Factors That Affect Conflict Resolution Between RE MNEs and ICs - Dissertation Example

The scarcity of natural resources, the need for economic growth, as well as the increase in global population, have driven resource extraction (RE) Multinational enterprises (MNEs) to search for natural resources foreign nations, which in consequence has led to conflicts with the Indigenous Communities (ICs). In essence, due to globalization, there is a need for more resources as the MNEs expand on a global scale to make profits. Since most of the developing nations have not exploited their natural resources, the MNEs usually target them for the resources. There are various factors that affect conflict resolution between resource extraction multinational enterprises and indigenous communities. For instance, Rees, Kemp, and Davis (2012) in a joint research project that was implemented by the Corporate Social Responsibility Initiative and the Centre for Social Responsibility (CSR) in Mining at Harvard Kennedy School and the Sustainable Minerals Institute of the University of Queensland, recognized that the factors that are external to mining MNEs can have a significant influence on the success of conflict management with the indigenous communities. They identified a variety of factors, including co-operating structure and hierarchy, the role of the corporates legal function, the role of the formal processes, modes of engagement with the communities, internal influences of community relations staff, assessing social performance, and company attitudes towards conflict management and the community relationships. In addition, staff attitudes towards hiring and training also played a significant role in conflict management.

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As such, factors that are external to resource extraction companies, such as mining companies affect the success of conflict management efforts. These include the broader legislative framework, political context, as well as the preexisting community dynamics (Rees, Kemp, and Davis, 2012). For this reason, indigenous communities (ICs) are seen as strong stakeholders in resource extraction sites because they primarily control the natural resources, and these companies depend on the resources. Therefore, there is bound to be conflicts in most instances because as Murphy and Arenas (2010) articulate, the MNEs are more poised to consider ICs as fringe stakeholders because they deem them to be minor compared to larger stakeholders, for example, the natural government. Therefore, there has been considerable research into the matter, and many authors, including Kolk and Lenfant (2013) and Castro and Nielsen (2001), who have unanimously pointed the need of dealing with ICs sustainably.

Also, according to Chatham House (2013), the factor of community relations remain an important challenge for ICs in emerging producer countries, including Mongolia, Peru, Guinea, Mozambique, and South Sudan particularly. In these areas, the established environmental frameworks are particularly weak because the communities lack a political voice, and land tenure and water rights are insecure. In essence, this subsequently makes the ICs vulnerable to exploitation by MNEs. In addition, the demographic pressures coupled with the mounting environmental stress globally is expected to magnify the challenge in future.

To avoid social pressures and conflicts between ICs and RE MNEs, the MNEs need to comprehend how Corporate Social Responsibility influences the reduction of conflicts. However, as Lertzman and Vredenburg (2005) and point out, there is minimal descriptive and quantitative research that can establish the relationship between RE MNEs, sustainability, and ICs regarding conflict avoidance. Therefore, conducting a quantitative research that explains to what extent a strong focus on CSR can reduce or prevent conflicts between the MNEs operating the resource extraction industry and the ICs. For this reason, the first research question will be:

RQ1: To what extent a focus on corporate social responsibility does help in preventing and reducing conflicts between multinational enterprises operating in the extractive industry and indigenous communities?

It can be deduced that the external environment is vital for monitoring and control because it could lead to conflicts with ICs because the RE activities that MNEs embark on directly affect the land, as well as the lives of people. MNEs can embark on CSR initiatives, for example, using eco-friendly products and embarking on waste reduction, which can subsequently lead to cleaner environments and highlight the empathy efforts of MNEs towards ICs.

CSR focusses mainly on reduction and avoidance of social conflicts, but in some occasions, it has worsened the conflicts. Even so, institutional level stakeholder pressure is vital because it leads to RE MNEs to undertake CSR initiatives. The MNEs are required to include CSR endeavors that highlight their actions and activities to the public. However, such actions are questioned because they can significantly diminish the focus of CSR primarily because, as pointed out by Aguinas and Glavas (2012). In some instances, they are just a cover up by the MNEs for them to exploit the resources of ICs. According to Munshi and Kurian (2005), companies use CSR initiatives of greenwashing so that they can cover up their violations and misdeeds from the media. Besides, Beder (2002) provided as an example where Nike responded to charges of using sweatshop labor by getting endorsements from environmental groups for a proposal to eliminate the use of PVC products. For this reason, it can be derived that a focus on CSR initiatives by themselves is unlikely to produce the desired effect on ICs.

