Strategic Management and Corporate Social Responsibility - Primark

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Strategic Management and Corporate Social Responsibility: A case of Primark

Introduction

Rapid changes in communications, transport, and media technologies have resulted in a more interconnected marketplace presently than ever before. Nowhere is this more profound and evident than clothing distribution and textile manufacture industries. Consumers want clothes that are fashionable at favourable/affordable prices (Torugsa et al., 2012). Businesses currently source for clothes from countries such as China, India, Bangladesh, and Turkey due to the lower labour and material costs in these nations (Smith, 2007). In their bid to meet their clients’ needs and demand, Primark works with manufacturers across the world. Primark is subordinate firm of the Associated British Foods (ABF) Group. The firm was launched in Ireland in 1969 (Daneshkhu, 2017). By 2012, the firm had more than 243 branches across Ireland, Europe, and the United Kingdom (U.K.).Primark has grown to be distinctive for offering unbeatable value while at the same not losing its fashion-driven, innovative edge (George, 2017), and accounts for a substantial percentage of ABF’s profit and revenues (Wilson, 2015). 

Primark does not manufacture its goods by itself. Its expertise lies in an understanding of its clients and customers and working with its suppliers to manufacture goods that meet the company’s specification. The company then gets the right goods to right regions/marketplaces at the right places. Primark’s profitability relies upon sheer sales volume. Primark’s value-for-money prices depend upon low costs, which are achieved partly via economies of scale as well as efficient distribution. The company mainly sources for its products from Asian and European suppliers.  To be able to compete in its big marketplace, Primark operates under various corporate social responsibility (CSR) policies. Primark has initiated various programs and activities aimed at supporting its CSR stance along with ensuring that the firm’s trading meets firm’s ethical standards and values (Wilson, 2015). Underpinning these programs and activities is Primark’s Code of Conduct which makes sure that all Primark’s employees are decently treated, fairly paid, and work in conducive and good working conditions (George, 2017). The company has also established a partnership with CottonConnect with the aim of improving the cotton farming with fewer resources. Using various theories and views, this report will determine whether it will be right for Primark to move its production facilities to an emerging marketplace.

CSR and a Company’s Success from the Perspective of Different Stakeholder Groups

Businesses are a crucial component of communities within which they operate. Good company management know that their long term success is hinged upon continued good associations with a variety of stakeholders since businesses cannot succeed in communities/societies that are dying as a result of ecological or social challenges (Seitanidi & Crane, 2009). For this reason, businesses are under mounting pressures to engage demonstrably in initiatives described as CSR. 

CSR loosely refers to a company’s social responsibility that paints how a company takes charge of its business processes with the goal of producing a general positive effect to the community/society within which it is operating (Saeidi et al., 2015). Company’s, therefore, extend their responsibility beyond their shareholders to the environment and society. Rosińska-Bukowska and Penc-Pietrzak (2015) state that business success is increasingly being affected by stakeholder relationships, which entails a wide range interests about environmental and social issues. A company ought, therefore, to be concerned with the community ethically and not merely pay attention to their profit, and as well need to take into consideration their stakeholders’ expectations along with what they desire.

CSR may influence a company’s success in various ways. First, it is a crucial tool that helps a company to maintain a positive relationship with its stakeholders in the view that satisfaction of all stakeholders by a company enhances the company’s reputation and image, therefore, bettering a company’s financial performance (Pomering & Dolnicar, 2009). Speaking strategically, a business can only thrive when its CSR programs are effectively implemented because CSR is a crucial resource for a company to better their stakeholder connections.

According to the stakeholder theory, a company must be accountable to various stakeholders. The theory defines a stakeholder as any individual or group that can impact or is impacted by the attainment of a company’s objectives. See the table below for the stakeholders that a company must be accountable to for it to realize success. The stakeholder theory to CSR implies that the anticipations of all basic stakeholders of a company need to be met, and not merely the shareholders. Applied accordingly, the theory proposes that CSR functions to better a company’s performance. 

(Jawahar & McLaughlin, 2001).

