The Rise of Corporate Social Responsibility In India
(i). Introduction
For the last fifty years, under various politico-economic and social pressures the India economy has oscillated between liberalization and socialism, often in cyclical manner. Under pressure of debts deficits, IMF and globalization India has actively taken up liberalization of its economy giving increasing importance to market economy and the Corporate Sector. However at the same time the national economy has been influence by a counter trend-‘Swadeshi’ i.e. 'buy Indian goods/made in India’. Therefore in the last decade or so with the re-advent of transnational and multinational corporations on the India economic horizon the established ways of doing business in India are increasingly under global influence. The norms of production, corporate governance, labour and corporate practice are changing and more and more organizations are learning to deliver to their stakeholders more than what is expected by the law. Even though the process is slow and the adoption of corporate social responsibility as a business strategy not common, the change is taking place.
In the India context, corporate philanthropy and industrial welfare have been put to practice since late 1800s.It is transnational corporations, under global ideological influence, and the need to engage with all stakeholders that introduce the concept of corporate social responsibility on to the India horizon. This process began only in the 1980s.The concept is not similar to corporate philanthropy, as corporate social responsibility lays stress on stakeholder involvement and on clear articulation of the mutuality of benefit. Thus corporate social responsibility is a corporate strategy for survival, and not undertaken for the mere ‘feel good factor’. As a strategy, corporate social responsibility, clearly articulates the benefits gained by the business out of any activity/programme classified as corporate social responsibility initiative. Interestingly, much like other concept and practices in India, which co-exist but conceptually, can be classified as predecessor and successor, Corporate social responsibility and corporate philanthropy also co-exist in practice.
(ii). Globalization and Evolution of Corporate Social Responsibility.
Though business has existed as a part of society, the relationship between business and society has undergone rapid modification influenced by changes in local and global environments, more so in the recent decades than ever in the past (Post et. al., 1999). In 1919,Henry Gantt, one of the pioneers of scientific management, proposed that business should serve society (Wren, 1979). In the 1960s and 1970s,social and political change imbued US management theory and practice with the’ social dimension of business’ (Paul and Hall 1995) and concepts and terms like ‘corporate social responsibility’, ‘corporate citizenship’ and 'socially responsible business’ started to emerge.
In an open global market companies have to understand the importance of local ‘roots’ and cultural systems in the market or country or the community in which they operate. In order to be successful in this multi-cultural and multi-regulatory environment, companies also have to deal proactively with their image of ‘rich outsiders’, and put in place effective environment management plans and systems. Transparency, Disclosure, and corporate responsibility for managing risks imposed on communities and environment has therefore become a universal expectation and an important global corporate strategy (Donaldson and Dunfee, 1999). Business also faced issues of spatial distance, lack of market knowledge, communication cost and problems, increase in administrative costs, varied government policies, a need to reduce the “liability of foriegnness” and increase integration in the host country. Against this backdrop corporate social responsibility may often seem to hold the answer as a business strategy (Zaheer, 1995). International companies attempting to address issue of public image, pressures from local rivals and from local stakeholders therefore started to take up corporate social responsibility as a strategic effort than as charity in the early 1980s (Dimaggio and Powell, 1983).
(iii). Corporate Social Responsibility Vs. Corporate Philanthropy
Before proceeding further detailing the rise of corporate social responsibility, it is useful to first differentiate between corporate social responsibility and corporate philanthropy. There are many terms used in literature as if they are synonymous with corporate social responsibility, though they are not synonymous in either their meaning or strategic implementation. Philanthropy i.e. 'practice of doing good to one’s fellow men’ is one-sided, it is not a relationship-therefore corporate philanthropy often does not have stakeholder interaction and responsibility as a focus, unlike corporate social responsibility (Mclntosh et.al., 1998). Corporate social responsibility on the other hand is undertaken by the company not along charitable lines or with the ‘intent to do good’ but with an explicit understanding to proactively engage with its stakeholders, thereby influencing some aspect of business. Corporate social responsibility is like an ‘enlightened self interest’ justified by the long-term benefit it helps to bring about to both long term and short profit (Fombrun, 1997). Proactive interaction with all the stakeholders is increasingly become important for doing successful business, though it is significantly different from the traditional approach of dealing only with the shareholders (Pava and Krausz, 1996). Corporate social responsibility also helps in integrating the companies to the local communities and in building of a good public image (Etzioni, 1988). Corporate social responsibilities therefore includes not only what companies do but also how they do it (Fombrun,1997) i.e. not only the social outcomes but also the means they use to achieve them are of importance.
