of the

government. Government on the other hand is an absolute failure to given education,

home and family to orphans living on the streets of each and every city of India. Even use

of children in advertisements or movies is under question and hence the rule is under

attack from various different lobbies.

Nike, Reebok, Addidas all have their factories in Indonesia, China and India. There have

been innumerable instances of poor working facility due which the companies have been

subject to negative publicity. Not only labor, even in competitive markets like that of

India, where financial service industry is growing faster than ever is having problems

which CSR can address. Employees are put under tremendous stress of achieving targets

and hence pushing the company closer to its own goal of achiving sales and profits. This

has lead to so many urban life style diseases which is decreasing the overall quality of

life. One example is ICICI Bank Ltd., which is the largest private bank in India, and had

such fast growth in past one decade, but when the employess and customers are

interviewed by a local channel in Mumbai city, they were not happy with the way ICICI

Bank is aggressive in selling its products. 45

Ivory coast is among examples of child labor. Out of 200000 child laborers, around

12000 might be subject to human trafficking. They work in cocoa production fields and

53


are paid a meger amount by the corporate for a full days work. Ivory coast produces half

of the worlds cocoa, and you can imagine with coffee, chochlate and other peoducts so

popular across the world, ivory coast could be a much better place if it was paid its fair

share. To talckle this problems companies like Ben and Jerry’s have been in fair trade

since ages where a fair amount is paid to the raw material producer in developing

country. 46

12.9 Social Exclusion

This is a rather unique and less discussed topic in CSR but well worth a mention in this

thesis. This is an issue that impact both developed and developing countires alike,

compounded by the phenomenon called globalization. Social exclusion happens when

people do not have rights to basic things like water, food, land to live and irriage and

sanitation and health facilities, right to education, technology and basic minimum wage.

Corporate world plays a major role in providing access to these basic human right along

with local government. Correct CSR strategy and its implementation will see through the

stakeholders with these facilities and lead to a better society. United nation in its report in

2009 identifies the role of business in reducing social exclusion, poverty, divide between

rich and poor and abuse of human rights. UDHR (Universal Declaration of Human

Rights) was developed after the catastrophic world war II in 1948. This provides the

common minimum global standard of the contract between the people and its

government. Recently CSR has been incorporated in it by including the role of business

leading society to a better state. UDHR supports the right to life, equality and fairness in

all the dealing in the world, which automatically leads to CSR being a part of it. It

prohibits slavery, torture in any form, pressure for work, freedom of movement and

54


freedom of thought, conscience and religion on a more broader scale. Traditionally

corporates have been involved in defining and abiding by a small set of human rights as

far as their businesses are concerned. Their role cannot be matched with that of the

government and hence they are expected to respect human right rather than protect them.

But there has been much work in this area to define and fabricate a blue print for

businesses to consider human rights and avoid social exclusion in their corporate

strategy. 47 48

13 UNIDO and CSR in Developing countries

13.1 What is UNIDO?

United Nations Industrial Development Organization (UNIDO) is a specialized agency of

the United Nations (UN) that promotes industrial development for reducing poverty,

inclusive growth and globalization and environmental sustainability. Its long term

objective is to achieve a sustainable, fair and just society which is equitable in terms of

distribution of its resources, availability of equal opportunity and industrial development

with CSR.

13.2 Study on CSR attitude in developing countries

UNIDO carried out this study in 2002 whereby it sent 60 questionnaires to developing

countries organizations including Sri Lanka, India, Egypt, Indonesia, Nigeria, Pakistan

Thailand etc. it got back 27 responses from various conglomerates, industry associations,

individual businesses, TNCs and CSR consultancies. They all were spread across various

different types of businesses to avoid any kind of bias in the study.

55


CSR is on the radar of all the organizations and they deemed it to be important (13) or

very important (14) in their own sector. respondents were asked to highlight key CSR

issues in 5 areas as follows

Business principles ( eg. Ethics, currpotion, fraud etc.)

Consumer issues (eg. Product safety, consumer rights, right to information etc.)

Community issues ( eg. Local environment, human rights etc.)

Labor standards ( eg. Freedom of association etc.)

Environmental issues ( eg. Climate change, pollution, energy efficiency etc.)

Transparency and accountability are major issues for majority (17 and 18 respectively)

and political involvement being the least important (8). Responsible marketing was an

important consumer issue, as misguiding the consumer had servere consequences on

company’s image and business both. While job creation and community development

was major issues in community category. Health and safety was the only paramerter in

labor standars which more than half of the respondents felt strongly about. Overall most

important issues cited was pollution and waste (22).

They were then asked about their knowledge of happening around the world on CSR like

the UN Global compact, supply chain labor standards, social and environmental

accounting developments etc. 20 respondent felt CSR was a threat to their business

smooth running. Few of them felt TNCs are a threat to SME of their country and

segment.

