Local Embeddedness of Multinational Enterprises in Developing Countries and their Sustainability Effects

Kaffeebohnen Bananen

What are the positive sustainability effects generated by embedded multinational enterprises (MNE) in developing countries? Development of a toolkit to analyze sustainability effects

Especially multinational enterprises (MNEs) which operate in developing countries are increasingly confronted with the demand for more sustainability and corporate responsibility. Public pressure from the Western world is extremely high, and companies are permanently exposed to reputational risks. Negative media coverage is dominating. It is the responsibility of scientists to reveal (positive) sustainability effects resulting from embeddedness of companies for the local society, the local environment and the local economy by means of field studies in developing countries.

Research Design

The research project assesses the extent and quality of locally embedded MNEs in developing countries and captures sustainability effects for the local community, environment and economy. In cooperation with MNEs several case studies are carried out to identify suitable indicators that can enter the toolkit. The latter is designed and developed in collaboration with the companies as well as the rating agencies to measure and evaluate the degree of embeddedness of MNEs in developing countries and the resulting (positive) sustainability effects.

Practical Relevance

Internally, the toolkit shall be used as a management instrument and provide information on the impact on the environment and society and on the future economic sustainability of the company. Externally, the toolkit shall allow the MNE to improve its communication to close the gap between its actual sustainability performance and its perception in society.

Project Lead and Contact

Dr. Isabelle Schluep Campo

Project and Research Partners

Herbert Winistörfer, Zurich University of Applied Sciences (ZHAW)

INCAE Business School, Costa Rica; Earth University, Costa Rica; Instituto de Agricultura, Recursos Naturales y Ambiente (IARNA), Universidad Rafael Landívar, Guatemala; Centro Agronómico tropical de investigación y enseñanza CATIE in Costa Rica und Panama; Centro Internacional de Agricultura Tropical (CIAT), Kolumbien; Universidad El Bosque; University of the Philippines at Los Baños (UPLB), Philippinen; Kenya Agriculture & Livestock Research Organization (KALRO), Kenia.

Practice Partner

Chiquita Brand International
Öbu-Netzwerk für nachhaltiges Wirtschaften
Brugger und Partner AG
Nestle International
InRate AG
Syngenta International

Funding Agencies

Commission for Technology and Innovation - CTI

Chiquita, BHP Brugger, Syngenta, Nestlé, Inrate, Öbu

Project duration

Starting in Mai 2015, ending in November 2017


Master Thesis Veronica Soldati: Positive externalities resulting from the embeddedness of Chiquita? The case of Panama

Many multinational enterprises (MNE), such as Chiquita, are perceived as being exploitative of society and the environment. However, even though MNEs often operate under challenging circumstances, they have the potential to deliver positive externalities (benefits for a third party, PES) through their business activities. Previous academic literature has offered guidance on how businesses and organizations can operate in socially responsible ways, but has not yet provided valuable methods to check if PES are generated. The aim of this study is to untangle this research gap and to discover how the embeddedness of Chiquita leads to PES in Panama. The concept of embeddedness assumes that the stronger the social relationship an MNE has to local institutions (suppliers, government, academia, etc.) the more embedded it is. Through its embeddedness, a MNE can generate substantial business advantages, facilitate access to resources, and improve its local acceptance. This is particularly important in banana production, which requires a considerable local labor force.

Data was collected in Panama, using a mixed-methods approach: questionnaires for workers, local experts, and Chiquita’s subsidiary were developed and interviews were conducted. The outcome of this investigation shows that Chiquita has a low level of embeddedness in the Panamanian banana production region. For instance, there is no sharing of technology, and local business partners are almost absent. Therefore, very few and isolated PES are generated from Chiquita’s embeddedness, not sufficient to mitigate the major social and ecological problems in Panama’s communities. Local actors focus rather on the negative effects of Chiquita on health and the environment. However, the socio-political context is the key to understanding this case study, and needs to be considered when assessing embeddedness: the MNE alone cannot compensate for the prolonged absence of the Panamanian government. Additionally, there is a large perception gap between what Chiquita is doing and what local experts and workers experience. In order to resolve this gap, and to improve its reputation from bottom-up, the company has to interact more effectively, and to communicate transparently at the local level. Chiquita’s programs need to be more coherent and long-term oriented in order to intensify its embeddedness and its local acceptance. Lastly, the MNE’s embeddedness needs to be more business-oriented in order to get rid of its paternalistic reputation. To implement it, Chiquita could further engage in public-private partnership with the local government.

