2.1. CSR: Concept and Characteristics
In the business administration field of research, the role of the company in society is being debated. In general, this debate has developed drawing upon stakeholder theory insights (Donaldson and Preston 1995
; Freeman 1984
; Freeman et al. 2010
). In this context, CSR is considered to be the most relevant and/or common concept dealing with companies’ social issues (Carroll and Buchholtz 2006
; Wood 2010
). CSR has moved on from a narrow notion to a wide-ranging and complex concept, increasingly related to companies’ decision-making processes and consistent with public expectations of the business community (Carroll 1999
; Cochran 2007
) significantly contributed to the research into the history of CSR1
. According to his four-level pyramid diagram, each level depends on the others (Carroll 1991
), making CSR a complex and multidimensional concept: (1) Economic responsibilities are at the base of the pyramid, representing the production of goods and services that consumers need and want. The company must achieve a reasonable degree of profitability in the process of production and sale of its goods or services; (2) Legal responsibilities are the expectation of society that companies comply with the law and state regulations in force in the geographic area where they operate and applicable to their kind of business; (3) Ethical responsibilities are society’s expectations that the company will conduct its business while trying to behave correctly, fairly, and reasonably, meeting certain ethical standards, and to minimise harm to the different stakeholders in society; and, (4) Philanthropic responsibilities are society’s expectations that companies should be voluntarily involved in activities that foster good corporate citizenship. Such actions include the involvement of companies in programmes that promote social welfare and improve citizens’ quality of life.
Many different definitions of CSR have been introduced, from both academic and professional arenas. However, no definition has been universally accepted (Matten and Moon 2008
; Wan-Jan 2006
). Following Dahlsrud
), a series of dimensions have been used to characterise the essence of CSR: consideration of economic, social, and environmental issues, stakeholders, and voluntary nature. Notably, the term CSR has often been used to describe both the concept of companies’ social responsibilities, and to measure the practices, actions, or measures that are taken by a company on social and environmental issues (Manner 2010
). Although there are alternative understandings of CSR linked to externalities (Crouch 2006
; Laudal 2011
), shared value (Porter and Kramer 2006
), and provision of private public goods (Bagnoli and Watts 2003
; Besley and Ghatak 2007
), here we used the ‘stakeholder definition’, meaning that CSR is understood as those discretionary actions taken by a company to promote a social good of some kind, above and beyond the company’s own interests and legal requirements (Barnett 2007
; McWilliams and Siegel 2001
We are currently experiencing a change phase in which companies are increasingly committed to achieving optimal socially responsible outcomes, treating each social, economic, and environmental issue as part of their strategy. Until relatively recently, companies did not consider CSR, but simply concentrated on aggressive action in response to their competitors’ behavior, without evaluating other factors that might have an impact on their organisation. However, this type of action is being modified by our current social change (Infante 2015
). Furthermore, as referenced by Fernández López
), companies are undertaking on different social actions depending on their sector and corporate strategy, examining the needs of their stakeholders and their management style (McWilliams and Siegel 2001
A series of tools exist for assessing good behavior toward different stakeholders that help companies to act in a socially responsible manner. Of the most prevalent, we can point to the following (Gregorio 2013
): (1) Codes of ethics: They are rules regulating the behavior of people in a company or organisation. Although contravening an ethical code does not entail legal penalties, compliance with these codes should be obligatory. The main purpose of these codes is to ensure appropriate behavior on the part of the employees in the company; (2) Codes of conduct: They are documents written voluntarily by a company specifying the basic rights it is prepared to honor in its relationship with all of the individuals in the organisation; (3) Management system standards: They enable the company to achieve optimal results in terms of the impact of its activities on society or the environment. The outcomes enable the company to continuously and responsibly improve; and, (4) Social responsibility reports: They are written documents made public by a company, describing its CSR practices with each stakeholder group involved in the business activity, whether they are social, economic, or environmental.
