Challenges Multinationals Face when
Becoming more Sustainable
- a Systematic Review
Martijn Jansen (S2970104)
MSc BA Strategic Innovation Management Supervisor: P. Steinberg
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‘’The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking’’
- Albert Einstein
‘’Change will not come if we wait for some other person, or if we wait for some other time. We are the ones we've been waiting for. We are the change that we seek’’
- Barack Obama “It’s not easy being Green”
Abstract
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Introduction
Since the Dutch East India Company (VOC) was founded in 1602 as the first formally listed company, companies had only one main aim. This aim was maximizing their profits, regardless of the possible negative impacts it had on the society and environment. This changed when Andrew Carnegie published ‘’The Gospel of Wealth in 1899’’ (Piasecki, 2017). In this work Carnegie described the phenomenon that an organization not only takes responsibility for its finances but for the impacts of its activities on customers, employees, community and the environment as well (Carnegie, 1899). This was later called Corporate Social Responsibility (CSR; Piasecki, 2017). At that time those principles were an exception, but nowadays more attention is dedicated to them (Gerard Rassindren and Basil Hans, 2015).
CSR is used in this review as it an overarching concept of sustainability. In CSR the social issues are expressed most, while sustainability is focused on environmental issues (Bansal and Song, 2017). However, environmental issues can be seen as a social issue (Flammer, 2013). It is therefore important for this review to acknowledge this broader concept called CSR.
(Maak et al., 2009). Therefore, when MNC’s become more sustainable this has a tremendous impact on the sustainability of society.
To concretize the challenges that MNC’s face when trying to become more sustainable, Nestlé is a good example of company that is struggling with their sustainability practices. As the leading FMCG company in the world, Nestlé has announced that they aim to make all of its packaging recyclable or re-usable by 2025 (Nestlé, 2018). However, Nestlé is still the third largest plastic polluter in the world (Greenpeace, 2019). This raised the question: why is it so hard for MNC’s to change their course?
In the current scientific literature, there are a lot of different studies on sustainability for multinationals. Most of these studies tell us about the opportunities, companies can seize (e.g. Patzelt and Shepherd, 2011; Robinson et al., 2006). However, for the challenges that multinationals face when trying to become sustainable the literature is fragmented as it is often not the main focus of the literature that is written. Moreover, the literature about challenges focusses on one challenge instead of all the challenges together. This compounds for a literature review of the current main discoveries and contributions in this field. The aim of this literature review is to provide a systematic overview and analysis of the studies discussing the challenges faced by MNC’s when becoming more sustainable. To the best of my knowledge, the literature on this topic has not been systematically synthesized to date. The contribution of this review to the scientific community is twofold. First, I created a categorization for the main challenges, including subcategories of these challenges, that are described in the existing literature. Second, I discuss the complex interplay and interactions between the challenges. By getting a better insight in these challenges and their complexity, possible solutions to these challenges can be formulated. Therefore, identifying challenges for MNC’s when becoming more sustainable is an important step in overcoming them and thereby helping MNC’s to become more sustainable.
Method
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as it is a broad and extensive database. In addition, Business Source Premier was selected as it is a full-text database on business, management & finance. This search had a total of 1855 results (fig. 1). After this first search the duplicates were removed, which left 1614 results. As quality is of the highest importance for this review, only the results published in the 50 journals used by the Financial Times (FT) in their FT Research Rank were used. This resulted in 261 articles remaining.
Of these 261 results an evaluation of title and abstract was performed. Articles were included when they met the following criteria: a) the study included MNC’s, b) the study was about challenges and problems when trying to become sustainable. Articles were excluded when they were: a) published in another language then English, b) not peer-reviewed, c) reviews. An independent assessor checked these evaluations by random sampling. Of the remaining 68 articles the full text was then assessed. In the end, these reference lists of the included articles were searched for additional publications that were missed in the initial database search. The final sample contains 36 articles (fig. 1). The literature search was performed according to the guidelines of Preferred Reporting Items for Systematic Reviews and Meta-Analyses (Moher et al., 2009). Challenges were extracted and organized a table (Table 1). A narrative synthesis was done of all included articles.
Box 1. Search strategies in Business Source Premier (‘’Topic’’)
Multinational corporation OR MCE OR Multinational enterprises OR MNE OR Multinational company AND
“Corporate environment*” OR “Corporate social performance “ OR CSP OR “Corporate philanthropy” OR “Corporate citizenship” OR “Corporate social responsibility” OR CSR OR
“Corporate social rectitude” OR “Corporate giving” OR “Business ethics” OR “Social responsibility” OR Environment* OR “Social market economy” OR “Social economic*”
OR “Social entrepreneurship” OR “Social accounting” OR Sustainab* OR Brownwashing OR
Greenwashing OR “Green marketing” OR “Public policy environment” OR “Ethical environment” OR “Ecological responsiveness”
AND
Box 2. Search strategies in Web of Science (‘’Topic’’)
Multinational corporation OR MCE OR Multinational enterprises OR MNE OR Multinational company
AND
Corporate near/5 environment* OR Corporate near/5 social near/5 performance OR CSP OR Corporate near/5 philanthropy OR Corporate near/5 citizenship OR Corporate near/5 social near/5 responsibility OR CSR OR Corporate near/5 social near/5 rectitude OR Corporate near/5 giving OR Business near/5 ethics OR Social near/5 responsibility OR Environment* OR Social near/5 market near/5 economy OR Social near/5 economic*
OR Social near/5 entrepreneurship OR Social near/5 accounting OR Sustainab* OR Brownwashing OR Greenwashing OR Green near/5 marketing OR Public near/5 policy near/5 environment OR Ethical near/5 environment OR Ecological near/5 responsiveness
AND
8 PRISMA 2009 Flow Diagram
Fig. 1. Flow diagram of article search (based on PRISMA guidelines, 2009). Records identified through database
searching (n = 1855) Sc re en in g In cl ud ed Eli gi bi lit y Id en tif ic at io n
Additional records identified through other sources
(n = 13)
Records after duplicates removed
(n = 1614)
Full-text articles excluded, with reasons (n = 32): 1. No challenges (n = 14) 2. No MNC’s (n = 3) 3. No sustainability (n = 15) Records screened (n = 261) Records excluded (n = 193) 1. No challenges (n = 10) 2. No MNC’s (n = 9) 3. No sustainability (n = 167) 4. No primary (n= 7) 5. 6. No challenges (n =) 7. No MNC’s (n = 8. No sustainability (n = ) Studies included in qualitative synthesis (n = 36)
Full-text articles assessed for eligibility
(n = 68)
Findings
When analyzing the challenges that MNC’s face when they try to become (more) sustainable as described in the 39 articles, I categorized them in 5 main challenges: operating in multiple countries, leaders, boundaries of sustainability, stakeholders and the cost of change (see figure 2 and table 1). I made this categorization as each of the challenges named in the literature could be divided into one of these categories. To gain a clear overview I, in turn, divided these main challenges into several subcategories, which I will describe in more detail below.
