On Corporate Social Responsibility

Corporate social responsibility has been a key source of media attention for businesses, and it has become one of the criteria used to rank companies. As a result, CSR is now almost a must for firms everywhere. The CEOs of companies are charged with creating business strategies and are frequently active in enhancing the company’s reputation through social responsibility. Based on the degree to which they incur personal and professional risk in furthering corporate responsibility goals, the CEOs who are the most socially responsible in the United States are recognized by the Corporate Responsibility Magazine every year since 2008. These awards are given to CEOs who show exemplary record in delivering their goals on employee relations, human rights, reducing the environmental impact of their production activities and corporate responsibility practices. Therefore, the role of CEOs in driving CSR activities is recognized as well as the significance of CSR to the firm at large.

Case Study Analysis

The Case Study “When the CEO’s Personal Crusade Drives Decisions” authored by Randle D. Raggio describes a phenomenon that mostly happens in companies. The executives tend to influence decision-making including corporate social activities that should be undertaken by the firm. In this case study, the CEO of DM Bicycle wants the company to focus CSR efforts on finding a cure for his daughter’s disease. Most of the employees feel that this is not acting according to the company’s best interests and that the CEO’s decision is overshadowed by the need to make her daughter happy. A meeting is called and various senior leaders of DM Bicycle Company are gathered at the conference room when the CEO, Gino Duncan breaks the news that some of the year’s profits would be dedicated towards finding a cure for Batten disease instead of giving a bonus to the employees for a successful year’s performance.

Most of the employees had contributed their time and money to support Gino’s crusades. Some of them perceived him to be an inspiring person while others only took part because they were aware that this was the easiest way to have a face-to-face discussion with the CEO. Gino was recognized as a noble man who would invest a substantial amount of money in different social and environmental causes that caught his fancy. However, the employees were afraid to face him and discuss their descent with the shift in direction.

The company’s CFO was an old high school friend of the CEO and despite the fear that reflecting this change in the annual financial report would cause a significant scuffle among the shareholders; he declined to talk to him about the proposed CSR project. The employees are scared that the company would turn into Big Brother instead of family as it has always been. However, the employees are expecting Gino to ask them to contribute money or time to fight Batten disease. One of the company’s leaders, Carolyn, is skeptical about the CEO’s decision and feels the urge to talk to him about it. She was kept distant from the inner circle of both Jim (the CFO) and Gino (the CEO). She was concerned that Gino’s grief and care for his daughter might overshadow his concern for the firm.

A number of studies have been conducted to probe the role of the CEO’s personal interests in driving CSR in their firms (Mahoney and Thome, 2005). The majority of these studies reveal that both monetary and non-monetary incentives tend to influence CSR decisions. Non-monetary incentives such as the one in DM Bicycles Company case study tend to have a positive effect on CSR decisions. Some of these non-financial motives include the CEO’s career reputation, power, activities performed by the previous CEOs, and managerial entrenchment. Different stakeholders including the government, the media and lobby groups are becoming more concerned about corporate social responsibility and they are holding companies responsible for the social externalities of their activities (Porter and Kramer, 2006).

The moral perspective of CSR is based on the claim that companies must be good citizens and to ensure that they are doing their operations in a manner that considers the local community and other stakeholders around them by doing the right thing. From a sustainability perspective, companies are required to meet their objectives without interfering with the next generation’s capacity to sustain themselves (Fabrizi, Mallin, & Michelon, 2014). Therefore, CSR is perceived to be a crucial component for firms as it enables them to benefit in terms of a good reputation and promoting a strong brand.

A Case Study of STRAWTEC

An investigation into the CSR initiatives of STRAWTEC Ltd revealed that it has integrated corporate responsibility into its strategic business model through the provision of affordable housing in Rwanda using environmental friendly resources. STRAWTEC Ltd is a Germany based firm that specializes in the production of building materials from organic matter such as wheat and rice straws. The organization started its operations in Rwanda, Kigali, in October 2015. The Rwandan capital is regarded as the special economic zone due to the dense population in the area and the economic opportunities available in the city that have attracted investors but locally and from abroad. Foreign Direct Investment (FDI) is a form of economic influence by a foreign company through having or controlling business interests either in the form of business operations in another country or obtaining business assets abroad.

Rwanda is considered as one of the fastest growing economies in Africa and the government has endeavored to boost every sector to enhance the living standards of its citizens. The east African country is among the contemporary business destinations and the green building technology firm is likely to benefit from the attractive business environment that is investor friendly, availability of ready market for goods, an industrious labor force that is very productive and tax incentives given to international firms who set up operations in the country.

Urbanization is a growing concern for most economies and in Kigali, Rwanda, nothing is different as the cost of land and construction is on the rise every day and the densely populated capital calls for sustainable development especially in dealing with land and housing issues. Rwanda’s positive economic atmosphere and welcoming approach to green technology attracted the Germany based company to set up in the area in order to provide an alternative building solution that replaces cement walls with wheat and rice straws. This has far reduced the cost of construction and ultimately lowered the cost of housing.

As urbanization continues rising in Rwanda, the land will be rare as the populace is likewise on the ascent. In any case, the new STRAWTEC innovation will empower Rwandans to claim their own home as the innovation is financially savvy, reasonable, and deals with the land well. The organization is notwithstanding, centering to guarantee that Rwanda stops overreliance on imported building materials, for example, cement and rather offer them a chance to sell this new innovation to the nearby countries. The industrial facility is as of now in procedure of purchasing parcels of land to begin its own eco-accommodating improvement whereby there will be a decent waste administration, sewage, and utility utilizing sun powered vitality. According to World Economic Forum, Rwanda is part of the fastest growing economies in Africa. The 2013 report from the World Bank Doing Business, projected Rwanda as the easiest country for business transactions in East Africa (Board, 2014).

Straws used to be waste products from wheat and rice, hence farmers burn them but STRAWTEC’s commencement has brought about increased income to these farmers as they now sell these waste products for extra income (STRAWTEC, 2015). The burning of these straws by farmers created a lot of air pollution which is now made away with; no farmer burns his straws anymore. The readily available market for straw enables farmers to increase their wheat and rice production size to harness the opportunity which wasn’t available earlier. The STRAWTEC Company would also strengthen the export capability of Rwanda and reduce imports. The locally sourcing of the raw materials leads to cheaper housing and construction cost in Rwanda (Kabeja, 2016).

Building with materials from STRAWTEC, are less expensive, environmentally friendly, and durable and has good aeration. Due to several reasons, what one country or individuals in one country regards affordable might not be affordable in another country or by another individual in another country. For a house to be termed affordable generally, it should be based on housing which cost an amount that a low-wage family in less developed countries or developing countries can be able to acquire too. Buying building materials from other countries is a burden in terms of cost. Numerous locally accessible assets, for example, earth and stone based construction materials are shoddy, recyclable, vitality effective to create and have great warmth and wellbeing properties. Utilization of nearby materials can likewise diminish execution dangers, for example, import obstructions, inefficient capacity and inflation (Lefevre, 2006).

Porters Five Forces Analysis

Industry rivalry

Firms must take into account the rivalry among industry players since intense competition often leads to reduced profits. There are no businesses in Rwanda that provide the materials at the level, quality and consistency of STRAWTEC. JSI is an American company that builds affordable houses in Rwanda, but they don’t use straw as the building block of their materials (Hope Magazine, 2017). Therefore, there is no significant competitor to oust STRAWTEC from their position as a first mover.

Threat of substitutes

Availability of substitute products reduces the power of a company to raise their prices and earn high profits (Porter, 2008). STRAWTEC is the first company of its kind in Rwanda. The materials used in construction are the traditional stone, cement and steel for most major housing projects. These materials are expensive, and the government is trying to look for other means to drive down the cost of construction. The imports of cement and other related products went down from Rwf67 billion to Rwf35.4 billion in 2016. The huge drop in imports came as the government is concentrating on efforts to enhance local production (Ntirenganya, 2017).

Bargaining power of buyers

The main buyers of the materials made by STRAWTEC are government institutions as well as private companies involved in the construction of low-cost housing. The government is the biggest customer, and they have an agreement with the company beginning with the building of the factory within the Special Economic Zone. The government is keen to partner with foreign investors who share a similar development agenda, and hence the future of STRAWTEC appears to be in good hands. The reduction in the importation of cement products means the country is ready to embrace other methods of construction and STRAWTEC can complete structures quickly without cement.

Bargaining power of suppliers

The main raw material required by STRAWTEC is wheat and rice straws. The Rwandese farmers who cultivate these two crops can gain income from value addition of the raw materials (Tumwebaze, 2015). There are any suppliers/farmers, and hence it is impossible to dictate premium prices to the company. The mutual benefit allows STRAWTEC to have an abundance of straw at relatively low prices and farmers get money for a by-product of their activities.

Barriers to entry

The government of Rwanda will benefit from the cheap construction materials and enjoy annual savings of about $12 million in importing building materials like cement (Ntirenganya, 2017). The cost of setting up the STRAWTEC factory was roughly $10 million, which is quite high. The entry of the company into the Rwandese construction industry was seen as a significant step in reducing costs and hence was highly publicized. The high cost and logistics of setting up such an operation mean that entry into the industry is difficult. STRAWTEC has trained farmers and agronomists and being a first mover, they have established themselves making it difficult for new companies to enter the scene. However, as the demand for construction materials continues to increase with the population, other foreign and domestic companies will come into the sector in the long term.

How Stakeholders have responded

Organizations doing business across international borders face many of the same risks as would normally be evident in strict domestic market, and Country risk assessment is vital.There are primarily two types of risks involved when a company is investing in Rwanda special economic zone. These are internal and external risks. The external risks consist of cross-cultural risk, country risk, currency risk and commercial risk which firms must manage to avoid financial loss or product (Stevens et.al 2015). The internal risks focus on the human factors such as union strikes, dishonesty employees, ineffective managers and leaders. Since STRAWTEC mode of entry to Rwanda special economic Zone was through foreign direct investment the external factors are the major focus and are discussed below.

The stakeholders of STRAWTEC have responded to various risks that are likely to be faced by the company. Through the use of waste raw materials in construction, the company is responding to an environmental hazard. Environmental risk mainly considers the main effect of the climate and the weather are influenced by how companies do their operations. It is the requirement of the business to undertake activities that keep the air and water clean by taking measures that reduce environmental pollution.

STRAWTEC also is likely to experience a challenge with technology. Technology is a key aspect in business operation. Advanced technology is a competitive advantage to a Company. Technology risk may arise due to lack of security in electronic transaction and the company incur huge cost in developing new technology. Rwanda as a developing country may not be in a position to have in place security measures of the company. Therefore, to mitigate this risk, the managers must seek security of their data in other countries. Also STRAWTEC Company must recruit local employees with high-tech skills in order to improve their profitability.

Social environment primarily focuses on the social aspect of the host citizens in terms of lifestyle, purchasing patterns and the age in the levels of its work force. The people of Rwanda have a different lifestyle from the Australian lifestyle where STRAWTEC’s parent Company is held. For the company to succeed it must produce goods that match the needs and culture of the Rwanda citizens. (Lee et al., 2012).Although this risk have no much impact on the special economic zone the business may not overlook since its risk can reduce the profitability of the Companies revenue.

In cross borders business, firm are faced by different cultural environment characterised by unfamiliar languages and unique value system, beliefs and behaviours .These cross cultural challenges result in to cross cultural risk in the sense that if effective measures to mitigate the risk are not taken could affect the companies operation and reduce the revenue..

Cross-cultural risk may be defined as a situation or event where a cultural miscommunication puts some human value at stake. It arises routinely in international business due to the adverse posed differences in languages, cultural heritage of the participants, lifestyles, mindsets, customs and/or religions. In addition, miscommunication due to cultural differences gives rise to inappropriate business strategies and ineffective relations with customers.

In order to manage this risk, managers in STRAWTEC Company should acquire factual and interpretative knowledge about the other culture’s value and altitude, and try to speak their language. This will facilitate understanding about the partners mindset organization and objectives .In addition the managers should develop and maintain channels of communication with members of the political elite and negotiate agreement that seems fair to Rwanda government keeping in view companies interest, provide expert option and whenever asked for and provide public services. Moreover, the managers should have cross cultural skill training program in the organization. This will give the managers proficiency in tolerance for ambiguity, perceptiveness, valuing personal relationship, flexibility and adaptability. Furthermore they should avoid cultural bias at all cost.

Recommendations and Conclusion

Foreign direct investment is a good way for companies to increase their portfolio and make more money. A country like Rwanda welcomes foreign investors due to the need for immediate and tried solutions to problems within the country. After looking at the industry analysis, it is clear that the future for construction in Rwanda is bright. Increasing population and rapid urbanization are driving up the demand for housing. The government views apartments as the best way of land management. STRAWTEC can create apartment blocks using the straw panels and a recycled steel exoskeleton. The reduction in imports of cement and other related products for locally produced materials shows the direction the government is taking about materials. STRAWTEC is ideally placed with the right materials and cost for the right market. As Rwanda undergoes a construction boom, STRAWTEC is well positioned on an upward trajectory due to their innovative products and methods. Investing in STRAWTEC seems to be a good decision in the short and long term.

STRAWTEC can significantly reduce the impact of the political risks in the host country by creating an alliance with qualified local partners through employing the local residents; it can help them meet the legal requirements and foster their relationship with the local government. Also, they can cushion themselves from potential loss by diversifying their markets into areas in the region where such political uncertainty is at the minimum. They can insure the company against political unrest as well as apply shifting of risks to the local creditors.

The managers of STRAWTEC should have cross cultural skill training program in the organization so as to counter the cross-cultural risks. The managers can also consider hedging where STRAWTEC may use financial instruments and other measure such as forwards; futures option to reduce or eliminate exposure to currency risk. To mitigate the potential technological risk, the managers must seek security for their data in other countries; especially in Germany to avoid losing essential business intelligence in the event of an attack. Also, STRAWTEC Company must recruit local employees with high-tech skills in order to improve their profitability and it must produce goods that match the needs and culture of the Rwanda citizens.

Rwanda is considered as one of the fastest growing economies in Africa and the government has endeavored to boost every sector to enhance the living standards of its citizens. The east African country is among the contemporary business destinations and the green building technology firm is likely to benefit from the attractive business environment that is investor friendly, availability of ready market for goods, an industrious labor force that is very productive and tax incentives given to international firms who set up operations in the country.

STRAWTEC has created a local value chain from raw material supply as well as established turnkey housing units in their business in Rwanda. The green building technology is tested and proven with a long history spanning 80 years and over 250 billion houses constructed using this innovation in Europe and America. The combination of affordability and durability is a major advantage that has enabled the company to make a huge impact on the Rwandese construction industry in a relatively brief period. STRAWTEC has not only entered the market successfully but also brought economic benefits to Rwanda.

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