Amsterdam Business School
Thesis To Obtain the Academic Degree
Master of Science
The Effect of Corporate Social
Performance on Firm Multinationality
Student: Tim Gerling (11085789)
Study Track: MSc in Business Administration – International Management First Supervisor: Dr. Niccolò Pisani
Second Supervisor: Dr. Michelle Westermann-Behaylo Submission Date: July 23, 2016 (Final Version)
STATEMENT OF ORIGINALITY
This document is written by Tim Gerling 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.
ABSTRACT
This study applies a cross-sectional research approach to investigate the relationship between CSP and multinationality. The sample is based on the Fortune Global 500 ranking of 2015. In doing so, the two dimensions of multinationality, scale and scope of internationalization, are taken into consideration. Both direct effects are found to be significant. The findings suggest that CSP constitutes an important factor in the process of internationalizing. Managers must pay attention to CSP before starting to diversify geographically. In addition, the moderating effect of competitive pressures is assessed. No significant relationship can be determined, despite previous research indicating a positive association.
___________________________________________________________________________ Keywords: Corporate Social Performance (CSP); Corporate Social Responsibility (CSR); Globalization; Multinational Enterprise (MNE); Multinationality-Performance (M-P) Relationship; Regionalization; Scale of Internationalization; Scope of Internationalization
TABLE OF CONTENTS
LIST OF FIGURES AND TABLES ... 4
LIST OF ABBREVIATIONS... 5
INTRODUCTION ... 6
LITERATURE REVIEW ... 8
Multinationality ... 8
Multinationality-Performance Relationship ... 11
Corporate Social Responsibility... 13
Multinational Enterprises’ Corporate Social Performance ... 15
Research Gap ... 18
THEORETICAL FRAMEWORK ... 20
Corporate Social Performance and Scale of Internationalization ... 20
Corporate Social Performance and Scope of Internationalization ... 22
The Moderating Effect of Competitive Pressures ... 24
RESEARCH METHODS ... 27
Dataset and Data Collection ... 27
Measures ... 28
Dependent Variables ... 28
Independent Variable ... 29
Moderating Variable ... 30
Control Variables ... 31
Statistical Analyses and Results ... 31
DISCUSSION ... 37
Academic Relevance ... 37
Managerial Implications ... 39
Limitations and Suggestions for Further Research ... 39
CONCLUSION ... 41
ACKNOWLEDGEMENT ... 42
LIST OF FIGURES AND TABLES
Figure 1: Conceptual Framework……….26
Figure 2: Companies’ Major Operating Sectors………...32
Table 1: Classification Matrix (Elaboration Based on Aggarwal et al., 2011)………...29
Table 2: Companies’ Origin………..32
Table 3: Descriptive Statistics and Correlations………34
Table 4: Results of Hierarchical Regression (Part I)……….36
LIST OF ABBREVIATIONS
BvD Bureau van Dijk
CR Corporate Responsibility
CSP Corporate Social Performance
CSR Corporate Social Responsibility
FDI Foreign Direct Investment
FSTS Foreign Sales in Total Sales
HHI Hirschman-Herfindahl Index
KLD Kinder, Lydenberg, and Domini (Database)
MNE Multinational Enterprise
M-P Multinationality-Performance
RBV Resource-Based View
INTRODUCTION
Nowadays, most Fortune Global 500 firms engage in significant international activities. Consequently, these companies are regarded as multinational enterprises (MNEs). MNEs are companies that conduct business and foreign direct investment (FDI) in more than one country (Asmussen, 2009; Rugman & Oh, 2013). Multinationality is defined as the international diversification of a company, or “the extent to which it undertakes value-adding activities in many different foreign markets” (Hennart, 2007: 424).
According to Rugman and Verbeke (2004) the world’s 500 largest companies account for approximately half of worldwide trade and for more than 90 percent of FDI. Due to this international strategic orientation, the public increasingly demands MNEs to be part of a sustainable worldwide development. As several researchers point out, MNEs must engage in activities concerning corporate social responsibility (CSR) in order to gain consumer acceptance – especially, when expanding their business to foreign markets (e.g. Kolk & van Tulder, 2010).
Research about CSR and its implications for business operations is plentiful. Brammer, Pavelin, and Porter (2006) already determined that international diversification increases corporate social performance (CSP). Moreover, CSP constitutes a competitive advantage that makes a company more attractive for job seekers (Jones, Willness, & Madey, 2014). Despite this, no study has investigated whether CSP positively affects a company’s internationalization path. The present study fills this research gap by analyzing the relationship between CSP and both the scale and scope of internationalization. A moderating effect is introduced, as well. I expect competitive pressures or the overall environment a company operates in to positively moderate the two aforementioned relationships.
The structure of this study is as follows. First, the relevant literature is discussed. In doing so, the concepts of multinationality, CSR, and CSP are of major importance. The
literature review concludes with a thorough analysis of the research gap. Afterwards, the four hypotheses are developed and a detailed reasoning for the proposed relationships is given. Subsequently, the research methods for the present study are explained. The dataset and data collection process, as well as, the four different types of variables are introduced. The results of the statistical analyses are presented at the end of this chapter. Then, the academic relevance and managerial implications are highlighted and discussed. Before summarizing the research outcomes in a final conclusion, limitations of the present study are named and recommendations for further research opportunities are given.
LITERATURE REVIEW
This study investigates the relationship between CSP and multinationality. In the following, I review the relevant literature on the concept of multinationality, the multinationality-performance (M-P) relationship, CSR and CSP. Concluding, I elaborate on the research gap in more detail.
Multinationality
A company’s degree of multinationality can be approximated by the concept of internationalization, which is a widely researched subject within international business literature. Internationalization is considered from two different angles, namely scale and scope. A firm’s scale of internationalization is usually determined by the share of foreign sales in total sales (FSTS). Since a high volume of foreign sales alone does not necessarily imply that a company has a high degree of multinationality, the scope of internationalization needs to be determined as well. Researchers often assess the scope of internationalization by analyzing a company’s geographic spread of sales. However, there is no commonly accepted method (Aggarwal, Berrill, Hutson, & Kearney, 2011).
The globalization debate represents a part of the internationalization literature. Especially regionalization strategies, which can be regarded as a certain strategic orientation
of MNEs, become increasingly the focus of attention in the globalization debate. Rugman and Hodgetts (2001), as well as Proff (2002), were one of the first researchers that assessed
extensively the controversy over globalization and the consequences for MNEs’ strategies. In another study, Rugman (2003) identifies that the world’s largest MNEs have strong regional patterns in their economic activity. He concludes that it is inevitable to distinguish regional triad (United States of America [USA]/Canada, Europe, and Asia) strategies from true global
strategies in further evaluations on the globalization controversy.