Master Thesis Andreas Schmidli: Potential sustainability effects resulting from Embeddedness: A case study of Nescafé in the Philippines

Many studies have been conducted about negative externalities, especially related to negative ecological impacts stemming from the doings of Multinational Enterprises (MNE) in developing countries. Positive externalities at the other hand have widely been neglected. We hypothesize that embedded (economic) activities of a company lead to sustainable development of an entire value chain. Embeddedness is important for a MNE like Nestlé as it can facilitate the access to local competences, knowledge and supply of raw materials such as green coffee beans. This is especially important in the Philippines where the coffee demand is rapidly increasing and the production is decreasing. Thus, this study focuses on the positive externalities resulting from the embeddedness of the green coffee bean sourcing operations of Nestlé Philippines Inc. (NPI) for its Nescafé brand. In order to collect first-hand-data we used a mixed methods approach to assess embeddedness in an explorative manner. NPI, smallholder farmers and external stakeholders were interviewed in distinct surveys. Thereby, we distinguished social, economic, environmental, technological, infrastructural, relational and political embeddedness.

We found broad consensus among all interview partners for the different dimensions of embeddedness. Nestlé is strongly embedded within the Philippine coffee value chain. It has many and intense connections to government agencies, NGOs, and suppliers. Nestlé thereby puts emphasis on a strong supplier-development by the formation of self-determined, entrepreneurial farmers. Thus, direct and indirect impacts create externalities for the local community and finally lead to a more sustainable coffee value chain. Externalities are effects resulting from the presence of a MNE such as improved livelihood not only for coffee growers but also for other community members. However, Nestlé as a company itself profits as well from this win-win situation - mainly by a good reputation and secured coffee volume with improved quality. Thus, our hypothesis that embeddedness can lead to a sustainable development of a value chain can be confirmed. Hence, embeddedness including public-private partnerships can be a method for a company as Nestlé to address opportunities like the growing demand for coffee, and threats such as calamities of nature or the ongoing rural exodus.

Master Thesis Luca Costa: Positive sustainability effects resulting from embeddedness: A case study of Syngenta’s potato production in Kenya

Many studies try to assess the impact of a multinational enterprise (MNE) in its host country. Critics accuse some MNEs of catalyzing wealth distribution towards the home country through the exploitation of the host (developing) country’s resources. Positive externalities, however, generated by the presence of an MNE have widely been neglected. The perspective of viewing MNE subsidiaries as “offshore” companies that are led by uninformed managers from faraway has changed to companies that are being integrated into other national economies. Consequently, such MNE subsidiaries are acting like domestic firms that have their own regional identity, collaborate with local partners and are able to integrate advanced technology that originates from the parent company in the home country. A company that is embedded in its host country therefore creates positive externalities. This hypothesis is investigated through the case study of Syngenta’s potato production system in Kenya.

Primary data was collected through interviews using a mixed-methods approach. To avoid biases, three interview groups were formed to cover different perspectives. These are (i) Syngenta Kenya, (ii) smallholder farmers and (iii) external key informants. The following embeddedness dimensions were distinguished: social, economic, environmental, technological, infrastructural, relational and political embeddedness. All interview partners perceived the potato production business of Syngenta Kenya as embedded. Despite the fact that Syngenta’s potato production in Kenya is currently only starting to enter its commercial phase, some positive externalities resulting from embeddedness have already been observed. Even though Syngenta is mainly an input supplier, it is well connected along the entire potato value chain. It has a strong network ties with other entities such as business partners, NGOs, government and research institutions. Syngenta pursues a long-term strategy. This includes joint problem solving, linking actors together and adding value to the products. As a result, markets are stabilized, potato farmers are growing out of poverty and their livelihoods are improved. Syngenta strictly follows national and international standards. In order for partners (i.e. suppliers) to collaborate with the company, they have to adapt to those standards. Syngenta has been able to implement an unofficial industry standard that goes far beyond its core business activities.

