How and Why Multinational Corporations Pursue CSR Strategies: the Case of Nestle in

China
Anna Chou
A thesis in partial fulfillment of the requirements
of the
Interdisciplinary Honors Thesis
Written under the direction of
Professor Kathe Newman
Bloustein School
and
Professor Michael Santoro
Rutgers Business School
School of Arts and Sciences, Rutgers University
2013-2014

Electronic copy available at: http://ssrn.com/abstract=2420273

 Table  of  Contents  

Abstract  .......................................................................................................................................  3  
Introduction  ...............................................................................................................................  4  
Literature  Review  ....................................................................................................................  6  
CSR  Beginnings  and  Definition  .......................................................................................................................  6  
Effectiveness  and  Intention  ..............................................................................................................................  8  
Classifying  Different  Levels  of  CSR  ................................................................................................................  9  
CSR  Standards  ........................................................................................................................  10  
UN  Global  Compact  ...........................................................................................................................................  11  
Office  of  Economic  and  Cultural  Development  (OECD)  Guidelines  for  Multinational  Corporations
 ....................................................................................................................................................................................  12  
Global  Reporting  Initiative  ............................................................................................................................  13  
Current  Efforts  in  CSR  ..........................................................................................................  14  
The  Six-­‐Step  Global  Compact  Management  Model  ..............................................................................  15  
Key  Findings  from  the  Annual  Implementation  Survey  in  the  2013  Report  ...........................  17  
Key  Considerations  in  Forming  a  CSR  Strategy  ...........................................................  20  
Strategy  Definition  ............................................................................................................................................  20  
Global  vs  Local  Perspective  on  CSR  Issues  ........................................................................................  21  
Execution  ...............................................................................................................................................................  22  
Measuring  Performance  and  Communicating  a  Brand  .....................................................................  22  
The  Value  and  Impact  of  a  Successful  CSR  Strategy  ...................................................  23  
Public  Image  and  Reputation  ........................................................................................................................  24  
Employee  Talent  ................................................................................................................................................  24  
Operational  Cost  Savings  and  Risk  Management  .................................................................................  25  
China  as  a  Target  Market  ....................................................................................................  25  
To  Evaluate  CSR  Abstraction  in  Action  .....................................................................................................  25  
The  Hand  of  the  Chinese  Government  ......................................................................................................  26  
A  New  Consumer  Class  Emerging  Along  Economic  Divide  .............................................................  27  
Application  of  CSR  Principles:  A  Case  Study  of  Nestle’s  CSR  Efforts  .....................  29  
Laying  the  Foundation:  Company  Background  ....................................................................................  30  
Nestle’s  “Creating  Shared  Value”  Program  .............................................................................................  32  
Themes  Exemplified  in  “Creating  Shared  Value”  .................................................................................  32  
The  Value-­‐Added  to  Nestle’s  Business  .....................................................................................................  36  
Connecting  Nestle  to  the  Big  Picture  of  CSR  .................................................................  37  
Conclusion  ...............................................................................................................................  39  
Works  Cited  .............................................................................................................................  42  
 
   

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Electronic copy available at: http://ssrn.com/abstract=2420273

  

 
 
 
 
 
 

Abstract  
Corporate social responsibility (CSR) is a business imperative for 21st-century firms and
multinational corporations. CSR establishes that corporations have dual objectives of securing
profits and mediating social issues. This thesis explores what CSR is, what drives it, how and
why corporations create CSR strategies, and what impact CSR has on corporations and the
world at large. After reviewing the broad literature about CSR, this thesis considers CSR use in
China through a case study of Nestle. This case study shows that CSR is feasible, and it also
shows what value CSR adds to the firm.

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Electronic copy available at: http://ssrn.com/abstract=2420273

Introduction  
The basic idea of corporate social responsibility (CSR) is that corporate actions can be

more than completely self-serving. Companies use CSR strategies to address social and

environmental concerns while simultaneously pursuing business objectives. Company CSR

strategies may address labor rights, environmental stewardship, consumer safety assurance, or

philanthropy. Multinational corporations (MNCs) work on a global stage. Without a legitimate

global sovereign, there is no regulatory agent controlling corporate decisions in social and

environmental issues. CSR arose in this context as companies realized that CSR campaigns were

attractive to consumers. In the process, MNCs have become political actors, providing global

public goods of public health, education, social security, and human rights protection (Scherer

and Palazzo, 2011). Corporations realized that adopting CSR strategies could enhance their

marketing and public relations efforts. Today, CSR plans are so ubiquitous that good business

strategy requires them.

CSR challenges the definition of marketing because the impact and intention extends

beyond the relationship of the consumer and corporation to the world at large. The traditional

understanding of marketing is an exclusive relationship between a company and its target

consumer. Marketing campaigns are for economic gains, an extrinsic motivation for enterprises.

CSR, however, is about accomplishing a good in addition to profit. The 21st-century view argues

that CSR motivations are intrinsic, that corporations are inherently obligated to do it. Executive

leaders use CSR to respond to consumer and/or state demands by setting goals for themselves in

a variety of areas. The conversation about what a company does widens to include many

stakeholders, not just shareholders. Stakeholders are people, not part of the economic exchange,

who feel the impacts of corporate activities—for example, pollution and the economy’s

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performance. CSR appeals to consumers, alleviates government pressures, and reduces strife in

the overall world that threatens business operations.

My original research question was to evaluate whether the rapidly growing consumer

class in China had the buying power to demand that companies adopt more responsible business

practices. China is an engaging region to study because of the recent growth in disposable

income and the government’s hand in the economy. I found, however, that consumer demand

was just one piece of the story to explain why corporations proactively pursue CSR strategies.

CSR intention, drivers, and impact have a wider scope. Companies deliberately plan their

activity and create a CSR strategy in which they declare their intentions. They use a systematic

process to construct, implement, and assess their CSR strategies. Through my research, the

nuances of forming a CSR strategy, specifically how a multinational corporation can plan for

CSR globally and domestically in China, emerged as an important question to me.

I explore CSR strategy principles in theory and then investigate how Nestle, a

multinational company and industry leader in food and beverage products, sets and abides by

these guidelines. First, the literature review discusses the pre-existing discourse surrounding

corporate social responsibility. This establishes the platform on which the current concerns of

CSR strategy is built. This includes why CSR emerged as a concept in business strategy, its

intentions and effectiveness, the different classifications of CSR intensity, and finally, the debate

between localized and global CSR strategies. Following the literature review, I discuss global

CSR standards from the United Nations, the Office of Economic and Cultural Development

(OECD), and the Global Reporting Initiative. These standards are the starting point for CSR

strategies. They are voluntary guidelines on which corporations base their strategy. Next, though

the guidelines are voluntary, I evaluate how corporations fare in complying with these

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expectations by using results of the UN Global Compact annual survey and evaluation. Finally,

my case study of Nestle starts with providing basic background information. Nestle’s CSR

strategy is branded “Creating Shared Value,” and is documented in extensive annual reports and

supplemental articles. To compare Nestle’s global and local strategies, I look at what Nestle has

done in China specifically. Through critically analyzing Nestle’s CSR strategy structure and

framing, I elucidate the core of how a CSR strategy is composed and what value it adds to

corporations. This sets the precedent as the industry standard in today’s business world. Thus, I

discuss what CSR means, exploring the impact and promise it has for corporations, its

consumers, and the world at large.

Literature  Review  
CSR  Beginnings  and  Definition  
The concept and framework of CSR has continually changed. This idea, that corporate

activities are bound to expectations, appeared in American business literature as early as the

1930s. This understanding was that there were moral obligations attached to business operations

(Clark, 1939; Krep, 1940). Archie Carroll (1999) explored the evolution of the CSR concept to

track the research focus and definitions in the business literature of each decade. The modern

idea of CSR emerged in 1953 with Howard R. Bowen’s book, Social Responsibility of the

Businessman, which questioned the obligations businessmen owe to society. Businessmen were

considered “responsible for the consequences of their actions in a sphere somewhat wider than

that covered by their profit-and-loss statements” (Bowen, 1953: 44). Keith Davis reinforced this

idea in 1960 when he defined social responsibility as “decisions and actions taken for reasons at

least partially beyond the firms’ direct economic or technical interests” (Davis, 1960: 70).

