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MULTINATIONAL COMPANIES AND SUSTAINABILITY PRACTICES BEYOND HEADQUARTERS – EVIDENCE FROM FOREIGN SUBSIDIARIES IN THE

ROMANIAN FOOD AND BEVERAGES INDUSTRY

Roxana CODITA, PhD TU München, TUM School of Management

Alte Akademie 14, D- 85354 Freising roxana.Codita@tum.de

Abstract:

This article is based on in depth face-to-face interviews, which were conducted in September 2006 with 8 managers of 6 foreign subsidiaries in Romania as well as with a Greenpeace representative and a consultant on environmental issues in the food industry. The findings of this study have been presented at the 3rd Annual International Sustainable Development Research Conference, Västerås, Schweden, 10-12.06.2007.

Results indicate that subsidiaries of multinational companies tend to adopt the environmental and social standards imposed by the headquarters regarding supply and production policies, but these aspects do not flow into the product marketing. Community-directed social and ecological activities are communicated under the CSR umbrella. Neither market nor stakeholders pressures are being felt at the subsidiary level, so that the motivation for adopting sustainability practices derives almost exclusively from headquarters policies. Keywords: sustainability practices, neo-institutional theory, multinational companies, food and beverages industry JEL Classification: F23, L66, M14, M31

1. Introduction There are few topics that polarize the public opinion all over the world to such extent

as the globalization issue does. Multinational corporations, the engines of world trade, have long been criticized for their lack of social and environmental responsibility (Greider, 1997; Gray, 1998; Korten, 2001). Their irresponsible behaviour may eventually lead to the worldwide erosion of social and environmental standards, more marked social asymmetries and the permanent damage to the environment (Gray, 1998). At the same time multinational companies are credited with a major potential in promoting sustainable development by transferring environmentally friendly technologies and know-how to host countries, raising awareness and educating consumers on social and environmental problems (Levy, 1995). This sustainability debate seen in the globalisation context has fuelled the authors to address a different and differentiated question than whether multinational companies (MNC) have a

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positive or negative contribution to sustainable development. Rather the question to be asked is whether one and the same company has the same share in sustainable development in every place it operates. Basically, MNC have two options regarding the design of their sustainability policies: either they tailor their strategy to match the institutional profile of each individual country or they set global standards, which must meet the most stringent expectations (Rugman and Verbeke, 2001). More and more companies have added sustainability issues to their business agenda, as a result of the increasing awareness and the expression of social and ecological concerns in developed societies (Kolk, 2003). Multinational corporations increasingly communicate their efforts regarding the integration of the three principles of sustainable development (Elkington, 1998)- environmental integrity, social equity and economical prosperity- into their business activities, by publishing separate or joint reports like Social and/or Environmental Responsibility Report (Unilever, Danone), Corporate Social Responsibility Report (Nestlé, General Mills) or Corporate Citizenship Report (Diageo). On a time line, we could say that corporations seem to be gradually moving from shareholder value driven practices towards stakeholder-oriented, sustainable policies. But to what extent do MNC manage to replicate their sustainability policies and practices in their foreign subsidiaries all over the world? This study intends to answer following research questions:

1.) Do MNC attempt to transfer sustainability practices to their foreign subsidiaries? 2.) To what extent are sustainability practices being adopted by foreign subsidiaries of

multinational companies? 3.) How do foreign subsidiaries balance external institutional pressures and internal

organizational pressures? These questions have been addressed in an exploratory study conducted in Eastern Europe, particularly Romania in autumn 2006. In the present paper, the authors present the theoretical background (section 2), describe the methodological approach (section 3), present (section 4) and discuss (section 5) the results of the empirical study. The conceptual framework presented in this paper draws on institutional and resource dependency theory in order to explain the dynamics of the institutionalization process of sustainability practices throughout foreign subsidiaries and headquarters. The paper intends to make a theoretical contribution to neo-institutional theory by: 1) proposing a conceptual framework to explore the role of multinational companies as agents of institutionalization of sustainability practices across national borders and 2) integrating the theory of institutional duality in MNC in the sustainability literature.

2. Theoretical Background

Neo-Institutional Theory Neo-institutional theory stresses that business choices are not exclusively the result of managers’  rational  economic  decisions,  but  they  are  also  influenced  by  external  norms,  values  and traditions, which provide the organization with a sense of social legitimacy (DiMaggio and Powell, 1983, 1991a; Oliver, 1991; Scott, 1995). Management choices and practices thus incorporate social and cultural pressures (Scott, 1992) to gain or maintain social legitimacy, considered  a  key  factor  in  determining  a  business  facility’s  long-term profitability and survival (DiMaggio and Powell, 1983, 1991a). Institutionalization   ultimately   results   in   a   “social  

