EFFECTS OF CORPORATE SOCIAL RESPONSIBILITY ON EXPORT PERFORMANCE IN VIETNAMESE EXPORTING FIRMS

FOREIGN TRADE UNIVERSITYHO CHI MINH CITY CAMPUS ---***---MID-TERM REPORT Major: International Business Economics Subject: International Business EFFECTS OF CORPORATE SOCIAL RESPONSIBILI

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

-*** -MID-TERM REPORT

Major: International Business Economics

Subject: International Business

EFFECTS OF CORPORATE SOCIAL

RESPONSIBILITY ON EXPORT PERFORMANCE IN

VIETNAMESE EXPORTING FIRMS

Class: K57 CLC3

Supervisors: MA Le Thi Thanh Ngan

Dr Nguyen Thi Phuong Chi

Ho Chi Minh City, October, 2020

TABLE OF CONTENT

INTRODUCTION 1

PURPOSE OF RESEARCH 3

LITERATURE REVIEW 4

1 CSR 4

1.1 Definition 4

1.2 Characteristics of CSR 5

1.3 Approach to CSR 7

2 Export performance 10

2.1 Definition 10

2.2 Characteristics of Export performance 10

2.3 Determinants of Export performance 13

2.4 Measures 17

3 Relationship between CSR and Export performance 24

3.1 CSR to Export performance 24

3.2 Export performance to CSR 25

3.3 Sample review 26

3.4 Methodology review 26

HYPOTHESIS 29

REFERENCES 31

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LIST OF TABLES

Table 1: Characteristics of studies reviewed 11

Table 2: Objective and Subjective measures 18

Table 3: Economic versus Non-economic measures 21

LIST OF FIGURE

Figure 1: Research model 29

LIST OF ABBREVIATIONS

Agreement for Trans-Pacific Partnership

An issue that emerges in the new era is that firms cannot just focus on economic performanceand ignore social and environmental concerns However, due to the increased globalcompetitions and public awareness of sustainability, firms should act to be socially responsibleand contribute to the local community and society at large, and it is increasingly unacceptable

to engage in unethical business practices, including child labor, environmental pollution Firmsare now creating their CSR strategy as a competitive edge in the global market The concept ofCSR appeared many decades ago (from Bowen, 1953), it gradually became the focus ofcompanies that emphasize the importance of sustainability in order to not only seek for profitbut also protect the environment and social equity Although it is gradually becoming the focus

of firms from developed countries, corporate social responsibility (CSR) is still far fromcommonplace in Vietnam In Vietnam, the CSR concept is mostly driven by MNCs,development agencies of Western donor countries and other international organizations(Hamm, 2012) However, more than 97 percent of registered enterprises are small and mediumenterprises (SMEs) (Shinozaki, 2012) The implementation and application of CSR inVietnamese enterprises is facing many

difficulties and limitations because of the limitation in the financial resources, personnel

and the size of the business Moreover, Vietnamese SMEs focus more on maximizingprofits than on social responsibility Recent studies concluded that SMEs are playing anessential role in the national economy, especially in Vietnam According to the report of theAsian Development Bank, Vietnamese SMEs account for up to 97.4 percent of allregistered firms Furthermore, recent researches have shown that CSR benefits bothbusiness and society, both large and small and medium enterprises (Udayasankar, 2007).However, awareness of CSR strategy of SMEs in Vietnam and their CSR activities areinadequate In the context of increased globalization, many free trade agreements have beeneffective such as CPTPP and EVFTA These new generation FTAs create manyopportunities for exporting firms of Vietnam into big import markets According to official

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statistics of the General Department of Customs, the total value of goods exchangedbetween Vietnam and the European Union (EU28) in 2017 reached USD 50.46 billion,accounting for 11.8% of the country's total import and export turnover However, ourexporting markets are mostly demanding countries with strict requirements on technicaland the origin of the product Therefore, Vietnam exporting firms should put CSR on thetop priority to integrate into their business strategy in order to take the advantage from theFTAs

