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Sustainable Development Innovation and Multinational Firms

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Sustainable Development Innovation and Multinational Firms Ihsen Ketata & John R. McIntyre Georgia Tech Center for International Business Education and Research Working Paper Series 2007-2008 Working Paper 016-07/08 http://www.ciber.gatech.eduFor further information: email: [email protected] October 2006 (c) 2006Sustainable Development Innovation and Multinational Firms Sustainable Development Innovation and Multinational Firms Ihsen Ketata John R. McIntyre Prepared for: International Research Colloquium on Multinational Enterprise and Sustainable Development: Strategic Tool for Competitiveness Center for International Business Education and Research Georgia Tech October 19-20, 2006. Abstract: A multinational firm can decide to adopt sustainable development strategies in order to respond to stakeholders’ pressures, to gain a competitive advantage, or to satisfy its ethical concerns. In order to adopt these strategies under competitive, environmental, and social pressures, investing in SDI could be an adequate strategy to be used by these companies. Managing SDI is extremely important for a multinational firm since it can cause its success and its failure. In addition, such management could be extremely difficult and risky. In fact, there is a risk that employees do not understand the utility of implementing SDI projects, which could result in resistance from them and consequently to considerable complications inside the multinational. In the previous research about SDI, many researchers studied the impact of the stakeholders on SDI. Other researchers were interested in the marketing aspects of SDI. The goal of this paper is to help understand how to implement a SDI in a multinational firm. We demonstrate that in order to successfully implement SDI, multinationals should promote information sharing between employees, decentralize decision making, encourage continual interaction with corporate marketing, and evangelize the importance of sustainable development policy. 2Sustainable Development Innovation and Multinational Firms Introduction Considering the pressures that multinationals and their subsidiaries face, one way in which they can compete more effectively is to adopt sustainable development strategies. Adoption of such strategies can open up new opportunities for productivity, growth, and profits. In order to adopt these strategies under competitive, environmental, and social pressures, investing in “Sustainable Development Innovation” (SDI) (Hall and Vredenburg, 2003, p.61) could be an adequate strategy to be used by these companies. Managing SDI could be extremely important for a multinational firm, whose efficiency and success often depends on adopting new strategies. Managing SDI in an efficient way can make the difference between success and failure for multinational firms. Because SDI can lead a multinational to be more competitive and more successful, several international firms are investing in this direction. However, managers of multinational firms may face significant challenges while attempting to integrate SDI into their current strategies. In fact, managing such projects could be extremely risky since employees may not understand the utility of investing in SDI and may consider such investment a loss of time and money. There are many important dimensions in managing SDI. Most of the researchers who were interested in SDI wrote about the impact of the stakeholders (Hall and Vredenburg, 2003; Hall and Kerr, 2003) and the marketing of the SDI (Ottman, Stafford and Hartman, 2006; Hall and Kerr, 2003). This research, in the other hand, has a goal to help understand how to implement a SDI in a multinational company. In the other words, the challenge is how to communicate with the employees and how to inform them about these projects, how to motivate employees, and how to make them feel part of the project. 3Sustainable Development Innovation and Multinational Firms The goal of this article is to make the implementation of an SDI project more accessible to multinational managers who seek to improve their sustainable development image and to be more competitive. In order to do so, this article will first present why multinational firms are adopting sustainable development strategies and how they are implementing them. Then we’ll explain SDI, its importance, and the challenge of its management. This paper will also study the Shell Case in order to show the difficulties of SDI management and the Air Liquide Case to demonstrate an example of such management. 1. Multinational Firms and Sustainable Development Because of the economic evolution characterized by globalization and the absence of an international regulatory system, multinational companies are receiving many pressures from the stakeholders in order to adopt a responsible behavior and conform to certain ethical norms (Christman and Taylor, 2002, Hartman and Stafford, 2006). In fact, the absence of an international regulatory system could tempt multinational firms to adopt unethical behavior especially in developing countries where governments compete with each others to attract many of these companies. Nike, for example, ignored having Asian sub-contractors using young workforce. Therefore, non governmental organizations are increasing their pressures for social responsibility on multinational firms. Greenpeace, for instance, opposed the use of hydrochlorofluorocarbons (HFCs) by Coca cola in Sydney, Australia during the 2000 Olympics due to the fact that using these chemicals is harmful and helps accelerate climate change. In response to these pressures, Coca Cola promised to stop buying hydrochlorofluorocarbon, to increase its investigation of other refrigerants, to ask its suppliers to cease the use of HFCs by 2004, and to 4Sustainable Development Innovation and Multinational Firms decrease its use of energy by 40% before 2010 (Hartman and Stafford, 2006). Greenpeace also protested the British Shell company’s decision to sink the oil tanker, Brent Spar, in the North Atlantic in early 1995. Consequently, the sales at German Shell dropped by approximately eleven percent in June 1995, leading to the reversal of Shell subsidiary’s decision to dump the oil (Christman and Taylor, 2002). Because consumers can react very quickly in consideration of any firm’s lack of social responsibility, Stakeholders’ pressures and especially NGO’s pressures have very strong


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