The evolution of the relationship between multinational enterprises (MNEs) and
local non-governmental organizations (NGOs) in developing countries after a
legitimacy crisis and its effect on the MNE’s legitimacy position.
Master thesis Bobbianne Vlek 6166199
29-06-2015 Final version
MSc. in Business Studies – International Management Track University of Amsterdam
First supervisor: Francesca Ciulli Second supervisor: Niccolò Pisani
Statement of originality
This document is written by Student Bobbianne Vlek who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgements
First of all, I would like to thank Francesca Ciulli for the valuable comments, feedback and guidance during her supervision. Second, I would like to thank my father, Frits, for helping me. At last, I would like to thank my family and friends for supporting me throughout the last couple of months.
Content
Abstract 5
1. Introduction 6
2. Literature review 10
2.1 Legitimacy 11
2.2 Legitimacy and MNEs 13
2.3 MNE’s legitimacy in developing countries 15
2.4 The MNE and the NGO in developing countries 16
2.4.2 MNE-NGO relationships 18 2.5 China 21 2.6 Working propositions 23 3. Methodology 25 3.1 Research philosophy 25 3.1.1 Ontology 25 3.1.2 Epistemology 26 3.2 Research design 26 3.3 Case selection 27 3.4 Data collection 28 3.5 Data analysis 30 3.5.1 Thematic analysis 31 3.5.2 Content analysis 31 4. Results 33 4.1 Within-case analysis 33 4.2 Cross-case analysis 41 5. Discussion 44 5.1 Major findings 44
5.2 Research design and methodology 45
6. Conclusion 46 6.1 Managerial implications 47 6.2 Future research 48 7. References 49 8. Appendix 61 Model 2.1 24 Model 2.2 24 Table 3.1 30 Table 4.1 35 Timeline 4.1 36 Table 4.2 38 Timeline 4.2 39 Table 4.3 40 Timeline 4.3 41 Table 6.1 47 Appendix A 61 Appendix B 62 Appendix C 63
Abstract
The legitimacy of business in general and of multinational enterprises (MNEs) operating in developing countries in particular is worldwide of growing concern and importance. Prior research has either focused on the legitimacy position of MNEs in specific institutional environments, or on different types of relationships between MNEs and non-governmental organizations (NGOs). A few studies explore legitimacy effects of MNE-NGO partnerships, but not for different types of relationships and neither for evolutions over time. This study explores MNEs’ reactions on legitimacy challenges by local NGOs, how MNE-NGO relationships evolve over time and how that affects MNE’s legitimacy position. A
longitudinal, multiple case study design is used, involving three MNEs operating in China. Three evolving MNE-NGO relationships are distinguished: conflict, pressure-partnership and dyadic-partnership. Substantially, the effects on the company’s legitimacy position are analyzed. The findings suggest that higher levels of MNE-NGO collaboration and
partnerships positively affect MNE’s legitimacy position. A conflict relation having clearly negative effects and a dyadic partnership the most positive and enduring effects. It is
concluded that both parties, MNEs and NGOs, benefit from investing in dyadic partnerships. The implications of the study, both theoretical and practical significance, are discussed as well as its methodological limitations. It is concluded that the study successfully bridges two main streams of research and therefore contributes to and expands knowledge.
1. Introduction
The company is seen as an important social institution in modern society and its social role is of increasing importance when businesses grow (Matten & Crane, 2005). Stakeholders expect businesses to define their roles in society by applying social and ethical standards to their operations. One way in applying these standards is by operating legitimately (Lindgreen & Swaen, 2010). Suchman (1995) defines legitimacy as: “a generalized perception or
assumption that the actions of the entity are desirable, proper and appropriate within some socially constructed system of norms, beliefs and definitions”(p. 574). Legitimacy is critical for companies, because their social role is increasing in prominence and the more they are seen as a public institution (Warren, 2003). Legitimacy can be both beneficial and
challenging for organizations. On the one hand, it offers the company acceptance by its institutional environment, which is crucial for its survival and success (Dowling & Pfeffer, 1975). On the other hand, however, the legitimacy of companies cannot be taken for granted. Companies have to deal with several challenges, like increasing, maintaining or repairing their legitimacy (Suchman, 1995). Repairing their legitimacy is for companies often the biggest challenge, particularly after an unexpected crisis for the firm that had a negative impact on its legitimacy (Deegan, 2006).
This study focuses on the challenge of repairing legitimacy after an unexpected crisis. This is because this challenge has characteristics of both increasing and maintaining
legitimacy. The intense activity and decisiveness needed to increase legitimacy as well as the need to adapt to and carefully interact with the environmental reactions needed to maintain legitimacy are both crucial for repairing legitimacy (Suchman, 1995).
The importance of legitimacy applies especially to the multinational enterprise (MNE), mainly because MNEs operate in multiple countries and the legitimacy standards of these host countries may differ from the MNE’s home country. As a result, the MNE has to reevaluate legitimacy when operating abroad. Having to adapt constantly to heterogeneous host countries poses an extra challenge for MNEs compared with domestic firms when doing business (Oetzel & Doh, 2009; O’Donovan, 2002; Kostova & Zaheer, 1999).
MNEs can be divided into two categories depending on their home country:
country MNEs, mainly because these are the major source of foreign direct investment (FDI) (Luo & Tung, 2007).
MNEs have to operate in and deal with heterogeneous institutional environments. Local host institutions (like the government, interests groups and society) pressure MNEs to undertake their business according to local legitimacy standards (Henisz & Zelner, 2005). But these standards may be in conflict with the internal goals and standards of the MNE itself (Rosenzweig & Singh, 1991; Levy & Kolk, 2002). If MNEs fail to harmonize the external pressures with their internal standards, than their legitimacy is at risk. When harmed, it requires quick reparation in order to survive within a host country (Warren, 2003; Zimmerman & Zeits, 2002; Meyer & Rowan, 1977).
The legitimacy of MNEs can be analyzed at two levels: the level of the company as a whole and that of a MNE subsidiary within a specific host country. This study focuses on the latter level. The legitimacy of a MNE subsidiary is defined as the acceptance of the
operations of the subsidiary by the specific host country institutional environment (Luo & Mezias, 2002).
The specific host country’s institutional environment is an important factor influencing the legitimacy of MNEs. The judgment whether companies’ actions are perceived as
legitimate depends on the social environment the company operates in (Barkemeyer, 2007). The greater the institutional distance between the home country and the host country, the harder it is for the MNE subsidiary within the host country to maintain its legitimacy (Kostova & Zaheer, 1999).