In the next session, the paper provides a comprehensive review of many approaches toanalyze the CSR aspects and export performance of firms Following this, the relationshipbetween CSR and export performance of exporting firms in Vietnam are analyzed Finally,the research concludes the hypothesis and makes judgement about CSR and exportperformance before ending with some recommended areas for further research

PURPOSE OF RESEARCH

This study is a contribution to the CSR and export performance literature in developingcountries, particularly in Vietnam First, it introduces an explicit approach to measure CSRand export performance Second, it suggests that CSR has an important role in financialperformance and sustainable development of exporting firms Third, this study putsforward recommendations to raise awareness of CSR implementation among Vietnamesecompanies, especially exporting ones

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From 1950 to 1969:

During this period, many academic studies about CSR were first announced CSR developsmainly on words rather than action, the Administrators gradually exposed to the concept ofCSR, but very few businesses implement CSR activities (Carroll, 2008) Bowen, 1953developed one of the earliest concepts of "Corporate social responsibility Social'' that isSocial Responsibilities of the businessmen The research aimed at propagating and calling

on the business not to invade the rights of others; call for business to carry on variouscharity campaigns to make up for the inequity in the society The studies of 1963 McGuirereferring to the idea of CSR is that a company must exceed the compliance of theGovernment and benefit the community

From 1970 to 1989:

Carroll (2008) referred to this period as an acceleration of CSR awareness This period still hadmany words say rather than action But gradually there are some initiative regarding the legalaspects There were some regulations to require business to establish institutional regulations tosolve the environmental problems and the product safety In 1970, Friedman’s studiesconcluded that there is only one responsibility of business that is to maximize the profitwhile shall not engage in misleading and cheating action The research reassured theimportance of CSR in the business environment In 1971, CED (Sustainable DevelopmentCommittee) defined CSR as the operation of business that serves the needs

of the community and increases social satisfaction Carroll’s research in 1979 indicated that

CSR covered communal expectations in economics, law, ethics and charity campaigns in acertain time Carroll (1979) developed the famous “pyramid” model that clearly describesthe concept of CSR corresponding to four regions: Economics, law, ethics and charity.

From 1990 to 1999:

Some non-profit organizations that included A group of entrepreneurs had been established

to urge companies to behave more responsibly

From 2000 to now:

In this period, the concerns about CSR have significantly increased There are more actualactions from business to engage in CSR However, serious and long – term strategies arescarce Many clear and solid definitions of CSR also appear in this period According to Kotler

et al (2015), CSR is a commitment by a company to improve the welfare of society byperforming certain activities and increasing the availability of resources to perform them ISO

26000 standard in 2010 established the concept of CSR that standards of social responsibilityconsist of 7 core elements: Corporate governance, child rights, employee rights, transparentorganization’s structure, consumers and contributions to the society

On the whole, the above definitions of CSR indicate that, whether under whichexpressions, the connotation of CSR basically has a common point: Besides developingown interests, seeking profits, developing reputation, etc Enterprises are always associatedwith the sustainable development of the social community

CSR was defined to be a set of corporate actions which are discretionary and extendbeyond what the law has governed companies Nowadays, many companies considerresponsibilities as voluntary activities which comply with societal moral standards andstrategically help to reduce or avoid additional regulation

(ii) Multiple stakeholder orientation

The main focus of CSR is to benefit a variety of different stakeholders other than justshareholders Stakeholders which can be defined as "any group or individual who canaffect or is affected by the achievement of the organization's objectives" (Clarkson, 1995).Obviously, there are strong relationships between corporations and various stakeholderssuch as consumers, employers, suppliers, and local communities In other words, theinterests of all stakeholders form the basic of all goals pursued by management ofbusinesses

(iii) Managing externalities:

Externalities in CSR refers to all kinds of elements not expected in the decision-makingprocess of businesses that impact a third party not directly related to the production orconsumption of the product Environmental pollution is a typical example as a negativeexternality Regulation can force firms to minimize or compensate for the cost of the negativeexternalities, such as pollution fines, but CSR can be a better solution of managingexternalities like taking more safety measures and reduction of pollution by applying eco-friendly technology Many other CSR activities can deal with externalities involving work ersrights, employees’ welfare, relationship between corporates and stakeholders,

(iv) Alignment of social and economic responsibilities

Whilst CSR may represent the shift from a narrow focus on shareholders and profitability to abroader focus on the interests of various stakeholders, it should not, however, conflict withprofitability Many definitions of CSR emphasize that it is about finding a point where

social and economic benefits meet This feature has raised difficult questions for managers

of companies: “How can firms benefit economically from being socially responsible?” or

“How to put the society’s progress at the heart of a company’s economic success?”

(v) Beyond philanthropy

CSR activities sometimes are misunderstood as philanthropic works or communitydevelopment projects CSR extends beyond philanthropy because of the impacts it has onprofitability, human resource management, marketing, and logistic support which are allpart of the core functions of business organizations Moreover, CSR can be considered as

an essential part of business strategy due to its potential capability to satisfy stakeholderexpectations and to achieve organizational objectives simultaneously

1.3 Approach to CSR

According to previous research, strategic CSR is defined as instances in which companies gobeyond compliance, engaging in actions that can advance social and environmental causeswhile seeking to capture value for the company through stakeholder management and byremaining consistent with their business strategy (Baron, 2001; Husted & De Jesus Salazar,2006; McWilliams & Siegel, 2001; Porter & Kramer, 2006; Windsor, 2007) CSR could beconceptualized based on product - level differentiation and firm - level differentiation(McWilliams & Siegel, 2001; McWilliams, Siegel, & Wright, 2006; Porter & Kramer, 2006).Regards the firm-level CSR-based differentiation strategy, it refers to companies’ social andenvironmental actions that are valued by stakeholders while a product-level CSR-baseddifferentiation strategy relies on technical product attributes (Barin Cruz et al., 2015) BarinCruz’s study adopts product-level and firm-level CSR as the components of a CSR-baseddifferentiation strategy of export firms to build and sustain their overall differentiation-basedexport strategies In detail, this research investigates the effects of tripod strategy includinginternal resources, export intensity of market and institutional-based factors on a firm’sdecision to adopt a product-level or firm-level CSR-

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The stakeholder theory is now one of the most popular theory bases for CSR research.Stakeholders can be defined as "any group or individual who can affect or is affected by theachievement of the organization's objectives" (Clarkson, 1995) Zhang and Shengtian (2014)stated that the stakeholder model is more objective, convenient and straightforward, compared

to other concept models Mishra et al (2013) argued that CSR is voluntary actions on the legalbasis of firms to ensure benefits for stakeholders such as employees, communities,environment, investors, and customers, etc Obviously, there should be strong relationshipsbetween companies and stakeholders which means that stakeholders' interests form the basis ofall goals pursued by management of businesses According to Vu et al,

(2020), in order to have the most general assessment of CSR, businesses should identifyCSR from the theoretical perspective of stakeholders In regard to use stakeholder theoryfor CSR research, Vu et al, (2020) is one of the representatives: they aimed to explore theimpact of corporate social responsibility (CSR) on the financial performance of textile andgarment export enterprises in Vietnam To be more specific, the impact of CSR on thefinancial efficiency was assessed by all 6 aspects of employees, the environment,customers, suppliers, investors, the community through 3 mediate factors: employeecommitment, reputation of the business and government support They considered theimpact of CSR on mediate factors and then the impact of mediate factors on financialperformance of exporting firms.

