China’s Socially Responsible Entrepreneurs:
ECOLOGIA Briefing Paper, April 2006
Native Roots for Sustainable Development
China’s business culture is frequently characterized as a monolithic force driven by a single coherent business strategy and a limited but powerful portfolio of comparative advantages such as extremely low labor costs and minimal environmental and social protection. In fact, China’s business culture is extremely diverse. It encompasses a full range of business models, from sweatshops to inspiring examples of modern environmental and social responsibility.
In this paper we document the existence of a uniquely Chinese model of ‘corporate social responsibility’ prevalent among the small and medium sized enterprises that constitute the major growth sector of China’s burgeoning economy. We argue that the founder-owner-operators of these businesses are a substantial portion of new businesses; they are emerging from China’s countryside, and they tend to reflect more traditional Chinese cultural values. These entrepreneurs represent a powerful and compelling set of ideals about what a Chinese business should be. Like ‘socially responsible’ companies in Europe and North America, who are an influential minority reshaping global business practices, China’s own home-grown socially responsible businesses could influence the overall business culture of ‘the world’s factory’. We examine uniquely Chinese cultural roots of social responsibility and explain why tradition may yet shape modernity in China’s economy. We also examine how emerging international standards of social responsibility are supporting, and sometimes colliding with, indigenous roots of sustainability in China.
Finally, we outline a strategy for Chinese entrepreneurs, China’s leaders, international businesses, and NGOs interested in promoting environmentally and socially sustainable development in China.
Modernity and Tradition Linked
Our busy waitress stops before a one meter tall modern plaster warrior-like figure who represents a ‘god’ or spirit of wealth. She clasps her hands in prayer, lights and places a new incense stick next to a nearly extinguished stub, and immediately returns to her serving duties. The ritual is repeated three times before our dinner ends. We are dining in Beijing’s Dongcheng district restaurant row. More than one hundred restaurants lining the kilometer-long street are pitted against one another in a fiercely competitive and recently arrived free market economy. Nevertheless, the most valuable space in our restaurant, just inside the entry-way, is reserved for paying respect to deeply traditional values. The ritual we witness links urban and village culture and maintains links between generations past, present, and future. This sense of responsibility for maintaining the legacy of one’s ancestors and for transferring it to future generations is the essence of sustainable development . And it thrives in the midst of free market competition.
The values expressed in our waitress’s behavior are rooted deeply in Chinese culture. Similar examples can be found in businesses scattered across the Chinese countryside and in clusters of factories on the fringes of urban centers. China’s leaders focused on poverty alleviation, corporations with supply chains in China, and environmentalists concerned about China’s global footprint have a historic window of opportunity right now: to identify and support those socially responsible (SR) businesses and the indigenous business model they reflect.
Who Are China’s New SR Entrepreneurs?
China’s indigenous SR entrepreneurs are overwhelmingly the founders, owners, and managers of small and medium sized enterprises (SMEs). To some degree they reflect a global model of small founder-owned businesses embedded in their communities of origin. Daily face-to-face interaction with one’s community predisposes an entrepreneur to be responsive to neighbors who are often both workers and customers. It increases the likelihood that an entrepreneur will be concerned with the well being of a community. However, the degree of community and trans-generational connectedness that we see among China’s SR entrepreneurs is not only a difference of degree. It is a qualitative difference of kind, something uniquely Chinese.
China’s SR entrepreneurs are one subset of a large and highly diverse new social group in China: business founders. Before examining the characteristics of SR entrepreneurs, it is useful to put them into the broader context of Chinese entrepreneurs in general. Research conducted by foreign and Chinese institutes provides us with a portrait of this new group.
First we must bear in mind that China’s present-day free market entrepreneurs are an entirely new social category. Until the late 1970s there were almost no signs of private enterprise in China. It appeared first in the countryside among peasants who engaged in “fence breaking” or testing the limits of allowed, versus legal, private economic activity. Severe economic collapse in the late 1970s provided opportunities for small-scale agricultural activities to be undertaken for profit by peasants eager to address rural poverty. By the end of the decade, the already emerging private sector was legalized. During the first half of the 1980s the number of allowed employees rose from two to seven, and by the end of the decade there were no limits on the numbers of employees in a private enterprise.