While on the other hand the indigenous communities under increasing influence of civil society organizations asked difficult questions of the business. The customer increasingly in the north and to some extent in the south asked questions about methods of production and kinds of labour used. Thus corporate Social responsibility emerged as a strategy of the business to engage with these stakeholders and debates and project an ‘ethical image of the business’ both to the upward and downward linkages in production chains and also to the customer.
Businesses were also discovering that social, economic and political problems are economic problems, and ignoring them can have an impact on the economic well-being of companies (Kanter,1999). Social problems hinder the creation of a middle class, a middle class that is necessary for niche marketing which also effects profits (Kanter, 1999). Yet corporate social responsibility is not entirely hinged on proactively engaging with the stakeholder(s) but also rests on the externality of the public image which needs to be maintained at the local, the national and the global level. Initiating increased interaction with the community in decisions taken by business has also increased the democratization process at the local level and may well enhance social capital of the area and increase the bargaining power of civil society organizations. The public image is often governed by norms of best practice for labour, production, environment conservation, and customer relations thus giving greater impetus to the democratization process at the local level. Yet, externality of public image may influence activities associate with corporate social responsibility, and therefore mutuality of the relationship may be tipped more in favour of the corporate than the social (L’Etang, 1994) though some progress with local level democratization and strengthening of civil society may also take place as a positive by product. Externalities often dictate the terms of mutuality between business and society and increasingly “geting value for money from corporate social responsibility is becoming an important business objective” (L’Etang,1994:117) There is some proof that proactive companies with a better track record in dealing with all stakeholders, also have a better chance of enhancing their profits (Pinkston and Carroii,1996).
Reich (1998:10), claims that most companies are concerned about public image and spend “billions of dollar in brushing their image”, and that this obsession about the public image encourages participation in corporate social responsibility more than anything else. Corporate social responsibility has therefore become important for public relations as it generates opportunities to build a positive public image of the company (L’Eang, 1994). Often the fear of public shame at being ‘found out’ may force companies to adopt ethical behaviour (Pinkston and Carrol,1996) as increasingly customer has started to take decisions based both on positive public image and value for money than merely on the later. The positive image is built at the local level of influential publics, primarily to enhance the image of the company (L’Etang,1994) at all level. Yet this fear of public shame may be limited to the developed west where the press is more effective, honest and tries to act as a watchdog (The Economist, 1995).
Globalization has shifted the some power from communities and nation states in favour of TNCs and international organizations as EC, WTO, and NFTA etc. now often control terms of international trade (McMichael, 1994). TNCs are emerging as important economic organizations, and are familiar with the complexities of production and distribution in many different locations (Bonanno et.al., 1994), and they often need to tackle these complexities to their benefit. Literature is replete with examples where international business do not put into practice the ‘best practice’ norms for labour and environment as this may increase the cost of manufacture (Schmidt, 1998), though ignoring these norms may not benefit the producer in the long run, primarily because in an era of niche marketing and a informed and an informed consumer, the advantage enjoyed by one product over the other may not be just price or better or more value addition, but also be the conditions of manufacture. Therefore corporate social responsibility is not only a skill required by TNC but a business strategy to handle the complexity of production, distribution, regulation, best behaviour consumer preference or rather, creation of consumer demand, in an otherwise saturated market. This is especially true as the global production systems may lack a localized nationalistic fervour (Bonanno et.al., 1994). The expanding role of the international business in different cultures thus creates a situation where the regulations of best practice applicable at the level of the home country influence the practice at the host country level (Pinkston and Carroll, 1996) Joint ventures are often encouraged by developing countries between business of the north and the south primarily to attract foreign direct investment. This joint ventures though governed by the laws of the host country often bring best practice norms of production, labour and environment, from home countries and go beyond the letter of the law of the host country. These norms also influence the practice of other business at the host country level, often leading to percolation of best practice norms to other business as a very positive fall out. Thus foreign business and TNCs may bring better practices of engaging with all stakeholders to developing countries. This influences both the local customer and the producer and increases adoption of better/newer methods of doing business may often go beyond the letter of law and may benefit all.
