National Governments - Domestic Implementation of CSR

Khieu Thien Thuat is Managing Director of a medium sized footwear and apparel factory in Ho Chi Minh City, Vietnam. Mr. Thuat is operating in an economy in transition, picking up signals from his buyers about price, quality and standards rather than from the state. Anticipating buyer requirements for higher labour standards, Mr. Thuat spent thousands of dollars to improve the labour, environmental, and quality standards in his factory. His buyers are now primarily outside Vietnam: Nike, Adidas, Reebok, Timberland, Puma, Triumph, and Tommy Hilfiger.

The story of Mr. Thuat reflects a larger trend of a market-based cycle that starts with high profile consumer goods' companies responding to demands for higher social and environmental standards, not because governments or international organisations told them to, but because of consumer and civil society pressure. A growing number of suppliers to these companies, usually located in the developing world, are recognising the business imperative of what is frequently known as corporate social responsibility or CSR.

But CSR does not always operate smoothly and does not always produce the desired results of improved labour, social, or environmental conditions. The World Bank's experience advising the Government of Vietnam on how to strengthen domestic implementation of CSR revealed many obstacles. These obstacles are best understood in the context of the "CSR Cycle" which illustrates a series of actions that, when optimised have the potential to achieve development benefits on a large scale:

The CSR Cycle begins when companies anticipate or respond to incentives or risks associated with the social, labour or environmental impact of specific business practices. This response frequently comes in the form of explicit CSR policies or programmes. Using the CSR cycle, as a framework to evaluate the functionality of CSR among apparel and footwear suppliers in Vietnam, revealed that there were a number of obstacles preventing major improvements in working conditions across the industry:

• The drivers, the mix of incentives or risks, to improve labour standards among suppliers in Vietnam is currently insufficient to motivate broad adoption of CSR among factories supplying the global market. The primary risks are directed at the retail companies who then exert pressure on their suppliers. Many of the potential benefits are available to suppliers in the form of new contracts and productivity gains.
• A significant level of confusion prevents factories from knowing which CSR policies and programmes to implement.
• The capacity of local suppliers to implement CSR improvements is extremely limited, including knowledge of labour standards and basic management practices, and support services are weak.

Once the primary obstacles were identified, the next question the Government of Vietnam sought to answer was what policy instruments they could usefully deploy to make the CSR Cycle function effectively. To answer this question, they used a framework developed by the World Bank as part of a baseline survey of public sector roles in strengthening CSR:^[1]

The Government started by convening a multi-stakeholder advisory group to guide the exploration of specific policies to strengthen CSR. Initial consultations were held with the private sector - buyers and suppliers, members of civil society, academia, and CSR support services. These resulted in proposals for: expanded financial support for CSR certification programmes; subsidised CSR consulting services; government marketing promotion of factories active in CSR; clarification of the cost / benefits of different approaches to CSR; support to CSR reporting; and development of local training programmes for managers. An Advisory Group is now helping the Government prioritise and implement the proposals.

The World Bank's programme of technical assistance on CSR is integrated into its broader country assistance strategy in Vietnam.^[2] CSR is seen as contributing to a variety of development objectives related to private sector development, national competitiveness, and the rule of law. For the public to accept the transition from communism to a socialist-oriented market economy, the new economic structure needs to benefit workers and business owners alike. Furthermore, positioning Vietnam's labour-intensive manufacturing sector as a safe business relationship for CSR-sensitive buyers will enhance Vietnam's competitiveness in attracting export contract. As most CSR programmes take adherence to local laws as a starting point, CSR can reinforce the importance of the rule of law; this is particularly important in low-income countries where the jobsite (formal sector) is the one location that workers come into contact with the legal structure. Finally, CSR can be an important complement to government efforts to enforce its laws, particularly where resources are constrained and capacity underdeveloped.

For more information please contact:

Nigel Twose
Corporate Social Responsibility Practice
Private Sector Advisory Services Department
The World Bank

ntwose@worldbank.org

+ 1 202 458 9086

www.worldbank.org/privatesector/csr

^[1] For a copy of the baseline study see www.worldbank.org/privatesector/csr

^[2] The CAS is a comprehensive development strategy developed with the government of Vietnam, it can be accessed at: www.worldbank.org/vn