The recent findings, a significant contribution to the Global Strategy Journal, shed light on a pressing issue for businesses-the impact of corporate misconduct on international sales. This research, which delves into the effects of corruption, discrimination, and exploitative practices within supply chains, reveals a tangible negative effect on sales. The global awareness of unethical business behaviours is leading consumers and investors to respond with disapproval in their local markets.

Nuruzzaman Nuruzzaman from the University of Manchester, a contributing author to the study, explains that socially irresponsible actions have far-reaching effects that extend beyond local boundaries, adversely impacting the performance of foreign subsidiaries.

Nuruzzaman conducted the research along with Erin E. Makarius and Debmalya Mukherjee of the University of Akron and Ajai Gaur of Rutgers University. They observed the sales growth of 335 subsidiaries across 109 countries over nine years, correlating these figures with the frequency of reported corporate social irresponsibility (CSI) incidents involving their parent companies. Their findings were clear: sales at subsidiaries suffered regardless of whether the incidents occurred locally or internationally.

Makarius emphasized the scope of their research, noting, “We focused on the global spread of negative news and the reaction of stakeholders to incidents outside their immediate geographic area. Our data suggests that the location of the misconduct is irrelevant; the negative impact remains substantial.”

The study also delved into whether diversionary tactics could alleviate the repercussions of a parent company’s misdemeanours. It compared the effectiveness of marketing campaigns and product innovations. The results showed that while promotions and contests had little effect in mitigating reputational damage, launching two or more innovations in products or services could positively influence sales growth despite ongoing CSI incidents.

Mukherjee commented on the findings, suggesting, “Consumers may see marketing campaigns as insincere, whereas innovation, being more resource-intensive, likely has a more substantial positive effect.”

Although the research confirms that subsidiaries can counteract the adverse effects of negative media coverage regarding their parent company’s actions, the authors stress a broader implication: the potential widespread consequences of CSI. They advise management at parent companies and their international subsidiaries to know that misconduct, even far from where they operate, can swiftly affect their international sales performance.

Gaur concludes with a strong call to action for global corporations, emphasizing the importance of maintaining high ethical and social responsibility standards across all operations. He also highlights the need for open communication with subsidiaries to swiftly address and mitigate the effects of socially irresponsible behaviours, further reinforcing the issue’s urgency.

More information: N. Nuruzzaman et al, MNCs’ corporate social irresponsibility and foreign subsidiary performance, Global Strategy Journal. DOI: 10.1002/gsj.1502

Journal information: Global Strategy Journal Provided by Strategic Management Society