As the definition of an entrepreneur shifted from “peasant entrepreneurs” to “fighters against poverty in the countryside” the number of private sector start-up businesses rose from approximately 40,000 de facto but unregistered companies in 1980, to 225,000 companies registered in the guise of being individual businesses or collectives by 1987. The number of officially registered companies in 1998 was over thirty million . The balance between rural and urban enterprises tipped, with those situated in urban centers becoming the majority by the mid 1990s. However, much of Chinese entrepreneurialism continues to reflect its rural village origins.
China’s entrepreneurs are by and large from rural areas and small towns. However, they are not as directly rooted in peasant farm life as is the general population. Their fathers are most likely to have been peasants (44.1%), but also include party cadre members or state enterprise managers (32.8 %), and blue or white-collar workers (15.3%), with technicians and laborers last (7.9%). Before founding their own companies, entrepreneurs themselves were party cadre members or state enterprise managers (53.7%, mostly managers), blue or white-collar workers (15.3%), laborers (13%), peasants (9%), and technicians (9%).
China’s entrepreneurs have little advanced formal education: 4.5 % graduated from a university, 14.7% from a polytechnic institute, and 9.6% from an occupational institution. Many completed some or all of high school (35.6 %), but a nearly equal number only finished only low levels of junior high ( 28.3%) or primary school (7.3%).
Since these entrepreneurs are typically between thirty and fifty years old, the cultural influences most significant in their early lives were familial, communal and political-historical. Most lived through the Cultural Revolution or know of the experience through family histories. They grew up in an atmosphere that did not outwardly encourage business activity, profit making, or wealth seeking. What then are the guiding ethical concepts of China’s new entrepreneurs?
The majority of Chinese entrepreneurs in the for-profit sector are male. However, the domain of social entrepreneurs in China is overwhelmingly dominated by women. This reflects a global pattern of women being the community care givers. We are seeing some carry over of this care-giving ethic in Chinese women’s business associations. The China Women Entrepreneurs’ Association in Chengdu emphasizes providing services to disabled women who have difficulty entering the workplace, as well as providing more conventional business development information to its members. Further reflecting a gender divide, there is a division of labor in many Chinese businesses, with males providing strategic planning and females being management implementers. The pattern is more pronounced as the size of the business increases. The role of the “glass ceiling” in Chinese entrepreneurial culture remains to be explored. It may play a significant role in the segmentation of economic and social-environmental interests among China’s larger businesses, and thus may be a factor in the implementation of corporate social responsibility in these enterprises.
Most revealing are survey data concerning the motivation that Chinese entrepreneurs have for entering business. Here there is a divergence of findings from different researchers. Some report that seeking a higher income is the main motivation (40%), with a desire to promote the development of one’s native place a close second (35%), and career improvement third (25%). Another set of categories provides a slightly different portrait. Self-fulfillment and social ascent rank high (39.2%), followed closely by pursuit of a higher income (36.1%), and then promoting the welfare of native village inhabitants (11.3%). However, when questions are asked another way, the pursuit of individual wealth versus socially useful wealth breaks out very differently. If asked to choose between the pursuit of individual material wealth and becoming rich in order to assist others, 75.9% chose socially useful wealth versus 8.6% who identified personal wealth gain as their goal. Clearly the pursuit of purely individual wealth and personal gain is constrained by other Chinese cultural values.
One important constraint on entrepreneurial behavior is the social network. Often referred to as guanxi, social connections involve opportunities and responsibilities. These connections are along dimensions of interpersonal commonality or tong. Tong exists along multiple dimensions. “The tongban (classmate), tongbao (regional compatriot), tonghang (colleague in a specialized field), tongshi (work colleague), tongxiang (compatriot from the same village or township), tongxue (school colleague) etc. all exist in special relationships to each other (tong relationships).” An entrepreneur may use the social capital of tong relations to obtain business loans, raw materials or official favors. But tong relations also obligate the entrepreneur to hire employees from the network of social connections, most often from the native village.
Tong relations, like familial relations, embed Chinese entrepreneurs in their community. Chinese entrepreneurs support their native communities with donations to schools, roads, and the poor. They also donate to party officials and municipal functionaries outside of tong relations. When asked to agree or disagree with reasons for making donations, “everyone should make a contribution toward society” ranks high (84.1%) , followed by “thankfulness to the community in native place” ( 29.7%), “thankfulness to government” (23.2%), “donations were requested” (15.9%), “increasing social prestige” (9.4%), and improvement of relations with officials (9.4%).
Underlying this ethic of wealth sharing is a complex of cultural values both ancient and modern. Traditional Chinese cultural values emphasize collective over individual interests more than does western culture. Wealth amassed by an individual for personal gain has long been viewed with disapproval when viewed through the lens of Confucian philosophy. This attitude was reinforced in modern times by communist ideology.
