Multinationals pump prime business plans with more community outreach programs
Corporate social responsibility has long been a buzzword in the boardrooms of the West, but it is relatively obscure in China. But as China becomes more important to multinational companies in generating revenue, they are stepping up their corporate social responsibility efforts in the country.
In part, this is spurred by the desire to create positive brand recognition and a need to counteract the growing environmental concerns surrounding Chinese manufacturing.
"Multinational companies want to be seen to be doing the right stuff and they want to be seen to be making a positive contribution," Richard Welford, chairman and founder of CSR Asia, told China Daily during a recent corporate social responsibility summit in Beijing.
"It is probably even more important (in China) to have that trusting relation, particularly with the government."
Used to describe anything from donating money to charities to changing the way a company packages a product so as not to harm the environment, CSR is a far-reaching term.
Though it broadly falls into three main categories - community outreach, environmental health and safety and environmental protection - the bulk of CSR work consists of designing a more sustainable company culture or having employees engage in volunteer work, making the exact value of CSR difficult to gauge.
"It's very difficult to put an actual number on (CSR). It rather depends on what type of company you are, what type of industry you are in," Welford says.
"The bigger brands will spend more on CSR as they have big brands to safeguard."
Right choice
But despite the term's ambiguity, large multinationals seem to see the value in being perceived as "doing the right thing", with many companies in China dedicating 1 percent of their entire operating costs to CSR work - something that is also becoming an industry standard.
Though the percentage looks small, the monetary value is sizable.
For Coca-Cola, one of the largest multinational companies in China, 1 percent of the operating costs used for CSR work in 2011 meant that the company spent nearly $102 million (79 million euros) globally through the Coca-Cola Foundation.
"So far the government and NGOs are doing most of the heavy lifting when it comes to sustainability, while businesses are playing more of a supporting role," says Aurora Chen, director of sustainability for Coca-Cola in China. "Going forward we need to bring these three together, each doing what they do best, all working as one. This way can create real impact that none could achieve alone."
While the benefit of such a large investment may be difficult to calculate on paper, a 2011 survey by the Reputation Institution, a global management consultancy service, reckoned that CSR activities account for 40 percent of a company's reputation.
Early on in China's manufacturing boom, most sustainability efforts by large companies came from foreign brands looking to ensure that their suppliers were meeting their values and global standards.
In 1991, Levi Strauss & Co was the first multinational apparel company that required its manufacturing suppliers to follow a supplier code of conduct that detailed the company's global labor, health, safety and environmental requirements. The popular American blue-jean maker was one of the first to require its Chinese factories to engage in better labor standards.
"Our terms of engagement raised the bar for the apparel industry in setting labor, health, safety and environmental standards for our suppliers," said a Levi Strauss & Co spokesperson. "We expect our suppliers to treat their employees with dignity, respect and fairness and to provide safe and healthy workplaces."
Richard Welford, chairman and founder of CSR Asia, during a recent corporate social responsibility summit held in Beijing. Photos Provided to China Daily |
From left: Evan Lewis, vice-president of communications for Accor Asia Pacific; Aurora Chen, director of sustainability for Coca-Cola in China; Zhang Yanming, deputy director of the Corporate Social Responsibility Office of Pudong New Area in Shanghai. |
Responsible actions
While labor standards in China have steadily improved since the early days of multinational outsourcing, pressure from Chinese consumers there is forcing companies to act even more responsibly.
"In China the growing middle-income consumer is starting to ask questions," Welford says.
"There is more concern now over how products are being made, especially in the area of sustainability."
Multinational corporations may have forged the foundations of China's modern CSR practices in the early 1990s, but the concept of businesses doing well by their communities is not new to China.
The country has a long history of companies providing for its own like family, built on the values of Confucianism focusing on loyalty and family before oneself.
In the early 1950s, companies were expected to provide basic living essentials such as housing and food for their employees, and many went as far as building schools and other essentials for local communities, says Wang Zhile, director of the Beijing New-Century Academy on Transnational Corporations.
Following the economic reform and opening-up of the late 1970s, when China's economic model shifted to the more profit-driven version in play today, companies hit the reset button on how they conducted social responsibility.
"In the past companies did everything," Wang says.
"After the reform and opening-up we built the modern corporation system. Now companies only do business focusing on maximum value for shareholders."
It was not until 2006 following the release of the new Company Law that Chinese companies began revitalizing their role as a source of community and environmental support.
The rule requires that corporations "abide by the laws, regulation, social and business morality and good faith rules, accept supervision by government and the public, and undertake social responsibilities".
While the mandate was a pivotal point for China's corporate social responsibility, it is a far cry from the Confucius-driven business practices of the past.
"The CSR we do today is different to what was done before the reform and opening-up," Wang says.
CSR got further impetus in China from the 12th Five-Year Plan (2011-15), which seeks to reduce the environmental impact of manufacturing and encourage more sustainable business practices.
Shanghai experiment
One area that has seen the strongest impact from the government push for corporate responsibility is Pudong New Area in Shanghai.
