MNE innovation in the pursuit of SDGs in emerging markets

The 2030 Agenda recognizes the role of the private sector and calls on its innovative and creative capabilities to help solve sustainable development challenges related to the sustainable development goals (SDGs). Multinational enterprises (MNEs) that carry out value chain activities in emerging markets, where problems related to the SDGs are accentuated, can champion initiatives for developing sustainable businesses (Ghauri, 2022). There is recent evidence of MNEs that are moving beyond mere/profit-maximizing activities by making SDGs a central part of their operations (Kolk, 2016; Hult et al., 2018; Van Zanten and Van Tulder, 2018; Sinkovics and Archie-Acheampong, 2019; Nonet et al., 2022).

Emerging market operations pose heightened risks for MNEs when addressing SDGs because of innate challenges, for example,weak or flawed local institutions (Varadarajan and Kaul, 2018) and cultural differences (Sinkovics et al., 2021a, b). Scholars have recognized that it is still unclear how and to what extent MNEs can advance their business activities to align with the SDGs (Van Zanten and Van Tulder, 2018), especially in emerging market settings (Cezarino et al., 2022; Tarnovskaya et al., 2022). Innovation can enable MNEs to reduce the inherent trade-off between profitability and sustainability (Varadarajan and Kaul, 2018) and allow MNEs to work around cultural norms or institutional flaws and voids (Wang et al., 2022). Developing innovation in the pursuit of SDGs can be viewed as a progressive way of tackling SDGs and offers a novel perspective to address the root causes of unsustainable business (Van Der Waal et al., 2021).

Innovation may, therefore, be an important piece in the theoretical puzzle explaining how MNEs can align operations with SDGs in emerging markets, where risks of failure to meet SDGs are pronounced because of innate challenges in these markets (Karam and Jamali, 2013; Reimann et al., 2015; Yang and Rivers, 2009; Tarnovskaya et al., 2022). Innovation can reconcile market differences and, in so doing, combat misconduct by addressing operational deviances (Kumar and Srivastava, 2020) or structural market flaws (Turker and Vural, 2017). Studies have revealed that MNEs can use innovation for sustainability in emerging markets with different levels of commitment, engagement and investment (Lind et al., 2022). There are examples of MNEs that use technological innovation (Varadarajan and Kaul, 2018) and strategic partnerships (De Silva et al., 2020) to correct operational errors, such as a lack of adherence to labor safety protocols (Van Tulder et al., 2009). Such efforts can produce immediate results but have been criticized for being superficial and not addressing the root causes of SDG-related problems (Dionisio and de Vargas, 2020). A recent stream of literature has demonstrated that MNE innovation can target systemic problems in markets where challenges are prevalent, thereby responding to SDGs in a proactive manner (Nylund et al., 2021; Van der Waal and Thijssens, 2020; Cammarano et al., 2022). Firms engaging in innovation at a systemic level can co-create solutions with local market actors to reshape market practice, e.g. to promote climate action (Nylund et al., 2021) or enforce labor rights, e.g. related to gender inclusiveness (Prashantham and Birkinshaw, 2020). The circumstances under which different innovation regimes are applied, however, have not been closely investigated by existing research.

The purpose of this study is to examine how different innovation efforts can support MNEs’ pursuits of SDGs in emerging markets and under what circumstances they are applied. In so doing, the study expects to reveal granular insights into how an MNE orchestrates local actors to bring about new attitudes, practices and connections between actors to align with certain targeted SDGs in emerging market contexts. While there is not one shared definition of emerging markets, they are generally understood as developing economies that are rapidly transitioning into industrialized economies through a high growth rate of gross domestic product (e.g. Nasdaq, 2012). Emerging markets have been linked to specific challenges of doing business, which have been conceptually captured by international distances (Davis et al., 2021). According to Ghemawat’s (2001) CAGE framework, international distances to, e.g. emerging markets reflect gaps between markets that may warp communication (i.e. cultural distance), create clashes between institutional systems (i.e. institutional distance), increase control costs (i.e. geographical distance) and/or deincentivize investments (i.e. economic distance). If left unmitigated, these conditions can cause market failures that hamper companies’ abilities to effectively coordinate business-critical activities (Miller et al., 2016; Verbeke et al., 2019) and live up to sustainability principles (Campbell et al., 2012). While research has only begun to study MNEs pursuits of SDGs considering innovation, we need specific insights about how internal and external contingencies shape different innovation initiatives. We contribute to this emerging stream of research by discerning the factors that motivate and shape specific innovation approaches. The study at hand, therefore, contributes with conceptual development and empirical underpinning related to SDG-relevant innovation of MNEs (Buckley et al., 2017; Wettstein et al., 2019; Van Tulder et al., 2021). Our research inquiry builds on case studies of two Swedish MNEs operating in different industries and emerging markets. The case studies focus specifically on SDG 8 (decent work and economic growth) and SDG 13 (climate action).

As part of their agendas to become viewed as responsible actors in global business, MNEs are increasingly incorporating the SDGs into their corporate strategies (Montiel et al., 2021; Ghauri, 2022). For example, Montiel et al. (2021) recognize that MNEs have the capabilities to both mitigate negative externalities of their operations related to SDGs (i.e. SDG 1–5 and SDG 8–9) but also generate positive externalities linked to SDGs (i.e. SDG 6–7 and SDG 10–17). Regardless of which SDGs MNEs choose to target, they are faced with diverse strategic and operational challenges in the countries where SDGs are being implemented (Tarnovskaya et al., 2022). It is still unclear exactly how MNEs can drive the sustainability agenda in local market settings to support the SDGs, not least because these goals are designed for country-level development rather than firm-level conduct (Montiel et al., 2021).

