State-Owned Enterprises And CSR

August 2, 2007 | Print | Email Email | Comments | Category: Viewpoints

David WolfBy David Wolf
When discussing corporate social responsibility in China with executives from multinationals, eventually the conversation comes around to asking what I have  come to call the "But Johnny Doesn't Do It" topic.

"So, David, why don't Chinese companies – and State Owned Enterprises in particular – do much CSR?"

Now, those of you with a long history in China may well smile knowingly or roll your eyes at that question, when coming from someone who is relatively new to or unfamiliar with China, they raise a fair point. Since at some juncture many of the people reading this publication will face this challenge, I thought I would provide a quick brief on how I answer it, with the hope that it might help you.

Getting Enterprise Out of the Government Business
For a long time in China, major SOEs have carried the burden of looking after the social welfare of their current and past employees and their families. Companies like First Auto Works, Capital Steel, and thousands of enterprises like them ran schools, hospitals, utilities, cable television stations, cafeterias, entertainment spots, and many other types of enterprises. This was a good idea at the time, because it basically relieved the government of the burden of having to deliver that care.

But as the Chinese government (and, for that matter, the shareholders of General Motors) have discovered, forcing a company to take on social welfare functions for its workers and families (and, in particular, the care of retirees) is, in the long run, a great way to bankrupt enterprises and to leave a lot of people without a social safety net.

Over the past two decades the SOEs have been slowly and painfully extracting themselves from this burden, and the more successful of them are just now seeing the light.

Companies who have been through that process are in no rush to start planting forests, building schools, and doing CSR. Their leadership have had drummed into their brains that their focus needs to be on survival, on competitiveness, on becoming nimble, global businesses. CSR, for that reason, doesn't fall very high on their priority list.

Double Standards, Double the Fun
For multinationals, on the other hand, things are different. As a foreign company you are held to a different, higher standard than the locals on many fronts, and CSR is certainly one of them. Your right to do business and earn a profit in China is not sealed when you get the final approvals on your business license – all that license grants you in reality is a provisional right to operate.

Whether you are allowed to continue to operate in the PRC depends on whether or not you are seen by the government, by the media, and by society in general as making a positive contribution by your presence. There are many ways to do this, and one of those ways is by conducting meaningful and effective CSR.

Local companies, on the other hand, are given a "pass." SOEs in particular, given that they are by definition local and are owned by the state, are seen to be doing their bit anyway, since (in theory at least) all benefit of their operations remains in China.

The point is this: multinationals need to do CSR merely to level the playing field with SOEs, so be happy that SOEs don't do CSR, because that would only widen the perceptual gap between the locals and the foreigners.

Flip this on its head, and you could see CSR as one of the few competitive weapons that an intelligent multinational could yield to gain a clear advantage over a local competitor.

The Coming CSR Awakening
Chinese manufacturers will not always get a pass: globalization will see to that. Chinese enterprises will learn about CSR quickly when they foray into overseas markets. The governments and consumers who greet them – whether they're setting up shop in Argentina, Angola or Alabama – will expect them to go beyond simply showing up and setting up shop.

The Chinese will find that they, too, will need to prove that they are not just the latest version of the old neo-colonialists: they will have to give back to the communities in which they invest as a matter of course, or find their welcome worn out far more quickly than their opportunities.

At the same time, here in China, the dividing line between "Chinese" and "multinational" will blur as Chinese firms become multinationals in their own right. The day may well come when a Haier or a TSL may still be nominally Chinese, but in reality increasingly global. The standards laid upon those companies by governments and communities in the PRC will look increasingly similar to those they place upon companies born and raised in Europe, Japan, or North America.

In the meantime, though, the smart companies will be thinking less about balancing the scales between the locals and the newcomers, and more about how being a better citizen gives them a leg up on less responsible, less sustainable competitors – regardless of their country of origin.

About the author:
David Wolf, President and CEO of Wolf Group Asia, a management advisory firm providing strategic communications counsel to technology, media, entertainment, and telecommunications companies in Greater China and the Asia-Pacific region. He is also Contributing Editor for China CSR. David's opinions are his own and do not reflect those of either WGA or its clients.

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