One of the most cited papers in terms of the globalization debate, is the article “A perspective on regional and global strategies of multinational enterprises” by Rugman and Verbeke (2004). Since MNEs are regarded as key drivers of globalization, Rugman and Verbeke evaluate the MNEs’ degree of penetration across global markets. They distinguish between home region-oriented, bi-regional, host region-oriented, and global strategies. A company is home region-oriented when the home region accounts for 50 percent and more of total sales. The same underlying logic applies to host region-oriented strategies. Bi-regional strategies imply that a company has at least a fifth of its total sales in each of two regions of the triad. While global strategies mean that a company has at least 20 percent of its total sales in each of the three triad regions. Surprisingly, Rugman and Verbeke’s (2004) data reveals that the home region accounts for 80 percent of total sales for 320 of the analyzed 380 companies. Only nine companies are regarded as truly global. They conclude that MNEs are rather regionally-oriented than globally-operating, and that an equal spread of sales across worldwide markets is uncommon (Rugman & Verbeke, 2004).
Since then, a lot of research has been conducted on regionalization with contradicting conclusions. Elango’s (2004) results support proponents of regionalization, since half of the analyzed MNEs are regionally-shaped. Despite this, he also concludes that global operations of MNEs are more profitable than regional operations. This is also confirmed by research of Delios and Beamish (2005), who study more than 1,200 Japanese MNEs. They find that MNEs following a global strategy, outperform home-oriented MNEs. On the contrary, Filippaios and Rama (2008) find support for Rugman and Verbeke (2004) by assessing the degree of multinationality of the world’s largest food and beverage MNEs. Out of the 81 evaluated MNEs only nine firms are truly global, while the majority follows bi-regional or home region-oriented strategies (Filippaios & Rama, 2008). Osegowitsch and Sammartino (2008) question Rugman
and Verbeke’s (2004) approach. They do not agree with the classification scheme, Rugman and Verbeke (2004) propose. When applying a different categorization of the degree of international strategy, most companies rank either as bi-regional, or even as global operating (Osegowitsch & Sammartino, 2008). Furthermore, they determine that MNEs increasingly expand their worldwide network. As a consequence, the share of sales outside the home region steadily rises. On the contrary, Asmussen (2009) concludes that MNEs apply home region-oriented strategies. Rugman and Oh (2013) agree on the latter. By evaluating the world’s largest 500 MNEs in terms of their subsidiary locations, as well as, regarding the origin of their sales and assets, they conclude that most firms are home region-oriented. On the other hand, another study determines that most companies of the Fortune Global 500 are either bi-regionally or globally-oriented (Berrill & Mannella, 2013).
Additional studies by Ghemawat and Pisani (2013, 2014) support Rugman and Verbeke (2004), but reveal further insights. Ghemawat and Pisani’s (2013) findings show that the Fortune Global 500 companies decrease their international orientation and strengthen their home markets at the same time. However, the authors observe differences in the patterns of globalization across the world’s 500 largest enterprises, which is continued in their 2014 study. Ghemawat and Pisani (2014) determine that emerging economies have the biggest stake in international interactions nowadays. Particularly, Asian MNEs focus on establishing international subsidiaries recently. Despite this, they find more evidence for a regionalized than globalized world economy. As Ghemawat (2009: 108) assesses, “the right regional strategy (or strategies) can create more value than purely global or purely local ones can”. Yet, research is far from being consistent and disagreement prevails among scholars.
According to Aggarwal et al. (2011) the discordance can be partially attributed to the lack of a commonly accepted measure of multinationality. Thus, results and conclusions drawn are rather difficult to compare. The scholars remark that technological developments in the last
one or two decades removed previous barriers in international trade, especially, for smaller companies. The traditional notion that MNEs are large companies is not necessarily true anymore (Aggarwal et al, 2011). In order to overcome this and to allow for a more flexible theoretical construct, Aggarwal et al. (2011) suggest a classification scheme based on a company’s breadth and depth of multinational commitments. Breadth refers to the geographical spread of business, while depth describes the commitment within each foreign market. This classification scheme will be touched upon again in the ‘Research Methods’-section of this study.
Multinationality-Performance Relationship
International business studies assume that the performance of companies increases analogous to multinational expansion (Contractor, Kundu, & Hsu, 2003). While multinationality describes the international diversification of a company, a precise definition of performance is almost impossible. Researchers usually refer to performance when investigating financial indicators, such as return on investment or return on sales, according to Contractor et al. (2003). The assumption that multinational expansion is inevitably associated with increasing performance mainly rests upon the concepts of economies of scale and scope (Kogut, 1985). Economies of scale involve cost advantages due to a higher production rate of a single product (Hindle, 2008). Whereas, economies of scope imply that an increasing variety of goods
decreases average overhead costs per product (Hindle, 2008). Furthermore, Contractor et al. (2003) argue that companies have better access to required resources due to geographic
expansion. Finally, various researchers assess a positive relationship between multinationality and performance based on increasing opportunities to expand knowledge when diversifying geographically (Contractor et al., 2003; Hitt, Hoskisson, & Kim, 1997). Hennart (2007)
disagrees to the above-mentioned arguments. Firstly, he states that scale economies can be realized in home markets under certain conditions, as well. A typical scenario is a home country’s market being sufficiently large enough. Secondly, only in special cases with extremely high transaction costs, geographic expansion provides better access to resources. Thirdly, Hennart (2007) determines that knowledge transfers from abroad are not a key driver for internationalization. He does not recognize a generally valid positive relationship between multinationality and performance.
While Hennart (2007) only cannot observe a positive association between multinationality and performance, other researchers even ascertain a negative relationship (Click & Harrison, 2000). One of the major disadvantages of being multinational are costs due to liability of foreignness (Lu & Beamish, 2004). These are costs foreign firms face when operating in a host country, and arise due to unfamiliarity with the market (Zaheer, 1995). Contractor et al. (2003) establish a positive relationship in general, but they do acknowledge that the relationship might turn negative at initial or later stages. In the beginning the M-P relationship might become negative due to initial investments. At later stages, meaning that a company has been geographically expanded to several, different markets, the M-P relationship might turn negative due to increased associated costs of foreignness (Lu & Beamish, 2004). In the end, the costs of being multinational exceed the benefits.
Li (2007), who provides a review of the current literature on the M-P relationship, concludes that research is not yet coincident in opinion. The correlation of multinationality and performance is in dispute, and even over one hundred studies could not arrive at a unanimous opinion (Hennart, 2007).