Moreover, the extensive scope and complexity of the 17 SDGs, encapsulating 169 targets and 232 unique indicators, may prevent firms from being able to mobilize the resources required to credibly address these goals (Nilsson et al., 2018). Researchers have highlighted that the complexity of the framework and the alleged vagueness of goals (van der Waal and Thijssens, 2020; Nonet et al., 2022) may prompt MNEs to spread their efforts too thinly related to SDGs, thus addressing them only symbolically for legitimacy reasons. In line with this concern, Van Tulder and Van Mil (2022) recognize mixed evidence of firm performance in relation to the SDGs. Despite strong support for the goals by leading companies, the actual implementations have been found to generally not meet the expectations of stakeholders and civil society (Van Tulder and Van Mil, 2022). Tarnovskaya et al. (2022) suggest that the debated aspiration-behavior gap related to the SDGs can be reduced if MNEs become more progressive and integrate environmental and social goals into their core strategies. Related to this idea, Liou and Rao-Nicholson (2021) outline a model proposing that MNEs will be more inclined to allocate resources to those SDGs that are perceived to be most relevant to their core operations. When SDG-related initiatives are linked to critical value chain operations, MNEs will have relatively greater leverage to orchestrate local market actors for social and environmental value creation (Narula, 2019). Hence, companies cannot be equally responsive to all goals and, by consequence, not equally responsive to all stakeholders. According to George and Schillebeeckx (2022), the pursuit of social and environmental goals needs to be underpinned by shared convictions within organizations and anchored in a corporate purpose. Hence, a focus on a selected set of SDGs that are perceived as meaningful by management and employees in an organization may enable MNEs to tackle complexities (e.g. goal conflicts), act consistently and develop deep knowledge within their focus areas. The link between a corporate purpose and selected SDGs can be captured by Nonet et al.’s. (2022) argument of the necessity to align firm strategy with the operations of local market stakeholders, guiding the organization toward the realization of SDGs.

The emerging market context may, arguably, pose some of the most critical challenges for MNEs to tackle environmental and social problems (Reimann et al., 2012; Hah and Freeman, 2014; Park and Ghauri, 2015; Burritt et al., 2020; Tarnovskaya et al., 2022). Van der Waal and Thijssens (2020) suggest that innovation is a key activity in addressing pressing challenges related to the SDG because innovative activities can produce tangible outcomes at a systemic level in such markets.

MNEs have been conceptualized as frequent and capable innovators of cross-border business practices (Kogut and Zander, 1992). In the transition to a sustainable global economy, the focus of MNE innovation efforts is increasingly set on grand challenges and SDGs (Buckley et al., 2017). Going back to Schumpeter (1934), innovations can be classified as novelties in several categories, i.e. product, service, production method, supply source, new market exploitation or business organization. Innovations can also be viewed as either continuous (incremental) or discontinuous (radical) (Kumar et al., 2000). To break away from traditional, nonsustainable ways of doing business, new solutions that allow for more sustainable modes of production and consumption are required (Bergset and Fitcher, 2015; Adams et al., 2016), which calls for the involvement of stakeholders at different levels of society (Schaltegger and Burritt, 2018).

Sustainable innovation (e.g. Wüstenhagen et al., 2008) refer to the process or direction toward sustainability when economic, social and ecological aspects become integrated into the design of new products, processes and organizational structures (Rennings, 2000; Klewitz and Hansen, 2014). Research on innovation for sustainability outcomes applies to organizational, interorganizational and societal levels (Boons and Lüdeke-Freund, 2013), all of which are relevant for MNEs. Thus, at the organizational level, the innovative capacities of firms and especially the importance of marketing and operational innovations, are stressed in the literature (Boons and Lüdeke-Freund, 2013). At the inter-organizational level, studies bring into focus the relationships with other actors (i.e. suppliers and customers) in an innovation network (e.g. Edquist, 1997; Weber and Hemmelskamp, 2005) as well as the adoption and diffusion of innovation in the network (Kemp and Volpi, 2008). Studies at the societal level seek to understand the societal shifts due to technological changes, for example, in relation to ecoinnovations (e.g. Hall and Clark, 2003; Smith et al., 2010). The notion that firms not only need to mobilize their own resources but also orchestrate local market actors to innovate in foreign markets is also a prevailing notion in empirical studies on MNEs (Lind et al., 2018; Liou and Rao-Nicholson, 2021; Nylund et al., 2021) and in emerging markets, where the focus often has been set on innovation at the base of the pyramid (Hall, 2014). For example, Lind et al. (2018) found that MNEs were more likely to engage in social innovations if their organizational capabilities allowed for collaboration and co-creation with local stakeholders embedded in local communities. Drawing on these earlier studies, we adopt a view of innovation for SDGs that can occur at different levels and engage external actors to various extents. We argue that the innovation process is shaped by MNE strategic predispositions toward SDGs in combination with the specific business settings in which they operate.

Innovations can address SDG-related problems ingrained in emerging markets, often linked to cultural, institutional, geographical and economic conditions (Campbell et al., 2012). Wood et al. (2021) found that specific emerging market conditions can explain variations in the way MNEs’ sustainability agendas are implemented in specific countries. In emerging markets, the absence of functioning institutions could, for example, spur social innovation (Rao-Nicholson et al., 2017) by incentivizing stakeholders to identify, e.g. labor rights problems and using the expertise of MNEs to create the means to solve them (Dionisio and de Vargas, 2020). Firms could also involve industrial actors in the co-creation of innovative practices that align with environmental objectives, e.g. reducing waste used for landfills in supply chain operations (Horbach, 2008; Varadarajan and Kaul, 2018).

Moreover, while all innovations aiming at attaining SDGs are theorized to occur within a system context, the level to which they permeate local communities will likely vary from adding minor efficiencies (De Silva et al., 2020) to addressing larger societal problems (Larson, 2000; Sinkovics et al., 2014; Nylund et al., 2021; Tarnovskaya et al., 2022). Innovations for sustainability have also been categorized as either customer-facing, where firms are integrating a social/environmental component into the marketing offering (Kumar et al., 2020) or directed at upstream activities in the local market supply chain (Mirvis et al., 2016; Zhang et al., 2017). The circumstances shaping how and to what extent MNEs engage in innovation activities to attain the SDGs in emerging markets require further exploration. While Van der Waal and Thijssens (2020) found a disconnect between MNEs formal sustainability policies and their innovation efforts, Jimenez et al. (2021) suggest that innovation initiatives that are purpose-led can support necessary transitions in fulfillment of the SDGs and, thus, bridge the gap between aspiration and action. Hence, motivations, strategic directions and local market engagement may play a role in the configuration of innovation efforts.