Many other famous approaches of CSR have been introduced so far: Carrol in 1979 developedthe CSR “pyramid” theory that suggested companies should undertake 4 types of businessresponsibilities: (1) Economic responsibilities: production of goods and services thatconsumers need and want; (2) Legal responsibilities: compliance with the law and stateregulations in force; (3) Ethical responsibilities: to behave correctly, fairly, and reasonably,meeting certain ethical standards, and to minimize harm to related parties in society; and, (4)Philanthropic responsibilities: the involvement of companies in programmes that promotesocial welfare and improve citizens’ quality of life Dahlsrud (2008), described CSRapproach by a series of multi-dimensions: consideration of economic, social, andenvironmental issues, stakeholders, and voluntary nature Porter and Kramer (2006, 2011)created a new look on CSR: creating shared value (CSV) which puts

the society’s progress at the heart of a company’s economic success

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2.2 Characteristics of Export performance

2.2.1 Fieldwork characteristics

These reviewed studies were conducted from different countries including developed anddeveloping countries that makes the advantage for this approach which is providing astrong indication of external validity of the models Almost reviewed research restrictedtheir studies in certain regions of the country such as Cavusgil and Zou (2014) maderesearch in Illinois, Indiana, Michigan, Ohio, and Wisconsin of The United State Thesefindings, however, were a lack of countries in Asia that were not paid attention fromprevious authors

The major previous studies made research about multiple industries that focused onmanufacturers of industrial rather than consumer products In study of Cavusgil and Zou(2014), there were 16 industries in which 47.5% were related to consumer products, 42.6%

to industrial products, and 9.8% to products that could not be classified clearly The mainreason for this assessment is controlling for industry-specific influences like types ofproduct and level of technology, but this assessment also made authors unable to generalizethe results to other different industries that cause doubt on the external validity of thestudies

About the size of firm aspect, there are two points: the first point is the different criteriabetween studies such as number of workers, annual sales making comparisons more difficult;and the second one is the definition of term “small”, “medium”, “large” company

measured in variety standards in an international context From the Table 1, the majority offindings focus on small and medium size of firms that proves the important role of them inany economy.

Table 1: Characteristics of studies reviewed

Wolff and Pett (2000)

O’Cass and Julian (2003)

Donald S Siegel and

TurkeySpainUSAPortugal

Greece

India,TaiwanBrazil

Sample Firm Industrial Data size size sector collection

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Luciano Barin Cruz and

Mario Ogasavara (2010)

Trong Lam Vua, Ngoc

Toan Nguyen, Xuan Hung

Textile,

GarmentNguyen and Hong Linh

Nguyen (2018)

Nguyen Thi Canh, Nguyen

Thanh Liem, Phung Anh

Thu and Nguyen Vinh

Khuong (2019)

2.2.2 Sample and data collection

There are many reviewed findings measuring with small size of sample, which was under

100, that cause the untrusted result of external validity and generality due to it may notrepresent for the population and also limit the use if adequate statistical analysis to checkthe relationship, such as Contractor et al (2005) with 61 samples or Robertson and Chetty(2000) with 70 samples

About collecting data, almost reported findings used surveys for data collection that partlyexplain the difficulty in physically approaching companies about geography These datawere collected from individuals responsible for exporting activities However, the approachbased on single informants by the researcher was a pragmatic decision because few people

in the company have the right to access the information being sought For example, there isonly one person dealing with export activities who can access the information ofperformance in many firms, especially in SMEs

The use of a single respondent per firm could cause some issues relating common methodbias To solve these problems, Podsakoff et al (2003) created various ways to monitor forcommon method variance and the benefits and drawbacks regarding these techniques that

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are such as: (1) hiding the name of respondents; (2) creating no right or wrong answersthought for respondents; (3) counterbalance the order of the approach of the independentand dependent variables Beside that, previous authors also used statistical remedies tocontrol for method biases to dealing the problems.