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construction  process”  in  which  companies  in  the  same  organizational   field6 gradually become alike, due to the influence of external pressures on the selection and implementation of strategies (Scott, 1995). DiMaggio and Powell (1983, 1991b) identified three types of institutional mechanisms- coercive, mimetic and normative isomorphism- that foster this convergence phenomenon. Pressures applied by governments, which rely on mandatory standards, monitoring, and sanctions, are of coercive nature (Meyer and Rowman, 1977). Coercive pressures can also be exerted by organized societal interests, for instance by environmental groups or the media, which   have   the   potential   to   successfully   challenge   the   corporate’s social legitimacy. The changes resulted from such pressures lead to coercive isomorphism among companies. Normative isomorphism occurs when companies adopt values and norms of conduct promoted by professional networks, professional or industry associations, academic institutions and industry-wide initiatives such as voluntary programs (DiMaggio and Powell, 1991b). This type of influence rests on peer pressures and embarrassment of noncompliers (Hoffmann, 1999). The third institutional mechanism causes companies   to   imitate   each   other’s   behaviour,   especially  that of the most profitable and respected companies in their industry, in order to appear legitimate and competitive. Giving in to this type of pressures leads to mimetic isomorphism (DiMaggio and Powell, 1983).   The   firm’s   institutionalization   process   will   be   different  depending on the source of pressure. Resource-Dependency Theory However, the assumption that firms would passively conform to all institutional pressures, neglects the role of organizational self-interests and active agency behaviour in moderating firms’   response   to   institutional   pressures   (Oliver   1991,   Cashore   and   Vertinski,   2000).   An  answer to this criticism is offered by resource dependency theory, which proposes that firms “will   respond  more to the demands of those organizations or groups in the environment that control   critical   resources”   (Pfeffer,   1982,   p.   193).   Firms  will,   hence,   act   in   self   interest   and  acquiesce to those pressures that decide over critical resources. Resource dependency theory defines  the  criticality  of  a  resource  as  a  function  of  “the  importance  of  a  particular  resource  to  the organization, the degree to which those who control the resource have monopoly over the resource, and the discretion they have over its allocation”  (Jawahar  and  McLaughlin,  2001,  p.  401).   In   her   article   “Strategic  Responses   to   Institutional   Pressures”,  Oliver   (1991)   added   the  resource dependency perspective to institutional theory, by identifying a range of strategic responses to the institutional environment: Besides acquiescing to external pressures, firms might also compromise, avoid, defy or manipulate, depending on their degree of choice and activeness exhibited. Institutionalization as a Process While early institutional theorists mainly examined convergence processes among organizational actors, a growing number of researchers turned their attention towards institutional change, analyzing the origins of new types of organizational practices (Greenwood

6 An  organizational  field  is  defined  as  “those  organizations  that…  constitute  a  recognized  area  of institutional life: key suppliers, resource and product consumers, regulatory agencies and other  organizations  that  produce  similar  services  or  products”  (DiMaggio  and  Powell,  1983,  p.  148).

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and Hinings, 1993; Aldrich and Fiol, 1994; Suchman, 1995; Dezalay and Garth, 1996; Ventresca and Porac, 2003) as well as their eventual decline (Zucker, 1988; Scott et al., 2000; Scott, 2004a). Tolbert and Zucker (1996) regard institutionalization as a process unfolding in three stages: from pre-institutionalization, semi-institutionalization or progressive institutionalization to full institutionalization. Thus, the adoption of a practice evolves from an initial stage, characterized by few adopters and limited knowledge, to a final stage when the practice   is   “taken   for   granted   by   members   of   a   social   group   as   efficacious   and   necessary”  (Tolber and Zucker, 1996, p. 179). Institutionalization of a practice is determined by two dimensions, implementation and internalization (Kostova, 1999). Implementation represents the degree to which formal rules implied by the practice are followed within the organization, while internalization occurs when the organization members attach symbolic meaning to the practice,  or  “infuse  it  with  value”  (Selznick,  1957, p. 17). Institutional Duality Neo-institutional theory provides an appropriate conceptual platform to study strategies of multinational companies, which operate in multiple institutional environments and under diverse institutional pressures (Xu and Shenkar, 2002). This paper deals specifically with the transfer of organizational practices from the parent company to its foreign subsidiaries. Organizational  practices  are  defined  “as  particular  ways  of  conducting  organizational  functions  that have evolved over time under the influence of an organization's history, people, interests, and   actions”   (Kostova   1999,   p.   309).   The   organizational   practices   under   scrutiny   consist   of  corporate social and environmental practices, which are referred to as sustainability practices. Subsidiaries of multinational companies are expected to adopt heterogeneous sets of responses to practices imposed by the headquarters, as they are seeking to maintain both internal legitimacy within the organization and external legitimacy within the host-country. Kostova and Roth (2002) refer to the concurrent influence upon foreign subsidiaries of local institutional pressures and organizational pressures within the MNC as institutional duality (see figure 1). The active agency behaviour of foreign subsidiaries is thus shaped by the institutional profile of the home-country,   defined   as   “the   issue-specific set of regulatory, cognitive, and normative institutions  in  a  given  country”,  as  well  as  by  the  internal  relational  context  in  the  organization (Kostova and Roth, 2002). Levy   and   Rothenberg   (2002,   p.   176)   argue   that   “each   company   interprets   the   institutional  environment through a unique lens, a product of its history, organizational culture, and market positioning”.  The  fact  that  multinational companies operate within multiple institutional fields exposes them to different repertoires of institutionalized practices and norms (Westney, 1993; Levy and Rothenberg, 2002). Therefore, balancing global integration and local orientation is one of the main challenges faced by multinational companies (Westney, 1993).

