23 Feb 2004  Research & Ideas

How Corporate Responsibility is Changing in Asia

Expectations are changing on the role multinational corporations play in improving the Asian communities in which they serve.

 

To what extent do multinational corporations have an institutional obligation to the Asian countries in which they serve, and does that obligation include holding higher standards than Asian law requires?

These questions were debated at the panel discussion "Multinational Corporate Conduct in Asia," held at the Asia Business Conference on February 14 at Harvard Business School.

Ever since the public outcry in the 1990s over the wages paid by Nike to its Asian factory workers, the issue of multinational corporate social responsibility (CSR) and its impact on a brand image has become a permanent reality in corporate boardrooms—whether or not executives have a deep-seated passion for the social issues involved.

Expectations are changing, agreed panelists. Oil corporations, for example, are well versed in the standard tradeoff of providing schools, roads, and medical clinics in exchange for the right to drill in developing countries. But should companies be responsible for government services? What happens when MNC investment moves on?

Something has gone wrong with the spirit of corporate social responsibility when it becomes akin to outsourcing the state.
— Regina M. Abrami

Noting how companies often partner with nongovernmental organizations (NGOs) to carry out social improvement projects, HBS assistant professor Regina M. Abrami nevertheless contended "something has gone wrong with the spirit of corporate social responsibility when it becomes akin to outsourcing the state.

"This is not to say that the services provided by MNCs are not beneficial, but they are not the foundation for sustainable development if what remains behind is inefficient, and possibly corrupt, government."

Abrami's research focuses on cross-border mechanisms such as treaties, tariff policies, and regional trade agreements that can be put in place to enhance the effectiveness of CSR and a country's long-term competitiveness.

When international quotas on textiles and garments are eliminated at the end of this year, for example, multinationals will have more options than ever when deciding where to source their goods and invest. The countries that can offer the best deal in terms of infrastructure and government stability—not just low wages—will come out ahead, she added.

Lessons from Nike

As director of Press for Change, a nonprofit that focuses on workers' rights in the developing world, Jeffrey Ballinger was the first to criticize Nike's labor policies in Asia. When he arrived in Indonesia in 1988, the country's daily minimum wage was about $0.86. By 1997, it had tripled to just over two dollars. Despite predictions that boosting wages would drive companies to outsource elsewhere, Ballinger said the number of Nike employees in Indonesia grew from 20,000 in 1988 to 110,000 in 1997.

"(Nike) still thought it was a pretty good deal," he said. Even if the minimum wage rose to $5 a day, it would only cost about $1.50 to make a $70 pair of sneakers.

Maria Lin, a partner at the intellectual property law firm of Morgan & Finnegan, worked with Chinese leaders in the early 1980s to develop the country's patent laws and, as a trained scientist, was involved in a number of major patent cases in biotech.

There are profound differences between what is considered truth in Western societies, where belief in an absolute god and an absolute truth is prevalent, and Asian societies, where truth is connected to the more open concept of enlightenment. "That difference can create issues when our job is to discover facts," said Lin, who resigned from a case after a client manufactured documents for their case. "I try to demonstrate that they can get a better result by being more open," she added. "I convey a sense of social responsibility by abiding by legal terms of conduct and hope that they take their cue from that."

Protecting workers

Peter Yu, an assistant professor of law at Michigan State University, argued that while it's true that labor is cheaper in other countries because workers are not protected, the cost of living is lower as well.

"It's not necessarily a bad thing to have diversity in international labor laws," he said. "You don't want to create a super government that countries will rebel against."

Giving workers the ability to self-organize offers the surest path to change, said Ballinger. The number of strikes in Indonesia quadrupled after USAID-sponsored surveyors educated workers about their rights.

Policy also plays a key role, Abrami added. In the early years of state-building, Singapore leader Lee Kuan Yew may have busted unions, but he also raised wages at the same time. Moreover, he decided what kind of foreign direct investment he wanted and made it clear that the vision for Singapore was that it not be a nation of shantytowns. Countries like this that try to write the terms of their engagement with the global economy, appear time and again to gain competitive advantage over others.

About the author

Julia Hanna is an associate editor at HBS Bulletin.