Fig. 2. Hierarchical relationships of the challenges multinationals face when becoming more sustainable Main challenges Operating in multiple countries Institutional duality Liability of foreignness Culture Linguistics Leaders Governmental leaders Global governments Home country goverment Individual leaders Complexity Responsibility and lack of trust
Temporal barrier Boundaries of sustainability Supply chain responsibility Profitability vs. sustainanbility Stakeholders Stakeholder Salience Legitimacy Consumers don't walk their talk
Table 1. Challenges MNC’s face when becoming more sustainable categorized per article. Cost of change Institutional duality Cultural differences Linguistics & communication Supply chain responsibility Profit vs. Sustainability Stakeholder salience
Legitimacy Consumers don't walk their talk Global government Home country government Increasing complexity Responsibility & lack of trust Temporal Barrier Aarsonson, 2005 X Amaeshi, 2008 X X Asmussen, 2019 X X Baumann-Pauly, 2013 X Berrone, 2017 X X Bhanji, 2013 X X Campbell, 2007 X X Caprar, 2012 X X Carrington, 2010 X Crilly, 2016 X Cruz, 2010 X X Enderle, 1997 X X Flammer, 2013 X Guiliani, 2018 X Jamali, 2010 X Jones, 2010 X X Kim, 2016 X Kim et al., 2016 X X X X X Logsdon, 2005 X Lotila, 2010 X X X X Maak, 2009 X X X McGee, 1998 X X Pinkse, 2012 X X X Pless, 2009 X Pless, 2012 X Rotter, 2014 X X X Schneider, 2019 X X X X Schrerer, 2012 X X X X Selmier, 2015 X Stelios, 2002 X Stohl, 2009 X Tong, 2018 X Villena, 2018 X X Walley, 1994 X X Yang, 2009 X Zhao, 2014 X
Challenges MNC's face when becoming more sustainable
Note. X = challenges is discussed in the corresponding article. Operating in Multiple Countries
Governmental leaders Individual leaders
Operating in Multiple Countries
Per definition, MNC’s are operative in multiple countries. Worldwide there are forces that try to establish an international regime of sustainability practices (Stohl et al., 2009). It is however clear that these forces are tempered by local forces. MNC’s are challenged by local conditions and experiences that weaken their sustainability practices. If they want to become more sustainable in these countries, they have to comply with the internal laws of those countries. More specifically, I can categorize this in various sub challenges: institutional duality, cultural differences and linguistics and communication.
Institutional duality. MNC’s consist of the parent company in the home country and subsidiaries in host countries. This presents some major challenges for the MNC to implement sustainability practices. Subsidiaries have to satisfy the various stakeholders in each host country to obtain external legitimacy. In the host country there are stakeholders that have expectations, which are most often different than the expectations of the MNC’s home country. However, the subsidiary has to address these host country stakeholders and their expectations (McGee, 1998; Yang et al., 2009; Lotila, 2010; Pinkse and Kolk, 2012; Asmussen & Fosfuri, 2019).
Local responsiveness is about the adaption of global sustainability practices to specific local demands, which are expressed by the local stakeholders. This can be a strong challenge because the subsidiaries of an MNC and their sustainability projects have to take into account not only, players in their business environment (for example suppliers and competitors), but also the institutional environment (e.g. governments and NGO’s). The first choice that MNC’s have to make is about the decision-making autonomy: will they give the subsidiary the autonomy to make choices for itself, which can lead to gathering the advantages of local responsiveness or will the MNC choose for decision-making centralization and make the decisions themselves (Cruz and Boehe, 2010).
Liability of foreignness. MNC’s that operate in their home country have more influence
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disadvantage called ‘’liability of foreignness’’ (Pinkse and Kolk, 2012; Bhanji and Oxley, 2013). More aspects that influence the liability of foreignness that foreign firms experience are the lack of information of the local law, culture and economy. Moreover, local buyers can be unfamiliar with the foreign MNC’s brand (Bhanji and Oxley, 2013; Kim et al., 2016).
Next to that they have to conform to the sustainability practices of the parent company to obtain internal legitimacy (Yang et al., 2009). These differences and their influence on subsidiaries and their sustainability orientations pose huge challenges to the subsidiaries, and therefore on the MNC as well. Yang et al (2009) refer to these challenges as ‘’institutional duality’’. The differences and similarities between regulations, cognitive institutions, and norms and values of two countries is referred to as the institutional distance between a home country and a host country. From the subsidiary is expected that it conforms its own strategy, mission, policy and procedures to the strategy, mission, policy and procedures of its parent company (Yang et al., 2009).