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Figure 1: Basic Model: Institutional Duality at the Foreign Subsidiary Level

3. Methodology Industry Focus: Food Processing Industry By focusing on a specific industry the study takes a field-level approach, which confers an analytic value-added (Hoffman and Ventresca, 2002). After air and water, food is the most essential resource people need to sustain their existence. Yet the food production system often severely damages the natural environment through soil depletion, overuse of water, deforestation, aggressive use of pesticides, fishery collapses, and the loss of biodiversity in crops, livestock, and wild species. The activities pertaining to the food system have a deep-impact not only on the environment, but also on the community: This can be related to fair working conditions and respectable wages, the guarantee of food safety as well as to the maintenance of rural communities and family-owned farms. Starting from the production, processing, transportation, selling, storage, cooking and eating of food, to the disposal of the produced wastes (Tansey and Worsley, 1995; Millstone and Lang, 2003), the whole food chain should be transformed towards sustainability. The food system in industrialized countries is striving high labour productivity and economies of scale, which are achieved by resorting to intensive use of soil, irrigation, pesticides, fertilizers, or genetic engineering. Such practices lead eventually to higher volumes and short-term profits, but these come at the cost of degraded cultivated land, reduced ecological diversity of cultivated crops, and the promotion of a consumption pattern leading to waste, deliberate destruction and underuse of food resources (Shrivastava, 1996). In Central Eastern European (CEE) countries, the challenges confronting the food system are rather of economic and social nature: land abandonment resulting in a decrease of soil quality and impoverishment of biodiversity, lack of financial resources, unclear property rights, rural poverty, ageing of the rural population (Beckmann, 2001; Gatzweiler and Hagedorn 2003). The farming systems in CEE are dualistic in structure: There are a small number of large–sized, market–oriented agricultural enterprises and a large number of small– and medium–sized family farms, often producing for subsistence and only partly producing for the market. Though

Headquarters

Foreign Subsidiary

Local Institutional Environment

externalpressure

internal

pressure

institutionalization

Headquarters

Foreign Subsidiary

Local Institutional Environment

externalpressure

internal

pressure

institutionalization

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the farming structure is expected to change towards a higher consolidation degree and subsequently to a more intensive form of agriculture, the environmental and social impact of the food system could in this way decrease, provided that sustainable production and management practices are adopted (Gatzweiler and Hagedorn, 2003). Multinational food manufacturers, as a major factor of influence both on the supply as well as on the demand side, can play a crucial role in promoting sustainability along the whole food chain. Geographical Focus: Romania Representing the second largest market in the Central-Eastern European region after Poland with a population of nearly 22 million, Romania lived 2006 its 7th consecutive year of economic growth at a steady rate of over 5%, within a stable political environment. In 1995, at the same time as other candidates from Central and Eastern Europe, Romania submitted alongside Bulgaria its application for accession to the European Union. In October 2004 the European Commission concluded that Bulgaria and Romania complied with the political accession criteria, but they still had to comply with the economic and legal criteria in order to be ready for accession on 1 January 2007. As of January 1st 2007, Romania and Bulgaria are full members of the European Union. This ongoing process of economic and institutional reforms, necessary to gain the arduously desired European Union Membership, bestowed Romania with an increasing interest on the part of foreign investors. The country reported last years one of the highest foreign direct investment levels in Europe (EU, 2006). International companies and investors are increasingly joining the Romanian scene. In some sectors, foreign companies have already secured themselves an important share of the market. Taking the food market for example, Austrian (Brau-Union AG) and Athens-based (Coca-Cola HBC) investors dominate the beverage sector, French and Dutch companies (Danone, Friesland, Campina) bestride the milk sector, American investors (Bunge and Cargill) control the edible oil sector, a Dutch (Unilever) and a Norwegian (Orkla Foods) company part the margarine market and the examples could continue for other food sectors. By selecting Romania as the location of this study, the authors intend to put the sustainability debate, until now most visible in developed countries (SustainAbility, 2002), in the context of emerging markets. Data and Procedures Given the clear need to understand the current implementation stage of sustainability practices and the motivation for adopting them, an exploratory qualitative approach was chosen for this study. Qualitative methods are particularly useful to study in-depth a small number of people or organizations but reduce the possibility of generalizations (Maxwell, 1996; Mason, 2002). In this case the qualitative approach was used to investigate the interdependency between local institutional forces, headquarters management and the adoption of sustainability practices, without considering the selected firms as a representative sample for the whole Romanian market. It is a hypothesis-generating rather than a hypothesis-testing approach to a complex and not yet well-understood topic. The sampling consists of multinational food processing companies with a foreign subsidiary in Romania that claim to have adopted sustainability practices at the headquarters level, e.g. they publish sustainability reports. Beyond that, the companies approached are market leaders in their segment in Romania. This is a purposive sampling, as companies were deliberately selected to provide interesting information from a

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theoretical point of view (Maxwell, 1996; Mason, 2002). The authors maintain that large multinational companies that are also local market leaders, thus enjoying high public visibility both at the global and local level, would exhibit the greatest potential to actively transfer sustainability practices. This pre-study was intended to lay the conceptual foundations for further in-depth case-studies and identify possible case-study partners. Case-studies are generally considered to be well suited to the research aims of generating and building theory in an area with relatively little existing data and theory (Bonoma, 1985; Eisenhardt, 1989; Yin, 1989). In depth face-to-face interviews were conducted between 11. - 23. September 2006 with 8 managers of 6 foreign subsidiaries in Romania and one expert interview with a Greenpeace representative and a consultant on environmental issues in the food industry. In August 2006 twenty managers were contacted via e-mail, with a positive answer from three of them. Hereafter another e-mail of recommendation has been sent by the Romanian Council of Foreign Investors and six more companies answered positively. Due to various (mis-)coordination reasons such as lack of time or of appropriate interview partners, the positive reply of Pepsi, Nestlé and SAB Miller did not materialize. In the case of Zaharul S.A., the general manager had to call off the appointment on short notice, delegating instead a legal advisor, a marketing manager and the chief controller to the interview.

Table 1 presents the companies interviewed. Company/ Organization

Interviewee Position Location

Danone Milena Nedelcu Corporate Affairs and Communication Manager Bucharest

Coca-Cola HBC Mugurel Radulescu Corporate Affairs and Communications Manager

Bucharest

Unilever South-Central Europe Alexandra Olaru

Corporate Affairs and Communications Manager

Bucharest

Cargill Martin Schuldt Merchandising Manager Bucharest Orkla Foods Dinel Oarfa Supply Chain Manager Bucharest

Zaharul S.A. (Sugar S.A.)

