China, India and Russia are experiencing a profound social transition as they enter the “mature market” stage of development. While these leading emerging markets are seeing a rapidly expanding middle class, they are also experiencing a dramatic rise in labour, consumer and environmental activism and protests. Many multinational companies (MNCs) with long-term operations in these markets, including IBM, Walmart, Coca-Cola, Pepsi, and the Ford Motor Company, have experienced a commensurate rise in corporate social responsibility (CSR) crises. In a new research study, CEIBS Professor of Strategy Sam (Seung Ho) Park and his co-authors explore the forces shaping this social transition, and how these evolutionary changes are creating new pressures for MNCs in emerging markets.

In undertaking this study, Professor Park and his co-authors created a database of the publicized corporate social responsibility (CSR) crises encountered by major foreign MNCs in China, India and Russia from 2000 to 2011. In most of the cases, the researchers found that the MNCs had entered these markets when regulations and enforcement were lax, and there were relatively few actors in place such as consumer groups or labour unions to challenge business misdeeds. This condition is referred to as an institutional void. Used to operating in these institutional voids, MNCs find themselves caught in various types of CSR crises as the market environment begins to mature and transition towards what Professor Park and his co-authors call institutional sophistication.

By examining the details of the 309 cases in their database, the researchers found several underlying trends common across all three countries which have contributed towards the increasing number of CSR crises MNCs are experiencing in these markets. These trends, which they divide into two categories, are:

-Top-down maturation of the regulatory system:
*Introduction of legislation and regulations aimed at improving conditions and empowering consumers;
*Increased enforcement;

-Bottom-up diversification and intensification of grassroots initiatives:
*The growth of NGOs focussed on environmental issues;
*The growth of labour unions;
*Increasing internet access.

The co-authors suggest that in order to mitigate the risk of CSR crises, MNCs in these markets need to start playing the role of institutional entrepreneur and get involved in improving the institutional environment and be pro-active about supporting regulatory progress. The findings of Prof. Park and his co-authors Meng Zhao of Skolkovo Moscow School of Management; Institute for Emerging Market Studies, and Justin Tan of York Univeristy Schulich School of Business appear in the paper entitled “From Voids to Sophistication: Institutional environment and MNC CSR crises in emerging markets” which is forthcoming from the Journal of Business Ethics.

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