Developed country MNEs face legitimacy challenges especially when they operate in developing countries (Luo & Mezias, 2002). The institutional distance between developed home country and the developing host country is generally greater, resulting in the
divergence in judgments over the MNE’s legitimacy in its home country on the one hand and in a host country on the other (Cuervo-Cazurra & Genc, 2008; Barkemeyer, 2007). The complexity of the institutional and social environments of these developing countries makes it difficult for MNEs to do legitimated business there (Peng et al. 2008; Luo & Mezias, 2002; Ghemawat & Khanna, 1998). In contrast with the institutional environment in developed countries, that has become more homogeneous due to globalization, the institutional context in developing countries is more heterogeneous, in particular due to persistent differences and complexity in regulatory institutions, such as poor implementation of commercial laws (Eden
& Miller, 2004; Cuervo-Cazurra & Genc, 2008). The complex and often weaker institutional environment of developing countries results in more instability and therefore higher
performance problems for MNEs (Beamish, 1985; Luo & Tung, 2007). Luo & Mezias (2002) state that MNEs can experience higher liability of foreignness (LOF) in developing countries. Zaheer (1995, p. 342-343) defines LOF as “all additional costs a firm operating in a market overseas incurs that a local firm would not incur”. The probability of higher LOF results from weak regulatory and legal environments (formal institutions) and the specificity and
criticality of social and cultural environments (informal institutions) in developing countries. It is expected that, since developed country MNEs have difficulties with adapting to the developing host country’s institutional environment, the risk of an unforeseen crisis affecting their legitimacy position is significant. On the other hand, MNEs may be motivated to lower their ethical standards when the institutional environment is weak (Harvey, 1999). However, whether this will have consequences for their local legitimacy position depends on whether this unethical behavior is perceived as problematic in the developing country. That is surely to be the case when local non-governmental organizations (NGOs) get involved.
When MNEs operating in developing countries face a legitimacy challenge, it will likely involve a NGO. Due to the weaker institutions of developing countries, NGOs are needed to support the development of those countries. They provide essential support in developing countries, where in developed countries this is provided by formal and informal institutions (Bromideh, 2011). NGOs are increasingly driven by a common mission to support disadvantaged populations, reduce poverty and support the needs of poor people. All circumstances that are mainly occurring in developing countries (Clarke, 1998; Fisher, 1994).
Both global and local NGOs are becoming more prominent agents of development, through either working against or with MNEs in developing countries (Atack, 1999). When MNEs experience an unforeseen legitimacy crisis within such a country, it is expected that they have to deal with local NGOs, because of the NGO’s mission to support and protect local society. For this reason, is interesting to explore how the relationship between
developed country MNEs and local NGOs in developing countries affect MNE’s legitimacy challenges in those countries.
Although extant literature is available on the subject of either the legitimacy position of MNEs in specific institutional environments (e.g. Luo & Mezias, 2002; Kostova & Zaheer, 1999), or on different types of MNE-NGO relationships (e.g. Laasonen, et al. 2012), only the
research of both Dahan, et al. (2010) and Marano & Tashman (2012) focus on the legitimacy effects of MNE-NGO partnerships. However, they only explore one distinct type of
relationship and they do not address how this evolves over time. So, in prior research these two main streams are hardly bridged.This paper aims exactly do that by answering the following research question:
“How do relationships between developed country MNEs and local developing
country NGOs evolve during and after a legitimacy crisis and how does this affect the MNE’s legitimacy position in the developing country?”
China represents the developing country in this study. The country has been chosen for several reasons. First, China is one of the largest trading nations and recipients of FDI in the developing world (Zhang & Zhang, 2010). Due to its economic reforms in 1978, the country experienced major economic growth and crucial strategic resources, like labor and natural resources, were created, resulting in the increasing importance of the Chinese market for MNEs (Tan, 2009). Second, although the country is growing, China’s institutional environment still lacks strong formal and informal institutions. In addition, China’s rapid economic reform has had negative consequences for the compliance of its environmental laws and human rights. Until now, the Chinese government has failed to balance the
enormous economic growth with the accompanying environmental and social challenges and has, therefore, neglected the latter part (Tan, 2009; Snell & Tseng, 2003). Third, the Chinese government, though, acknowledges the long-term threats of the environmental and social challenges to the development of the country and the fact that it cannot solve these challenges without the support of others. This in turn has led to an increasing dependence of the Chinese government on Chinese NGOs when it comes to protecting and improving environmental and labor rights conditions (Laliberté & Lanteigne, 2007). Fourth, as a result, in the last decade there has been a significant growth of Chinese NGOs that have been pressuring MNEs to operate more ethically (Edele, 2005).
Based on extant literature, it can be concluded that MNEs operating in China run an increased risk of becoming involved in legitimacy issues and with that cross paths with Chinese NGOs. This makes China a suitable object for this study on the evolution of relationships between the MNEs and local NGOs and its effects on MNE’s legitimacy position.
The research question will be explored through a qualitative study adopting a multiple case study design. The units of analysis are threeMNEs from developed countries conducting business in China, where they experience a specific legitimacy challenge. The study therefore focuses on investigating how the relationship between the MNEs and local Chinese NGOs, regarding the legitimacy challenge the MNE faces, evolves over time and how this
relationship affects the MNEs’ legitimacy position.
Archival data from national Chinese newspapers as well as documentations released by the companies and NGOs involved in the legitimacy challenge are used to analyze the evolution of the relationship between the specific MNE and the local NGO. In order to analyze the effect of the evolution of the relationship on the MNE’s legitimacy position, only archival data from national Chinese newspapers are used.
This study unfolds as follows. First, an extended overview of the existing literature about legitimacy, legitimacy issues in developing countries, the relationship between MNEs and local NGOs and the specific institutional environment and the role of NGOs in China will be presented. Based on this, working propositions will be developed. Second, the methodology, in terms of research design, case selection, data collection and data analysis, will be illustrated to explain how the research question will be addressed. Third, the results will be presented. Fourth, these findings will be discussed in view of the literature and working propositions presented and the limitations of the research design are discussed. Finally, some final conclusions will be drawn along with some closing arguments.
2. Literature Review
This chapter discusses the main topics in the management literature that are relevant for this study. First, a review of the literature on the concept of legitimacy is presented. In this section, the main focus will be on MNEs and the challenges they face regarding legitimacy issues. Second, the importance and specificities of challenges of legitimacy challenges for MNEs in developing countries are discussed. Third, the role of local NGOs in developing countries is analyzed. The next part addresses extant literature on the relationship between MNEs and NGOs, the types of relationships that can be distinguished and eventually how
relationships can evolve and affect the MNEs legitimacy position over time. Finally, China is introduced and its particular position as a developing country that suites this study is
discussed. To conclude, two sets of working propositions will be presented as to how MNE-NGO relationships may evolve in China and how this may affect the MNE’s legitimacy position over time.
2.1 Legitimacy
Legitimacy is a broad concept and has been given many definitions in management literature. Nevertheless it’s regarded as critical for companies, because their social role and responsibilities are increasing in prominence the more a company is seen as a public
institution (Warren, 2003). The most widely accepted conceptualization of legitimacy is the one developed by Suchman (1995). He defines it as a “a generalized perception or
assumption that the actions of the entity are desirable, proper and appropriate within some socially constructed system of norms, beliefs and definitions”(p. 574). Legitimacy thus can be seen as a specific aspect or element of the broader concept of the social role of business, also known as corporate social responsibility (CSR), which refers to the responsibilities of business towards society (Barkemeyer, 2007). Corporations do not only affect traditional stakeholders (e.g. employees, customers or shareholders), but also other constituencies that have no direct link to the company, such as society and the environment. How these
constituencies judge the actions of the company as appropriate or legitimate is therefore crucial for companies in order to being accepted in the host environment (Dowling & Pfeffer, 1975). Thus, organizational legitimacy is defined as the acceptance by the institutional environment a company operates in (Kostova & Zaheer, 1999). Moreover, the institutional environment of a country is defined as the set of fundamental political, social and legal rules that establish the basis for economic activity in a country (North, 1990).
