A recent Harvard Business School study across 12 countries found that a consistent 13 per cent of the variance in consumer preferences among global brands was down to perceptions of their corporate social responsibility (CSR).
Many of us will pay a premium for a global brand's superior quality or status, but we also expect higher standards of CSR. We are not satisfied with mere cheque-writing philanthropy. We want big companies to use their technology and distribution skills to solve social problems.
And both consumers and governments, especially in emerging economies, know that setting higher standards for global brands benefits societies further by raising the bar for local companies.
European multinationals are leading the way. The likes of Heineken, Shell and Unilever now detail their environmental and social contributions separately from their annual reports. These inform socially concerned investors, motivate employees, reinforce consumer loyalties and neutralise sceptical non-governmental organisations.
Unilever, for example, is reaching the poor of India and Africa through low-cost business models and distribution systems that bring employment and entrepreneurial opportunities to villages, and make money for shareholders too. These consumers may well retain their loyalties to Unilever brands as their incomes rise.
Some US multinationals have been badgered into CSR initiatives. Drug companies have had to lower prices in developing countries. Merck's laudable efforts to eradicate "river blindness" have gone beyond making the drugs available to ensuring proper distribution and compliance.
But rare is the American company that has integrated social initiatives into its business model around the world. Think Exxon Mobil. Rarer still is the American company whose philanthropic efforts outside the US match the proportion of total revenues and profits coming from overseas. IBM is a notable exception: its On Demand Community programme provides software tools and training that enable thousands of its employees worldwide to provide free assistance to not-for-profit organisations in their communities.
In the face of widespread opposition to the "hard power" style of US foreign policy, however, more American multinationals are realising that soft power, expressed through CSR, can have value in the global market. A combination of defensiveness, threats against whistleblowers and aggressive lawsuits against competitors is as anachronistic in the corporate world as it is in politics.
Hardball tactics have their place - for example, in defence of intellectual property. But US multinationals need to embrace the culture of soft power and public diplomacy. This means more than minor "think local, act local" contributions, such as buying the kit for the high school football team. It means devoting money and intellectual muscle over many years to helping solve social problems - in education, health and the environment. For these are issues that can be addressed by a company's skills, experience and leadership.
Think Lord Browne at BP and global warming. Think Bill Gates at Microsoft and disease in Africa. These are tough business leaders who are prepared to tackle the big problems facing the world by leveraging the resources at their disposal, using their convening power and persuading others to their point of view. Soft power does not mean being soft; it means being smart.
John Quelch is a professor at Harvard Business School and co-author of 'The Global Market', published by Jossey-Bass.
Register for free to continue reading
Registration is a free and easy way to support our truly independent journalism
By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists
Already have an account? sign in
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies