Table of contents

1.1 Abstract 2

1.2 Thesis 2

1.3 Delimitation 3

2.1 Corporate Social Responsibility 4

2.2.1 Corporate Image 4

2.2.2 Corporate image and risk 7

2.2.3 CSR initiatives and Compliance 8

2.3 Stakeholder theory 10

3.1.1The OLI framework 13

3.1.2Multinational Enterprise (MNE) incentive 13

3.2 Ownership advantages: 14

3.3 Location advantages 15

3.4 Internalization advantage 17

3.5. Part of the theoretical background 18

3.6 Development of the Eclectic paradigm 20

4.1.1 Can it be argued that CSR policy has a relation with the OLI framework? 23

4.1.2 Google China 24

4.1.3 the above average in industry organization 29

4.2 summary 30

5.1 Is the CSR policy aspect covered by the OLI framework? 32

5.2.1 Strategic implications of CSR policy to resource based theory: 33

5.2.2 Is CSR policy related strategic implication then fully covered in the eclectic paradigm? 33

5.3 discussion of the coverage 34

5.4 Could CSR be incorporated in the eclectic paradigm 34

6. Conclusion 36

7. Bibliography 37

1

1.1 Abstract

Since John dunning presented his Nobel Prize winning symposium the Eclectic

paradigm, it started vast amounts of discussion, in the theoretical literature related to

Foreign Direct Investment (FDI). Many things in the world have arguably changed

since the arrival of the eclectic paradigm. The amount of FDI in the world has been

increasing ever since, so has the openness of many markets around the world, the

technological development have had influence on the environment of business. The

eclectic paradigm is still very relevant in current FDI discussion and literature, because

it has been approaching the developments of the environment in which it is the

grounds for analysis.

Corporate Social Responsibility, a concept younger than the eclectic paradigm. And a

concept that has received increasing media attention in recent years. This paper will

see if it can be argued that it has relevance for FDI, hence has relevance for the Eclectic

paradigm.

Why CSR?

Given the development of information technology, information travels more

widespread, faster and has become more accessible. This has led to an increasingly

transparent business environment; qua it is increasingly difficult to hide information.

Juxtaposed with this development in information technology, CSR has developed as

well. It is a relatively new concept and there is still discussion to what it encompasses.

An increasingly open world information wise, and a social awareness of organizations

and its consumers in development, CSR can potentially bring change to the business

environment .

1.2 Thesis

The chapters 2 and 3 of the paper will explain the Eclectic paradigm and CSR theory

related to corporate image. Some of the grounding theory of the eclectic paradigm and

CSR will be in the same chapters,

2

That will serve as the basis for understanding FDI and CSR theory. Chapter 4 will be

concerned with arguing the relevance of CSR in the FDI context. Practical examples will

be used, it is however not the purpose of the paper to make a thorough case based

analysis of the organization’s mentioned. The point is to highlight some relevant issues

of CSR policy, which potentially could be relevant for a large number of organizations.

In Chapter 5 strategic implications of CSR and its relevance to the eclectic paradigm is

discussed. Together with the potential coverage of CSR in the current eclectic paradigm

is discussed.

1.3 Delimitation

CSR theory is not a narrowly specified concept; many different theories in the realm of

CSR exist. So a few aspects of the total CSR theory is considered in this paper, the

selection criteria was perceived relevance. In FDI theory the Eclectic paradigm is

selected, qua its role in literature. Hence other FDI literature potentially relevant was

not considered. In terms of grounding theory in the Eclectic paradigm, resource based

theory and transaction cost theory receive special attention in terms of explanation.

Other grounding theory could have been chosen as well (e.g. theory of the firm or

internationalization theory), similarly to CSR grounding theory where Stakeholder

theory is selected. The grounding theory considered most relevant was chosen.

The argumentation in chapter 4, is not balanced in the sense that it includes

argumentation for scenarios where CSR is not relevant. Since the purpose is to argue a

possible connection between CSR and FDI and not an investigation of the scope of

relevance. This is a resource based constraint. A similar constraint is chapter 5 subject

to. In the sense that the relevance and coverage is argued, but no investigation of the

scope.

3

2.1 Corporate Social Responsibility

Corporate social responsibility refers to a company's commitment, beyond that

prohibited by law and limited by the economy, to achieve long-term goals to improve

society's welfare. CSR refers to many different types of activities and behaviors, such as

ethical

behavior, sustainable development, eco-friendly behavior and philanthropic activity.

CSR is applied by an organization to build stronger brands, and a positive corporate

image and reputation.

Corporate Social Responsibility (CSR) can be defined as:

a commitment to improve the welfare of society (both human factors

and environmental) through voluntary corporate practices, i.e. activities that are not

obliged by law or ethics that are expected of the organization to

comply with, and contributions of corporate resources (Kotler/Lee, 2005).

In the last decades numerous articles has been written and much research has been

conducted in relation to the topic of CSR, from different points-of-views and in various

areas.