) stated that socially responsible behavior plays a part in creating value for a company that is based on the growth of key strategic intangible resources (Surroca et al. 2010
; Wang and Bansal 2012
), while enabling the efficient use of opportunities to achieve better economic results. The combined impact of CSR and human resources activities, which reinforce desirable behavior, can importantly contribute to generating long-term success in organisations (Sharma et al. 2009
). Specifically, responsible behavior produces a series of advantages that benefit all stakeholders (Santonja et al. 2008
): (1) Customer loyalty: If the company satisfies its customers, they will want repeat business; thus, efficient and personal service, among others, is highly valued by customers. Consumers are appreciative of those companies that value their clients as a primary component of their business. (2) Improved morale in the workplace and higher productivity: evidenced when employees self-identify as an important part of the organisation and are fairly treated, as they are more highly motivated, which improves labor relations, reinforcing productivity, and achieving better results; (3) Improved perception of the company and its reputation: the economy is currently viewed as the “economy of reputation” as we are surrounded by an economy in which everything is copied, which is why a business’ reputation is extremely important as one of its intangible assets that can serve as a competitive advantage, as it cannot be copied; (4) Risk mitigation: by implementing codes of ethics and behavior and other types of standard, bad behaviour in companies can be minimised in order to improve relationships with all the stakeholders; and, (5) Encouraging innovation: good CSR practices can help in developing innovative products and services. In addition, the relationship between different stakeholders encourages the search for solutions to potential problems, which creates the right conditions for imaginative ideas and the development of innovative activities and services.
The Howitt report (European Parliament 2013
) stated that CSR actions not only benefit society as a whole, but also help companies to compete and remain economically viable in the long term. This positive effect of CSR on financial performance has been supported by some meta-analysis research suggesting that being socially responsible and responding to different stakeholders’ needs and expectations results in a competitive advantage, thus improving the company’s results (Allouche and Laroche 2005
; Margolis et al. 2007
; Orlitzky et al. 2003
; Wang et al. 2016
; Wu 2005
). However, there is no consensus on this point, for example, because of the complexity of the CSR concept or the influence of other firm characteristics. Some authors have theoretically argued or empirically found that the positive effect of CSR on performance cannot be generalised and that only the primary stakeholders-focused on CSR activities may increase the financial returns (Barnett 2016
; Hillman and Keim 2001
). Moreover, the positive CSR-financial performance relationship might be contingent upon other variables. For instance, Wang et al.
) underlined the potential effect of firm size, and Surroca et al.
) assigned special importance to the presence of other corporate intangible resources.
2.2. Internationalization: Concept and Characteristics
Internationalisation is the long-term process through which a company creates a series of conditions that are pre-requisites for expansion into international markets, relocating, and implementing an external strategy (Escuela de Estrategia Empresarial 2014
). Thus, a company will have the opportunity to sell its products in new geographic markets beyond its national borders; this is a corporate strategy with the potential to be developed. As well as having a presence in the target country, the organisation will also have to adapt to that country’s economy if it is to achieve optimal results (Rodríguez 2015
Some general internal and external reasons that drive companies to implement a strategy of internationalisation and move beyond their national borders, including the following, depending on their origin (Guerras and Navas 2015
). The internal reasons—reasons springing from actions or variables relating to activity within the firm—include (1) cost reductions in the procurement of raw materials or other types of resources that are needed for the company’s production process; (2) the search for resources better suited to the organisation or its production process; (3) minimum efficient scale required to achieve the sales volume needed to reach optimal business size; (4) reduction of labor risk by distributing the company’s main activities across several geographical areas by seeking to diversify risk; and, (5) full exploitation of resources and capacities that are being under-utilised. The external reasons, which are based on external factors unrelated to the company, include (1) the industry’s life cycle, offsetting the phase of maturity in the country of origin; (2) following the client when it has successfully internationalised its activities; and, (3) globalisation of the industry, with the aim of optimizing any opportunities existing in the international market.
Once the reasons or motives driving a company’s decision to implement an internationalisation strategy are known, we need to consider two aspects that companies be asking themselves: how to enter the external market and the strategic international competition approach.
With regard to how to enter an international market, entry modes can be divided into three general categories (Pedrero 2014
): (1) export, in which production occurs in the country of origin, supplying the other markets in which the company has commercial relations from there; (2) direct investment, consisting of a capital investment by a company in a foreign country (joint venture and owned subsidiaries); and, (3) contractual systems, when certain rights over company assets are ceded to a company in the foreign country (franchises or licences). In terms of companies’ approaches to international competition, depending on how their activities are organised (Carrión Maroto 2007
), they can be divided into the following types (Pla and León 2004
; Puerto and Patricia 2010
): (1) global strategy, where the product is standardised in order to reduce costs; (2) multi-domestic strategy, focusing on the particular characteristics of each country in which it is operating; and, (3) transnational strategy, whereby the company operates in several countries creating products for global markets that adapt to the demands of the local customer.
