**2. Theoretical foundation and model of the study**

### **2.1 Institutional logic of corporate Social Responsibility practices in developing countries**

Institutional theory is one of the common theories to understand the organization's behavior [3, 20] including why a corporation participates in social activities [2, 21]. Institution refers to formal and informal laws within a neoclassical system. This is also associated as tools for monitoring and sanctioning. The company must use the rules and limitations arising from monitoring and sanction mechanism as a justification for its rational and logic reasons to carry out their activities. These reasons are affected by the institutional context in which they operate. This context could include public opinion, social norms and values, rules, regulations and the political interests of local governments, as well as introduced knowledge from the education system [22].

Scott [23] identifies three institutional factors: regulation, cognitive, and norm. Different dominant power of that institutional factor will create different isomorphism models. The regulatory factor reflects the element such as laws, rules, sanctions and government regulations in which an organization operates. The high pressure of this element creates coercive isomorphism. The cognitive factor explains the influence of knowledge in a community and how people behave and interpret particular phenomena. Pressure from cognitive elements in host countries will create mimetic isomorphism. Finally, the normative factor reflects the values, beliefs, norms and assumptions that guide individual behavior in a country.

CSR studies with institutional context are more predominant with the mainstream logic of CSR practices in Western developed economies, in which CSR tied to particular efficient National Business Systems configurations [24, 25]. These practices are not similar to a phenomenon in developing countries. Some studies in these countries revealed the unsynchronized character of social responsibility with the practices developed in those countries. In Indonesia, for example, Famiola and Adiwoso [19] stated that Indonesia's CSR tends to be compulsory with various government-designed regulations to push businesses with their social responsibility. Nevertheless, the model of isomorphic mimicry is more prevalent in explaining companies' CSR behavior in this country.

#### *The Institutional and Cultural Challenges of Corporate Social Responsibility: Case Study… DOI: http://dx.doi.org/10.5772/intechopen.94478*

Furthermore, the CSR practices in developing countries with the socialism background, also show similar pattern, the cognitive factors more powerful to direct the character of CSR within these countries. For example, in Russia, this country's choice of CSR is more affected by the cultural system in those countries. The public placed their high expectations of the role of businesses as their caretaker and worked on issues such as healthcare provision, education and housing [26]. Similarly, CSR researches in China found similar issues that CSR in this country is a long history as a reflection of local culture to develop harmony within society [16, 27].

The question is what the institutional challenge of CSR logic is in developing countries, particularly Indonesia.

### **2.2 Culture context and corporate social responsibility**

Past studies indicate that in developed countries culture plays a significant role in CSR activities [24, 28, 29]. There are various issues illustrated when it comes to understanding the CSR and culture phenomena. Nonetheless, of literature as a whole, we find two mainstreams of studies that describe the relation between culture and CSR more dominantly.

First, the relationship between CSR activities and religious beliefs [28, 30, 31]. Studies on this subject consistently find the positive impact on CSR practices of religious values [30]. While the CSR definition of different religions does have different characteristics [28, 31]. The crucial issues of these studies showed religious beliefs play a major role in the ethical analysis of business decision-making and social responsibility expressed by the CSR activities of the company. For example, Zolotoy [30] found that using religious principles as corporate decision-making guides would minimize unethical risk managers Furthemore Su [32] states that more positive attitude and environmentally friendly behavior is shown by a manager with a religious denomination. In many cases, when a religious manager uses the religious values and principles as the guideline for the business decision-making, it will reflect the social responsibility of the company [33].

Second, studies focused on the link between CSR and the National Cultural Model of the Hofstede [34–37]. Studies on this topic focused particular attention in four natural Hofstede cultures [38] and how their impact on CSR motivation: power distance, individualism, masculinity and avoidance uncertainty.

Power distance refers to the extent of society that is willing to accept inequality and power distribution. Culture of individualism explains the degree of an individual's interdependence within a society, and how they maintain their relationship. Masculine culture defines a community's propensity to accept the degree of competition which drives its concept of success and achievement. While the culture of avoidance of uncertainty refers to the extent to which people within the community deal with the fact that the future is unpredictable.

The studies in this topic show dynamic findings. A research by Peng [34] found that the atmosphere of high individualism and ambiguity avoidance has a positive association with the motivation for CSR. Power distance and masculinity show the negative influence. Whereas Thanetsunthorn [36] studies revealed that companies operating in countries with individualistic and masculine societies appeared to have low interest in conducting CSR. Thus, businesses that work in uncertain avoidance will participate more in CSR with environmental concerns. In his next study contrasting culture in Eastern Asia and Europe, Thanetsunthorn [39] found that CSR activities would take low interest in companies operating in high-power distance, individualism and masculinity countries. By comparison, businesses operating in countries with lower rates of ambiguity tend to have a high degree of participation in CSR activities with the society and climate.

Accordingly, the next research question of this study is how the national culture in Indonesian context could explain the CSR practices within this country?