Overall conclusion of the study as stated in the UNIDO report released in Vienna

conference that there was an overall awareness of CSR. But the companies or

organizations were not 100% convinced or clear about how CSR can help them and can

56


CSR be ever incorporated in the overall business strategy of any organization. Main CSR

issues seen by them are pollution and waste management, transparency and

accountability. At the same time there is a general concern the way importance of CSR is

increasing in the developing world, for it to become a barrier in the developing market.

Overall they believe the CSR poses both threats and opportunities and needs heightned

awareness levels with better management of conglomerates, industries and small

businesses alike.4

Eg. Of gap and agro cell in kutch, design inc in Zimbabwe, for fair-trade, richarda bay

mineral mining co. coke in china, p

57


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61

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Communications. Web. 3rd May 2011

(http://www.rediff.com/money/2006/dec/24cad.htm)

“Brazilian blowout gone bad and other chemical misdemeanors” The American Society

for aesthetic plastic surgery (2011). Web. 24th April 2011

(http://www.surgery.org/consumers/plastic-surgery-news-briefs/brazilian-

blowout-bad-chemical-misdemeanors-1031144)

Jeffrey Gold, “Importer told to recall Chinese tires”, AP, June 25, 2007, Wikipedia

Krishnan, S. and Balachandran, R. (n.d.), “Corporate Social Responsibility as a

determinant of market success: An exploratory analysis with special reference to

MNCs in emerging markets”, IIM Kolkatta and NASMEI International

Conference. Print.

“2004 Annual review – Small Business Activities”, IFC, World Bank. Web. 23rd April

2011

Rosser, A. and Edwin, D. (2010). “The politics of corporate social responsibility in

Indonesia” The Pacific Review, Vol 23 No. 1. Print.

Agarwal, Sanjay (2010). “Corporate Social Responsibility in India” Vikalpa Vol. 35 No.

4 Oct Dec 2010. Print.

Gerson, Brett (2007) “CSR Best Practices - Companies that want to improve their

Corporate social responsibility programs in China may learn from the experiences

of others” China Business Review. Print.

The Associated Press (2009) “New York Times: Bhopal gas tragedy still haunting locals

62

http://news.yahoo.com/s/ap/tire_problems

http://www.surgery.org/consumers/plastic-surgery-news-briefs/brazilian-blowout-bad-chemical-misdemeanors-1031144


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Hoshour, K. and Shearer, C (2011) “Energy at What Cost? Protests Against Forced

Eviction from US-Backed Coal Mine Continue in Bangladesh”. International

Accountability Project. Web. 29th April 2011.


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April 2011. (http://www.culturalsurvival.org/take-action/bangladesh-ban-coal-

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Fig 1 framework of CSR , tauro, 30 0ct 2010, wiki

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Fig 3 the dimension of CSR Main report

63

http://www.unido.org/index.php?id=7840

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http://www.accountabilityproject.org/

http://www.accountabilityproject.org/article.php?id=498


End notes

1 Thomas, Gail. (2006: 3-11). “Corporate Social Responsibility: A definition”. GSB



2 Wheeler, D., Barry, C. and Freeman, Edward R. (2003). “Focusing on Value:



California. Print.

3 Luckas, Edit. (2009: 4). “THE ECONOMIC ROLE OF SMES IN WORLD

ECONOMY, ESPECIALLY IN EUROPE” Institute of Business Sciences,

University of Miskolc, 3515, Hungary. Print.

4 Raynard, P. and Forstater, M (2002). “CSR Implications for SME in Developing

countries” United Nations Industrial Development Organization, UNIDO. Print.

5 WBCSD, “Corporate Social Responsibility: Making good business sense”. WBCSD.


6 EU Green Paper (2001). “Promoting a European framework for corporate social

responsibility”. Commision of the European communities, Brussels. Print

7 Zadek, S with Raynard P. (2001). “The strategic dimension of corporate citizenship”.

Cambridge university business and environment program, Cambridge. Print.

8 Dutt, Barkha (Nov 2010) “NDTV Interview with Indra noyee”. New Delhi Television

Network. Web and Television. (http://www.ndtv.com/article/business/obama-

now-a-pro-business-leader-indra-nooyi-to-ndtv-65159)

9 “Buried Treasure: Uncovering the Business Case for Corporate Sustainability Publisher

64





SustainAbility” Sustainability Limited (2001). Print and Web.

(http://www.sustainability.com/library/buried-treasure Free)

10 Zadek, S. (2001). “The civil corporation: the new economy of corporate citizenship”

Earthscan, London. Web.

11 Elkington, J. (2001).“The chrysalis economy how citizen CEOs and corporations can

fuse values and value creation” Oxford University Press, capstone. Print.