Cultural differences. MNC’s have to deal with a lot of different cultures as they operate in multiple countries. Therefore, it has to deal with the challenge of how to deal with groups of people that adopt sustainability in different ways (Lotila, 2010; Caprar et al., 2012; Asmussen and Fosfuri, 2019). Culture is known for its multiple and often inconsistent conceptualizations. Culture can be seen as different patterns that originate from interaction and that influence future interactions. Some principles of sustainability are more compatible with certain cultures than with other cultures. Culture is the reason that people respond differently to sustainability adoption (Caprar et al., 2012).
challenges. The role of national contexts is that they influence the conformance to the pressures for sustainability (Caprar et al., 2012).
Linguistics and communication. As part of both institutional duality and cultural differences, linguistics and communication are a challenge for MNC’s, as they should have participatory governance and transparent and well communicated operations (Selmier et al., 2015). Moreover, interfacing with (local) governments and their effective environmental policies is another key challenge for MNC’s.
A lingua franca is a language which functions as a bridge between two parties who speak different languages. An MNC has a responsibility, when it enters a community, to communicate with the people involved in a language they can understand, as the MNC has the capacity and resources to internalize the common linguistic ground. Linguistic differences make it harder for the MNC to create and implement their sustainability practices, as the necessity to communicate with the local community in unknown languages introduces chasms. When managers in MNC’s don’t learn the lingua franca, the communication processes with local communities is not only complicated, but compromised as well (Selmier et al., 2015). Therefore, MNC’s have to train their employees which, in turn, comes with high costs.
Relationships develop through close communication. These relationships are necessary to develop the foundation of sustainability practices. To be successful in maintaining relationships with stakeholders, MNC’s need to tailor their sustainability activities toward local preferences. However, for MNC’s it is hard to simultaneously manage and communicate their approach to sustainability on a global and local level to their various stakeholders (Selmier et al., 2015). There are a lot of examples of MNC’s that fell into the trap of assuming that a global approach would be a success, when implemented in local communities because interests would pool around their common goals and priorities (Selmier et al., 2015).
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relationships with CofP are recognized as critical to governments and NGO’s. Therefore, the MNC’s operating in those areas close to CofP have an increased risk of the lack of legitimacy (Selmier et al., 2015).
Leaders
Leaders are persons or organizations that guide others and lead by example. When companies try to become (more) sustainable they often follow others in their search for the best way to reach this goal. Leaders can be subdivided into different categories, each of which brings their own challenges to sustainability.
Next to a world leading country as the prime example of leading by example in the case of sustainability, the home countries of MNC’s function as local leaders that lead by example. They can be institutionally weak and can be unable to ensure the rule of law or fundamental rights. When MNC’s have to operate in such countries the capacity of agencies to fix negative externalities may not be there. Even when MNC’s are located in advanced countries, the local governments can be to slow to address the MNC’s problems (Giuliani, 2018).
Individual leaders.
Increasing complexity. Nowadays, CEOs and department managers have a growing
array of choices for responding to environmental pressures. Managers must juggle many issues without having a clear view of priorities (Walley and Whitehead, 1994; Lotila, 2010; Scherer et al., 2013; Schneider and Scherer, 2019). Moreover, while most managers have good intentions, a clear framework that allows them to use these good intentions is lacking. According to Pless et al., (2012) this is due to the globalization trend. Because of this trend, the demands on global managers have increased significantly. Managers nowadays need a global mindset, as this will help them to see the bigger picture. A global mindset is a cognitive structure that is highly complex and consists of two main parts. First, it consists of an openness to various cultures and strategies, both for the local and global levels in which the MNC is located. Second, it consists of the cognitive ability to moderate and integrate across these local and global levels (Pless et al., 2012). A global mindset is needed, as this will help managers to assess and acquire information from multiple sources across cultures and sectors.
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environment and human beings, and to be more ethical (Jones and Millar, 2010). Currently, managers are inadequately prepared for global challenges as climate change and environmental degradation.
Moreover, business leaders have to deal with the challenge of creating sustainable relationships to multiple stakeholders, to create trust and stakeholder social capital. They have to do all this while at the same time retaining commercial viability (Maak et al, 2009). The multiple stakeholders of MNCs create other major challenges in becoming more sustainable, which is discussed separately below.
Increasing responsibility and a lack of trust. Not only the increasing complexity is a
challenge for leaders. Stakeholders are expecting more and are no longer satisfied with leaders who are only law-abiding (Maak et al., 2009; Scherer et al., 2013). Stakeholders are expecting awareness of environmental issues and commitment to the needs of communities, thereby they are expecting co-responsibility from the leaders. MNC’s, and thus their leaders, have the means and the power be agents of world benefit and they should thus focus on tackling pressing public problems. The challenge here is two-fold: leaders face not only growing expectations to ‘do more’, they also face a lack of trust in their intentions to ‘do good’. Three main characteristics describe why business leaders bear more responsibility than others: Power, Privilege and Potential.
Power comes from the position from which leaders can influence processes and outcomes. Leaders of network organizations can impact the global market framework. Moreover, leaders can also use reverse power by not engaging themselves or their company in hitherto neglected locations (Maak et al., 2009). As half of the world’s population lives with severe poverty, the other half has the privilege of being well-off. Such privilege generates special responsibilities to improve the lives of people who are living in poverty. Because of their position in society, business leaders can influence wealth creation by using organizational resource, and therefore they bear even more responsibility (Maak et al., 2009). As business leaders have the ability to mobilize people to assist people in need, they have a great potential to do good.
may distort democratic processes. A broad discussion was triggered about the role of business in society as more corporate scandals occurred. The common perception is that states, and not corporations, are the ‘primary agents of justice’ (Pless et al., 2009). The challenge here is therefore the complex interplay between an increased responsibility due to higher expectations on the one hand, and a lack of trust on the other hand.