(iv). Globalization, The Indian Economy and the rise of Corporate Social Responsibility
The Indian economy has been under two distinct and diverse forces of ‘swadeshi’ i.e. Buy Indian Goods’ and the need to integrate with the larger world economy. Both forces have significant economic and political implications in the region.
Liberalization of the Indian economy in the late 1980s and early 1990s also saw the reestablishment of transnational corporations on the Indian horizon. The Indian political and economic climate has been far from stable in the last decade, and it has been claimed that transnational corporations, to influence this unstable political and economic climate in their favour, have used the concept of corporate social responsibility as bait. It is worth mentioning that though the concept of corporate social responsibility is gaining popularity with the Indian business too, its practice has been under varied external and internal influences. Therefore the benefit or loss of the increase in numbers and reach of transnational corporations is open to debate in the Indian context. The Indian economy seems to have come full circle in the last seventy-eighty years since the 1920-1930s.It started as a highly privatized state in the pre-independence era: under the banner of ‘Swadeshi’ the public sector emerged strong in the early post-independence decades, yet under duress from the IMF and debt imbalances, privatization and liberalization, foreign direct investment has been encouraged in the last decade. Thus, under international pressure, India, since the 1990s,has liberalized its economy in favour of the market. Many multinational and transnational firms have therefore since set up both marketing and production oriented operations in India.
In the newly liberalized Indian economy, transnational and multinational business have to deal with the issues of labour and environment, and have also had to strategize to attract the Indian customer. The process have been designed primarily to reduce the foreign identity of these business and build an ‘Indian image’ or rather, reduce the ‘liability of foreignness' (Zaheer, 1995). The situation is precarious for the international business, as the Indian political scenario is constantly changing and coalition governments are not stable. International businesses have therefore made strategic financial agreements with the Indian government, if asked to pull out from the Indian economy (Noorani, 1999). The Indian companies, on the other hand have also got to deal with foreign competition and yet project and yet project an ‘Indian Image’. Business both Indian and foreign, therefore need to proactively deal with all stakeholders and project a positive image of stakeholder responsibility primarily to safe-guard financial interest. Against this backdrop corporate social responsibility has been gaining currency in the Indian context and may have been adopted by business as a corporate strategy.
(v). Rise of Corporate Social Responsibility in India: Internal and External Influences
Charity is an intrinsic part of the Indian culture and is encouraged as a means of salvation by most religions practiced in India. Charitable giving in the Indian business context is much like philanthropic donations of the British business (Gray, 1997), where some causes are supported at random without any strategic planning. Corporate philanthropy is like charitable giving where “it is a voluntary activity on the part of business and is not normally part of its every day business functioning”(Mclntosh et.al., 1998:288)and is not restricted to monetary donations.
A type of corporate philanthropy was put into practice under the guise of industrial welfare by the industrial houses of the 1920s and 1930s(Lokanthan, 1935). It was believed that industrial welfare could improve the living conditions of the workers more effectively than what was delivered by government agencies, primarily because workers were tied to the factory and could more effectively utilize facilities that remained under-utilize under government provision (Lokanathan, 1935).
The family run business of the 1920s and 1930s:the Tatas, the Shriram Group, and the Birla Group, were actively involved in running and establishing schools, colleges, hospitals, temples, cultural centers and training centers etc. Most of these infra-structural establishments are all well known today by the names of business that were instrumental in their establishment, for example the Shriram College of Commerce, the Birla Mandir (temple)one of which exists in almost each major city of the country, and the Tata Institute of Fundamental Research etc. These infra-structural initiatives were instrumental in popularizing the identity of these companies. The initiatives were also essential as per Independence and early post-Independence India lacked advanced centers of research and education. The infra-structural initiatives and the economics reach of these business have made the Tatas, Birlas, and the Shrirams household names in the Indian context.
Tatas, one of the major business houses of India, though did exhibit shades of corporate social responsibility by proactively engaging with stakeholders even in the early 1960s.According to the founder of the Tata business group, J.R.D Tata, “Every company has a special continuing responsibility towards the people of the area in which it is located”(Partners in Change, 1998:15). Tata business group, therefore, has a well-established community development programme at most of its industrial sites. The community development initiatives though were not a norm for Indian business, and most business were primarily involved in corporate philanthropy and or philanthropic donations, and the most popular activities were “running schools and hospitals, donations to the poor…. Most companies were content donating money, something that didn’t require too much of involvement” or made a strategic gain (BusinessWorld, 1998a:80).