Given the cultural and social factors discussed above, one might expect to find that SR entrepreneurs are the norm or even the dominant model in China. But the reality is less rosy. Most of China’s businesses and factories reflect the historical pattern of emergent capitalism: youthful rural workers engaged in lengthy work-days and weeks , often working and living in less than healthy or environmentally friendly conditions. The same familial and communal relations that shape the workplace can morph into paternalism and all of the power imbalances that paternalistic relations entail. Where informal relations dominate work relationships, contract law and legal rights are often very secondary. Despite recent legal requirements to do so, only about a third of Chinese employers (36.3%) have written contracts with their employees; 32.3% have only an oral agreement, and 31.1% have no agreement of any kind. Most (66.2 %) of the written contracts do not specify rights or obligations of either party.
Is the tradition-honoring waitress we portrayed in our introduction actually exploited in her workplace where the misdeeds of a slave-driving boss are hidden behind a public performance of intergenerational respect? Is China’s economic development condemned to repeat the sad and dark industrial development of nineteenth century Europe and North America as epitomized by William Blake’s “satanic mills” and Charles Dickens’ novels? We think not. The die is not yet cast for Chinese entrepreneurialism. There are numerous exceptions to the well-publicized excesses of Chinese sweatshops and accident-plagued coal mines. We present two examples of what could be an influential model capable of challenging the business culture behind more well-publicized abuses in China’s world of business.
The Rabbit King and the Shower Curtain Factory Owner
The first example is the ‘The Rabbit King” of Dayi, in Sichuan Province. Known locally as Ren Xuping, this thirty nine year old former peasant escaped his family’s poverty by becoming a small-scale rabbit farmer after ending his high school education at grade nine. It would be an over-simplification, however, to portray Ren Xuping’s youth as intellectually truncated. Ren’s father was a highly educated and gifted teacher, talents that had made him a target of scorn during the Cultural Revolution. Ren grew up with respect for reading, and has pursued life-long learning and self-education with zeal.
A successful capitalist before such activity was officially encouraged, in 1985 Ren was visited by Deng Xiaoping, who commended him for his business acumen, and also reminded him that wealth should be for the nation, not the individual. The message resonated with Ren’s village roots where the expectation of sharing wealth is older than communism.
Ren’s nascent entrepreneurialism was fueled by a gift of 48 breeding rabbits and training, supplied by Heifer International in 1987. The gift came with Heifer’s expectation of “caring and sharing”, an obligation to pass along breeding stock to others in need. Again the cultural and social expectation of doing good while doing well was combined in the young entrepreneur’s life.
The moral imperatives to share wealth that Ren encountered did not stymie his ability or determination to pursue profit. His wealth grew. Today Ren Xuping is a multimillionaire in both yuan and dollars. His enterprises include rabbit farming, production and marketing of rabbit food, sale of rabbit meat and pelts, and educational and training programs for those who aspire to raise rabbits. This Chinese entrepreneur has fed the hungry by being, first of all, a successful businessman employing many and selling meat at a competitive price. He has also lifted over three hundred thousand Chinese out of poverty by providing them with training in rabbit raising and breeding. This was made possible by the fact that a dozen rabbit hutches produce the same income as a father or son working in a dangerous coal mine or a daughter working in a distant factory, and it keeps the family intact. When peasants cannot afford to pay for Ren’s training services or to buy his rabbits, he provides them for free. He continues to operate in the spirit of entrepreneurial-philanthropy that both his own culture and an international organization have deeply reinforced.
The Rabbit King’s model of entrepreneurialism is self-replicating on a scale equal to rabbit breeding; Ren is exceeding the wildest dreams of Heifer International’s “pass along the gift” expectation. He has embarked upon a systematic training program designed not only to pass along breeding rabbits and to provide technical training about their care, but also to raise entire rural families out of poverty by transforming them into multi-generational “family enterprises”. Entrepreneurial skill building, once a sideline of technical training at the Rabbit King’s school and farm, is about to become a central component of a more systematic and ambitious social transformation strategy. Ren, together with his wife Zhang Xuping, has prepared an entire curriculum and self-help program aimed at family leaders, generally youth, who can be taught to manage and develop the resources of a rural household. Ren and Zhang will be offering future trainees marketing, team building, cost accounting, and “human-resource” motivational skills appropriate to family scale enterprises. The curriculum could be titled “Everything I needed to know about business I learned by rabbit farming.” No one with an MBA could do better. In fact they probably could not do as well, as those with access to such high levels of professional training would not usually have the empathy, respect, and daily contact with the truly poor that Ren and Zhang have.