Temporal barrier. What is not helping business leaders is that they often cannot see a
direct link between their actions and the impact that these actions have on the climate or society. A major cause of this is called the temporal barrier. Climate change and its negative consequences do not affect the people that are taking the decisions now, but they affect people in other countries or future generations. Moreover, the people who make the decisions do not profit from the positive results that can come from the appropriate measures they have to take (Pinkse and Kolk, 2012; Schneider and Scherer, 2019). The same was said by Jones and Millar (2010). In this article the ethical dilemma that corporate leaders face when they have to make the type of long-term strategic choices is discussed. These choices need vision and courage as they will not bear fruit for many years. Too often leaders make the wrong choice, and don’t give a good example. There is a current and future need for ethical leadership in the global context. This is not only desirable, but more a matter of survival (Jones and Millar, 2010). Boundaries of Sustainability
Supply chain responsibility. A corporation is distinct from its members and shareholders, according to the principle of independent legal existence of corporations. Closely related to this principle is the principle of limited liability (Amaeshi et al., 2008). This principle states that the shareholders of a corporation their liability is limited to the value of their shareholding. Therefore, it can be said that the supply chain is not part of the responsibilities of the purchasing firm and that suppliers should be responsible of their own actions. What makes it difficult for MNC is that these legal rules have exceptions and that consumers and media let these exceptions influence their opinion about MNC’s (Amaeshi et al., 2008).
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companies in their network to follow some standards of responsible actions. They have the most influence on their direct suppliers and because of the ripple effect, this power decreases further down the supply chain. It is the responsibility of the direct suppliers of MNC’s to pass on their responsible business practices to their subsequent suppliers (Amaeshi et al., 2008).
MNC’s like McDonalds, Nike and Apple are increasingly more under pressure from activist groups that work for more responsible supply chain management. For these groups it is often hard to attack global brands directly. Therefore, they focus their pressure on the supply chain of these MNC’s (Amaeshi et al., 2008). The reputation of these MNC’s can be badly damaged, as such attacks have been successful in recent times. The activist groups engender negative public sentiments towards MNCs that allow irresponsible behavior in their supply chain. Mismanaging tier-one and lower-tier suppliers can damage a firm’s reputation (Villena et al., 2018; Tong et al., 2018). Therefore, these MNC’s are obliged to do all they can to prevent these attacks from happening. They have to account for the irresponsible behaviors of their suppliers. However, it is getting more difficult for MNC’s to define the scope of their responsibility across their dispersed supply chains (Amaeshi et al., 2008). Kim et al (2016) refer to this phenomenon as the ‘’responsibility paradox’’.
Low-tier suppliers are often invisible for MNC’s and even if they are visible, they are less controllable and riskier to deal with. This is because MNC’s often don’t have direct contractual relationships with the low-tier suppliers (Villena et al., 2018; Kim and Davis, 2016). The biggest hurdle to the supply chain visibility is a MNC’s internal complexity. This internal complexity can be indicated by international diversification and the supply chain complexity, which can be measured by the size and concentration of the supplier base (Kim and Davis, 2016). Moreover, these suppliers lack awareness of sustainability-related practices as they don’t receive pressure from NGO’s, stakeholders and media. Therefore, they are more prone to contaminating the environment. Last but not least, MNC’s lack information about these suppliers as they are further removed from their direct supervision. Despite these evident challenges for MNC’s, they often get blamed by society when a lower-tier supplier causes environmental damage (Villena et al., 2018).
costly as the suppliers are located far away and information asymmetry is high. Therefore, an extraordinary effort is necessary to extend their sustainability principles to their suppliers (Tong et al., 2018).
Codes of conduct. Corporate codes of conduct could help MNC’s to define the
boundaries of their sustainability. However, these codes of conduct are voluntary initiatives by the MNC’s themselves, sometimes composed together with other MNC’s or pressure groups and civil societies. Most of these corporate codes of conduct have a hard time defining the limit of corporate responsibility. This is especially true for the activities of other corporations down the supply chain of the MNC. To address this issue there are some industry codes of conduct. These impose a duty on MNC’s to let their contractors (and subcontractors and suppliers) comply with their code of conduct (Amaeshi et al., 2008).
This duty is a much-discussed topic which raises many questions. Can this duty be applied to situations in which the MNC is not even in the position to influence corporations down their supply chain? Does this duty, irrespective of proximity or remoteness from the MNC, extend to all the levels in the supply chain? Is it even feasible to be unlimited exposed to the social responsibility for the business environment of the MNC (Amaeshi et al., 2008)?
Profitability vs. sustainability. Another aspect that influences the responsibility of organizations and their role in society is globalization. This is particularly important for businesses that are involved in extensive global supply chains. CSR and therefore sustainability help these businesses to address societal problems. However, the dominant assumption of CSR is still that businesses first have the responsibility to make profits, and only after that they can engage voluntarily in sustainability practices (Campbell, 2007; Rotter et al., 2014).
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However, corporate accountability beyond the firm boundaries is, because of the dispersion of supply chains, one of the greatest challenges of our era (Kim et al, 2016). As social movements and media show that there is an increasing concern for planet issues. Therefore, the current passivity of MNC’s towards addressing these environmental issues won’t be a viable approach in the future (Villena et al, 2018).
