|
|
1. Introduction
With the advent of the advent of the 21st century, the sustainable development has been a focus question all over the world. Many corporations have been engaged in the campaign and perform actively. MNEs (multinational enterprises) as companies with large business scale and cross-countries business scope are supposed to take more responsibilities for society and environment. On the other hand, such actions really add values to theses corporations own in a long-term. The first part of this essay analyzes the external and internal incentives that drive MNEs to adopt sustainable strategies respectively. The second part takes Shell, an oil company, as an example to illustrate its changing role and activities in the field sustainable development.
2. External and Internal Incentives
2.1 External incentives
External incentives here mean drivers that can affect the multinational companies outside the entity of the company. The following paragraphs discuss the external incentive from the aspects of regulation, institution and stakeholders respectively.
2.1.1 Regulations
MNEs meet regulatory pressures for local responsiveness as well as for global integration of environmental strategies. Regulatory pressure for national responsiveness is mainly due to the differences of environmental regulations at the national level which differ across nations. Even between countries of similar wealth and cultural background environmental regulations differ usually. For instance, different with other advanced countries, Britain was very reluctant to prevent SO2 releasing from power station. Environmental goals, priorities, and regulations differ to an even greater extent between countries of different levels of economic development (World Bank, 1992). These cross-country differences suggest that multinational companies might be best able to adapt to local conditions within each country they operate in by determining their environmental strategies on a country basis.
Regulatory pressures for global integration result from the fact that many environmental problems caused by industrial activity are not constrained by country borders. For example, some environmental problems are frequently global (such as green house effect) which has lead to increased cooperation between governments from different countries in the area of environmental regulations. Between 1949 and 1959 two multilateral environmental treaties came into force and eleven in the 1990s alone (Economist, May 30, 2000). On the one hand, these regulations restrict MNEs’ various environmental conducts by different national standards. On the other hand, the regulations enhance the MNE’s conduct to subsidiaries in terms of sustainable part.
One of the areas of increasing global environmental government cooperation is the regulation of climate change. Climate change is a global issue because all emissions of greenhouse gases regardless of their origin affect the climate. The Montreal Protocol for the protection of the ozone layer signed in 1987 requires an immediate freeze of the production of ozone depleting chloroflourocarbons (CFCs) and to halve their output by the year 2000. The climate convention signed in Rio de Janeiro in 1992 is a first step towards reducing other greenhouse gases (mainly carbon dioxide). This rise in international and global government cooperation in the area of environmental regulations leads to a harmonization of regulations across countries. This makes it beneficial for multinationals to formulate and implement their environmental strategies on a global basis.
2.1.2 Institutional pressures
Multinational firms face increasing institutional pressures to globalize their sustainable conduct. Nowadays quite a number of industry associations advocate the conduct of worldwide environmental standards by their members. For example, the Responsible Care Program of the Chemical Manufacturers Association which contains an environmental code of conduct for member firms has been adopted by Chemical Industry Associations in many countries. In addition, international environmental management standards such as the ISO 14000 guidelines or the European Union’s Eco-Management and Audit Scheme (EMAS) are becoming increasingly prevalent. These certification procedures will extend requirements for environmental management systems beyond national borders. As a result of these pressures, multinationals increasingly implement their environmental strategies on a worldwide basis.
Industry associations permit explicit normative or pressures on companies (DiMaggio and Powell, 1983) that require adoption under the threat of formal of informal sanctions. Firms need to abide by these rules and requirements in order to achieve legitimacy and support (Meyer and Rowan, 1977). Organizations also look to other organizations to identify legitimate behavior. This is especially true for organizations confronted with high uncertainty (DiMaggio and Powell, 1983). Environmental management is characterized by high uncertainty because the scientific and regulatory uncertainties in the environmental area are both large. Thus, the implementation of worldwide environmental standards by the firm’s competitors also contributes to institutional pressures to globalize the firm’s environmental strategy.
