Academic journal article Multinational Business Review

Environmentally Responsible Management of MNE Subsidiaries: Stakeholder Perspective

Academic journal article Multinational Business Review

Environmentally Responsible Management of MNE Subsidiaries: Stakeholder Perspective

Article excerpt

Introduction

While investments undertaken by multinational enterprises (MNEs) in host markets have generally contributed to economic development and often improved the quality of life in local economies, environmental issues derived from the externalities of a firm's business are perceived as the greatest concern and one of the challenges for MNE operations in the years to come. In recent years, the demand for companies to participate in resolving the social issue - environment preservation - has been rising quickly, and globalization of the environmental issue has tended to promote the reinforcement of environmental regulations on an international scale. To conceptualize environmentally sound and sustainable development, the World Commission on Environment and Development ([53] WCED, 1987) declared that humankind has the capability to make development sustainable to ensure that it satisfies the needs of the present without losing the ability of future generations to meet their own needs. Productive activities with minimized environmental deterioration may inflict a financial burden on MNEs; however, they may also endow a competitive advantage by allowing them to develop a good reputation and favorable position in factor and product markets. Therefore, environmentally responsible management (ERM)[1] may be thought of not only as a matter of obligation but, also, as a strategic instrument for MNEs to pursue sustainable business activities.

In the past decade, international environment literature has focused mainly on whether national environmental regulations imposed on headquarters or subsidiaries may affect MNEs' investment and global standardization practices in environmental management (e.g. [9] Christmann, 2004; [45] Rugman and Verbeke, 1998; [2] Aguilera-Caracuel et al. , 2012). Some studies under the 'Porter Hypothesis' have noted that, in general, MNEs apply relatively strict regulations to develop environmental standardization in their overall networks so that they may be able to secure competitiveness in host countries ([10] Christmann and Taylor, 2001; [42] Porter and van der Linde, 1995). According to these studies, environmental regulations are a useful tool to introduce better environmental management practices to firms, and more stringent regulations need to be imposed to enhance these activities. Other researchers under the 'Pollution Haven Hypothesis'[2] argue that MNEs may discover more benefits from the operations of subsidiaries in host countries with lax environmental regulations. In other words, MNEs take advantage of cross-national differences in environmental regulations by adapting the subsidiaries' environmental policy, technology, and standards to conditions in the host countries ([34] Madsen, 2009; [9] Christmann, 2004). However, these hypotheses are limited as they explain MNE subsidiaries' ERM only in terms of regulatory elements. When it comes to developing ERM strategy for MNEs, local government regulation is an important factor, but it cannot solely represent and explain their complicated surroundings. In-depth understanding of corporate ERM will require more thorough research reflecting the perspectives of various stakeholders.

Through interactions with a variety of stakeholders, MNE subsidiaries are able to adapt themselves in a dynamic and flexible manner to the rapid changes of society. Furthermore, appropriate responses to critical issues such as environment, sustainable development, and stakeholder relations will constitute a part of the core functions of business practices. Unlike previous studies, our approach to ERM begins with a consideration of a variety of stakeholders whom the subsidiaries confront in their local businesses. According to [16] Freeman's (1984, p. 54) definition, which is broadly accepted in academic literature, stakeholders include "groups and individuals who can affect, or be affected by, the achievement of an organization's objectives." Stakeholder theory is effective in describing how organizations operate and helping to predict organizational behavior since it takes into consideration not only governmental regulations, but also other important stakeholders ([8] Brenner and Cochran, 1991; [13] Donaldson and Preston, 1995). …

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