Diana Cosma Legal Advisor Oradea Melinda Robas Chief Controller

Marketing Manager

Greenpeace Gabriel Paun Project Coordinator Bucharest Dragos Dima Consultant Table 1: Interview Partners A semi-structured interview schedule was used and interviews typically lasted between 40 and 120 minutes. The interview guide (see Figure 2) was designed in relation to the defined research   questions   of   the   study.   This   methodology   allowed   respondents’   motivations   to   be  explored in detail, enabling a richer understanding of the reasons behind particular

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environmental and social practices. Additionally, following written documents were included in the analysis: corporate sustainability reports, local websites, press releases and brochures of the local subsidiaries. 1. Debates on how responsible corporate behaviour should look like are increasingly taking

place on a local and global level. From the perspective of your company (e.g. Danone Romania), what is the role of a company in the society?

2. Bearing in mind the whole value chain of your products (starting from procurement, production, packaging, consumption till recycling), which social and ecological aspects does your company consider along it? (sustainability practices)

3. When did your company become engaged in the social and ecological area and what determined initially the orientation towards these problems? To what extent was, and eventually continues to be, the management of your mother-company involved in this area? (headquarters/ internal pressure)

4. How do you judge the impact of various external stakeholders, e.g. civil society, mass-media,   governmental   agencies,   competition,   customers   over   your   organization’s  environmental and social policies? Eventually you can resume yourself to those you consider relevant for your company. (local institutional environment/ external pressure)

5. To what extent does your marketing strategy take into consideration and communicate the ecological and social performances of your products/ company? Do you consider that sustainable products (defined as products that satisfy customers’  needs,  but  compared  to  the market standard, have a reduced impact on the environment and a social positive effect for the employees, local communities and consumers) enjoy a competitive advantage on the Romanian market? How do you appreciate the future of the market for sustainable food products in Romania and what role will your company play in this context?

Figure 2: Interview Guide

4. Empirical Results A coding scheme (see table 2) was developed, using a mixed approach to coding. Accordingly categories were derived both inductively, from the empirical material, and deductively, based on institutional duality (Miles and Huberman, 1994). The two first order categories represent on the  one  hand   the   “what”  or   the  descriptive  dimension  captured  by   “sustainability  practices   in  the  foreign  subsidiary”,  and  on  the  other  hand  the  “why”  or  the  explanatory  dimension  reflected  in   the   category   “pressures”.   The   second-order category identifies on the one hand the areas where the local subsidiary implements sustainability practices, and on the other hand classifies the source of pressures into organizational and local institutional pressures.

First-Order Category Second-Order Category Sustainability Practices in the Foreign Subsidiary

Procurement Production Marketing

Pressures Organizational Pressures Local Institutional Pressures

Table 2: Coding Scheme

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The next sections will present the information gathered, by subsuming data to the above defined categories

4.1. Sustainability Practices in the Foreign Subsidiary 4.1.1. Procurement

On the procurement side, the focus lies on social aspects. None of the interviewed companies purchase their raw materials from organic farming. Their efforts concentrate on enhancing the suppliers` technical, managerial and financial capacity in order to improve their quality and safety   standards.   Danone   initiated   in   April   2005   the   program   “Reaching  West”,   intended   to  support small farmers to acquire modern equipment like milking machines and genetically superior cows. “At the beginning of the year, about 80% of the farmers in Romania had on average   of   2   cows.   With   Romania’s   entry   in   the   EU,   things   become   complicated   for   the  farmers, because, besides the need to bring up a quota, their milk has to feature a European quality,  meaning  a   certain  number  of   germs,   no   inhibitors...   If   you  own   two  cows,   you  don’t  afford  to  buy  these  machines  which  help  you  attain  the  European  quality  standards”.   The program consisted of preferential credits negotiated by Danone with various banks. Farmers which had an audit certification from Danone and a long-term contract could thus access credits with lower interest rates. This program was complementary to the programs of the European Union Agency SAPARD7. The Danone´s supplier audit is set at the group level. “The  program  supports   the  establishment  of   family   farms  of  about  70  cows,  which  would  be  able to implement the modernizations imposed by the European Union, while next years the number should increase at an optimum of about 350 milk cows. We consider that this average number of cows per farm maintains a corresponding load of animals per hectare and fits the concept of sustainable agriculture – a correct soil exploitation and the prevention of environmental  degradation”.  (Press  Release  Danone Romania, April 17, 2006). Most of the over 100 farms delivering milk to Danone, do this on an exclusive basis, as Danone commits to pick up their whole milk quantity irrespective of seasonal fluctuations. Danone enhances the know-how and managerial capacity of their farmers in Romania by offering them guidance through company consultants. The procurement practices of Danone Romania are thus mainly directed at ensuring the quality, safety, and traceability of the primary raw material: milk. Zaharul S.A. procures its sugar beets entirely regionally from farmers with partially reduced financial and technical capacity. The company assists them both with educational and consulting programs and with material resources (seeds, pesticides etc.). A company consultant is assigned to a number of cultivators, who trains the farmers on environmental topics, such as secure handling and safe disposal of pesticides, on modern cultivation methods and on work safety. A measure they undertook for the first time last year was to equip the transportation

7 SAPARD (Special Accession Programme for Agriculture and Rural Development) was established in June 1999 by the Council of the European Union to help countries of Central and Eastern Europe deal with the problems of the structural adjustment in their agricultural sectors and rural areas, as well as in the implementation of the acquis communautaire concerning the Common Agricultural Policy and related legislation.

