Corporate social responsibility and why executives should care...

1. Meeting the Challenges of Globalization
Tracy Mullen, NRF President/CEO remarks
November 2001
These are trying times. Retailers have come to a crossroad. From where we stand today,
our vision impaired by the smoke and fog of recent events, there is tremendous
uncertainty about what the future has in store. Apprehension and anxiety about change is
instinctive, particularly when events in the present are so overwhelming that it becomes
difficult—even impossible—for us to envision the future. Nonetheless, decisions have to
be made on a daily basis testing whether we have the determination to stay the course or
whether we will allow fear to divert our direction.
Unequivocally, and without reservation, retailers are choosing progress over trepidation.
This is no easy task. The recent tragedy that has gripped America, and lingering
concerns about the economy, threaten to curtail efforts to forge ahead with improved
communication and trade between nations. Concerns about globalization are nothing
new, but in an environment where fears about global economic and political stability are
commonplace there may be an increased tendency toward protection through isolation.
“The best way to predict the future is to invent it,” said Alan Kay, whose work and vision
were instrumental in shaping the development of the personal and laptop computers.
Retailers similarly embrace this forward-looking philosophy. Armed with the knowledge
that improving the flow of goods and information between peoples will ultimately benefit
all parties with the courage to participate, retailers are proceeding full-steam in that
direction.
Yet, as retailers become increasingly global in their operations, they remain cognizant
that their success is inextricably tied to the well being of the communities in which they
do business.
Recent events have brought out the best in many businesses, which have been on the
front lines in assisting with the recovery effort in the United States. This is a philosophy
that retailers have embodied for decades--giving back to the community is not an option,
it is essential. In fact, the retail industry's legacy of giving-typically with little notice or
fanfare-is proof that the spirit of accepting social responsibility is an intrinsic one.
Charitable Giving and Social Responsibility
As retailers, the battle for consumers’ minds and wallets often comes down to how we
deliver on a few basic criteria: price, selection, service, and convenience. Together, they
represent value. However, another element has emerged that promises to play a more
prominent role in dividing winners from losers as retailing, always an intensely local
business, goes global.

2. Cause-related, charitable, and community-based activities have always been a part of
generating goodwill among customers and maintaining a positive corporate image.
Target Corporation, for example, has a policy of donating 5 percent of profits to charity,
mostly to causes in the local communities in which the company operates. In
Washington, DC, where the National Retail Federation (NRF) is headquartered, Target
sponsored the remodeling of the Washington Monument. Target’s community
enhancement activities bring the retailer closer to its customer base and improve the
quality of life in the community—a community where its employees also live, work and
play.
Five years ago, retailers weren't talking much about their community activities. One of
our local Washington D.C. companies, Giant Food, has always been active in the
community. Now Giant actively promotes its community involvement in the stores, and
in newspaper, television, and radio advertisements. Our experience with focus groups
indicates that consumers know about and remember these activities. During times of
local crisis, there is almost an expectation that respected local retailers will pitch in, and
that reflects the good standing many retailers have within their communities.
Can Big Business Solve the World’s Problems?
“The twenty-first century won't be an ethical utopia,” French retailer Daniel Bernard,
Chairman and CEO of Carrefour, said during a recent NRF Annual Convention. “War,
bribery, narcotics, lawless profit, and narcissistic individualism won't disappear…[but]
citizens will evolve toward a new ethical imperative.”
The new ethic, Bernard speculates, will put a primary emphasis on:
• Environmental protection;
• Demand for transparency, both in politics and commerce;
• The search for dignity and equality for men and, above all, women and children
of all countries; and
• A growing need for solidarity between peoples.
“Ethical behavior will become part of the assessment criteria of retail companies, both for
customers and shareholders,” he said.
As the tide of economic prosperity raised nearly everyone’s ship in the latter half of the
1990s, retailers increasingly became high-profile targets of well orchestrated and often
government-sponsored attempts to either shame them into acquiescence or to hit them
where it hurts most--in the marketplace and in the stock market. Good old-fashioned
guilt was seen to be a powerful strategy for activists, and if that failed financial pressure
could squeeze targeted retailers into submission.
Both within and outside the corporate world, groups with an array of causes and concerns
seemed to hop on the righteousness bandwagon. Animal rights organizations,
environmental groups and organized labor joined forces to form an activist mosaic that

