Multinationals and corporate social responsibility in host countries: Does distance matter?

Abstract

Prior studies have found that foreign affiliates of multinational enterprises (MNEs) suffer from liability of foreignness (LOF). Foreign affiliates may be able to improve their social legitimacy and overcome LOF by demonstrating social commitment to host-country constituents through corporate social responsibility (CSR). If LOF is positively related to the distance between the home and host countries, and CSR activities confer social legitimacy benefits on foreign affiliates, we should expect CSR activities and distance to be positively related. However, we argue that, despite this potential motivation, foreign affiliates from more distant home countries are in fact less likely to engage in host-country CSR. Our argument focuses on the ways in which distance affects the MNE's willingness and ability to engage in CSR abroad. We also predict that hostcountry CSR reputation negatively moderates this relationship. Using Community Reinvestment Act data for foreign bank affiliates from 32 countries in the United States over 1990-2007, we find strong support for our hypotheses. The paper enriches our understanding of CSR practices in MNEs, and of when and how MNEs try to overcome legitimacy issues in host countries.

Multinational Enterprises and Distance: Exploring Opportunities and Challenges Involved in Practicing CSR in Host-Countries

“…Inspite of the extensive discussion on the existence of LOF and varying forms of distance, and their impacts on MNE foreign subsidiaries' performance, (e.g., Campbell et al 2012;Zaheer, 1995;Zaheer and Mosakowski, 1997;Zaheer et al, 2012), little is known about how to mitigate firms' lack of "local embeddedness" in host-countries (Campbell et al, 2012;Mezias, 2002;Yang and Rivers, 2009). …”

“…Several recent studies have attempted to fill in this gap (see Campbell et al, 2012;Eden and Miller, 2004;Yang and Rivers, 2009). Yang and Rivers (2009) in their conceptual paper explore the antecedents of CSR practices of MNEs subsidiaries by developing a model of CSR practices in MNE host-countries.…”

“…Eden and Miller (2004), in another conceptual paper, suggested that the key driver behind LOF is the institutional distance (i.e., cognitive, normative, and regulatory) between the home and host countries, and explore the ways in which institutional distance can affect LOF. In contrast, Campbell et al (2012) adopted an empirical approach, focusing on how distance affects MNEs' willingness and ability to engage in CSR in host-countries, and when and how MNEs attempt to overcome legitimacy issues in host-countries.…”

“…Inspired by the above, in this contribution, we aim at providing new input to the ongoing debate about MNEs' CSR behaviour and the stumbling block of distance (e.g., Johanson and Vahlne, 1977;Johanson and Vahlne, 2009), especially as calls for MNEs to respond to host-country expectations through CSR (Jamali, 2010), in pursuit of external legitimacy intensifies (see Campbell et al, 2012;Yang and Rivers, 2009). Put differently, MNEs' "multiple embeddedness" (Meyer et al, 2011), (i.e., institutional differences and their influence on CSR practices), can pose challenges to MNE subsidiaries.…”

“…Drawing inspiration from multiple sources (e.g., Beugelsdijk and Mudambi, 2013;Campbell et al, 2012;Jamali, 2010), this article attempts to cross-fertilize insights from the distance and proximity (e.g., Boschma, 2005;Lundquist and Trippl, 2013) streams of literature to synthesize a framework that potentially can be applied in assessing the CSR behaviour of MNEs in host-countries. By turning to the distance and proximity streams of literature, we seek to draw patterns of complementarities across them, to extend understanding on the opportunities and challenges that come with MNEs practicing CSR in host-countries.…”