Innovation in the pursuit of the SDGs investigated in this study (8 and 13) can have both technological and organizational attributes. We suggest that its configuration can vary depending on how firms relate to the SDGs in focus (Cordova and Celone, 2019) as well as the nature of the market (Wood et al., 2021). Leaning on research that has revealed that environmental and social innovation have different features (Varadarajan and Kaul, 2018) and scope (Tarnovskaya et al., 2022), we focus on exploring the factors shaping innovation initiatives.

For the purpose of this endeavor, we distinguish between the categories of systemic and operational innovation related to MNE operations in emerging markets. The separation of these terms is based on a distinction between the innate qualities and scope of innovation efforts. Systemic innovation is here understood as the reconfiguration of market practices and creation of new transactional patterns to attain sustainability goals (see Turker andVural, 2017; Midgley and Lindhult, 2021). Systemic innovation cannot readily be pursued by single firms but requires the orchestration of both public and private stakeholders (Sinkovics et al., 2014), where collective action can address a range of SDGs salient and relevant to the firm (Nylund et al., 2021). The concept implies that innovation goes beyond mere inventions as it covers implementation and the transition from earlier practices (Hartley, 2005). In a multiple-case study, Colvin et al. (2014) found that systemic innovation for sustainability implies a strong emphasis on creating solutions for the longer term. The idea that high-impact innovative solutions can emanate from private initiatives (Acs, 2022) underscores the relevance of the importance of MNEs to advance its SDG agenda. When MNEs enter emerging markets, they already possess assets in terms of proven business models, organizational routines and competences, which provide traction when orchestrating local actors (Narula, 2019).

The scope and impact of SDG-relevant innovations are likely to vary. In a study investigating social innovation initiatives in emerging markets, De Silva et al. (2020) found that innovation initiatives do not always address the most central or urgent matters and they may not bring about drastic change in business practices at the market level. We argue that operational innovations linked to the SDGs are those that address sustainability issues that are isolated to the value chain operations of firms. These types of innovations have nonradical societal implications but can make firm operations (particular activities and tasks) better aligned with social objectives (De Silva et al., 2020). In line with Utterback and Abernathy (1975), these can be defined as innovations focused on improving suboptimally performed tasks and processes. The aim of operational innovation in relation to the SDGs in focus is, thus, to reduce damage, mitigate the risk of misconduct, correct deviances and create incentives for behavioral change (Van der Waal and Thijssens, 2020; Kumar and Srivastava, 2020). As such, operational innovations aim to increase performance with the use of minimal input and are designed for very specific applications in resource-constrained environments (Zeschky et al., 2014).

While innovation in the pursuit of various SDGs and other sustainability targets has been recognized by international business research, we set out to extend the discussion by examining the motivations and implications of different types of innovation regimes (operational and systemic). By providing empirical verification and theoretical scaffolding for the internal and external context of MNE innovation efforts, we wish to generate new insights about MNEs’ contributions to SDGs 8 and 13. This study is, hence, guided by the following research question:

To address the purpose of this study, a rich and multifaceted empirical study is required. This motivates the choice of an in-depth qualitative case study approach (Ghauri and Grønhaug, 2010; Doz, 2011), where we can explore for new insights about practices, conceptions, and occurrences, providing a rich understanding of a complex and multi-faceted research topic (Eisenhardt and Graebner, 2007), i.e. the motivations and implications of different innovation initiatives in MNEs’ pursuits of certain SDGs. In specific, we adopt a theory elaboration approach (Lee et al., 1999; Welch et al., 2013), in that we employed an abductive, qualitative case study (Sætre and Van de Ven, 2021) to enrich theory on sustainable development in emerging markets and advance conceptual developments related to SDG-relevant innovations of MNEs in emerging market settings. An abductive case study approach enabled us to draw on established concepts from the international business field (e.g. the innovation concepts) and examine these in an understudied context, i.e. MNEs’ pursuits of SDGs in emerging markets. As highlighted in our theoretical framework, international business research has recognized innovation in the pursuit of SDGs and sustainability targets. To extend the discussion in this research stream and contribute with conceptual developments on different innovation approaches (i.e. operational and systemic), the abductive case study approach was most appropriate. The abductive reasoning enabled us to move back and forth between the empirical data and theoretical concepts and thus, combine empirical findings from the emerging market context with existing literature in the international business field. Hence, for the purpose of this study, the abductive case study approach was most appropriate and enhanced our ability to answer this study’s overall research question. The abductive approach adopted in this study follows similar ideas as those presented in the so-called flexible pattern matching approach, described in Bouncken et al. (2021). This study follows several of the critical steps guiding research that adopt flexible pattern matching, such as (1) formulating initial research questions, (2) generating theoretical patterns from previous literature before data collection, (3) using theoretical sampling and (4) using an iterative analysis process where we move back and forth between theoretical patterns and the empirical data (Bouncken et al., 2021).