Once the forms of entry and international strategies have been selected and introduced, the company should assess its results in terms of its relationship with the foreign market. As Contreras et al.
) mentioned, the relationship between internationalisation and business outcomes has been studied by many researchers, because it is viewed as an important dimension in a company’s growth (Peng and Delios 2006
). There are different perspectives and theories analysing this phenomenon from the theoretical point of view that reach different conclusions using a range of models, but no general consensus has been reached.
Vila and Küster
) noted the relationship between internationalisation and business results (profitability, sales margin, etc.) has been researched using secondary sources. For example, Tseng and Yu
) reviewed a number of papers that attempted to account for a company’s results based on its decision to export or not, as well as the different marketing mix strategies that are used in each country. Most find some kind of connection between going abroad (internationalising) and an increase in financial ratios, although, as Daniels and Bracker
) observed, not all of the methods of entering foreign markets are equally profitable in economic terms. However, previous literature has found a positive connection between internationalisation and financial success (Majocchi and Zucchella 2005
Looking specifically at entry methods, many papers (Aw and Hwang 1995
; Aw et al. 2000
; Bernard et al. 1995
; Bernard and Jensen 1999
; Bernard and Wagner 1997
; Delgado et al. 2002
) found that exporting firms show higher performance levels in terms of productivity, size, survival rates, wages paid, capital intensity, and technological sophistication as compared with non-exporting companies. The economic literature has traditionally offered two complementary explanations for the higher levels of productivity of exporting firms than non-exporters: the self-selection hypothesis, and the learning hypothesis. Both are explained in detail below.
The self-selection hypothesis implies that it is the company’s competitive success that triggers it to export. Using this argument, export markets select the most efficient companies from among all potential entrants. Therefore, it is the most productive companies that finally break into foreign markets. The learning hypothesis implies that it is exporting itself that generates competitive success. Companies that export benefit from increases in their productivity from two different aspects. Firstly, the international market, bigger than the domestic market, provides economies of scale by contributing to a significant increase in the use of companies’ installed capacity. Secondly, the rate of productivity growth is determined by the learning process that these same companies develop in foreign markets, with information spill overs being the benefit that is most frequently cited in this area (García and Avella 2008
In terms of results of empirical studies, Vila and Küster
) concluded that companies that have internationalised score significantly higher on average than those that have not (especially net profits). Research conducted by Contreras et al.
) confirmed a quadratic relationship between the degree of internationalisation and business results. This may be because companies, at the outset of the internationalisation process, incur higher costs in understanding the market and installing themselves in it, which thus affects their profitability. However, as their degree of internationalisation grows, their results improve. Furthermore, according to this study, the most profitable strategy for entering external markets seems to be to export using specialised intermediaries.
According to García and Avella
), exporting companies should be more productive than those that do not export because they have to be capable of entering these markets and achieving a certain level of profitability in order to be able to continue their commercial activity on a regular basis. As such, only the most efficient companies will be capable of overcoming the entry costs that are involved in export markets and of taking on the competition in those markets. Global partnerships, in which partners coordinate their actions to achieve shared international growth, are becoming increasingly important. This type of cooperation is within the reach of any company, so some companies that are in crisis can achieve better results by cooperating with other types of firms in a stronger economic position (González et al. 2013
Finally, according to García-Canal et al.
), the fact that preliminary results in this area have not always been conclusive may be due to the use of different performance measurements, such as the reaction of the capital market (López-Duarte and García-Canal 2007
), productivity indicators (Fariñas and Martín-Marcos 2007
), the Tobin “Q” ratio (Ramírez and Espitia 2001
), other profitability indicators (García and Avella 2008
; Camisón and Villar 2010
), or, because, on most occasions, only industrial firms are considered.
