Engaging Local Businesses in Reform: The New Dimension of Global Corporate Citizenship

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Introduction

In the past two decades, the drive to maintain competitive advantage and increase profitability has led many multinational corporations (MNCs) to extend their supply chains ever deeper into the developing world. As these supply networks have reached countries with less developed political and economic institutions, MNCs have found themselves working in environments with little respect for the rule of law, weak property rights – both intellectual and physical – and endemic corruption. This has created new challenges for making supply chain management economically and ethically sound.

When corporations choose to expand their supply chain internationally, they take on a measure of risk. Many firms have learned the hard way that contracting companies can disappear overnight, new regulations in host countries can reduce the cost advantage of sourcing, and cumbersome bureaucracy can seriously hinder business operations. In such deficient institutional environments, even MNCs committed to ethical and responsible business find it hard to ensure that their local suppliers follow the same standards. A wave of scandals, ranging from toys tainted with lead to underage children working in offshore factories, has clearly shown the magnitude of the issue. In order to meet these challenges, companies must understand the need for a new era of global corporate citizenship.

Corporate citizenship, or corporate social responsibility, is often perceived in terms of companies’ involvement in charitable causes only benefiting the communities in which they operate. This view is limited and insufficient in the world of global business. The most meaningful contribution that MNCs can make is to help developing countries generate their own economic growth. To a large extent, they already do, simply by providing jobs and demand for local goods and services. Yet, there is more to be done. Sustained economic growth requires institutions that support such growth: the rule of law, secure property rights, and enforceable contracts. If these institutions take root, they will provide the necessary environment for local businesses and foreign companies alike to flourish.

A key goal of good corporate citizenship, therefore, should be the development of institutions that improve local governance and markets. This goal can only be achieved though grassroots engagement with local stakeholders. As Don Eberly put it, the greatest act of social responsibility for multinational firms is “to create a worldwide network of businesses and business associations committed to the rule of law, strict curbs on corruption, and a variety of other badly needed state reforms.”

Eric K. Hontz is a program officer for global programs at the Center for International Private Enterprise. He holds bachelor’s degrees in Russian and Political Science from the University of Montana. Before joining CIPE, he served in the United States Peace Corps in Ukraine, where he taught English, leadership, and civic engagement. He is currently an MBA candidate at the University of Maryland’s Robert H. Smith School of Business.

The views expressed by the author are his own and do not necessarily represent the views of the Center for International Private Enterprise. The Center for International Private Enterprise grants permission to reprint, translate, and/or publish original articles from its Economic Reform Feature Service provided that (1) proper attribution is given to the original author and to CIPE and (2) CIPE is notified where the article is placed and a copy is provided to CIPE’s Washington office.

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