Syngenta profits from being embedded by increased social acceptance, access to local knowledge and facilitated market opportunities. Using embeddedness can yield a holistic picture of an MNE subsidiary’s’ activities and impacts for the local community, the environment and the economy. Furthermore, embeddedness is a practicable approach to link the company’s presence in a developing country to the positive externalities it creates. However, this thesis is only a first step towards understanding and applying embeddedness in real market situations. Further research is needed to better grasp the influence of embeddedness on a company’s behavior and impact on the local environment.

Master Thesis Nina Ellenbroek: Can multinational companies generate positive sustainability effects through local embeddedness? The case of Chiquita in Guatemala

Existing embeddedness research addresses mainly advantages that accrue to companies themselves if they are embedded but often do not consider the impact they may have on the local society, the local economy and the local environment. In this research it is hypothesized that embedded multinational enterprises (MNEs) are able to contribute to sustainable development of a region or an economic sector as they invest in long-term sourcing in their host countries.

The aim of this study was to assess Chiquita’s local embeddedness in Guatemala and possible positive sustainability effects resulting from the company’s presence. Therefore, interviews with the Chiquita Guatemala management, external experts and Chiquita farm employees were conducted focusing mainly on social, economic, environmental, technological, infrastructural and relational embeddedness.

The results show that Chiquita’s embedded activities focus on its production site and proximities, where the company strongly interacts with the local community. By contrast, Chiquita barely collaborates with external stakeholders such as the local government, research institutions and national NGOs. Positive effects resulting from Chiquita’s presence in Guatemala were mainly found in economic issues. As Chiquita is an important employer in the region it creates jobs and economic stability. Furthermore, employees and their families profit from services provided by Chiquita (e.g. health care) and fair working conditions that include union rights and occupational health.  However, because of the intensive use of pesticides in banana production Chiquita’s impact on the local environment is rated rather negatively by experts and employees.

Chiquita has improved labor relations and their employee’s well-being by providing a number of additional benefits to the workers and their families. In a next step the company should increase the focus on employee’s empowerment. Chiquita itself profits from or even depends on its embedded activities around its plantations. It allows the company to produce in a rather remote area where there is a lack of public infrastructure and low activity of governmental institutions.


Master Thesis Johannes Hunkeler: Sustainability assessment of local embeddedness: The case of Chiquita in Costa Rica

Multinational companies (MNE) and especially Chiquita have been under pressure to manage and report their commitments towards sustainability. Accusations are often motivated by past events. Yet, the public discourse on sustainability is limited to negative externalities of the doings of MNEs and does not address the positive sustainability effects (PSEs) that can result for the local embeddedness of a MNE. It is important to close this perception gap and rebalance the sustainability debate. This study presents a method that allows to assess local embeddedness and the resulting PSEs. A mixed method approach is used, based on written questionnaires and open interviews. The results show that the local embeddedness of Chiquita in Costa Rica is generating PSEs. The company is committed to sustainable production, which exceeds full compliance with the Rainforest Alliance (RFA) standard. The company’s relationship to its suppliers contributes to entrepreneurship and leads to the adoption of sustainable practices. Chiquita is a crucial employer in the region. Its presence is important for the development of the local economy and for its worker’s welfare and security. In fact, Chiquita is so important for the local economy that it became too big to fail. However, the company is still stuck in its past, and struggles with remnants of paternalism. Until today, Chiquita’s positive impact has not been acknowledged by the public at large. Misconceptions are also frequent among the local population. Chiquita should become more transparent and begin communicating from bottom up, starting with the local population to close the perception gap.

