Impact of the concept of shared value (SV) on developing countries (Creating Shared Value)


Bachelor Thesis, 2012
42 Pages, Grade: 1,0

Excerpt

Table of Contents

List of Abbreviations

List of Figures

Abstract

1. Background

2. From Corporate Social Responsibility (CSR) to Creating Shared Value (CSV) - Definitions
2.1. Developing Countries
2.2. Corporate Social Responsibility (CSR)
2.3. Creating Shared Value (CSV)
2.3.1. Companies and CSV
2.3.2. Governments and CSV
2.3.3. Critique
2.4. Differentiation CSV to CSR - Characteristics of CSV

3. Case Studies - CSV in practice
3.1. Selection Criteria
3.2. Analysis and Measurability
3.3. Case Study One - Yara International ASA
3.3.1. Company
3.3.2. Project
3.3.3. Impact in context to CSV
3.4. Case Study two - Thomson Reuters Corporation
3.4.1. Company
3.4.2. Project
3.4.3. Impact in Context to CSV
3.5. Case Study three - CBB Software GmbH
3.5.1. Company
3.5.2. Project
3.5.3. Impact in Context to CSV

4. Impact on Developing Countries
4.1. Summarized Case studies
4.2. Outcome
4.3. Future Challenges

5. Conclusion

References

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

FIGURE 1. Interdependence Companies - Society

FIGURE 2. Compared approaches: CSR and CSV

FIGURE 3. Assumed Interdependence - Impact determining factors

FIGURE 4. Ratio of effectiveness - Company to NGO

Abstract

This Bachelor Thesis is exploring the Impact of the lately introduced Concept of Creating Shared Value (CSV) on Developing Countries. CSV has first been published in the key article “The Big Idea: Creating Shared Value” by KRAMER and PORTER. It describes a new approach in the relation between companies and societal needs. The implementation of this concept in developing countries with there particular needs, appears to be promising for the revelation of a high-contrast result.

The Thesis is starting with the usual introductory part prior to giving exact definitions of the term “Developing Country”, CSV and the related concept of Corporate Social Responsibility (CSR). Hereby, CSV is getting critically discussed. Following is the fundamental methodical instrument, the Case Studies. Three CSV-projects are analysed and their impact on the affected developing countries displayed. The fourth Chapter summarises the outcome of the prior sections and presents the results.

The key advantages of CSV are the inclusion of the profit maximisation principle, its accentuated Cooperation between participants and the recognition of Interdependences between the differing areas of impact. Contrary, there is a vast need for further scientific research. The thesis reveals disadvantages as a deficit in distinct definition of the concept and the question if the advantages of CSV, as increased innovation or new markets, will be sufficient to compete with the current approaches.

1. Background

This bachelor thesis is part of the Bachelor of Science Business Administration at the University of Applied Science Koblenz. Purpose of the bachelor thesis is to let the students display the ability of working scientifically on an assigned business administration problem in a defined time frame. The University of Applied Science Koblenz grants six weeks for preparation of the thesis.

Despite an assignment in the fifth semester, the bachelor thesis represents the first scientific work for students of the Bachelor of Business Administration at the University of Applied Science Koblenz.

The given topic “Impact of the concept of shared value (SV) on developing countries (Creating Shared Value)” has evolved out of an article in the Harvard Business Review of January-February 20111. In this article by PORTER and KRAMER the connection between economic and social engagement of companies is discussed by presenting several impressive appliances of the concept of Creating Shared Value (CSV).

The nowadays practiced Corporate Social Responsibility (CSR) approach used to describe engagement of companies in societal issues is frequently criticised, amongst others by KRAMER and PORTER. Against the background of increasing capitalism critique, capitalism is said to be “under Siege”2, the CSV approach appears to be a promising alternative. Developing countries are a particular interesting field to apply the CSV approach as the societal needs are said to be “even more pressing”3. This might sharpen the contrast of the impact of CSV. Considering the enormous challenges in developing countries and the often restricted resources of NGO’s and development aid, the CSV approach might hold some solutions.

The current literature is barely offering scientific researches regarding the impact of CSV on developing countries. Beneath appliance of scientific methods, the purpose of this thesis is to contribute in closing this gap.

The structure of the thesis will be divided into five chapters.

