CSR Communication Intensity in Chinese and Indian Multinational Companies

• Author: Christoph Lattemann,Marc Fetscherin,Anna‐Maria Schneider,Shaomin Li,Ilan Alon
• DOI: http://doi.org/10.1111/j.1467-8683.2009.00758.x
• Published date: 01 July 2009
• Date: 01 July 2009

CSR Communication Intensity in Chinese and

Indian Multinational Companies

Christoph Lattemann*, Marc Fetscherin, Ilan Alon, Shaomin Li,

and Anna-Maria Schneider

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: Why do f‌irms in China, which has a higher level of economic development, communicate less

CSR than f‌irms in India? We use a model that includes country-, industry-, and f‌irm-level factors to predict CSR commu-

nications intensity, a proxy for CSR activities.

Research Findings/Insights: Using data on 68 of the largest multinational companies in China and India, our study shows

that Indian f‌irms communicate more CSR primarily due to a more rule-based, as opposed to relation-based, governance

environment. Firms in the manufacturing industry tend to communicate more CSR. Firm-level characteristics such as size,

duality of CEO and board chairperson, and percentage of external members on the board also have a signif‌icant inf‌luence

on CSR communications.

Theoretical/Academic Implications: The main theoretical contribution of our study is to bring a three-level perspective,

relying not only on f‌irm- and industry-specif‌ic factors, but also on the governance environment, to the study of f‌irms’ CSR

behavior. We show that the national governance environment dominates the national income level in affecting CSR

communications intensity. We demonstrate that the macro institutional environment in a country strongly affects f‌irm

CSR behavior. Our f‌indings suggest that CSR should be studied by considering multilevel antecedents.

Practitioner/Policy Implications: Our study suggests that in order to improve the CSR of f‌irms, policy makers in India and

China must f‌irst try to improve public governance at the national level. Executives doing business with Chinese and Indian

companies need to better understand the contrasting governance and their effects on the CSR practices in each country. For

the international community and those concerned about product safety and other social issues related to China and India,

our f‌indings suggest that improvement will not be immediate since the governance environment changes relatively slowly.

Keywords: Corporate Governance, Governance Environment, China, India, Corporate Social Responsibility (CSR)

INTRODUCTION

The Chinese have greatly enriched their knowledge of

chemistry in recent years, many Chinese web sites

declare, not through national science education, but by

eating food with added chemicals such as melamine (in

dairy products), paraff‌in wax (in rice), dichlorvos (in ham),

malachite green and formaldehyde (in seafood), copper

sulfate (in fungus), clenbuterol (in pork), methanol (in

alcohol), Sudan red I (in duck eggs), and so forth. (A Google

search of “Chinese people’s knowledge of chemistry” (in

Chinese) yields 794,000 such results [Google, 2009].)

Although most of these terms are alien to people outside

of China, the world has certainly learned the word

“melamine” from China, which is a high-nitrogen chemical

that many Chinese f‌irms add to animal feeds and human

foods – such as poor-quality milk products to boost the

protein levels in lab tests – that also causes kidney failure

and death. But this is not only an issue of corporate citizen-

ship within China; it is also an issue for international

consumers. By 2008, more than 51,900 children had been

hospitalized and six had died due to kidney failure. In 2007,

many dogs and cats in the United States died because of

melamine added to their food. Worldwide, numerous prod-

ucts in many countries are contaminated with melamine

originating in China (WHO, 2009).

However, China is not the only source of worldwide

product-quality concerns (Martin & Palmer, 2007). A quick

*Address for correspondence: University of Potsdam,Chair for Corporate Governance

and E-Commerce, August Bebel Str. 89, 14482 Potsdam, Germany. E-mail:

christoph.lattemann@uni-potsdam.de

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Corporate Governance: An International Review, 2009, 17(4): 426–442

© 2009 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2009.00758.x

review of a database of import refusals compiled by the US

Food and Drug Administration (FDA) reveals that the

number of import refusals due to product quality and safety

is by far the highest for imports from China. However, India

also sends a large number of problematic imports (FDA,

2008). To combat the new threat arising from problematic

imports, the FDA, has decided for the f‌irst time in its more

than 100 years of history to establish overseas branches. The

f‌irst two destinations are China and India (Business Stan-

dard, 2008; USA Today, 2008). Product quality and safety are

only two examples of CSR in a globalized world. Companies

also regard environmental protection and education actions

as part of CSR to improvethe lives of those who reside in the

community in which they operate (community outreach).

Carbon and other emissions from older machinery and the

lack of regulations in Chinaand India place an added cost on

all goods that are cheaper to make in these countries. The

examples provided above highlight the challenges facing

corporations in China and India to display social responsi-

bility (or lack of it). They show that CSR is not only a ques-

tion of avoiding fraud and misconduct by enhancing

monitoring, but also a question of honest and accurate infor-

mation disclosure and communications.