Three types of legitimacy can be distinguished: pragmatic legitimacy, moral legitimacy and cognitive legitimacy (Suchman, 1995). Pragmatic legitimacy is based on the expected value audiences, e.g. societies and governments, expect to get when making an exchange with a company. Organizational policies are valued as legitimate when they fulfill the expected value of the audiences. Moral legitimacy is based on the judgment of the audience on whether the exchange with a company is the “right thing to do” for the society as a whole. Cognitive legitimacy is based on the audience’s evaluation of the activities of a company as
“making sense”, where the level of taken-for-grantedness and comprehensibility of the firm are important (Suchman, 1995).
Legitimacy can be both beneficial and challenging for companies. On the one hand, the survival of a company depends largely on its legitimacy and this survival can be
improved by being perceived as operating appropriate. Legitimacy offers more stability, social support and access to critical resources (Baum & Oliver, 1991, Suchman 1995). Customers tend to choose organizations that they believe are serving them better and operate according to dominant social norms and values (Dowling & Pfeffer, 1975). It offers trust, predictability and meaningfulness to them (Suchman, 1995). On the other hand, however, organizations also face challenges in managing their legitimacy position: the actual state or level of trust and confidence in a company experiences in its social and institutional
environment. Suchman (1995) distinguishes three main challenges: gaining legitimacy, maintaining legitimacy and repairing legitimacy. Gaining legitimacy is a challenge firms face when they enter new markets and experience the liability of newness due to a lack of
knowledge and experience in the new market (Suchman, 1995). Maintaining legitimacy can also be challenging. Companies have to deal with heterogeneous markets and institutional environments. Satisfying all these different environments is challenging, because the
legitimacy position of a company in a certain environment is based on a relationship with an audience and therefore not a possession of the company. This relationship needs to be nurtured, otherwise it might harm the firm’s legitimacy (Suchman, 1995). Repairing legitimacy often offers the biggest challenge for companies, since this mostly follows an unexpected crisis for a firm, in which its local legitimacy position is at stake (Suchman, 1995).
A legitimacy challenge arises when the expectations of society differ from the dominant perceptions of corporate behavior (LaFrance & Lehmann, 2005). Such a challenge can include characteristics of all three types of repairing, increasing and maintaining legitimacy. Repairing legitimacy needs intense activity and decisiveness in order to improve the
company’s legitimacy position that has come under pressure. Subsequently, it requires adaptation to and careful interaction with the environmental reactions in order to maintain legitimacy (Suchman, 1995). This study incorporates all these challenges, but has chosen a legitimacy challenge and hence the urge of repairing legitimacy as the starting point of analysis.
Prior research describes several strategies a company can use in order to repair a company’s legitimacy:
(1) By adapting its output, goals and methods of doing business in order to meet the local standards of legitimacy and by subsequently informing the public about those (actual)
changes;
(2) By changing the definition of organizational legitimacy through external corporate communication in such a way that it aligns with the organization’s current practices, but not changing organization’s actual behavior;
(3) By becoming identified with symbols, values or institutions of the social environment that are strongly perceived as legitimate, in order to demonstrate that the organization has fulfilled social expectations. In all the cases, companies can plead for the case that some social expectations are unreasonable in order to change external expectations of the company’s performance (Dowling & Pfeffer, 1975; Lindblom, 1994).
All these actions are either symbolic (without actual change in behavior), substantive (with an actual change in behavior) or a combination of both (Deegan, 2006). It is therefore interesting to explore how companies react after a legitimacy crisis. In the following
paragraphs, it will be further explored how MNEs can deal with legitimacy issues and the urgent need to address a legitimacy crisis in particular.
2.2 Legitimacy and MNEs
MNEs face many challenges when entering new international markets. One of them is to explore the socially accepted behavior, hence the basis of organizational legitimacy, within host markets (O’Donovan, 2002). When a MNE enters a host country, it has to deal with a new legitimating environment. The institutional environment consists of both formal and informal institutions. Formal institutions are “the rules of the game based on political, economic and regulatory contracts” (North, 1990, p. 111). Informal institutions are the “traditions, customs, moral values, religious beliefs and all other norms of behavior that have passed the test of time. They are embodied in culture”(North, 1990, p. 6). North (1990) states that when formal institutions fail to succeed, informal institutions take over control.
stability, amount of risk and level of protectionism within a country (Bevan, et al. 2004). Institutions themselves have substantial legitimacy. It is therefore credible to state that the institutional environment may affect the legitimacy of a company (Doh, et al. 2010).
Domestic firms operate in their home country solely and thus are familiar with what practices are perceived as desirable or appropriate. The need for constantly revaluating legitimacy demands poses an extra challenge for MNEs compared to domestic firms. Both the MNE and the host’s legitimating (institutional) environment may find it challenging to understand and interpret each other correctly (Kostova & Zaheer, 1999). Since MNEs are confronted with more and different institutional environments than purely domestic firms, they have to face more legitimacy issues. These challenges pose a form of LOF of the MNE (Kostova & Zaheer, 1999). The LOF, as defined before, are the costs of doing business abroad that result in a competitive disadvantage for an MNE subunit (O’Donovan, 2002). The LOF of MNEs depends on the institutional distance - the difference between the institutional environments - between the MNE’s home and host country (Xu & Shenkar, 2002; Kostova & Zaheer, 1999). The higher the institutional distance, the harder it is for the MNE subsidiary within the host country to maintain its legitimacy (Kostova & Zaheer, 1999).
The legitimacy of MNEs can be analyzed at two levels: the legitimacy of the MNE as a whole and the legitimacy of a MNE subsidiary within a specific host country. This study focuses on the latter level. The legitimacy of the MNE subsidiary is defined as the acceptance of its operations by the specific host country institutional environment (Luo & Mezias, 2002).
MNE’s subsidiaries are under dual pressures regarding their legitimacy position. On the one hand, they encounter external pressures of local host institutions, like governments, interest groups and society in general, to act according to their (national) legitimacy standards (Henisz & Zelner, 2005; Levy & Kolk, 2002). This provides or constitutes the company’s external legitimacy (Kostova & Zaheer, 1999). These standards, however, may be in conflict with the internal goals and standards of the MNE itself: the company’s internal legitimacy. In which case the acceptance and approval of the MNE subsidiary by the company as a whole can be at stake, causing internal pressures and tensions (Rosenzweig & Singh, 1991; Levy & Kolk, 2002; Kostova & Zaheer, 1999).
Thus, the alignment between internal and external legitimacy is also crucial for the survival and success of the subsidiary. On the one hand, the MNE operates within a global environment, where it desires to standardize its operations as a corporation. On the other
hand, however, its subsidiaries have to respect the local (national) environment as well by adapting to those standards (Rosenzweig & Singh, 1991). It must find a balance between the demands and expectations of both the MNE itself and the environment it operates in, in order to acquire access to critical resources, crucial markets and the right partners. For domestic firms finding this balance is less of a challenge, because the internal legitimacy and external legitimacy are more likely to be more consistent with one another (Kostova & Zaheer, 1999).