Following this first introductorily chapter is the second Chapter, which will introduce fundamental definitions necessary to comprehend the successive parts of this thesis. The term “Developing Country” will be discussed and the concepts of CSV and Corporate Social Responsibility (CSR) explained. In addition the connection between both concepts will be revealed. In the third Chapter impact determining measurability factors will be defined and a series of selected Case Studies presented and analysed. The Case Studies are a fundamental instrument to determine the impact of CSV in developing countries.

The fourth Chapter of the thesis will summarize the obtained information of the Case Studies and discuss the results in reference with earlier conjectures, critique and information. In order to draw a sharp picture of the impact of CSV it will be set into contrast to CSR.

Eventually, the fifth Chapter will summarize the impact of CSV on developing countries and will reflect the results of the thesis.

It has to be remarked that the topic of the thesis is highly complex and a fundamental difficulty will be to present the content in a condensed form. Solely on the topic of developing countries a wide field of discussions, opinions and therefore literary sources is offered; as it is similar for the topic of CSR, which appears to have a variety of differing definitions. Contrary on the topic of CSV literary sources and substantiated critique appear to be rare.

2. From Corporate Social Responsibility (CSR) to Creating Shared Value (CSV) - Definitions

This chapter will introduce fundamental definitions needed to understand the essence of this work.

In the beginning the basic definition of the term “Developing Countries” used in this thesis will be presented. This is significant for the selection of relevant projects in a later following chapter.

For a better understanding, a definition of Corporate Social Responsibility (CSR) will be given prior to the introduction of the Concept of Creating Shared Value (CSV).

The Concept of CSV will then be defined, its relevance for the different affected groups shown, the differences to CSR discussed and critiques revealed.

2.1. Developing Countries

A standardized definition of the term “Developing Country” is hard to find in related literature.

In a speech in front of the UN Conference, the former Secretary General of the UN KOFI ANNAN defines “[…] a developing country is one in which civil society is able to insist, not only on material wellbeing, but on improving standards of human rights and environmental protection as well”.4

Beneath this more civil society and human rights focused brief definition by KOFI ANNAN there are several definitions by other organisations. The World Bank for instance classifies countries solely by financial figures, GDI serving as the main indicator.5

Although UN Statistics Division (UNSD) remarks on their website, ”[…] there is no established convention for the designation of ‘developed’ and ‘developing’ countries […]”6, a list classified in developed regions, developing regions and Least Developed Countries (LDC) is given.7

The Committee for Development Policy (CDP) as part of the UN defines LDC by reviewing following criteria every three years8:

- Low Income
- Weak Human Assets
- Economic Vulnerability

Low Incomeis measured at hand of the three years average of the Gross National Income per capita. Weak Human Assetsis rated according to the Human Assets Index (HAI). The Economic Vulnerability is measured through the Economic Vulnerability Index (EVI). Additionally to these criteria a LDC must have a population below 75 million. Several other criteria are summarized within the HAI and the EVI.9

Without going deeper in the components of the indexes, the UN definition of LDC is more detailed as for instance the classification used by the World Bank. This thesis therefore will apply the classification of the UN.

2.2. Corporate Social Responsibility (CSR)

The literature offers several different definitions of CSR. Often used synonyms are Corporate Citizenship (CC) or Business Ethics.10 As CARROLL states in his article “Corporate Social Responsibility - Evolution of a Definitional Construct” published in the Business and Society Journal in 199911the early construct of CSR goes back to the 1950s. Because the definition of this concept is important for a better understanding of CSV, this section will summarize the most relevant definitions.

DINH describes in her publication from 2010 that CSR refers to responsible acting of companies towards society and natural environment. Responsible acting of companies is said to be based on social values and norms.12This idea of CSR implies an interdependence between companies and their surrounding environment, such as nature, society or stakeholders.

The Commission of the European Communities gives a more detailed definition of CSR. The Green Paper of 2001 defines CSR not only as a voluntary concept, but also as a concept which is going beyond legal obligations.13

One of the latest and well discussed CSR-models is the Three-Domain- Approach introduced by CARROLL and SCHWARTZ in 2003.14It is based on a former four component model called the Pyramid of Corporate Social Responsibility first introduced by CARROLL in 1991.15

Unlike CAROLL’s former model it consists out of three main responsibilities: economic, legal and moral. The philanthropic responsibility as in Carroll’s former model is included in the moral and economic responsibility.16 The responsibilities themselves already have been defined in Carroll’s former approach. The economic responsibility states that in order to sustain workplaces and wealth, a company is required to sell publicly demanded goods and services for a fair price with a profit. While acting in this way, a company has to remain within the legal borders. The company therefore haslegal responsibility. Themoral aspectrepresents the none- law, society-based boundaries.17

One of the main differences of CARROLL’s Pyramid of Corporate Social Responsibility and the Three-Domain-Approach by CARROLL and SCHWARTZ is based in the intersection between the different responsibilities, as revealed by the later introduced model.