2.1.3. External Stakeholders
Resource dependency and institutional theory suggest that external drivers establish the primary constraint on strategic choice. This is because the external context provides the firm its accumulated resources as well as with legitimacy. As a consequence, the firm must be responsive to the stakeholder groups that provide these resources and legitimacy (Freeman, 1984).
Stakeholders that are concerned with social responsibility and environmental protection include governments, industry associations, the firm’s customers, and the general public. Some of these groups are becoming increasingly interested in the firm’s sustainable strategies and performance on a global scale and thus impose pressures for global standardization of environmental policies across countries. The firm’s reputation for social responsibility within a country is determined not only by the firm’s environmental performance in this country, but by the firm’s worldwide social and environmental performance. In addition, industry initiatives and associations promote implementation of worldwide environmental standards.
On the other hand, stakeholders in different countries still have different preferences for environmental quality and social responsibility and require the firms to adapt their relevant strategies to each country. Thus cross-country differences in stakeholder pressures will reduce the level of global standardization of environmental strategies and social strategies.
2.1.4 Customer
Although customer is included in stakeholders that has been discussed above, as an important incentive that drives MNEs’ conduct related to social responsibility and environmental protection, customer still need to be analyzed carefully through its behaviors and reflection to a company’s performance.
Customer preferences for social and environmental quality differ across countries. Customers in lower income countries are generally more concerned about the product price than about the environmental responsibility of the company manufacturing the product or the environmental characteristics of products than customers in higher income countries. As a result of this, the potential for achieving differentiation advantages from a responsible environmental strategy differs across countries. These cross-country differences suggest that multinational companies might be best able to adapt to local conditions within each country they operate in by determining their environmental strategies on a country-by-country basis.
However, even if the actions of a multinational company subsidiary in one country do not directly affect the environmental quality in foreign countries, cross-country reputation effects might lead to repercussions of environmental strategies across countries. This is because customers are increasingly reaction to corporate mismanagement in foreign countries.
Cross-country reputation effects can be illustrated by the problems caused for the German Shell subsidiary in 1995 by the decision of the British Shell subsidiary to sink the oil platform “Brent Spar” in the Atlantic. Once the British Shell company decided to sink the “Brent Spar”, protests organized by Greenpeace in Germany lead to a drop in sales of German Shell gas stations by about 11 percent in June 1995 and the company’s consumer rating in Germany “crashed to the bottom”. (Financial Times, 8/17/98). As the result the British Shell company reversed its decision.
The importance of cross-country reputation effects suggests that MNEs will benefit from designing and implementing their environmental strategies on a global basis. Designing and implementing environmental strategies on a global basis will avoid one-side decisions on environmental strategies by one country subsidiary which might be costly for subsidiaries in other countries.
2.2 Internal incentives
2.2.1 Centralization
The degree to which decision making is centralized worldwide or decentralized across countries is another important internal driver of globalization of strategies (Hedlund, 1981). Decisions about environmental and social strategies can be made at the level of each individual country, or they can be made at the regional or worldwide level. Thus, the dependence of subsidiary turns to be very important. The level at which these decisions are made can be critical especially in case of interdependencies between environmental strategies in one country and worldwide performance of the multinational company. Since multinational companies will inevitably meet the problem that decisions from the head quarter may be refused by managers of subsidiaries in different areas and the reasons are various. For example, subsidiary managers will turn down the decision that paying environmental risk assurance for employees since local law hasn’t laid out it and the cost may affect business performance. In the case of the Brent Spar, an environmental strategy decision made by the British Shell subsidiary negatively affected the performance of the German subsidiary. Thus, the distribution of environmental decision making power within the MNC as well as organizational control and coordination mechanism (Martinez and Jarillo, 1989) with regards to environmental strategies are another important aspect important aspect of sustainable strategy globalization.