We decided to conduct two in-depth cases, each related to one specific MNE and one specific industry context, to yield a rich empirical understanding that could enable us to answer our research question. We have followed a theoretical sampling strategy (e.g. Eisenhardt, 1989) to examine how MNEs can use innovation in their pursuits to attain SDGs in emerging markets. In a pre-study designed to screen companies to ensure a theoretical fit, we arranged personal meetings with the top sustainability managers of four different high-profile Swedish MNEs to discuss their sustainability operations. Several principles guided our choice of the two case companies. One was that selected cases should represent different types of industries, as it would give us a richer understanding of the topic. Another principle was that companies should be active in the global market, including emerging markets. Moreover, to match our aspirations for theoretical development in the area, the case companies should have clearly developed corporate sustainability strategies, including strategies for working with sustainability globally and in emerging markets. Based on these principles, we decided to single out two companies that appeared sufficiently immersed in sustainability operations in emerging markets. These companies were Telecom (anonymized) – a telecommunication company mainly focusing on the business-to-business market and Fast-Fashion (anonymized) – a global fashion retailer and mainly a business-to-consumer company. Early in the project, the companies agreed to commit to close long-term collaboration, access to various country-managers and granting access to internal documentation. The researchers have thus received unique insight into the operations of these companies and access to rich case study material regarding the research topic. For the purpose of this study, these two case companies offered us the opportunity to study two MNEs that have worked with sustainability issues in emerging markets for a long time. Moreover, the two case companies have operations in different emerging markets, and the cases could thus provide insights into innovation initiatives in a variety of emerging market contexts. Finally, these two case companies have been ranked among the world’s 100 most sustainable corporations (Forbes, 2020) and both case companies emphasize in their sustainability reports the company’s leading role in sustainable development in their respective industries. To conclude, we argue that these cases could enable us to develop theoretical insights (Eisenhardt, 1989) into the topic of how MNEs can use innovation in their pursuits to attain SDGs in emerging markets. Apart from their revelatory potential, their information richness and accessibility were also guiding us in choosing these two cases.

The overall research design of our empirical study involves two phases. In May 2019, we entered the first phase of our study, which was focused on conducting interviews with managers at the HQ level of the two Swedish MNEs. The aim of this first phase was to investigate the policies and codes of conduct relating to sustainability matters, learn about companies’ overall strategies related to sustainability and study the routines for interacting with local offices in emerging markets. We have specifically learned about what the companies identify as their main risk areas in emerging market operations as well as the rationale behind policies and roadmaps for change. In the second empirical phase, which began in 2020, we have focused on the actual implementation processes of sustainable development in emerging markets. Here we have interviewed local management to learn about their attitudes toward sustainability programs, possible mismatches between operations and strategy and stories about how sustainability projects have unfolded.

Our main data consisted of semistructured interviews, but we also conducted triangulation using secondary data sources (Denzin, 2009). These consisted of newspaper and magazine articles, financial records, webpages, annual reports, brochures and email correspondences (see Tables 1 and 2 for information). For example, we could structure interview questions to follow up on a sustainability plan stated in official documents.

While the companies’ sustainability operations span a wide range of areas, our analysis is delimited to sustainability areas that are of strategic interest for the respective companies, i.e. they relate to the companies’ core operations and are of strategic importance. In Telecom, we examine the company’s operations related to SDG 8 (decent work and economic growth) within the area of occupational health and safety (OHS). Telecom’s global OHS program focuses on improving the company’s safety culture by increasing OHS awareness in the supply chain. OHS-related risks are largely contained within site-services areas and work-related driving (e.g. road traffic accidents and working at heights account for most fatalities and incidents). In our case of Telecom, the emerging market focus is centered on the Middle East, Southeast Asia and Latin America, which are critical market areas for OHS-related risks. In the Fast-Fashion case, we examine operations related to SDG 13 (climate action) involving energy efficiency (i.e. fast fashion is energy-consuming, which has environmental implications). We also focus on their social sustainability strategy, with their work on introducing “fair jobs” and fair living wages in their supply chain (SDG 8). Many of the production markets in which Fast-Fashion operates are developing countries with weak legislation related to fair jobs and fair living wages. China and Bangladesh are the largest production markets for clothing. In our case of Fast-Fashion, the emerging market focus is centered on Bangladesh, as this market is one of the largest production markets for the Fast-Fashion case company and a market where the case company has been present for a relatively long time. In summary, apart from representing different industries, the case companies operate in different emerging markets. Data collection thus captures innovation initiatives in a variety of emerging market contexts. In line with the purpose of this study, these two case studies could provide us with a rich understanding of the topic of SDG-relevant innovations by MNEs in emerging market settings. See detailed information about the data collection in Tables 1 and 2.

Interviews were conducted with managers involved in strategies, tasks and issues related to the MNE’s sustainability work in emerging markets. The interview questions that have guided all our interviews concern the organizational structure of the whole MNE, with questions on how sustainability activities are organized at the headquarter level as well as implemented at the emerging market level. The questions have also covered how the MNE interacts and collaborates with different stakeholders and how different ethical codes and commitments are developed and implemented throughout the organization and markets. We were probing into problem-solving episodes and innovations applied in such situations. To ensure the validity of our questions, we used sustainability documents as anchor points for the questions in our interviews. Various documents presenting and explaining the two MNEs’ sustainability approaches (Telecom, 2017, 2018b, 2019b; Fast-Fashion, 2019a, b) have offered deep and detailed knowledge regarding the work with the different sustainability areas, how sustainability activities are organized and implemented, relationships with different stakeholders, different ethical codes and commitments. To enhance the reliability of our data collection, the interviews were transcribed and analyzed together with the documents using the conceptually clustered matrix, detailed coding techniques and pattern matching recommended by Miles and Huberman (1994).

To make conceptual categorizations based on the data, we used an open coding strategy (Corbin and Strauss, 2008) anchored in our research question, with sustainability innovations as the focal unit of analysis. In this process, we used narrative analysis techniques, which included identifying commonalities and differences and exploring recurring themes and patterns. In line with an abductive approach, the data analysis was conducted in iterations in parallel with data collection and theoretical reasoning. In the first step of analysis, we conducted first-order coding. We used theory and the software NVIVO 12 to catalog, collect and sort themes from interview transcripts and interview notes. Evidence for theoretically relevant observations was confirmed by integrating insights from our semistructured interviews and secondary sources in a way that aspired to invite multiple perspectives rather than achieving a convergent account (Welch and Pekkari, 2017). To avoid data becoming too “chopped up,” we also merged and separated themes based on how pieces of data were spatially, narratively and chronologically connected. The initial list received from our open coding procedure generated attributes of innovation of various scopes and novelty. They also enabled us to sort between various international distances. Guided by the conceptualizations of systemic and operational innovations, data were aggregated into meaningful second-order items representing such practices. These items were, e.g. labeled “resource mobilization,” “market-shaping efforts” and “experimenting with alternative practices.” The label “market shaping efforts,” for example, involved pushing for new policies and organizational structures to tackle societal problems (e.g. developing practices for exercising workers’ rights), which can fill a void when formal institutions are lacking (e.g. unions and collective bargaining agreements).

