A case study of corporate social responsibility a sustainable tool of companies’ development in vietnam free essay sample

1. INTRODUCTION 1. 1 Corporate social responsibility: an overall view The term â€Å"Corporate Social Responsibility† (CSR) has popularly been applied over the world and is still on aggressive debates among corporations, governments, professionals, and communities. CSR is the further development of business ethics being promoted in 1980. At first, CSR is a performance about good actions but today it becomes the common thinking of most people and organizations. For society as a whole, CSR benefits the global market by increasing the competition among organizations across borders to comply with the standards. For policy makers, CSR is the obligation of companies with customers, employees, authority agencies, and any related parties. In Europe, CSR is used as an economic tool or the trade barrier in Western countries (Breitbarth et al, 2011). For corporations, CSR is the responsibility of conducting business activities based on the commitment to balance stakeholders’ interests and contribute to the sustainable development of organizations. The goal of CSR is to embrace responsibility for the companys actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, CSR-focused businesses would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Together with other traditional factors as costs, products’ 9 quality, shares price, after introduced, CSR is also considered in evaluating company’s performance. Moreover, bbusinesses expressed their concern for social welfare on the basis of the whole. CSR was established and flourish for several reasons. One is that companies must be more difficult to protect its reputation and expansion they protect the environment where business and government must be more aggressive with them. Second, the spread of non-governmental organizations and the organization is willing to fight with multinational companies as these companies have made a mistake. Thirdly, a series of evaluation and ranking organizations put pressure on companies to report both financial and non-financial results CSR has three layers. The first layer is charity activities. Returning something to the community is considered as a right thing to do. The second layer is the risk management. Beginning in the 1980s, when environmental disasters happened such as explosions in the pesticide factory in Bhopal (India), and Exxon case of broken Valdex ship causing oil spill near Alaska, the reputation of industrial companies had been damaged. The big pharmaceutical companies were criticized for refusing to provide drugs for people infected with HIV / AIDS in developing countries. In clothing and footwear companies like Nike or GAP was attacked for using child labor. The companies responded by trying to manage risks. They discussed with nongovernmental organizations and the government to set up rules of behavior (code of conduct) and to commit to greater transparency in their activities. They met with their rivals in the same industry to establish general rules, sharing of risks and opinions. Implementing CSR will create value for the company. In general, CSR’s issues related to protect environment, save society’s benefits and consumers’ one, commit to the safety and the rights of employees in company, and 10 ensure shareholders’ benefits. There are some illustrative examples of successfully implementing CSR to enhance the company’s image. Starbucks apply strategies of Fair Trade certified ingredients and engaging in community-based development projects. Unlike Starbucks, Bodyshop-a Korean beauty product initiative- has built a globally natural inspired image and set up CSR strategy: â€Å"saying NO to animal testing†. 1. 2. CSR in Vietnam Despite the widespread of CSR implementation over the world, this term is still a new topic to the Vietnamese market. As Vietnam joined WTO in 2007, Vietnamese organizations must be aware of an internationally competitive market with new strict rules and standards and CSR is one of requirements from foreign clients and partners. The most important objective of a firm’s operation is to maximize the shareholders wealth. In order to achieve this long-term goal, corporations should not only concentrate on profit maximization but also their future image. CSR will contribute to a better goodwill and enhance the business development. Vinamilk and Dutch Lady are real meaningful illustrations of CSR performance. Vinamilk created a social program called â€Å"Ten millions cup of milk to children in Vietnam†. And for each purchasing cup of Dutch Lady Milk, you saved a small amount of money for the rural and poor children who get the chance to receive the scholarship â€Å"Firefly Light†. The two have built the good social image to the media and public, and have received customer trust and loyalty. 11 In order to raise the awareness of domestic companies, Vietnam Chamber of Commerce and Industry (VCCI) has set up an award called â€Å"CSR towards the sustainable development† since 2005. Vietnamese government has also amended and supplemented some Acts and Regulations to adapt the requirements of public. They are demonstrated in the amending of Labor Law 1994 in 2002 and 2006, which added provisions to protect workers’ rights, the replacement of Environmental Protection Law 1994 in 2005, and the investigation of polluting cases made by the Environmental Police Department (C36), which established in the end of 2006. Moreover, new established enterprises have to comply with numbers of standards to have the establishment license such as: ISO 9000 – the administration system of quality, ISO 14000 – the administration system of environment, SA 8000 – labor and social responsibility and ISO 26000 – the corporate social responsibility. 1. 3 Panasonic Vietnam Co. Ltd. Panasonic AVC Network Vietnam was firstly established in 1996 in Ho Chi Minh City as a member of Global Panasonic Corporations (GPC). In 2005, Panasonic Vietnam Co. Ltd. (PVCL) was known as the holding company of Panasonic Group in Vietnam. It has been expanded rapidly since the establishment and controlled 6 subsidiaries including Panasonic Sales, Panasonic RD Center, Panasonic Electronic Devices, Panasonic System Networks, Panasonic Home Appliances and Panasonic AVC Networks. Following the fundamental operating concepts of GPC, CSR is the vital aspect for PVCL. The slogan â€Å"a company as a public entity† is utilized through its primary business. It commits to improve society through products it produce and sell, to improve the society welfare and to protect the environment. 12 1. 4 Problem statement However, the CSR implementation is still limited because of the unawareness of â€Å"How important is CSR? † and â€Å"How can CSR affect the long-term growth? † as well as the lack of technical and financial resources (especially small and medium companies). This is the reason for the occurrence of damaging cases in recent years. According to latest statistics, out of more than 100 industrial parks in Vietnam, up to 80% are violating environmental regulations (Tap chi cong san, 2010). Ministry of Natural Resources and Environment has hold more inspection teams throughout the local, and made a black list of enterprises which caused serious pollution and are capable of being closed. Vedan Vietnam has polluted the Thi Vai River and caused serious impacts to both the environment and nearby community. In 2008, the case was exposed to the public through the caught and accusation of Environmental Polices. Beside the Vedan case, food poisoning cases of Melanine Milk imported from China and 3-MCPD contained sauce, fraud in selling fuel, or hiring adolescents to manufacturing Nike shoes are the whistle blowing for the Vietnamese government. Although a lot of research has been conducted about CSR, very few studies are taken place in Vietnam. Because CSR is the hot issue, the benefits and drawbacks of CSR implementation reflect on the daily performance of organizations. Thus, the paper aims to examine whether CSR is the sustainable element for the development of Panasonic Vietnam Co. Ltd. in Vietnam. 13 In order to better understand CSR of recent companies, we need to answer some following questions: 1) Why and how does CSR related to PVCL’s growth? 2) How does PVCL implement CSR? 1. 5 Research objective The paper objective is to: Explain what is CSR Access the perception and understanding of individuals of CSR concept Build theoretical model and inspect the relationship between CSR and the firms’ development Raise awareness of individual employees, investors and the company about CSR as the whole, and, Recommend possible solutions to improve the perception and awareness of CSR effects on the business operations. 1. 6 Sphere of research Research conducting place: Panasonic Vietnam Co. Ltd. , Hanoi, Vietnam. Objective of the research: multinational companies operating in Vietnam. Time duration of conducting: from August 12th, 2011 to October 10th, 2011. 14 1. 7 Research Methods The project will use the survey and interview methods. The research distributes the questionnaire and conducts the study among the managers and employees in PVCL. Each individual will be questioned and then will fill the most appropriate answers in the survey. The previous researches and studies are also investigated to construct the questionnaire. The measurement is made in accordance with the past researches. Both quantitative and qualitative are used to carrying out the research. By surveying the managers and employees in PVCL; results and conclusions can be analyzed to assess the awareness and implementation of CSR of managers and employees. 1. 8 Structure of research This project will be divided into five following chapters: Chapter I: Introduction Chapter II: Literature review Chapter III: Research Methodology Chapter IV: Finding and Result Analysis Chapter V: Conclusion and Recommendation 15 2. LITERATURE REVIEW 2. 