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vehicles with a device that cleans the sugar beets from dirt at the source, thus optimizing the transportation quantity and costs. Orkla Foods stressed the high standards they apply to their suppliers with special attention to traceability, food safety and quality: “All  our  suppliers  have  to  fulfill  strict  norms  regarding  the  logistical   conditions   of   transportation   and   delivery   of   the   merchandise   […].   Regarding  traceability, every supplier has to ensure the traceability of every product, irrespective of whether it concerns raw materials or packaging [..]. They are compelled to fill out the forms “GMO- and allergens-free”,  accept  at  any  time  an  audit  from  Orkla  and  permit  the  audit  in  all  critical   points”. The interview partner considered these standards to exceed by far the local legal requirements. Because of the incapacity of Romanian cultivators to fulfill the quality standards required, they are even considering to give up the procurement of fresh fruits for their jam production, even if this means an image loss. They also pursue a non-GMO policy and source only non-GMO ingredients: “For  instance,  the  soy  oil  we  used  to  buy  from  Cargill,  is  no  longer imported. We actually even eliminated this ingredient from the margarine recipe because   of   the   risks   of   GMO   contamination”. Although Romanian legislation requires that GMO-products be labeled accordingly, not even one laboratory exists in the country to carry out controls: “Orkla   does   not   wait   for   the   Romanian   legislation   [to become effective]; we implement  the  policies  required  by  the  headquarters”. For Cargill instead GMO is not an issue, as   they  “offer what the market wants, and if the market buys GMO-products, we offer GMO-products”. Coca-Cola and Unilever stated that their procurement policies are fully aligned to those of the mother company. “When  we  enter   into  a  contract  with  a   supplier,  as  an   integral  part  of   this  contract, they sign Unilever´s Code of Business Practices, and there we refer to air quality, interdiction of child-work,  relationship  with  the  consumers,  exploitation,  fair  competition  etc.”

4.1.2. Production The production facilities of the companies interviewed are operating according to high environmental and social standards. Most of them have implemented ISO 14001, OHSAS 18001 (Occupational Health and Safety Assessment Series), IFS (International Food Standard) and/or HACCP (Hazard Analysis Critical Control Point). The general impression gained from the interviews is that most environmental and social activities are concentrated in the area of production. The investments directed at improving the environmental and social performance of the production facilities come to support this statement. Danone for example launched in October 2005 a wastewater treatment station, a project financed in partnership with SAPARD, amounting to 1.5 million euros. The station has a capacity of 1,200 cubic meters per day, at present functioning at about 40 percent of its total capacity. Orkla Foods too invested 0,75 Mio. EUR in a 1,5 Mio. EUR project aimed at improving the working environment at their canned meat and paté plant. Orkla is also relocating an important part of their production activities from the plant in Craiova to Bucharest, to decongest the Craiova plant, located in the middle of the city. In the long run, the Craiova plant will be completely relocated. “In   Covasna   we   own   one   of   the   most   modern   factories   in   Romania,  regarding   microbiological   control,   production   processes,   raw   materials…” The group established a Food Safety Standard that “applies   to   all   factories   in   the   Orkla   Group   that  

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produce food and beverages. The standard is based on the internationally recognised Food Technical Standard of the British Retail Consortium. The Orkla Food Safety Standard, introduced in 2004, has created a uniform approach to food safety in the Orkla Group, thereby making  it  easier  for  companies  to  exchange  products.”  (Corporate  Website)   All six Coca-Cola HBC Romania plants have received The Coca-Cola   Company’s  Environmental Management System eKOsystem certification, as well as ISO 14001 certification. Lloyds Quality Assurance Ltd., an internationally-recognized auditor, surveyed all Coca-Cola  HBC  Romania’s  bottling  plants  in  2004.  The  maximum  rating-"clear pass," which is rarely obtained by all the plants in a country-was issued to them. For Coca-Cola Romania“the  protection of the natural environment represents more than abiding by the local laws and norms in this area. Coca-Cola integrates in its daily activities environmental practices. Even in the  absence  of  specific  environmental  regulation,  the  company’s  divisions  act  in  a  responsible  manner,  in  conformity  with  the  requirements  of  the  corporate  environmental  standards.” Zaharul SA is the only sugar producer in the country possessing a microbiology laboratory. They pursue an integrated management system: quality-environment-health and occupational safety, being ISO 9001, 14001 and OHSAS certified. Unilever was a pioneer in introducing modern management systems:  “Unilever  had  all  systems implemented, even before Romania introduced any legislation on any system you can think of, and  the  most  often  mentioned  is  the  HACCP.” Regarding the employees, among the programs mentioned there were private health insurances, life insurances or membership cards for fitness centres. In terms of internal communication, the author could notice the display in and outside the offices of some companies (Danone, Unilever, Zaharul) of various sustainability-related principles and guidelines, from general environmental, social and safety policies, to concrete office rules (in Unilever and Zaharul), such as: recycle paper, send e-mails instead of letters, print double-sided pages, re-use envelopes for in-house mail etc. 4.1.3. Marketing The activities directed at promoting sustainable consumption are mainly concerning educational aspects. These regard for example dietary habits, nutrition, stimulation of sports activities, information on ingredients, reading and understanding the information on the product label etc. Danone organized a campaign for their brand Activia where nutritionists offered counseling in the retail markets on any topic regarding nutrition. Unilever initiated an educational program in cooperation with other food companies aimed at teaching consumers to read product labels, prevent consumption after expiry date etc. The educational programs they initiate have an impact on consumer behaviour, which may thus evolve towards a more conscious, quality-oriented food choice. Unilever for instance created and financed in cooperation with the Food Industry  Federation  the  “Foundation  for  Healthy  Nutrition”,  which  is  meant  to  foster  research  in the area and raise awareness of the population through national campaigns. One of them has just started under the  slogan  “Healthy life starts at the table”.   Yet looking at the products of the companies interviewed, there are only few communicated aspects that signal a certain orientation towards sustainability. Orkla Foods` brand products “Goodies   from   the   Granny”   are   labeled   allergens-, preservatives- and GMO-free. The communication of the brand stresses the home-made quality of the products, with ingredients exclusively from natural sources.

