Why Global Enterprises Undertake Social Initiatives

In the existing globalized economy, big business enterprises are operating in a number of countries beyond their own. Some of these global business enterprises,

apart from their normal business operations, have won the respect and recognition of the communities in countries they are operating in due to their undertakings of a number of social initiatives aimed at social advancement and poverty reduction. Coca Cola, Microsoft and GAP are some of the cases in point here.On the other hand, there are a number of global business enterprises which are well known for notoriously disregarding the social and cultural values of the communities in their areas of operations. The global energy giant, Shell, which is operating in the oil rich Niger-Delta region of Nigeria, can be sited as an example of such global business enterprises.
The motivation and commitment of corporations to the goals of poverty reduction and economic and social advancement has been the subject of much debate and analysis. Some of today’s leading practitioners of corporate social engagement, especially among firms in the extractive industries, have historically been closer to the lagging rather than leading edge of enlightened behavior.
Several firms in the apparel industry and retail trade have been hit with harsh publicity about labor practices of subcontractors. Thus, in many cases, the concerns exhibited by global businesses to improve social conditions results from the need to restore a tarnished image or make amends for previous behaviors. The depth of business commitment to social progress also has been questioned. Many social activists question whether corporations are interested only in the public relations benefits of their social programs.
Based on the evidence gathered, it is possible to conclude that the range of activities, motivations, and commitments on the part of global business is very broad. The most forward looking companies have established policies and made commitments that permeate the corporation from the Board and CEO level down to the very lowest stratum of the company. Other businesses have yet to fully understand the case for corporate social engagement and have not embraced such policies.
Furthermore, even those companies that strive most to achieve the highest standards of corporate engagement can fall short on occasion. Although social activities are voluntary on the part of businesses, governments of the advanced economies have taken steps to encourage and promote such endeavors.  For example, most governments allow tax deduction or credit for charitable donations. Governments also use various forms of public advocacy and moral persuasion to promote good corporate engagement.
The broadest effort to influence the conduct of global enterprises is encompassed in the OECD Guidelines for Multinational Enterprises. These guidelines are recommendations of appropriate business conduct by global enterprises. Another important multilateral, and tripartite (government/business/labor), effort is the set of voluntary guidelines and commitments of the International Labor Organization’s Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, known as the MNE Declaration.
The question of whether a private commercial enterprise should engage in socially beneficial programs must be answered by each business itself. But the large number of businesses that answer that question in the affirmative is enough verification that sufficient business reasons exist. Motivations run the gamut; from proactive brand identification with social causes, to strictly defensive measures, for instance as insurance against negative publicity and the consequent loss of sales. In some instances, especially when they find themselves in conflict situations, businesses may feel they have no choice but to play a positive role in supporting social stability and better governance.
Not all global businesses, of course, are inspired to implement policies or programs that respond to local conditions. Circumstances differ among developing countries and various lines of business. Some firms have a narrower end, in some people’s view, shortsighted perspective based strictly on the exploitation of local resources. In addition, smaller firms may be less able to afford social programs when compared to larger firms, or at least, their programs will be smaller.
There are some reasons which have motivated global businesses to become more socially engaged. One of them is enlightened self-interest. Perhaps the simplest and strongest explanation on why firms go beyond narrow-gauged market activities is because it is right and serves the longer-term interests of the society, which in turn benefits the longer-term interests of the business by creating a more stable environment, good will, and brand identity. Many business leaders cite humanitarian motives for social activities, and these are clearly important. But businesses are unlikely to be motivated solely or consistently by altruistic appeals. They are neither charitable nor government institutions, and they should not be expected to act as if they were. Nevertheless, businesses prefer to operate in more stable political and economic environments.
Positive brand identification or goodwill is another reason. Some firms undertake social initiatives to enhance their brand image. Some act to defend their brand against negative publicity while some have built their brand based on identification with social causes. The value of its brand can be a significant asset to a firm since strong brands have the power to lift sales and earnings. Consumers in developing countries represent a fast growing segment of many markets. Positive brand recognition based on identifications with social engagement can be important in building consumer loyalty in those markets. In addition, goodwill can have a direct payback as local governments may examine the totality of their relationships with a company when making regulatory or licensing decisions.
Labor markets-at home and abroad is also part of the reasons. Tight labor markets for skilled workers in developing economies lead firms to improve local labor conditions. In many cases businesses are investing in the education and training of their workforce to improve quality and productivity or to improve other aspects of the work environment. The AIDS programs of Volkswagen in Brazil and Daimler-Chrysler in South Africa provide good examples of how a firm can help itself by addressing a social problem. These programs focus on the prevention of HIV/AIDS and care of those stricken by the virus. Both companies have found that it is far more profitable to educate and treat their employees than to recruit and train new ones.
Profitability is also one of the reasons. Numerous studies have linked corporate social activities to better business performance as measured by profitability or return on equity, and evidence of a narrowly defined “business case” for social engagement, although weak in some dimensions, is clearly positive.
Global companies make practical business decisions to invest in, buy from, and sell to developing countries. Those activities promote economic growth and poverty reduction. Decisions to invest in corporate social policies and programs are no less practical or business-based. They are valuable, both to the business and to the recipient nation.
On close examination, many firms will find that when they invest in initiatives that help the host country, they, in turn, benefit because their commercial success is directly affected by local economic and social conditions. Although businesses should neither be expected to perform the functions of government nor mandated to perform non-commercial social activities, significant room remains for global businesses to voluntarily engage in a number of social initiatives which can help the economic advancement and poverty reduction of the communities in the area of their business operations.