Corporate Social Responsibility
Finding a commonly accepted definition for corporate responsibility (CR) seems almost impossible. Despite this, most CR practices of companies encompass “positive contribution[s]
to society above and beyond that which constitutes their legal obligations” (Blowfield & Murray, 2008: 12-13). Technically, the overall theoretical construct of CR is represented by
the four themes of CSR, environmental responsibility, ethics, and governance, according to Egri and Ralston (2008). Most researchers use CR and CSR interchangeably though (Ioannou & Serafeim, 2012; Kolk & van Tulder, 2010; Oikonomou, Brooks, & Pavelin, 2014). CSR experiences an increasing attention in recent years due to ongoing issues such as human rights violations or the climate change (Egri & Ralston, 2008; Kolk & van Tulder, 2010). But what exactly is social responsibility?
The term [social responsibility] is a brilliant one: it means something, but not always the same thing, to everybody. To some it conveys the idea of legal responsibility or liability; to others, it means socially responsible behavior in an ethical sense; to still others, the meaning transmitted is that of ‘responsible for’ in a causal mode; many simply equate it with a charitable contribution; some take it to mean socially conscious; many of those who embrace it most fervently see it as a mere synonym for ‘legitimacy’, in the context of ‘belonging’ or being proper or valid; a few see it as a sort of fiduciary duty imposing higher standards of behavior on the businessmen than on citizens at large. (Kolk, 2016: 24, in Carroll, 1999: 280).
CSR is a broad range of social aspects that also affect MNEs in their daily business. Especially, the MNEs’ decision-making process is significantly influenced by CSR considerations (Pesmatzoglou, Nikolaou, Evangelinos, & Allan, 2014). Moreover, Kolk and Lenfant (2013) state that the public increasingly demands MNEs to be part of a sustainable
worldwide development due to their global orientation. MNEs must engage in CSR activities in order to gain consumer acceptance in foreign markets (Aguilera-Caracuel, Guerrero-Villegas, Vidal-Salazar, & Delgado-Márquez, 2015). Kolk and van Tulder (2010) support the reasoning of Aguilera-Caracuel et al. (2015) by determining that MNEs are operating in a wide range of global contexts and consequently must be confronted with emerging issues. Likewise, Kolk (2016) concludes that the precise responsibilities of public and private actors blur and seem to converge. In addition, MNEs are faced with different standards, norms, laws, or conventions, compared to their home country (Kolk, 2016). Accordingly, MNEs search for a constant balance in the struggle of broader CSR considerations and following their internationalization strategies (Kolk & van Tulder, 2010).
Park, Chidlow, and Choi (2014) use a stakeholder approach to identify influencing factors of CSR practices of MNEs in South Korea. They determine that not only primary but also secondary stakeholders have a significant positive relationship with CSR strategies. Primary stakeholders are, for example, employees or customers, while secondary stakeholders are media or government, among others. Park et al. (2014) conclude that MNEs are faced with varying CSR requirements in each foreign market the company operates in. In order to gain legitimacy and acceptance, MNEs might adopt local best practices of CSR strategies. The CSR structure of the very same MNE might consequently differ between countries or regions. The latter has been previously researched by Kolk (2010). Kolk ascertains that CSR practices became far more complex since MNEs operate in an increasing international context with differing laws, regulations, legal and social norms. Thus, the number of involved stakeholders rises heavily. While legal obligations are relatively predictable and assessable, social aspects constitute the major burden for MNEs’ business operations. Social aspects are difficult to evaluate without local market knowledge. Furthermore, Kolk (2010) asks how MNEs should handle differences in norms between their home and host country. Donaldson (1996) suggests
to evaluate first whether a business practice would be feasible in the MNEs’ home country. Subsequently, it should be assessed whether this business practice violates human rights or values in the host country. In general, MNEs operating in several foreign markets face the challenge “to reconcile the various norms, and to deal, as best as possible, with existing tensions between them”, according to Kolk (2010: 145). Similarly, Brammer et al. (2006: 1025) state that MNEs are “likely to be influenced by the nature and extent of the internationalisation process that the firm has undertaken”.
Multinational Enterprises’ Corporate Social Performance CSP can be defined as “a business organization’s configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s societal relationships” (Ioannou & Serafeim, 2012: 834-835; in Wood, 1991: 693). To put it straight, CSP is the outcome of a company’s CSR activities (Ioannou & Serafeim, 2012).
While CSR is analyzed through various conceptual lenses (Aguinis & Glavas, 2012), Muller and Kolk (2010) determine that scholars view CSP usually only from two different approaches. On the one hand, some researchers assume that CSP is mainly extrinsically driven (Brammer, Pavelin, & Porter, 2009; Wisner & Epstein, 2005). They believe that external factors, such as media pressure or shareholder demands, influence a company’s CSP. For instance, an MNE from an emerging market might reconsider its CSP when exposed to Western competitors that already have a higher company-wide standard of CSR. On the other hand, various scholars claim that CSP is intrinsically driven (Banerjee, Iyer, & Kashyap, 2003; Bansal, 2003). For example, managers focus on CSP since they have a moral motivation to do so. But central in both approaches is that the environment of a company induces the degree of
CSR. Overall, Muller and Kolk (2010) find that management commitment to CSR is the most important driver of CSP. Further they conclude that CSP especially increases when a company is faced with trade-related pressures. Ioannou and Serafeim (2012) similarly ascertain that CSP is heavily affected by the political system of a country a firm operates in. Labor and education systems, as well as the cultural system, also affect CSP.
It is now of interest to review research that already investigated the relationship between MNEs and CSP in more detail. As mentioned before, MNEs are confronted with a rising number of stakeholders with increasing multinationality. Brammer et al. (2006) state that most of these pressures coming from stakeholders can be linked to CSP. Further, they find a significant positive relationship between a high geographical diversification of a company and CSP. Accordingly, the more foreign markets a company operates in, the higher is its CSP. However, the study of Brammer et al. (2006) is restricted to British companies only. Therefore, the results are probably not generally valid. Similar to Brammer et al. (2006), Aguilera-Caracuel et al. (2015) find a positive relationship between geographical diversification and CSP. They assume that a company’s presence in several regions and the exposure to cultural differences positively leverages a firm’s CSP. In doing so, operational risks are reduced. These risks include, for example, fines due to non-compliance with local regulations, or consumer boycotts due to unethical behavior (Caracuel et al., 2015). The study of Aguilera-Caracuel et al. (2015), though, is limited to US-American MNEs operating in the industrial machinery, chemical, or energy industry. In another research on the relationship of internationalization and CSP, Bansal (2005) determines a positive association, as well. Yet, her research analyzes solely selected Canadian firms and is based on the years from 1986 to 1995. Furthermore, the study focuses only on companies operating in the forestry, mining, or oil and gas industry. Firms conducting business within these sectors are known for a relatively high corporate sustainable development (Bansal, 2005). This might have influenced the conclusions
drawn. In addition, ‘corporate sustainable development’ is a more loosely defined term compared to the notion of CSP (Bansal, 2005).