Further, CSR is concerned with dealing with stakeholders of a company ethically in socially responsible ways. According to Polonsky and Jevons (2006), companies embrace CSR since it affects companies’ performance since a company’s social involvements signify the company’s genuine concern and care for the wellbeing of its stakeholders (as highlighted in the above table). This public image assist a company in building long term relationships with its stakeholders, which subsequently facilitates support and cooperation from them which ultimately contributes to a company’s higher level performance (Martínez & del Bosque, 2013). Ideally, a company cannot continue to survive and flourish without the stakeholders’ support. Put in a different way, a company’s monetary success is contingent upon the company’s ability to formulate and execute CSR programs or strategies that effectively manage its relationships with its stakeholders (Lin et al., 2009) since stakeholders have their obligations to look for information regarding how the company is affecting them (Godfrey et al., 2009). Additionally, in seeking social responsibility, companies need to acquire both intangible and tangible resources that allow them to better spend on CSR programs in order to differentiate their services and products (generally themselves) and increase their competitive advantage (Freeman et al., 2008).

Taking the case of Primark, CSR has significantly contributed to the company’s success. As a global business with an international supply chain along with a growing retail base, the company believes that a business has an obligation of acting and trading ethically. Primark’s business directly contributes to the company’s employment of more than 700,000 employees globally. Making sure that their human rights are honoured and respected as key to the company’s continued growth. For instance, Primark’s Health Enables Returns (HERprojects) helps the company to raise awareness and deliver healthcare education to their female employees in supplier nations (Du et al., 2011). Through the project, Primark’s female employees have been able to build supportive associations and talk to themselves regarding work. Companies based in Bangladesh that are taking part in HERprojects have realized healthy returns on monies invested by Primark in the programme. This has been attained via improvements in productivity, an extra stable workforce, reduced labour turnover, lower absenteeism, a minimization of housekeeping costs, and improved quality (Boehe & Cruz, 2010).  

Through the project, Primark has realized an increased its stakeholders’ motivation. According to Elton Mayo’s Hawthorne effect motivation theory, employees who work for long hours in routine duties are motivated by taking some interest in their work and themselves (Carvalho et al., 2010).  Feeling that they are appreciated and that they matter, they experience new connections with their job and this results in improved productivity. As such, the HERprojects has motivated female employees, hence Primark has realized significant improved productivity. By and large, CSR has the potential of causing a positive impact on the success of a company, as evidenced by the Primark Company.

Challenges and Advantages of Moving Manufacturing to an Emerging Market

Emerging market countries refer to countries which are regarded as less developed nations only a few past years and have currently attained significant economic improvement. According to Bird et al. (2007), there are both challenges and advantages of a company moving manufacturing to an emerging marketplace. On the one hand, there are several advantages that a company moving its manufacturing to an emerging market. First, studies have shown that more than a half of the world’s population lives in these emerging marketplaces and growth rates are twice as high as the rate of growth in developed/western marketplaces (Ali et al., 2010). The rapid industrialization and modernization are characteristic within these emerging economies since the middle class in the economies creates plentiful commercial opportunities for firms (Barić, 2017).

Secondly, globalization and internationalization are imperative for any business in any industry presently because some home marketplace may be stagnant when there are greater sales in markets abroad (Bahmani & Bahmani-Oskooee, 2013). According to Rivenburgh (2013), companies that remain at home as opposed to internationalizing may fail to grab chances of entering foreign marketplaces and they may also risk losing their domestic marketplaces. Additionally, firms internationalize since they strive to minimize the unit costs of their manufacturing expenses and because of growth potentials (Davila et al., 2018). When operating abroad, a firm’s management is able to get new ideas and various approaches for solving management challenges (Woetzel et al., 2018), and use the acquired ideas and approaches to build their own expertise, effectiveness, as well as also become inventive and implement broader horizons (Del Carpio Gallegos & Torner, 2018).

Thirdly, intellectual skills, outstanding quality as well as low cost sourcing of products and services provide companies in emerging economies competitive advantage openings (Toader et al., 2018). Increasing buying power along with consumerism concerning growing and large emerging markets, like the India market,  convert the emerging markets to a crucial marketplace for companies operating within them (Nölke, 2018). The vast population in the emerging marketplace offers opportunities for the economies’ domestic market since they increase the populations’ purchasing power.  Over the recent past, there has been noted a rapid shift to middle class from low-middle class in emerging economies and also increases in the emerging economies’ upper class’ size, and these signify economic improvement in the emerging economies. A company moving its manufacturing into an emerging market can, therefore, take advantage of this growing size both of the middle and higher classes of these economies, which signify increasing income as well as paying capacity and ultimately a rise in brand awareness and consumerism (Hobdari et al., 2017). Nonetheless, the lower costs and higher productivity lead some firms sourcing from these emerging markets to capture domestic marketplaces (Amankwah et al., 2018).