McGuire clarifies CSR by adding an expectation that corporations act justly, as individual

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citizens do. While early literature acknowledged different facets of CSR and how businesses are

expected to contribute to society’s values and needs, literature in the 1980s explored how to

measure CSR activity and construct frameworks to classify it. This involved accumulating

empirical research evidence to support the themes defined in previous decades. The

consideration for CSR activities is steadfast, but the spirit and the method of fulfilling this

concept changed to fit the context of the modern world.

The current understanding of corporate social responsibility considers the dynamics of

multinational corporations in a nation-state political construct. CSR emerged among

multinationals because of the gaps in the international regulatory system. MNCs exploited

differences in social and environmental standards for “commercial advantage,” using loopholes

to maximize their profits (Zerk, 2006: 1). CSR provided the opportunity for corporations to

prove their good intentions. CSR manifests in many different ways. Areas include

“sustainability, sustainable development, environmental management, business ethics,

philanthropy and community investment, worker rights and welfare, human rights, corruption,

corporate governance, legal compliance, and animal rights” (Dillard and Alan, 2013: 11).

Nevertheless, among this range of topics, the prominent issues in CSR involve labor,

environment, and consumer safety (Zerk, 2006).

Besides the opportunity for corporate self-governance, another explanation for the

emergence of CSR is the consumer-driven framework. This perspective views corporate

responsibility as a good consumers demand. In this theory, consumers drive the growing concern

for CSR, influencing corporate behavior for the better. Elliot and Freeman explain CSR activity

through a supply and demand relationship. They focus on global labor standards. The demand for

ethical corporate behavior can be treated like a demand for any other good. As an example, they

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highlight the anti-sweatshop movement as an indication that consumers are concerned about the

workplace conditions in which products are manufactured. As a result, they are willing to pay

more for this assurance, a premium that prices the value of CSR behavior (Elliot and Freeman,

2003).

Effectiveness  and  Intention  

In addition to understanding the beginnings and definition of CSR, other literature

explores whether companies engage in CSR to court consumer preference or to attain favorable

positioning with the government. The rising demand for corporate responsibility and the

economic gains associated with it may have attracted players with the wrong intentions. Some

corporations may only be putting on a front, a superficial scheme, as opposed to taking

substantial action for social good. This ploy is termed “greenwashing,” when corporations

display a false concern for environmental and social issues solely for marketing reasons.

Li-Wen Lin’s discourse about the intentions of CSR activities acknowledges that

companies everywhere, not only in China, take advantage of CSR as a “tool of public relations”

(Lin, 2010: 99). Therefore, some question whether CSR activity is genuine, substantive, and

legitimate. CSR development is a very gradual process, so there is a “gap between the words

promised in the CSR initiatives and the real implementation of CSR measures” (Lin, 2010: 99).

Lin defends that the lag time between intention and implementation does not reduce CSR efforts

to mere superficial fronts. Instead, the efforts now shape the path for more legitimate future CSR

work by raising awareness and defining goals before complete implementation (Lin, 2010). In

analyzing the status of CSR in China, Lin concludes that corporations are still in the beginning

stages of CSR activity. The activity is not yet substantial, but the intention to achieve true

substance is real.

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 Chris Marquis’s analysis of corporate social responsibility dives into the question of

whether CSR activities are symbol or substance in China, additionally emphasizing reporting.

Though CSR reporting is merely descriptive of the actions a firm pursued, it is vitally important

for a firm’s marketing strategy. If firms are not vocal about their activities, they fail to reap the

benefits of their efforts. Marquis specifically measures the quality of a firm’s reporting with its

relation to the Chinese government. In China, the government takes control of the economy. It

dictates resources, regulations, subsidies, and taxation that shape the competitive business

environment (Marquis, 2013). Thus, firms must concern themselves with a political strategy,

shaping their relations with the government most favorably for future profits. This is to ensure

that future policy decisions play to the firm’s best interests. Marquis (2013) measured the

likelihood and quality of CSR reports related to a firm’s level of political dependence and

government monitoring. Firms that need to establish or protect their legitimacy with the

government are more likely to produce a CSR report. Bureaucratic embeddedness is when

corporate leaders dually hold positions as government officials. Thus, this is a convenient

monitoring outlet. The quality of these reports is positively related to the level of supervision of

the firm through bureaucratic embededness. Marquis concludes that having more substantive

reports correlates with greater CSR activity. Therefore, government relations have a strong

influence on CSR activity in China. In China, corporations dually consider the government

directive and consumer demand for CSR.

Classifying  Different  Levels  of  CSR  

Firms can be classified regarding the quality of their CSR activity. Ewing and Windisch

(2007) conducted a qualitative survey of key leaders from 22 Chinese firms to explore their CSR

motivations, policies, and practices. They established five dimensional levels of CSR:

procedural, tokenistic, developing, developed, and established. At the basic level, the procedural

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dimension is basic compliance with regulatory bodies and government laws. These firms are

doing the bare minimum of what they are legally supposed to. Next, the tokenistic dimension

describes superficial actions, such as charitable donations or contributions to improve social

issues. In this beginning level of CSR activity, corporate actions do not relate to the firm’s

business focus. The third level, the developing dimension, is a further progression when firms

are improving their practices due to consumer demand rather than coerced compliance with CSR

standards from global organizations and actions of other competitors. The intermediary stage

before the established dimension is the developed firm. These firms are more proactive. They

foresee future problems for their firm and industry and change their actions today. However,

their motivations are ambiguous. Some developed CSR strategies act in the firm’s self-interest

while others function for the betterment of society, or both. Finally, an established industry

leader is the firm that educates the industry and public by setting the standards of ethical

practices through its own initiatives. Overall, Ewing and Windisch (2007) found that there is

huge spread across motivations, declared policy, and accomplishments among Chinese firms.

CSR is seen as charitable and superfluous, but not yet an obligation or responsibility. From the

research of Ewing and Windisch, one can deduce that CSR practices lack enforceable standards

to demand and regulate equal CSR practice.

CSR  Standards  
To clarify, corporate strategy is the vision a company aims to achieve in the long run.

Standards are the regulations that provide direction and set minimum expectations. There are

several voluntary systems of global CSR guidelines. I discuss three of these: the United Nations

Global Compact, the Office of Economic and Cultural Development (OECD) Guidelines for

Multinational Enterprises, and the Global Reporting Initiative. These are non-governmental, non-

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profit, international organizations. Their recommendations establish a paradigm, but lack a viable

system to enforce or monitor compliance. There is no legal obligation for firms to act in

accordance with these guidelines. Therefore, firms do not abide out of a fear of legal

repercussions but are instead motivated by the potential for a competitive advantage.

By implementing guidelines through a top-down approach, these practices can have

greater reach. These standards are important to the discussion of CSR strategy because they

provide a starting point for its content. Yet, the legal weight of these standards is insignificant

because there is no punishment for noncompliance. These standards are written in the context of

today’s particular business environment, taking into account the opportunities and threats

corporations face. They highlight issues that corporations must anticipate to remain viable in the

future. Big changes in social and environmental issues affect a firm’s labor supply and supply

chain. CSR pre-emptively plans for these adverse shocks. Therefore, these standards remain

relevant because they illuminate the salient issues for corporations to address. The UN Global

Compact speaks to the content corporations use in their CSR strategies. Guidelines from OECD

recommend how the government can foster better business conditions for corporations to pursue

CSR. Finally, the Global Reporting Initiative highlights performance measures corporations can

look to fulfill.