Since it is expected that MNEs encounter more legitimacy issues due to their foreignness than local companies, it is interesting to focus in this study on MNEs in
particular. Multinational firms can be divided into two categories depending on their home country: developed country MNEs and developing country MNEs. The study focuses as stated earlier, on developed country MNEs, mainly because these are the major source of foreign direct investment in developing countries (Luo & Tung, 2007).
2.3 MNE’s legitimacy in developing countries
The institutional environment of developing countries differs greatly from the one of developed countries (Peng, et al. 2008). First, the formal and informal institutions of developed countries are illustrated and then compared to similar institutions of developing countries. Their differences are then discussed and the implications for the legitimacy of MNEs operating in developing countries are reviewed.
The formal institutions of developed countries are considered stable. Even more so, since regulatory frameworks have become homogenous because of globalization pressures and the growing presence of international institutions, like the World Trade Organization (Eden & Miller, 2004). Besides their well-established infrastructure, routinized market-mechanisms and legal framework, developed countries have strong administrative capabilities as well as stable politics (Cuervo-Cazurra & Genc, 2008; Ghemawat & Khanna, 1998; Stiglitz, 2000). Informal institutions are supported by the more established formal institutions, and are represented by strong, transparent and predictable networks between business groups (Peng, 2003). The informal institutions offer flexibility, autonomy and freedom in the conduct of business and therefore stimulate creativity (Gerxhani, 2004).
The formal institutions of developing countries, on the other hand, tend to be weak (or even missing). Thereby creating difficult institutional conditions as a consequence of
less-developed market mechanisms, poor governance and underless-developed regulatory systems (Cuervo-Cazurra & Genc, 2008; Ghemawat & Khanna, 1998; Eden & Miller, 2004). The complex and obscure legitimating environment threatens the economic and social
development of these countries, where trust is lacking and public relations are negatively affected (Seligson, 2002). Due to weak formal institutions, developing countries tend to rely more heavily on informal institutions to facilitate business and informal institutions are emerging as dominant rules of interaction (Eden & Miller, 2004; Casson, et al. 2010). These informal institutions are often rooted in networks that are heavily involved in corruption and depend on personal ties and cultural specificities that tend be more diversified in less
developed countries (Stiglitz, 2000; Beamish, 1985; Benito & Gripsrud, 1992).
These findings from previous studies show that both formal and informal institutional environments of developing countries are more complex and challenging to legitimacy compared to developed countries. Luo & Mezias (2002) state that, due to the uncertainty of regulatory and legal environments (formal institutions) and specificity and criticality of social and cultural environments (informal institutions), MNEs can experience higher LOF in developing markets. Simply transferring the formal institutions of developed countries to developing countries is not sufficient to solve that (North, 1995). On the contrary, the
institutions of developing countries can significantly shape the strategies and performance of foreign MNEs (Peng, 2003). This implicates that developed country MNEs need to adapt to – and cannot simply change - those environments in order to be successful. Consequently, the different perceptions of appropriate legitimate behavior between the home and host country, for the MNE, makes it a challenge to act legitimately (Barkemeyer, 2007). All the more since, MNEs may be tempted to lower their ethical standards when the institutional environment is weak and institutions fail to regulate or control the behavior of MNEs
behavior (Harvey, 1999). In these circumstances, unethical behavior can remain unnoticed or will not seriously jeopardize the company’s local legitimacy position as long as the local community does not perceive this unethical behavior as problematic. And here NGOs come into play.
2.4 The MNE and the NGO in developing countries
NGOs are non-profit organizations “that operate within or across political boundaries and are often driven by a mission that expresses the desire to help populations that are perceived as
disadvantaged” (Parker, 2003, p.81). NGOs are ascending around the world, both in developed and developing countries, due to the rise of information technology, spreading democracy and a greater awareness of global sustainability (Clarke, 1998; Gemmill & Bamidele-Izu, 2002). They frequently pressure MNEs to sustain their CSR practices in both developed and developing countries (Schepers, 2006).
The role of NGOs differs greatly within developed and developing countries (van Rooy, 2000). Since this research focuses on developing countries, the role of NGOs in developing countries will be addressed. It is important to state, though, that NGOs of developed countries are among the most important contributors of support to NGOs in developing countries, because of their access to more (financial) assets and also because they are less needed in their home countries (van Rooy, 2000).
NGOs in the developing world focus on issues such as human rights, health,
development, environment and social welfare. The importance of the role of NGOs regarding legitimacy within developing countries is increasing (Atack, 1999). Developing country NGOs are confronted with weak institutional arrangements and act as a substitute for these failing institutions. Whereas developed countries can rely on stable and professional governmental agencies and other regulatory actors to make sure companies operate
legitimately, NGOs can provide this support in developing countries where these institutions are lacking (Bromideh, 2011). Therefore, they can become important political actors in the developing world (Clarke, 1998). Moreover, developing country NGOs are able to assess and meet local needs, because they are more embedded in the local culture (Lewis, 2006). Thus, it can be expected that these local NGOs are likely the ones who address MNEs when behaving illegitimate in a developing country.
So, in developing countries MNEs will primarily encounter legitimacy challenges when addressed by local NGOs. In doing so, the local NGO makes it a local legitimacy issue, even if the MNEs corporate behavior was not perceived as problematic by local society yet. Once under pressure of a local NGO, MNEs are forced to respond. And thus a relationship between the two parties develops.
2.4.1 MNE - NGO relationships
Extant literature has shown that the relationship of a NGO with a company can change over time (Laasonen, et al. 2012, den Hond & de Bakker, 2007; Zietsma & Winn, 2007). In this section the different types and patterns of relationships between MNEs and NGOs are
explored. Based on the research of Laasonen et al. (2012), den Hond & de Bakker (2007) and Zietsma & Winn (2007), three types of NGO-business relationships are identified: conflict, pressure-partnership and dyadic-partnership. These types of relationships can be seen as distinct, but also as stages of an evolving relationship between MNEs and local NGOs. Although most of these studies do not regard developing countries, it will be assumed these general NGO-business relationships apply to MNEs and local NGOs in developing countries as well.
Conflict
When MNEs and NGOs cross paths in the course of a specific legitimacy crisis, the objectives of MNEs and NGOs may differ, causing a gap between the two parties. In this case, the relationship between companies and NGOs is likely to be one of conflict (Bendell, 2000). The risk of conflict is increased by the institutional distance between developed country MNEs and developing country NGOs resulting in a lack of common experience, trust and communication between the two parties (Dahan et al. 2010). Den Hond & de Bakker (2007) state that, when experiencing pressures of NGOs to operate legitimately, companies tend to respond defensively by either defying, refusing or responding negatively to the demands of a NGO. This defensive reaction occurs, because external pressures are likely to be rejected when they conflict with internal pressures in a host country (Scott, 2005). Zietsma & Winn (2007) state that after experiencing pressures from a NGO, companies are likely to first react by deceiving the issue. A contest for power and legitimacy occurs and companies try to defend their practices with arguments understood to be legitimate within the
organizational field. This conflict can endure over time and may escalate even further (den Hond & de Bakker, 2007). Hence it can be expected that the first reaction of a MNE after being challenged by a local NGO on a legitimacy issue, will probably be a conflicting one.