As it is stated by SCHWALBACH, there seem to be two main directions in the discussion of the CSR-term.18

One of these directions is given by the above introduced model of CARROLL and the related model of CARROLL and SCHWARTZ. On the other side there is the often cited FRIEDMAN: “There is […] only one social responsibility of business […] to increase its profits so long as it stays within the rules of the game […]”.19FRIEDMAN restricts the responsibility of companies on CARROLL’s and SCHWARTZ’s economic and legal responsibility.

A common critique about CSR is described by MOSKOWITZ. Referring to the widely use of CSR as a marketing instrument he understands CSR as “[…] 95 percent rhetoric and 5 percent action”.20In an article, which will have wider relevance in the following introduction of CSV, KRAMER and PORTER come to similar conclusions. They describe that CSR often is used to distract the public view from inconvenient issues, as an instrument with a short-term focus or as a precaution for future crises.21

2.3. Creating Shared Value (CSV)

Two relevant articles can be found on the concept of “Creating Shared Value” (CSV).

The actual term “Creating Shared Value” (CSV) goes back on the article “The Big Idea: Creating Shared Value” published in the January-February issue of the Harvard Business Review in 2011.22In this article KRAMER and PORTER introduced CSV for the first time as a stand alone concept. The base of this concept, the idea of “Shared Value” (SV), was first mentioned in the earlier article “Strategy and Society: the link between competitive advantage and corporate social responsibility” by the same authors. This article has been published in the December 2006 issue of the Harvard Business Review.23

In their earlier article of December 2006 KRAMER and PORTER introduced SV as an approach for an improved implication of CSR. As they reveal in the article, greater deficits in companies’ perception and implication of CSR can be found.24

The main issue is said to be based on a frequently overlooked interdependence between society and business, which goes as far as “A temporary gain to one will undermine the prosperity of both”.25SV is said to offer benefits to either side: society and business. Social and conventional economic needs are both recognized as market defining factors. Furthermore KRAMER and PORTER state that ignoring the social needs and therefore the idea of SV might lead to additional costs.26 FIGURE 1.illustrates various areas in which companies are mutually interacting with their surrounding.

illustration not visible in this excerpt

FIGURE1.Interdependence Companies - Society

(revised, based on KRAMER and PORTER - “The Big Idea: Creating Shared Value”, January-February 2011)

In their later article of January-February 2011 KRAMER and PORTER are closing in on the greater meaning of SV. Their concept of CSV is first introduced.27

The following citation shows the problem identified by KRAMER and PORTER in their January-February 2011 article: “(…) Capitalism is under siege. (…) business increasingly has been viewed as a major cause of social, environmental and economic problems”.28

In contrast to their former article KRAMER and PORTER point out that the focus lies not only on companies but on the greater model of today’s capitalism. They emphasize the importance of capitalism as an “unparalleled vehicle for meeting human needs, improving efficiency, creating jobs and building wealth”.29 KRAMER’s and PORTER’s main critique is based on the narrow perception of capitalism itself.

Combined, KRAMER and PORTER state the legitimacy of business within the society has reached an all time low. They describe that even companies embracing CSR are getting blamed for society’s failures.30

In their article of January-February 2011 KRAMER and PORTER identified two main groups contributing to the described effect.

KRAMER’s and PORTER’s main focuses is on the first group, the companies, which are said to have an outdated approach to value creation. A second group are thepolitical leaders and governments. Resulting from the fading legitimacy and trust in business, governments impose ever harder policies and regulations on companies. KRAMER and PORTER recognized the disadvantages these policies and regulations are creating in competitiveness and economic growth.31

A further group is only briefly introduced by KRAMER and PORTER and is not an integral part of further research of this thesis. The Non-Government- Organisations (NGOs) are said to be more suitable in addressing certain societal needs and be especially important in cooperation with companies and governments.32

2.3.1. Companies and CSV

As KRAMER and PORTER state in both their articles companies are widely getting blamed for social, environmental and economic problems. But also companies themselves would be a main source for these issues. Companies’ mostly narrow perception of value creation and their short-term shareholder strategic alignment is pointed out.33

Illustrated in the “Theory of Externalities”, KRAMER and PORTER are showing that environmental and social issues are mostly out of companies’ scope. BAUMOL and OATES are giving a mathematic-related definition of the Theory of Externalities.34Summarized, it states that the action of a company might create costs for other parties that the company itself has not to bear.