UN  Global  Compact  
In 2000, the United Nations set guidelines outlining proper and ethical business practices

for 21st-century businesses in the Global Compact. This is the largest initiative for corporate

social responsibility. Its official statement of purpose is to call “companies everywhere to

voluntarily align their operations and strategies with ten universally accepted principles in the

areas of human rights, labor, environment, and anti-corruption” (Hall, 2013: 2). The organization

frames CSR efforts as “a global imperative” to protect “progress, peace, and stability in societies

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and markets everywhere” (Hall, 2013: 2). Business involvement is necessary to “achieve a more

equitable, prosperous, and sustainable future” (Hall, 2013: 2). The Global Compact’s ten

principles1 outline the ideals for responsible business practices in human rights, labor,

environment, and anti-corruption. The report equates “responsibility” with “sustainability.” This

implies that corporate responsibility is undeniably necessary to the continuing viability of a

company’s operations. This is because “in their own backyards, at their site locations, and

through their extensive supply chains, they increasingly face the effects of extreme poverty,

unacceptable working conditions, environmental degradation, systemic corruption or eruptions

of violence” (Hall, 2013: 4). The Global Compact speaks of these principles as corporate

responsibilities. However, given that there is no legal threat backing these obligations,

multinational corporations have no legal duty to them. Instead, MNCs use these as suggestive

guides when forming their own CSR strategies.

Office  of  Economic  and  Cultural  Development  (OECD)  Guidelines  for  

Multinational  Corporations  
The OECD Guidelines for Multinational Corporations is a broader set of guidelines

concerning the dynamic between businesses and governments (Dillard, 2013). Instead of placing

                                                                                                               
1
From the United Nations Global Compact Office 2013:
Principle 1 Businesses should support and respect the protection of internationally proclaimed
human rights; and
Principle 2 make sure that they are not complicit in human rights abuses.
Principle 3 Businesses should uphold the freedom of association and the effective recognition of
the right to collective bargaining;
Principle 4 the elimination of all forms of forced and compulsory labour;
Principle 5 the effective abolition of child labour; and
Principle 6 the elimination of discrimination in respect of employment and occupation.
Principle 7 Businesses should support a precautionary approach to environmental challenges;
Principle 8 undertake initiatives to promote greater environmental responsibility; and
Principle 9 encourage the development and diffusion of environmentally friendly technologies.
Principle 10 Businesses should work against corruption in all its forms, including extortion and
bribery.

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the onus on the actions of MNCs, as the UN Global Compact does, OECD guidelines are

recommendations directed towards governments to create environments for corporations to make

positive contributions to the economy, environment, and society. For example, this means

“providing effective domestic policy frameworks that include stable macroeconomic policy, non-

discriminatory treatment of enterprises, appropriate regulation and prudential supervision, an

impartial system of courts and law enforcement, and efficient and honest public administration”

(Dillard, 2013: 205). Economic policy could offset the troughs of business cycles. Companies

choose to operate in fair competitive environments, which the government can guarantee through

impartial laws and courts to enforce contracts. Furthermore, the OECD mission stresses that

government should have policies that foster sustainable development. The emphasis on

sustainability acknowledges that corporations need sustainability to ensure long-term viability.

The intention of OECD guidelines is to improve public welfare and living standards. This

government-directed approach adds an extra layer to producing public good. These guidelines

aim to create favorable conditions for MNCs to flourish. The approach promotes that when

MNCs thrive, they are best positioned to contribute benefits to society because of their

accumulated resources, reach, and influence.

Global  Reporting  Initiative  

The Global Reporting Initiative highlights the key measurements and reporting standards

corporations can use to publicize their CSR activities. These are also voluntary procedures that

align with the disclosure recommended by OECD guidelines. It recommends trackers in

“investment decisions, supply chain relationships,…human rights training, discrimination,

freedom of associate and collective bargaining, child and forced labor, security services, and

indigenous people’s rights” (Dillard, 2013: 210). Reporting in CSR provides transparency, an act

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that lends integrity to corporations. By informing consumers about their operations

comprehensively, firms reduce the level of bad press that comes with adverse news events.

Current  Efforts  in  CSR  

  The conversation around CSR in the recent decade is concerned with incorporating

corporate social responsibility into business strategies for competitive advantages and hence,

economic gains. Therefore, there is a greater emphasis on CSR reporting and measuring.

Reporting is important because corporations approach CSR as a public relations tool.

Corporations have to tell their unique story of CSR efforts, convincing consumers how they have

contributed to the betterment of the world. CSR reporting is about marketing themselves. It

requires businesses to be honest and transparent about how they achieved their CSR strategy in

conjunction with business objectives.

The current approach to CSR appeals to the consumer’s inner human desire to make an

impact. On the global scale, individuals struggle to find an outlet to make a contribution.

However, there is the promise of collective action. Interestingly, multinational corporations and

large businesses can be bodies to coordinate social good. MNCs have the reach, transcending

domestic borders, along with the resources and people. Through CSR reporting, MNCs boast

what benefits their operations have achieved for society. This can be through philanthropic

donations, better labor treatment in manufacturing, fair compensation, or proactive

environmental decisions. Then, corporations give consumers a choice to join their CSR efforts

by buying their products or services. Consumers associate their patronization with creating net

good for the world. By successfully doing this, corporations establish a connection with their

consumers, consequently earning themselves a marketing advantage.

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 In the former discussion of CSR standards, the United Nations Global Compact

established ten principles in human rights, labor, environment, and anti-corruption. For

corporations composing their CSR strategy, these provide “a comprehensive set of actions that

companies of all sizes can take to ingrain human rights, labor, environment, and anti-corruption

principles into their corporate DNA” (Hall, 2013: 6). At its initial launch in 2000, the

organization had 40 firms committed to upholding these principles in their operations. In 2013,

there were 8,000 companies in 140 countries that have become signatories. This is a great

increase, but just a small fragment of the 70,000 multinational corporations in the world and

millions of smaller businesses. Therefore, although the reach has increased, the potential for

growth remains large.

Simultaneously, these principles can be used as a framework to evaluate current CSR

efforts and progress. Since 2007, the UN Global Compact has published an annual report on

global corporate sustainability. The most recent report from 2013 concluded that “UN Global

Compact participants are on a good track in terms of high level commitments and goal setting,

[but] much more needs to be done to deepen sustainability efforts in how they think and act”

(Hall, 2013: 2). The Global Compact Management Model is the framework for corporations to

measure and grow their CSR efforts. These six management steps guide the questions of the

Annual Implementation survey. The results of this voluntary survey produced four key findings,

measuring the progress and challenges corporations face in implementing principles of corporate

sustainability.

The  Six-­‐Step  Global  Compact  Management  Model  

The Global Compact Management Model outlines six steps for corporations to develop

and evolve their CSR activities. This framework provides normative guidance to make CSR

strategy construction a repeatable process for all companies. The model is set up in a circular

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process, emphasizing that corporations are supposed to repeat the process continually to improve

their practices. The cycle starts with committing to a CSR strategy, then assessing, defining,

implementing, measuring, and communicating it. Committing to CSR is the first step. This is

merely setting an intention to meld CSR into business practices. Examples of how this manifests

into action include developing policies at the CEO level, writing the Ten Principles in the

corporate code of conduct, having these issues on the typical board meeting agenda, and

requiring subsidiaries to include Global Compact principles in their work. Next, assessment

requires an evaluation of the opportunities, risks, and impact in each issue area. This is to tailor a

CSR strategy that fits the particular organization’s capabilities and scope of practice.

Furthermore, the assessment step clarifies the benefits that CSR activity provides for the firm. It

provides a return-on-investment measure, offering financial reasons to move forward with CSR

initiatives. In the definition phase, corporations are to define their goals, strategies, and policies

regarding corporate responsibility. To be more detailed, this means making quantifiable goals

and interpreting the Ten Principles in reference to local issues. The next step is for firms to

implement CSR strategy throughout the company and across their value chain. Implementation is

the key step of making CSR substantial rather than a superficial front. Examples of tangible

actions of implementation are hosting staff orientation and trainings, using internal

communication channels to promote CSR goals, and linking CSR performance to employee

compensation. The more advanced next step is to have procedures to measure CSR activity. This

means CSR initiatives are substantial and can thus be benchmarked to measure future

improvement. The last step is to communicate progress and engage stakeholders in the

conversation. This concerns the issue of reporting, which is a public disclosure of their policies

and past successes. By getting executive leadership and employees engaged in the conversation,

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they feel more invested, and thus supportive, of CSR efforts. After the communication stage, the

model suggests that firms start the cycle over to enhance their CSR strategies, more tightly

aligning with the Ten Principles and other legal regulations with each cycle (Hall, 2013). This

process ideally perpetuates unless the firm stagnates in one stage or loses its motivation for CSR.