2.2.1 Corporate Image

An association can be described as a cognitive note that is directly or indirectly

connected to a

brand name, in the long-term memory. Image is formed when one has a set

with associations that are connected to the brand. Consumers' cognitive

associations with an organization can be both a strategic advantage and a source of

sustainable

competitive advantages (Brown/Dacin, 1997). Consumers can have numerous

4

associations with

an organization and its products (Keller, 2003), but according to Gürhan-Canli and

Batra (2004)

Three main corporate image associations are incremental:

1) Innovation: a company's research and development activities (R & D),

innovative technology and its ability to produce new and improved

products.

2) Trust: the company's credibility, reliability, honesty and benevolence.

3) Corporate Social Responsibility (CSR)

From previous research, innovation has proven to be an important corporate image

association

concerning the influence of the consumer's evaluation (Brown/Dacin, 1997).

A company with a strong and trustworthy image in a given market, can achieve

advantages related to the consumer response in the market in question.

A high level of trust can enable the organization in question, to build consumer loyalty

and

have higher possibility of managing through a potential crises, and achieve a more

desirable treatment from authorities and news media.

Furthermore, a result could be that the organization to a higher extend can attract

better qualified staff qua a potential above average image. The current employees'

motivation could as well be subject increased productivity and loyalty (Keller, 2003).

Research shows that consumers care about the organization’s efforts to act in a more

socially responsible manner (Sen/Bhattacharya, 2001).

5

Brown and Dacin (1997) have studied various forms of cognitive associations that

consumers may experience through their product evaluations, of a given organisation.

They divide corporate image into two main types, instead Gürhan-Canli and Batra

(2004)'s three.

1) Corporate ability (CA) is the consumer associations

have to an organization ability to produce and deliver

its product.

2) Corporate Social Responsibility (CSR): associations

reflects the organization's status and activities according to

perceived social obligations.

An organization can either choose to build a brand by choosing one of these

associations

or both. CA associations affects the perception of

a product's key attributes. CSR associations are expected to affect the perception of

product social responsibility, and both of the two associations affect the consumer's

evaluation

of the organization, influencing the consumer's evaluation of the product itself.

(Brown/Dacin (1997))

differences between the CA associations and CSR associations

CSR associations do not usually have a relation to an organization’s ability to produce

goods and services, unlike CA associations. thus CSR provides little information with

regards to bridging the gap between a product lacking performance wise and the

desired outcome of a product.

Unless the product or product category is consistently promoted on the basis of

CSR characteristics (Brown /Dacin, 1997). CSR associations are particularly important

in

affecting consumers' attitude towards the organization, qua the influence, attitudes has

6

on

consumer's evaluation of the product or service.

The main difference between CA and CSR is that CA operates on a product level

affecting

consumer's perception of the value of the product), while CSR operates on a

organization

level (affecting consumer confidence in the organization)

CSR can influence the so-called "liking" or trust company (Brown /Dacin, 1997),

and play an important role as a buffer. In this way, a consumer's negative

evaluation of a poorly performing product is muted if the consumer have substantial

confidence in

the organization When CSR associations is impacting the business context, then

positive corporate image associations improves a product or service evaluation, and

vice versa with potential negative CSR associations harms consumer product

evaluation.

2.2.2 Corporate image and risk

research of corporate image within the realm of CSR reflects concern for the society

and are often a

result of Cause-related Marketing. These have shown that an organization corporate

image e.g.

the organization devotes itself to respecting the environment or is engaged in

supporting the local community. Usually doesn’t affect the organization’s expertise

image and thus the perception of the overall quality (Keller, 2003), but there are of

course exceptions. CSR image can shape the product

evaluations in situations where consumers have a high level of social responsibility,

and

products or services with a high potential impact on the environment or working

conditions (Sen/Bhattacharya, 2001).

7

Gürhan-canli and Batra (2004) have shown that the level of the product risk

consumers

experience have an influence which associations of the organisation affect the

consumer's product evaluation to the highest extend. Consumers perceive trust and

innovation as more diagnostic than

associations related to CSR. This means that CA associations have a higher diagnostic

value

than CSR associations. In buying decision where consumers perceive that a high

risk is involved, organizational associations such as innovation and trust (CA

associations) has an incremental role on their evaluation of the individual product. One

of the reasons for this

is precisely that these provide a higher dimension of diagnostic information of

corporate

image.

When consumers perceive a high risks he/she will also increase their information

search

and information processing (Dowling /Staelin, 1994), as well as greater use of

different types of available information (Gürhan-canli and Batra, 2004). The

probability to achieve

direct impact on the organization’s corporate image, in an actual product

evaluation, is thus most likely in the product categories that are perceived as

risky.

2.2.3 CSR initiatives and Compliance

Sen and Bhattacharya (2001) have studied the specific CSR initiatives and in what

context they are

8

effective. Kotler and Lee (2005) defines CSR initiatives as the main activities an

organisation

can perform to support social initiatives, and to fulfill their commitments to CSR. What

can

called labeled as CSR initiatives are very diverse, but Sen and Bhattacharya (2001)

divides CSR initiatives

into six main categories:

1) Social support (health, culture, sports)

2) Diversity (race, gender, family, etc. both within and outside the company)

3) Support for employees (job security, sharing profits, union

relations, employee involvement)

4) Environmental (environmental friendly products, treatment of toxic waste, animal

testing, recycling)

5) Activities outside the country (development aid, human rights)

6) Product (product safety, research and development (innovation))

Many companies are conducting such CSR initiatives in the belief that consumers will

always reward them for their initiative, but this need not always be the case. Previous

research has shown that

consumers will punish organisations that do not appear to be sincere in their social

interest (Sen / Bhattacharya, 2001). In order to achieve positive corporate image with

a CSR initiative, it is therefore important that there is a good

relation between the consumer's own characteristics and the company, called CC

Consumer to Company Compliance (Sen /Bhattacharya, 2001). This is grounded in the

argument that consumers more easily identify with the organization when the it

supports CSR measures they themselves are engaged in, or feel a strong commitment

too. This may in turn affect

consumer product evaluation.