Little research has been done on the implications of competitive pressures for CSP. Competitive pressures comprise the overall context in which a company conducts business (Moyano-Fuentes & Martínez-Jurado, 2016). The actions a company undertakes might be affected by pressures that exist within the firm’s industry. For instance, Bansal (2005) discovers that companies actively mimic their competitors’ CSR practices in order to raise the firm’s CSP level. Uncertainty is reduced in this fashion. Similarly, Wisner and Epstein (2005) observe that companies increase their environmental performance when exposed to market pressures. In their sample of 221 Mexican firms, companies exporting to the North American market have a higher environmental performance than companies solely serving the Mexican market. Moreover, research has ascertained that supplier-customer partnerships help in raising the CSP degree (Muller & Kolk, 2010). Accordingly, the CSP level of a company from an emerging market that supplies products to an MNE from a developed country, potentially increases due to the relationship among the two parties. The latter can be, for example, observed in the clothing industry. MNEs transfer their CSR practices (partially) to their local supplier in an emerging market, in order to maintain a positive brand reputation (Momin & Parker, 2013; Rahmin & Alam, 2014). Furthermore, Muller and Kolk (2010) test if trade intensity is positively related to CSP. Trade intensity describes the degree to what a company engages in exporting and importing activities. They determine that “subsidiaries of foreign MNEs (…) demonstrate higher CSP compared to local firms at low levels of trade intensity, but similar CSP at high levels of trade intensity” (Muller & Kolk, 2010: 8). While this study definitely contributes to the research on the relationship between CSR or CSP and MNEs, it should also be investigated whether competitive pressures leverage the internationalization of MNEs. Moreover, their study is limited to the Mexican market and only focuses on companies active
in the ‘car parts supply’-industry sector. In addition, the local companies included in their research are not necessarily of a large scale.
Research Gap
As several scholars point out, the overall concept of CSR and implications arising out of it have been received increasing attention in recent years (e.g. Muller & Kolk, 2010; Park et al., 2014; Strike, Gao, & Bansal, 2006). Likewise, the relationship between the degree of internationalization and the level of CSP has been under close scrutiny (e.g. Aguilera-Caracuel et al., 2015; Bansal, 2005; Brammer et al., 2006). Despite this, little to no research has focused on whether CSP can induce the internationalization of companies. The moderating effect of competitive pressures on the relationship of CSP and internationalization has been neglected, as well. With stakeholders wielding significant influence on MNEs’ CSP (e.g. Ioannou & Serafeim, 2012; Kang, 2013), I expect competitive pressures, for instance, the presence of a direct competitor, to affect an MNEs’ CSP. A detailed reasoning for this will be given in the following chapter.
Besides the theoretical contribution, this study also provides methodological improvements compared to previous research. Egri and Ralston (2008), who review the literature on CSR, discover that more than 80 percent of the empirical studies are either surveys or case studies. Database research is thus underrepresented. Moreover, most CSR research includes less than five countries, which leaves doubts about the general validity of the findings (Egri & Ralston, 2008). The latter is also proven by the aforementioned research on MNEs and CSP. In these research projects, scholars solely focus on single countries (e.g. Bansal, 2005), and sometimes further narrowed down their sample based on industry sectors (e.g. Aguilera-Caracuel et al, 2015). As a result, there is the inevitable need to sample a greater variety of
companies from different countries and industries to investigate the relationship between CSP and the degree of internationalization.
By applying the methodology of a database research, this study aims to shed new light on the relationship between CSP and the degree of internationalization. In doing so, the M-P relationship is further assessed. Moreover, the study incorporates companies from 36 different countries and 18 different industry sectors (cf. Fortune, 2015), which yields more universally valid results and conclusions compared to previous research. The explicit theoretical framework of this research will be explained in the following chapter.
THEORETICAL FRAMEWORK
Based on the theories discussed in the literature review, four hypotheses are proposed to test the relationship between CSP and the degree of multinationality of MNEs. First of all, the relationship between CSP and both scale and scope of internationalization is elaborated. Afterwards, a moderating effect is introduced. I propose that both relationships are moderated by the degree of competitive pressures MNEs face in their home markets.
Corporate Social Performance and Scale of Internationalization
The scale of internationalization refers to a company’s magnitude of international operations (Kogut, 1985). As stated by several scholars (e.g. Contractor et al., 2003), MNEs could profit from internationalization. These benefits include, for example, economies of scale and scope, knowledge transfers, or tax savings. Furthermore, an internationalization strategy hedges a company against economic downturns in their home market. Research about MNEs’ motives for international expansion is plentiful (Dunning, 2000; Luo & Tung, 2007). Basically, four main motives could be identified. These are market-, resource-, efficiency-, and strategic asset-seeking (Dunning, 2000).
Concerning CSP, researchers assessed so far, that internationalization increases CSP (Aguilera-Caracuel et al., 2015; Bansal, 2005; Brammer et al., 2006). Especially geographical diversification was found to be a major cause of CSP (Aguilera-Caracuel et al., 2015; Brammer et al., 2006). Despite this finding, a high CSP might also induce and leverage a company’s internationalization strategy. Following this logic, I argue that firms with a higher CSP are better able to internationalize, in contrast to companies featuring a low CSP.
According to the resource-based view (RBV), resources and endowments are the key to create competitive advantages and a means for superior company performance (Peng, 2001).
However, resources must be valuable, rare, inimitable, and non-substitutable in order to develop a sustainable competitive advantage (Bromiley & Rau, 2016). A company’s reputation that potentially constitutes a competitive advantage, can be regarded as one of the important aspects of the RBV (Boyd, Bergh, & Ketchen Jr., 2010). A company’s reputation directly depends on the firm’s CSR strategy and CSP. Accordingly, a high CSP constitutes a significant competitive advantage. Jones et al. (2014) confirm the latter. They verify that CSP attracts job seekers. Job seekers are rather tempted to apply for a company that features a high CSP, compared to a firm with a low CSP. A high CSP is highly advantageous for a company. Thus, I expect a company with a high CSP level to internationalize due to its strong competitive advantage. As Pesmatzoglou et al. (2014: 187) determine, CSR “is highly influential in the decision making of multinational companies”.
