Practices Regarding the Forms of Communication with the Consumers used by a Multinational Company at Global and Local Level

Dumitru, Madalina; Albu, Nadia; Dumitru, Valentin Florentin; Albu, Catalin Nicolae Article Practices Regarding the Forms of Communication with the Consumers used by a Multinational Company at Global and Local Level Amfiteatru Economic Journal Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Dumitru, Madalina; Albu, Nadia; Dumitru, Valentin Florentin; Albu, Catalin Nicolae (2014) : Practices Regarding the Forms of Communication with the Consumers used by a Multinational Company at Global and Local Level, Amfiteatru Economic Journal, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 16, Iss. 35, pp. 41-57 This Version is available at: https://hdl.handle.net/10419/168813 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Organizations’ responsibility to consumers AE Vol XVI • No. 35 • February 2014 41 PRACTICES REGARDING THE FORMS OF COMMUNICATION WITH THE CONSUMERS USED BY A MULTINATIONAL COMPANY AT GLOBAL AND LOCAL LEVEL Mădălina Dumitru1*, Nadia Albu2, Valentin Florentin Dumitru3 and Cătălin Nicolae Albu4 1) 2) 3) 4) The Bucharest University of Economic Studies, Romania Abstract This study is motivated by the importance of communication with consumers in the pharmaceutical industry. We view communication as part of the company’s responsibility towards consumers. The aim of this study is to examine the communication mechanisms of corporate social responsibility practices related to consumers in the pharmaceutical industry in a multinational, by comparing the Romanian’s subsidiary practices with the global ones. The data is extracted from the annual reports issued by a multinational company from 2010 to 2012 and from the only social responsibility report issued by its Romanian subsidiary (2011). The information is analysed both form a quantitative and a qualitative point of view. We employ the legitimacy theory, and particularly the three types of legitimacy – pragmatic, moral, and cognitive, in order to analyse the reporting practices. We find differences in the reporting channels and forms between the global firm and the Romanian subsidiary. Also, the results are important for the specialized literature and indicate that the multinational uses different types of legitimizing discourse than its subsidiary. We contribute to a better understanding of the corporate social responsibility reporting by addressing the communication towards the consumer as a key stakeholder and by investigating the manner in which reporting works at global and local levels. Keywords: communication, consumers, organizations’ responsibility, pharmaceutical industry, legitimacy theory JEL Classification: M14, Q56 Introduction Corporate social responsibility (CSR) activities are increasing in the last years, but differences remain between countries, industries and companies. CSR practices are based on a stakeholder legitimacy approach in which various groups’ interests and goals are balanced: shareholders, consumers, employees, suppliers, creditors, government, and community. The communication with these stakeholders is a central issue of CSR and * Corresponding author, Mădălina Dumitru – madalina.du[email protected].ro AE Practices Regarding the Forms of Communication with the Consumers used by a Multinational Company at Global and Local Level Amfiteatru Economic 42 providing complete, timing and accurate information is very important. “‘Socially responsible’ simply means responsive to the concerns of society” (Sparks, 2003, p. 4), but companies’ response is modelled by the expectations of “the two classes of 'stakeholders' who really do matter to them: consumers and shareholders” (Sparks, 2003, p. 3). This study is motivated by the importance of communication with consumers in the pharmaceutical industry (Oxfam, 2002; Consumers International, 2006), given the magnitude of this industry and of consumers as key stakeholders. We view communication as part of the company’s responsibility towards consumers. The aim of this study is to examine the communication mechanisms of CSR practices related to consumers in the pharmaceutical industry in a multinational, by comparing the Romanian’s subsidiary practices with the global ones. We focus our analysis on the use of voluntary disclosures to send signals, to present the management’s view on various issues and to legitimate the organization (Cho and Patten, 2007; Cho, 2009). The pharmaceutical industry represents an excellent case to examine the organizational disclosures and the communication with consumers because of its social importance and potential responsibility issues (Adams and Kuasirikun, 2000; ECORYS, 2009). This industry “is living the tale of two markets” (PWC, 2012) in the sense that there are different opportunities and threats in mature developed markets and in the less developed ones. Besides the differences