How consumers evaluate the initiative with relation to the organization (perceived

agreement between the organization’s vision and social initiatives, motive and timing),

9

has also

a significant impact in relation to the initiative alone. ((Sen and Bhattacharya, 2001)

Consumers who believe that corporate CSR efforts happens at the expense of the

company's CA, will react less positively to the company's CSR actions than those who

do not believe this. This impacts both the evaluation of the organization and

intentions of

purchasing of the product or service. The consumers’ evaluation is more sensitive to

negative CSR information (whether derived from the behavior or lack of) than positive

CSR

information. In general, all consumers react negatively to negative CSR information,

whereas only the most supportive of CSR measures yields positive responses to

positive CSR information.

The effects of CSR initiatives to the consumer's intention of buying the product is much

more complex than its effect on the evaluation of the organization. The company's CSR

initiatives may affect

consumer intention to purchase both directly and indirectly (through the evaluation of

company) (Sen / Bharracharya, 2001, Brown / Dacin, 1997).

2.3 Stakeholder theory

A grounding theory in terms of CSR is stakeholder theory.

A central point in stakeholder theory is that whoever is affected by the organization is

supposed to gain from the given organization’s CSR policy (Nyeng, 2007)

The environment that surrounds the organization i. e. the people that are affected by

the actor that is the organization. Not only the directly involved part e. g. shareholders.

People indirectly involved e.g. the civil society that is influenced by the presence of the

10

organization are shareholders as well, qua their lives are to a small or large extend is

related to the organization in question. (Tencati/ Perrini, (2006))

Which implicates that stakeholders are included as an extension of the organization

(Tencati 2006)

The incremental role of CSR is for the main stakeholders to gain (freeman and V)

Stakeholders of the organization needs to be accounted for when implementing the

strategies of the organization, in order for the organization to be achieve the label that

is socially responsible.

Stakeholder theory states that the organization is able to control to whom the value

created is obtained, and the proportions of it. Contra dictionary to orthodox economic

theory consumer/supplier surplus is divided between consumers/suppliers. As a

result of the mechanisms of the market, not by decision making of the organization

(gabel 2009)

A division between primary and secondary stakeholders is made by Freeman

Following subgroups of the extended organization is assumed to have a direct

influence on organizational processes or are directly implicated of strategies

implemented, i. e. primary stakeholders:

Stockholders, wage recipients , consumers, local environment and the supply chain.

Following subgroups of the extended organization is assumed to have a indirect

influence on organizational processes or are indirectly implicated of strategies

implemented, i. e. secondary stakeholders:

Government authorities, NGOS, civil society, media (Tencati/ Perrini, (2006))

11

the justification for stakeholders, primary and secondary, to have an influence on CSR

policy. Thus, an influence on organizational decisions. Is to minimize criticism of the

organizational decisions in the long-run. Since involving the various subgroups in

forming the CSR policy that lay the grounds of how the organization acts, would

suggest that the organization is able to anticipate potentiaL future issues that might

have risen from strategic decisions. In the sense that the potential problems involving

the stakeholders would have been accounted for prior to them taking place (Tencati/

Perrini, (2006)).

Potentially, involvement of stakeholders could lead to the positive scenario, that the

stakeholders builds a trust-grounded coexistence with the organization. Hence

enabeling the a smoother operational environment for the organization i. e. reducing

transaction costs.

Criticism of the stakeholder theory

When giving influence to persons outside the management in terms of how to

strategize, you run the risk of losing control of decision making to an unsatisfactory

level. Even though important, the stakeholder does not have sufficient background

knowledge of the competencies of the organization. Hence strategies with a too high

extend of involvement by incapable actors in terms of organizational decision making.

Could result in unfavorable outcomes for the organizational strategies. (Porter, M. E. &

Kramer, M. R. (2006)

This issue could lead to less benefit for all parties involved, i. e. the organization would

suffer and the surrounding environment as a consequence of that.

12

3.1.1The OLI framework

The OLI framework is used to identify net advantages in the three different sub

paradigms Ownership advantages, Location advantage and Internalization advantages.

and net advantages needs to be present in all three sub-paradigms in order for FDI to

take place. It is a framework which operates in the realm of theories that the eclectic

paradigm is grounded in.