Based on previous studies, I assume that companies that perform better according to social standards, are also perceived better by customers. Ioannou and Serafeim (2012) state that consumers are heavily influenced by company rankings, for example, based on social aspects. In this regard, Kolk and Lenfant (2013) conclude that the public increasingly demands
MNEs to be part of a sustainable worldwide development. Similarily, Aguilera-Caracuel el al. (2015) state that gaining consumer acceptance is inevitably associated with CSR
activities. In addition, MNEs are confronted with an increasing number of stakeholders when internationalizing (Brammer et al., 2006; Kolk, 2010). Particularly, foreign MNEs are critically observed when entering new markets (Brammer et al., 2006). In order to obtain the local population’s confidence and gain the legitimacy for operating in a certain foreign market, CSR
activities are of importance for foreign MNEs (Aguilera-Caracuel et al., 2015; Jones et al., 2014). Consequently, the larger a company is, the more it attracts public attention (Strike
et al., 2006). Assuming a company already has a high CSP, it provides foreign stakeholders and consumers with a lesser target. Gaining consumer acceptance is easier, which facilitates
internationalization eventually. In accordance with my line of thought, I argue that a company that is socially aware and likely has a high CSP, will have fewer difficulties when expanding internationally.
Altogether, companies that perform better socially, are better perceived by customers. This facilitates internationalizing. I expect CSP to leverage a company’s internationalization. In other words, the higher a firm’s CSP level, the more internationalized is a company.
Hypothesis 1: There is a positive linear relationship between CSP and scale of internationalization
Corporate Social Performance and Scope of Internationalization
The scope of internationalization refers to the breadth and depth of multinational engagements (Aggarwal et al., 2011). While breadth explains the geographical spread of a firm’s operations, depth depicts the enterprise’s commitment within foreign markets. The notion of scope of internationalization can be comprehensively represented as the trade-off between a global versus regional firm-level orientation.
Zaheer (1995) states that MNEs face costs when diversifying geographically. This liability of foreignness arises due to unfamiliarity with the market, cultural, political, or economic differences. A high CSP of a company might help in reducing, or overcoming the liability of foreignness (Kang, 2013). In this respect, Kang (2013) further explains that CSP can be regarded as a complementary measure, or even a predictor of corporate financial performance. In particular, the overall long-term performance of a company is founded on CSP (Kang, 2013). In order to be successful in several distant markets, a high level of CSP is inevitable.
diverse range of stakeholders. Thus, CSP leverages the internationalization of a company insofar, that it is higher for globally-oriented companies, compared to regionally-focused firms. Since, the more geographically diversified MNEs’ operations are, the greater is the variety of involved stakeholders (Park et al., 2014). Moreover, diversifying companies are faced with a
significantly increasing number of different standards, norms, laws, or regulations, as Kolk (2016) determines. Public attention rises, as well (Aguilera-Caracuel et al., 2015).
Consequently, CSP is of increasing importance with a rising global firm-level orientation. One of the difficulties MNEs face when diversifying geographically is the transferability of firm-specific advantages. Many of these competitive assets are location-bound – making a global exploitation impossible (Rugman & Verbeke, 2004). A firm’s reputation might be transferable, however. Falkenreck (2010: 183) determines that “it is possible to enter new markets by transferring a company’s (positive) reputation”. Therefore, I assume that companies featuring a high CSP level can successfully transfer this advantage to foreign markets.
In general, the importance of CSP increases analogous to a rising number of involved stakeholders. Companies face a huge variety of stakeholders especially when diversifying geographically. In doing so, CSP helps in overcoming the liability of foreignness and in satisfying demands of stakeholders. Therefore, I expect a positive linear relationship between CSP and the scope of internationalization. The higher the CSP level, the more globally-oriented is a company.
Hypothesis 2: There is a positive linear relationship between CSP and scope of internationalization
The Moderating Effect of Competitive Pressures
Competitive pressures, or the overall environment a company operates in, can explain firm performance, according to Yang and Meyer (2015). Competitive pressures include, for instance, the availability of resources, present legal conditions, or existing competitors. Several scholars already assessed the explicit consequences arising out of competitive pressures. Nickell’s (1996) research accentuated that competition increases productivity. Disney, Haskel, and Heden (2003) ascertain that competition transfers market shares from inefficient to efficient companies. In general, pressures within the firm’s external context heavily impact the decision-making process of companies (Yang & Meyer, 2015).
Arend (2009) formulates that industry effects or competitive pressures are based on two different aspects. On the one hand, supply-chain forces might affect firm performance. Supply-chain forces include effects of suppliers or distributors, among others. On the other hand, competitive forces can alter firm strategies. Potential rivals are of chief importance. As Arend (2009) elaborates, up to 20 percent of the variance in firm performance and strategy can be explained by industry effects. For simplicity, supply-chain forces will be disregarded in the
following.
Based on the above-mentioned previous research, I expect industry effects also to moderate a firm’s internationalization path. As discussed in the two previous subchapters, CSP composes a competitive advantage. It eases to comply with stakeholder demands and attracts job seekers. Customers appreciate CSR actions and prefer companies engaging in it. In general, CSR activities influence decision-making processes of companies. But why are companies that have a high CSP and are under high competitive pressures rather tempted to internationalize, compared to firms operating in calmer competitive environments? The reasoning is based on several arguments.
geographically in order to hedge against a further intensification of competitive pressures in their home market. In doing so, companies search for further sources of revenue outside their home market to secure a stable cash flow. A highly competitive market is partially shaped by uncertainty. By internationalizing this uncertainty can be reduced. On the other hand, international expansion can lead to (cost) advantages that benefit the home market, as well. Cost advantages especially arise due to economies of scale and scope. For example, companies can probably sell a higher number of products when operating in several markets. Similarily, overhead costs can decrease by offering an increasing variety of goods. Finally, cost advantages can arise as a result of better access to resources in host regions. Due to this geographical expansion, companies do not only increase their scope of operations but also benefit from cost reductions that leverage their competitiveness in their home market.
On this account, I expect CSP to induce a higher scale and scope of internationalization, when an MNE is under high competitive pressures. I anticipate competitive pressures to positively moderate the relationship between CSP and scale of internationalization, respectively, CSP and scope of internationalization.
Hypothesis 3a: Ceteris paribus, competitive pressures positively moderate the relationship between CSP and scale of internationalization
Hypothesis 3b: Ceteris paribus, competitive pressures positively moderate the relationship between CSP and scope of internationalization
The overall conceptual model with the four hypotheses is depicted in Figure 1 below. In the following chapter, the underlying theoretical framework is explained and the hypotheses are tested.
RESEARCH METHODS
In this chapter the applied research methods are explained. In doing so, the sample, the data collection process, and the different variables are discussed. Finally, I expound the statistical analyses and results. In brief, I used a cross-sectional research design to investigate the relationship between CSP and the degree of internationalization of MNEs.