Key  Findings  from  the  Annual  Implementation  Survey  in  the  2013  Report  
The UN Global Compact performs an annual survey to benchmark and track CSR

activity of Global Compact signatories. Among the Global Compact’s four categories of human

rights, labor, environment, and anti-corruption, the efforts in labor rights and environmental

concerns are stronger than activities for human rights and anti-corruption matters. Trends

indicate that CSR progress happens gradually. Thus, companies that have been signatories for a

longer amount of time tend to have more substantial CSR implementation (Hall, 2013). Four key

findings from the 2013 report provide a snapshot of current CSR activity.

The first finding is that companies are slowly moving from good intentions to significant

action. Using the Management Model as a framework, firms are committing, assessing, and

defining, but struggling to implement. There is still a gap between policies and performance. To

quantify this lag, 65% of signatories responded that they are committed to sustainability at the

CEO level; yet, only 35% show evidence of implementation through trainings in how managers

can incorporate CSR in strategy and operations. Corporate leaders know that CSR is important

but lack the knowledge or ability to actualize their intention. Regarding action against anti-

corruption, 70% of companies have written anti-corruption measures into their policies, but only

30% have anonymous hotlines to report violations. Furthermore, 72% of firms have concerns for

human rights in their policies, but only 37% percent have implemented a complaint mechanism

that ensures accountability. Moving from intentions to results is the next goal for corporations.

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They are aware of the issues and committed to the intention; and now they have to take action

through small, specific steps that fulfill the CSR vision (Hall, 2013).

Secondly, the survey found that the most influential factor for sustainability performance

is company size. The UN Global Compact classifies large companies as those with more than

5,000 employees. This category dominated the participant base when the Global Compact first

started. However, in 2012, 56% of companies that were signatories of the Global Compact had

fewer than 250 employees. Nonetheless, large corporations outperform small-and medium-sized

enterprises (SMEs) in their CSR endeavors. Making the jump from “saying” to “doing” requires

time and resources, taking away from other priorities. Therefore, larger corporations and MNCs

are better positioned to produce more substantial CSR work. They have more people and more

reach. The two most commonly reported barriers hindering SMEs from achieving progress are

the lack of financial resources and the lack of knowledge. They do not have the necessities to

build the basic foundation for substantial CSR work. In comparison, the biggest challenges for

large corporations are extending their strategy throughout the supply chain, implementing their

strategy across business functions, and balancing between competing strategic priorities.

Regardless of size, “reduce, reuse, recycle” policies and training programs are popular among all

companies. In addition, companies of all sizes share obstacles in reviewing remediation plans

and incentivizing suppliers to abide by their CSR intentions.

Next, the supply chain structure is the greatest obstacle to comprehensive CSR activity.

Beyond the firm, the vertical supply chain has links that corporations cannot control in their CSR

strategy. Most companies have established sustainability expectations for their suppliers.

However, many do not take further action in ensuring compliance or providing assistance to

achieve these goals. To frame the phenomena using the Management Model, corporations are

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stuck in the definition phase. Specifically, 57% of companies communicate their standards for

sustainability, but they do not act further to implement and measure their suppliers’ actions. The

results from the survey show that large companies demand more from their suppliers. The

growing trend of outsourcing highlights that “the supply chain poses social, environmental,

governance risks, and challenges” (Hall, 2013: 19). Extending CSR efforts throughout their

supply chains does not appear to be a current priority for firms. However, implementation of

CSR expectations across supply chains is predicted to grow due to risk management concerns

regarding unsustainable inputs. Effective compliance in human rights, labor, environment, and

anti-corruption standards protects against disruptions in supply. Furthermore, customer and

investor demand for CSR activity creates a reputational risk if corporations do not uphold CSR

throughout their supply chain.

Finally, firms pursue CSR efforts with the intention to increase global utility.

Corporations are motivated to participate because a better world means better business. Firms in

the private sector are “strategic partner[s]” in “[advancing] principles of human dignity, equality,

and equity everywhere” (Hall, 2013: 20). CSR is concerned with universal improvement. When

the world is not “weighted down by disease, strife, economic breakdowns, illiteracy, human

rights abuses, and poverty,” businesses can thrive and prosper (Hall, 2013: 20). Firms perceive

that education (63%), poverty eradication (52%), climate change (52%), and employment (49%)

are the most urgent challenges to address through CSR action. Corporations approach these

problems by making social investments and entering partnerships with other firms with common

goals. Ultimately, firms understand that CSR protects their own continuing success.

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Key  Considerations  in  Forming  a  CSR  Strategy  
The multifaceted pressures on corporations to pursue CSR demonstrate why it is

meaningful but do not instruct how to form an actual strategy. Firms need insight and theories

that establish the steps of how they can achieve this new endeavor. Corporate social

responsibility is a comprehensive term that encompasses many different categories of initiatives.

Forming a specific CSR strategy becomes a daunting task because it is so undefined.

Corporations should consider that CSR serves to accomplish dual objectives: positive economic

gains and social or environmental benefits. CSR initiatives are no longer a way to go above and

beyond what is expected; instead, they are standard business operation expectations. Early and

rudimentary efforts such as charitable giving and donations were disconnected and unrelated to

specific firms. CSR has evolved such that it is now about linking core business objectives with

business functions (McElhaney, 2009). The key to forming a modern CSR strategy is to integrate

it into the firm’s broader business operations.

The following recommendations are based on current business literature and innovative

industry practices. I further explain different considerations in the phases of CSR strategy

definition, implementation, and monitoring.

Strategy  Definition  
The first step in forming a CSR strategy is to establish an honest and authentic intention

to achieve positive social or environmental good. Today’s CSR strategy must maintain the spirit

of the dual bottom line to create a positive impact in conjunction with business success. CSR

strategy is and should be approached as a business strategy. It contributes to the “core business

objectives and core competencies of the firm” (McElhaney, 2009: 31). The overarching goal of

producing social and environmental good is looming and intimidating. Firms must be wary of

avoiding “a random collection of unfocused, unlinked, and unrelated strategies” in pursuit of the

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abstract end goal of social and environmental change (McElhaney, 2009: 32). This explains the

importance of how CSR strategy should integrate with the business sights of the firm. It should

have a clear and compelling contribution to improved business performance.

Global  vs  Local  Perspective  on  CSR  Issues  

A CSR strategy is defined on both the global and local scale. Guidelines and standards

such as the UN Global Compact principles offer key issues for firms to address. However, these

are global guidelines that fail to consider local needs. The scope of the local community is “a

self-defined, self-circumscribed group of people who interact in the context of shared tasks,

values, or goals and who are capable of establishing norms of ethical behavior for themselves”

(Donaldson and Dunfee, 1994: 262). Local CSR conforms to the values of the local community

whereas global CSR abides by “standards to which all societies can be held” (Husted and Allen,

2006: 840). There are tradeoffs between choosing a universal, company-wide CSR strategy

versus a decentralized local strategy. Local strategies are more responsive to the actual needs of

the community. Subsidiaries of the parent firm can tailor CSR activity to local wants. For

example, the areas for improvement in a developed nation differ from priorities in a developing

country. Rural and urban communities have different concerns as well. However, the local

approach risks being fragmented and held to lower standards, depending on the country of

operation. Without top-level oversight, strategies within the same firm can become inconsistent.

Thus, an administrative burden emerges from the “whole set of divergent approaches from the

range of subsidiaries” (Muller, 2006: 190). The approach through global strategies overcomes

these risks by proactively setting a standard. Global CSR strategies are more efficiently

promulgated because executive directives are consistent. They come from one voice from above.

However, coming from a distant corporate headquarters, directives can “lack ownership and

legitimacy at the local level” (Muller, 2006: 189). Therefore, MNCs can compromise between

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local and global CSR strategies, maintaining big-picture perspective while incorporating

specificity for effectiveness.

