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THE DIALECTIC OF CSR AND COMPETITIVE ADVANTAGE THE CASE OF MICROSOFT CSR IN INDIA
Globalization as we know it today is a phenomenon that largely took on new meaning in the late 20th century, when advances in microchip technology allowed for the advantages of mass international communication and trade to outweigh the costs of operating in a global setting for many multinational corporations. As an effect of globalization, however, new market forces and
imperfections were opened up and either exacerbated social issues or created new ones. Companies are realizing that to ignore these new market forces will eventually hurt the business in one way or another, either in damaged reputation or consumer trust, which ultimately results in lost sales and drops in network and partnership support. In short, to continue without change is to eventually weaken the economic system. For many companies, putting resources into corporate social responsibility is a way for them to address negative market forces. Due to the complex nature of these types of issues, customized and holistic ways of framing problems are essential to address and offset the problems, if not correct them as much as possible. Corporate social responsibility can be strategized in a highly targeted approach that will in some way benefit the business either directly or non-directly. If used wisely, CSR can be regarded as an additional tool to create competitive
advantage because CSR efforts can: 1) help undermine potential market failures that could create a new potentially exploitable competitive advantage for a potential competitor and 2) create new or strengthen existing market externalities that actually benefit the companyʼs competitive position. One such company that uses CSR to this end is Microsoft. Microsoft, a multinational corporation with a market cap of $223B and annual revenues of $58B, has long benefited from market imperfections, specifically its nearmonopoly in computer software with its Windows Operating System product. The company has even faced antitrust lawsuits in the United States (Wikipedia, 2010). Microsoftʼs expansive presence in India illustrates an example of the challenges involved in facing a company that has benefited from new markets as well as contributed to the positive and negative market externalities and compromised competition resulting from global expansion. There is no doubt that Microsoft holds a large influence in India. The highest statistics found show that 34% of Microsoftʼs workforce are Indians (Indianmanpower.com, 2010), and 45% of Indiaʼs IT industry is related to Microsoft (Microsoft.com, 2010). The impact of the positive externalities formed by Microsoftʼs presence is enormous. By opening offices and service centers in India and partnering with nearly 6,000 organizations and employing thousands of workers, Microsoft has moved many urban dwellers into the middle class and brought economic prosperity to thirteen cities including Bangalore, Mumbai, Delhi and Kolkata (Microsoft.com, 2010). Other positive externalities include increased
tax revenues and increased GDP, which improve social benefits such as infrastructure and public goods at large. However, in India, an important social issue that is worsened by the impact of globalization is the widening of the gap between the poor and the wealthy. The negative externalities involved include the social abandonment of rural villages, where 70% of Indians still live (George, 2010). Microsoftʼs
presence contributes to this negative externality significantly due to its high IT demands inside city lines. To illustrate the divide, the IT industry still only makes up 2% of Indiaʼs entire GDP (Microsoft, 2010), while farming accounts for 16.7% of the countryʼs GDP and employs 50% of the countryʼs workers (Wikipedia, 2010). As outsourcing to India has become more and more common during the last two decades, the middle and upper middle classes in urban areas continue to grow while the rural poor continue to get less (Window to India, 2010). In order to address and help offset this negative effect on the social and class dynamics in India, Microsoft has committed its resources toward CSR efforts. angles: Their tactics are multifold to combat this market failure from various the company created a CSR division known as Microsoft Corporate
Citizenship, and the division partners with NGOs such as the Clinton Foundation and grassroots non-profits to spur social progress within the poverty ranks. The company works with many organizations that work directly in rural villages, educating children and women as well as creating elementary schools and establishing computer centers to teach IT skills to adults. To date, the company
has been able to reach 6.3 million people through their corporate citizenship program (Microsoft, 2010). Even though the gap has yet to shrink and the longterm benefits of education in rural areas have yet to be seen, Microsoftʼs wellpublicized efforts to help close the gap through educating people and adding infrastructure helps insulate the business from accusations of locating a large portion of the companyʼs operations to India merely to exploit cheap labor. In addition to their contributions to making social change in rural villages, Microsoft opened its own research lab in Bangalore in 2005. Called Microsoft Research India, the center is a formalized version of crowdsourcing that also helps the company create network externalities by collaborating with colleges, students, scientists and engineers from India. The development of this research lab also mitigates the reputation risk that Microsoftʼs presence in India is only related to cheap labor and not also for its intellectual capital. Finally, in terms of using CSR to create competitive advantage and build business, Microsoftʼs CSR efforts help build a strong reputation and sense of community and loyalty in India that could go a long way in creating and strengthening other existing market failures that are beneficial to the company. Most of these market failures come in the form of compromised competition: network externalities, lock-in costs and costs of new learning associated with moving away from Microsoftʼs software products, and a potential cultural barrier to entry should a software competitor ever attempt to win market share in the India IT industry. The cultural barrier would be based on Microsoftʼs reputation
and ties to the local industry— Microsoft is a place where Indians want to work, and wouldnʼt want to leave. When a company puts some of its resources into CSR efforts to neutralize market failures underpinning social issues, it has the opportunity to involve many partners and create new stakeholders in the process. By doing so, it secures a position for itself by making itself an indispensible entity to others and thus builds more stability into the companyʼs future. It is paradoxical to think of using a public companyʼs resources for social change as a way to strengthen its competitive position, but Microsoftʼs CSR efforts in India exemplifies how it can be done. The company has used CSR strategically to create competitive
advantage— through people, partners, and efforts toward social change.
Agriculture in India Retrieved 7/30/10 from http://en.wikipedia.org/wiki/Agriculture_in_India George, S. India – Rich and Poor Retrieved 7/30/10 from http://www.southasianconnection.com/blogs/106/India---Rich-and-Poor.html India Statistics Retrieved 6/26/2010 http://www.euromonitor.com/factfile.aspx?country=IN Maxfield, S. Teaching Economics to Business Students through the Lens of Corporate Citizenship and Responsibility Retrieved 6/30/2010 from Microsoft Retrieved 7/30/10 from http://en.wikipedia.org/wiki/Microsoft Microsoft in India: Our Offices Retrieved 7/30/10 from http://www.microsoft.com/india/msindia/msindia_ouroffices.aspx Microsoft Local Impact Map Retrieved 7/30/10 from http://www.microsoft.com/About/CorporateCitizenship/map/app/default.htm#data=INz12953zzz MSFT: Income Statement for Microsoft Corporation – Yahoo! Finance Retrieved 7/30/10 from http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&annual MSFT: Summary for Microsoft Corporation – Yahoo! Finance Retrieved 7/30/10 from http://finance.yahoo.com/q?s=MSFT Recruitment Service for all types of Industries Retrieved 7/30/10 from http://www.indianmanpower.com/why.htm Rouche, W. (2006) Technology Review: Microsoft in India Retrieved 7/30/10 from http://www.technologyreview.com/read_article.aspx?id=16944&ch=infotech&a=f Thompson, A., Strickland, A. J.,III, & Gamble, J. (2007). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases McGraw-Hill/Irwin. Window to India Retrieved 7/30/10 from http://www.window2india.com/cms/admin/article.jsp?aid=2768
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