What is more, a company moving its manufacturing into an emerging market (like India) has the chance of realizing a first mover advantage. Goyal et al. (2017) explain that first-mover advantages give a company access to a high and best competence, gives it a special kind of relationship (local partnerships) with some of the top raw suppliers within the market for their manufacturing processes, and also the support from the economies’ government. A company can as well launch an arm’s length sourcing linkages with the emerging market’s local producers (van Aduard de Macedo-Soares et al., 2017). They can create convincing advantages, therefore by combining the emerging market’s engineering and research and development (R&D) experience with the firm’s existing engineering and R&D resources (Baulant, 2017). Shen and Puig (2018) also suggest that a combination of an emerging economies’ highly educated labour force and its underserved population can be of great aid for international firms. Also, because of the collectivism culture that predominate in emerging markets, emerging economies’ populations are good team players. Latly, if a company can establish itself in an emerging market and establish an early success, the company can become the popular and recognized brand within its sector. This is an attractive opportunity, particularly for business initiatives that are among the elite brands within the United States (U.S.).

Lastly, moving manufacturing by a company to an emerging market assures the company of access to capital. As new markets arise, unexploited capital is available for grabs and building as well as maintaining a conduit to that capital assists firms not merely to expand, but equally bring in new opportunities and resources for local growth (Dal Bianco et al., 2017). Generally, by moving a manufacturing into an emerging economy, a company will enjoy growth and diversification.

On the other hand, there are challenges associated with moving a manufacturing company into an emerging market. There is the challenge of segmenting such emerging markets, particularly with reference on how to relate to the low expending power on the greater part of such markets, the marketing approach to employ in various sections of the market or transforming economy/society, and so on (Scheela et al., 2015). For instance, one major issue concerning trade within these markets is quality and price, which often differs significantly within emerging economies relative to developed economies and how to relate with the reformed and emerging institutions that influence businesses (like political system, judicial system, educational system, and combinations of modern domestic culture and traditional domestic culture). Some of these emerging governments inspect and question business frequently and comprehensively.

Further, the emerging markets’ industrial infrastructure is insufficient, tariffs are considerably high, and have insufficient protection to owners of intellectual property (Ho et al., 2016). According to Su et al. (2016), a manufacturing company moving into an emerging marketplace may also encounter the challenge of extensive bureaucracy, regulations and rules that impact commerce, monopoly control that is prevalent in most emerging economies over crucial distribution systems, along with the challenge of some currencies (like those of India) being generally not convertible. Some laws, regulation, and rules of these emerging economies can also be very inconsistent and time consuming in their applications (Frey et al., 2015). Similarly, there also challenges with regard to poor transport networks and locked seaports, which make it considerably challenging when distributing goods. There is also the challenge of working with the emerging economies’ suppliers.

There are also political risks. Emerging economies may have volatile and unstable governments. Political uproar and unrest can cause great and serious implications to the investors and economy (Giachetti, 2016). Economic risks entailed may include insufficient labour along with raw materials high deflation or inflation, unsound financial policies, and uncontrolled markets (Yun, 2013). All these can pose challenges to a manufacturing company moving into an emerging economy. Currency risks may also be experienced. The worth of developing economy currencies relative to the U.S. dollar can extremely be volatile, and this can potentially lessen any investment gains if a market’s currency drops or is devalued substantially.

Cultural risks may also be encountered by a manufacturing company moving into an emerging economies. Rituals, cultural perspectives, and product usage vary globally and when new markets rise, they have diverse anticipations compared to the one within which a company has been established. For instance, a U.S. company may struggle with comprehending how to carry out business in Brazil and China. These problems increase for smaller firms with fewer resources and employees.

Should Primark Move Their Production Facilities to an Emerging Market

The board of directors of Primark is considering whether to move their production facilities to an emerging market. From the foregoing literature, it is proper and justified for Primark to move their production facilities to an emerging market, like India. This is substantiated by a number of reasons. To begin with, within emerging marketplaces, countries have a kind of evolving pattern governments reforming the economy as well as lowering trade barriers of foreign marketplaces (Dell’Acqua et al., 2018). These nations are quickly transforming economies. Notwithstanding some challenges as well as recent drawbacks for countries in emerging marketplaces, like the Asian monetary crisis, they still remain a crucial attention for firms seeking growth opportunities within the global marketplace. The economies of these emerging marketplaces represent an expansion trajectory along with long term growth (The Economist, 2013). Nonetheless, for Primark to be successful in such emerging marketplaces, they should have a vivid understanding and view of the process of conducting business in those emerging economies.