2.2.2 Geography incentives
Exploiting location-specific advantages which result from differences in capital and product markets, or government policies across countries is one of the driving incentives of an MNE’s global sustainable strategy (Kogut, 1985). Multinational companies can benefit from location advantages by locating different elements of their value chain in different strategic locations. Locations can be strategic for two reasons. First, they can provide cost advantages relative to other locations according to factors such as lower factor costs, trade barriers, and transportation costs. Second, they can provide access to certain manufacturing investment increased only slightly from 25.7 percent in 1973 to 26.5 percent in 1985 while the proportion of FDI of the chemical industry made in developing countries actually fell during the same time period (Leonard, 1988). Therefore, an MNE have to consider the geography incentives when they settle environmental and social strategies on a global basis and think of how to reasonably distribute different resources.
An alternative argument is presented by Porter (1995). They argue that stringent environmental regulations increase the international competitiveness of domestic firms relative to foreign firms because they induce firms to innovate environmental technologies. This argument implies that high regulation countries develop country capabilities in the development of environmental technologies that make them a strategic location for environmental R&D. Thus, we should observe that multinationals locate their environmental and social R&D addressing as issue in the country with the highest regulation of this issue. This proposition has to the best of my knowledge not yet been empirically analyzed.
3. Shell-The Leader of Sustainable Develop in Oil Industry
Over recent decades, the role of international business organizations with society has received increasing attention. The terms “CSR (corporate social responsibility)” and “sustainable development” are popular topics emerging in different public conditions. Shell is regarded as one of the most competitive companies in oil industry. In addition, different with traditional concept of oil companies which frequently pursuing profits maximization and polluting environment, Shell plays the role as a pioneer in sustainable development and social performance these years.
3.1.1 Stakeholder management----Shell's strategic transformation
Stakeholder management which has been successfully implemented in Shell contributes greatly to Shell’s sustainable strategy. Shell's strategic transformation is often identified as beginning in 1994 when then chairman, Cor Herkstroer prompted a reexamination and review of the Group's organization and structure due to the company's poor financial performance relative to its competitors in the industry. This strategic change was vastly accelerated in the wake of the controversy surrounding Shell that erupted in 1995, the Brent Spar. The planned sinking of the Brent Spar, an oil storage buoy in the North Sea, sparked intense protests from Greenpeace, consumer boycotts, attacks on service stations in Germany, and calls to halt the sinking from the national governments of several western European nations (Livesey 2001; Mirvis 2000; Post, Preston, and Sachs 2002). In response to the protests, Shell ultimately reconsidered plans and worked with stakeholders to devise an alternate means for disposing of the Brent Spar.
3.1.2 Stakeholder Management at Shell
Stakeholder management at Shell, referred to as Sustainable Development, translates into integrating economic, environmental and social considerations into management decision-making, balancing short-term priorities with longer-term needs, and engaging with stakeholders in order to make better decisions (Shell International, 1998). Finally, Shell’s sustainable development strategy would also contribute to the long-term competitiveness of the firm. Thus, this strategic transformation was grounded in both normative and instrumental justifications that were relevant to both internal and external stakeholders. The sustainable development strategy consisted of two key components:
1) Sustainable Development Management Framework (SDMF), a management system geared toward institutionalizing sustainable practices into the businesses.
2) Development of Key Performance Indicators (KPIs) to monitor progress and drive continuous improvement in performance.
The SDMF is a management tool designed to introduce sustainable development to managers in a consistent and structured way. The most fundamental features of the framework included the integration of the economic, environmental, and social elements in day-to-day business practices, engagement and learning from stakeholders, and transparency through open reporting and verification. The framework consisted of eight interlinking steps: identify stakeholders and risk and opportunities, prioritize risk and opportunities and set objectives, define strategy, targets and plans, mobilize resources, carry out plans, monitor and measure, report and communicate performance, review and incorporate learning, and demonstrate leadership (Shell International, 1998).
KPIs are developed in large part to satisfy external stakeholder demands for knowing more about the true company. Shell managers also recognized that the KPIs could serve as a valuable internal management tool that would help to set targets, measure basic performance, and motivate continuous improvement in the company's various businesses.
The SDMF and the KPIs are the critical components of Shell's stakeholder management strategy. While each of these components was developed successively, work on each component continued to advance as the next component was initiated.
