[Insight & Opinion] Corporate Social Responsibility and Its Effects

At the end of the year and the beginning of the new year, our hearts grow warmer. Beyond family and relatives, we dream of a society that thinks of neighbors and comes together. The same goes for companies. Simply maximizing profit is no longer the reason for a company's existence. Now, corporate social responsibility (CSR) is an essential element of the economic ecosystem that connects labor relations, neighbors, the environment, and society.

Companies can enhance their image by strengthening social responsibility, as well as pursue increased profits and stable corporate value. Even if many companies are not fully convinced of its effects, they are competitively increasing their CSR management expenditures. However, estimating the actual effects of CSR management is not easy. This is because each company simultaneously introduces different price competitions, advertising expenditures, and CSR policies, and consumers respond in various ways. Quantifying changes in corporate image is also not an easy task. To analyze this, consumer choices must be examined over a long period in connection with the company's CSR policies, and the successful case of Ottogi in the Korean ramen market stands out.

Since the 2010s, Ottogi has actively engaged in CSR activities. It has consistently contributed to local charities, medical support, and educational assistance such as student tuition subsidies. During the process of management succession, it voluntarily paid inheritance taxes amounting to 150 billion won. In labor relations, it has taken the lead in protecting workers' rights by maintaining the lowest level of temporary and daily workers in the food manufacturing sector. In 2017, Ottogi was invited to the Blue House as a national leading company, being the only mid-sized and food manufacturing company to receive such recognition. Ottogi's corporate goodwill has been introduced through various media reports and social networking services (SNS), becoming well known to the contemporary public.

According to research by Kim In-kyung and Hong Young-jin from Sogang University and the author, Ottogi's outstanding social responsibility activities have led to consumer choices, with its market share growing from the 8% range in the early 2010s to an impressive 21% by the end of 2019. By linking corporate image data built using big data in an economic demand model, it was verified that corporate goodwill is an important factor in consumer choice. To estimate its effect, assuming Ottogi had conducted CSR activities at a similarly low level as other ramen companies, there was a 12.4% increase in profits during that period.

Ottogi's rise in consumer preference and market share does not end with strengthening the company's external competitiveness. It leads to a reduction in the market dominance of its largest competitor, Nongshim, thereby intensifying competition in the ramen market and fostering the development of various ramen product lines, bringing positive effects to the entire market. In other words, strengthening one company's social responsibility not only promotes that company's growth but also improves the overall industry structure, creating a virtuous cycle where the benefits are delivered back to consumers in various ways.

Ottogi's successful case should serve as a lesson to other companies beyond the ramen market. Comparing the effects of Ottogi's goodwill through demand analysis with other policies allows a renewed look at the importance of CSR management. During the same period, achieving a similar sales increase would have required lowering ramen prices by about 11% or increasing advertising expenses by as much as 160%. This suggests that enhancing corporate image through CSR may be more effective even in terms of corporate promotional costs. In the new year, it is hoped that more companies will take an interest in social responsibility and translate it into actual activities, moving toward a healthier economic ecosystem.

Kim Gyu-il, Professor at Michigan State University