Corporate Sustainability Assessments

Sustainability practices of multinational enterprises in Thailand

Jerome D. Donovan, Cheree Topple, Eryadi K. Masli, Teerin Vanichseni

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315533995
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Nachhaltige Entwicklung

Sustainable development is an internationally recognised objective for governments, businesses and societies. However, how the private sector engages with sustainability in a systematic way through their business activities remains unclear. This book evaluates the sustainability practices of the private sector by utilising a sustainability assessment framework – a method for integrating different strands of impact assessment, to better inform decision making for the promotion of sustainable economic development.

Through a sample of leading multinational enterprises (MNEs) in Thailand, this book provides evidence on the types of sustainability approaches being utilised by the private sector, shedding light on the important relationship between FDI and sustainable development. It also clarifies the role of FDI in sustainable development, and the methods, tools, and techniques that enable the private sector to engage with sustainability and sustainable development. The book will generate significant interest from sustainability practitioners in both the public and private sector.

1
Introduction

Sustainability practices in Thailand

Cheree Topple, Jerome D. Donovan, Eryadi K. Masli and Teerin Vanichseni

Sustainable development is an internationally recognised objective for governments, business and society (UN, 2012; UNCTAD, 2012). While there is agreement amongst leading scholars that sustainable development requires the integration of economic prosperity, environmental quality and social justice (WBCSD, 2001) it tends to be commonly described as the adoption of “business strategies and activities that meet the needs of the enterprise and its stake-holders today while protecting, sustaining and enhancing the human and natural resources that will be needed in the future” (International Institute for Sustainable Development, 1992, p.11).

This emphasis on sustainability is also evident within the Association of South East Asian Nations (ASEAN), with a clear direction set for the region by the AEC (ASEAN Economic Community) Blueprint towards, not only increased economic growth and dynamism, but also “sustained prosperity, inclusive growth and integrated development of ASEAN” (ASEAN, 2012). However, the question remains as to how governments within the region can achieve this, particularly with regards to engaging the private sector, a key driver for economic activity and development progress. Mobilising investment has been identified as a key priority for achieving a sustainable development agenda. Within developing countries, foreign direct investment (FDI) is a large aspect of this priority and generating new policies that are able to foster sustainable development outcomes is critical (OECD, 2002; UNCTAD, 2015).

Most broadly, FDI is thought to contribute towards sustainable development through more than just the financial resources dedicated to establishing foreign operations. Previous research and international reports suggest it can generate employment, drive export growth, transfer skills and knowledge to the local private sector and contribute to revenues through taxation. Amongst other things it is also associated with improving productivity, infrastructure and extending global value chain integration to incorporate local suppliers and producers (UNCTAD, 2015). However, the link that is depicted between FDI and economic development is not necessarily straightforward. It is based largely on economic growth caused by FDI and relies on different investment policies, regulations and local characteristics from which the receiving country then sets the ground for economic development to be achieved (Kosack and Tobin, 2006; Ranis and Stewart, 2000).

The importance and understanding of how FDI can contribute to sustainable development becomes even more pertinent when considering the sheer size and flow of FDI within the region. Over recent years, Asia has been the world’s top recipient group of FDI, accounting for about 31 per cent of worldwide investment (UNCTAD, 2015). Thailand is one of the region’s most successful countries to attract FDI. The Thai government, over recent decades, has recognised the significance of the private sector as a core facilitator of their economic and technological growth. Experiencing an average economic growth rate of nearly 8 per cent p.a. from 1960–1996, since 2008 Thailand has however made a slow recovery from the global financial crisis and, more recently, has seen FDI projects shelved because of political instability. Despite FDI inflows dropping 10.3 per cent between 2013 and 2014 to $12.6 billion, Thailand remains one of the top five host economies in the region (UNCTAD, 2015, p.39). Understanding the role of FDI for their economy is more critical than ever for Thailand if it is to harness the benefits of FDI for their sustainable development.

An ambiguous relationship between FDI and sustainable development?

