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The CSR Challlenge For Companies Doing Business In China

November 6, 2012

China’s emergence as an economic force has been both rapid and relatively recent. It was only in 2001 that China joined the World Trade Organization (WTO), allowing it access to foreign markets with very low tariffs on Chinese exports. In exchange, China had to lower its own tariffs on imports and follow the terms of trade governed by the WTO and its members.

For foreign businesses operating in China, the past few decades have been challenging  when it comes to corporate social responsibility and sustainability. To separate myth from reality, I wanted to get an “on the ground” perspective. So at the annual BSR (Business for Social Responsibility)conference, I spoke with Jeremy Prepscius. Based in Hong Kong he is BSR’s Vice President, Asia-Pacific:

What have U.S. companies learned about CSR in China over the past 10 years? What have they yet to learn?

U.S. companies have learned a lot about dealing with supply chain aspects of CSR in China over the last 10 years. That learning has been both good and  a challenge in terms of supply chain engagement.

But what they actually haven’t learned yet, I think, is the value of looking and speaking about CSR issues in China as a consumer market as opposed to a production source.

Over the last 10 years you’ve had the development of civil society in China. For example, you have Ma Jun and the Institute for Public and Environmental Affairs, with something like 70 or 80 non-governmental organizations (NGOs) sitting underneath him. They talk explicitly about environmental issues in China. So you have Chinese citizens asking why pollution is happening in China and asking about business performance issues in China of multinational companies.

I think the biggest change is that companies no longer see China only as a production source, but China as a dialogue location in this great debate on sustainable business practices.

Did anything in particular drive that or is it just a natural progression of relationships through commerce?

What’s driving that is the continued evolution of Chinese civil society, in particular, and the opening up and allowance for civil discourse in China., which like anywhere else in the world is increasingly enabled by technology. And also, in essence, it is driven by the necessity of the Chinese government to build a fairer society. Because if you read the recent Pew Research Center study on China, it very specifically talks about Chinese citizens and what they care about: the issues of growth, the gap between the rich and the poor in China, or food safety. And all of these things directly relate to sustainability issues.

If your company builds a product that has safety issues associated with it, if you consider China a growth market for you, the trust of consumers and society might be important.

I’m curious about your perspective on something I’ve heard a number of times: If you look only at the written laws in China, that it has a very progressive constitution and a lot of the rights that we come to expect or maybe hope for are written into the laws. But ultimately it’s a question of enforcing the laws. That is where the rub comes, isn’t it?Do you agree with that? Is the enforcement issue really what it comes down to?

As [Nobel Peace Prize Laureate and former president of the Democratic Republic of Timor-Leste] José Ramos-Horta said [at this year’s BSR conference], good governance and the rule of law is a work of progress in every country. And China is on its own curve.

Now, there’s no question at all that Chinese laws, while certainly needing improvement, are good enough, but enforcement is lacking. There’s a political aspect and a cultural evolutionary aspect as well  that is also slowly changing but maybe not as fast as people would like. As China is growing a middle class, the middle class has expectations of cleaner air, safe drinking water, and baby food that is good. If the Chinese government does not begin to enforce those things, then that could create a challenge to the legitimacy of the government.

So we’re finding things like wages that are expected to go up 10%-15% per year for the next 10 years because China actually has a significant income gap challenge. China’s government is also enforcing things like waste water pollution standards and controls and everything else much more that it has ever done before.

Now, is it perfect? Absolutely not. Is there a long way to go? Absolutely. But people who traditionally may have looked at China as a low-cost production platform because the enforcement is not there – that is what is changing.

What would you say is the most pressing or emerging issue in China related to sustainability and commerce? Is there one thing that stands out?

Trust. It’s all about trust. And trust relates to transparency, trust relates to business practices, and trust is so easily destroyed. It’s the foundation of all this.

Reversing that, where do you see American companies failing in China?

I’m not quite sure if they are failing, but I think the issue is whether they are speaking directly and clearly to emerging stakeholders in the emerging marketplace in China. If you think China is a growth market for you, there are more voices that have nationalistic, personal, environmental, or other values that are increasingly important. If you want to maintain trust in that kind of operating environment, you should be speaking to them. It’s that simple.

The other thing that is really important is thinking about the pace of change. The fundamental reason many people came to China 20 years ago, was “China: lots of people, not so much money.” Nowadays? It’s almost the opposite. There are still lots of people, but finding skilled employees is increasingly difficult because of the competition.

And money? It’s fundamentally flipping around. Chinese firms are now investing outside of China and it’s becoming a much more mature marketplace. That pace of change is impacting companies operating in China. The other side of it is Chinese companies operating outside of China. We’re going to get the sustainability dialogue on both sides of the axis. For example,The New York Times recently reported on a Chinese company investing in a mining site in Canada and the company has to deal with local community issues.  That’s exactly the same discussion that has happened on the other side, with foreign companies in China. It’s that convergence that is fundamentally interesting and really exciting. If you project 20 years out from now, the time to invest in this stuff is now because by then it’s going to be way too late.

Follow me on Twitter @jepsteinreeves.

Follow Jeremy Prepscius @Prepscius.

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