3.1.2Multinational Enterprise (MNE) incentive

4 categories are brought forward in the OLI framework that highlights

the incentive for MNE to begin activities of FDI:

(Dunning J. H. (1997))

Efficiency seeking:

using the internal resources and capabilities to, together with the presumed

advantages that exist in the specific host country, obtain a more efficient

organization  

market seeking:

attempting to meet the demand that is presumed to be, in the abroad market in

question

resource seeking:

exploiting the natural resources of the specific host country in question

strategic asset seeking:

to strengthening own or weaken opponent organization. by means of

the development of assets already present in the current

13

organization, or obtaining assets that opponent organizations could have

benefitted from

3.2 Ownership advantages:

Ownership advantages can be seen as net core competences of a given country, or an

organization. It is resources and assets, regardless of them being tangible or intangible

that are unique to the given country or organization. The greater the amount of O

advantages the larger the incentive for a direct investment in a foreign market.

(Dunning J. H. (1997)

it is argued that FDI takes place in the event that organizations can make use of their

domestic (O) advantages in an aboard market.

The 3 primary ways to obtain an ownership advantage is tied to:

monopoly power, the obtaining of it and the ability to take advantage of it.

(Porter M. E. (1986))

resources and capabilities, that are rare and sustainable.

And intellectual property patents, obtained knowledge and capabilities of employees

in the organization. this would be considered under the umbrella that is core

competencies.

So company assets that are based on superior technology or know how, have to a

higher extend become the focal point when searching for new markets. This combined

with developing skills in integrating global activities. In the search for obtaining these

14

skills for the organization

new development in terms of how to achieve it has been evolving (strategic alliances,

joint ventures, etc.) (Dunning 2000)

over the years that the OLI framework has existed, the emphasis of the different

primary ways to obtain an ownership advantage. Has perhaps been changed qua a

changing surrounding environment. In the infancy of the OLI framework, competitive

advantages of organization

where, to a higher extend, related to competences of finding new markets

that could be entered based on a organization’s proprietary assets.

In recent years, intellectual property rights and innovative capabilities have had an

increasing importance for many organization’s.

(Dunning 2000)

some of Dunnings peers, which have discussed and criticized him, see the ownership

advantages as static or dynamic. And some argue that static ownership advantages

have the purpose of being an element that creates short-term income, whilst others

focus on dynamics of ownership advantages. They are seen as assets that can be

maintained and developed in the long run.

the point of view of the recent discussions of the OLI framework, have a focus on in

what ways the organization can build on and develop the advantages in the long run,

advantages already present in the organization.  (Bartlett and ghoshall, 1993)

3.3 Location Advantages

Location advantages are the factors that the given host country possesses compared to

the home markets of the unit of analysis. The location advantages could be a practically

endless list of factors that are specific for the country in question, and range in

abstraction level from wages and infrastructure to socio-economic conditions and the

political climate.

The location advantages relevant to the unit of analysis can be exploited given that

level of O advantages permits it. Hence capitalizing on the core competencies of the

15

firm/country. (Dunning 2001)

 

the last 15 or so years researches have, with grounds of comparable

location theory, attempted to describe the cross-border engagement together with

types of clustered resource engagement of organizations. Research finds elements such

as geography, political and economic surroundings to

influence FDI (Audretsch, 1998 )

since the introduction of the eclectic paradigm to the world many factors influencing

location advantages are debated by various researchers. and the focus of factors has

evolved over the years. from a focal point of such factors as supply/demand the

logistical cost. increasing

attention is paid to intercultural variation, regulatory government practices, political

risk

this development has approached and highlighted in the OLI framework over time

 (dunning 2001)

there has been a shift in views of the nature of locational advantages from a point

where they were seen as a static and specific set of natural resources to now where

locational advantages also can created and evolved a possibility of constructed

locational advantages qua the nature of their

dynamics. in order to attract FDI to a higher extent, from the viewpoint of host regions

or countries,

socio-economic and regulatory conditions can be augmented with the purpose

of becoming an increasingly interesting region or country for the potential

investors. (Porter (1986), dunning 2001)

advantages that are sticky and difficult to place in other regional settings are

competitive advantages, whereas advantages that can be shifted from one location to

the other are not sustainable in the long run. This would suggest that stakeholder

16

authorities, that has an interest in the spillover effects of FDI, works actively to

promote activities that gives

incentive to investors.

3.4 internalization advantages

Internalization advantages are the firms ability to benefit from a potential

internalization of a foreign investment on the basis of the O and L

advantages. If the internalization capabilities are not considered sufficient. The

firm/country O and L advantages would be

better exploited by simple export or a contractual agreement as opposed to a JV,

foreign subsidiary, etc.

when market imperfections are present, Internalization advantages are

seen as advantages that allows the organization to exploit its ownership and location

advantages to a higher extend if it internalizes rather than supplying the market in

question through other

means than direct investment.

(Dunning, 2000)

imagining the scenario where an organization has a set of net comparative

advantages in the ownership and location sense of the OLI framework.

I advantages will determined wheatear or not to internalize

17

3.5. Part of the theoretical background

Two grounding theories that arguably have large influence on the OLI framework is

Resource based theory and transaction cost theory. Qua their incremental role in the

eclectic paradigm they are the subject of further explanation:

Resource based theory

the incitement for Outsourcing and offshoring and the capability. For organizations to

execute this, is attempted unveiled by resource based theory.