generally identified in CSR reporting between these two groups of markets (Zaharia and Grundey, 2011), the characteristics of this industry justify the comparison of practices between developed and developing countries. Therefore, this research is driven by the need to investigate the context of emerging economies, which is less researched in depth in the area of CSR reporting towards consumers (Jamali and Mirshak, 2007; Belal, Cooper and Roberts, 2013; Beddewela and Herzig, 2013). Also, we further explore the role of multinationals in contributing to the improvement of CSR practices (Obrad, et al., 2011). The purpose of this paper is to analyse the reports of a multinational company and its subsidiary from the perspective of the responsibility towards the consumers. The hypotheses of this research are: the communication with the consumers is very important for the pharmaceutical companies; there are differences between the ways a multinational company or a company in an emerging economy are legitimating themselves in front of the consumers. One of the contributions of the paper is the use of the legitimacy theory to analyse the annual and CSR reports, as this theory was previously used especially for the analysis of the environment reports. Being legitimate “enables organisations to attract resources necessary for survival (e.g. scarce materials, patronage, political approval)” (Hearit, 1995, p. 2, cited by Tilling and Tilt, 2010). The annual report is “the most important document in terms of the organization’s construction of its own social imagery” (Gray, et al., 1995: 82 cited in Tilling and Tilt, 2010: 62). Also, annual report has a significant influence on how the market and the stakeholders perceive and react to an organization (O’Donovan, 2002). Besides being read by the organization’s relevant publics, the annual report possesses a degree of credibility not associated with other forms of advertising. This apparent credibility and the dissemination of the annual report to relevant publics provide managers with a unique opportunity to project a particular organizational image for their relevant publics (Guthrie and Parker, 1989, p. 344). The rest of the paper is organized as follows: the literature review builds the motivation of the paper and provides the gaps in the current literature which will be addressed. The next Organizations’ responsibility to consumers AE Vol XVI • No. 35 • February 2014 43 section presents the research methodology, comprising the theoretical framework derived from the legitimacy theory and the research method. The analysis of results follows, with separate investigation of the Romanian subsidiary and of the multinational. Finally, the conclusions of this study and future research directions are presented. 1. Communicating with the consumers and the CSR practices 1.1CSR reporting as a communication tool The conventional model is focused on financial results and on the investors as primary stakeholders, but in the last decades the importance of a business model focused on the long term value creation for a variety of stakeholders is emphasized (WEF, 2011; Saghroun and Eglem, 2008). The CSR is based on the idea that a business contract exists between organizations and society, and organizations should be accountable in the sense of providing an account of their actions to society (Woodward, Edwards and Birkin, 1996; Pamfilie et al., 2013; Mustaţă et al., 2013). Consequently, the social contract between organizations and society results in disclosures as means of communication. Since the economic success is analyzed in relation with all the stakeholders, organizations should detect the groups with identifiable interests and consider them both in strategy formulation and implementation and in communication activities. In order to communicate with their stakeholders, organizations might use annual reports, CSR reports or integrated reports, but also press releases, company brochures, and other media channels (Tilling and Tilt, 2010). The quantity of information disclosed by organizations to their stakeholders expanded significantly in the last years, but mainly as voluntary disclosures (Verschoor, 2011) associated with the annual report (included or as a separate document, such as a CSR report). There is a reduced level of standardization in this area and there are various manners of presenting the CSR information, because of various organizations involved in providing reporting guidelines and because of the industry-specific guidelines. Initiatives exist in order to increase the coherence of CSR reporting. For example, The Global Reporting Initiative (GRI) developed the sustainability reporting framework which is preferred by many multinationals (Wensen, et al., 2011), while more recently the International Integrated Reporting Council proposes a framework for integrated reporting. Bebbington, Larrinaga and Moneva (2008, p. 