Private sector activity is of considerable interest to developing countries given their increasing reliance on it as a form of funding, and this includes Thailand. From the early 1990s, over 75 per cent of developing countries’ external capital flows were from private sources of funding (Reiter and Steensma, 2010). FDI is often seen as a key pathway for developing countries to achieve accelerated economic development (Sachs and McArthurs, 2005). For the purpose of this research, we have drawn on the most common international definition of FDI from the OECD (2015), which describes FDI as:

A category of investment that reflects the objective of establishing a lasting interest by a resident enterprise in one economy (direct investor) in an enterprise (direct investment enterprise) that is resident in an economy other than that of the direct investor. The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence on the management of the enterprise. The direct or indirect ownership of 10 percent or more of the voting power of an enterprise resident in one economy by an investor resident in another economy is evidence of such a relationship.

According to the OECD (2002, p.171), FDI is a major catalyst for economic development with the potential contributing towards both economic growth, and, in turn improved living standards: “FDI has the potential to bring social and environmental benefits to the host economy through the dissemination of good practices and technologies within [multinational enterprises] MNEs and through their subsequent spill-overs to domestic enterprises.” FDI has consistently been a major source of private capital, increasing from less than 30 per cent in the early 1990s to almost two-thirds of the total private capital by 1998 (UNCTAD, 2006, 2014). More recently in 2012, for the first time in history, FDI into developing economies was larger than that invested into developed economies.

Despite the existence of a bank of research, empirical studies on the impact of FDI on economic development are inconclusive. Relationships of FDI and measures associated with economic development like industry structure and performance (see Aitken and Harrison, 1999; Blomstrom, Lipsey and Zejan, 1994; Smarzynska, 2002); human capital [education] (see Borensztein, De Gregorio and Lee, 1998; Kucera, 2002); and, technological spill-overs (see Alvarez and Molero, 2005; Blomstrom and Sjoholm, 1999; Bwayla, 2006; Konings, 2001; Tu and Tan, 2012) support the fact that the role of FDI in development progress is unknown. Looking at relationships between FDI and economic growth (see Borensztein et al., 1998; Freckleton, Wright and Craig-well, 2012), arguably a more straight-forward method of analysis, the results still remain mixed (also see Balasubramanyam, Salisu and Sapsford, 1996; Carkovic and Levin, 2005; Feeny, Iamsiraroj and McGillivray, 2014; Mirza et al., 2004). Moreover, research that has revealed a positive correlation between FDI and Gross National Product (GNP) has mentioned nothing regarding causation (Caves, 1996).

Clearly, FDI is significant to the economies of developing countries but what in fact is its role in the economic growth and development of these countries? How does FDI impact on the sustainable development of a country where there is integration between economic prosperity, environmental quality and social justice? Given the current research focus on Thailand, the next section will focus more specifically on research within the ASEAN region of which Thailand is a key member and recipient of FDI, drawing together potential insights into this relationship.

FDI effects in ASEAN countries

With reference to the ASEAN, Table 1.1 summarises 20 of the most widely cited studies conducted on FDI effects in ASEAN countries. Within this literature, none of these studies address FDI effects on sustainable development outcomes; the majority focus on economic measures with a handful emphasising FDI impact on a mix of environmental and social aspects. Some of the studies present positive relationships between FDI and economic measures while others show a negative relationship or no relationship at all. While there are various reports published on the topic of ASEAN FDI, there is a paucity of literature providing testable relationships between FDI and economic activity and sustainable development.