Having generated these codes, we re-immersed ourselves in the theory with these in mind and proceeded to generate third-order themes. We then found additional commonalities among the codes, enabling us to collapse them into the two innovation categories: systemic and operational innovation. This analytical step enabled us to apply our empirically derived dimensions to substantiate the concepts of operational and systemic approaches to innovation. While these dimensions have been alluded to in previous literature, we have not seen them applied in the context of sustainable development in emerging markets before. Hence, new conceptual attributes were identified related to these concepts when viewed in this setting. To demonstrate how data were analyzed and conclusions reached (Eisenhardt, 1989; Miles and Huberman, 1994), we documented the codification of the different types of innovations and international distances that we discovered in our study in a coding tree, illustrated in Figure 1, which also includes examples of quotes substantiating concepts.

Having coded our data and abstracted it into conceptual themes, we set out to uncover dynamic interrelationships between the concepts we had uncovered. We based this analysis on established practices in process theorizing (Langley et al., 2013) and integrated our observations through the visual mapping illustrated in the discussion of findings (Figure 2). To ensure the quality of the case study findings, we followed recommended practices to enhance the methodological trustworthiness of the case evidence. The evidence was also compared across case studies and against theory to make sure to maintain constancy in the interpretative framing (Welch and Pekkari, 2017). We could, for example, see it as theoretically motivated to use institutional theory in relation to how workers organize themselves at the emerging market level.

The cases demonstrate that innovations of various types can play instrumental roles in alleviating problems linked to international distances. In the Telecom case, we focus on issues related to OHS (SDG 8) in emerging market supply chains. In the Fast-Fashion case, we focus on issues related to climate action (SDG 13) and living wages (SDG 8) in the context of the emerging market supply chain. We have sorted empirical data in accordance with Ghemawat’s (2001) categorization of international distance to reflect challenges in the emerging market context.

In line with SDG 8 (decent work and economic growth), “Telecom’s OHS vision is for zero major incidents, and the company works to adopt industry best practices for high-risk tasks.” Risks related to OHS in Telecom’s business activities are contained within site-services areas and work-related driving. Many of the fatalities and major incidents reported in 2018 and 2019 were related to road traffic accidents and working at heights (Telecom, 2018b, 2019b). The respondents (OHS department and headquarters) explain in more detail that incidents related to the safe climbing of telecommunication towers are common in emerging markets in the Middle East, Southeast Asia or Latin America. In these regions, risk perceptions deviate significantly from those in western countries. In Latin America, for example, macho-attitudes are widespread, which can compromise work safety. For example, workers may climb towers without wearing safety harnesses and thereby, putting their lives at immediate risk. Comments uttered by these workers, such as “we do not use the coward-cord,” epitomize such macho attitudes (manager, OHS and headquarters). Dealing with culturally rooted risk behavior, various operational-oriented innovations seem to be crucial to enabling Telecom’s implementation of the OHS program in emerging markets. Firstly, all suppliers working for Telecom are required to comply with Telecom’s Code of Conduct requirements. Telecom has built a full-scale training program to enforce its Code of Conduct in areas where risky behaviors are rife. A mandatory online OHS course was launched in 22 languages in 2018 and was made available to the entire workforce, including suppliers. The objective is to equip supplier managers, especially in emerging markets, with tools on how to habituate workers to take safety measures that can reduce the risks of incidents related to on-site installations or driving on and between sites.

Like Telecom, cultural challenges and cultural distance are something that Fast-Fashion must consider in their efforts to implement the global Fair Living Wage Strategy. Since 2013, the Fair Living Wage Strategy has been pursued to improve wages for all textile workers in the company’s supply chain. Like most fashion companies, Fast-Fashion does not own any factories but outsources production to independent manufacturers. Fast-Fashion has a long-term vision to improve wage management systems in suppliers’ factories throughout the supply chain. An overall challenge in improving wage management systems among individual suppliers and factories is to understand the components of a textile worker’s take-home wage. Fast-Fashion acknowledges that wages are a complex issue (Fast-Fashion, 2019a) and that the company needs to develop a deeper understanding of local culture and an ability to develop market-specific wage strategies (Fast-Fashion, 2019b). For example, by understanding culturally determined consumer behaviors among workers, a factory has the possibility to free up the workers’ purchasing power for essential consumption (e.g. groceries, school supplies and accommodation). A respondent (sustainability manager and headquarters) described how a local supplier in Bangladesh ran its own store where it offered different kinds of subsidized services for their workers. Like many other suppliers, it also offered childcare, parental leave packages and bus rides to and from work. In addition, this supplier had discovered that its workers spent a disproportionate share of money on beauty treatments such as hair, nails, etc. The supplier had therefore decided to subsidize such services in this area for their workers so that they could spend a larger part of their paychecks on essentials.

Another issue that relates to cultural distance and implementing the Fair Living Wage Strategy is that 64% of the women in Bangladesh are unbanked (most factory workers are women). As it is generally considered the responsibility of men to take care of the financial management and budgeting in Bangladeshi households, women may not be given control over the money they earn. A social problem related to this notion is that workers, especially women, may lose control of their financial situation through budgeting and planning. In 2019, Fast-Fashion joined a collaboration of international brands to scale up digital wage payments, led by the Better Than Cash Alliance. The initiative aims at enhancing financial independence, especially among female workers. Hence, instead of each worker getting the wage in cash at the end of each month, this initiative aims at having the wage paid to a bank account tied to each individual, thus promoting financial integrity.

