Attention‑Based Constraint to Multinational Corporation (MNC) Coevolution in China’s Changing Stakeholder Environment

Coevolution and Consumer Crises

Coevolution describes the mutual influence between MNCs and a product-and-service-related stakeholder environment. A stakeholder environment consists of employees, suppliers and dealers whose behaviour directly influences consumers’ experiences of products and services. On the other hand, consumer crises refer to unexpected, high-profile and disruptive events for a firm. These crises often arise due to ethical lapses by stakeholders, such as suppliers using hazardous materials in food products, financial fraud by dealers, false advertisements by local managers or mislabelling of products by under-trained staff.

In China, implementing consumer protection laws has promoted public knowledge of consumer rights and advanced consumer demand for rights protection. With consumer rights agencies and mass media aggressively disclosing firms’ misdeeds or ethical lapses, Chinese consumers increasingly assert and protect their rights.

For instance, in 2005, Heinz experienced a nationwide crisis when the authorities ordered the company to recall over 300,000 chilli sauce bottles that contained a cancer-causing food dye (Aljazeera, 2005). The firm’s local suppliers followed industry norms in distributing this food dye, even though it had been banned by regulations ten years ago. While the suppliers perceived the distribution as ethically acceptable, consumers believed otherwise, which caused a wave of return requests. This shows how firms must take precautions to improve stakeholders’ ethical behaviour rather than relying on public relations management approaches to resolve consumer crises.

Expansion Attention vs Stakeholder Attention

Achieving coevolution can be challenging for MNCs because some managers and decision-makers are more focused on either business expansion or the behaviour of their stakeholders. Expansion attention refers to a firm’s agenda to pursue local operations expansion and business growth, e.g., consumption behaviour, labour costs or suppliers’ delivery speed. On the other hand, stakeholder attention focuses on stakeholders’ social welfare and ethical needs, expectations and practices. Hence, attention-based constraint arises due to the tension between expansion attention and stakeholder attention.

“Through our research, we found a tension between MNCs’ attention to business expansion and their attention to the ethical behaviour of Chinese employees, suppliers, and dealers. Hence, we proposed three hypotheses to present a mediation effect of stakeholder attention on the relationship between expansion attention and consumer crisis risk”, remarked Prof Park.

The first hypothesis states how expansion attention increases MNCs’ consumer crisis risk, as decision-makers are occupied with expansion plans and may be less attentive to stakeholders’ unethical behaviour. In contrast, the second hypothesis shows how the attention to improving stakeholders’ ethical behaviour reduces the consumer crisis risk, as MNCs spend more time caring for stakeholders’ needs and even addressing consumer complaints. However, expansion attention reduces stakeholder attention, as suggested in the third hypothesis, especially with MNCs pursuing rapid expansion.

To test these hypotheses, the researchers sampled firms from a list of Fortune Global 500 corporations and their foreign direct investments in China in 2012. The final dataset includes 68 MNCs from 13 countries, covering their operations and consumer crises in China from 2000 to 2013.

The findings show that the effect of expansion attention on consumer crises is positive and significant, thus affirming Hypothesis 1. In support of Hypothesis 2, the regression coefficient is negative and significant, and it is found that stakeholder attention decreases the risk of crisis by about 81.5%. Furthermore, the direct effect of expansion attention on stakeholder attention is negative and significant, supporting Hypothesis 3. Therefore, the analysis suggests that stakeholder attention partially mediates the relation between expansion attention and the occurrence of consumer crises.

Strategies To Overcome Attention-Based Constraint in MNCs

The researchers proposed several approaches for MNCs to overcome the attention-based constraint against coevolution. First, firms can strengthen their resources by paying continual attention to stakeholders’ social welfare and behaviour. This will allow them to renew physical materials (e.g., by providing devices to upgrade supplier capability), and improve social relations (e.g., by developing new policies to govern the supplier relationship). Ultimately, this will reduce the consumer crisis risk and reshape the ethical environment to foster operational sustainability.

Next, the researchers propose that MNCs should reconcile expansion attention and stakeholder attention to allow them to coevolve. Firms need to allocate sufficient attention to local stakeholders’ ethical behaviour without overstretching managers’ bandwidths. For instance, different managers can attend to distinct stakeholders, allowing firms to explore the risks and opportunities of a wide range of stakeholder behaviour.

Lastly, the research supports that matching the focus of attention with environmental change is crucial for MNCs’ foreign operations. However, simply increasing the level of attention does not necessarily mitigate, and may even worsen, a firm’s risk of facing ethical challenges in China. Therefore, MNCs must keep their attention compatible and coevolve with the stakeholder environment.

“Our research shows that matching the focus of attention with the stakeholder environment change is also important for MNCs to achieve operational sustainability in foreign markets. Moreover, we hope for firms to release managers’ bandwidth through the division of labour and integrating stakeholder engagement as a critical factor in the performance of foreign subsidiaries”, said Dr Zhao, reflecting on the implications of his research.

Note: This research paper was published by the Journal of Business Ethics (Springer Link), on 11 May 2023.