Dataset and Data Collection
The sample used in this research is based on the companies listed in the Fortune Global 500 ranking of 2015 (cf. Fortune, 2015). This annual publication ranks companies on a worldwide basis according to the total revenues of their last financial year. Accordingly, the Fortune Global 500 list of 2015 is based on the companies’ revenues of 2014. Various scholars already determined that this ranking can be used to investigate generally-valid patterns of MNEs (e.g. Osegowitsch & Sammartino, 2008; Rugman & Verbeke, 2004). Especially, because most of these companies engage in significant international transactions (Osegowitsch & Sammartino, 2008). Furthermore, the 500 largest enterprises are active in various industry
sectors, which yields rather unbiased general conclusions. In 2015, companies from 36 different countries and 18 different industry sectors were ranked in the Fortune Global 500
list (cf. Fortune, 2015). Using the Fortune Global 500 companies as a sample gives substantial results, while at the same time, the data gathering is relatively straightforward.
Secondary firm-level data on this sample is gathered mainly from two sources: the Orbis database and the companies’ respective annual reports. The Orbis database, established by the Bureau van Dijk (BvD), is one of the most comprehensive databases providing financial data on most firms worldwide (De Jong & Van Houten, 2014). Besides pure financial data, the firms’ lists of subsidiaries can be retrieved, as well. For more detailed financial data, the
companies’ annual reports are used. Here, especially the distribution of sales across different worldwide regions is of interest.
Measures
In order to test the hypotheses developed in the previous chapter, several variables had to be constructed. The logic behind each variable is explained in the following.
Dependent Variables
The dependent variables in this study are scale of internationalization and scope of internationalization. The former can be assessed by the FSTS ratio, according to Rugman and
Verbeke (2004). This has been proven a reliable proxy of a company’s internationalization degree (Oh, 2009). Despite this, not all Fortune Global 500 firms report these figures.
In determining the scope of a company’s internationalization, I build on the classification system proposed by Aggarwal et al. (2011). One of the differences compared to the suggested classification scheme, is the division of regions used in this study. For the purpose of this research, the different regions are Asia, Central and South America, Europe, North America, and Oceania. The scheme is based on breadth and depth of a firm’s operations (Table 1). Breadth is determined by the geographic spread of sales. Here, companies are differentiated according to their strategic orientation into domestic, regional, trans-regional, and global. Companies with sales solely in their home country are considered domestic. Firms having sales also in other countries within their region are regarded as regional. Trans-regional enterprises conduct business in at least another region, besides their home region. Finally, purely global firms have sales in all five regions. In the following step, the depth of engagement is measured by the affiliates a company has in each region. Companies are again classified into
the four strategic orientation classes. For example, a company that has subsidiaries only in its home country is considered domestic. A firm owning affiliates in another region besides their home region is regarded as trans-regional. In general, the same logic as for the classification of breadth is applied. Consequently, a matrix with ten different levels of the scope of internationalization, based on breadth and depth, is yielded. Companies can rank from purely domestic (SoI1) to truly global (SoI10). The overall classification matrix can be seen below (Table 1).
Table 1. Classification Matrix (Elaboration Based on Aggarwal et al., 2011)
Scope of Internationalization
Breadth: Geographical Spread of Sales
Domestic Regional
Trans-Regional Global
Depth: Geographical
Spread of Affiliates
Domestic SoI1 SoI2 SoI4 SoI7
Regional SoI2 SoI3 SoI5 SoI8
Trans-Regional SoI4 SoI5 SoI6 SoI9
Global SoI7 SoI8 SoI9 SoI10
Independent Variable
The independent variable in this study is CSP. Most research projects use data provided by the Kinder, Lydenberg, and Domini (KLD) database, in order to assess a company’s CSP (Barnett & Salomon, 2012; Kang, 2013; Muller & Kolk, 2010). KLD applies a standardized, independent, and objective approach towards the measurement of CSP (Aguilera-Caracuel et al., 2015). The database provides indices on several criteria, among others, community relations, corporate governance, diversity, employee relations, environment issues, and human rights issues (Oikonomou et al., 2014). Congruent to previous research, I constructed a
company’s CSP score by analyzing the three subcategories of community relations, environmental performance, and employee/labor relations (cf. Muller & Kolk, 2010). Community relations refer to, for example, a firm’s charitable giving, or support for education. Environmental performance assesses aspects, such as toxic spills, or land use. Employee/labor relations focus on, for instance, employees’ health and safety, or child labor. Each subcategory is grounded on a different number of criteria. Despite this, each subcategory is equally weighted and contributes a third to the total CSP score. The CSP score was then created by aggregating the three subscores. I choose the reference year 2013 since almost no data is available in the KLD database for any succeeding year.
Moderating Variable
The moderating variable, competitive pressures, is approximated by the Hirschman-Herfindahl Index (HHI). The HHI has been widely applied to measure concentration ratios (Chikoto, Ling, & Neely, 2015; Matsumoto, Merlone, & Szidarovszky, 2012; McIntosh & Hellmer, 2012). Even the United States Department of Justice refers to the HHI when assessing whether horizontal mergers lead to market monopolies (cf. U.S. Department of Justice, 2010). The index is calculated by accumulating the squared market shares of each company. The higher the total score, the higher is the market concentration (U.S. Department of Justice, 2010). In other words, competition is high, when the HHI is low.
In order to calculate market shares of each company, it is assumed that all Fortune Global 500 companies of the sample that operate in the same BvD major sector and that represent the same home country, are direct competitors. Moreover, a sufficient number of companies per grouping is required to yield significant results. The minimum is set at N=5. Then, domestic sales of all companies within this group are accumulated and shares on the overall (domestic) sales per company are calculated. These are considered to be the market
shares for further analyses. In total, I could identify seven different groups, according to the aforementioned classification: German enterprises in the ‘machinery, equipment, furniture, recycling’-sector (N=5); Japanese companies in the ‘machinery, equipment, furniture, recycling’-sector (N=14); Japanese firms in the ‘wholesale & retail trade’-sector (N=5); Korean enterprises in the ‘machinery, equipment, furniture, recycling’-sector (N=6); US-American companies in the ‘chemicals, rubber, plastics, non-metallic products’-sector (N=11); US-American firms in the ‘machinery, equipment, furniture, recycling’-sector (N=17); and US-American enterprises in the ‘wholesale & retail trade’-sector (N=16).
Control Variables
Further variables are included in this research to control for potential adverse explanations. The first control variable is firm size. A company’s size is often used as a control variable in studies (e.g. Banalieva & Dhanaraj, 2013; Geringer, Tallmann, & Olsen, 2000) since it can impact firm performance (Gómez-Mejia & Palich, 1997). For example, Gaba, Pan, and Ungson (2002) determine that the path of MNEs’ internationalization partially depends on firm size. Firm size is based on a company’s number of employees.
The second control variable is firm age. Analogous to the precedent control variable, research could discover an association between firm age and company performance (Galbreath & Galvin, 2008). Firm age is determined by the difference between the current year 2016 and a company’s respective Orbis data of incorporation.