Additionally, emerging market countries refer to countries which are regarded as less developed nations only a few past years and have currently attained significant economic improvement. Within such marketplaces, countries have a kind of evolving pattern with their governments reforming their economies as well as lowering trade barriers of foreign marketplaces (Tan, 2009). The economies of these emerging marketplaces, therefore, represent an expansion trajectory along with long-term growth for international companies like Primark (Schwab, 2014).

Similarly, regardless of whether Primark will decide to remain in their domestic marketplace, they will sooner realize that they are no longer in a home marketplace any more but on the global marketplace. This is hinged on the fact that no domestic marketplace can exclusively be protected forever from international firms and business rivals (Hennart, 2009). Whereas the global economy can be a threat to a country’s home market, it can as well be beneficial for firms (like Primark) due to the fast growth speed within international marketplaces (Gutierrez et al., 2012).

Similarly, a majority of the world’s population lives in emerging economies which implies that the world’s population is fast moving from fundamental needs epoch to an extra consumption oriented epoch. This tendency, according to Atsmon et al. (2011), has created an atmosphere for more buyers and consumers of services and products across these developing economies, transforming them into massive consumption centers for multinational enterprises. For this reason, as multinational enterprises are fast looking at such advancements as openings to capitalize upon and moving their commercial initiatives to these markets which were traditionally regarded as assembly or low production centres, Primark will remain relevant and competitive if and only is it moves to such emerging markets and compete with its rivals for the opportunities and advantages that accrue as a result of operating in such business virgin markets (Cavusgil et al., 2002). There are a number of examples of multinational enterprises from already developed economies fast moving to emerging marketplaces, like China, India, Brazil, and Mexico, so that they can be able to take advantage of the increasing demands for a wide range quality products and services from newly rich buyers or consumers (Cavusgil et al., 2012). 

Furthermore, emerging economies are experiencing and exhibiting several other advancements within the fields of democracies, institutional reforms, communication and information technologies, infrastructure improvement, and international trade treaties/agreements (Doole & Lowe, 2004). Since for a number of years, multinational enterprises operating within the global marketplaces are influenced by and influence the economic, social, political, and cultural environment of their host nations (Saeidi et al., 2015), the emerging marketplaces have been experiencing positive advancement in these areas as well.

With a good global CSR and sustainability measures, Primark should have all reasons to venture into emerging markets. Through its CSR programs, sustainability initiatives to take into consideration its labour force, environment, and  profit, Primark will be able to maintain a positive relationship with its stakeholders in the view that satisfaction of all stakeholders by a company enhances the company’s reputation and image, therefore, bettering its financial performance (Rosińska-Bukowska & Penc-Pietrzak, 2015). Nonetheless, success will attend to Primark only if its CSR and sustainability programs will effectively be implemented because CSR and sustainability programs are crucial resources for a company to better their stakeholder connections.

While venturing into an emerging market seems irresistible for Primark, care needs to be taken because of the many challenges and cautions that have to be taken into consideration. Primark should be informed of the various differences between a developed market and a developing market so that right business strategies and approaches can be employed with the aim of minimizing risks while maximizing profits. For instance, local needs, high price sensitivity, and limited buying power are features of emerging economies (Barić, 2017). Primark should also expect challenges like bureaucratic barriers, a highly dispersed population, weak infrastructure with regard to power, port facilities, roads, low disposable income, and different tastes and preferences from other parts of the world (Primark needs sales … UK COMPANIES, 2018). By understanding the different dynamics and differences between developed and developing markets, Primark will be able to thrive in emerging marketplaces.

Conclusion

The goal of any business is to make profit. To this end, taking into consideration Primark’s global trend, CSR policies and programs, along with its sustainability initiatives, this report recommends that the company should proceed to move to an emerging market. This is because the move would ultimately help the company realize significant profit by gaining a greater market share globally and enjoy a greater competitive advantage over its rivals in developed countries which have not ventured into emerging countries. Specifically, while there are evidences that such a move would expose the Primark to various challenges, there are evidences that the company would ultimately enjoy lower production costs and would potentially be lucrative, which will by and large increase returns to the company and its shareholders.

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