Master Thesis Tanja Sostizzo-Graf: Sustainable and Future Oriented Cocoa Production in Ghana: Analysis of the Initiatives of two Swiss Chocolate Manufacturers

Worldwide, sustainability is still a big issue in the cocoa sector as it is plagued by the following issues:  Poverty of smallholder cocoa farmers is widespread, investments into cocoa production are lacking, yields are low, and the destruction of rainforest is progressing. As a result, in many countries cocoa is not considered as a viable business by the cocoa farmers. Thus, it is not attractive for young and well educated people to enter cocoa farming. In Ghana many different organizations and companies that are worried about the future supply of cocoa are engage in activities trying to foster a sustainable development of the sector. This study investigates the corporate social responsibility initiatives of two Swiss chocolate manufacturers, Confiseur Läderach AG and Chocolats Halba. The main question is whether these initiatives lead to a more sustainable and future-oriented cocoa production in Ghana. To answer this question properly, it is important do understand the Ghanaian cocoa sector. Hence, this study consists of two major parts. First, a literature overview and qualitative expert interviews give a comprehensive picture about the Ghanaian cocoa sector. In the second part, case studies about the two companies provide insights into their initiatives. To evaluate whether or not these initiatives lead to a more sustainable and future-oriented cocoa production, extensive interviews with smallholder farmers were conducted.

The study reveals that it is very difficult for chocolate manufacturers to foster a sustainable development of the Ghanaian cocoa sector. As the sector is highly regulated and controlled by the Ghana Cocoa Board (COCOBOD), the scope of influence of the private sector is quite limited. Since colonial times, cocoa was used by the Ghanaian government as a major source of tax income and as such helped to develop the country. Although producer prices have been increased, farmers are still heavily taxed. The COCOBOD shows rent seeking and patronizing behavior. To foster investments into cocoa production, the producer price needs to increase in order for cocoa to become again a viable business for farmers. To support farmers, both chocolate manufactures work together with labelling organizations and carry out own projects. Because the two projects by Läderach (one to provide access to safe drinking water, the other to diversify income) were still in their pilot phase when this study was conducted, only the efficiency of the certification schemes could be addressed with the smallholder interviews. The results show that certification schemes in the case of Läderach and Halba helped to increase cocoa yields and the income of the farmers to some extent. Yet, farmers profiting from the certification schemes and receiving premia remain poor. Just doing a little bit better is not enough to make cocoa again a viable business. Also, these programs reach only few farmers. Yet, large scale improvements of the cocoa sector as a whole go way beyond the sphere of influence of the two companies and must come from the Ghanaian government.

Master Thesis Sai Venkat Naren Seshasai: The concept of embeddedness: Definitions, framework for assessment, and relationship with sustainability

The current trend of major multinational enterprises (MNEs) across the world is to extract local knowledge and resources in their region of operation to have a competitive edge over one another. Across the globe, MNEs are assessed based on their reduced negative effects on the environment. However, their potential to create positive impacts that result from tapping into the local resources and knowledge is neglected.

The research gap mentioned above can be addressed by looking deep into the theories of social networks of MNEs and arrive at the concept of embeddedness which has been described by many research scholars as an idea where, MNEs are connected to other actors via linkages of a social network. The concept of embeddedness could unravel the nature of the relationships between MNEs and the local community and all other stakeholders in their region of operation. Scientific literature indicates that embedded multinationals can potentially create positive sustainability effects on the local economy, the local community and the local environment. However, at present, the concept of embeddedness is not quite thoroughly defined and a complete methodology for assessing the concept as a holistic entity is missing.

This master thesis is part of a larger Commission for Technology and Innovation (CTI) embeddedness project conducted at the Center for Corporate Responsibility and Sustainability (CCRS), at the University of Zurich. The project aims to assess the extent and quality of embeddedness of MNEs in developing countries and the ultimate goal is to develop a novel tool-kit that will measure the degree, extent and quality of embeddedness, the resulting positive sustainability effects and the perception gap between the MNEs and the regional experts.

This master thesis aims to define the holistic concept of embeddedness under the sphere of the key core subject 6.8 “community involvement and development” of the ISO 26000 guidance on social responsibility to achieve sustainable development. In addition, this thesis proposes a coherent methodology to assess the extent, degree and quality of embeddedness and capture the positive sustainability effects from the actions of embedded MNEs.

The thesis utilizes the contextual data from a case study about Syngenta’s potato and related crop protection business in Colombia. The results of the thesis show that Syngenta in Colombia is strongly embedded and that the company has created positive sustainability effects on the local economy, the local community, and the environment. The thesis concludes by indicating that embeddedness could possibly share a positive, direct and linear relationship with sustainability.