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Effects of local legitimacy on certification decisions to global and national CSR standards by multinational subsidiaries and domestic firms

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Abstract

We explore the impact of local legitimacy on the imitation of certification by subsidiaries of foreign multinational enterprises and domestic firms. We propose that MNE (multinational enterprise) subsidiaries and domestic firms differ in their propensity to imitate geographically proximate firms when deciding whether to adopt national vs global CSR (corporate social responsibility) certifications for two reasons. First, there are differences in the legitimacy they can expect to gain in different communities from adopting these certifications. Second, there are differences in their knowledge about the local legitimacy of these certifications. We test our hypotheses by studying the decisions of automotive suppliers in Mexico to certify either to ISO 14001, a global certification, or to Clean Industry, a national certification. We find that geography matters: MNE subsidiaries imitate national certifications by geographically proximate firms to overcome a liability of foreignness, while domestic firms imitate global certifications by proximate firms to overcome the disadvantages of localness. We explore the implications of our findings for institutional theory and future research.

Abstract

Nous étudions l'impact de la légitimité locale sur l'imitation de la certification par des filiales d'entreprises multinationales étrangères et des entreprises locales. Nous proposons que les filiales des entreprises multinationales et les entreprises locales diffèrent, dans leur propension à imiter les entreprises géographiquement proches au moment de décider d'adopter les certifications de RSE (responsabilité sociale des entreprises) nationales ou globales, pour deux raisons. Tout d'abord, en adoptant ces certifications, il existe des différences dans la légitimité qu'ils peuvent espérer gagner au sein de différentes communautés. Deuxièmement, il existe des différences concernant leurs connaissances sur la légitimité locale de ces certifications. Nous testons nos hypothèses en étudiant les décisions des fournisseurs automobiles au Mexique pour obtenir la norme ISO 14001, une certification globale, ou Clean Industry, une certification nationale. Nous constatons que les questions de géographie comptent : les filiales des multinationales imitent les certifications nationales des entreprises géographiquement proches pour surmonter leur désavantage d'extranéité, tandis que les entreprises locales imitent les certifications globales pour se rapprocher des entreprises situées à proximité afin de pallier les inconvénients de leur caractère local. Nous explorons les implications de nos résultats pour la théorie institutionnelle et les recherches futures.

Abstract

Exploramos el impacto de la legitimidad local en la imitación de certificación por parte de subsidiarias de empresas multinacionales extranjeras y empresas nacionales. Proponemos que las subsidiarias de las empresas multinacionales y las empresas nacionales difieren en su propensión a imitar a empresas más cercanas geográficamente al decidir si adoptar certificaciones de RSE (responsabilidad social empresarial) nacionales o certificaciones globales por dos razones. Primero, hay diferencias en la legitimidad que pueden esperar obtener en diferentes comunidades al adoptar estas certificaciones. Segundo, hay diferencias en su conocimiento con respecto a la legitimidad local que tienen estas certificaciones. Testeamos nuestras hipótesis mediante el estudio de las decisiones de proveedores automóviles en México de certificarse con ISO 14001, con una certificación global, o Clean Industry, una certificación nacional. Encontramos que la geografía importa: las subsidiarias de las empresas multinacionales imitan las certificaciones nacionales de empresas geográficamente cercanas para compensar las desventajas que surgen por su condición de extranjería, mientras que las empresas locales imitan las certificaciones globales de empresas cercanas para sobreponerse de las desventajas surgidas por su condición de locales. Exploramos las implicaciones de nuestros hallazgos para la teoría institucional y la investigación futura.

Abstract

Nós exploramos o impacto da legitimidade local na imitação de certificação por subsidiárias de empresas multinacionais (MNE) estrangeiras e empresas nacionais. Propomos que as subsidiárias de MNE e empresas nacionais diferem na sua propensão a imitar empresas geograficamente próximas ao decidir sobre a adoção de certificações relacionadas à CSR (responsabilidade social corporativa) nacionais ou global por duas razões. Primeiramente, existem diferenças na legitimidade que elas podem esperar ganhar em diferentes comunidades ao adotar essas certificações. Em segundo lugar, existem diferenças no seu conhecimento sobre a legitimidade local dessas certificações. Nós testamos nossas hipóteses estudando as decisões dos fornecedores da indústria automobilística no México para certificarem-se tanto para ISO 14001, uma certificação global, quanto para Clean Industry, uma certificação nacional. Nós concluímos que a geografia é relevante: subsidiárias de MNE imitam certificações nacionais de empresas geograficamente próximas para superar a desvantagem de ser estrangeiro (liability of foreignness), enquanto as empresas nacionais imitam certificações globais de empresas próximas para superar as desvantagens de ser local (disadvantages of localness). Nós exploramos as implicações dos nossos resultados para a teoria institucional e pesquisas futuras.