3. aims to hold industry's feet to the fire for its alleged exploitative practices around the
world. Yet, much of this movement’s financial and human resources flow from a deeper
fear about globalization—the fear of competition itself, and the notion that if there are
“winners” then surely there must be “losers.” Moreover, large investors sought to use
their influence to affect corporate strategies more in line with their personal beliefs,
whether they were sound business practices or not.
The retail industry, in keeping with its philosophy of good corporate citizenship, has
worked with activists where possible to incorporate constructive changes into their
operations when those changes were feasible. Many retailers, for example, have
incorporated “green” policies in their stores; others have embraced once controversial
causes such as funding for AIDS research.
Virtually every retailer has a code of conduct that they apply to all of the merchandise
that stocks their shelves. The anti-sweatshop protests focused attention on the need to
revisit, and in some cases, expand these codes. Many retailers employ no tolerance
policies and cease doing business with vendors who violate their agreements. Others
work hard to educate their vendors on current regulations and procedures to encourage
compliance. Some companies are working closely with the very groups that criticize
them to find practical solutions to labor problems in developing countries.
Nike has worked with human rights groups to develop independent monitoring programs
in its overseas factories. The company also joined a White House-sponsored initiative to
develop manufacturing best practices with a focus on community-friendly employment
policies.
Starbucks markets a coffee called Fair Trade. “Fair Trade seeks to improve the lives of
coffee growers by ensuring that they receive a guaranteed fair price for their harvest,”
Starbucks explains in a consumer pamphlet. Starbucks offers Fair Trade coffee in
alliance with TransFair USA, a non-profit organization that provides independent
certification of Fair Trade products. Fair Trade certification provides a way for farmers
to increase their incomes by helping them organize into cooperatives and linking them
directly to coffee importers. Despite this innovative initiative, Starbucks has been under
attack by some human rights groups for not marketing Fair Trade aggressively enough in
its coffee houses.
The protests that have plagued the industry recently aren’t likely to disappear any time
soon. They do, however, point to a growing need for businesses to show as strong a
public commitment to human issues as they do to the bottom line. They also dictate that
retailers take a more active approach to publicizing their efforts.
Setting Up Shop Abroad
It’s not easy to enter a foreign market. Doing business globally requires the highest
ethical standards and great sensitivity to customer concerns. A global retailer cannot be
satisfied with the standards of one country or one community; those standards will not be

4. universal. A global retailer has to take a broader view and adhere to a higher standard,
especially since mergers and acquisitions have become dominant business strategies.
Many non-U.S. retailers feel that to be taken seriously as a global retailer, they have to be
in the U.S., even though it is a very crowded market. U.S. retailers believe the market is
seriously over stored, leaving them the choices of going abroad or consolidating at home.
More corporate marriages will continue to occur, as companies strive to become truly
global. The industry is watching Carrefour, as it tries to compete head-on with
Bentonville, Arkansas-based Wal-Mart. Although Carrefour is currently the world’s
second largest retailer, Wal-Mart is still more than three times larger. To continue its
growth and be considered a serious contender to Wal-Mart, Carrefour must increase its
presence in the U.S. by acquiring a major player such as Target or Kmart or a major food
chain. European food retailers have already taken a strong interest in the U.S. In fact,
today one out of every four dollars spent in a U.S. supermarket reportedly occurs in a
store owned by a foreign, mostly European, chain.
“One Size Doesn’t Fit All”
“We need to tailor our commercial offering to the local consumers' lifestyle, that is to
their habits,” CEO Bernard told the NRF audience. “That is made easier by the fact that
Carrefour mainly works with local producers...[Another] key to our strategy involves
training local teams, in order to soon entrust them with operational responsibilities. Thus,
we are Spanish in Spain, Brazilian in Brazil, and Chinese in China. This policy involves
transferring the know-how through teams of mixed nationalities. For example, our
Regional Manager for the Beijing area is Chinese. He was appointed to that position
after making his debut in other countries of the Group.”
Carrefour’s sensitivity to cultural issues is helping it to achieve global success. If you’re
going to do business in a country, you need to learn the culture, the people, everything
you can about that country. It’s the only recipe for success in building and maintaining a
customer base. You also need to have people who live in the community run the business
to identify opportunities and respond effectively to changing market conditions.
Liz Claiborne, for example, allied with five different partners in Central America. “One
size doesn't fit all,” said Pat Royak, Vice President and General Manager of International
Alliances. “You have to understand local markets and needs, but maintain the appeal of a
global brand. Consumer preferences in Central America vary between markets just as
they vary between New York and Idaho. There are Central American markets which are
more fashion forward and others which are more basic markets,” Royak added.
Retail service traditions can be very different, and they too must be understood. The idea
of returning merchandise, now nearly a fundamental right in the U.S., is almost unheard
of in Europe. Once the customer has bought something there, it’s done. Some American
retailers have made return policies the cornerstone of their customer service commitment.