Statistical Analyses and Results
The sample includes the 500 largest MNEs, according to the Fortune ranking (cf. Fortune, 2015). More than 95 percent of these companies come either from Asia, Europe, or North America (Table 2). In general, the sample is heavily dominated by companies from China and
the USA. More than 45 percent of the Fortune Global 500 firms are registered in one of the two countries. Furthermore, the listed MNEs operate in 18 different sectors (Figure 2). Only the ‘machinery, equipment, furniture, recycling’-sector can record a significantly higher number of firms, compared to the remaining sectors.
Table 2. Companies’ Origin
Frequency Percent Asia 191 38.2 Central and South America 10 2.0 Europe 148 29.6 North America 143 28.6 Oceania 8 1.6 Total 500 100.0
The overall descriptive statistics and correlations between the variables in question, are presented in Table 3. First of all, it needs to be analyzed whether any variables are significantly correlated to each other. A correlation is considered problematic at values above 0.7 (Pallant, 2013). All values are below 0.7 in the present study. The highest correlation exists, unsurprisingly, between scale and scope of internationalization (ρ=0.566).
Furthermore, I determined that the Fortune Global 500 companies were on average founded more than 60 years ago, and employ approximately 120,000 people. The high standard deviations indicate that differences within the sample are quite significant. Besides that, HHI scores range from 0.09 to 0.27, with a mean of 0.16, and companies rank on the CSP scale between -4 and 16. The mean for CSP is at 3.96. Moreover, I could assess that companies have on average 47 percent of their sales outside their home market. To further investigate the degree of multinationality, I evaluated the scope of internationalization. Since the scope of internationalization is a categorical variable, the mean value as presented in Table 3 is irrelevant. In general, I could only assess the scope of internationalization for half of the Fortune Global 500 companies, as a result of missing data. In spite of that, most of the evaluated companies rank in the classification SoI9. These companies are global in one category, breadth or depth, and trans-regional in the other one. The second most common classification is SoI6. Here, companies are trans-regional in breadth and depth. Only 1.6 percent of the companies can be regarded as truly global, and 1.0 percent is purely domestic.
Table 3. Descriptive Statistics and Correlations
Variable Mean Std. Dev. 1 2 3 4 5 6 1. Firm Age 61.38 50.55 1 2. Firm Size 119,484.90 148,010.63 .035 1 3. HHI Index 0.16 0.06 .114 -.098 1 4. CSP 3.96 3.33 .236** .021 -.211 1 5. Scale of Internationalization 0.47 0.30 .128* -.008 .235* .191** 1 6. Scope of Internationalization 7.55 2.07 .110 .001 .159 .245** .566** 1 **p<0.01; *p<0.05
In pursuance of testing the hypotheses, I conducted a hierarchical regression analysis. Since the dependent variables have continuous values, and since I assume a linear relationship between dependent and explanatory variables, the Ordinary Least Squares method is used. Six different models represent the overall regression analysis conducted in this research. In the first and second model, the effect of the control variables on the dependent variables is analyzed. Thereafter, the independent variable is introduced (models 3 and 4). In the fifth and sixth model, the moderating variable and its interaction with the independent variable are included. When analyzing the results of the regression analysis, three key values are of major importance: R², the significance level, and the standardized coefficient. R² assesses the goodness of fit of the model. Accordingly, the degree of variance that can be solely explained by the added variable. The significance level indicates if results are reliable. Thus, whether the results support the hypotheses. Finally, the standardized coefficient predicts to what extent the change in the dependent variable is based on the independent variable.
The results of the analyses are presented in Tables 4 and 5. First of all, I determined that 3.8 percent of the variance in the first model is explained by the control variables (R²=0.038). While firm age is significant (p=0.004), a company’s size is insignificant
(p=0.677). Concerning scope of internationalization in the second model, even 4.2 percent of the variance is explained by the control variables (R²=0.042). Similarily, firm age is significant (p=0.003), but firm size is insignificant (p=0.893).
In the first hypothesis, I predict a positive linear relationship between CSP and scale of internationalization. In the third model, it can be assessed that the variable CSP is significantly (p=0.004) and positively related to scale of internationalization (b=0.196). The first hypothesis is supported. Moreover, by including CSP, R² improves from 0.038 to 0.074. Therefore, the third model explains almost twice as much of the variance as the first model. Likewise, I expected a positive linear relationship between CSP and scope of internationalization. CSP is significant (p=0.001) and positively related to scope of internationalization (b=0.230), as shown in the fourth model. The second hypothesis is supported. Moreover, R² more than doubles by including CSP in the model. Thus, more of the variance is explained by the fourth model compared to the second one.
In the third hypothesis, I assume that competitive pressures positively moderate the relationships hypothesized before. No support is found for hypothesis 3a. The coefficient associated with the interaction term (b=0.119; p=0.458) is in fact not significant at the 95%-confidence level. Similarily, hypothesis 3b is rejected since the coefficient associated with the interaction term (b=0.003; p=0.816) is not significant, as well. In general, the analyzed samples for the six models are heavily reduced due to missing values. In order to deal with missing values, I excluded cases listwise. Only cases with available data for all variables are analyzed.
Table 4. Results of Hierarchical Regression (Part I)
Controls H1 H3a Dependent Variable: Scale of
Internationalization Model 1 Model 3 Model 5 Control Variables Beta Sig. Beta Sig. Beta Sig.
Firm Age .193 .004** .147 .029* .000 .586 Firm Size -.028 .677 -.030 .651 .000 .479 Independent Variable CSP .196 .004** .015 .506 Moderator Variable HHI Index .644 .451 Interaction Term CSP*HHI Index .119 .458 N of Observations 222 222 67 R² .038 .074 .266 Adjusted R² .029 .061 .049 Change in R² .038 .036 .007 *p<0.05;**p<0.01;***p<0.001
Table 5. Results of Hierarchical Regression (Part II)
Controls H2 H3b Dependent Variable: Scope of
Internationalization Model 2 Model 4 Model 6 Control Variables Beta Sig. Beta Sig. Beta Sig.
Firm Age .205 .003** .157 .021* .003 .648 Firm Size -.009 .893 -.016 .812 .000 .553 Independent Variable CSP .230 .001** .231 .286 Moderator Variable HHI Index 4.964 .527 Interaction Term CSP*HHI Index .003 .816 N of Observations 215 215 54 R² .042 .093 .155 Adjusted R² .033 .080 3.147 Change in R² .042 .051 .001 *p<0.05;**p<0.01;***p<0.001
DISCUSSION
Pesmatzoglou et al. (2014) state that CSR strategies affect the decision-making process of MNEs. While previous research only assessed that internationalization leverages CSP, this present study applies the reasoning of Pesmatzoglou et al. (2014) and investigates if CSP induces the internationalization path of MNEs. A significant positive relationship was found between both CSP and scale of internationalization, as well as, CSP and scope of internationalization. More specifically, the results suggest that increasing CSP leads, on the one hand, to a greater share of international sales in total sales of a company, and on the other hand, to a wider spread of sales and deeper engagement across regions. No support was found for the moderating effect of competitive forces.