The primary cause of an organizations profit is its resources and capabilities,

they would lay grounds for the strategy of the organization according to (Grant, 1991)

as opposed to (m. porter) theory of competitive advantages. In porters theory he

proclaims that the exodoneus environment and the specific industry an organization is

a part of, have vast influences in specific organization’s competitive advantages.

internal resources and capabilities are seen as the foundation where

the organization should find its strategy and identity

the incremental factor to undergo analysis are the organization’s most

important resources since they are a vast group of elements in the organization’s,

resources can be both tangible or intangible and a list of possible

resources an organization could possess would perhaps be border lining infinity.

Internal capabilities would be the organization’s ability to engage successfully achieves

a goal

put forward by the organization, with the use of its internal resources. Hence, the

internal resources being the basis for the organization’s capabilities

the capabilities being the basis for competitive advantages. (Grant 1991)

18

Transaction cost theory

Williamson developed a theory that on the grounds of transaction based

characterristics can evaluate where the organizational boundaries are. The settings

under which an organization should involve itself, i.e. within its boundaries or as a

matter of outsourcing. Is found with this theory. The remedies Organization theory and

business economics is merged to do this. (Skjøtt Larsen, 2007)

transaction costs is a reality trough economic exchange, the economic exchange is

based on bounded rationality, opportunistic behavior, uncertainty, frequency and

specificity.

Organizational handling of its economic exchange, is done on the basis of various

modes of governance? I.e. hierarchical, market or intermediate. ( Williamson 2002)

Hierarchical governance would place the exchange within the organizational

boundaries. Whilst market or intermediate governance would place it outside the

present organization. Hence the

various modes of governance dictates the organizational boundaries (barney, 1999,)

individual opportunism and bounded rationality effects the governance

Bounded rationality:

is grounded in lack of information and asymmetric information

regarding the result of an action (skjøtt larsen, 2007)

individual opportunism:

is a humanistic trait, and by individual is meant as an individual person

Individual opportunism is considered as paramount cause of market failure and has an

incremental role in the decay of organizations. It is argued by Williamson that

19

individual opportunism occurs as a participant of an exchange seizes an unfair leverage

at the expense of other participants.Furthermore he argues that participants

will act with increased opportunism as the level of asset specificity

climbs in an exchange. Protection or mineralization of opportunistic acts, can take

place in such forms as: contracts, fines and implementation of control mechanisms.

(Williamson 2002)

the best governance structure of an organization can be obtained through a complex

interplay of the organization, the individuals and the external environment.

(Williamson 2002)

hence, the suggested governance type varies according to different scenarios in terms

of asset specificity, uncertainty and transaction frequency. I.e. scenarios with high asset

specificity, uncertainty and transaction specificity would be best solved with a

hierarchical governance

structure implemented. Intermediate governance is proposed when a scenario with

medium asset

specificity and high transaction frequency. Market governance when in the case of non-

specific assets (Barney 1999)

3.6 Development of the Eclectic paradigm

The eclectic paradigm, has been given vast amounts of attentions since its introduction,

when going through various research in the area of FDI. This widespread discussion of

the eclectic paradigm has led to criticism of aspects of the paradigm; some of the

critique has been approached by dunning. A selected criticism is presented here:

The paradigm approach to FDI theory and the unspecificness it implies. A shopping list

of variables is the label of the criticism. Since the eclectic paradigm consists of various

20

grounding theories opens the opportunity of applying the OLI framework in various

ways.

Qua changes in the business environment, with regards to non-equity alliances and

network theory, criticism of the eclectic paradigm was presented. Since it was argued

that these changes of the business environment, led to a change in the way

organization’s act, e.g. networking could be an ownership advantage. Research and

development in a host country location could be helped by networking and the

management of them.

E-commerce related differencenses leading to potentially different operational

environments for the organization given the host country location, e.g. in the level of

technology related to e-commerce development. Again the e-commerce changing the

environment of business, with varying degree from country/region to country/region

and organization to organization.

It was argued that the OLI framework was static, thus faced validity related problems

in explaining e.g. the development of the increasing investments in especially third

world countries (dunning asger)

This is examples of points of criticisms which was approached and discussed by

Dunning.

The shopping list of variables critique is met by dunning “I have already explained, the

purpose of the eclectic paradigm is not

To offer a full explanation of all kinds of international production but rather to point

To a methodology and to a generic set of variables which contain the ingredients

Necessary for any satisfactory explanation of particular types of foreign value-added

Activity.”(Dunning 2001)

21

The static approach criticism was met by an extension of the paradigm, which first was

presented in 1975. Dunning’s investment development path (IDP), its purpose is to

explain the stages that courtiers go through as investment in the given country is

increasing. At the different stages the countries development has certain

characteristics, which influences the acts of the organization. It is grounded in life-cycle

theory.

E-commerce, non-equity alliances and network theories has been incorporated in the

eclectic paradigm. And as the world of business changes qua the environment

surrounding it historically has been ever-changing. Then, as extensions of the OLI

framework or extensions to the grounding theory, e.g. resource based or transaction

cost theory that lays the foundation for the eclectic paradigm. It would arguably be the

purpose of the eclectic paradigm to approach these potential changes and incorporate

then if they have a relation to the decision of the level of internalization.