339) argue that while reputations may be viewed “as having some basis in organizations’ actions”, they are also “constructed by others via their perceptions of these activities”. Similarly, Brady (2005) (cited by Cho, et al., 2012) notes that reputation is based on individuals’ images of the firm, and while image and reputation are closely related, it is the potential for image manipulation that suggests performance might not always be reflected in perceptions of corporate reputation. Prior studies provide evidence indicating that CSR disclosure may be successful in improving perceptions of corporate reputation. Toms (2002), based on an overall sample of 215 UK firms, codes annual report environmental disclosure quality and finds that higher levels of disclosure are positively associated with the “community and environmental responsibility rating” from Management Today’s surveys of the most admired companies in the UK. Brown, Guidry and Patten (2010) test whether the first-time issuance of a standalone sustainability-type report by a sample of 59 US corporations led to changes in Fortune most admired scores adjusted for the financial halo effect identified by Brown and Perry (1994). Brown, Guidry and Patten (2010) do find that report quality (measured using AE Practices Regarding the Forms of Communication with the Consumers used by a Multinational Company at Global and Local Level Amfiteatru Economic 44 a 55 point content scheme derived from the GRI’s G3 reporting guidelines) is positively associated with changes in reputation. A difference in CSR reporting was seized between more and less developed economies. It is argued that CSR concepts are originated from developed countries and in less developed economies are applied mainly by multinationals (Obrad, et al., 2011). Belal, Cooper and Roberts (2013) underline the importance of accountability and transparency for less developed economies, complete and transparent reporting being viewed as a mechanism to hold companies to account for their impacts within these economies. The prior research on Romania-based organizations (Băleanu, Chelcea and Stancu, 2011; Coca, Dobrea and Vasiliu, 2013; Obrad, et al., 2011; Zaharia and Grundey, 2011) reports that CSR practices represent mainly imports that the local environment partially assimilates, that the communication and transparency are limited, and mainly considered as means to increase the reputation. 1.2 Consumer – stakeholder of the CSR reporting The organization’s reputation and image constructed through CSR practices significantly influence future sales and profits (Saghroun and Eglem, 2008) and consumers should be acknowledged as important stakeholders. From the consumer viewpoint, CSR refers to consumer rights, responsible behaviour (not only philanthropy), production in sustainable and ethical way, and transparency in communication (Consumers International, 2006). Various tools might be used to analyze if the organization’s communication through stakeholders is balanced between various groups. For example, the Balanced Scorecard approach proposed by Kaplan and Norton (1992), which distinguishes between four areas of reporting (financial, customer, internal business process, and learning and growth information) might be used. Other works provide detailed stakeholder model for reporting in which communication towards customers through various reports is explained. In the value creation framework WEF (2011) discuss two types of market value drivers: financial and non-financial (human capital, customer relations, society, environment, innovation, and corporate governance). For customers, the following aspects are considered to be important: customer loyalty, retention, reputation, trust, price, product, service quality, and competitive positioning. On the other hand, in designing a stakeholder model for reporting, Woodward, Edwards and Birkin (1996) provide some insights useful for understanding the construction of accountability through customers. Customers expect quality, service, safety, delivery and product development, and the general public expects safety of products and contribution to the community. The accountability is manifested through various means, such as reports, press releases, and advertising. Consumers International (2006) underline that consumers have attitude and behaviours shaped by the media, and therefore how organizations communicate their CSR practices is very important. While many studies investigate how balanced are the reports issued and how organizations communicate with various stakeholders others than investors (Bogdan, Ioan and Sandu, 2007; Cho, 2009 etc.), only few are focused on the communication with a specific group of stakeholders. For example, Saghroun and Eglem (2008) are focused on financial analysts, and Consumers International (2006) discusses the communication with consumers. In Romania there are a few studies addressing the communication with customers through Organizations’ responsibility to consumers AE Vol XVI • No. 35 • February 2014 45 corporate reports. Bogdan, Ioan and Sandu (2007) find in a context of a privatizing company that communication towards consumers increases, but remains at lower levels comparing with other stakeholders. Other studies find that consumers are perceived to be important stakeholders (after the community as the main stakeholder) and are considered to be the most prepared to take into consideration wider issues than the organization’s products (such as environment etc.) (Băleanu, Chelcea and Stancu, 2011). These results require further investigation of how organizations communicate with consumers through their reports. 