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Danone has recently introduced on the market a range of products called  “Casa  buna”   (Good  House), enriched with a complex of calcium and vitamins A, D and E, especially created for the Romanian  market  at  a  most  affordable  price  (0,14  EUR),  promoted  under  the  slogan  “Health  at  hand”.   The   complex   of   calcium   and   vitamins   has   been chosen in accordance with scientific studies that revealed a deficit in these substances in the Romanian population. Unilever has committed to disclosing three ingredients more than the mandatory five under Romanian regulation out of transparency reasons.  Next  year  Unilever`s  self  claim  “My  Choice”8 will also be introduced in Romania. Under the same sign of transparency, Coca-Cola by indicates all ingredients on the label (which is not the legal standard). It chooses to practice a responsible marketing, by not advertising two liters bottles or addressing children in their commercials. In general, social and ecological aspects are rarely being used as a product marketing instrument. Companies are lacking the incentive of customers linking the socio-ecological problems to their needs and wants. Not the same thing can be said about the social and ecological activities of the company, which are communicated under the CSR umbrella. All companies enumerated various community programs, of social or environmental nature, involving schools, kindergarten, hospitals, NGOs, local administration etc. There are many initiatives of environmental education taking place in schools, which fill in a gap in the school curricula, but also in the education at home, as environmental awareness scores poorly with the average Romanian. All in all, most marketing practices here mentioned can be subsumed to corporate philanthropy and employee volunteering, thus addressing, in more or less enlightened self-interest, the community, rather than the consumer.

4.2. Pressures 4.2.1. Organizational Pressures

Most interview partners found it somewhat difficulties to approach the question related to how their company sees its role in the (Romanian) society. They either stated that they follow the global mission proposed by the group, without adding any local nuances, as in the case of Unilever, Danone and Coca-Cola, or had problems formulating an answer on the spot. The Cargill   Manager   was   not   acquainted   with   the   mother   company’s   sustainability   policies published  in  the  latter’s  corporate  citizenship  report,  but  stressed  the  importance  of  offering  a  safe working environment for their employees in Romania. Cargill seems to have a decentralized structure and the interview partner lacked any detailed information on their environmental management system: “We  have  some,  but  I  don’t  know  exactly  what  type.” “We  take  pride  in  the  fact  that  Danone  has  always  produced  healthy  products.  This  is  the  first  thing   that   makes   a   company   responsible…And   of   course, our desire is to offer them (n.b. healthy  products)  to  as  many  people  as  possible  on  the  globe”  (Danone).  This is a rephrasing of   the   official   mission   formulated   by   Danone,   which   is   “Bringing   health   through   food   to   a  majority  of  people.” Danone as a group developed a global program called Danone Way which

8 “The Choices stamp is appearing on foods and drinks that meet benchmark criteria for four key nutrients: trans fats, saturated fats, sugar and sodium (salt). We're also encouraging other companies, retailers and caterers to use it. Their products that meet all four criteria can put the Choices  stamp  on  the  front  of  their  packs.”

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“is a cross-functional program aiming at long-term progress. It calls on business units to conduct a self-assessment onto practices regarding all areas of corporate responsibility. DANONE Way provides to the Group business units a basis for action plans regarding various fields: human resources policies (compensation, training for employees), quality (animation of quality policies, matching consumer expectations), purchase (management of relationship with our suppliers), environment (animation of environmental politics, focusing on packaging issue).” In   the  case  of  Unilever,   the  answer  was:   “Unilever South and Central Europe, as a regional center, cannot have but the same mission as the mother company, and that   is   “vitality”.  Unilever`s  mission,  “vitality”,  is  what  we  chose  to  communicate,  to  help  people  feel  better,  look  better  and  take  what’s  best  from  life.” On the corporate website, we find: “Unilever's  mission  is to add vitality to life. We meet everyday needs for nutrition, hygiene, and personal care with brands  that  help  people  feel  good,  look  good  and  get  more  out  of  life.” Unilever, Coca-Cola, Danone and Orkla Foods underwent a process of convergence towards the global sustainability standards of the mother company. A global approach is noticeable particularly with regard to the implementation of environmental standards through various certification schemes. However most companies give their foreign subsidiaries a leeway to design social and environmental activities based on local specifics, within the policies established at the headquarters, as the Coca-Cola   manager   explains:     “The policies and commitments with general character of Coca-Cola HBC are in deed established at group level, as it can be observed in the CSR report on our internet site. In this report you can notice a diversity of approaches, within this frame, at local level. Most of the projects are elaborated and planned at country level, including the case of Romania, according to the local specifics. For example in Romania, we have a preference for programs oriented towards education, environment  and  charity.” Zaharul  SA  is  owned  by  the  sugar  groups  “Pfeifer  &  Langen”  (Germany)  and  “Cristal  Union”  (France).  Their  shareholders  didn’t  impose any environmental and social policies, but financed the investments in the environmental and social area, undertaken by the locally owned company.