Much of the textile and apparel manufacturing industry is located in countries where labor laws and labor market institutions are still developing and do not fully conform to international standards. An overall challenge for Fast-Fashion is to consistently ensure good working conditions, improved wages, worker representation and development opportunities (Fast-Fashion, 2019b). Given its extensive production in, for example, Bangladesh, the company realizes that its operations are at risk of not complying with the SDGs, with a particular focus on carbon footprint reduction (SDG 13) and establishing living wages (SDG 8). To meet these goals, the company develops long-term plans with roadmaps containing actions and milestones. Fast-Fashion takes on a proactive role in several industry collaborations to amass the leverage that is necessary to make suppliers improve work conditions for their employees. Clothes manufacturing in Bangladesh is reflected by a loosely coupled ecosystem of competitors (MNEs that share suppliers) and collaborators (nongovernmental organizations, policymakers). Because of these various interdependencies, no actor can single-handedly drive change; the sustainability agenda needs to reverberate throughout the ecosystem in the market. Fast-Fashion has been a driving force in trying to break silos and define rules of engagement among actors to orchestrate industry collaboration, for example, in the creation of the coalition Action, Collaboration and Transformation (ACT). ACT is a unique coalition combining public and private interests regarding living wages. The coalition comprises 22 brands and the global trade union IndustriAll. ACT aims to achieve living wages for workers in the garment, textile and footwear industries by facilitating collective bargaining at the industry level. Furthermore, the coalition has developed microinstitutions in the form of purposefully designed councils that summon factory workers, factory management and International Labour Organization (ILO) representatives.

Looking back at the process, the respondents emphasize that Fast-Fashion’s initiative to create new systems and routines for wages and salaries was perceived as controversial by suppliers and could not readily be implemented at the outset. One manager at Fast-Fashion explained (sustainability manager and headquarters): “there were suppliers that came to us and said, why do you care? Why do you as a buyer want to have a dialogue about wages? There were suppliers that said to us they did not want to be part of this dialogue.” Being a pioneer in this area, Fast-Fashion lacked the experience of influencing suppliers to improve the conditions for its workers and the learning curve was steep. One respondent (the sustainability manager and headquarters) explains the situation: “We tried to sell a vision, highlighting that the supplier will see that more want to stay. But we could not point at any evidence of this occurring in Bangladesh because it had yet not happened.” In the beginning of the process, Fast-Fashion started to look for open-minded suppliers that were willing to listen. Fast-Fashion chose not to gather several suppliers together at the same time because if one of them voiced negative opinions, it could have a detrimental impact on the attitudes of all the others. “So, we tried to have individual meetings to explain why and how we wanted them to change regarding salaries and wage systems. We managed to convince some, and then the others started to see an increased competition in terms of some suppliers becoming more attractive for workers. And then the others also started to follow to a larger extent.” (Sustainability manager and headquarters) 4–5 years after this strategy was first launched, the company notices that the councils have made a difference. Several suppliers – some of whom were reluctant in the early stages – are now saying that they can see the results of making systems for wages fairer. The well-being and productivity of workers have improved.

Like Fast-Fashion, the respondents in Telecom emphasize collaboration with various actors in the industry as a necessity to tackle sustainability issues in the supply chain and, in the long run, stay competitive. For example, when one of the major customers of Telecom announced a highly set objective of being CO2 neutral by the year 2030, a manager of the environmental team explained that “This ambitious goal, which also applies to their supply chain, will affect us. It will in turn require that we work with our suppliers to make this happen. Looking at our supply chain, there is always a challenge if we want to have an impact upwards in the supply chain.” For Telecom, it is apparent that collaboration among many actors is necessary to reach the targets and goals set by customers and stakeholders in the market. As pointed out by one respondent, “Everyone understands that we need to collaborate in order to meet the requirements from customers concerning responsible value chains.” In 2018, Telecom became a member of the Responsible Business Alliance (RBA), which is a large industry coalition working for corporate social responsibility in global supply chains. RBA members commit to a shared Code of Conduct, a practice that, in and of itself, is a significant innovation because it leverages the resources of many organizations. The practice of crowdsourcing the Code of Conduct also allows members to utilize a range of RBA – training and assessment – tools to support continual social and environmental improvements and to uphold ethical responsibility in supply chains.

The geographical distance between market area offices and the actual on-site operations is sometimes significant in Telecom. In the area of OHS (linked to SDG 8), the company has started to work with different digital tools, for example, solutions intended to control and mitigate risk, e.g. climbing-related hazards. An example of a technological solution leading to new social practices in this area is Remote Site Assurance (RSA), a risk mitigation platform solution that was launched in 2018. The RSA provides a live interface with suppliers and their workers while they are present on site. It is designed to ensure that safety, quality and environmental aspects are managed appropriately, compliance is maintained and harm is prevented. One manager working in OHS describes the RSA in more detail. “At each site, before the work starts, there is a connection from the center to the site remotely on a mobile phone. And then, the center, by using mobile phones and applications, they check whether everything is in place, for example, whether the person has the personal protective equipment on. And they check the certificates, they control the names, they check the work permit. And after the center gives okay to that site, then the people on the site start working.” Before this solution was put into use, site inspections were conducted by sending a team leader to each site. But as the technology evolves, the company has adopted these remote site inspections and now covers 90% of on-site work this way.

Fast-Fashion also describes coordination between headquarters and local subsidiaries. Headquarters are responsible for formulating firm-specific targets related to the SDGs. The local organizations are responsible for implementing these targets. Market area units, therefore, become specialized on different issues related to sustainability, depending on the strategic focus in the area. In effect, issues related to climate change and fossil-free energy (SDG 13) use are particularly high on the agenda in markets where Fast-Fashion produces garments, such as in Bangladesh. Fast-Fashion respondents emphasize that one key advantage in managing the challenge of translating goals from headquarters in Stockholm to the emerging market area is that Fast-Fashion has a high physical presence in the production countries. Its presence in production countries, which enables close collaboration with local market suppliers, is something that distinguishes Fast-Fashion from other competing brands. As one respondent (the sustainability manager and headquarters) emphasized: “We are pretty much alone in being physically present on the production market.”

Bangladesh is one of Fast-Fashion’s largest production markets, and it is a market where Fast-Fashion has been running its operations for a relatively long time. Some of the suppliers in Bangladesh have collaborated with Fast-Fashion for 20 years. Although the respondents provide illustrations on how the overall economic development in Bangladesh has improved over the years, they emphasize that Bangladesh still exhibits many of the characteristics of a poor market, ensuing structural risks related to sustainability.