Execution  
Leadership and partnerships are key to putting a well-defined CSR strategy in action.

Senior leadership and management must be committed to and engaged in the execution of their

core business strategy. Thus, CSR becomes accountable to a top-level leader in the company

(McElhaney, 2009). Next, the effects of successful CSR efforts create public benefits. CSR

intentions are shared, common goals because improvements in social and environmental issues

benefit the world at large. This situation makes the potential for partnerships both feasible and

effective. Since firms would like to achieve the same external end goals, they can combine their

limited resources. After evaluating their “capabilities, knowledge, resources, [and]

relationships,” corporations can find the ideal partner in a firm that complements their potential

(Keys, Malnight, and van der Graaf, 2009). “Smart partnering” allows firms to deliver on their

“lofty ambitions” under formerly limiting restraints (Keys, Malnight, and van der Graaf, 2009).

Thus, top-level commitments and partnerships are most closely linked to successfully providing

value to the firm.

Measuring  Performance  and  Communicating  a  Brand  

After putting their CSR strategy into action, corporations move onto communicating its

success. This step maximizes the internal benefits of CSR activity. Foremost, performance

metrics are necessary to provide benchmarks and quantitative indicators of progress. These

measurements legitimize the effectiveness of a firm’s CSR strategy, ensuring its continuation

and growth. There are two classifications of performance metrics, correlating with the dual

objective nature of CSR. Internal measures relate to the firm’s benefits, such as “reputation

improvements, gains in market share, brand perception, increased sales, decreased operational

–  22  –    
expenditures, and employee satisfaction” (McElhaney, 2009: 34). On the other hand, external

measures reference the positive social value generated for society.

Firms can maximize the internal value of CSR strategies by providing substantial

summaries of their CSR successes. Note, however, that in this promulgation, when the benefit to

the business heavily outweighs the benefit generated for society, CSR is reduced to advertising

propaganda (Keys, Malnight, and van der Graaf, 2009). The key to branding this activity is to

have a campaign that “address[es] the consumer’s interest, provide[s] easy-to-digest education,

and spark[s] dialogue and action” (McElhaney, 2009: 35). To maintain the integrity of their

campaigns, corporations can incorporate third-party verification and certification systems. This

protects against suspicions of “greenwashing” and increases transparency (Thompson, 2009). An

external evaluation system makes corporations accountable to an honest and effective CSR

strategy. Progress is a great motivator. Therefore, CSR reporting increases the investment that

leadership and employees maintain for their programs. Furthermore, reporting establishes the

value an individual corporation adds to the world, a story that becomes part of the firm’s public

brand image.

The  Value  and  Impact  of  a  Successful  CSR  Strategy  

In this section, I evaluate only the internal benefits that the acting corporation enjoys

from CSR activity. Research methods limit evaluating the exact level of public good that CSR

activity produces. For firms, CSR serves as a “risk-mitigation strategy and an opportunity-

seeking strategy” (McElhaney, 2009: 33). This means it can correct for past faults but also go

beyond the scope of a firm’s responsibilities. Thus, it is part of the grand corporate strategy

because it is an opportunity to gain a competitive advantage through improved public image.

This manifests in the corporation’s relationships with both the consumer and the government.

–  23  –    
With consumers, CSR is a way of aligning a company’s purpose with human values.

“Consumers today are looking for a relationship, not just a transaction” (McElhaney, 2009: 35).

Corporate social responsibility adds value to a firm in three dimensions: public image, employee

talent, and operational efficiency.

Public  Image  and  Reputation  

CSR contributes to developing a corporation’s public image and reputation. It becomes a

part of corporate branding. It is an option to achieve “competitive differentiation” (McElhaney,

2009: 31). Efforts in CSR can steal market share from competitors or create an opportunity to

enter a new market. Especially as the Millennial generation is joining the workforce and

overtaking the consumer population, this group is driving CSR expectations (McElhaney, 2009).

Therefore, these strategies are a way to establish connections with the target consumer.

Furthermore, in case of adverse events, companies with strong CSR strategies are more

easily forgiven. Consumers are more understanding if companies have a genuine intention to

improve society. When problems arise, companies with an earnest CSR story have a built-in

buffer to protect them against the negative PR damage.

Employee  Talent  
  Strong CSR strategies produce benefits for human resources operations within a firm.

CSR is an outlet for employees to develop an investment in the firm. A genuine commitment to

CSR makes employees “significantly interested in, more highly satisfied with, and more loyal”

to the firm (McElhaney, 2009: 31). Therefore, CSR strategy also becomes a way to attract and

retain top talent. In large corporations, employee poaching and turnover rates threaten

productivity. Losing key thought leaders and managers to competitor firms creates a loss on

several levels. First, the firm must expend resources to find a replacement and cope with another

training period for newly hired staff. Next, in the long run, the creativity and management

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potential of employees becomes an advantage for the other firm. CSR work enhances the

relationship employees have with their firm. People crave a way to make a social contribution.

Firms with strong CSR intentions and actions satisfy this desire. Therefore, their careers reward

them with an additional sense of importance, not just standard salary and benefits. In short, CSR

enhances employee compensation packages. As with all competitive advantages, however, the

effectiveness fades over time as competitors mirror and offer the same benefits. Therefore, the

differentiation slowly fades. Nonetheless, in the meantime, CSR ties into internal staffing

dynamics. Ultimately, talent acquisition and retention has positive implications for overall

company performance.

Operational  Cost  Savings  and  Risk  Management  

  Policies that arise from CSR strategies can lead to better risk management and

operational cost savings. As discussed before, promoting CSR policies throughout the firm’s

supply chain reduces the potential disruption of supply. Furthermore, processes can be reformed

to become more efficient in energy or material usage. This means the firm is spending less on

inputs while being less wasteful. CSR strategy promotes sustainability, recycling, and resource

protection with the intention of earth stewardship. Simultaneously, these focuses translate to

savings in business operations.

China  as  a  Target  Market  

To  Evaluate  CSR  Abstraction  in  Action  
Multinational corporations are part of the global system; however, their operations occur

on the micro scale within countries and communities. Therefore, while evaluating the dynamics

of Nestle’s CSR strategy, the focus must be scaled down with location. China is an interesting

region to study because of the complications. The features that make China unique are the

–  25  –    
governmental structure, the economic divide across the country, the massive size of its

population, and its recent industrialization and modernization. The country has had recent rapid

economic growth while the hand of the government remains in control of regulations and the

country’s economic direction. Economic growth is encouraged through two outlets. First, the

Chinese government takes deliberate action for economic growth, setting expectations and goals

for the country. It reasons that a strong consumer culture is a mark of increased living standards.

Secondly, there is the desire to emulate Western culture. Marketing and communication led to

the globalization of consumer culture. Bombarded with images of “chic” and “sophisticated”

lifestyles of the Western world, Chinese consumers are invigorated with new materialistic

desires.

The  Hand  of  the  Chinese  Government  

The most powerful force in the Chinese market is the government. First, the government

maintains control of some businesses as state-owned enterprises (SOE). More importantly, it sets

the strategy and economic direction for the country as a whole in its Five-Year Plan for National

Economic and Social Development.

In China, CSR is an effort to correct the social irresponsibility associated with Chinese

firms. China’s rapid and ambitious growth and industrialization tainted its international image

with a reputation for human rights abuses, substandard products, sweatshops, and pollution (Lin,

2010). The government expressed its priority for CSR in the 2006 Five-Year Plan. The Plan’s

principles expressed a priority to balance economic growth with addressing social and

environmental issues (Marquis, 2013). The government explains that CSR is important for social

harmony, fulfilling public expectations, sustainable development, and for SOEs to compete in

the global market (Lin, 2010). The Chinese government is the prominent driver because of its

“political, social, and economic motivations to encourage and also to control the development of

–  26  –    
CSR” (Lin, 2010: 99). The government is using CSR to make its companies viable in the global

market. The Chinese government’s concern for CSR exemplifies it as an effort to ameliorate

corporate image in pursuit of economic and business performance.