1 Definition of CSR CSR is also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business. Since the concept of CSR emerges in the business literature, academic researchers and non-academic advocators have given out numerous definitions. According to Carroll (1999), the construction of CSR definition started in the 1950s. It was widening in the 1960s and proliferated during the 1970s (Liangrong Zu, 2008). Even though there is no single commonly accepted definition of CSR. Bowen (1953) defined CSR as â€Å"an obligation to pursue policies to make decisions and follow lines of action which are compatible with the objectives and values of society† (Hussein, 2006). MaGuire (1963) expressed the view â€Å"the idea of social responsibility supposes that the corporations have not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations. † In 1975 Votaw and Sethi stated that CSR is â€Å"bringing corporate behavior up to level where it is congruent with the prevailing social norms, values and expectations. † And there are also some other different definitions of CSR which indicated there. Following Wikipedia, Corporate social responsibility is a form of corporate selfregulation integrated into a business model. CSR policy functions as a built-in, selfregulating mechanism whereby business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the companys actions and encourage a positive impact through its activities on the environment, consumers, employees, 16 communities, stakeholders and all other members of the public sphere. Furthermore, CSR-focused businesses would proactively promote the public interest (PI) by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. CSR is the deliberate inclusion of PI into corporate decision-making that is the core business of the company or firm, and the honoring of a triple bottom line: people, planet, profit. Or Mallen Baker also said that â€Å"CSR is about how companies manage the business processes to produce an overall positive impact on society. However, the most modern and accepted definition of CSR is built by World Business Council for Sustainable Development (WBCSD). CSR means â€Å"the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as community and society at large. † The emphasis of this definition is that business activities are mandated by laws, and expected moral or ethical nature. It is the voluntary commitment which demonstrates socially responsible operations and performance of the firm. And the firm has to consider both human and environment aspects because CSR will benefit the firm by improving financial performance; enhancing brand image and reputation; increasing sales and customers loyalty; increasing ability to attract and retain skilled employees; risk management; reducing regulatory oversight; and somehow reducing operating costs (Fernando, 2010). 17 2. 2. 2. 2. 1 CSR models Social-Economic Model of CSR This model has two distinctive arguments on social and economic dimensions of CSR. Cited in Liangrong Zu (2008), Bhide and Stvenson-1990; Friedman-1989, 1970, 1968; and Gaski-1985, on one hand, represented their view of a single dimension activity in which companies were in charge of supplying goods and services to society at a profit. They emphasized on the cost of social involvement of business and only considered profit as the measurement of business efficiency. On the other hand, Steiner and Steiner, 1997; Quazi, 1997; Quazi and Cool, 1996; and Samli 1992 accessed business in a social matrix contributing to society welfare as a whole and agreed that business is a part of large society. They also went beyond the view of profit maximization in the short-run. They understand the complexity of social responsibility in the new era; hence the second dimension is initiated. 2. 2. 2 The two-dimension model Quazi and O’Brien (2000) developed a two-dimension model and tested its validity in the context of two countries: Australia and Bangladesh. The model is illustrated in Figure 1. 18 Figure 1: A two-dimensional model of CSR (Quazi and O’Brien, 2000) This model has two axes. The horizontal one has two extremes: Narrow CSR and Wide CSR. The Narrow view demonstrates the perception of business in the classical sense that is supplying goods and services leading to profit maximization within the political regulations. Conversely, the Wide view take into account a broader context, the wider expectations of society such as environmental protection, community development, resource conversation and philanthropic giving. The Vertical axe shows two extremes: Benefits and Costs of CSR Action. One is implementing social costs in the short term; the other is long term benefits received from social actions. Thus the model has four quadrants: Classical View, Socialeconomic View, Modern View, and Philanthropic view. 19 2. 2. 3 Carroll pyramid Also under the social-economic view, Carroll (1979, 1983, and 1991) developed the Pyramid of CSR model (Figure 2). Carroll’s Pyramid of CSR includes 4 responsibilities in economy, legal, ethical, and philanthropy. Economy responsibility is illustrated by the effective growing of the company. It can be understood as an obligation of the company to produce what are demanded and result the beneficial profit. Furthermore, the company must care about looking for sources of labor and materials, attempt to find new resources or substitutes, update the advanced technology, research and development strategies. It also considered as the priority target because any company was established to earn profit. Other responsibility of company must base upon the economic responsibility of company. Company is treated as â€Å"a person† under the law, so obeying the law is the next responsibility of the company. Every locations and bordered areas have its own set of law and regulations for