Stakeholders
Stakeholder salience. Stakeholder salience is about which stakeholders, from all the firm stakeholders, can influence managerial actions the most (Stelios, 2002; Lotila, 2010). Stakeholder salience is a complex interplay of three characteristics: Power, Legitimacy and Urgency. In this context Power can be explained as ‘’the probability that one actor is in a position to go with its own will, instead of following people with resistance (Stelios, 2002). Legitimacy can be described as a perception that the actions of a corporation are desirable or appropriate in the social systems that we are familiar with (Stelios, 2002). Lastly, Urgency can be described as a measure of time sensitivity and criticism. The stakeholder that possesses all these characteristics will have a high level of salience (Stelios, 2002). There are two abilities that distinguish stakeholders from other parties in the environment. Stakeholders have the ability to make claims, and they have the ability to influence the firm (Flammer, 2013; Zhao et al, 2014). By having the chance to observe if the MNC’s practices are consistent with their policies the pressure on MNC’s to comply with global sustainability standards increases (Flammer, 2013; Crilly et al, 2016).
as they demand to know more about the wrong doings of the companies that influence their lives (Logdson et al, 2005). These stakeholders can actively challenge the MNCs reputational and financial performance (Zhao et al, 2014).
Local individual stakeholders. When MNC’s are getting deeply involved in local contexts this leads to growing stakeholder pressures on their business activities. This happens for several reasons. First of all, local and global stakeholders push MNCs to address the needs of the local stakeholders that are involved in the MNCs business activities. Secondly, local people demand more involvement and that MNC’s should play a wider role in society. The MNC’s should, next to providing products, paying taxes and employment, do more for the society and environment as their current practices were harming the society and environment (Zhao et al, 2014).
Global individual stakeholders. Stelios (2002) gives us some examples of MNC’s
which had to comply to a higher level of environmental responsibility because stakeholders who originated from outside the country in which the MNC was operating, held the MNC responsible for the negative environmental influences it had in the other country in which it was operating. This is among others because subsidiaries of an MNC, are in the eyes of foreign stakeholders always linked to the MNC as they see them as one entity. Therefore, this stakeholder salience increases the levels of environmental responsibility faced by the MNC (Stelios, 2002).
Strengthened enforcement. A lot of local governments in emerging markets have a
fragmented system. There are tensions of interest between the different levels of governments and functional departments. To have effective enforcement on environmental pollution, the authority and resource of supervisory agencies are key. A good example is State Environmental Protection Administration (SEPA; Zhao et al., 2014)) which for example established a public database to track environment violation offenses. These databases have two main contributions. The first contribution is that this database can support (local) government’s supervision abilities. The second contribution is that NGO’s, the media, and therefore every consumer can monitor MNC’s.
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created by society to improve MNCs practices. If MNCs comply with these pressures and adjust their practices to become more sustainable, they will be seen as more legitimate. When MNCs perform these sustainable practices, they will have to face legitimacy challenges (Caprar et al., 2012; Scherer, et al., 2013; Kim et al., 2016; Schneider and Scherer, 2019). There are three variants of legitimacy: Cognitive legitimacy, Pragmatic legitimacy and Moral legitimacy. Cognitive legitimacy is about the taken-for-granted rules to which businesses have to adapt. Pragmatic legitimacy is about aiming to derive legitimacy through public relations and advertisement. Last, Moral legitimacy is grounded in the discussion to determine if an action, individual or institution is legitimate (Rotter et al., 2014; Bhanji and Oxley, 2013; Scherer, et al., 2013).
MNCs may have some pragmatic legitimacy for sustainability because of their public investments. MNCs often have a lot of capital and technical capabilities at their disposal. Society sees a lot of potential for positive value generation which enhances the pragmatic legitimacy for MNCs (Bhanji and Oxley, 2013). However, MNCs often lack moral legitimacy in this context. Moral legitimacy is about the believe of society that the activity promotes social welfare instead of giving benefits to the own company. As MNCs are entering domains that were always served by governments, society is questioning the good intentions of MNCs. Because of this observation it is suggested that MNCs lack cognitive legitimacy as well, because society does not take an MNC sustainability measures for granted. The lack of these forms of legitimacy form a significant challenge for MNCs to engage in sustainability (Bhanji and Oxley, 2013).
2010). This manipulation strategy is called ‘’blue washing’’ (Jamali, 2010) or ‘’green washing’’ (Beronne et al, 2017)
Consumers don’t walk their talk. Even though two-thirds of Americans don’t want to choose between economic development and environmental protection (Walley and Whitehead, 1994), more and more consumers are motivated to behave towards the values of green consumerism. These consumers feel a responsibility towards the environment and want to express this with their buying behavior. However, this change in motivation cannot be found in the same strength in actual consumption behavior. Intentions to act on their own sustainability concerns don’t always translate into actual green buying behavior as consumers are unwilling or unable to change their buying behavior (Carrington, et al., 2010; Pinkse and Kolk, 2012). For MNC’s it is an important challenge to understand this gap between the consumers intend and their actual behavior as managers may make decisions based on the consumers intend to behave as a green consumer. An MNC can make a lot of unnecessary costs when implementing new policies to be more sustainably which can harm a MNC’s profitability. This effect can even be more present when MNC’s have to increase the selling prices of their products because of these costs. This can cause a drop of sales as consumers will not buy their products for a higher price, even it is a more sustainable product.