In the Theory of Externalities KRAMER and PORTER recognise a chance for companies. They imply, if companies are willing to take responsibility in the field of social and environmental issues instead of shifting it to governments and NGOs, new markets could emerge. Therefore externalities would have to be internalised.

KRAMER and PORTER define three key ways for companies to generate SV.

The first step is byReconceiving of Products and Markets. Companies would have to identify the potential of their products and would have to understand the advantages and disadvantages their products causing for society.

As KRAMER and PORTER illustrate, a new perception of products might reveal yet unconsidered markets or revive the old, traditional ones. The business potential would be based on satisfying social needs while opening new profit-opportunities for companies.35

A good example is the micro credit. This idea is often linked to YUNUS and the Grameen Bank in Bangladesh. Little sums of money are lend to starting up an own business, creating independence and self-sustainability. This concept is not only used in developing countries but also in more advanced countries for instance the USA.36

Another advantage of this perception would be the ever changing, social needs defining factors, which are said to trigger further innovations.37

[...]


1Cf. KRAMER, M.R. / PORTER, M.E. (2011), pp.62-77

2ib., p.64

3 ib., p.68

4ANNAN, K. (2010), date of retrieval 28.12.2011

5Cf. WORLD BANK (2011), date of retrieval 28.12.2011

6UNSD (2011), date of retrieval 29.12.2011

7 Cf. ib. date of retrieval 29.12.2011

8Cf. CDP (2011), date of retrieval 29.12.2011

9Cf. ib.

10Cf. MATTEN, D. / MOON, J. (2004), p.324ff.

11CARROLL, A.B. (1999), p.268f.

12 Cf. DINH, H. V. D. (2011), p.13

13Cf. Commission of the European Communities (2001), date of retrieval 02.01.2012, pp.6-8

14Cf. SCHWARTZ, M. / CAROLL, A.B. (2003), pp. 503-530

15Cf. CAROLL A.B. (1991), pp.39-48

16Cf. DUBIELZIG, F. / SCHALTEGGER S. (2005), pp.240-243

17Cf. CAROLL, A.B. (1991), pp.39-48

18 Cf. SCHWALBACH, JOACHIM (ed.) (2008), editorial

19FRIEDMAN, M. (1970), p.122f.

20MOSKOWITZ, M. (2002), p. 4.

21Cf. KRAMER, M.R. / PORTER, M.E. (2006), p.79ff.

22Cf. KRAMER, M.R. / PORTER, M.E. (2011), pp.62-77

23Cf. KRAMER, M.R. / PORTER, M.E. (2006), pp.78-91

24 Cf. ib., p.79ff.

25KRAMER, M.R. / PORTER, M.E. (2006), p.82

26Cf. ib., p.78ff.

27Cf. KRAMER, M.R. / PORTER, M.E. (2011), pp.62-77

28Ib., p.64

29KRAMER, M.R. / PORTER, M.E. (2011), p.64

30Cf. ib., p.64

31Cf. ib., pp.64-77

32Cf. ib., p.72f.

33 Cf. ib., pp.64-77

34Cf. BAUMOL, W.J. / OATS W.E. (1988), pp.7-14

35Cf. KRAMER, M.R. / PORTER, M.E. (2011), p.67f.

36Cf. YUNUS, M. / JOLIS A. (2003), pp.115-192

37 Cf. KRAMER, M.R. / PORTER, M.E. (2011), p.67f.

Excerpt out of 42 pages

Details

Title
Impact of the concept of shared value (SV) on developing countries (Creating Shared Value)
College
University of Applied Sciences Koblenz
Grade
1,0
Author
Year
2012
Pages
42
Catalog Number
V191041
ISBN (eBook)
9783656155935
ISBN (Book)
9783656156208
File size
516 KB
Language
English
Notes
This thesis is exploring the lately introduced concept of Creating Shared alue (CSV) by Michael E. Porter and Mark R. Kramer on Developing countries.
Tags
CSV, CSR, Shared Value, Creating Shared Value, Porter, Kramer, Developing Countries, Machens
Quote paper
Frank Machens (Author), 2012, Impact of the concept of shared value (SV) on developing countries (Creating Shared Value) , Munich, GRIN Verlag, https://www.grin.com/document/191041

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