Table 1.1 Summary of findings for studies into FDI impacts on ASEAN countries

Author (s)	Relationship (s)	Results	Countries
Ang (2009)	FDI ➜ Financial Systems ➜ Economic Development	Positive: Improves economic development but only through enhanced financial systems	Thailand
Anwar and Nguyen (2010)	FDI ➜ Economic Growth	Positive: Improves economic growth	Viet Nam
Anwar and Nguyen (2011a)	FDI ➜ Net Exports	Positive: Increases net exports	Viet Nam
Anwar and Nguyen (2011b)	FDI Spill-overs ➜ Export Performance	Positive: Improves firm export performance	Viet Nam
Anwar and Nguyen (2014)	FDI Spill-overs ➜ Total Factor Productivity (TFP)	Mixed: Improves TFP in some regions, not in other regions	Viet Nam
Athukorala and Tien (2012)	FDI ➜ Real Output	Positive: Improves real output	Viet Nam
Chandran and Tang(2013)	FDI ➜ CO2 Emissions	Positive: Does not increase CO2 emissions	Malaysia, Indonesia, Singapore, Philippines, Thailand
Chansomphou and Ichihasi (2011)	FDI ➜ Long-Run Income Per Capita	Negative: Has negative influence on long-run income	Lao PDR
Choong, Liew, Chan and Ch'ng (2011)	FDI Volatility ➜ Economic Growth	Mixed: FDI volatility reduces economic growth	Indonesia, Malaysia, Philippines, Singapore, Thailand
Dang(2013)	FDI ➜ Institutional Quality	Mixed: Improves institutional quality in some regions, not in others	Viet Nam
Marwah and Tavakoli (2004)	FDI ➜ Economic Growth	Positive: Improves economic growth	Indonesia, Malaysia, Philippines, Thailand
Mirza et al. (2004)	FDI ➜ Poverty Reduction	Mixed: Reduces poverty in some countries and regions, not in others	Cambodia, Malaysia, Singapore, Thailand, Viet Nam
Mohamed, Singh, Singh and Liew (2013)	FDI ➜ Economic Growth	Negative: Does not improve economic growth	Malaysia
Nguyen and Sun (2012)	FDI Spill-overs ➜ Export Performance	Positive: Improves firm export performance	Viet Nam
Phommahaxay (2013)	FDI ➜ Economic Growth	Mixed: Improves growth in some industries, not in others	Lao PDR
Reiter and Steensma (2010)	FDI ➜ Economic Growth ➜ Human Development	Mixed/Mainly Positive: Improves economic growth and human development in most developing countries	Developing countries
Sermcheep (2013)	FDI ➜ Economic Growth	Positive: Improves economic growth	Thailand
Suyanto, Salim and Bloch (2009)	FDI ➜ Productivity	Positive: FDI and related spillovers improve productivity	Indonesia
Tu and Tan (2012)	FDI ➜ Technology Spill-overs ➜ Economic Growth	Positive: Improves technology spillovers and economic growth; enhanced by education (human capital)	Cambodia, Lao PDR, Philippines, Singapore, Thailand, Viet Nam
Wogbe Agbola (2014)	FDI ➜ Economic Growth	Positive: Improves economic growth, but is enhanced by education (human capital)	Philippines

There were positive effects found between FDI and economic measures across many of the ASEAN countries. Some studies examined FDI’s effect on various economic indicators including real output (Athukorala and Tien, 2012), export performance (Nguyen and Sun, 2012) and net exports (Anwar and Nguyen, 2011a) in Viet Nam, as well as total factor productivity in both Viet Nam (Anwar and Nguyen, 2014) and Indonesia (Suyanto et al., 2009). All of these studies found evidence of positive and significant relationships. In Thailand, levels of financial development were found to enhance the impact of FDI on output growth (Ang, 2009); and inward FDI contributed to the country’s economic growth and industry development (Sermcheep, 2013).

Within the Philippines, Wogbe Agbola (2014) confirmed that FDI is a driver of economic growth but only if a minimum threshold of human capital existed. Likewise, Tu and Tan (2012) also demonstrated that human capital could maximise the presence of technological spill-overs from foreign to domestic firms across Viet Nam, Thailand, Cambodia, the Philippines, Lao PDR and Singapore. Another study into the same relationship (Choong et al., 2011) revealed that FDI volatility – rapid changes in FDI inflow – negatively influenced economic growth in Indonesia, Malaysia, the Philippines and Thailand, highlighting the mixed research findings on FDI effects. This result was supported in a study by Mohamed et al. (2013) who also found negative relationships between FDI and economic growth in a Malaysian sample and between FDI and long-run income per capita in Lao PDR.

Of the studies summarised in Table 1.1, there were four that broadened the understanding of sustainable development and examined FDI effects on non-economic measures (see Chandran and Tang, 2013; Dang, 2013; Mirza et al., 200...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Notes on contributors
• 1 Introduction: sustainability practices in Thailand
• 2 FDI and development in Thailand
• 3 The corporate sustainability assessment
• 4 Sustainability practices in Thailand
• 5 Sustainability practices of manufacturing MNEs
• 6 Sustainability practices of service MNEs
• 7 Discussion and conclusion
• Index