Cost of Organizational Change
Sustainability is a concept that should be part of the MNC’s core strategy. Therefore, it is important that is not temporary integrated in this strategy, and that it will survive even in economic down turns. To achieve this, it is necessary to integrate sustainability into the genes of the MNC (Cruz and Boehe 2010). This can be done by making formal sustainability procedures and policies (Baumann-Pauly et al., 2013). For an MNC this is an enormous task as these procedures and policies should be embedded in daily operations in all the global activities of an MNC. To handle this task an MNC should invest a lot of time and resources (McGee, 1998; Baumann-Pauly et al., 2013; Scherer et al., 2013; Kim et al., 2016; Schneider and Scherer, 2019).
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about sustainability, a sustainability training should be provided. This will help to get a consistent application of sustainability practices in every department of the MNC (Baumann-Pauly et al., 2013). Secondly, MNC’s have to change their production processes. Thirdly, not only the production processes have to change but the product technologies as well. Lastly, MNC’s have to rearrange their value chain (Scherer et al., 2013). All these changes become more difficult and complex. This is because, the larger an MNC becomes, the less its management will be able to control actions further down in the organization and the more it will cost to introduce new policies. A closely related topic that influences the loss of control is the bounded reality of a MNC’s managers. Moreover, an MNC that is larger will have increased administrative overhead and more coordination costs (Baumann-Pauly et al., 2013). Unfortunately for MNC’s it is often the case, despite their enormous amount of resources, that they lack understanding (business leaders) and resources (Rotter et al., 2014)
Discussion
Challenges that MNC’s face when they try to become more sustainable is a topic that is discussed in the current literature. However, often the main focus of the literature is on the opportunities that arise when MNC’s want to become more sustainable and the challenges are only slightly discussed (e.g. Patzelt and Shepherd, 2011; Robinson et al., 2006). Moreover, a variety of challenges is discussed in the literature, but to date there is no overview of the challenges combined in this field of research. This overview is necessary, as sustainability is becoming more important than ever as global power relations are shifting and MNC’s impact on the world is increasing (Kolk et al., 2010; Maak et al., 2009). Furthermore, this overview can help research and MNC’s in the future to take these challenges into account and find solutions to overcome them. In the current review, I categorized the challenges described in the literature into five main categories, each in turn divided into several subcategories. It is important to note that each of these five main challenges cannot be seen in isolation. When one challenge increases, this can have substantial implications on one or more other challenges. This therefore deserves in depth discussion.
to overcome cultural and linguistic differences are located in a much more complex environment in which it is harder to change (Kostova and Zaheer, 1999). Secondly, for these MNC’s it is harder to gain legitimacy as these sub-challenges widen the ‘’gap’’ between the MNC and its environment (Kostova and Zaheer, 1999). Lastly, because of the cultural and linguistic differences between the MCN and its environment, the cost of change for MNC will increase as it will take more resources to overcome the above described gap.
The second challenge, leaders, can be sub-divided in governmental leaders and individual leaders. Both these leaders have to lead by example as they have an enormous impact on how an MNC evaluates calls for sustainability. Governmental leaders have a different focus as they operate as a political actor. When governmental leaders lack the ability to lead by example and they do not establish clear regulations, the boundaries of sustainability become more blurred (e.g. boundaries of supply chain responsibility; Steurer, 2010; see figure 4). Moreover, when governmental leaders don’t set the right example, they negatively influence individual leaders. It seems that individual leaders have an impact as well, as they can shift the MNC’s focus directly by changing practices and help employees to understand these practices so they can be implemented successfully. When these individual leaders are lacking this ability, the challenge of legitimacy (i.e. lack of legitimacy of stakeholders; Strand, 2014) increases. The same effect seems likely for the challenge of cost of change (e.g. unnecessary investments or spendings). However, to the best of my knowledge this is not supported by empirical findings.
Institutional duality Complexity
Cultural differences Legitimacy
Linguistics Cost of change
26
The third challenge, the boundaries of sustainability, can be divided in the supply chain responsibility challenge and the profitability vs. sustainability challenge. Both these sub-challenges increase the sub-challenges for individual leaders (see figure 5). The more responsibility an MNC has over its the supply chain, the more complex it will be for individual leaders to encourage companies in their supply chain to follow their sustainability practices (Amaeshi et al., 2008; Kim et al., 2016). This, in turn, also increases the cost of change, as more responsibility over the supply chain means more transaction costs, due to increased interactions and control (Tong et al., 2018). When the responsibility over the supply chain increases, the odds that the companies involved in this supply chain are located in multiple countries also increases, which, in turn increases all the sub-challenges associated with this main challenge. Increasing supply chain responsibility, lastly, increases the legitimacy challenge, as expectations get higher, which makes legitimacy harder to obtain (Chiu and Walls, 2019). The profitability vs. sustainability challenge, logically, cannot be isolated from the individual leaders that have to make the complex trade-off between the two. For individual leaders, this trade-off is challenging, but for stakeholders, legitimacy is dependent on the choices individual leaders make regarding this trade-off (Kostova and Zaheer, 1999).
Govermental
leaders
Boundaries of
sustainability
Individual
leaders
Legitimacy
Cost of
change
Figure 4 Note. A "+" indicates a positive relationship between the challenges.
Therefore, if one challenge increases, the other also increases.
Supply chain responsibility Individual leader Multiple countries Legitimacy Cost of change Profitability vs. Sustainability
Figure 5. Note. A "+" indicates a positive relationship between the challenges.