12 Stangis, Dave. (June 2010). “Campbell’s third generation CSR strategies: 9 point you

can use” Cause Capitalism. Web. (http://causecapitalism.com/campbells-3rd-

generation-csr-strategies-9-points-you-can-use/)

13 Cooper, Simon (n.d.) “CSR - Milton Friedman was right” Bath Consultancy Group.

Print.

14 “Alternative view of Corporate Social Responsibility: A dialogue with the financial

times” MHC International ltd. (May2001). Web. 23rd April 2011

(http://www.mhcinternational.com/corporate-social-responsibility/publications/

alternative-view-of-corporate-social-responsibility-a-dialogue-with-the-financial-

times.html)

15

“Business in the Community” Access Omnibus survey (1997) London. BitC. Print

16 “Developing CSR in UK Business and society” CSR network (2000) the global

reporters and DTI (2001). Print.

17 “Millennium Poll on CSR 23 countries and 6 continents” Environics international ltd.

(1999). Web. 20th April 2011

18 Buczynski, Beth. (2010). “Gulf oil spill: 10 horrifying facts you never wanted to know”

65







Care2 Make a difference. Web. 20th April 2011

19 Webb, T. and Pilkington, Ed (June 2010) “Gulf oil spill: BP faces $34bn in fines as

Senate smashes estimates Deepwater Horizon disaster costs for clean up and

damages had been previously estimated at closer to $5bn” Guardian.co.uk. Web.

20 “Definition of Emerging Economies, Global Economic Prospects and the Developing

Countries” World Bank (2002). Web. 25th April 2011 (www.sustainability.com/

developing-value/definition-emerging.asp)

21 Chambers, E., Chapple, W., Moon ,J. & Sullivan, M. (n.d). “CSR in Asia: A seven

country study of CSR website reporting” University of Nottingham Web. 24th

April 2011 (www.nottingham.ac.uk/business/ICCSR/09-2003.PDF)

22 Moon, J. (2002). ‘Corporate Social Responsibility: An Overview’. International

Directory of Corporate Philanthropy, London. Europa Publications. Print.

23 Benjamin, D., Brandt, L., Glewwe, P., & Guo, L. (2000). Markets, Human Capital, and

Inequality: Evidence from Rural China, No. 298 , Davidson institute Working

Paper Series. Web. 24th April 2011 (http://eres.bus.umich.edu/docs/workpap-

dav/wp298.pdf)

24 Kant, Krishna (2008) “Corus buy hauls Tata Steel next to Reliance” Economic Times,

Mumbai. Print.

25 developing countries emit more carbon

26 Robbins, N. (2000). “Position Paper on Emerging Markets and Human Rights”



27 Glenn, Tim. (n.d.) “Nike’s Cheap Labor” Campaign for Labor rights. Web. 1st May

66




http://www.nottingham.ac.uk/business/ICCSR/09-2003.PDF

http://www.sustainability.com/


2011 (http://www.clrlabor.org/alerts/1997/nikey001.html)

28 Vaid, Molshree (2006) “How Cadbury’s won the battle of worms”. Rediff

Communications. Web. 3rd May 2011

(http://www.rediff.com/money/2006/dec/24cad.htm)

29 “Brazilian blowout gone bad and other chemical misdemeanors” The American Society

for aesthetic plastic surgery (2011). Web. 24th April 2011

(http://www.surgery.org/consumers/plastic-surgery-news-briefs/brazilian-

blowout-bad-chemical-misdemeanors-1031144)

30 Jeffrey Gold, “Importer told to recall Chinese tires”, AP, June 25, 2007, Wikipedia

31 Krishnan, S. and Balachandran, R. (n.d.), “Corporate Social Responsibility as a

determinant of market success: An exploratory analysis with special reference to

MNCs in emerging markets”, IIM Kolkatta and NASMEI International

Conference. Print.

32 Tauro (Oct 2010), “CSR structure for Value creation”. Wikipedia. Web. 15th April

2011

33 “2004 Annual review – Small Business Activities”, IFC, World Bank. Web. 23rd April

2011

34 Agarwal, Sanjay (2010). “Corporate Social Responsibility in India” Vikalpa Vol. 35

No. 4 Oct Dec 2010. Print.

35 Rosser, A. and Edwin, D. (2010). “The politics of corporate social responsibility in

Indonesia” The Pacific Review, Vol 23 No. 1. Print.

36 Gerson, Brett (2007) “CSR Best Practices - Companies that want to improve theircorporate social responsibility programs in China may learn from the experiences of others” China Business Review. Print.

67

http://news.yahoo.com/s/ap/tire_problems



http://www.rediff.com/money/2006/dec/24cad.htm

http://www.clrlabor.org/alerts/1997/nikey001.html


37 The Associated Press (2009) “New York Times: Bhopal gas tragedy still haunting

locals after 25 years” International Accountability Project. Web. 29th April 2011.