3.2 Shell’s 3P theory
More than 30 years ago, Shell has been aware of the importance of \"Sustainable Development\". In 1976, \"Shell's business principles\" was enacted. This is Shell's worldwide code of conduct. Principle stipulated that sustainable development was the company's core philosophy and values.
People (concerned about the human), Planet (be responsible for the Earth) and Profit (the pursuit of profit) were the company's three core strategies of the \"3P\" principle in terms of sustainable development. Commitment to sustainable development commitments means to find balance between the impact of the economic, social and environmental; to find balance between the short term and long-term; All of Shell's plans have to be established on the basis of health, safety, the environment and diversity. In addition, the plans of Shell are responsible for the stakeholders including shareholders, customers, employees, government and society (Shell business principle, 1976).
Each new employee coming to Shell is most impressed by the company’s instilling the concept of sustainable development, which has become one of the unchangeable habits of the company for many years. To this end, Shell has developed seven interrelated standards of sustainable development performance including: maximize yield; feasibility of implementation; impact on the environment to a minimum; effective use of resources; respect and maintain the interests of the citizens; promote community to maximize effectiveness; allow project stakeholders to participate. A company's profitability and cannot be separated from its principles, it is necessary to act responsibly and maintain long-term profitability.
Shell’s following the concept of sustainable development can be seen embodied in specific examples:
In people's impression that the site is a cloud of dust and roar of machinery, but in the site of Shell, the voice of the machine almost can not be heard. All the machines are carried out quietly. It turned out Shell's request that the machinery and equipment into the site have to be fitted silencer equipment. Those can not be installed with silencer equipment can only be used during a certain period of time in day; even if thousands of vehicles in operation in Shell site, dust is also hard to be seen because the requirements of the vehicle speed is not exceeding than fifteen kilometers. In addition, sprinklers are uninterruptedly in operation for dustfall. In particular, it is worth mentioning that, the sprinkler water on Shell site collected from the rain. Particular sedimentation tanks are used for collecting rainwater.
In Shell’s point of view, sustainable development and the pursuit of profit are unified. Shell is committed to sustainable development, regarding it as core values of Shell and thinking sustainable development is a prerequisite for the creation of profits. With Shell's own explanation is: To make contributions to sustainable development means to help meet the world's growing energy needs through being responsible for the economics, environment and society. In short, is to protect the future of energy by a responsible way. Liu Wei (Shell China director of public affairs) gave a more realistic explanation to the relationship between the profits and sustainable development from the public affairs point of view: “Adhering to the concept of sustainable development and actions allows us to attract more outstanding people, more customers’ trust and more accesses to government and public acceptance.”
3.3 Shell’s leading stainable activities
By 2015, the relatively easy extraction of oil and natural gas may be in short supply (Schouten, 2006). In order to fill the gap, in addition to improving energy efficiency and greater use of other energy sources, mankind has no choice. Other forms of energy include non-conventional energy, such as coal gas as well as more renewable sources of energy like solar energy, wind energy and biofuels. As one of the four major international energy companies, Shell pays more attention to the new mining and exploitation of energy resources than traditional energy resources. Shell's natural gas production currently accounts for 3% of world output; while providing advanced transportation fuels and lubricants to help customers reduce local emissions and improve fuel efficiency of vehicles and providing customers with better asphalt and chemical products.
According to Schouten (2006), Shell is taking a large number of attempts on the development of biofuels. Shell's second-generation biofuels are not food crops as raw materials and agriculture fields will not be affected, which will not threaten food security. The use of wood chips, straw and other biomass fuel production not only reduces people's reliance on fossil fuels, but also reduces carbon dioxide emissions. Second-generation biofuels are the use of waste rather than the production of food crops, which is more advanced and environmentally friendly than the previous generation biofuels.
Aiming at the current reality that increasing levels of atmospheric carbon dioxide and the gradual global warming, Shell uses advanced technology to make emissions to a minimum. Shell now has more than 20,000 patented technologies, such as horizontal wells, smart wells and four-dimensional geological prospecting which is very helpful in addressing such issues. Using these technologies makes it easier to find new energy and some are able to lower emissions technology. In 2005, Shell's global R & D investment reached more than 100 billion U.S. dollars, which is the largest growth investment in all energy companies (NEWSDESK, 2007).