conducting and running the business. This is the compulsory things that are regulated and governed by the state authorities. Although the profit maximization is vital to the business operations, legal requirements is a measure of true and fair decisions to increase the trust and loyalty from customers. Ethical in business is mentioned many times while in today business, some companies accept doing any things to earn profit, even they cross the basic business ethic. So, besides the law, companies also must perform ethical responsibility. Ethical responsibility is the expectation of the public and society to the company that is going beyond the legal requirements. After all, companies should contribute back to society by doing philanthropy. This is mainly about set principle and moral values in the organization’s strategies. By this way, they can improve people’s life, and make their image be more well-known. This categories consist of almost business activities. 20 Figure 2: Carroll’s Pyramid of CSR (1991) 2. 3 Stakeholder model of CSR Enterprises are operating in a complex-relation market. Stakeholder theorists argue that the conventional input-output model fails to recognize the complex and diverse correlations. Freeman (1984) indicated that firms have different interactions with many constituent groups and the enterprises’ success is influenced negatively or positively by stakeholders. Figure 3 and 4 show the two different stakeholders groups: market stakeholders and non-market stakeholders (Adapted from Business and Society: Stakeholders, Ethics, Public policy, 12th edition, Anne T. Lawrence, James Weber, 2008). Market stakeholders (shareholders, creditors, customers, distributors, employees, suppliers, wholesalers and retailers) are those related in daily economic transactions with the company; inversely, non-market stakeholders (community, governments, activist groups, media, business support groups and general public) are those not engaged in direct economic exchange with the firm. 21 Shareholders Creditors Employees Business Firm Suppliers Customers Wholesalers Retailers Distributors Figure 3: Market stakeholders Communities Media Governments Business Firm Activist group General public Business Support groups Figure 4: Non-market stakeholders 22 Under the Stakeholder Theory, a company has to consider the two aspects: ethic and management. According to Deegan (2009), all stakeholders have the right to be treated fairly under the ethical perspective. That means the organization’s responsibility is not to give the power for preferential stakeholders but all. However, under management view of Stakeholder Theory, Buhr (2002) stated that the company only responds to these stakeholders that affect its daily operation. The more power stakeholders possess, the more probability the company acts on their interests and expectations (Friedman and Miles, 2002). Therefore, the non-market stakeholders are receiving little or even no attention as the market stakeholders. 2. 4 Other theories The theory of three Ps (Planet – People – Profit) is related to the Carroll’s â€Å"Pyramid of CSR†. Three Ps are Planet, People, Profit, and this theory linked to how the company performs its business. Depended on the strategy of companies, those three Ps can be replaced in some different ways. They can be Planet – People – Profit, means that company cares about the whole environment, people in the society, and its last attention is profit. Other replacement can be Profit –People – Planet, which means the priority of the company is profit, after that is people, and the last thing they care is the planet. Based on how the company places those three Ps, we can understand the priority in its business performance. Other concept which is usually mentioned with CSR is Public Relation (PR). PR can be understood as the action using media to perform effective transfer messages to public. This action is performed with the purpose of changing the publics actions by influencing their opinions. PR also helps companies supporting their brand name 23 among many competitors in market. Thus, PR is one of managing functions which helps company building and maintaining the relationship with society and customers. Through good implementation of CSR, a company can make good PR about itself then consolidate its brand in market. 2. 5 CSR reporting CSR report is voluntary statement. CSR report can be a framework to present a good image for the shareholders and stakeholders. CSR reporting is positively related to the activities of companies and enterprises are paying more attention to such reports. CSR reporting framework is to improve corporate governance and competitive advantage to achieve sustainable development. Carroll Buchholtz (2000) comment on the finding that CSR has brought some changes in the relationship business and social approach to stakeholder management is a necessary response. CSR reporting has increased significantly improved with the period from 2002 to 2005. CSR reporting form has seen a big change from full environmental report for sustainable development (including issues of social, environmental and economic). Businesses with annual CSR reports agree that business should look at CSR as one of two aspects for business solutions such as reducing risk and create competitive advantage. CSR has just such an exception in social ethics and an exception to exist and compete in business. 