Corporate Social Responsibility: Its Economic Impact and Link to the Bullwhip Effect

Abstract

This paper examines the economic impact of implementing Corporate Social Responsibility (CSR) in the supply chain operations of multinational corporations (MNC). Because they have global supply chains in emerging markets, MNCs face certain operational challenges. For example, unethical operations often result in a huge loss to MNCs in the long run, even though their initial cost seems to be low. In this paper, we extend the Bullwhip Effect theory in supply chain management to the ethical operations context, and define and evaluate a special Bullwhip Effect due to Unethical Operations (BEUO). Using economic data from various sources including Ford, Toyota, and GM in the auto industry, we first estimate the indices of BEUO for the three companies and demonstrate the economic necessity for MNCs to incorporate CSR with supply chain operations. We then propose a coherent approach, blending what we term the bottom-up and proactive methods, to achieve such an outcome. The bottom-up approach requires MNCs to switch their focus on stakeholders, shifting from shareholders to consumers and workers, and on decision levels from public relationships to supply chain operations. The proactive approach recommends initializing specific CSR operations to mitigate the negative impact of BEUO. Both theoretical analysis and case studies are conducted to evaluate our developed propositions that MNCs adopting the proposed CSR operations will in the long run achieve better economic performance. Recommended actions for implementation, based on best practices, are also presented.