In general, we need to better understand what determines

corporate social responsibility in those emerging economies

on which the world is increasingly dependent for goods and

services. Motivated by this new development and respond-

ing to the call for papers on corporate governance in China

and India by this journal, we study how corporate social

responsibility, an increasingly important aspect of corporate

governance (Aguilera, Williams, Conley, & Rupp, 2006;

Jamali, Saf‌ieddine, & Rabbath, 2008), is determined in f‌irms

in the two countries.

In the developed world, the terms of CSR, corporate stra-

tegic volunteerism, social marketing, and strategic philan-

thropy, have penetrated the mainstream literature and

multinational practices (Turban & Greening, 1997). Gener-

ally, CSR is considered to be the f‌irm’s obligation to protect

and improve social welfare (Staples, 2004) through various

business and social actions (Sen & Bhattacharya, 2001;

Turban & Greening, 1997) and by ensuring equitable and

sustainable benef‌its for the various stakeholders. Increas-

ingly, companies are taking CSR initiatives that have been

shown to be key success factors for sustainable competitive

advantages (Lichtenstein, Drumwright, & Braig, 2004). In

highly mature economies, such as those in the United States

and the Western Europeancountries, corporate communica-

tions are often used to highlight companies’ commitments to

CSR (Esrock & Leichty, 1998; Hooghiemstra, 2000), enhanc-

ing marketing efforts and legitimizing a given company’s

corporate image in the eyes of its various stakeholders (Birch

& Moon, 2004; Ringov & Zollo, 2007).

Among the developing economies, CSR is much less well

known and studied (see the literature review below).

Although it has been generally recognized that economic

development will ultimately increase CSR practices in a

society (e.g., Baughn, Bodie, & McIntosh, 2007), we believe

that the establishmentof CSR is not simply determined by the

level of economic development. The case of China and India

illustrate this point. China has a much higher level of eco-

nomic development than India, measured by both income

per capita and the economic growth rate, thus, collectively,

Chinese f‌irms should have higher CSR standards and face

fewer product-qualityproblems than Indian f‌irms. But this is

inconsistent with reality. There appear to be more issues

relatedto safety and intellectual property rights violations for

Chinese products than for Indian products (e.g., China

accounts for the largest percentage [81 per cent] of all illegal

products seized by the US Customs and Border Protection,

whereas India is a distant second [6 per cent] [US Customs

and Border Protection, 2009]). Furthermore, data show that

the dominant safety issue for Chinese products tends to be

the result of deliberate actions, such as adding lethal chemi-

cals (e.g., melamine in milk), whereas the primary problem

with Indian products is poor sanitation (e.g., salmonella in

food) (FDA, 2008; Martin & Palmer, 2007).

These data suggest that the pattern of CSR development

may be different among the emerging countries due to

reasons beyond the level of economic development.This gap,

along with the heightened global attention to safety issues

regarding Chinese and Indian products, renders CSR of

Chinese and Indian f‌irms a growing concern (Baskin, 2006).

In this study, we attempt to close this gap in the literature

by identifying the major factors that affect CSR communica-

tions in Chinese and Indian f‌irms. We address the question

of why f‌irms in China, where there is a much higher level of

economic development, act less socially responsibly than

f‌irms in India. To do this, we propose a model that simulta-

neously examines the role of country-level, industry-level,

and f‌irm-level antecedents. We test the model by using a

sample of 68 large f‌irms from China and India, drawn from

a data set based on the Forbes ranking of the world’s 2,000

largest corporations (Forbes, 2007).

Our main contribution is to show, next to industry and

company variables, that a country’s governance environ-

ment is an important driving force in shaping f‌irms’ CSR

communications. Our study also sheds light on the more

urgent practical issue of product quality and safety facing

the international community by providing an appreciation

of why Chinese and Indian f‌irms adopt different levels of

CSR and what forces are behind these differences. An inter-

esting and important message fromour study is that because

a country’s informal governance environment changes

relatively slowly, we should not expect drastic (positive)

changes in CSR by companies in emerging markets.

The remainder of the paper is organized as follows: in the

second section we provide a review of the current literature

on the determinants of CSR corporate communications,

motives, processes, and stakeholder issues; the third section

presents our theoretical framework and outlines the hypoth-

eses; the fourth section describes the methodology and data

collection process; and the f‌ifth section presents the empiri-

cal results and f‌indings. Finally, we conclude by summariz-

ing and discussing directions for future research.

REVIEW OF CSR RESEARCH IN

CHINA AND INDIA

Gaps in Research on CSR across Countries

In recent years, prompted by the spate of mega-size corpo-

rate scandals in the developed economies in general, and in

CSR IN CHINA AND INDIA 427

Volume 17 Number 4 July 2009© 2009 Blackwell Publishing Ltd