Our findings about the reasons for MNE donations to relief efforts are not entirely surprising, but they are notably distinct from the reasons why firms give in stable environments. The interviews backed this up: again and again, executives post-disaster told us they aren’t thinking about boosting their firm’s reputation – they’re thinking about their customers, suppliers and employees. (Our analysis, which controlled for reputational factors, supported their statements.) Understanding that distinction is important because MNE donations have far-reaching implications.
For one, they directly influence the speed of the recovery. Research has found that how long it takes a country to rebound from a disaster is directly proportional to how much aid it receives from MNEs. On average, corporate donations speed up the recovery by 260%. And speed is especially important to small businesses, which are crucial parts of local economies.
In China, for example, many small and midsize firms have been forced to suspend operations because of the coronavirus epidemic. A significant number of these firms will go out of business. Of those that stay closed for a month, 30% do not have sufficient cash to cover their expenses; another 33% of small and midsize firms do not have sufficient cash to cover their expenses if closed for two months.
Another implication comes from the globalisation of the economy. Broadly speaking, everything is connected to everything else. An MNE with headquarters in one country may have suppliers and customers in many others, so even a distant disaster can affect both whether a company can continue producing its product and whether people can continue to afford to buy it.
A third implication has to do with money and resources – which, in some cases, MNEs have more of than governments. (Sixty-nine of the top 100 economies in the world are companies.) Disasters often cause severe infrastructure damage and governments don’t always have the funds to respond. MNEs can help to fill those gaps and many of them have offices and employees in multiple countries, which lets them gather information and mobilise quickly. It also gives them further incentive to help local economies rebound.
When governments and researchers study MNE donations with our methods, they can follow useful threads, such as whether firms are giving money or resources, whether they’re giving directly to the public, and how soon after a disaster the donations arrive. Of particular interest is how firm giving unfolds across countries. Governments usually coordinate the donations received, and while non-profits and aid agencies often help, there isn’t always effective communication between them all. When they act independently of each other, it can reduce donations’ effectiveness.
That’s a big problem, because the costs of large-scale disasters are increasing exponentially over time. The connectedness of the global economy twines the fates of firms and countries and we need to ensure those with more resources can help those with fewer. If donations don’t reach those who need them, and in a timely fashion, recoveries will be longer, slower and more arduous than they have to be.
Catherine Magelssen, Assistant Professor of Strategy and Entrepreneurship at London Business School, studies multinational firm strategy, with particular interests in intra-firm structure, internal versus external firm contracting relationships, and firm response to environmental shocks.