5. Nordstrom is said to have accepted the return of snow tires from a loyal customer, even
though Nordstrom has never sold snow tires.
In addition to consumer preferences and accepted retail mores, languages are also an
important component of a culture that retailers must understand in order to succeed.
As companies move offshore it has become increasingly clear that it can be nearly
impossible to understand the intricacies of a culture without knowing the language.
Recently, I had a meeting with a Parisian gentleman who speaks nearly flawless English
with almost no accent. I encouraged him to visit the U.S. for one of our CEO-level
retreats. He declined the invitation because he felt insecure about his command of the
English language. Surprised, I countered that his English was almost perfect, but he
answered, “It may appear flawless to you, but I cannot communicate what’s in my heart
in English the way I can in French. I can get along in social situations, but if I want to
have an in-depth conversation about some critically important topic with a peer who
speaks perfect English-- I cannot.”
His comments stunned me. And it makes me realize just how intertwined language and
culture really are.
Companies like Carrafour understand this linkage between language and culture, and
have successfully expanded into other countries by recruiting their sales and management
staff from that country and then training them in the Carrafour way of doing business.
Political Stability Is Not Guaranteed
Another key issue for global retailers is the political climate and the legal environment in
countries where they intend to conduct business. Before moving into a country, a retailer
wants assurance of political stability, although that can be very hard to guarantee in many
parts of the world. Kmart moved into Chile a few years ago when it seemed to have the
most stable economy and political structure of any South American country. That was
true for a while, and then the situation changed.
Understanding a country’s laws and regulations is critical. Take the privacy issue, for
example. The European Union (EU) issued a privacy directive several years ago that
established a very high standard for personal privacy that U.S. businesses continue to
struggle with. A retailer moving into another country has to have an absolute
understanding of what it can and cannot do. A retailer has to have people in place who
understand the laws and know how to comply with them. Even something that may seem
innocuous to us--having a sale, for instance--may not be permitted. Some countries or
local jurisdictions don't allow retail stores to open on Sunday. In some countries, the
number of stores permitted of a particular size is strictly limited and requires the approval
of local government agencies.

6. Supply Chain Challenges in Foreign Markets
Sometimes retailers face more basic challenges to their global expansion plans, such as
infrastructure and supply chain issues. For example, Wal-Mart is famous in the retail
industry for its cutting edge supply chain management strategy. However, the discount
giant could not transplant the system to Germany because German suppliers were not
prepared for cross-docking and vendor-managed inventories. Additionally, more
merchandise is direct-store delivered in Germany than in the U.S. and even something as
innocuous as date format, the European day/month/year versus the U.S. day/month/year
format, caused significant angst among logistics executives. So Wal-Mart adapted to the
German system, improvised strategy and overcame the supply chain challenge.
Rival discounter Kmart experienced severe infrastructure problems in Chile. The roads
were simply not good enough. The company’s initial plan was to open a number of
stores to get critical mass and achieve economies of scale. However, it found getting
goods to the store was significantly more difficult than expected.
Quotas and tariffs are another huge supply chain issue. There are documented instances
where thousands of items were left on docks because customs officials decided they had
filled a quota or there was some technical problem with the goods—a shipping label that
wasn’t quite right.
Growing security concerns across the globe will inevitably slow and constrict the flow of
people and goods, but to what extent is not entirely clear. Therefore, retailers will need
to work with customs agencies, law enforcement and other industry segments to ensure
that trade can continue to occur without undue security risks.
Local economic considerations can also thwart retail efforts in foreign countries. Wal-
Mart and its Mexican partner, Cifra, initially had problems getting goods across the
border. The Mexican government did not want Wal-Mart shipping U.S. goods into
Mexico; it wanted Mexican goods sold in Wal-Mart stores.
E-commerce Not An Easy Way to Go Global
E-commerce is one area where the global potential has fallen short. Partly, it was a
matter of retailers learning that e-commerce is just another distribution channel. A few
years back, we heard a lot of talk about electronic funds transfers and credit cards
creating a cashless society. Then, we had e-commerce turning us into an electronic
marketplace. Neither prediction has proven entirely accurate. We are going to have
checks, credit cards, and cash; brick and mortar stores, catalogs, and Internet retailers.
The Internet is just another way of doing business. I noticed that European online
retailers attending an Internet retailing conference early this year said they are no longer
bracing for an e-commerce onslaught from the U.S. Instead, they are watching U.S. e-
commerce retailers wrestle with the same sorts of challenges that have always kept
retailers from expanding into other countries, including language barriers, cultural

7. nuances, shifting regulations, and distribution and logistics hassles. The reality of e-
commerce is that it's not going to be quite as evolutionary as many people thought during
the height of New Economy Fever.
Where Does Retailing Go From Here?
At this present crossroad, faced with a choice between globalization and isolation,
retailers are choosing paths that lead across national borders and cultural divides. Yet,
we recognize that the road to free trade will have obstacles, setbacks, and detours.
Retailers accept these challenges and understand that by overcoming them we will build a
stronger foundation for the global economy, an economy that ultimately will benefit all
participants, from the poor farmer in Bolivia to the retail clerk in Seoul to the stockholder
in Boise, Idaho.
We at NRF are committed to helping our members meet the challenges of retailing on a
global scale. To promote the free exchange of information and facilitate communication
between retail industries in nations worldwide, the National Retail Federation (NRF)
created the International Retail Forum (IRF). It has grown to 29 member associations in
25 countries. IRF works to identify opportunities for cooperation, brings together experts
from across the globe to share ideas, and helps connect retailers with industry experts in
other parts of the world.
Retailers will not let fear stifle their desire to compete. With an eye carefully focused on
the future, we forge ahead.
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