4.2.2. Local Institutional Pressures Market Stakeholders In one case, that of Zaharul SA, the company considered their demanding business customers to be one of the main drivers behind their involvement with environmental and social issues. Given the nature of the product they offer, sugar, 60% to 70% of their production goes to business customers, which impose very high environmental and social standards on their suppliers. They were very proud to be one of the few sugar suppliers of the pharmaceutical industry in Romania, meaning that they are able to fulfill the most exigent claims. However all companies stated that a critical customer base for products with superior ecological and social value is not yet available, and this is the reason why they are not communicating their social and ecological performances at the product level. Thus, individual customers were rather considered a non-stimulating factor, because of their price-oriented behavior and lack of environmental and social awareness. The other competitors play a neutral role, as none of them derives yet a competitive advantage from its sustainability commitment. Rather in the CSR area, (mis-)interpreted as a PR tool for

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social activities, a sort of competitive environment has taken shape. Various CSR initiatives have been launched over the past years, among which an annual CSR conference, a CSR page in   a  major  Romanian   business  magazine     “Capital”   and   the  CSR  Awards   at   the   “People   for  People  Gala”  (among  past  winners,  noticeably  McDonald’s  and  the  tobacco  corporation  JTI  for  their community programs!). Non-Market Stakeholders Civil Society (CSDF, 2005) Romania lacks a strong civil society sector, a fact mentioned by all companies. The civil society in Romania is characterized by low citizen participation, a poor level of organization and limited inter-relations among civil society organizations. The most problematic aspects regard the lack of financial resources and qualified personnel. The main source of funding for Romanian non-governmental organizations (NGOs) still comes from foreign financial support, as individual charitable giving, public funds and private   companies’   contributions   remain limited. On the organizational level, the Romanian civil society is relatively diverse and thriving,  yet  is  has  so  far  not  managed  to  develop  a  common  identity:  “Its  role  in  society  is,  for  the most part, ignored by the public and its public image remains marked by negative stereotypes”   (CSDF,   2005,   p.8).   Consequently they do a rather poor job in voicing and addressing common interests and concerns of the general public. The specific structure of the Romanian economy, with a very large public sector and state owned companies, has driven NGOs to direct their efforts more towards holding the state accountable and less towards holding private companies accountable. In most cases, private companies develop and conduct their community projects in partnership with NGOs, their relationship being thus of cooperative rather than of confrontational nature. Greenpeace makes for one significant exception. Their last campaign against genetically modified soy cultures was one of the most visible and aggressive campaigns conducted in Romania. Media Though Romania has one of the most dynamic media markets in South-Eastern Europe, the mass-media coverage of socio-ecological issues is quite limited, due to lack of expertise in the area. The bird flu scandal was highly covered and other food scares came sporadically into attention, but a sense of pressure from the part of the mass-media is not being felt by the companies. Legislation The EU has been a very significant driver of the Romanian  government’s  recent  environmental  initiatives. As a candidate country, Romania has been going through the process of approximating EU environmental legislation which is a prerequisite of EU membership. However, it is widely recognized that the main problems with environmental legislation in Romania concern the implementation of, and compliance with, laws and other regulations. Enforcement alleviation, lack of incentives, insufficient technology, financial implications and obstacles to public participation are the main reasons for the actual low influence on company behaviour and performance. It is actually the companies who shape the institutional environment. Coca-Cola HBC Romania is co-founder and Unilever and Danone are members of "ECOROM Ambalaje S.A.", a recovery organization that is working on introducing the "Green Dot" packaging recovery

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system in Romania. They were also active in various consultant boards and provided assistance to the government in drafting the environmental legislation.

5. Discussion This paper intended to build a conceptual framework for analyzing the extent to which multinational companies, through their subsidiaries, assume a role as sustainability agents beyond their home-country. The interviews revealed that foreign subsidiaries in Romania are confronted only to a low extent with institutional duality, as local institutional pressures are not perceived as strong enough to impose the adoption of sustainability practices. The regulatory pillar of the institutional environment lacks the instruments to enforce the existing laws. The cognitive and normative components seem to exhibit a low profile regarding sustainability issues. Consequently, foreign subsidiaries in Romania are primarily exposed to organizational pressures. It is to assume that due to the institutional profile of the country, the investigated foreign subsidiaries practice ceremonial adoption, which accounts for a relatively high level of implementation, whereas the level of internalization remains low (Kostova and Roth, 2002). A high degree of implementation of sustainability practices was visible especially with regard to environmental management systems in production and procurement policies. This is in line with the resource dependency theory, which suggests  that  a  company’s  strategy  will  reflect  its  need to acquire critical resources or improve the control over critical resources (Pfeffer, 1982). Standardization of procurement policies allows for an increased control over suppliers and answers to the need   of   “sustainable”   companies   to   ensure   the   sustainability   profile   of   their  procurements through codes of conduct, environmental guidelines etc. On the other hand, environmental management systems monitor and improve the situation of environmental costs for energy, water, transport and waste handling. The implementation of global standards in production and procurement may thus be driven as well by potential economies of scope, indicating a behaviour in line with economic rationality (Rugman and Verbeke, 2001). Another critical driver of implementation of standardized practices in procurement and production are the coercive pressures regarding food safety and traceability exerted at the international level. Standards set by international organisations such Food and Agriculture Organization, World Trade Organization, World Health Organization, European Union (Codex Alimentarius, Good Agricultureal Practices or GAP, European food regulation etc.) flow, often more restrictive, into national regulations. These coercive pressures are complemented by normative and mimetic pressures, as voluntary standards, such as ISO 14001 or various labelling schemes, are being diffused among and developed by companies or industry associations. Numerous industry initiatives, such as the International Food Standard established by the federations of German and French food retailers, EurepGAP established by the Euro-Retailer Produce Working Group in order to drive the adoption of the GAP standards in conventional agriculture, or SAI - Sustainable Agriculture Initiative founded by Danone, Unilever and Nestlé, can be considered international drivers of mimetic and normative isomorphism regarding sustainability practices, especially in procurement and production. The few marketing activities directed at promoting sustainable consumption and sustainable products take local aspects into consideration to a great extent. This may be explained by the major role played by the normative system, i.e. values and norms held by the individuals in a given country (Kostova, 1999) in marketing decisions. Demand for sustainable products is