2.3 Determinants of Export performance

Internal indicators are adjusted based on resource-based theory whereas external indicatorsare justified by contingency-based theory Both board theories are widely used to approachdeterminants of export performance into internal and external indicators The main context

of resource-based theory is how a company sustains its competitive advantages in the longterm that are determined by core resources such as employees, materials, construction andhow to combine them in a unique way (Conner and Prahalad, 1996) Firm was defined as acombination of human and physical resources including the heterogeneity across firms,which is explained in different indicators (Makadok, 2001) The resource-based theoryhelps to explain that the export performance of a firm is determined by firm-level activitiessuch as experiences, competencies and size of firm due to this theory pointed out the coreproblem of how a company can attain its performance to become be more superior thanother firms in the same markets (Dhanaraj and Beamish 2003) In contrast, thecontingency-based theory mentioned external factors or environmental factors influencingthe strategy and performance of a company There were three basic premises approached

by authors of previous studies The first way was the structure–conduct–performanceframework of industrial organization as the research of Cavusgil and Zou (1994) Thesecond premise was the environment of resources impacting firms and the third one is that

a company can develop and maintain appropriate strategies to control its dependence(Pfeffer and Salancik, Hofer and Schendel, 1978) According to this theory, exporting isseen as a strategic action of a company to respond to external and internal factors

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2.3.1 Internal factors

The majority of reviewed studies used firm-specific variables widely as indicators ofexport performance The characteristics of the firm, the export marketing strategy andmanagement characteristics of the firm were the common variables cited in this category.Firm characteristics are identified to be correlated with export performance through three mainsub-categories: capabilities and competencies, the size of firm and international experiences.The capabilities and competencies of firms such as product quality, product line, skills ofresearching and developing products, cost and customer services helps a company creategreater export performance than competitors Piercy et al (1998) mentioned skills in productdevelopment and customer relationship playing an important role in assessing superior exportperformance, whereas resource commitment and market knowledge was considered as the mostmeaningful indicators affecting export performance of the firm as Drucker (1993) As aresult, the firm’s capabilities and competencies identify the idiosyncrasies in differentinternational markets then develop the core export marketing strategies and execute themeffectively to approach higher export performance (Cavusgil and Zou, 1994) About therelationship of export performance and the size of firm, it is a controversial issue (Brouthersand Nakos, 2005) The larger companies show greater financial, physical and human resourceswith higher production capacity, level of economies of scale and lower rate of risks in theforeign markets that leads to positive link of size-related determinants and export performance(Bonaccorsi, 1992), while there were some cases in contrast such as Contractor et al 2005;Wolff and Pett 2000 showing this relationship was not significant Thus, the results ofrelationship depended on the criterion and the measurement scale The last sub-categories areinternational experiences of firms with the mixed results in previous research For the positivelinkage, a firm, which has knowledge about the differences in environmental conditions, hasactions to select and approach more attractive markets for exporting to gain higherperformance (Cavusgil and Zou, 1994) In contrast to the negative one, the younger firms areforced to integrate oversea

markets as cost advantages and limited evaluate available resources in domestic markets (Ursic and Czinkota 1984).

Another internal factor that is export marketing strategy is usually used by previous authors

to evaluate export performance of one company Export marketing strategy is constructedfrom combining skills and resources of a firm, environmental opportunities and managerialpreferences that affect directly to export performance of the firm The large number ofprevious researches accessed the elements of export marketing strategy such as product,price, promotion and place like the standards However, the success of export performancewas proved based on an appropriate fit between them, not the adoption of each element onmarketing strategy (Cavusgil and Zou, 1994) This view is result from the contingency-based theory that the success of export performance of a firm depends on the context ofoperation and the appropriate matching of contingency elements to fit its context (Zeithaml

et a., 1988)

The last factor in the internal category that is adopted by previous authors in theirresearches to access export performance is management characteristics Axinn (1988)found the result in her study that the knowledge of managers is closely related to theadvantage of exporting activities and is the most significant determinant of firm’sexport performance Thus, management commitment in export is a significant indicator

to determine export performance which is success or not In this conclusion, Cavusgil andZou (1994) and O’Cass and Julian (2003) explain that when the commitment of managers

is high, they are more careful in planning the entry and allocating managerial and financialresources sufficiently that leads to the decrease in uncertainty and the increase in theeffectiveness of marketing implementation

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