Firms in China also have an incentive to comply with the government directive for CSR.

In China’s unique economic structure, CSR activity adds value to businesses by earning

legitimacy from the government. The government dictates resources, regulations, subsidies, and

taxation that shape the competitive environment (Marquis, 2013). Thus, firms must concern

themselves with a political strategy, shaping their relations with the government favorably for

future profits.

A  New  Consumer  Class  Emerging  Along  Economic  Divide  

As one-fifth of the world’s population, China has the potential of a billion new

consumers. Another reason China is an interesting platform for evaluating CSR is its recent

growth in the middle class. Change is a disruption to the norm. Moments of change are prime

because there lies a crucial moment of opportunity. In this window, actors must strategically

redefine their new role and position. When the smoke settles, they are left in this position until

another shock to the system allows redefinition. Because of the immense growth in the China’s

middle class, CSR is very interesting to study during this transition phase.

The Chinese consumer class is distinctly divided. There is a great level of segmentation

in income levels and geographic location. Previously a Communist country, China transformed

into a market socialist country over the past 30 years. There is a great discrepancy in the

standards and lifestyles afforded to urban citizens in China versus citizens in rural areas.

Different regions are in different stages of development, split across three centuries. Allen

explains that fewer than 50 million people have the amenities of the 21st century; 300 million are

living in various stages of the 20th century, and the remaining billion are living in the late-19th

–  27  –    
century. These classifications refer to the retail infrastructure and technology available to the

citizens. Those consumers living with 21st-century amenities are thus “physically, culturally, and

financially accessible to multinational companies” (Allen, 2010: 14). More Chinese citizens are

moving to urban areas, which explains the rapid growth in the consumer market. Though the

elite class controls 10% of urban disposable income, the biggest opportunity for corporations is

to court the emerging middle class. Over the next decade, the number of Chinese households in

poverty will drop 10%. The Chinese consumer market will spend 20 trillion renminbi (about 3.2

trillion USD) each year. This middle class is unique because they are, on average, younger than

the middle class of other developed nations. Second, the urban middle-class is projected to

surpass the urban elite in both size and total spending power (Farrell, 2006).

Studies and statistical projections provide data to quantify this great change. Consumer

culture is an urban phenomenon. By 2025, projections estimate that 250 million people will

migrate from rural areas to China’s rapidly growing cities for higher-paying jobs (Kessel, 2013;

Farrell, 2006). This creates a huge base of new urban consumers. By tripling income and

productivity, GDP is expected to grow 500%. The typical urban consumer has the propensity to

spend almost 80% of his or her disposable income. Magnified by the growing number of middle-

class people, this equates to a vast collective spending potential. Historically, the Chinese have

had the highest saving rates in the world, saving roughly 25% of their disposable income.

However, spending patterns change with economic growth. Projections by McKinsey Global

Institute promote that increases in income lead to purchasing “more discretionary and small

luxury items” (Farrell, 2006: 66). Furthermore, the rate of this change is faster than in other

developing countries. This increasing consumer demand is especially notable because of its role

in driving CSR activity.

–  28  –    
Application  of  CSR  Principles:  A  Case  Study  of  Nestle’s  CSR  
Efforts  
The prior discussion outlined the theories of the drivers and content of CSR strategy and

actions. Then, an explanation of the dynamics occurring in China set the stage for a case study of

corporate social responsibility from a multinational firm. A case study of Nestle strengthens this

exploration of CSR strategies by providing examples and stories of CSR in application. By

discussing CSR in action, the theories and principles appear feasible, rather than idealistic. This

case study shows that CSR is realistic, and it also shows what value CSR adds to the firm.

Nestle is the focus for this case study because it is a leader in both CSR and the food and

beverage industry. Industry leaders are notable because they set an example. They establish the

first definition of the industry standard. Industry leaders place the bar high, challenging their

competitors to follow and innovate. Among the top 100 Food and Beverage corporations in the

world, Nestle ranked first in sales revenue. Around the world, this was approximately $102,098

million USD (92,186 million CHF) in 2012 (“Nestle in Switzerland,” 2013). It boasted 5.9%

organic growth in 2012 (“Nestle 2012 in 3 minutes,” 2013). Topping the sales charts, Nestle also

ranks first in CSR activity among food and beverage companies according to data from Oxfam

International. This study measured social and environmental policies in worker rights, farmer

compensation, women’s rights, land and water use, climate change, and transparency in supply

chains, policies, and operations (“Nestle Tops CSR Survey,” 2013). Therefore, since this case

study intends to discuss real-life application of CSR principles, the most commended efforts

provide the best example.

Nestle is a diversified multinational food and beverage corporation that showcases how

the principles of CSR strategy translate to action. First, the foundation of basic information

explains the history and current operations of Nestle. This provides an understanding of the reach

–  29  –    
and type of Nestle’s operations. Next, a description of Nestle’s CSR strategy, branded “Creating

Shared Value,” presents the content I analyze in this case study. Then, I discuss each of these

components in the framework of CSR strategy principles. Deconstructing these policies

demonstrates how CSR strategy recommendations are actualized and applicable to modern-day

business operations. Finally, this case study ends by discussing the impact of Nestle’s CSR

strategy, both internally and externally. In this case, I conclude that CSR strategy translates to

better business for Nestle while aspiring for social good for the world.

Laying  the  Foundation:  Company  Background  

Founded in 1866, Nestle remains headquartered in Switzerland. It operates in 194

countries, employing 339,000 people around the world (“Nestle in Switzerland,” 2013). Nestle’s

slogan is “Good Food, Good Life.” Specifically in China, Nestle entered the Chinese market by

“providing consumers good quality food at an affordable price” (Allen, 2010: 19). It has

incredibly impressive brand recognition in China. Among consumers, its brand is “an icon of

good nutrition, purity, quality, and product safety” (Allen, 2010: 19). It has brands in almost

every food and beverage category, including baby foods, bottled water, chocolate and

confectionery, coffee, frozen culinary foods, dairy, drinks, nutrition supplements, ice cream, pet

care, and sports nutrition snacks (“Our Brands,” 2013). Its target customer is the average

consumer, rather than a niche buyer. Instead of framing its goods as luxury products, Nestle’s

trademark is to help consumers meet “health and nutrition needs” (Allen, 2010: 19). In this way,

its consumer base is widespread. Competitors to Nestle are other global and national food and

beverage corporations. For example, competitors include PepsiCo, Inc., Kraft Foods, Tyson

Foods, and Unilever (Oakman, 2012). However, Nestle lacks a multidimensional competitor.

Other firms are competitors for Nestle’s individual product categories, rather than the company

–  30  –    
overall. Those corporations fail to match Nestle’s range of products. Therefore, market share

among these companies measures different categories, rather than overall as a firm.

Nestle holds the title of the leading food and beverage company within China too. It first

entered the Chinese market in 1874 selling “Eagle Sweetened Condensed Milk.” Today, its

product line has since expanded to baby food, cereals, chocolate, coffee, dairy products, frozen

food, and more. Nestle employs 50,000 Chinese workers with 33 factories in China.

Furthermore, over 90% of the products produced in China are sourced and manufactured there.

The far-reaching network of sales and distribution centers set up in China makes Nestle’s

products widespread and easily accessible in this region (“Nestle in China Creating Shared

Value,” 2012).

Historically, some of Nestle’s business operations endured widespread condemnation.

One particularly memorable outcry concerned infant formula marketing. In 1974, War on Want,

an anti-poverty activist group, accused Nestle of neglecting the best interests of the people. The

food industry began marketing baby formula to third world countries. Saleswomen, dressed up in

nurse uniforms, gave mothers free samples and discounts to convince them to switch from breast

milk to baby formula. However, families in these developing countries were not able to properly

use them. Forty years ago in poor, developing African, Asian, and Latin American cities, the

switch to infant formula was fatal because of improper preparation and hygiene. Incorrect

preparation distorted nutritional properties. This led to infections and malnutrition, which further

perpetuated poverty and health issues. Mike Mueller, writing for this nonprofit, dramatically

labeled infant formula as “the baby killer” (Muller, 1974). The issue was Nestle’s deceptive

marketing tactics. Nestle responded to this bad press by committing itself to ethical expectations

and restrictions set by the World Health Organizational International Code of Marketing of

–  31  –    
Breast-milk Substitutes. This example shows how Nestle takes advantage of CSR strategy to

demonstrate improvement from the past.