In order to achieve the goal of energy-saving emission, Shell launched a new research. The new research archives carbon dioxide to the abandoned oil and gas fields and can also dissolves carbon dioxide into the water layer known as a huge underground salt reservoir. In Queensland Australia, Shell is exploring for a new power plant locations. The power plant will use Shell's coal gasification technology to generate electricity, which is expected to be completed in 2010. Shell is also involved in a project that injecting carbon dioxide produced from a gas-fired power plants into the Draugen oil field offshore Norway to improve the efficiency of oil exploration. Other methods of carbon sequestration that Shell is studying will also include saving carbon dioxide to the hard coal mining. This research can not only archive carbon dioxide in coal for a long time, but can squeezing out of natural gas to be used as fuel.
4. Conclusion
Incentives that drive an MNE to adopt environmental and social strategies are various. The essay lists some I believe vital, necessary and particular. The external drivers including regulatory pressures, institutional pressures and external stakeholders present different aspects that pressure or affect MNEs when making environmental of social strategies. In fact, the internal drivers cover a wide range of fields such as cost and shareholders. While the two incentives discussed in the essay are what the public are easy to ignore but really important and necessary.
In the second section, Shell is discussed and there appear some points we can learn. First, companies should create their own language around corporate social responsibility and environment, in order for it to make sense to the members of the organization. This way, sustainable strategy is internalized better. Shell started to formulate its ‘business case’ for stakeholder engagement at both levels. Hence, Shell started to construct its own sense of stakeholder engagement, connected to the existing context, so that the members of the organization would support this process. Second, Shell’s many sustainable activities achieve the goal of “Kill two birds with one stone”. On the one hand, action like “Second-generation biofuels” guarantees the friendly environment. On the other hand, such activities also bring potential profits in the long term and can play the role as a leader of sustainable development in its industry.
Reference
1. DiMaggio, P. and W.W. Powell .1983. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields,” American Sociological Review. Vol.48,pp. 147-160
2. Freeman, R.E. .1984. Strategic Management: A Stakeholder Approach, Boston: Pitman.
3. Hedlund, G .1981. “Autonomy of Subsidiaries and Formalization of Headquarters-Subsidiary Relations in Swedish MNCs,” in L. Otterbeck (Ed.), The management of Headquarters-Subsidiary Relations in Multinational Corporations, Hamshire, U.K.: Gower publishing, Co.
4. Kogut, B. 1985. “Designing Global Strategies: Comparative and Competitive Value Added Chains,” Sloan Management Review, Summer, pp. 34-43
5. Leonard, H.J .1988. Pollution and the Struggle for a World Product: Multinational Corporations, Environment, and the Struggle for International Comparative Advantage, Cambridge: Cambridge University Press.
6. Livesey, S., and K. Kearins .2002. \"Transparent and Caring Corporations? A Study of Sustainability Reports by the Body Shop and Royal Dutch/Shell.\" Organization and Environment 15(3): 233-58.
7. M.J. Schouten and Joop Remme .2006. Making sense of corporate social responsibility in international business: experiences from Shell
8. Martinez, J.I. and J.C. Jarillo .1987. “The Continued Growth of the Corporate Public Affairs Function,” Academy of Management Executive, Vol.1, No.3, pp. 247-250.
9. Meyer, J.W. and B. Rowan .1977. “Institutionalized Organizations: Formal Structure as Myth and Ceremony,” American Journal of Sociology. Vol.83, pp. 340-363.
10. NEWSDESK .2007. Shell Wins New Energy Projects in China, WWW.CCR.COM.CN
11. Porter, M.E .1980. Competitive Strategy, New York: Free Press.
12. Shell International .1998. Profits and Principles—Does There Have to be a Choice? The Shell Report.
13. World Bank .1992. World Development Report 1992: Development and the Environment, Oxford University Press, New York, NY. |
|
发表于 2009-3-27 15:43:37
发表于 2009-3-28 11:25:21