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related  to  customers’  awareness  regarding  environmental  issues  (Polonski  et  al.  1998).  Though  consumers’   purchase   and   nutritional   decisions   are   increasingly   considering environmental issues, in Eastern European countries, purchases of organic food, for example, are motivated far more by personal health reasons than by environmental concerns (Kovacs and Frühwald, 2005). However, besides the local content, visible especially in the educational area, but also in the product design, there are some product-related aspects that are implemented on a global basis, illustrated by the non-GMO   policy   of   Orkla   Foods,   the   labelling   scheme   “My   Choice”   of  Unilever or the affordable product-policy of Danone. The few product-related sustainability practices are overcompensated by community programs. Corporate philanthropy, with both social and environmental local content, is practised extensively by the interviewed multinationals and communicated under the CSR umbrella. Figure 3 represents an attempt to classify the identified categories according to the degree of local versus standardized content of the subsumed social and environmental practices. This classification is to be interpreted as a proposition to be tested in further research. In this study, a dominance of global practices in the production and production area could be observed, with a local touch particularly regarding social issues. The marketing category proves more difficult to assess, as the data did not reveal sufficient clues to incline the balance in favor neither of local nor global content. However, by splitting the marketing activities into product- and community-related, we can infer a tendency towards locally designed community activities and rather standardized sustainability-related product activities.

Social Practices Environmental Practices

Procurement Global Integration/ Local Orientation

Global Integration

Production Global Integration/ Local Orientation

Global Integration

Marketing Product-related Global Integration/ Local Orientation

Global Integration

Community-related

Local Orientation Local Orientation

Figure 3: Global Integration vs. Local Orientation of Sustainability Practices Generally, the organizational pressures felt by the subsidiaries can be assessed as being quite high. Although the social practices implemented by the subsidiaries are to a great extent adapted to the local situation, these are guided by the global principles established by the headquarters and are incorporated into the global policies of the company. The results of this study can be embedded into an extended model of dynamics of institutional duality (see figure 4). The fact that the subsidiaries adopt sustainability practices driven almost exclusively by organizational pressures, can be interpreted as an institutionalization factor in a local institutional environment, which may be thus be changed towards developing stronger

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normative, mimetic and coercive pressures. Therefore, at the international level, multinational companies can act as agents of progress in transforming countries towards sustainability. At the national or subsidiary level, the concrete implementation of sustainability practices is influenced both by local institutional pressures and organizational pressures. Figure 4: Extended Model: Dynamics of Institutional Duality and Institutionalization Effects The organizational pressures reflect pressures from a multitude of institutional environments or global pressures. As illustrated in figure 4, due to global pressures, multinational companies may transfer sustainability practices from countries where sustainability is highly institutionalized to countries with lower degrees of institutionalization, thus contributing to institutional changes within the host-countries. Institutional changes in the host-country will lead to the emergence of a new institutional profile. A new institutional profile means new regulatory, cognitive and normative environments and thus new institutional pressures to be faced by the multinational company. Consequently, a higher institutionalization of sustainability practices will be reflected in stronger global pressures. Sustainability dynamics comprehend thus international as well as national components. This study attempted to apply the concept of institutional duality to the realm of sustainability practices. The sample and the methodology, referring especially to the researcher bias and subjectivity as well as the credibility of corporate views and lack of triangulation, limit the ability to generalize of our findings, which are meant to serve as a basis for subsequent research and theory development.

Local Institutional Environment ALocal Institutional Environment A

Local Institutional Environment

Headquarters

Loc

Foreign Subsidiary

Local Institutional Environment

pressure

externalpressure

Internal

pressure

institutionalization

InternationalLevel

NationalLevel

institutionalization

Local Institutional Environment ALocal Institutional Environment A

Local Institutional Environment

Headquarters

Loc

Foreign Subsidiary

Local Institutional Environment

pressure

externalpressure

Internal

pressure

institutionalization

InternationalLevel

NationalLevel

institutionalization

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Appendix Company Data:

Company Parent Company

Production Facilities in Romania

Location

Danone Danone (France) 1 Diary Plant Bucharest

Coca-Cola HBC

Coca-Cola HBC (Greece)

6 Bottling Plants

Bucharest, Ploiesti, Timisoara, Oradea Iasi, Floreni

Unilever South-Central Europe

Unilever (Netherlands)

1 Margarine Plant 1 Knorr Spices, Soups and Sauces Plant

Targu-Mures Otopeni

Cargill Cargill (U.S.A.)

2 Oleaginous Seed Processing, Vegetable Oil Refining and Bottling Plants

Podari Craiova

Orkla Foods

Orkla Foods (Norway)

1 Canned Meat and Liver Paté Products Plant 2 Margarine, Mustard, Ketchup Plant 1 Margarine Plant 1 Jam Plant

Craiova, Covasna, Targoviste Bucharest Iasi

Zaharul S.A.

Pfeifer&Langen (50%) (Germany) and Cristal Union (50%) (France)

1 Sugar Plant Oradea

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