Nestle’s  “Creating  Shared  Value”  Program  

This section is a description of Nestle’s “Creating Shared Value” (CSV) program. This

precedes an analysis of how this program exemplifies CSR strategy formation. Nestle first

mentioned CSR in an official corporate document in 2006. In 2008, it published the first

“Creating Shared Value” report and has maintained this evaluation annually since. Nestle’s

published literature explains that the “Creating Shared Value” program is to “create value for

[its] shareholders by doing business in ways that specifically help address global and local issues

in the areas of nutrition, water, and rural development” (“What is Creating Shared Value?”

2013). In the realm of nutrition, Nestle aims to provide healthy and affordable products.

Regarding water efforts, it prioritizes the protection of scarce water resources and more efficient

water usage. Finally, it supports rural farmer development to achieve “continued access to

quality inputs and strengthen[ed] customer base” (“Creating Shared Value Explained,” 2013).

Nestle is driven to uphold these three objectives because of its concern for sustainable production

processes and compliance to laws, regulations, and its own mission statement. These intentions

comprise Nestle’s broad CSR strategy.

Themes  Exemplified  in  “Creating  Shared  Value”  

The prior discussion explained that the content of CSR strategy comes from international

CSR standards and must relate to business strategy. Nestle abides by voluntary guidelines and

regulatory requirements, including those from the UN Global Compact, UN Water Mandate, UN

Millennium Development Goals, Universal Declaration of Human Rights, International Labor

Organization conventions, and OECD Guidelines for multinational enterprises (“Global

Principles,” 2013). In addition to abiding by voluntary guidelines, Nestle exemplifies the core

–  32  –    
consideration of CSR strategies by connecting CSR activity with core business and

competencies. The three focuses in nutrition, water, and rural development have a clear

connection to Nestle’s key business operations. It explains that the motivation for “Creating

Shared Value” is ultimately a reason of better business. Strategy is a way to ensure economic

sustainment and future progress. “Creating Shared Value” relates to these goals by contributing

to favorable business conditions. More importantly, this program positively contributes to

Nestle’s public image. CSV is part of Nestle’s public relations efforts.

Another aspect of the content of CSR strategy is the need to balance local and global

issues. “Creating Shared Value” is Nestle’s global, company-wide CSR strategy and program.

Supplementing these efforts are additional programs specific to China itself. For example, the

global “Healthy Kids Program” to educate children about nutrition was translated to instruct

Chinese children. Nestle also has four research and development centers working towards more

nutritious, fortified food products. In China, coffee agriculture and milk production are potential

areas for rural development. In 1992, Nestle China set up an Agriculture Technical Assistance

Service to educate Chinese farmers on coffee cultivation. The methods it taught reduced water

consumption by more than 80%. Having taught Chinese farmers the best practices in coffee

cultivation, Nestle created a supply of coffee beans. Thus, Nestle is able to purchase directly

from local farmers (“Coffee Agricultural Assistance Programme,” 2012). Nestle performed the

same type of training for China’s dairy farmers in Shuangcheng. The techniques farmers learn

about breeding, animal health, and manure storage are best practices for the environment, high-

quality milk, and profitable careers for dairy farmers (“Nestle in China Creating Shared Value,”

2012). Through this dairy program, Nestle has produced benefits across several areas of concern.

Mutually beneficial results are the mark of a quality CSR program. The tradeoff between a local

–  33  –    
versus a global CSR strategy is responsiveness and genuine intentions for stricter standards.

Nestle addresses this tradeoff astutely by maintaining a global strategy that is additionally

augmented with programs tailored to local subsidiaries.

The UN Global Compact Corporate Sustainability report discussed the challenge of

promoting responsible behavior throughout a corporation’s supply chain. This consideration is

especially difficult for multinational corporations because their supply chains are more complex

and geographically widespread. Nonetheless, Nestle spreads its “Creating Shared Value”

program by establishing an explicit supplier code and maintaining ethical sourcing intentions.

The “Nestle Supplier Code” is a set of “non-negotiable minimum standards that asks suppliers

and their sub-tier suppliers to respect and to adhere to when conducting business with Nestle”

(“The Nestle Supplier Code,” 2013: 1). The four pillars of “The Nestle Supplier Code” are

human rights, safety and health, environmental sustainability, and business integrity. These

expectations apply further to the supplier’s “subsidiary or affiliate entities, as well as all others

with whom they do business including all employees, upstream suppliers, and other third parties”

(“The Nestle Supplier Code,” 2013: 1). There is also an anonymous hotline to report violations

to the supplier code. In defining the scope of standards, Nestle protects itself from any loopholes

and gaps in the supply chain that could be used to pass blame. Nestle also has responsible

sourcing guidelines for fish and seafood, dairy, meat, poultry, and eggs. Furthermore, Nestle

aims to audit 10,000 suppliers by 2015. In past performance reviews, 89.5% of suppliers were in

compliance with the “Nestle Supplier Code” (“Highlights and Challenges,” 2013). Unspecified,

however, was whether these were third-party audits or confirmations from Nestle’s own team.

By establishing this code of conduct with all entities associated with their operations, Nestle

aims for its products to be untainted by any unethical behavior, from its beginnings to consumer

–  34  –    
delivery. Nestle made the first step in distributing their values of corporate responsibility

throughout their supply chain. However, they have only addressed the beginning links. It could

strengthen this initiative by having similar standards for distributors and commercial stores. This

way, all steps involved with Nestle’s products, from growing ingredients to delivering the

product to the consumer’s hand, are completed responsibly.

Theories of CSR promote that partnerships and engagement of senior leadership are

important factors for meaningful implementation of CSR strategies. Partnerships are efficient

because they pool resources between different entities working towards the same goal. The

sponsorship of CSR by senior leadership is important to ensure CSR is given adequate priority as

a business strategy. Nestle’s report of “Creating Shared Value” in China shows that its plans

have accounted for these considerations. It explains that the social and environmental problems

of the world are “too complex to be tackled by one organization alone” (“Partnerships and

Industry Alliances,” 2013). Therefore, strategic partnerships are a way to maximize project

impact. In choosing partnerships, Nestle explains that they “must be mutually beneficial and

accomplish shared goals” (“Partnerships and Industry Alliances,” 2013). As the UN Global

Compact report discussed, more corporations realize that a better world is a better business

environment. The end goal of improving social and environmental conditions is a shared aim.

Therefore, firms can align through partnerships to better achieve these ends. In China, Nestle’s

partnership with the National Red Cross provided monetary and product donations during the

earthquake in Sichuan (2008) and Yushu (2010) (“Partnerships,” 2013). The Chairman and CEO

of Nestle and his Executive Management Committee in the Greater China Region manage the

“Creating Shared Value” program. A specialized team plans and implements CSV activities,

reporting to executive oversight each month. Globally, Nestle organizes stakeholder engagement

–  35  –    
through an annual global CSV forum and separate stakeholder conventions. Representatives

from governments, civil society, and businesses participated in the CSV forum “to boost long-

term sustainable economic development” for civil society and businesses (“Stakeholder

Engagement,” 2013). Stakeholder conventions aim “to understand stakeholder expectations and

concerns; report back on previous convenings; and stimulate fresh thinking, and prioritize key

actions on Creating Shared Value, sustainability, and compliance issues” (“Stakeholder

Engagement,” 2013).  Thus, Nestle exemplifies the recommendations for execution of CSR

strategies.