The fourth challenge, the stakeholders of MNC’s can be divided in three sub-challenges, stakeholder salience, legitimacy and consumers don’t walk their talk. First of all, these sub-challenges influence the individual leader challenge as they make the decision-making process for individual leaders more complex (Doh and Quigley, 2014; see figure 6). For example, when stakeholders get more salient, individual leaders have to take stakeholders response to sustainability practices into account. Moreover, when it will be harder to obtain legitimacy, individual leaders have to change practices to become more legitimate. Secondly, an increased stakeholder salience challenge increases the boundaries of sustainability challenge, as stakeholders can stretch the boundaries of sustainability to a distance unknown to the MNC (Zhang et al., 2020). Thirdly, consumers want MNC’s to change their products and services to be more sustainable. However, when MNC’s listen to these requests and consumers don’t react to these changes, it seems likely that it becomes less clear for MNC’s where the boundaries of sustainability are set. Fourthly, increasing stakeholder salience increases the culture and linguistics challenges as well, as MNC’s have to communicate with more salient stakeholders that are likely to have different cultures and languages. Fifthly, a lack of legitimacy increases the cost of change challenge, as more costs must be made to increase legitimacy. Lastly, when consumers don’t walk their talk, it is likely that the cost of change challenge increases as well, as redundant costs have been made to meet consumers expectations. MNC’s will take these costs into account the next time they stand for the two-folded cost of change dilemma (see figure 6).
Figure 6. Note. A "+" indicates a positive relationship between the challenges.
Therefore, if one challenge increases, the other also increases. Stakeholder salience Individual leadrs Boundaries of sustainability Cultural/linguistics Legitimacy Cost of change Consumers don't
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The fifth and final challenge is the cost of change challenge. When the cost of change increases this has an impact on the individual leader challenge, the consumers don’t walk their talk challenge, the legitimacy challenge and the profitability vs. sustainability challenge (see figure 7). First of all, when the cost of change is high, it seems likely that individual leaders face a more complex dilemma, as the increasing pressure of acting sustainable remains with increasing costs. This reasoning can be extended to the profitability vs. sustainability challenge, as the pressure to become more sustainable will be met by higher costs, and likely a lower profitability. Therefore, the dilemma between being profitable or sustainable becomes more complex. Secondly, when the cost of change is high, it logically becomes riskier to become more sustainable when it is not guaranteed that consumers will walk their talk, as it is not certain that the investments made, can be earned back. Lastly, when the cost of change is high it will probably be more difficult to obtain legitimacy for MNC’s. This is because when MNC’s change their practices to become more sustainable, they will be seen as more legitimate (Caprar et al., 2012).
It is not sufficient to only describe each challenge. When analyzing the challenges, it became clear that there is a lot of interplay between these challenges as is described above. As these challenges cannot be seen in isolation, solving one of the challenges becomes more difficult. Perhaps looking at the bigger picture of all these challenges combined is the biggest challenge itself.
Cost of change
Individual Leaders
Consumers don't walk their talk
Legitimacy
Profitability vs. Sustainability
Figure 7. Note. A "+" indicates a positive relationship between the challenges.
Implications. To overcome the challenges of becoming sustainable, MNC’s need a more cosmopolitan world view (Jones and Millar, 2010). This implies that MNC’s should be able to integrate its long-term goals and the interests of its stakeholders while using their ‘’moral compass’’ when making strategic choices. This cosmopolitan world view takes courage of the leaders of MNC’s because the positive results might only show after years, or worse, never. One can therefore pose the question if it is reasonable to demand such high commitments and standards from MNC’s leaders in the current fast changing environment. It could be argued that the current markets do not work the way we expect them to, since our perception of the world has changed, while our theoretical perception of how the markets should work has remained the same. Our economic system is based on the idea that when companies, and therefore markets, are functioning well (including competition and making profit), this will lead to maximizing our welfare and prosperity. Adam Smith can be seen as the inventor of this view as he described the theory about the ‘’invisible hand’’ in 1759. The general idea is that when individuals (or companies) are only working for their own self-interest this will lead to the most socially desirable outcomes. However, the complexity of the challenges described in this paper show us that this economic system has led to negative environmental outcomes.
Since the industrial revolution, the focus of our economies was to improve efficiency to create more jobs and products that could improve our way of living. A lot has changed, and the overall quality of life has improved for most people on our planet. However, this was at high expense for our planet and environment. While we still try to improve our quality of life, it has not the necessary bearing that it used to have three centuries ago. After all, our overall welfare has reached a point at which a critical minimum of welfare is likely to exist. A point which does not compare to the same critical minimum that was present when Smith wrote his seminal piece. Currently it may be even more important to shift our focus on the urgent environmental matters to sustain our quality of life. While this shift has to take place by the common man, it is important that companies, and especially MNC’s (Kolk et al., 2010), take the lead and set an example. However, the challenges described in this paper show us that this is a very complex task for MNC’s. Therefore, it is necessary that MNC’s get help from governments to change their focus.
30
create a good working company. This example can be found in healthcare where companies are focused on the following four principles.
(1) Improve the populations health, (2) Lower costs, (3) Improve the quality of healthcare and patient experience and (4) Improve job satisfaction of employees
These healthcare companies are still well functioning organizations that not only improve our quality of life by just one aspect, they are focusing on the bigger picture and they acknowledge that life is not only about making profit. Changing our economic system into one were companies are focused on taking care of multiple aspects, that can improve our way of living, is probably a far-fetched idea. However, by making such an overstatement I try to make clear that change is necessary to sustain a normal life for future generations.
Limitations and Future Research. The findings in this review need to be considered in the light of some limitations. Firstly, I only synthesized articles published in FT50 journals. The initial literature search yielded over 1600 articles of which only 261 were used for an evaluation of the title and abstract. It should be noted that the choice of the FT50 was based on improving the overall quality of articles for this review. However, by omitting over 1300 articles there is a chance of missing important challenges in becoming more sustainable that would have been insightful in giving an overview of all challenges for this review. For future research, a more exhaustive literature search, also including journals less widely acknowledged, should be conducted.