In 2018, 96% of electricity purchased for Fast-Fashion’s own operations was renewable. However, the production of garments is completely outsourced by the company which means that the carbon footprint associated with the supply chain remains substantial (SDG 13). In Bangladesh, energy used is predominantly fossil-based. In addressing this problem, Fast-Fashion has created an action plan which involves developing financing solutions for suppliers that incentivize them to fund investments in solar and wind energy. In Bangladesh, interest rates are generally volatile and high due to inflation. High interest rates put a strain on suppliers’ motivations to make investments in new technology. Fast-Fashion is planning to provide collateral to create financing solutions with lower interest rates. One such financial solution is labeled as the Power Purchase Agreement (PPA) and aims to enable suppliers to cost-efficiently access renewable energy. In practice PPA means that Fast-Fashion pre-orders all energy generated in a wind park (that is planned to be constructed at the Bangladeshi coastline). As Fast-Fashion guarantees that it is willing to buy all the energy generated in the wind park, suppliers can receive loans at improved interest rates from local banks. To receive funding to build the wind park, Fast-Fashion sells certificates to suppliers. The concept of the PPA is still on the drawing board and yet to be implemented. As such, the PPA represents a business model innovation that could have an impact on the energy sourcing in Bangladesh. As commented by a manager at the environmental team: “There is no other way to reach out to our suppliers with renewable energy. We cannot influence policy makers in Bangladesh to stop building coal plants, that will take too long.” Table 3, below, provides an overview of various SDG-geared innovations found in the cases and their relations to international distances.

When analyzing the data, we empirically substantiated the two regimes of innovation: operational innovation and systemic innovation. We contribute to the body of research on MNEs’ pursuit of SDGs in emerging markets by providing insights about the characteristics, contextual motivations and implications of these regimes: how and why they are implemented, how challenges related to both are framed by local market conditions and their role both as shaping forces in MNEs’ sustainability strategies.

Whereas previous literature has emphasized adoption of universal standards and social adaptation as antidotes to emerging market problems (Bondy and Starkey, 2014), the innovation perspective presents solutions of a more deliberate design. The cases demonstrate that innovations for sustainability can materialize as a form of operational control (Zhang et al., 2017), purposely put in place to tackle attitudes and behaviors that deviate from the SDG aspirations of the firm. Innovations in this area may, e.g. involve relationship configurations that create shifts in social interactions and bargaining power (Sinkovics et al., 2021a, b). In the case of Telecom, such innovations are of an operational character and involve training programs and workshops where workers are repeatedly nudged to let go of ingrained hazardous behaviors in favor of prioritizing safety. While the cases reveal examples of operational innovations that target specific cultural features, examples of systemic innovation initiatives within this category are lacking. Innovations aimed at small culturally determined problems already run the risk of being perceived as patronizing (such as in the Fast-Fashion case where the company exerts control over employees' consumption behaviors), which could be one explanation to why such efforts are not conducted on a larger scale.

In line with previous research (Turker and Vural, 2017), the cases suggest that institutional inefficiencies in emerging markets can hamper companies’ abilities to respond to the SDGs. Furthermore, the cases show that innovations tackling institutional problems require the involvement of only critical stakeholders to set up alternative systems of practice (Elg and Ghauri, 2015; Nylund et al., 2021; Schaltegger and Burritt, 2018; Wang and Zhou, 2020). Local government agencies were largely ignored in favor of actors that were viewed as more flexible and progressive. As illustrated by the Fast-Fashion case, the involvement of globally spanning organizations (e.g. IndustriAll) provided legitimacy to sustainability programs by anchoring the company’s missions in established global standards. While this example of a systemic innovation initiative is evolving (Colvin et al., 2014), it represents a respecification of roles among involved actors, possibly implying a step-change toward SDG 8.

The challenge of monitoring sustainability practices for effective implementation is accentuated in emerging markets. In line with Chen and Kamal’s (2016) notion that information and communication technologies can effectively coordinate work when tasks are codifiable, the Telecom case demonstrates that operational innovation, supported by technology, can provide means for companies to ensure that sustainability is upheld in situations where the risk of noncompliance is accentuated (Zhang et al., 2017). With some exceptions (Van der Waal and Thijssens, 2020), technology has, to date, not received much attention in international business research as a means of innovation in the pursuit of the SDGs. We observe that certain technology-based innovations can – at least partly – offset geographical distance and allow MNEs to remotely enforce sustainability in emerging markets. The development of relevant technologies epitomizing “Industry 4.0” is, in line with reports from the World Economic Forum (2018), likely to profoundly impact the governance of MNEs in the years ahead (e.g. blockchain, additive manufacturing; cloud computing, Internet of Things and machine learning), which could enforce control (Chen and Kamal, 2016; Davis et al., 2021).

MNEs pursuing SDGs need to consider how economic incentives are structured in the markets and understand how particular economic systems influence the implementation of sustainability (Trujillo-Barrera et al., 2016; Kumar and Srivastava, 2020). Lack of economic incentives for local actors to adopt new practices inhibits MNEs abilities to progress toward targeted SDGs. Evidence from the case studies points to the notion that MNEs’ affiliates are more inclined to support SDGs when the implementation of these offers is aligned with economic targets (Jimenez et al., 2021). The cases show that systemic innovation reconciles economic and environmental objectives, potentially influencing attitudes and norms over time and thus, gaining legitimacy (Sinkovics et al., 2014). Contrary to Montiel et al. (2021), these findings suggest that innovations geared toward, e.g. climate action have the potential to create net positives in markets, implying that they are not solely tied to the mitigation of negative externalities.