2.3. Strategic Relationship between Corporate Social Responsibility and Internationalisation
Few studies analysed CSR and internationalisation strategies together (Hah and Freeman 2013
). The main difficulty in conducting these studies stems from the problems in defining CSR, together with the issue of practice management by companies operating in international markets (Jamali 2010
). CSR and internationalisation can be viewed as complementary strategies, since arguments exist for a dual causality, that is, that CSR can affect internationalisation and vice versa. In general, such arguments can mainly be developed drawing upon the resource-based view (Barney 1991
) and stakeholder theory (Freeman 1984
Regarding the resource-based view, organisations are considered to be different from each other in terms of the resources and capabilities that they possess at a given time, as such resources and capabilities are not available to all companies under the same conditions (Barney 1991
; Wernerfelt 1984
). As such, both strategies, CSR and internationalisation, can help firms acquire and develop valuable, scarce, and imperfectly imitable resources, such as specific market knowledge or reputational capital, which are key to gaining and maintaining competitive advantages (Aguilera-Caracuel et al. 2014
With regard to stakeholder theory, strategically designed and implemented CSR can address stakeholders’ claims and demands, and help to increase firm value (Husted and Allen 2007
; Jones 1995
). Specifically, the impact of such CSR initiatives may be maximised when they are focused on powerful, legitimate, and urgent groups (Mitchell et al. 1997
). This point is particularly more complex for multinational companies (MNEs), as they operate in different markets and face different stakeholders’ expectations, values, and scopes (Aguilera-Caracuel et al. 2015
Specifically, MNEs operating in culturally different markets attempt to improve their social performance for a number of reasons:
Firms with international activity are subject to scrutiny by more stakeholders. Large multinationals are much more exposed to public opinion because of higher awareness of their activities. As such, they run a greater risk of damaging their corporate reputation as a result of their behavior (Hah and Freeman 2013
). According to Aguilera-Caracuel et al.
), international firms face significant pressure from their stakeholders in the locations where they conduct their business to adopt socially responsible behavior and to have a positive impact on society. An improvement in the performance of social or environmental activities strengthens the relationship between the company and surrounding society, although this factor might be very relative, depending on the country in which the institution is operating, since it does not carry the same weight in every country (Garriga and Mele 2004
). Thus, the company may behave in two different ways, depending on the country in which it is operating. It may take advantage of countries with more permissive laws to behave more opportunistically, or it may do business in different markets to gain greater knowledge, improve transparency, and legitimacy, which will benefit the company in the future (Aguilera-Caracuel et al. 2015
The company will succeed in forging a competitive advantage when it manages to satisfy all the relevant interest groups (Sen et al. 2006
). Thus, an international company that wins this competitive advantage with optimal CSR will improve the credibility of organisations, together with consumer trust, in the destination country (Smith et al. 2010
), and hence differentiate itself from its competitors (Maignan and Ralston 2002
Against the risk of not being accepted in a new country, given that internationalisation can generate a high level of uncertainty, CSR enables firms to earn legitimacy and reinforce competitive advantage on the international stage.
According to Mithani
), when we are examining MNEs, we assume that the internationalisation phase occurs first, followed by the interest in being accepted in the destination country, triggering the development of a CSR strategy (Pant and Ramachandran 2017
). MNEs’ responses to social demands allow for certain risks to be minimised, since, if the firm succeeds in implementing a good CSR strategy, it will gain greater customer trust and thus improve its results. Moreover, companies need to bear other countries’ cultural perspectives in mind when they design their CSR strategies, since, if they do not, there may be errors in CSR practice in the home and destination markets, with a corresponding increase in business risk (Bondy et al. 2012
Availability of Funds
Internationalisation, as a search for new forms of income, can ensure the continuous generation of resources. MNEs operating in culturally diverse markets may share the costs and benefits of CSR investment across their subsidiaries, so that the firm becomes more socially responsible (McWilliams and Siegel 2001
). One of the greatest advantages enjoyed by this type of entity is risk diversification, derived from the internationalisation strategy. Because the firm is operating in multiple markets, a negative impact in one can be offset in another, enabling the entity to achieve a relatively stable economic position and cash flow, so that it can perform social or environmental actions in the markets where it is operating (Dahan et al. 2006
; Geppert et al. 2006
). The local population will place more trust in MNEs if they demonstrate loyalty to the destination country, with mutual advantages to both the company and the population (Mishina et al. 2012
Learning and Maximisation of Skills Valuable for Meeting the Expectations of the Stakeholders
According to Madhok
), the lack of knowledge about some destination markets causes difficulties when transferring knowledge and skills from the parent company to its subsidiaries and vice versa: if a company wants to respond appropriately and adapt appropriately while using its CSR, it needs to have a solid understanding of the market, as well as of the cultural characteristics of its players. This approach is the only way to achieve an efficient dialogue with each of the parties comprising the market, which involves an improvement in productive efficiency and of processes, international legitimacy, transparency, and reputation. Therefore, doing business in culturally diverse markets helps MNEs to optimise new ideas as they acquire international knowhow (Antonacopoulou and Meric 2005
; Barkema and Vermeulen 1998
). Aguilera-Caracuel et al.
