Relationship between Foreign Direct Investment and Corporate Social Essay

Relationship between Foreign Direct Investment and Corporate Social Responsibility - Essay Example It is clearly shown in this report that foreign direct investment complicates the CSR practices of multinational corporations and other businesses operating internationally. This shows that there is a strong relationship between CSR and FDI. The relationship is influenced by several factors. First, stakeholder legitimacy problems cause international businesses to adapt to local CSR practices because stakeholders in host countries exert pressure on them to behave according to their interests in order to be considered legitimate. Secondly, international human resource management policies in host countries may complicate CSR practices of the foreign country due to the difference between HRM practices of the host and home country. An expatriate problem also results in complex CSR practices because expatriates may experience new cultures and behaviors in the host country that may change their CSR practices. Institutional distance is also considered as another factor affecting the relation ship between CSR and FDI. A high institutional distance between hoe and host country usually leads the multinational corporation to adapt to the local CSR practices. Recent research indicates that a company operating in host countries with a different institutional environment and demanding stakeholders are likely to adopt local practices in order to legitimize their foreign direct investment in host countries. This can be explained using the institutional theory and stakeholder theory which explain internal and external motivations for legitimacy in multinational corporations. Foreign Direct Investment is the acquisition of assets by an international company in another country. Foreign Direct Investors face the challenge of integrating home country CSR practices and the demands of stakeholders in the host country. Understanding these legitimacy pressures for foreign direct investment requires a link between corporate social responsibility and foreign direct investment.