22

4.1.1 Can it be argued that CSR policy has a relation with the OLI framework?

In the light of the development in emphasis on CSR, and the assumed incorporation of

CSR policies in a growing number of organizations. Then it would be relevant to

discuss whether or not an organization’s position on CSR could have an effect on the

choice of whether or not to enter a market. It would be relevant to discuss the

possibility that CSR policy could have an impact on factors decisive for FDI

engagement. If the argument that it does is reasonable to state, then it would suggest

that CSR has relevance in the eclectic paradigm.

To have a discussion of CSR theory and its possible relation with the eclectic paradigm,

it is incremental to look what CSR theory covers and if/how it relates to foreign direct

investment.

As covered earlier CSR is a part of the corporate image that organizations have. An

image which is dynamic by nature, qua the corporate image is the yield of how the

organization acts on in term of Trust, CSR and innovation, especially, in the eyes of

their current and potential market base. Hence, in order to achieve a desired image. An

organization must act accordingly and consistent. (Gürhan-Canli and Batra (2004))

in the context of how information is shared and spread in the information age, it is

assumed that the corporate image is  influenced  by all the organization’s activities,

regardless of which or how many countries or regions in the world an organization

operates. This implicates that an organization must act accordingly and consistent in

all its activities, to achieve a desired image.

23

The argument that an organization’s corporate image (derived partially by its CSR

policy) is created from its worldwide activities. Doesn’t necessarily mean that CSR has

any relation to the OLI framework, if:

An organization’s can enter a new market and act accordingly to their potential CSR

policy and their corporate image. without it influencing the factors that constitutes the

net advantages that is evaluated according to the OLI framework.

Because that would suggest that the corporate image and the strategy that is applied to

achieve this image can exist independently without it coinciding with any FDI strategy

based on the OLI framework.

Looking at CSR activities as defined by (Sen /Bhattacharya, 2001):

1) Social support (health, culture, sports)

2) Diversity (race, gender, family, etc. both within and outside the company)

3) Support for employees (job security, sharing profits, union

relations, employee involvement)

4) Environmental (environmental friendly products, treatment of toxic waste,

animal testing, recycling)

5) Activities outside the country (development aid, human rights)

6) Product (product safety, research and development (innovation))

4.1.2 Google China

the argument:

Entry of certain markets can prohibit an organization from fulfillment of its

commitment to a CSR policy, in any of these broad categories listed qua specific

characteristics of the host country/regions market.

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and if it can,  would it be damaging to the corporate image? seeing that they are

prohibited by the host country to do so. i. e. can the organization be blamed?

Is it reasonable to state?

For a country/region to directly or indirectly prohibit an organization in up keeping its

policy in one or more of these categorized activities would seem as an extreme case.

Because under which circumstances would a country/region benefit from obstructing

an organisation in this regard.

But consider the category of human rights(united nations human rights) in the context

of a society where the governing regime considers controlling and managing accessible

information as a source of power.

a markets that have been subject to vast amounts of FDI (unctad.org) is the Peoples

republic of China (PRC).

the PRC has been criticized for human rights related breaches towards its population. a

focal point of this criticism has been accessibility and control of information.

(amnesty.org)

To discuss a concrete example of this problem consider the case of Google China:

what relevant issues in the Google china case:

Google CSR policy

PRC has a censorship laws, which prohibits their population to access certain

information and controls what is posted on the internet. arguably a violation of human

rights

PRC uses the internet to investigate what it considers to be opponents of the regime.

arguably a human rights violation.

implications for Google

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In the context of PRCs policies regarding information and censorship. Google is forced

to make a choice. since they cannot operate, with regard to censorship of information

and freedom of speech, as they do in markets which are not under similar restrictive,

and arguably human rights violating, regulations as the PRC.

the choice that Google has to make, given the context they are in, is what strategy to

pursuit in the PRC market within the spectrum of:

No cooperation with the PRC authorities  to Full cooperation with the PRC

authorities.

No cooperation:

would allow Google to act exactly according to their assumed CSR principals with

regards to human rights, as they would not have to consider the regimes position on

issues that is related to Google’s CSR policy. Hence their corporate image would remain

at least intact, keeping all other factors of corporate image constant. you could even

argue that there would be public relations value in defying the PRC authorities on the

issue of human rights.

It would however be reasonable to assume that pursuing a no cooperation strategy

would lead to difficulties for an organisation operating in the PRC market. As Google

experienced when they made the decision to disregard the PRC censorship policy. Here

the PRC authorities showed Google that they had the ability to shut down their access

to the PRC market.

So a No cooperation strategy could lead to a scenario where the organisation is unable

to operate in the host country/region. Hence losing their market share in the host

country/region.

Full cooperation:

Would mean that Google was willing to disclose all Google user related activities

(Gmail, android) and information. to the PRC authorities. and follow the PRC policy on

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censorship. based on the argument that the PRC authorities would prefer to be in

control of what is accessible information and possess as much information possible

about its population, with the primary purpose intelligence gathering with regards to

people in opposition of the regime. (amnesty.org)

 

Image wise, a full cooperation strategy as described above would according to theory

(Gürhan-Canli and Batra (2004)) be damaging. Qua breaches of trust and the CSR

activity of human rights.

A worst-case scenario image wise could be that human rights activists in PRC where

captured and imprisoned by the PRC authorities on the basis of information retrieved

from cooperation with Google.