Figure 2 shows how companies, in different situations, may be differently motivated by intrinsic agendas related to the corporate purpose (see George and Schillebeeckx, 2022) and stakeholder pressures (Elg and Ghauri, 2015), essentially making them prioritize certain SDGs over others (Nonet et al., 2022). Local market conditions have multifaceted effects, affecting MNEs’ employment of innovation strategies. These conditions may trigger corporate responses based on the perceived gaps between company operations and SDG-related opportunities and risks. For pressing strategic matters, MNEs are relatively more likely to allocate resources towards systemic innovation initiatives. Systemic innovation is thus a reflection of long-term orientations toward SDGs that are considered critical and closely linked to the purpose of the organization (Kumar et al., 2020; George and Schillebeeckx, 2022; Nonet et al., 2022). Furthermore, systemic innovation appears to imply a proactive stance by establishing new economic and social practices that change the order of business (see Tarnovskaya et al., 2022). Operational innovations could be viewed as complementary to systemic innovation since such initiatives are motivated by efficiency concerns (Utterback and Abernathy, 1975) rather than being directly linked to central sustainability missions. Operational innovation can secure compliance in ongoing operations and, thereby, free up resources for MNEs that enable them to direct larger, focused efforts on prioritized SDG objectives. Hence, MNEs seem to be opting for a balance between correcting deviances (operational innovation) and driving broader market change proactively (systemic innovation). The outcomes of this process are, hence, decided by the inherent predispositions of the firm in combination with outside pressures.

The cases provide ample illustrations of the differences between the two approaches in various dimensions. Table 4 attempts to provide a conceptual categorization of such distinguishing factors, i.e. involving scope, focus, mechanisms, labels, time horizon and performance metrics.

In this study, we set out to examine innovation as a means for MNEs to realize the SDGs in emerging markets. Emerging markets constitute notoriously challenging locations for sustainability compliance and development in relation to the SDGs (Varadarajan and Kaul, 2018). We know little about the conditional factors determining how MNEs can design innovation practices to tackle the inherent problems of emerging markets and enhance performance in relation to their pursuits of the SDGs.

Our study contributes to this area of research by showing that innovation efforts are determined by MNE strategies in relation to sustainability as well as the external emergent market context. The study offers granular insights into how MNEs respond to local market conditions through a mix of innovation regimes. Previous research has suggested that MNEs can rise to the sustainability challenges of emerging markets by immersing themselves in foreign markets and building legitimacy through private initiatives (Reimann et al., 2012; Elg et al., 2017). Social innovation (e.g. Dionisio and de Vargas, 2020) and environmental innovation (e.g. Horbach, 2008) perspectives have advanced knowledge regarding how such initiatives can take different forms (technological, system-oriented and process-oriented) and vary in scope (task-oriented or impacting societies on a larger scale). In this study, we contribute to this literature by shedding light on the contextual factors shaping different innovation initiatives, here categorized as operational or systemic. Our study shows that innovation initiatives will be applied differently depending on the nature of the capacities of the firms, the innovation opportunity and the nature of market challenges. Hence, we advance theory in this area by establishing linkages between MNE strategies and their abilities and inclinations to use innovations to target certain SDGs and solve problems specific to emerging market settings. The findings suggest that MNEs’ SDG efforts are connected to their corporate purposes and overall strategic missions (George and Schillebeeckx, 2022; Van Tulder and Van Mil, 2022). For this reason, systemic innovation, permeating business practices and addressing market flaws are likely to appear in situations where MNEs’ core operations could risk generating negative externalities or have the potential to cause positive externalities (Montiel et al., 2021). According to our study, operational innovation is predominately used for solving delimited problems with readily measurable outcomes. Such problems could involve costs (due to friction in communication and an inability to monitor operations) that may be caused by cultural differences. Operational innovations can thus mitigate the risks of noncompliance that create roadblocks on the journey toward SDG fulfillment. However, operational innovations may only treat symptoms and not address the underlying structures that create space for sustainability misconduct. Hence, addressing SDGs in a way that genuinely corresponds to corporate missions may therefore require more elaborate innovation efforts. Systemic innovation was found to have the potential to pave the way for the implementation of the SDGs by proactively engaging a broad set of stakeholders. Hence, we complement and extend studies on sustainable development in MNEs (e.g. Nylund et al., 2021) by qualifying the argument that systemic innovation is an important requisite for MNEs to be able to take leadership positions in the pursuit of prioritized SDGs. In this vein, systemic innovation sets a strategic direction for sustainability that the company itself as well as stakeholders that are dependent on its business, can keep their eyes on.

This study recognizes that MNEs can play important roles in responding to SDG 8 and SDG 13, particularly through systemic innovation. Missions guiding such innovation efforts, however, require the leadership and engagement of critical stakeholders (Schaltegger and Burritt, 2018). Hence, we recommend researchers study systemic approaches through the lens of conceptual frameworks that encompass industrial dynamics, orchestration of stakeholders and focus on value outcomes with social and environmental ramifications (e.g. stakeholder perspectives, market shaping, ecosystem theory and network theory). The study also implies that resource allocation considerations will determine the mix between operational and systemic innovation. While we provide theoretical explanations for how such allocation decisions are made by addressing the impact of firm strategies, resources and market characteristics, there is still scope to investigate this issue in light of competition, new policies and stakeholder pressures. Such influence can be exerted at both the global level and the market level. We would thus welcome a multi-layered analysis of external forces shaping innovation initiatives directed at the SDGs.

The issue of resource allocation in relation to innovation initiatives geared toward the SDG has clear managerial implications. The results suggest that to align business practices with the SDGs, firms need to first focus on those SDGs where they can have the greatest impact. Without assigning strategic priority to salient SDGs, MNEs cannot credibly claim a stake in leadership roles in those areas. Although different types of innovations can be used to attain the SDGs, they need to be devised differently depending on market-specific circumstances. We would encourage decision-makers in MNEs to make an inventory of how internal value chain operations and the ramifications of those operations relate to relevant SDGs. Another related managerial implication of our study can be drawn from the observation that it is not an easy task for MNEs to convey the performance of different innovation efforts. Temporal aspects for key performance indicators should be clearly linked to the nature of the innovation, where operational innovations can be measured with shorter time horizons and systemic innovations with longer time horizons. Unclear performance indicators may be detrimental to maintaining a strong narrative around the achievement of goals and, as a result, the confidence among stakeholders could weaken over time.

This work was supported by the Riksbankens Jubileumsfond.