Due to ICs concerns on RE MNEs projects, there have been recent cancellations and delays of various high-profile projects, which highlights the need for maintaining good relations with ICs to facilitate business success. In essence, good relations are facilitated by CSR endeavors. According to Sainsbury, Wilkins, Haddad, Seeney, et al. (2011), a Citibank survey that encompassed 400 of the largest greenfield mining projects revealed that two-thirds of them were at a risk of cancellation or delay. In addition, Davis and Franks (2011) pointed out that a study that was conducted in 2008 of 190 oil and gas projects initiated by Goldman Sachs revealed that lead times to production had doubled and a follow-up study found out that half of the risks that faced those projects were non-technical in nature, and were mostly related to stakeholder-related risks. Costs that resulted from delays due to ICs concerns and conflicts between the RE MNEs and the communities.

Besides, lobbying activities initiated by Non-governmental Organizations (NGOs) can also affect implementation of CSR primarily because these establishments have been actively involved in collaborations with MNEs in coming up with CSR agendas. Partnerships between MNEs, ICs, and NGOs is particularly important as it can pave the way for a common cause. However, the current literature addresses the factors individually without considering the effects of such interactions, and how they might influence the MNEs commitment towards the implementation of true CSR initiatives. In effect, this provides the second gap of the research, and thus, the research will address a second research question, which is stated below:

RQ2: To what extent governmental interference and NGO partnership affect the commitment of multinational enterprises towards true corporate social responsibility initiatives?

Corporate Social Responsibility (CSR) Initiatives Effect on the Length, the content, and the Type of Conflict Between MNEs and ICs

CSR Effect on the Length of Conflict

According to Laplante and Spears (2008), conflict with communities increases the legal and reputation risks for RE MNEs. Importantly, reputation in the extractive industry is the lifeblood of an MNE because it is key to attracting quality partners, as well as gaining the opportunity to distinguish one company from another. Reputation, therefore, is built using CSR initiatives, especially for resource extraction companies, for example, those that are involved with mining activities. Many MNEs support CSR because, at the organizational level, they lead to significant recognition, which increases the MNEs financial performance. Non-financial benefits that are facilitated by CSR initiatives include increased product quality, desirability to investors, better brand image, operational competencies, as well as better management practices (Aguinas and Glavas, 2012). Besides, CSR initiatives, as Husted and Allen (2006) articulate, are vital towards increasing market share, as well as providing the company with competitive advantage. Competitive advantage is obtained through the better brand image that is associated with CSR. The benefits generated by CSR go beyond reputation-building to developing valuable organizational capabilities (Sharma and Vredenburg, 1998). The failure to manage CSR strategically, however, can lead to serious economic consequences to an MNE. In essence, if the ICs do not recognize the CSR initiations, it can subsequently lead to more conflicts over the resources. For this reason, if an MNE decides to adopt CSR, it should be strategic enough to ensure that positive outcome. Even so, as pointed out by Porter and Kramer (2006), strategic CSR is essential because that is when the society will recognize it. As the authors articulate, when the social issue is closely related to the business, the greater the chance that the CSR initiative will influence the capabilities and resources of the MNE, and consequently, the more the benefits that the society obtains from such a program. In this respect, as Helwege (2015) asserts, to avoid and minimize social conflicts between ICs and MNEs, the resource extraction MNEs should have a focus on CSR.

Based on these theoretical findings, the research recognizes the positive effect of CSR initiatives on the reduction of conflicts between MNEs and ICs. For this reason, when a resource extraction MNE takes into consideration of the external environment, and in this case, where ICs live, it will attempt not to harm the habitant, and thus, the ICs do not consider it as a threat, which eliminates the likelihood of conflicts. Therefore, the researchs first hypothesis is:

Hypothesis 1: Resource extraction multinational enterprises focus on corporate social responsibility positively influences the length of conflicts between them and indigenous communities.

CSR Effect on the Content of Conflict

The content of a CSR initiatives is directly correlated to sustainability. For this reason, MNEs should implement CSR initiatives that affect sustainability positively. For this reason, a collaboration between the ICs and MNEs regarding sustainability is vital. According to Ingles et al. (1999), the promotion of collaborative management is usually based on the assumption that a more effective management is more likely to be achieved when the local resource users have exclusive or shared rights to make decisions about the benefit of the resource. As such, the motivation to manage a resource sustainably on the ability to be assured of possessing long-term access or benefit to it. For this reason, CSR is vital in this paradigm as it shows that the MNEs and the ICs have a mutual benefit, which subsequently reduces or completely eliminates the propensity of conflicts.

However, as Crawley and Sinclair (2003) argue, industrial expansion mainly in the resource extraction industry, mainly in the mining sector, is not sustainable and people are underestimating the effects the MNEs activities have on the natural systems for ICs. Essentially, the lives of...