2. 6 Sustainability The objective of profit maximization, nowadays, is not the first priority for the firms’ operation. There is a movement from profit in the short-run towards the value 24 in the long-run. The shift happens because entities care about the sustainability and the development of the organizations. The sustainability and development is related to three elements: People, Planet and Profit (3Ps). People (human capital) are an essential source contributing to the company’s success. Consequently, in order to retain a good workforce, firms must commit to provide a safe and convenient working environment, to give employees opportunities for further training and education, to offer fully insurance and heath requirements based on labor laws, and to treat equally to all employees. The company also provides the satisfied remuneration package to motivate the employees’ performance. Planet element is about the environment. The company has been prohibited from the unethical activities so that can cause damages to the environment. Thi Vai River’ pollution is a whistle-blowing for all firms operate in Vietnam. Any activities leading to pollution and destruction of natural resources will result a bad reputation. To enhance the view of public and media, some companies improving their responsibility by building parks and holding social events like preservation environment campaigns. The final aspect contribute to the sustainability of firms is profit. By acting ethically, firms save fined costs and gain opportunities cost from an ethical reputation. This is an increase for the firm profit. 2. 7 CSR in Vietnam The literature of CSR has been emerged in Vietnam in recent years. Since Vietnam is till a developing economy, most businesses in small and medium-scale adoption and 25 implementation of social responsibility of business has not been interested and broadly applied. Vietnams economy mainly centers around agricultural and forest products apart from mining and manufacturing. The CSR awareness and perception are vague and many companies believe that it is an added and unnecessary expense rather than a cost-saving measure. The greatest difficulty of Vietnamese enterprises today is information, leading to confusion and unclear direction where to start CSR implementation. According to The CSR Vietnam Forum, in order to bring CSR into actions, companies answer the two following questions: 1. The quality of their management both in terms of people and processes (the inner circle); and 2. The nature and quantity of their impact on society in the various areas. The Global Compact Network Vietnam (GCNV) recently held a meeting in Hanoi to discuss the ideas of CSR implementation into businesses. The three step stage is given our in order to increase the profile of CSR which at the first level argue about how to implement the basics of CSR. At the second level, companies will have to include the Global Compact framework to use CSR as a business strategy. And the final layer is about companies showing their commitment towards CSR and how to improve its profile within the organization. In order to support Vietnamese companies, the government has attempted to raise the business awareness about the importance and effects of CSR over the long-term development. The establishment of global standards for the firm’s operations is the basic step in the process. Moreover, many preferential policies have been applied to encourage the application of CSR. 3. RESEARCH METHODOLOGY 26 3. 1 Research objective Since Vietnam is an ideal market (a huge and cheap workforce, encouraging policies for development, cheap source of raw materials and so on), many multinational corporations has been set up in Vietnam. PVCL is one of these and it has a great impact on the Vietnamese market. Therefore the research intends to investigate the relationship of CSR and the sustainable development of SMEs. It evaluates: 1) the management attitude and perception toward CSR, 2) how the firm consider stakeholder interests through its performance, 3) CSR implementation in business, and 4) the relationship of CSR implementation and the corporate performance. Nowadays, managers use CSR as a tool to increase their organizations reputation; to improve the relationship of organization with society, consumers, workers; to increase the efficiency and effectiveness in their operation. However, managers in Vietnam organization do not have enough knowledge about the importance of CSR, so there is only little amount of companies in Vietnam integrate CSR. 3. 2 Research methodology There are two main types of methodology which are quantitative and qualitative. Quantitative method is â€Å"to generate statistics through the use of large-scale survey research, using methods such as questionnaires or structured interviews† while qualitative method is is â€Å"to explore attitudes, behavior and experiences through such methods as interviews or focus groups†. On one hand, quantitative method obtains meanings from numbers. All collected data are numerical and standardized, and then are used to conduct diagrams and statistics. On the other hand, qualitative method 27 mainly derives meanings through words. Qualitative data which are non-standardized are classified into different categories. The analysis results from the use of conceptualization (Saunders et al. 2009). In the research, the mix of quantitative and qualitative methods is more used. 3. 