1.3 The CSR practices in the pharmaceutical industry While CSR practices represent an important issue, it is considered that companies in industries with a significant corporate social issues are more active in communication and reporting in this area (Adams and Kuasirikun, 2000; Cho, 2009; Zaharia and Grunday, 2011). Prior research was conducted in the oil industry (for example, Cho, 2009), tobacco industry (for example, Tilling and Tilt, 2010) and chemical and pharmaceutical industry (Adams and Kuasirikun, 2000). The pharmaceutical industry has a diversity of political and ethical issues (Adams and Kuasirikun, 2000) and spends more time and resources producing and communicating information than it does on production of medicines (Collier and Iheanacho, 2002). Therefore, the pharmaceutical industry is a fruitful field for research on CSR practices. The products sold in this industry significantly impact on consumers’ life and therefore the communication towards consumers is a critical part of CSR reporting. The pharmaceutical industry has grown in value by 700 per cent since 1980 (Oxfam, 2002), and pharmaceutical companies are major stakeholders in the global health agenda (Consumers International, 2006). But despite the financial success, the industry is under criticism for social responsibility failures in the last decades (Consumers International, 2006). While many companies in this industry embraced the CSR values and produce and publish CSR reports, there are many cases in which communication is weak (Oxfam, 2002; Consumers International, 2006). Adams and Kuasirikun (2000) also find differences in time and between countries in terms of the nature and patterns of reporting in this industry. They also find that multinationals have an impact in the countries they operate. The pharmaceutical industry does not only serve the individual, but also the public goal (increasing public health) (ECORYS, 2009). Consequently, communication with consumers in this industry and CSR practices are closely related to society or community as a key stakeholder. This leads to a potential conflict in the sense of a strategy focused on profits or on the pursuit of public health (ECORYS, 2009) and may lead to tactics which may not be to the consumer’s benefit (Consumers International, 2006). Therefore, additional research is justified in this area, especially as there are different expectations in this industry in emerging economies than in developed markets (PWC, 2012). 2. Legitimacy theory Corporate legitimacy is a key concept of the corporate social responsibility discourse. Suchman (1995) defines legitimacy as “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions.” The concept of legitimacy therefore refers to organizational actions that are congruent with overall social expectations (Matthews, 1993). Legitimacy theory holds that legitimacy is a necessary input for an organization’s survival (Cho, et al., 2012) and that communication strategies can be used as AE Practices Regarding the Forms of Communication with the Consumers used by a Multinational Company at Global and Local Level Amfiteatru Economic 46 a tool to “become identified with symbols, values and institutions which have a strong base of social legitimacy” (Dowling and Pfeffer, 1975, p. 127). Within the organisational view “legitimacy [is] an operational resource [. . .] that organisations extract – often competitively – from their cultural environments and that they employ in pursuit of their goals” (Suchman, 1995, p. 575-6). Certain actions and events increase that legitimacy resource, and others decrease it. Low legitimacy will have particularly dire consequences for an organisation, which could ultimately lead to the forfeiture of the right (or licence) to operate (Tilling and Tilt, 2010, p. 58). While much of the legitimacy theory literature focuses on legitimating strategies to a company as a whole, Hybels (1995, p. 243) argues that good models in legitimacy theory must examine the relevant stakeholders, and how “each influences the flow of resources crucial to the organisations’ establishment, growth, and survival, either through direct control or by the communication of good will”. The