In the following, the academic relevance, managerial implications, and limitations, as well as, suggestions for further research are discussed.
Academic Relevance
This study contributes to several streams of literature. New insights are obtained concerning the concepts of CSR, CSP, and multinationality, and as well, regarding the globalization debate. CSR has received increasing attention lately. Several scholars assessed the influencing factors of CSR strategies. Especially stakeholders were identified to wield significant influence on CSP (Park et al., 2014). Simultaneously, the motives for internationalization were under close scrutiny (e.g. Dunning, 2000; Luo & Tung, 2007). However, an association between CSP and internationalization has not been established. This study fills that gap.
As expected, I could determine that CSP induces internationalization, both in scale and scope. My results show that CSP has a larger effect on scope of internationalization compared to scale of internationalization. As previous studies pointed out, customers consider CSR
activities especially of foreign firms that enter new markets (Brammer et al., 2006). Moreover, a good CSP can be regarded as a competitive advantage, which is of importance when dealing with a great variety of stakeholders. Since the number of stakeholders and public attention are likely to increase with geographic diversification, a good CSP becomes crucial. CSP hedges a company against the unfamiliarity of the new, foreign market and helps in overcoming the liability of foreignness. Consequently, the effect of CSP is higher for scope than for scale of internationalization. As the coefficients indicate, the extent to what change in the dependent variable is based on CSP, is 17 percent higher for scope of internationalization compared to scale of internationalization. These results are in line with the aforementioned studies. Compared to previous research, the measurement of scope of internationalization has been methodologically improved, as well. I applied the framework of Aggarwal et al. (2011) that incorporates breadth and depth of a firm’s scope of internationalization. In doing so, more precise conclusions about a company’s internationalization can be drawn. Previous studies usually only assessed the spread of sales to determine the scope of internationalization.
No support was found to back the moderating effect of competitive pressures. Consequently, the relationship between CSP and both the scale and scope of internationalization does not change when the moderator is introduced. This is an unexpected finding, since previous research established a positive relationship between competitive pressures and the decision-making process of firms (Yang & Meyer, 2015). Methodological drawbacks might constitute a possible explanation for the insignificant moderating effect. This will be discussed in more detail in the ‘Limitations’-subchapter.
This study also sheds new light on the globalization debate. Currently, the literature is still inconsistent and in disagreement on whether companies are globally-oriented or regionally-focused. I could find evidence for Rugman and Verbeke (2004), proponents of the regionalism theory, insofar, that only a few companies are truly global. But more important,
my analysis confirms the point of view of Osegowitsch and Sammartino (2008), who oppose pure regionalism, that most companies rank as trans-regional.
Managerial Implications
The findings of this research stress the overall importance of CSR activities for companies. As mentioned before, several authors already determined that a high CSP constitutes a competitive advantage, which aids firms in their business activities. For instance, CSP attracts job seekers (Jones et al., 2014). The present research adds to this stream of literature and makes managers further aware of the beneficial contributions CSR can have for their business.
From the very beginning, managers should focus on CSR when striving for internationalization, since it constitutes an important decisive factor during this process. In doing so, gaining consumer acceptance is easier. Moreover, a significant CSP protects companies against unforeseen and sudden damages to their reputation. Being close to the customer also enables companies to react quickly to changing customer demands and develop new products or services. The latter is especially of importance when internationalizing since products often need to be adapted to local demands.
Limitations and Suggestions for Further Research
Although this study finds significant results for the two main hypotheses, some limitations need to be acknowledged. In addition, several fields for further research are recommended.
First and foremost, the data is based on the Fortune Global 500 list of 2015. This dataset is heavily skewed towards Chinese and US-American companies. Furthermore, the operational data of the ranked companies could differ significantly compared to previous years for
unknown reasons. A longitudinal research design, instead of the applied cross-sectional approach could yield more precise and plausible results. The latter also applies to the measurement of the CSP score. A longitudinal CSP score would rather reflect changes in CSR strategies of companies.
Moreover, missing values do constitute a major limitation in this study. I could determine the scale (N=222) and scope of internationalization (N=215) for not even half of the 500 ranked companies. Similarily, I could calculate the HHI score for only 74 firms. While the first two hypotheses were significant despite the heavily reduced sample, I assume that missing values are a major issue in terms of the moderator competitive forces. Although the moderating effect is statistically rejected, further research should investigate this area in more detail. Using HHI as an approximated value for competitive forces could be a methodologically flawed approach either. Especially, since the created sample sizes to determine market shares are relatively small. Applying a different measure for competitive forces might lead to different conclusions. In doing so, other criteria for competitive forces, for instance, the neglected supply-chain forces, could be included.
The aforementioned limitations constitute a guideline for methodological improvements. However, further research should also focus on theoretical enhancements. This study does not distinguish between the several aspects of CSP. One aspect might unfold to a higher degree on internationalization than another. Further research should break down CSP to investigate the latter. In doing so, more concrete managerial implications can be given. Differences between countries could be assessed, as well.
CONCLUSION
This study investigated the relationship between CSP and multinationality based on the Fortune Global 500 ranking of 2015. In doing so, both dimensions of multinationality, scale and scope of internationalization, were taken into consideration. Moreover, the moderating effect of competitive pressures was analyzed.
Various scholars already assessed the concept of CSR and its implications. Furthermore, researchers could ascertain that CSP increases with rising multinationality. These research outcomes are in line with the traditional concept of the M-P relationship. Despite this, no study focused on whether CSP induces internationalization. I hypothesized that there is a positive and linear relationship between CSP and both the scale and scope of internationalization. Both direct effects were found to be significant. The relationship between CSP and scope of internationalization was stronger compared to the relationship between CSP and scale of internationalization. The findings suggest that performance can leverage multinationality and that CSP constitutes a significant factor in the process of internationalizing. Managers must pay attention to CSP before starting to internationalize. In addition, the moderating effect of competitive pressures was assessed. No significant relationship could be determined, in spite of previous research indicating a positive association. Besides that, the study also contributes to the globalization debate. By applying the multidimensional framework of Aggarwal et al. (2011), I found evidence that most companies rank as trans-regional.
In closing, recommendations for further research were given. Especially, the individual effects of the elements that represent the overall CSP construct on scale and scope of internationalization require a thorough investigation. In doing so, more practical implications could be determined for managers.
ACKNOWLEDGEMENT
I gratefully acknowledge the valuable feedback of my thesis supervisor Dr. Niccolò Pisani, Assistant Professor of International Management at the University of Amsterdam. His structured approach and guidance supported me in completing my Master Thesis.