Google would arguably have no difficulties operating in the PRC market, with respect

to obstruction from the PRC authorities, in a full cooperation scenario. Since that

Google would meet every policy and regulation presented by the PRC government, and

could be a partner in accessing information about the population.

Where in this spectrum exactly Google decide to place itself is unknown. But given the

fact that Google operates in the PRC market again suggests that a compromise was

made between Google and the PRC authorities.

a compromise somewhere in between these two extremes is presumed to have been

chosen by Google. Since they still are in the market

thinking about where they stood before operation Aurora (googleblog) and took their

stance of challenging the authorities.

The main point of the Google example is however to verify that an organisation can be

put in a situation where it has to respond to a CSR activity related dilemma in a FDI

context.

So Is it reasonable to state that:

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Entry of certain markets can prohibit an organisation from fulfillment of its

commitment to a CSR policy, in any of these broad categories listed qua specific

characteristics of the host country/regions market.

and if it can,  would it be damaging to the corporate image? seeing that they are

prohibited by the host country to do so. i. e. can the organisation be blamed?

based on the argumentation above, yes

Even so, this would only be relevant in an FDI decision context if:

The fact  that an organisation which due to host country/region government, is not

able to operate in the host country/region market under the organization’s normal CSR

policy. Effects its corporate image.

Can the organisation be blamed, and suffer image related consequences.

In the Google case, Google was forced to deviate from their normal policy in regards to

the CSR activity human rights. They where forced to a compromise of cooperation with

the PRC authorities, to avoid being unable to act in the PRC market.

The reasoning that Google had for complying with the censorship policy of PRC at the

start of the Google China era was that “"While removing search results is inconsistent

with Google's mission, providing no information is more inconsistent with our

mission," (BBC)

this reasoning and communication seems based on a Kissinger doctrine or realpolitik

grounded mentality.

which could be argued has been a paradigm basis for how the western world has acted

politicly and business wise since the last decades. They are arguably defending their

actions on the basis of their CSR policy related mission “don’t be evil” (Google, code of

conduct)

Does the realpolitik argument clear them image wise?

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It is likely that it is difficult to measure exactly how big of an effect this case has on

Google’s image.

However, it is a fact that it was brought in various media as an image related problem

for Google. (BBC)

And Google defended itself on this image related matter.

the point of this argumentation is to establish if it is reasonable to assume that image

related consequences are possible for acting uncustomary CSR activity wise. So even if

no specific measurement have been conducted in this regard in the Google case, the

fact that it was even broadcasted in the media and defended by Google makes it

reasonable to assume that the matter of Google’s deviance from policy  has a potential

corporate image consequence. on the basis that Google and the media that broadcasted

this assed it to be.

So yes it is reasonable to argue that an organisation can be blamed, even though that it

is subject to act under a regime that obstructs it  from acting according to their CSR

policy.

the possible fact that its is a mitigating circumstance image wise, is related to the

specific image impact of this case and is beside the point.

4.1.3 the above average in industry organisation

the argument:

Entry of certain markets whilst up keeping a potential CSR policy, can effect  net

advantages of the organisation compared to the local competition. qua the fulfillment

of its commitment to a CSR policy and thus the corporate image.

and if it can,  would it be damaging to the corporate image if the company where to act

as the generic local organisation in terms of these listed categories of CSR activities i. e.

not upkeeping the CSR policy

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Is it reasonable to state?

Take the case of Statoil, an organization which highlights its CSR policy

An organization like Statoil has made it part of their strategy to achieve an image of

having  an above average CSR policy compared to peers in the market they operate in.

When entering a foreign market Statoil would have to take into account that their

efforts in terms of CSR has some implications on the costs that they incurred in that

particular market. Costs that peer organization’s with lower standard or no CSR policy

does not incur.

A discussion of which potential advantages a above average CSR policy can bring, in a

particular market  and other markets which the organisation in question has

engagements. would be a discussion about the impact of corporate image and CSR, and

is not the point of this argumentation.

The point is that a CSR policy has an effect in terms of net advantages when looking at

market entry. hence can not be considered irrelevant.

4.2 summary

Based on the above argumentation CSR policy can have relevancy when entering

foreign markets. Hence CSR policies can not be considered  irrelevant  when analyzing

market entry.

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This argumentation can be criticized for being very narrowly concerned in terms of

organizations. It does not hold any validity as an empirical presentation of

organization’s in general. The examples of how CSR policy effects Google and Statoil

are to present how CSR policy can have strategic implications. Google is an example of

an organization involved with handling and delivering of information. This is arguably

a growing industry, qua the increasing usage and accessibility of the internet. Google

china is an example of an CSR and FDI related issue of that industry. It is an the FDI

related issue only because it is an issue CSR wise to cooperate with a regime that is

considered to act unethical in certain aspects. The example illustrates the connection it

does not claim to be a generic scenario of the industry, whether it is or not is beside the

point.

The Statoil example, illustrates a generic CSR policy scenario. And shows that even if

there is no regime to prevent the organization from up keeping its CSR policy, it can

still lead to FDI related net advantages. Again this chapter does not attempt to imply

the CSR level of any industry in terms of percentage engaged or the depth of the CSR

policy of those that are committed to a CSR policy.