A similar tale is unfolding in a textile factory a few hours drive south of Beijing. Another budding entrepreneur, born in a remote and impoverished mountain village, has taken his shower curtain business from an apartment to a small factory employing one hundred workers in just three years. The owner, Bao JiJun, provides a comfortable, clean, and safe working environment for his young workers, most of who are from his own village. He also provides clean dormitories, and inexpensive and appetizing meals. Bao does this primarily because of who he is, but he admits that he has also been encouraged to become a better and more socially responsible businessman by one of his customers, IKEA. The giant Swedish home furnishings corporation holds its suppliers to a strict Code of Conduct. They visit Bao’s factory, often unannounced, go over it top-to-bottom with a checklist, and give Bao a few weeks to make corrections if problems are identified.
Bao’s business is a ladder out of poverty for a whole village. He pays his workers above minimum wages, fully and on time. Wages are sent home to elderly and infirm parents, to brothers studying in the university, or are saved for the construction of a house. Bao’s personal dream is to make enough money so that he can build a modern school in his village. Meanwhile work in Bao’s factory is providing training and skills that his village’s residents may use to set up their own small businesses. Bao has provided used equipment and scrap material to assist one villager to set up a small purse making business. He is replicating his success, though not as systematically as the Rabbit King.
Our two examples of SR entrepreneurs in China are not simply mutant forms of capitalism sprung from the red clay soil of China’s rural countryside where the spirit of Mao still hangs heavy. On the contrary, there are many such examples awaiting recognition and documentation. Until in-depth research is conducted on these SR entrepreneurs, we will not have statistical data like those presented above on Chinese entrepreneurs in general, and we will lack a full understanding of what distinguishes China’s SR entrepreneurs from the crowd. However, even before such in-depth research is conducted, one important factor stands out: the SR entrepreneurs’ indigenous values and tendencies toward “corporate social responsibility” are often validated and reinforced by encounters with international partners. Foreign partners are not the source of social responsibility ideas, but they appear to play a vital role in strengthening values and practices. This is an important and almost untold aspect of globalization. We examine the opportunities and perils associated with such encounters below.
SMEs and Corporate Giants – Partners in Promoting Social Responsibility
Many of China’s larger companies, particularly those with links to multinational corporations, are also evidencing increased interest in corporate social responsibility. The corporate social responsibility that they manifest is generally rooted in values that are complementary to, yet distinct from, the cultural and organizational values we see in the smaller founder-owned and founder-operated enterprises. Larger companies view social responsibility as risk management, marketing, and human resource management. Large corporations often share the SR entrepreneurs’ concern about sustainable development and China’s long term interests, but put a greater emphasis on resource conservation and worker retention as opposed to the SR entrepreneurs’ interests in improving quality of life and alleviating poverty at the village level. The contrast can in part be attributed to the social network connections of SR entrepreneurs, as opposed to multinationals’ remoteness from local social networks.
Despite their differences, the interests of the small SR entrepreneur and the large corporation dedicated to corporate social responsibility are inextricably bound together, and ultimately depend upon one another for their survival. Perhaps nowhere on Earth is this mutual interdependence more apparent, more precarious, and yet more opportune than in China, “the world’s factory”. If there is a tipping point in global business culture it will be in China during the coming years.
If the organizational cultures of small and large SR entrepreneurs are distinct yet complementary, what exactly are the implications? The answers lie in a closer look at the ways major corporations have come to practice social responsibility in China, and how these practices directly impact supply chains and the emerging business culture among small and medium sized Chinese companies.
In order to attract customers and investors, many multinational corporations with Chinese supply chains have begun to require certification to global standards associated with quality and environmental management, such as ISO 9000 or ISO 14000. Others impose their own more demanding ‘codes of conduct’ upon those who supply them with finished products or components for assembly. IKEA and the shower curtain manufacturer discussed previously are one example. After a manufacturer of some of their carpets was linked to child labor in the mid-1990s, IKEA developed “The IKEA Code of Conduct” for its suppliers, as do many retailers sensitive to public image and the value of their brand names. IKEA was an early and high profile leader in openly addressing issues of social and environmental responsibility in the supply chain. IKEA’s motto is “low prices, but not at any price.” Clothing and sport goods retail giants such as The GAP and Nike have experienced similar, though more troubled, conversions to high profile implementation of social responsibility programs.