When MNEs engage in conflict with local NGOs, it is expected that initially they will not change their actual corporate behavior. However, NGOs act as powerful advocates of the
interests of the local society, as explained before. The unwillingness of a MNE to comply with the demands and challenges of a local NGO and actually change its current behavior, implicates that society’s expectation concerning the MNE’s legitimacy are not met.
Therefore, the conflict between MNEs and local NGOs may well have a negative impact on the legitimacy position of MNEs.
NGOs often have the backing of local corporate stakeholders, local governments and local society and thus are in the position of further increasing the pressure on MNEs. This increased pressure may force MNEs to adapt a more cooperative attitude towards the local NGO and its demands. By doing so, MNEs can address legitimacy challenges in a more productive way and regain acceptance in the institutional environment. This is where a pressure-partnership might develop.
Pressure-partnership
A pressure-partnership occurs when MNEs are still under adversarial NGO pressure and forced to more or less comply to the demands of local NGOs by collaborating with them. Not necessarily by an immediate, actual change in corporate behavior, but at least by
acknowledging that there is a problem that needs to be addressed, albeit by some more symbolic action (Laasonen, et al. 2012). So, the ‘voluntary’ nature of a pressure-partnership can be questioned. MNEs may have no intentions to create mutual benefits for both parties, but just try to minimize own losses and risks (e.g. by ensuring their license to operate within the developing country) or compensate their illegitimate actions by partnering with the NGO (Idemudia, 2009; LaFrance & Lehmann, 2005).
But, in time, MNEs may even more intensively engage in collaborating with NGOs who are valued as legitimate within a host country, in order to repair legitimacy (Oetzel & Doh, 2009; LaFrance & Lehmann, 2005). This is when MNEs and NGOs try finding a way to work together. Dahan, et al. (2010) state that one way for MNEs to more structurally collaborate with the NGO is by restructuring/redefining business operations. This is the case when both parties realize that their business operations are incomplete and in order to create value, they decide to exchange critical resources. In which case the partnership is gradually transformed into a dyadic one (see hereafter)
When MNEs enter a pressure-partnership, it is expected that it will not fundamentally change their actual behavior, as it might be primarily aimed at only changing the perception in society of that behavior or cover it up. Therefore it can be expected that the legitimacy position of MNEs when engaging in a pressure-partnership will be positively affected, but only temporary. On the long run, this positive effect on its legitimacy position will decline if no actual change in corporate behavior arises and society’s expectations concerning the company’s operations, and required improvements, are not met.
So what defines a pressure-partnership, as compared to a (next to discuss) dyadic-partnership is the non-voluntary, reactive nature of a MNE’s response to a legitimacy challenge by a NGO. In which case the main objective is damage control and reduction, and not per se an actual change and adaption of corporate operations.
MNEs who feel the urge to do more than only repairing their legitimacy but also bringing and maintaining it on a high(er) level, can achieve this by entering a dyadic-partnership.
Dyadic partnership
A dyadic-partnership occurs where MNEs and NGOs collaborate to increase value for both parties (Laasonen, et al. 2012). In last years, relationships between NGOs and companies have become more cooperative and dialogic in a way that companies are pursuing more proactive than reactive strategies towards NGOs (Kourula & Laasonen, 2009). This is (partly) due to the increased acknowledged economic value that NGOs might offer companies in the last decade (Hartman, et al. 1999). Dahan, et al. (2010) state that MNEs and NGOs can collaborate within developing countries in order to develop new business operations. MNEs and NGOs may have overlapping interests and complementary resources and capabilities that make collaboration highly beneficial for both of them (Oetzel & Doh, 2009).
Furthermore the growth of MNEs can be constrained by weak formal institutions within developing countries. A network-based growth strategy can be important to overcome this challenge by ensuring endorsement and support of local stakeholders through an alliance with legitimate local actors, e.g. NGOs (Hoskisson, et al. 2000). These partnerships can generate positive economic returns to the firm, social benefits to the region or local
community and they can help repairing the legitimacy of MNEs, especially if NGOs are valued locally as legitimate (Dacin, et al. 2007; Oetzel & Doh, 2009; Teegen, et al. 2004).
Thus, MNE’s can benefit in more than one way from engaging in a dyadic partnership with a local NGO. By proactively repairing their legitimacy once challenged, they can seek for even more benefits through a productive partnership with a NGO, and it thus changing actual corporate behavior. A serious change of behavior might in return result in an enduring, positive affect on MNE’s legitimacy.
So, in order to successfully collaborate, there needs to be an accepted mutuality of benefits and interests across MNEs and NGOs (Dahan, et al. 2010). This is why it is vital for MNEs, when it comes to overcoming legitimacy challenges, to ensure the NGOs involved benefit as well. This is particularly the case in developing countries.
This type of relationship is therefore considered to be the most advanced state of partnership between MNEs and local NGOs and the most productive for both parties as well.
2.5 China
China is the specific developing country analyzed in this study because of several reasons. Some of which have been mentioned before. To summarize;
First, China combines elements of a developing country with those of an economic superpower. China is one of the largest trading nations and recipients of FDI in the
developing world and the importance of the Chinese market for MNEs is growing, due to its robust growth and strategic resources (Zhang & Zhang, 2010). As stated before, the
enormous economic growth is the result of the Chinese economic reform in 1978. This included more economic liberalization, the choice of Chinese government to base its legitimacy on the ability to provide constant and expanding economic growth and the decentralization of economic decision-making to local officials (Laliberté & Lanteigne, 2007).
Second, and on the downside, enduring economic growth is not matched with enduring investments in formal institutions that ensure social and environmental protection. This has resulted in the lack of strong formal and informal institutions (Tan, 2009). The lack of institutional pressure leads MNEs on lowering their CSR standards (Snell & Tseng, 2003;
Shafer, et al. 2007). As a result, economic reform has led to enormous environmental and social welfare challenges (Edele 2005, Laliberté & Lanteigne, 2007). The Chinese
government acknowledges the degrading impact on the environment and social stability and tries to restore it through the extensive development of laws and regulations protecting the environment and social welfare. However, it struggles with controlling the compliance of these laws, therefore encountering a growing challenge to maintaining its own legitimacy (Schwartz, 2003) Thus, it may be concluded that China lacks strong formal institutions (Tan, 2009).
Third, Chinese informal institutions, like the business environment, differ greatly from those of typical Western developed countries. Developed country MNEs face the dilemma of either maintaining their own norms or adapting to Chinese culture (Boisot & Child, 1999). This significant institutional distance between China and the developed world increases the risk of legitimacy challenges for developed country MNEs operating in China.
Fourth, there has been a significant need for and, as a result, growth of local NGOs in China (Edele, 2005). Chinese government acknowledges the degrading environmental and social conditions in the country and the fact that it needs help (Laliberté & Lanteigne, 2007). Therefore it has turned to local NGOs for help and assistance. On the one hand, in order to obtain funding from international organizations and governments to support addressing these issues, funding that it would otherwise not have received. On the other hand, to create a more legitimate image regarding the often-criticized environmental and human rights issues within the country (Schwartz, 2003). Moreover, local NGOs have become increasingly popular within the Chinese society. By supporting local NGOs, Chinese government hopes to
improve its own legitimacy within Chinese society (Laliberté & Lanteigne, 2007). However, the fear of Chinese government that the increased development and power of NGOs might cause political instability, has led, unlike for developed country NGOs, to a strict
governmental control over Chinese NGOs (Edele, 2005). Chinese NGOs may act as a substitute for lacking governmental institutions to provide social welfare and development services, as long as they operate in accordance with central government’s policy and interests.
