Competitive Advantages of Corporate Social Responsibility

In order to survive in its industry, companies must obtain above-average results of

its business activities compared from its competitors. Thus, the main task of strategic
management is to establish and sustain competitive advantage to achieve superior
performance against the background of competitors. (Cegliński, 2016). Porter (1985), in
his study, claims that competitive advantage grows fundamentally out of the value a firm
is able to create for its buyers that exceeds the firm’s cost of creating it.

Corporate Social Responsibility as a term is continuously evolving during the last

decades and there is an ongoing argument regarding whether firms should only focus on
its areas related to creating profit, or they should pursue activities that go beyond the
economic aspects of the firm. (Brunsæl, 2009)

At nineteen sixties, when there was an emerging diversion and interest in CSR, it
was merely seen as an expense on philanthropy which only returns the hard-earned
money generated by companies back to the society through charity. Thus, looking at it
financially, it meant a decrease in profits for the sake of a social or environmental end.
Milton Friedman, an American economist and statistician best known for his strong belief
in free-market capitalism, wrote the famous article entitled ‘The Social Responsibility of
Business is to Increase its Profits’, where he held that those executives who expense the
company’s profit for social purposes should be regarded as disloyal agents to their
principals, the shareholders. Financially speaking, if profits are the only value driver, it can
be clearly shown that any reduction in earnings without any complementary effect,
whether it comes from philanthropy, destroys value. (Bosch-Badia et al, 2013). On the
other hand, Freeman argued against this theory through his stakeholder'a theory. Dr.
Freeman’s books describe how a healthy company never loses sight of everyone involved
in its success. Descriptively, some research on stakeholder theory assumes that
managers who wish to maximize their firm's potential will take broader stakeholder
interests into account.

It can be observed that people are becoming more sensitive and aware of their
society and social consciousness is constantly progressing. As a result of this awareness,
people also changed and gradually evolved their way of thinking regarding the impacts of
business activities present in the society. Those people and organizations who are highly
concerned and interested regarding the performances of companies are called
‘stakeholders.’ (Grant, 2004). This group mainly consists of cljients, suppliers, local
communities and public authority and they can place compelling and powerful impact to
the firm’s well-being. Enterprises are more or less formally manipulated and greatly
affected by their stakeholders, especially by their customers and those who have public
authority. As accurately noticed by Kramer and Porter (2007), companies do not function
in isolation from communities that surround them. Furthermore, they said that companies’
ability to compete actually depends on existing conditions in the areas in which they are
operating.

The concept of corporate social responsibility should be considered in view of the

advantages that can be brought both to the enterprise and society (Ceglińska and
Cegliński, 2014). CSR can be much more than a cost, a constraint, or a charitable deed –
it can be a source of opportunity, innovation, and competitive advantage (Porter and
Kramer, 2006). Based on the assumption that consumers will reward firms for their support
of social programs, many organizations have adopted social causes (Levy,1999). In fact,
research suggests consumers will punish firms that are perceived asinsincere in their
social involvement.

CSR policy that takes into account stakeholder requirements may add competitive
advantage in some corporate areas. For instance, non-monetary conditions of
employment can be regarded as a positive signal to attract quality work force (Kitzmueller
and Shimshack while environmental care and better relationship with government and
communities may smooth the requirements for opening new plants. CSR also facilitates
to attract investments from ethical mutual funds. A company engaging in CSR activities
gains a competitive advantage, not just establishing positive reputation but also
strengthening its brand name (Papadopoulos et al., 2011).

Not surprisingly, the CSR performance of companies and how their manufactured
products interact with social issues, have a substantial impact on the purchase behaviors
of consumers (Webb, Mohr, & Harris, 2008). Indeed, consumers use the ethical aspects
of products as an important consideration when they make purchasing decisions (Auger
et al., 2008; Carrigan, Szmigin & Wright, 2004; Creyer & Ross, 1997).

Thus, it is clear that a company's Corporate Social Responsibility (CSR) actions

can have a positive and significant impact on consumers’ evaluation of the company and
its products (Bhattacharya & Sen, 2004). The price that consumers are willing to pay for
a company’s product can be indicated as a sign that consumers approve or disapprove of
a company (Creyer & Ross, 1997), and studies indicate that consumers are willing to pay
above the market price for products with acceptable social attributes or made in ethical
ways as a reward to companies’ ethical behavior (Creyer & Ross, 1997; Auger et al., 2008;
Arana & Leon, 2009; Hiscox et al., 2011). Conversely, because consumers expect
companies to conduct business ethically, they are less willing to pay high price for products
from companies that do not engage in Corporate Social Responsibility activities, thus
utilizing their buying power to punish unethical behavior (Creyer & Ross, 1997).