The difficulties that western multinational corporations have in balancing their desire to maximize the financial bottom line, while addressing the social and environmental costs of doing business and wishing to appear and to be socially responsible, are apparent within the business model of IKEA. Publicly and internally, IKEA is dedicated not only to maintaining its low prices, but to continually lowering its prices. Recently IKEA committed itself to implementing this strategy not only in its European and North American stores, but in the world’s most ferociously price competitive market, China. In order to gain and hold market share in China, IKEA has made significant price reductions to attract reluctant Chinese consumers to products which reflect strong Swedish and European aesthetics. IKEA sells some of its featured items more cheaply in China than in Europe . We recently wandered through IKEA’s Beijing store with one of its suppliers who had just traveled through Europe, and he pointed to numerous items that he manufactured and had priced in IKEA’s European stores. Prices were significantly lower in Beijing.
IKEA’s global, and now regionally intensified, low-pricing strategy puts it in an interesting position. Competing on price in the middle and lower levels of China’s already low-priced market will test a business model that seeks to continually lower its prices while assuring customers that products are produced and traded responsibly and fairly. What makes IKEA’s position so interesting is the unique flexibility it has in striking this balance. As a privately held company owned entirely by one of the world’s wealthiest families, IKEA is not bound by demands from shareholders desiring maximum quarterly returns or pension fund investors needing to secure steady and maximized incomes. IKEA’s owners can afford to experiment with change and innovation, and to find the formula to ‘do it right’. Their choices reflect not only the owners’ personal values, but the values of two very different cultures confronting one another. On the one hand Lutheran Swedish culture reflects a Protestant ethic that infused capitalism with its spirit of maximizing personal wealth. The German sociologist Max Weber described how this spirit equated individual personal wealth accumulation with comforting hints that material good fortune reflects God’s favor and spiritual salvation for the individual. Chinese culture may also relate “salvation” to wealth, but only insofar as it is shared and made collective. Representing this communal spirit of wealth sharing, many of IKEA’s suppliers are struggling to maintain sufficient profitability to survive and to support poverty alleviation in their villages.
If IKEA’s owners have brought contrasting entrepreneurial values into stark relief in China, so too have they shone the limelight on contrasting consumer values and on the dilemma of corporate dependence upon the values of consumer culture. Ultimately, large multinational corporations like IKEA cannot succeed at being socially and environmentally responsible if the customers for their products do not see such action as added value. Customers must be willing to reward this SR value either by paying more for it or by selecting goods and retailers incorporating such values.
Conventional marketing wisdom suggests that the consumer is god. These very words are inscribed at the entrance to Bao JiJun’s shower curtain factory. However, while consumers may be the omnipotent gods of the marketplace, they are not omniscient. Few consumers know where and how the products they buy are made. Fewer understand how the production, sale and use of such products impact their own economic, social, and physical well being. Such issues are complicated and almost impenetrable unless businesses operate transparently and help consumers with relevant information. For example, despite the attention given to Wal-Mart’s impact on communities where its production and stores are located, scholars lack access to Wal-Mart’s business data and are in disagreement over the type and degree of the retail giant’s impact. It should then not be surprising that communities are divided and confused when a Wal-Mart store comes to town.
It is barely an exaggeration to state that most entrepreneurs either worship at the altar of consumerism, or practice an agnostic resignation and reluctance to tamper with the mysterious force. Across the globe, and especially in China, we see entrepreneurs who are shining stars of social and environmental responsibility, yet hesitate to tell their stories. Many are silent, for fear that customers will view social responsibility as an added cost passed along to them, or that stockholders will view such activities as profits given away. Others just don’t know how to communicate on the topic.
Recently, however we have seen evidence that a corporation with a clear and long-term vision of social and environmental responsibility can achieve marketplace dominance, especially when such vision is aligned with sustainable economic planning and proactive marketing. While Ford and GM continued to manufacture sport utility vehicles with low mileage, claiming that customers demanded such vehicles and were willing to pay a premium for them, Toyota and Honda developed and promoted funky looking hybrids. Today Ford and GM are in economic crisis while hybrid manufacturers cannot create enough product to meet demand. Toyota and Honda were not blindly idealistic visionaries who got lucky; they examined the realities of future energy markets and emerging restrictions on greenhouse gas emissions and anticipated future trends of sustainable development. They had the courage to get slightly out in front of the emerging market, to educate it and to shape it.