3 Data source Primary data consist of information collected for the specific purpose at hand (Amstrong Kotler, 2007). Primary data can be obtained from survey, observation or experiment. Primary data has lots of advantages. Although primary data is usually expensive and time consuming, it is the most reliable form of data and supplies less biased form of data. By using primary data, researchers can have direct interaction with the customers. Beside the primary data, secondary data are also an effective source of information. Secondary data consist of information that already exists, having been collected for another purpose (Amstrong Kotler, 2007). Secondary data can come from newspaper, journal or internet source. In the range of the research, both primary and secondary sources are employed including newspaper, academic journal, books, internet, survey, and annual reports. 3. 4 Research tool Primary data is widely collected through research survey. In the paper, the questionnaires and personal interview are used. 28 3. 5 Data collection and processing 3. 5. 1 Sampling The target population is residents working in Hanoi. Hence, the sample frame is managers and employees working in Hanoi. In this paper, the simply random probability method is employed. According to Saunders et al. (2009), a larger sample size is more representative of the population from which they are drawn than the smaller one. Thus, the mean (average) of the sample is close to the mean of population known as the law of large numbers. The required sample size is a function of the precision of the estimates one wishes to achieve, the variability or variance, one expects to find in the population and the statistical level of confidence one wishes to use. Therefore, in the research, the sample size is 20 managers and 110 employees. 3. 5. 2 Questionnaires There are two patterns of the survey: managers and employees. The questionnaires are randomly sent to managers and employees of PVCL. The survey includes 10 questions and is divided into 3 parts: perception and attitudes toward CSR, awareness of stakeholder interest, and CSR implementation. The Five-points Likert scales which is includes: 1= strongly disagree; 2= disagree; 3 = neither agree nor disagree; 4 = agree; 5 = strongly agree will be used for three pattern survey. The questionnaires have been designed as four parts (Appendix). The first section is the personal information including: age and gender. The second one is questions about CSR perception and attitude including: 29 Question 1: I know about the term â€Å" CSR† Question 2: I fully understand about the term â€Å" CSR† Question 3: CSR is rather the obligation of large multinational companies than of SMEs Question 4: CSR is more relevant for the manufacturing industries than for the service sector The next part is about the awareness of stakeholder interest as the following: Question 5: The Company pays attention to the need and expectation of market stakeholders (customers, employees, creditors, suppliers, distributors, etc) Question 6: The interest of non-market stakeholders (community, media,) is NOT important to the company. And, the final section is about the CSR implementation. Question 7: The Company implements a code of ethics Question 8: A responsible company is a firm that strictly abides to labour and environmental laws Question 9: Responsible businesses go beyond what is required by law to make a positive impact on society and the environment Question 10: The company reporting systems encompass the environmental and/or sustainability reporting 30 3. 5. 3 Personal Interviews Managers of 30 SMEs are interviewed to assess the implementation of CSR and CSR effects on the companies’ performance. There are 2 interview questions: 1) How CSR is implemented in your company? 2) How does CSR have any connection to the company’s performance? 3. 5. 4 Delimitation There are few problems and issues of related survey. First, the survey is distributed only to the managers and employees of PVCL thus the survey answer may not indicate the overall knowledge and understanding of multinational corporations’ employees. Second, it is likely to collecting the biased and inaccurate data and information because some respondents try to express their broad knowledge and experience so the information is not sometimes useful and the respondents can answer the statements based on the most easiest and efficient manner. Because the information is sensitive, the respondents may refuse to answer due to its negative effects on the career. 3. 5. 5 Data Treatment After collecting the questionnaires and interview answers, raw data was typed and analyzed in Excel file. In order to assure the accuracy and precision of survey data, data treatment procedure is needed. The process of checking errors includes checking error due to wrong inputs: comparing with the original data, correcting wrong records. 31 32 4. RESULT ANALYSIS 4. 1