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5.1 Is the CSR policy aspect covered by the OLI framework?

So the overlap relation between CSR policy has been argued to have an influence on

market entry. Thus looking at its relation to Dunnings OLI frameworks seems relevant.

When going through the work of dunning, I could not find any direct mentioning of

CSR. In papers which concerns the work of dunning and discussions in this regard,

there are research that touch upon what could be considered relevant in CSR policy.

However this does not necessarily implicate that CSR policy is not considered in a

potential application of the OLI framework.

Since the eclectic paradigm is grounded in several different theories, all relevant to the

decision whether or not to internalize in the context of foreign market entry. Hence,

extensions or modifications of the grounding theories of the eclectic paradigm is an

extension or a modification to the application of the OLI framework.

In order to establish an indirect coverage of CSR policy in the eclectic paradigm, it is

then assumed reasonable to look at strategic implications of having a CSR policy in an

organization, that is connected to the grounding theories of the eclectic paradigm.

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5.2.1

Strategic implications of CSR policy to resource based theory:

Resource based theory is extended to be applied in analysis of effectiveness of

competitive strategies.

Political strategies with the intent of raising the cost of rival organization’s. Which can

lead to sustainable competitive advantages. (mcwilliams, 2002)

Propositions of strategies, with relation to e.g. sustainable development and (product

stewardship) with the intention of creating sustainable competitive advantages. In the

context of resource based theory. (hart,1995)

These are examples of articles that use CSR policy related strategies in order to create

sustainable competitive advantages. This would indicate that CSR policy connected to

resource based theory is covered by the OLI framework. The validity of the individual

articles is not the issue, the issue here is that CSR research in connection with

resource-based theory is explored and can be applied through the assumption that

resource based theory is part of the foundation of the eclectic paradigm

5.2.2

Is CSR policy related strategic implication then fully covered in the eclectic

paradigm?

Argueably not, as CSR related strategic implications are found with basis in theories

that lay grounds for the eclectic paradigm. Research which argues CSR related strategic

implications for the organization is based in CSR grounding theory such as stakeholder

theory:

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Stakeholder articles:

The potential connection of stakeholder related implications to transaction cost, which

is arguably an incremental part of the eclectic paradigm, was made in section (2.4).

Stakeholder theory is however not covered in the eclectic paradigm.

5.3 discussion of the coverage

CSR policy is not covered in the eclectic paradigm. It is however argued that parts of it

is indirectly covered. Qua CSR policies strategic implications which has led to

expansions in theories such as resource based theory and theory of the firm.

could it be directly covered?

The eclectic paradigm is a paradigm and not a specific theory. Hence the criticism of a

shopping list of variables (dunning 2001). The argument that this condition on the

contrary ads value to the OLI framework, qua that no specific theory can fully explain

an organization’s decision to engage in FDI. Furthermore, this condition makes it

possible for the OLI framework to develop and expand as research of the grounding

theories is developed and expanded. (dunning answer source)

Associations between the eclectic paradigm and CSR can be argued, in terms of them

being an umbrella of related theories and not a specific theory that can be applied.

Hence there is no specific CSR theory to be applied in the OLI framework.

5.4 Could CSR be incorporated in the eclectic paradigm

One could argue that to a relevant extend CSR is covered by its influence in the

grounding theory of the eclectic paradigm. And CSR influence on new or assumed to be

unrelated theories is irrelevant to the eclectic paradigm.

However, what is considered relevant to the eclectic paradigm, hence FDI related

decision-making, is derived from the context the business world operates in. Thus a

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perceived change in the context that business operates in should, for the eclectic

paradigm to maintain the same perceived level of validity, lead to similar adjustments

in the Eclectic paradigm

History shows that the eclectic paradigm has been adjusted and extend as a perception

change of the business environment. Business environment in terms of e-commerce

and alliance and strategic networks, was assumed to have implication on FDI decisions.

(dunning 2000) as the context organization’s where in changed, extensions of the

eclectic paradigm was made in order to approach this change.

So I would argue that CSR related change to the internal and external environmental

context of the organization’s, potentially could have a similar impact as e-commerce

and (alliance and strategic networks.

Presumably it is difficult with accuracy to establish the precise impact of CSR, and does

it have sufficient impact to receive attention by FDI theory researchers. There is no

unified answer to that question. But what is relevant in that context, is that the impact

and attention of CSR is perceived to be growing.

Which would indicate that if CSR theory does not have enough perceived relevance, at

the present date, to expand the eclectic paradigm in similar fashion as e-commerce and

alliance strategy, it might have in the future.

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6. Conclusion

The connection between FDI and CSR was argued and with the intend of finding a

connection and not further. The strategic implications of CSR on various theory opened

the discussion of the indirect coverage of CSR by the eclectic paradigm. The discussion

would suggest that CSR potentially could change the business environment, in the

same way as e-commerce or strategic alliances. Qua limitations to this thesis no

conclusive answer can be given whether or not CSR theory is sufficiently covered by

the eclectic paradigm, or if work could be done to incorporate it. With the development

of CSR in terms of awareness, It can however be concluded that it is relevant to

consider potential incorporation to a higher extend in Dunnings paradigm.

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