Corporate philanthropy in India, started to change, (though slightly) in favour of corporate social responsibility with the re-emergence of transnational corporations on the Indian scene in the early 1990s. The Transnational corporations planning to set up operations in India needed to develop an image, or rather, an ‘Indian identity’ which the Indian customer could associate with. The need could also have been to proactively engage with media, pressure groups and other stakeholders. This was specifically important in India, as experience had shown, that ignoring any of these stakeholders was detrimental to the establishment of new bases of the transnational corporations Media, pressure groups, civil society, and politically supported grass root level movements have been instrumental in stalling establishment of new operations in India. Kentucky Fried Chicken was effectively stalled by pressure groups (Newspaper reports); the establishment of The Thapar-Dupont tyre manufacturing plant in Goa was thwarted, on grounds of poor planning for environment management, by local NGOs and pressure groups (Medeley, 1999); and the grass root level farmers movement has opposed signing of the GATT agreement by India (Madeley, 1999 and Newspaper reports).
Yet, very few business in the Indian context view corporate social responsibility as a “long term strategy to remain successful” (BusinessWorld, 1998a: 88). The motivation of business has therefore been “to avoid backlash” (Hindu Business Line, 1998). In recent times, though, the companies may not actively take part in philanthropic donations but much along charitable philosophy they want to “repay society” (BusinessWorld, 198a: 81). This attitude of ‘repaying society’ is often put to practice via ‘social development’ or ‘community development' (BusinessWorld, 1998) and it is difficult to classify such activities as corporate social responsibility, as the mutuality factor is either not present or is not well articulated.
Foreign business, when competing with indigenous companies, may need to utilize corporate social responsibility as an effective strategy in attracting the indigenous customer (Strange, 1991). For example, during a recent India-Pakistan cricket match (1998), Coca-Cola advertisement campaigns revelled in the Indian identity in India, and the Pakistan identity in Pakistan. Contrarily, though in the Indian context ownership, country of origin, and public image are not as important as value addition is (Rao, 1998). In the Indian context public image may not play such an important role as the Indian customer is more motivated by value for money than the public image of the business. For example, products manufactured by fair means and in an environmentally friendly mode of production are much more expensive. Agencies manufacturing these products are under constant pressure to improve marketing strategies as labels of ‘against animal testing'; ‘natural dies used’ and ‘artisan initiatives’ are not very effective as a selling point for the Indian customer.
International business may often need to lay stress on entry strategies that can tackle issues of competition from within and outside India (Sen, 1997), and corporate social responsibility may be one such entry strategy. International business operating in India, but with international marketing networks, have to be careful about the methods of production. The International customer is looking for more than mere cost effectiveness. It has been claimed that the Indian customer is not as active as the international customer, and is just starting “to take cue from western counterparts” (BusinessWorld, 1998a: 81), though may be at a very slow pace.
During the 1990s corporate social responsibility gained currency internationally. Rather, the investment in this sector changed from a perspective of donation to that of mutual benefit (Kanter, 1999). Internationally, issues of environment and reputation (Pava and Krausz, 1996) and child labour are given more importance when evaluating performance against issues of corporate social responsibility. These international issues popularized by the transnational corporations, in the Indian context, have influenced business ethics of Indian business too. For example the Century Mills has had to take concrete steps to be more environment friendly and efficient in utilization of resources. This has made the product competitive at the international level visa-vis cost of production, quality, and environmentally friendly methods of production (Mclntosh et.al., 1998). In general, Indian businesses abide by the rules and regulations of the state and consider this to be corporate social responsibility. This viewpoint, though, does not offer any security when dealing with the international customer. For example, the state does not have strict implementation of the child labour law in the carpet industry, yet the carpet industry is increasingly reducing number of children employed as per international trends and demands (Medeley, 1999). Therefore the Indian industry is increasingly aware of the cancellation of consignments for the international market, on the ground of harmful dyes, environmentally harmful methods of production, and utilization of child labour for production. Against this backdrop Indian business having to complete within and outside India have had to take up issues of environment and reputation more seriously than ever before. Therefore the concept of ‘niche marketing’ may not be important while targeting the Indian consumer but is of great value when targeting the international customer.To understand the rise of corporate social responsibility in the Indian context, it is important to understand the political and bureaucratic climate of the country since 1990.India, since the mid 1990s,is under constant political upheaval and no single party has achieved absolute majority in the parliament. This has led to formation of coalition governments none of which have lasted a full term of five years, till date. Therefore, a highly cautious, nervous, and speculative investment climate exists in India as the ‘Swadeshi’ fevour often sways the political parties. Due to the political instability projected figures for foreign direct investment have not been achieved. Even approved proposals may be called for re-investigation in parliament (Noorani, 1999). Financial caution related to investment is exercised not only by international business but also by Indian business. The Indian business sector, though, has the advantage of being intimately familiar with the Indian situation and makes attempts to proactively engage with the bureaucracy and the political parties. Under strict implementation of election guidelines, corporate donation to political parties at times of election have reduce drastically, but business now undertake activities supported by major political leaders or political parties to influence the bureaucracy and the political climate.