power, the legitimacy and the urgency of the stakeholders’ claims are key characteristics that should be considered by the companies (Agle, Mitchell and Sonnenfeld, 1999). Frooman (1999) (cited by Ioan and Sandu, 2009) insists that power dominates the other two factors. The consequence is that only the stakes of groups that are either useful to or able to harm a company economically will be recognized (Phillips, 2003, cited by Ioan and Sandu, 2010). Gaining legitimacy, as well as restoring lost confidence, is accomplished mainly through disclosure. Any corrective actions that target sustainability performance cannot be made public and validated except by going through a reporting process, destined to improve the audiences’ perceptions. The legitimacy emphasizes the strategic potential of corporate disclosures, especially those included in annual reports (Dragomir, 2010). The annual report “uses the tools of management, marketing and communication theory to construct a picture of the organisation” (Stanton and Stanton, 2002, p. 478). This “picture is viewed by a wide audience and provide[s] organisations with an effective method of managing external impressions. Annual reports are a primary information source for investors, creditors, employees, environmental groups and the government” (Neu, Warsame and Pedwell, 1998, p. 269). Tilling and Tilt (2010) highlight the importance of measuring the effects of different financial stakeholder groups on corporate social disclosures in contrast with attempts to examine resources provided by stakeholders as a measure of legitimacy. Information is necessary to change perceptions. Remedial action which is not publicized will not be effective in changing perceptions (Cormier and Gordon, 2001). This perspective, as provided by legitimacy theory, highlights the strategic importance of corporate disclosures, such as those made within annual reports and other publicly available documents (Dragomir and Anghel-Ilcu, 2011). The pharmaceutical companies’ necessity to legitimate themselves is stringent, as the European citizens are increasingly attentive towards new developments in public health which can positively affect their well-being. In order to apply the legitimacy theory to studying communication in the pharmaceutical companies, we employ the types of legitimacy described by Suchman (1995): pragmatic legitimacy, moral legitimacy, and cognitive legitimacy. The pragmatic legitimacy focuses on the most immediate audience, often in relationship with a resource-based dependency, while the moral legitimacy is oriented towards social welfare and is about ‘the right thing to do’. Therefore, the pragmatic legitimacy discourse is based on identifying the key audience Organizations’ responsibility to consumers AE Vol XVI • No. 35 • February 2014 47 and their interest and agenda, while moral legitimacy is not centred on a particular audience. On the other hand, cognitive legitimacy is also oriented towards all types of audiences, and is focused on explaining the compliance with norms, rules and other models. Thus, legitimacy is gained under the pragmatic dimension through meeting the expectations of key stakeholders, under the moral dimension through responsibility towards society as a whole, and under the cognitive dimension through compliance with various models. 3. Research method The transparency in CSR reporting in developing economies is crucial (Belal, Cooper and Roberts, 2013) and multinationals can contribute to a significant improvement in that area (Beddewela and Herzig, 2013). We focus our analysis on a multinational in the pharmaceutical industry with a subsidiary in Romania, active in the area of CSR reporting, in order to be able to compare the transfer of practices and to investigate if there are differences in the discourse in reporting the responsibility towards consumers in the global and local reports, as identified by Beddewela and Herzig (2013). While global ranks and the image of multinationals is built on global reports, Wensen, et al. (2011) suggest that companies that want to serve local stakeholders publish local reports also. We chose GlaxoSmithKline (GSK) for the case study analysis for the following reasons. First of all, it is ranked as number one by Access to Medicine Index (2012, 2010, 2008) in terms of availability, affordability and accessibility for consumers and therefore has a very good reputation in terms of CSR practices. Second, GSK Romania issued in 2011 the first sustainability report in this industry in Romania (www.gsk.ro) and therefore became a benchmark for other companies in this industry. Also, it provides an interesting case to study how multinationals export practices in various countries and how these are implemented in local contexts. Third, GSK realized 5% of the total sales on the pharmaceutical market in Romania in the last years, being in top 10 companies. The pharmaceutical