Nestle is very transparent in its CSR efforts and accomplishments. This transparency and

reporting is crucial to reap the internal benefits of a strong CSR program. In analyzing how

Nestle forms and fulfills its CSR strategy, the plentiful reports and primary texts made gathering

content a simple task. There is an abundance of information easily accessible on Nestle’s official

corporate website. The language is easy to understand and is very positive. Nestle has both long,

comprehensive annual reports and short, impactful summary blurbs. By making its CSR strategy

and performance public, Nestle secures the public relations benefits that CSR efforts achieve.

Furthermore, it clearly establishes the industry standard, challenging competitors to keep up.

The  Value-­‐Added  to  Nestle’s  Business  

  Nestle’s broad, public business strategy is “to be recognized as the world leader in

nutrition, health, and wellness, trusted by all its stakeholders, and to be the reference for financial

performance in its industry” (“Nestle’s Roadmap to Good Food, Good Life,” 2013). It aspires to

deliver consistently to build a trusted relationship with its consumers. The purpose of a corporate

strategy is to align everyone behind its aspiration to be the world leader (“Nestle’s Roadmap to

Good Food, Good Life,” 2013). Nestle explicitly acknowledges its “Creating Shared Value”

efforts along with its corporate strategy. The firm states that “it is only possible to create long-

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term sustainable value for shareholders if [its] behavior, strategies, and operations are also

creating value for the communities where [it] operates, for [its] business partners,

and…consumers” (“Nestle’s Roadmap to Good Food, Good Life,” 2013). What Nestle explains

is that better business requires a better world.

A corporate social responsibility strategy has a cost. Nestle spends over $5.8 million

USD (5.3 million CHF) in environmental sustainability projects and activities (“Nestle in

Switzerland,” 2013). However, these programs generate enough revenue to outweigh their cost,

confirmed through quantitative measures. Nestle tracks a “comprehensive series of strategic key

performance indicators (KPIs), as part of [its] commitment to more evidence-based reporting”

(“Key Performance Indicators,” 2013). For example, in measuring growth in nutrition, Nestle

quantifies the sales of different products, fortified with micronutrients or with reduced sodium,

sugars, or fat. To gauge progress in rural development and responsible sourcing, Nestle measures

the number of farmers trained in its programs and the percentage of suppliers who comply with

its supplier code. Regarding the environment, the company tracks energy consumption,

greenhouse emissions, water discharge, and kilotonnes of material saved from packaging

optimization (“Key Performance Indicators,” 2013). Quantitative performance metrics are

crucial to ensuring the sustainability of a firm’s CSR strategy and programs. A tracking program

announces the progress and results that CSR programs achieve. In this way, people at the firm,

from executive leadership to growers, stay motivated in promoting and expanding CSR efforts.

Connecting  Nestle  to  the  Big  Picture  of  CSR  

Studying Nestle elucidates how a multinational corporation can follow the most

contemporary business literature to form a substantial CSR strategy. This discussion reiterates

the literature that introduced CSR, its definitions, motivations, effectiveness, and reporting.

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Using Ewing and Windisch’s framework for CSR classification (procedural, tokenistic,

developing, developed, and established) Nestle’s CSR activity is at the highest established level.

It leads other competitors in CSR activity by setting high expectations through “the institutional

isomorphism model as the normative factor” (Ewing and Windisch, 2007: 2868). This is when

competition causes mirroring and adoption of practices throughout the whole industry. Possibly,

Nestle’s CSR achievements will stimulate comparable actions by other food and beverage

corporations. Therefore, competition may create a form of collective governance. In trying to

outperform each other, corporations continually raise their expectations for CSR activity.

Previous literature about CSR in China focused on the role of the government in the new

CSR directive. Lack of objective knowledge of the relationship between Nestle and the Chinese

government limits analyzing whether Nestle follows the general patterns Lin and Marquis wrote

of. They explained that CSR is not only a business strategy but also part of a political strategy. In

China’s business environment, a firm’s relationship with the government is an important factor

that shapes its economic success. Alignment with the government directive for CSR activity

gives firms better positioning with the government. I deduced the relationship between Nestle

and the Chinese government by looking at past business deal approvals. In 2011, the Chinese

government approved Nestle’s bid to own the majority stake of a Chinese-based candy and snack

manufacturer, Hsu Fu Chi (“Of China and Chocolate: Nestle Expands in Beijing,” 2011). China

had been very restrictive in allowing foreign corporations to enter its emerging market; yet

Nestle was able to secure this deal. This approval could have come from the timing and general

attitude change. Alternatively, Nestle might have particularly special ties to secure this

agreement. Nestle’s official publications acknowledge its relationship with the government. A

press release from Nestle in 2008 about its dairy supply chain explains its Win-Win-Win

–  38  –    
partnership between farmers, local government, and itself for high quality and safety in dairy

products (He, 2008). Thus, there is already an established working relationship between Nestle

and the Chinese government. As a result, the substantial CSR activity and reporting observed in

Nestle’s operations in China meet expectations as predicted.

Another research limitation to the case study was evaluating the effectiveness of CSR

programs. My research focus is on the announced CSR strategy. In other words, this is the

promulgation of what corporations say they will do. This does not consider implementation.

Assessing the actual impact is beyond the scope of my focus and capabilities. Nestle’s own

reporting is very extensive. It is clear what it wants to achieve with its “Creating Shared Value”

program. Key performance indicators demonstrate the internal business gains from this

program—greater sales and market share. However, the social and environmental impacts are

less clear. A genuine intention for CSR is key, but successful implementation is the next step. It

seems that Nestle leads in CSR strategy and activity. However, this reality may not meet the

ideal. There is a difference between the best business practice and the best moral practice.

Whether corporations meet the moral expectations of CSR cannot be answered from my position.

My methods lack a trustworthy measure of real outcomes and implications to define the ideal.

My focus was explaining one approach to CSR strategy formation, pursued partly for internal

economic benefits. The impact on the world at large is seemingly and hopefully positive, but I

lack evidence for this declaration.

Conclusion  
The 21st-century theme of corporate social responsibility is to generate social good in

conjunction with business objectives. Multinational corporations are developing extensive and

ingenious CSR strategies for a variety of reasons. The internal value of CSR strategy is economic

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gains, through greater sales or increased market share. Simultaneously, the external impact is

improvement in social or environmental issues. Profits and social benefits are not necessarily

contradictory. In fact, this dual priority is critical for enterprises to be sustainable. This thesis

aimed to demonstrate how a multinational corporation forms a CSR strategy—as written by

executive business literature and as carried out by the world’s food and beverage industry leader,

Nestle.

First, I explored previous literature about CSR in general: how it first began and how

businesses defined it. This literature review also explained different classifications of CSR and

evaluated how reports can measure effectiveness. To develop a CSR strategy, the content and

goals reference CSR standards set by global governing bodies. These governing bodies lack the

force to punish noncompliance, but they are important because they highlight the basic issues

corporations should consider in CSR strategies. The UN Global Compact annual report provides

insight on how corporations fare in fulfilling these expectations, as measured by the Six-Step

Management Model. Upon this foundation, I discussed the theory behind setting a CSR strategy,

as written in business literature for executive leadership. This literature breaks down the process

of forming and fulfilling a CSR strategy into the steps of definition, execution, performance

tracking, and reporting. Finally, the case study of Nestle clarifies these steps by showing how

Nestle abides by these recommendations exquisitely.

This was a pointed case study of one multinational corporation, headquartered in

Switzerland. My research method was limited to what was publicly available through Nestle’s

website. Additionally, questions remain about the CSR activity of domestic Chinese firms. Other

studies could dive into comparisons of CSR strategy within the same industry or across

industries. Variables to consider are size and geographic location of firms. Every company is

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different, and every CSR strategy is different. Other firms can look to Nestle as an example when

setting their CSR strategy. In terms of executing their strategies, however, these firms may be at

a disadvantage due to less abundant resources. Furthermore, significant CSR strategies and

implementation cannot correct all wrongs committed in the past. Nonetheless, CSR strategies are

opportunities to set a new direction and to improve a pre-existing public image. In pursuing this

competitive advantage, firms are actually making a valuable contribution to society’s issues. As

corporate social responsibility becomes the universal norm among firms, there will be more

actors innovating and pursuing good for the interests of the whole planet.  

–  41  –    
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