Nevertheless, there is a small, but growing number of independent Chinese NGOs who have shifted their focus towards representing the interests of society instead of government (Morton, 2005). This has led to a more active involvement of local Chinese NGOs in social
domains (Sarkis, et al. 2011). These activities are recognized and valued by Chinese society and where it is called shehui hefa xing, meaning social legitimacy (Spires, et al. 2014). Spires et al. (2014) report that over 50% of these ‘Grass-Roots NGOs’ have received significant funding by Chinese individuals, due to their highly perceived legitimacy. The Chinese individuals involved stated that they did not value NGOs because of government approval, but because of what they were actually doing in order to achieve their goals.
As a result, the local NGOs have gained much support and credibility nationally and locally, by both Chinese government and local communities, as well as internationally.
2.6 Working propositions
Based on the literature reviewed, the following working propositions can be formulated; Proposition 1a. When MNEs are challenged by local NGOs to address a legitimacy issue, MNEs tend to initially respond defensively, by either denying or ignoring accusations, and thereby creating a conflict relationship (see Model 2.1).
Proposition 1b. Engaging in a conflict relationship when challenged on legitimacy issues by local Chinese NGOs will negatively affect the MNEs legitimacy position (see Model 2.2).
When MNEs first response is to react to accusations of Chinese NGOs and subsequently not changing current corporate behavior, strong incentives of Chinese
government and increasing pressure from Chinese society can be expected to address these challenges. This increased pressure will force MNEs to move towards a more positive response and engage in more productive relationship with the local NGO.
This leads to the next working propositions:
Proposition 2a. If the first reaction of a MNE when challenged by a local Chinese NGO was to engage into conflict, the second reaction will be to enter a pressure-partnership (see Model 2.1).
Responsive reaction: pressure-partnership Proactive reaction: dyadic-partnership Legitimacy of MNE Defensive reaction: Conflict P1b P2b P3b + -- / +
Proposition 2b: Engaging in a pressure-partnership with a local Chinese NGO will positively affect the MNE’s legitimacy position, but only on the short-run (see Model 2.2).
MNEs can expect more benefits from expanding their relationships with local NGOs to productive and enduring collaboration in which strategic resources are shared. That kind of collaboration can be expected to be even more vital and beneficial in China.
This leads to the last set of working propositions:
Proposition 3a: Once MNEs have engaged into a pressure-partnership with local Chinese NGOs, this relationship might further evolve into a dyadic-partnership (see Model 2.1).
Proposition 3b: Transforming a pressure-partnership with local Chinese NGOs into a dyadic-partnership will have both an increased and enduring positive effect on the MNEs legitimacy position in China (see Model 2.2).
Model 2.1 Propositions regarding the evolution of the MNE-NGO relationship
Model 2.2 Propositions regarding the effects of different types of MNE-NGO relationships on the MNE’s legitimacy position.
3. Methodology
This chapter discusses the methodology of this research. First, several different concepts of research methods are discussed, than the research design for this study is discussed. It is explained why this design is appropriate for this specific study. Followed by a presentation of the cases selected and their background information will be provided. Finally, the data
collection and data analysis will be explained.
3.1 Research philosophy
The research philosophy contains assumptions about how people see the world. These
assumptions support the chosen research methodology and the way the results are interpreted (Saunders, et al. 2009). Two ways of thinking about research philosophies are discussed in the next chapters: ontology and epistemology. Both concepts are important to perform a successful qualitative study (Myers, 2013).
3.1.1 Ontology
Ontology explains which assumptions we make about the world and how it works. It concerns the perception of reality of researchers when doing their research (Saunders, et al. 2009). Ontology consists of two aspects: objectivism and subjectivism. Objectivism
represents social entities that exist independently of social actors. This means that a social happening can be studied without being affected by the researcher, because the researcher is objective (Krijnen & Kee, 2007). Subjectivism states that the reality is created through the perceptions and consequent actions of social actors. Here, the investigator does have an effect on its research, because of its subjective perceptions of the situation (Saunders, et al. 2009).
In this study, subjectivism is the main view adopted while researching reality. The cases that are presented in this study are all actual happenings in the business world. But the evolution of the relationships between MNEs and local NGOs in China and their effect on MNE’s legitimacy position will not be measured completely objectively. This evolution is analyzed based on company documentations, NGO documentations and articles of local newspapers. Which means that they are all written by social actors who all have their own view on reality. Thus, this analysis is partly based on different subjective views on reality.
3.1.2. Epistemology
Epistemology explains what is acceptable knowledge within research. It investigates the origin, nature, validity and limits of human knowledge (Krijnen & Kee, 2007). Several forms of epistemology exist, two of which will be explained: positivism and interpretivism. The positivist view is based on law-like generalizations formed upon observable social reality. Here, the researcher states that phenomena can only be observed through reliable data (Saunders, et al. 2009). The interpretivist view, on the other hand, criticizes the positivists view by stating that the world offers more than law-like generalizations. This view stresses the necessity for the researcher to have an understanding of different roles of people as social actors, which might have an effect on social reality as well (Saunders, et al. 2009).
This study’s view will be a more interpretivist one, because different social actors, like NGOs, MNEs and journalists, contribute to the outcomes. While interpreting the various documentations originated from different social actors, it is crucial to keep in mind that every documentation written is to a certain extent biased because of the social actor involved.
3.2 Research design
There are two approaches for conducting a research: the inductive approach and the deductive approach. The inductive approach implies data collection comes before theory building (Saunders, et al. 2009). The deductive approach, on the other hand, consists of theoretical propositions, which are tested using a research strategy specifically designed for the purpose of this testing (Wallace, 1971).
This study has formulated propositions about the evolution of MNE and NGO relationships and their effects on MNE’s legitimacy positions based on the academic
literature. In order to subsequently test them, this study uses a deductive approach. Moreover, it is a qualitative study that aims to answer the research question through a multiple case study design.
A qualitative study is the most appropriate research design for this study, because
exploring the evolution of the relationships between MNEs and local NGOs can only be done within their real-life context. Other methods, like an experiment or survey, are not expected to give better insights into the phenomena investigated (Yin, 2013). The use of a case study is
appropriate, because the behavior of neither MNEs nor local NGOs can be manipulated or controlled (Yin, 2013).
A multiple case study design is chosen in order to make the findings more compelling (Saunders, et al. 2009). Furthermore, the adoption of a longitudinal case study design is particularly suitable, because it allows exploring the evolution of the relationship between MNEs and local NGOs and the effects on the legitimacy position of MNEs over time during a specific period. Therefore, three cases of MNEs that crossed paths with local Chinese NGOs after encountering a legitimacy crisis will be studied for the period from 2010 to 2015.
3.3 Case selection
The study is consists of threecases in order to conduct a research that is both broad and feasible.