industry in Romania is growing, despite the negative economic evolutions in the last years (Wall-Street, 2012; Business24, 2013). While there are an important number of firms in this industry, the market became more and more concentrated, a number of 20 companies controlling approximately 80% of the market (Business24, 2011). This is the result of mergers and acquisitions, both at national and international level. An analysis of the companies with the biggest sales in Romania (Capital, 2013) reveals that the first ten companies are multinationals (some of them including Romanian subsidiaries) and Romanian companies such as Antibiotice or Biofarm have smaller market shares. In this context, understanding the local practices of multinationals is very important. The content analysis of artefacts representing means of corporate reporting (annual reports, websites, press releases) is performed in order to analyze how companies communicate towards consumers. The details of the documents analyzed in order to investigate how GSK and GSK Romania communicate on their responsibility towards consumers are the following (table 1): Table no. 1. Sources of information Types of documents GSK GSK Romania Annual reports Annual reports for 2012, 2011, 2010 Not publicly available CSR reports CSR reports for 2012, 2011, 2010 CSR 2011 (the only one available) Websites www.gsk.com www.gsk.ro AE Practices Regarding the Forms of Communication with the Consumers used by a Multinational Company at Global and Local Level Amfiteatru Economic 48 This methodology is widely employed in CSR studies (Cho, 2009; Tilling and Tilt, 2010; Dragomir and Anghel-Ilcu, 2011; Lungu, Caraiani and Dascălu, 2011 etc.) and it is appropriate for in-depth investigation of the phenomenon under research. In order to investigate how firms in the pharmaceutical industry assure their legitimacy and communicate with consumers through corporate reporting, we firstly derive a list of CSR issues of major importance for consumers in this industry. Based on other studies (Oxfam, 2002; Consumers International, 2006; Access to Medicine Index, 2012; SASB, 2012) we select a number of aspects to be investigated: statements or discussions about the firm’s policy concerning consumers’ protection and communication, including access to medicine; discussions about disease awareness campaigns; ethical issues concerning gifts, appropriate use of promotional materials and free drug samples; advertising and transparency in marketing budgets; innovation, testing, and drugs effects. The content analysis is based on these key issues and concepts. In analyzing disclosures, we adopt the distinction proposed by Joseph and Taplin (2011) between the disclosure abundance, meaning the extent of disclosure in texts (number of pages, lines, sentences, words etc.), and the disclosure occurrence (a number of items having disclosures, irrespective of the amount of disclosure). The results are interpreted by reference to the legitimacy types (Suchman, 1995) previously described. We are also interested in distinguishing in disclosures the level of comprehensiveness in the sense described by Bouten, et al. (2011): visions and goals, management approach and performance indicators. Hopwood (2009 cited in Bouten, et al., 2011) stated that many companies report more on aims and intentions than on actual actions and performance, which are more conclusive about their level of involvement in CSR activities and performance. 4. Results analysis As previously stated, both the multinational (GSK global) and the Romanian subsidiary (GSK Romania) are engaged in CSR reporting, but to various extents in terms of the information available and transparency. While for GSK global both annual and CSR reports are available for the last years, for GSK Romania the annual reports are not publicly available, and there is only one CSR report (for 2011). Therefore, the references to the CSR information (including the consumers dimension) in this study are the following (table 2): Table no. 2. References to the CSR information Types of documents GSK global GSK Romania Annual reports Based on IFRS, audited by PWC Not available CSR reports Reporting based on the SustainAbility Global Reporters benchmark (GSK CSR, 2010, p. 11) Not based on GRI or UNGC, but provide an index to show what they report (GSK CSR, 2010, p. 27) Environment and health and safety – data assured by SGS (GSK CSR, 2010, p. 27) Assurance in 2012 from Bureau Veritas Reporting based on the GRI index (level B) with declaration of conformity from GRI (GSK Ro, 2011, p. 69) Organizations’ responsibility to consumers AE Vol XVI • No. 35 • February 2014 55 macroeconomie/industria-farmaceutica/piata-farmaceutica-romaneasca-a-crescut-cu-43-la-suta-in-primul-trimestru-1529397> [Accessed 25 August 2013]. Business 24, 2011. Piaţa medicamentelor din România a crescut de patru ori. 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