A second scope-related limitation is that I excluded non-English literature. It is possible that I therefore failed to review challenges faced by Non-Western countries or challenges that were published in journals of another language. Non peer-reviewed articles were also excluded, which can result in missing some less well-known challenges due to publication bias.
Thirdly, I included articles in this review that used the concept of CSR. It is important to note that CSR includes more concepts than just sustainability (Bansal and Song, 2017). Therefore, it is possible that findings of this review only concern CSR as a whole and are not suitable to be applied to sustainability alone. However, when analyzing the articles in this review, special care has been taken to focus on the sustainability aspect of CSR. Therefore, it is unlikely that this limitation has considerable impact on the findings of this review.
challenges in a systematic manner, this paper could be a steppingstone for more research on sustainability challenges and a firmer scientific foundation for the categories provided.
Next to the recommendations stated above, some other important recommendations for future research can be made. First, there is a difference in the scientific foundation of challenges described in this review. As can be seen in table 1, the challenge that is described most (in 9 of 36) is institutional duality. However, the challenges of home and global governments are described only ones. Therefore, it can be concluded that more research about these challenges is needed to increase the foundation of these challenges in the literature.
Second, the future research should more extensively focus on the different concepts described in this review, in the context of sustainability. Concepts as legitimacy are described often in the current literature. However, these concepts are not widely explained in the context of sustainability and it is therefore the question if these concepts are correctly used in the current literature of sustainability.
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Appendix
Research question:
What challenges do MNC’s face when they try to become (more) sustainable? Comments
Key words Comments
Multinational corporation (MNC) OR Multinational enterprises (MNE) Multinational company
AND
Corporate environment*
Corporate social performance (CSP) Corporate philanthropy
Corporate citizenship
Corporate social responsibility (CSR) Corporate social rectitude
Corporate giving Business ethics Social responsibility Environment*
Social market economy Social economics Social entrepreneurship Social accounting Sustainab* OR
38
Brownwashing Greenwashing Green marketing OR
Public policy environment Ethical environment Ecological responsiveness AND Challeng* Obstacle* Problem* Barrier* Ethical consumer*
Database name Comments
Business Source Premier Web of Science
Specialized in business articles Broader scientific engine
Search Strings BSP:
Multinational corporation OR MCE OR Multinational enterprises OR MNE OR Multinational company AND
“Corporate environment*” OR “Corporate social performance “ OR CSP OR “Corporate philanthropy” OR “Corporate citizenship” OR “Corporate social responsibility” OR CSR OR
OR “Social entrepreneurship” OR “Social accounting” OR Sustainab* OR Brownwashing OR
Greenwashing OR “Green marketing” OR “Public policy environment” OR “Ethical environment” OR “Ecological responsiveness”
AND
Challeng* OR Obstacle* OR problem* OR Barrier* Or pitfall* Web of science:
Multinational corporation OR MCE OR Multinational enterprises OR MNE OR Multinational company AND
Corporate near/5 environment* OR Corporate near/5 social near/5 performance OR CSP OR Corporate near/5 philanthropy OR Corporate near/5 citizenship OR Corporate near/5 social near/5 responsibility OR CSR OR Corporate near/5 social near/5 rectitude OR Corporate near/5 giving OR Business near/5 ethics OR Social near/5 responsibility OR Environment* OR Social near/5 market near/5 economy OR Social near/5 economic*
OR Social near/5 entrepreneurship OR Social near/5 accounting OR Sustainab* OR Brownwashing OR Greenwashing OR Green near/5 marketing OR Public near/5 policy near/5 environment OR Ethical near/5 environment OR Ecological near/5 responsiveness
AND
Challeng* OR Obstacle* OR problem* OR Barrier* Or pitfall*
Inclusion/Exclusion criteria Inclusion criteria:
- The described company or industry is multinational
- The article should describe past or present processes or developments of becoming more sustainable
- The article should explicitly describe challenges in the above stated process Exclusion criteria
- Other language than English or Dutch
40
- Reviews
Database Search Results Comment
BSP Multinational corporation OR MCE OR Multinational enterprises OR MNE OR Multinational company AND “Corporate environment*” OR “Corporate social performance “ OR CSP OR “Corporate philanthropy” OR “Corporate citizenship” OR “Corporate social responsibility” OR CSR OR
“Corporate social rectitude” OR “Corporate giving” OR “Business ethics” OR “Social responsibility” OR
Multinational corporation OR MCE OR Multinational enterprises OR MNE OR Multinational company AND “Corporate environment*” OR “Corporate social performance “ OR CSP OR “Corporate philanthropy” OR “Corporate citizenship” OR “Corporate social responsibility” OR CSR OR
“Corporate social rectitude” OR “Corporate giving” OR “Business ethics” OR “Social responsibility” OR
Environment* OR “Social market economy” OR “Social economic*” OR “Social entrepreneurship” OR “Social accounting” OR Sustainab* OR Brownwashing OR Greenwashing OR “Green marketing” OR “Public policy environment” OR “Ethical environment” OR “Ecological responsiveness”
4778 Scope is too broad
WoS Multinational corporation OR
MCE OR Multinational enterprises OR MNE OR Multinational company AND
42
Corporate near/5 environment* OR Corporate near/5 social near/5 performance OR CSP OR Corporate near/5 philanthropy OR Corporate near/5 citizenship OR
Corporate near/5 social near/5 responsibility OR CSR OR Corporate near/5 social near/5 rectitude OR Corporate near/5 giving OR Business near/5 ethics OR Social near/5 responsibility OR Environment* OR Social near/5 market near/5 economy OR Social near/5 economic* OR Social near/5
entrepreneurship OR Social near/5 accounting OR
Sustainab* OR Brownwashing OR Greenwashing OR Green near/5 marketing OR Public near/5 policy near/5