The first case concerns the technology company Apple. Apple is an American MNE and has its headquarters situated in California. The company operates in 16 countries worldwide (Apple, 2015). In 2010, Apple was accused of working with suppliers that violated labor rights (IPE, 2011a). Different factories that supply products for Apple are investigated after several suicides of employees. The Chinese NGO Institute of Public and Environmental Affairs (IPE) stated that Apple fails to properly oversee its suppliers, leading to poor labor conditions and poisoned laborers (Daozou, 2011). Apple has a prominent position in China. Their net sales have increased 174% during 2011 compared to 2010 of which 21% are represented by the Asia Pacific region. The average revenue per store in this area increased 27% during 2011 compared to 2010 (Apple, 2011).
The second case concerns the technology company Samsung. Samsung is a South-Korean company and has its headquarters situated in Seoul. It operates in more than 61 countries (Samsung, 2013a). In 2012, a Chinese NGO China Labor Watch (CLW) accused Samsung of labor violations at Chinese factories. Several labor abuses were discovered, like unpaid overtime work and child labor (China Daily, 2012a). Samsung also has a prominent position in China. Demand for mobile phones increased by 6% in China in 2013. The total revenue of Samsung was $114,020,817 in 2013, while in 2012 this was $85.930.407 (Samsung, 2013a).
The third case concerns the clothing manufacturing company Levi Strauss & Co. Levi Strauss is an American company and has its headquarters situated in California. It operates in more than 100 countries (Levi Strauss, 2015). In 2012, Levi Strauss was accused by the Chinese NGO Institute of Public and Environmental Affairs (IPE) of purchasing from
suppliers who illegally discharged polluted water in China in 2012 (Jing, 2012a). The MNE’s net sales declined from $871.5 million in 2011 to $727.2 million in 2013 in Asia-Pacific. This was 15,5% of its total net sales in 2013 (Levi Strauss, 2013).
All cases are all appropriate for this study. They all involve developed country MNEs operating in China, where they have undergone an unforeseen crisis that has affected their legitimacy position. In all cases, the MNEs crossed paths with local NGOs resulting in
relationships that have shifted over time. It is expected for each of the cases that the evolution of these relationships over time have affected their legitimacy position.
3.4 Data collection
The data collected should enable to answering the main research questions. In order to answer the first part of the question “how do relationships between MNEs and local NGOs in developing countries evolve over time after a legitimacy crisis?”, only archival data from national Chinese newspapers and documentations released by the companies and NGOs involved in the legitimacy challenge are used. In order to answer the second part of the question “How have evolving relationships between MNEs and local NGOs affected the legitimacy position of MNEs?”, only archival data from national Chinese newspapers are used. The use of archival data is pertinent for three reasons. First, the large quantity of articles over the specific time period gives the opportunity to deeply explore the relationship between a specific MNE and local NGOs and its effect on legitimacy (Saunders, et al. 2009). Second, since the articles are obtained from national newspapers, the legitimacy position of a MNE in China can be measured. This contributes to the validity of the research concerning the measurement of local legitimacy. Third, the research will have multiple sources of evidence, since the data collected are from different national Chinese newspapers and documentations of both MNEs and NGOs over different time periods. This triangulation makes it possible to adopt different angles in order to create a broad and diverse view of the reality (Yin, 2009). Fourth, prior literature has proven that the media can reflect the
1996). Therefore, it is a pertinent way of measuring MNE’s legitimacy. This contributes to the validity of the research concerning the measurement of local legitimacy.
Articles from two main Chinese newspapers (China Daily and South China Morning Post) and documentations of the MNEs and the local NGOs involved were used to analyze the evolution of the MNE-NGO relationships. An overview is given in Table 3.1. To measure the legitimacy position of the MNEs in China, only the articles of the Chinese newspapers were used. Due to convenience and the language barrier, two newspapers were chosen because of their broad offer of English-written articles within the right time frame (2010 to 2015).
To identify relevant articles for the cases of Apple and Samsung, combinations of keywords as “labor” and “conditions” were used, and for the case of Levi Strauss, keywords as “environment” and “pollution”. In all cases, the name of the involved local NGO and the name of the MNE itself were used as keywords as well. All articles were read to make sure that the content addressed the specific legitimacy challenges.
A total of 90 articles and 43 documents were collected of which 49 articles and 10 documents addressed the case of Apple, 22 articles and 23 documents the case of Samsung and 11 articles and 10 documents the case of Levi Strauss. The diverged number, especially of the articles about the legitimacy challenges in every case, is remarkable. The limited availability of articles addressing the Levi Strauss case can be considered as a limitation of this particular case study (see Table 3.1).
The specific timeframe chosen is for one case from 2010 to 2015 and for the other two cases from 2012 to 2015. Apple encountered a legitimacy crisis in 2010, but Samsung and Levi Strauss in 2012. Since there were no other comparable legitimacy-challenging cases within China starting in either 2010 or 2012, this study focused on two timeframes with an overlap of three years. It is expected that three to five years is a plausible timeframe in order to measure the evolution of a relationship between a MNE and local NGO. The research would have been even further improved had it been possible to research a longer period. Due to time restrictions, this was not feasible in this study.
Type of written material analyzed Amount
Newspaper articles
China Daily
Apple Case 41 articles
Samsung Case 17 articles
Levi Strauss Case 6 articles
South China Morning Post
Apple Case 8 articles
Samsung Case 12 articles
Levi Strauss Case 6 articles
Documents released by MNE
Apple 6 documents
Samsung 8 documents
Levi Strauss 3 documents
Documents released by NGOs
IPE (Apple) 4 documents
CLW (Samsung) 15 documents
IPE (Levi Strauss) 7 documents
Table 3.1 Articles and documentations analyzed
The specific timeframe chosen is for one case from 2010 to 2015 and for the other two cases from 2012 to 2015. Apple encountered a legitimacy crisis in 2010, but Samsung and Levi Strauss in 2012. Since there were no other comparable legitimacy-challenging cases within China starting in either 2010 or 2012, this study focused on two timeframes with an overlap of three years. It is expected that three to five years is a plausible timeframe in order to measure the evolution of a relationship between a MNE and local NGO. The research would have been even further improved had it been possible to research a longer period. Due to time restrictions, this was not feasible in this study.
3.5 Data analysis
Once the relevant data was collected, they were analyzed in order to answer the research questions. The analysis is divided into two parts; the first part focuses on the evolution of the relationship between MNEs and local NGOs through a thematic analysis. The second part of the analysis focuses on the effect of an evolving relationship between a MNE and local NGO on the MNE’s legitimacy position, through a content analysis (see Table 3.2).
3.5.1 Thematic analysis
The evolution of the relationship between MNEs and local NGOs is studied through a thematic analysis. This type of analysis identifies themes which support finding patterns within the data (Saunders, et al. 2009).
The themes used are fundamental categories of relationships between MNEs and local NGOs that evolve once local NGOs addressed a MNE with regard to a legitimate challenge (see Table 3.2). These are ‘conflict’, ‘pressure-partnership’ and ‘dyadic-partnership’. These themes have been identified a priori from the research of Laasonen, et al. (2012) and den Hond & de Bakker (2007), and are the most commonly used in extant literature.