) proposed that market diversity might encourage the development of innovation in the company’s environmental management, and, as a result, allow it to implement a more proactive environmental policy.
Scant empirical evidence supports the positive influence of internationalisation on CSR. For example, Aguilera-Caracuel et al.
), using a sample of export Spanish firms in the food industry, concluded that a high degree of international diversification encourages these firms to benefit from different environmental competitive advantages from the different regions in which they operate. For a sample of 102 United States (U.S.) firms from the chemical, energy, and industrial machinery industries, the percentage of sales in foreign markets and international cultural diversification were found to help firms improve their level of social performance (Aguilera-Caracuel et al. 2014
). In addition, a high level of slack financial resources leads MNEs operating in markets with different cultural profiles to improve their corporate social performance (Aguilera-Caracuel et al. 2015
). Finally, Campbell et al.
), for a sample of countries and focusing on the banking sector, showed that foreign affiliates from more distant home countries are less likely to engage in CSR than affiliates from more proximate home countries. This suggests that, despite increased strategic motivation for CSR, the countervailing effects of distance on the willingness and ability to engage in host-country CSR result in lower CSR investment.
Regarding the influence of CSR on internationalisation, there are two central arguments here:
This is understood as increased legitimacy as CSR can generate benefits that may be used so that the company opens up to new markets leveraging its reputation, resources, and so on. According to Zeng et al.
), being perceived as a socially responsible firm enables a company to break into new geographical markets. The main reason here is that a firm’s CSR legitimacy signals to customers in the new markets that the firm cares about their interests, and it should contribute to their community (Chow and Chen 2012
; Fombrun and Shanley 1990
; Spence 1974
). Moreover, this positive perception may lead new markets to consider the company as engaged with good product quality and goodwill toward the customer (Wallin Andreassen and Lindestad 1998
). Furthermore, this type of socially responsible behavior helps companies to obtain useful resources from the government and other interest groups to promote internationalisation and improve the quality of both society and that of the company that is assessing the option of internationalisation (Eisenhardt and Martin 2000
; King and Tucci 2002
). As such, there is a positive correlation between a company’s CSR and to its success in new geographical markets.
When a company is accustomed to being in contact with a number of stakeholders, it knows how to respond to all of the demands that can arise in its commercial dealings. This means that it will be better at adapting to the pressures that may arise in its new commercial environment. Bansal
) stated that abiding by best practices acquired over the course of years, both in the country of origin and the destination, facilitates cooperation with external agents, and improves response capacity in the event of new requirements, thus leading to better development. Eisenhardt and Martin
) argued that proactive environmental strategies are socially complex, specific, and cannot be replicated, so the company can organise its resources so that it can adapt to any change in the commercial environment and deal more fairly with each of the interested parties in its commercial relationships.
Finally, per Keinert
), CSR can positively contribute to internationalisation processes, so this should in turn be an international strategy. For a company looking to internationalise, reputation is one of its most important assets, since a solid reputation facilitates entering new markets, helping each of the stakeholders that form part of the company to deposit a high level of trust in it, which is why the adaptation to the new competitive environment is so highly valued.
The empirical study by Zeng et al.
), for a sample of Chinese companies, demonstrated that the firm’s CSR image had a significant and positive effect on their success when entering new geographic markets. For China, it was also found that exporting SMEs’ practice of proactive environmental strategies positively affects their corporate export performance (Chan and Ma 2016
), for a sample of 190 MNEs and 660 domestic firms, found that in the aftermath of a disaster, the increase in MNE contributions was much larger and less strongly tied to promotional activities than the increase in contributions from domestic firms, and this difference persisted over time. Moreover, the performance implication of post-disaster philanthropy was stronger for MNEs than for domestic firms.
Overall, and in line with all the arguments above and the existing empirical findings, we propose the following hypothesis:
Hypothesis 1 (H1):
A company’s CSR and internationalisation strategies are positively related.