India has an extensive bureaucratic machinery, and even after liberalization and reduction in ‘license raj’ ‘rule of the license’ each new industrial set up may require 70-90 clearances from local, state and national government authorities, while the ‘Swadeshi’ fervour creates a fear of ‘being asked to leave among the transnational corporations). In an unstable political and rigid bureaucratic set-up businesses have to use caution when dealing with government and political parties. Corporation social responsibility in a situation where dealing with the stakeholders is imperative for survival, and the stakeholder stance may change overnight under political considerations, is thus gaining ground in becoming an important corporate strategy for survival.
(vi). Conclusion
The time for unmotivated philanthropy seems to be coming to an end in the Indian context, and the usage of the term ‘corporate social responsibility’ is gaining currency since the 1990s.It needs to be mentioned that progressively businesses keen on corporate social responsibility also want “some visible benefits” (BusinessWorld, 1998A:80) identifying with the issue of ‘mutuality’ of corporate social responsibility. Therefore well-established business also may have a well-established strategy of ‘corporate social responsibility’ to a) effectively deal with the instability of the Indian politico-economic climate, b) proactively deal with all the other stakeholders and c) meet the demands of international customer especially as regards to labour and environment.
Capacity of a business to deal with the political and economic climate of a region or a nation depends on its financial strength. This ability to influence often remains undisclosed and is put to practice as and when required. The marketing, production and labour departments of an industry often take care of the demands of the international customer and the industry, and are often not viewed as components of corporate social responsibility. Corporate social responsibility in the Indian context often gets translated as a) ‘social service', ‘social development’ or ‘community development’ etc.. at the local level, b) public image building at the local and national level, and c ) proactive engagement with the political and economic elite at the local, regional or national level. The engagement with the stakeholders at the local level has led to an increased interaction of the business and the development sector.
Globalization along with changed norms of production, labor and environment with conditions of best practice has influenced behavior of businesses across the world. The success of the acceptance of these norms has been outside the letter of law and the adoption has often influenced state to adopt better/improved or at least changed role for itself. The norms of resettlement and rehabilitation as dictated by the Indian state are by law adopted by joint venture companies involved in extractive industries yet many other activities are also undertaken as corporate social responsibility, which are neither detailed nor dictated by law. Growth of civil society organizations has also led to increasing democratization in the marginalized and impoverished communities creating local responses to the grant meta narratives. Yet nation state needs to evolve a new role for itself in this fast changing world. A stable nation providing good governance is thus basic requirement for developing countries in their attempt to safe guard rights and interests of their poor and marginalized.
Yet, the business are wary of investing time and resources in proactively dealing with pressure groups, media, and local people for social or community development as they often lack familiarity and the skills to do so (BusinessWorld, 1998a). Indian business has been actively involved in corporate philanthropy since the early 1900s. The charitable outlook of Indian businesses is progressively undergoing change under some external and internal influences. The increase in the momentum of corporate social responsibility has created new routes or avenues via which issues of corporate social responsibility are put to practice.
This has led to a marked and a welcome participation of corporate house in the local development agenda, showing that they do feel responsibility for the environment and people of the area where they set up business. Now it is no longer a question of what and how they help, because they have already proven, more so in the last decade, that they do want to help, and that they do have the local welfare at heart. This attitudinal shift is not a response to any industrial, commercial or government diktat, of course, certainly increases goodwill. The fact that this makes it a 2-way interaction is very welcome too, as that was the primary goal of the exercise anyway.
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