Abstract

我们探索了本土合法性对外国跨国企业子公司和国内公司认证模仿的影响。我们提出当决定是否采用国家vs全球CSR (企业社会责任) 认证时, MNE (跨国企业) 子公司和国内公司在模仿地理相近公司的倾向上有差异, 这有两个原因。第一, 它们期待获得的合法性在采用这些认证的不同社区是不同的。它们对于这些认证的本土合法性的知识是不同的。我们通过研究在墨西哥的汽车供应商对采用ISO14001 (一个全球认证) 或是清洁产业 (一个国家的认证) 的认证决策来检验我的假设。我们发现地理位置很重要 : MNE子公司模仿地理位置相近公司的国家认证以克服外来者的不利因素, 而国内公司模仿相近公司的全球认证以克服本土性的劣势。我们讨论了我们的发现对制度理论和未来研究的启示。

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Notes

  1. We generalize about domestic firms and foreign MNE subsidiaries for conceptual simplicity. We are aware that there is substantial heterogeneity among both sets of firms and make an effort to control for some of this heterogeneity in our empirical analysis. For example, we include controls for domestic (Mexican based) MNEs because these firms may differ in their certification decisions from non-MNE domestic firms. We also control for the location of MNE subsidiaries’ headquarters and whether firms export to regions that have adopted global standards such as ISO 14001 extensively.

  2. We choose this time period because both certifications were relatively new during this window and because ISO 14001 certification data for Mexico is only available until 2003. Our data source, the WorldPreferred Directory ceased to compile ISO 14001 certification information after that year.

  3. We selected 5 km as the buffer distance, because direct observation and interaction with neighboring facilities is likely within this radius. We contacted 30 plants and asked about the typical distance to neighboring facilities they usually interacted with. The mode distance reported was 5 km. Also, in previous studies analyzing interactions between neighboring plants, 5 km was the most commonly applied distance (Baldwin, Brown, & Rigby, 2010; Wallsten, 2001). Within this distance, firms were more likely to meet with each other in social events (community meetings, local industry organizations or even share meals/drinks in the neighborhood). They were also more likely to observe neighbors’ behavior (e.g., see a sign on a neighboring plant advertising its Clean Industry or ISO 14001 certification).

  4. To confirm that certification to the two programs is not interdependent, we calculated the ρ for the probit models and found that the ρ is not significant (χ2=0.051, p>0.82), indicating that the two programs, ISO 14001 and Clean Industry, are not interdependent.

  5. In Cox Proportional Hazard models no assumptions are made about the form of the baseline hazard, but a test of proportionality needs to be assessed before the model results can be safety applied. We perform such tests of proportionality in all the models and find no evidence to contradict the proportionality assumption.

  6. Before proceeding with the regression analyses and due to the use of geographical data we need to ensure that we do not have problems of spatial autocorrelation, that is, that firms with similar characteristics are not clustered together in space (Doh & Hahn, 2008). We calculated Moran’s I index which indicated that no problems of spatial autocorrelation exist in our data. For the ISO 14001 certification the z-test was −0.067 (p-value=0.473) and for the Clean Industry certification the z-test was 1.250 (p-value=0.102).

  7. In 2001, the average ROA for US companies with ISO 14001 certified Mexican facilities was 6.92, 8.92 for US companies with Clean Industry certifications and 8.72 for US companies with non-certified Mexican facilities. t-tests do not show significant differences between the three groups of companies.

  8. We would like to thank the area editor for suggesting that we look at embeddedness.

  9. For example, the surface area of the Monterrey Metropolitan Area is 5346 km2. The area of a circle with a radius of 5 km is only 78.54 km2. So we are looking at much more micro and local influences than even at the community level.

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Acknowledgements

The authors would like to thank Elia Machado and Diego Varga for their help on the geographic data analysis. They also thank Li Dai, Magali Delmas, Jonathan Doh, Irene Henriques, Ana Rosa Leal, Christine Oliver, Sengun Yeniyurt and two anonymous reviewers and Area Editor Ram Mudambi for their insightful comments on previous versions.

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Authors and Affiliations

  1. Tecnologico de Monterrey, Mexico

    Bryan W Husted

  2. Loyola Marymount University, Los Angeles, CA, USA

    Ivan Montiel

  3. Department of Management & Global Business, Rutgers Business School -Newark & New Brunswick, Rutgers University, USA

    Petra Christmann

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  1. Bryan W Husted
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  2. Ivan Montiel
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  3. Petra Christmann
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Corresponding author

Correspondence to Ivan Montiel.

Additional information

Accepted by Ram Mudambi, Area Editor, 21 December 2015. This paper has been with the authors for five revisions.

APPENDIX

APPENDIX

Table A1

Table A1 Description of control variables
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Husted, B., Montiel, I. & Christmann, P. Effects of local legitimacy on certification decisions to global and national CSR standards by multinational subsidiaries and domestic firms. J Int Bus Stud 47, 382–397 (2016). https://doi.org/10.1057/jibs.2016.3

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