Once all the before mentioned articles and documentations had been studied, it was determined which type of relationship between the MNE and NGO was described. Through the coding process of the data, these relationships were classified based on keywords such as “pressure”, “co-operative”, and “conflicting” (see Table 3.2). All articles and documentations were analyzed per year, in order to document the evolution of the relationship between the MNE and local NGO in time. By using pattern matching, the internal validity of the study is secured.
3.5.2 Content analysis
In order to analyze the effect of the relationships between MNEs and local NGOs on MNE’s legitimacy position in China, a content analysis has been made of relevant media articles. A content analysis is a research method for analyzing written, verbal or visual communication messages (Cole, 1988). When a company perpetrates illegitimate actions, the media is most likely to report the comments and attacks of relevant actors within the social and political environment (Dowling & Pfeffer, 1975).
Prior research used media articles to measure legitimacy positions (e.g. Deephouse, 1996; Bansal & Clelland, 2004 and Lamin & Zaheer, 2012). News articles reflect daily events and a content analysis is therefore a suitable analysis method to measure the legitimacy of the MNEs being pressured by local NGOs (Bansal & Clelland, 2004).
Theme Description Keywords
Conflict When MNEs and NGOs encounter
one another due to a specific legitimacy crisis, the objectives of MNEs and NGOs may differ and a gap between the two parties arise. In this case, the relationship between NGO and corporation is likely to be one of conflict. The first response of the company is expected to be defensive by either defying, refusing or respond negatively to the NGO demand (den Hond & de Bakker, 2007)
“denied”; “conflicted”; “failing”; “declined”; “did not mention”; “not commented”
Pressure-partnership If the MNE is increasingly pressured by its stakeholders and acknowledges the NGO as a legitimate actor within a host country, it enters a pressure-partnership, where the MNE expects to repair its legitimacy position by either complementing or disguising its illegitimacy (Laasonen, et al. 2012).
“admits”; “accepted”; “corrective actions”; “acknowledged”; “agreed”
Dyadic partnership If the MNE acknowledges the value and possibilities the NGO can offer, it enters a dyadic partnership, where it expects to repair and maintain its legitimacy and creates mutual benefits for both parties through new
initiatives (Laasonen, et al. 2012).
“work with”; “collaborate”; “teaming up”; “joint initiatives”; “proactive”
All the articles were coded by following the coding of Bansal & Clelland (2004) depending on whether the legitimacy of a MNE was described as neutral, negative or positive (0 = “neutral”, 1 =”negative”, 2 = “positive”). To make this statistically applicable, this research adopts the measure of Deephouse (1996): the Janis-Fadner coefficient of imbalance. The Janis-Fadner coefficient ranges from -1.0 to +1.0; a high presence of favorable articles resembles a value closer to +1.0, and a high presence of unfavorable articles resembles a value closer to -1.0. The Janis-Fadner formula is as follows:
In this case e is the annual number of favorable legitimacy articles, c is the number of unfavorable legitimacy articles during a specific timeframe, and t is e + c (Bansall & Clelland, 2004, p. 97).
4. Results
This chapter presents the results of the data analysis. First, each case is explained and the evolution of the relationship between the MNE and the local NGO is analyzed, as well as the impact of this relationship on the legitimacy position of the MNE. Second, a cross-case analysis is presented in which the three cases are compared and linked to the literature to explore the presence of patterns that support the propositions.
4.1 Within-case analysis
Case 1: Apple and IPE (2010-2015)
In 2010, several Chinese NGOs accused Apple of working with suppliers who abused labor rights in Chinese factories (IPE, 2011a). By publishing a report ‘The other side of Apple’, three local Chinese NGOs: the Institute of Public and Environmental Affairs, Friends of Nature and Green Beagle tried to create public awareness for this legitimacy matter and
accused Apple of not fulfilling its commitment in ensuring work safety and applying environmental standards in its supply-chain (Daozou, 2011). The local NGOs pressured Apple to take action against the labor conditions in several factories of their suppliers in China. Apple failed to respond to these accusations in 2010 and during the first months of 2011 the company simply denied working with these suppliers by not mentioning them in their Supplier Responsibility Report (2010) (Yanfeng, 2011; IPE, 2011a). This resulted in a conflicting relationship with IPE. IPE pressured Apple even more by publishing a follow-up report “The other side of Apple II”, where they called upon consumers to express their concerns to Apple (IPE, 2011b). In the second half of 2011, Apple finally admitted working with the suppliers, but only after substantial pressures of IPE and started conducting audits within suppliers’ factories and tried to enforce stronger requirements to enforce corrective and preventive actions (Apple, 2012).
These actions were recognized and approved by IPE and the relationship with Apple turned into a more pressure-partnership, where Apple collaborated with IPE in an attempt to decreasing pressures and addressing the accusations. In 2012 there was a strike within one of the factories, but Apple did not comment on the incident, again causing a conflict with IPE (China Daily, 2012c). The MNE did release a statement, however, that it was working with NGOs to stimulate improvements in environmental practices through their supply-chain, thus showing that they were trying to do something about the accusations.
In 2013, China Labor Watch (CLW) reported new accusations of abuse of labor rights within the factories of Apple’s suppliers. This time, Apple responded immediately by
contacting CLW and undertook immediate actions by imposing real changes. Moreover, IPE was invited to work with the MNE on specialized audits and offered unrestricted access to supplier factories for a comprehensive assessment (Haidan & Wei, 2013; Apple, 2013).
In 2014, IPE reported that Apple was performing excellent in establishing a
mechanism for screening suppliers, pushing them to take corrective actions and identifying the main polluting sector in its supply chain (IPE, 2014a). Apple stated that its partnership with IPE offered rich insights in the assessment of a supplier’s environmental impact in the future. The company even ranked first place in the top ten Electronic Brands in the IPE-report, in which Apple’s performance in managing the environmental impacts of factoring in their Chinese supply chain was valued (Apple, 2015). This shows that Apple eventually reached a dyadic-partnership with IPE.
The relationship between Apple and IPE has evolved over time (see Appendix A). The effects of the evolving relationship with IPE on Apple’s legitimacy position were measured by counting the articles in China Daily and South China Morning Post in which Apple’s legitimacy position was valuated as positively, neutrally or negatively. The results are presented in Table 4.1.
In conclusion, in 2010, the legitimacy position of Apple was under attack. Its
legitimacy position improved somewhat in 2011, but still remained relatively negative. From 2012 until halfway 2014 changed barely. After July 2014 it considerably improved, which means that Apple’s legitimacy position in China finally became a positive one (see Timline 4.1).
Table 4.1. The nature of Apple’s relationships with IPE and the effects on its legitimacy position. Favourable/unfavourable Relationship Favourable (e) articles Unfavourable (c) articles J-F coefficient Conclusion: Legitimacy position Conflict (May 2010 – Feb 2011) 2 10 -0.57 Negative Conflict / pressure-partnership (Feb 2011 – Feb 2012) 3 4 -0.08 Neutral/ negative Pressure-partnership (Feb 2012 – Dec 2012) 10 12 -0.05 Neutral/ negative Pressure-partnership / Dyadic-partnership (Dec 2-12 – July 2014) 3 4 -0.08 Neutral/ negative Dyadic-partnership (July 2014 – now) 3 1 0.38 Positive