Housing offices for dozens of the country's largest companies as well as the Shanghai Stock Exchange, the economic development area was among the first established under modern CSR guidelines in 2009.
Ranging from regulations on employee rights to environmental protection, the 67 practical standards have since been adapted as the go-to-guide for companies operating beyond Shanghai's borders.
Companies, both foreign and domestic, operating in this area are held to some of the strictest CSR standards in China, says Zhang Yanming, deputy director of the Corporate Social Responsibility Office of the Shanghai Pudong New Area.
"We require a higher proportion of State-owned enterprises to take part in the higher standard system," Zhang says.
"They should be role models in the new system. They should have to perform better because of their stronger financial foundations."
The number of companies striving to meet international social responsibility standards is set to grow even faster as Chinese brands eye overseas markets.
"A lot of the bigger Chinese companies who have global ambitions realize that they have to do CSR," Welford from CSR Asia says.
"They are beginning to learn that if they want to move out of China, part of that license to operate is demonstrating that you are socially responsible. They are becoming aware that you have to take social responsibility with you, otherwise you can get into trouble."
This is exemplified in the Fortune China CSR Ranking 2012 report, which puts China's three largest international brands - Haier, Huawei and Lenovo - as the top three Chinese CSR contributors.
Sichuan lesson
Perhaps the biggest transition for Chinese companies, going from being viewed as having very little CSR to eclipsing the long-standing programs of the multinational companies operating within the nation, came after the magnitude-7.9 quake that struck Sichuan province in 2008.
Mourning the loss of more than 70,000 lives and hundreds of thousands left without homes, the earthquake awakened the giving spirit of the Chinese, and donations by the millions began pouring in.
Wanting to offer their own contribution, several multinational companies gave donations following global CSR guidelines listed by their corporate headquarters.
While the average amount donated by large companies initially hovered around 5 million yuan ($796,000, 618,000 euros), Chinese consumers felt as though the largest multinationals had not given enough.
It sparked an online campaign tracking the amounts foreign companies donated. Those who did not give enough were dubbed "iron roosters" after a famous Chinese idiom meaning cheap, referring to the difficulty of getting a single feather out of an iron rooster.
It resulted in boycotts of products from foreign companies listed as iron roosters, including Nokia, Samsung, KFC and McDonald's.
Flexible approach
Companies quickly learned that in China, and other markets where cultures may differ, stepping away from a global standard and adopting local techniques is often crucial to success.
"The way we manage business processes is in a market-by-market approach," Evan Lewis, vice-president of communications for Accor Asia Pacific, a hotel operator, said during a recent panel discussion.
"We have to appreciate that competitive advantage exists in the countries we operate. There is no universal business strategy across Asia. When you've got emerged economies, newly industrialized countries and emerging markets, the approach to each of those businesses is a different level of organizational development."
Since the sharp increase in philanthropic activities by Chinese businesses after the 2008 earthquake, the playing field has also seen a shift in charitable contributions.
In the Fortune China CSR Ranking 2012 report, the top 10 most philanthropic multinational companies donated an average of 0.34 percent of their yearly revenues, compared with an average of 0.17 percent of revenues among the highest donating Chinese companies.
Still, with more than 200 international non-governmental organizations operating in China, there is no shortage of causes for donations.
For companies wanting to build a good reputation, which is at the bottom line of all CSR activities, charitable giving is the most quantifiable and visible to consumers, governments and shareholders.
But in the areas where a company's contributions are not so easily traced, organizations must resort to other means to put onto paper their efforts to stakeholders.
In reporting CSR efforts, China has excelled compared with the rest of the world.
Facing outside scrutiny from government and investors, more companies are adopting the International Standardization Organization (ISO) and Global Reporting Initiative (GRI) - the two largest third-party reporting institutions.
Visitors read a company's social responsibility poster at a CSR Asia Summit held in Beijing recently. Provided to China Daily |
Setting the trend
Since joining the World Trade Organization, the number of sustainability reports issued by Chinese companies has risen from just one in 2001 to 898 in 2011, according to the China WTO Tribune.
In 2009, China was top with environmental certifications, with more than 55,300 Chinese companies registering for the ISO 4100, an accepted global standard for environmental management. The number of newly certified companies in China was higher than the rest of the top 10 countries combined.
"Reporting is the glue that holds everything together," says Sean Gilbert, director of climate change and sustainability for KPMG Advisory (China).
"Standards are very good at helping people to avoid problems, talking about what not to do. They're not nearly good at the creative side of the question, what could you do? Or should you do?"
Gilbert says China is still not at the stage of fully understanding what exactly CSR is, with some Chinese companies not even realizing environmental issues fall under the remit of social responsibility, but has made rapid advances.
As China looks to the future of CSR, the focus will be more on making quality, sustainable products rather than on corporations interacting with the community, he says.
"People have moved away from community investment, philanthropy and volunteering as being the focus. They're much more focused on how a company operates, what it makes, how it makes it, where it makes it and how it distributes it," Gilbert says.
"This is really just starting in this part of the world."