38 Hoshour, K. and Shearer, C (2011) “Energy at What Cost? Protests Against Forced

Eviction from US-Backed Coal Mine Continue in Bangladesh”. International

Accountability Project. Web. 29th April 2011.( http://www.accountabilityproject.org/

article.php?id=631)

39 “Bangladesh: Ban Coal Mine, Save Forests and Farms”, Cultural Survival. Web. 25th

April 2011. (http://www.culturalsurvival.org/take-action/bangladesh-ban-coal-mine-save-

forests-and-farms)

40 Singh, Aman (2011). “11 Challenges for Corporate Social Responsibility” Forbes

Magazine. Web. 2nd May 2011. (http://blogs.forbes.com/csr/2011/02/04/11-challenges-

for-corporate-social-responsibility/)

41 “Project Introduction”, China CSR Map. Web. 2nd May 2011. (http://www.chinacsrmap.

com/E_AboutUs.asp?Page_ID=183)

42 the green book from library

43 Darigan, Kristian H. and Post, James E. (2009) “Corporate Citizenship in China: CSR

Challenges in harmonious society” The journal of Corporate citizenship, Issue 35,

Autumn 2009, Pages 39-53. Print.

44 “Sustainability reporting - demonstrating the value of sustainability efforts” (2009),

Article 13 CSR Expert review. Web. (http://www.article13.com/A13_ContentList.asp?

strAction=GetPublication&PNID=1465). 3rd May 2011

45 News Archives section www.moneycontrol.com. Web. 23rd April 2011

68

http://www.moneycontrol.com/

http://www.article13.com/A13_ContentList.asp

http://www.chinacsrmap/

http://blogs.forbes.com/csr/2011/02/04/11-challenges-for-corporate-social-responsibility/

http://blogs.forbes.com/csr/2011/02/04/11-challenges-for-corporate-social-responsibility/



http://www.accountabilityproject.org/

http://www.accountabilityproject.org/article.php?id=498


46 Ben and Jerry’s Website www.benjerry.co.uk

47 http://www.business-humanrights.org/Home

48 “The universal declaration of human rights – 60 years on” (2009), Article 13 CSR

Expert review. Web. (http://www.article13.com/A13_ContentList.asp?

strAction=GetPublication&PNID=1448. 3rd May 2011

69

http://www.article13.com/A13_ContentList.asp

http://www.business-humanrights.org/Home

http://www.benjerry.co.uk/


APPENDIX A

PROJECT PROPOSAL

College Number: MCC----

Project Title: ADOPTION OF CORPORATE SOCIAL RESPONSIBILITY BY

DEVELOPING COUNTRIES

Supervisor:

Submission:

1. Scope/Rationale of Project

2. Methodology

3. Data Source

Primary Data

I Intend to interview at least two managers directly involved in managing the CSR of a company in developing country or related to it

Secondary Data

Literature review of publications, Journals on leadership, CSR and Developing countries corporate management, Philanthropy of corporate and life examples for each

Case studies and MBA course material.

4. Aspect of MBA Syllabus used

The project will primarily benefit from the knowledge gained from the modules

of Best Practices in Management, international CSR and Business development in developing

countries and will also draw on aspects of Business Research and Strategic Management

modules.

5. Proposed Chapter Headings

Inception of CSR and a brief history

70


CSR in the 21st century

CSR – components and rationale

Defining CSR

Components of CSR

Generation approach to CSR

Argument against CSR

Trends in CSR

Growth of CSR

Importance of CSR

Emerging Markets – Developing countries

Methods of CSR reporting

Unique case of SME

Role of SME in economic development of the region

Corporate Social Responsibility and SMEs

The stake holder duo in CSR

Internal Stakeholders

External Stakeholders

Hot issues in CSR in developing countries

Findings of the report

Future of CSR in developing countries

Bibliography and appendices

71


6. Schedule of work

Proposal Preperation : Jan – Feb 2011

Submission of proposal: Feb 2011

Literature review: Feb – Mar 2011

First Draft and interview – April 2011

Submission of Final Report – May 2011

References

Luckas, Edit. (2009: 4). “THE ECONOMIC ROLE OF SMES IN WORLD ECONOMY,

ESPECIALLY IN EUROPE” Institute of Business Sciences, University of

Miskolc, 3515, Hungary. Print.

Robbins, N. (2000). “Position Paper on Emerging Markets and Human Rights”



Thomas, Gail. (2006: 3-11). “Corporate Social Responsibility: A definition”. GSB



WBCSD, “Corporate Social Responsibility: Making good business sense”. WBCSD.


Wheeler, D., Barry, C. and Freeman, Edward R. (2003). “Focusing on Value:



California. Print.

72



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