If the consumer is god, the experiences of Ford and GM suggest that this god is often like those of the Greeks: fickle, irrational, and often prone to make chaos for mere mortals. Like the ancient Greeks, modern entrepreneurs need to respect and honor their gods, but they also need to manipulate them with offerings. We are not suggesting that auto manufacturers offer sacrificial lambs with every purchase of a car, but we do believe that they need to offer information and customer education as a service. The corporate model of Procter and Gamble is instructive. Several decades ago, their disposable diaper business was threatened by genuine consumer confusion over the use of cloth versus throw-away diapers. Their home cleaning products were under the scrutiny of consumer groups because of the complex chemicals they contain. Rather than merely identifying and then following consumer trends, Procter and Gamble commissioned research which it used to redesign products and which it shares online with its customers. Customers who want to make fully informed decisions about the health and environmental impacts of Procter and Gamble products can find an extraordinary amount of technical information. Procter and Gamble has decided that more fully informed consumers are their best customers.
How might this apply to China’s SR entrepreneurs? Companies like IKEA have an opportunity to educate their customers about the implications of being an IKEA customer. Currently IKEA’s social responsibility practices are documented in its website and in an internally circulated brochure for educating staff about the Code of Conduct so that they may respond if customers should happen to ask about this. However, it is difficult to find any mention of IKEA’s social and environmental responsibility practices in an IKEA store. An excellent comparison of energy saving compact fluorescent and incandescent light bulbs encourages IKEA customers in the lighting department to buy energy saving bulbs, because it is in their financial interest. However, IKEA pulls back from any effort to systematically and openly discuss the environmental and social impacts of its individual products. They view such product information as a distraction from the impulse cost-based decision making of their perceived customer base. They believe that they have created and defended a brand name that eliminates the need to document social and environmental responsibility on a product by product basis. In fact they have done extraordinary things to implement such programs. Their business model has worked for decades. Why abandon or deviate from it now?
The answer may lie in Bao JiJun’s shower curtain factory, the Chinese supply chain, and an emerging and environmentally sensitive Chinese domestic market. Giant IKEA may be like Ford and GM, on a collision course with the economics of sustainability and the very consumer market forces it thinks it understands and manipulates so well. First of all, there is the problem of the mathematics of IKEA’s purchasing policy. IKEA requires yearly price reductions from its suppliers, which IKEA claims can be offset by increased efficiency. However, it does not take long to approach a commodity price of zero when two or three percent annual reductions are compounded. We know Bao JiJun’s profit margin and we have studied his factory. There is not a lot of room for streamlining a manufacturing process that consists of: cut fabric, sew hem at bottom and top, insert metal grommets for hanging, fold and put in bag. Bao, like other Chinese manufacturers we have met, cannot continue to supply many international customers, because production costs are about to fall beneath what the supplier will pay. Significantly, Bao is not under global market pressure to reduce his costs, he is under pressure from IKEA’s own self-imposed policy of continual price reductions. Bao is about to bail out of the IKEA supply chain and with it the IKEA code of conduct. IKEA is not experiencing falling profits; its profit margins are unusually high for a retail giant. At issue are a few cents. IKEA is shaving a few cents per year off Bao’s shower curtain, for which it pays 3 USD (24 Yuan) and sells at 12 USD. Bao needs those pennies to stay in the IKEA supply chain.
What might happen if IKEA held its price with its supplier and explained to its customers what Bao’s shower curtain factory and the IKEA Code of Conduct are accomplishing by working together? The shower curtain package has a large paper insert. Part of this could be used to describe how Bao’s IKEA supported factory is addressing poverty in China and improving conditions for workers. The tale is a moving one and could be easily and independently verified. Bao could be portrayed as a partner in fair trade. He is actually assuming increased costs for complying with the IKEA’s Code of Conduct and needs to be compensated for doing so. But then IKEA would have to change its policy. It would have to become proactive in educating its customers about the social value of a few cents extra, rather than training its customers to expect ever lower prices.
Even more interesting are the possibilities for IKEA and other multinational corporations active in China, to engage China’s own domestic consumers more creatively and proactively. When IKEA’s Beijing store opened and consumers did not immediately begin buying, the manager assumed that the issue was price. This may well have played a significant role. But the IKEA product line is often alien to Chinese cultural values. While there are many products made in China, fabric patterns and furniture styles reflect virtually nothing about China. They are profoundly Swedish and European. Might reluctant Chinese consumers be more likely to buy, or pay a few yuan more for, IKEA products reflecting their culture? Even more importantly, might not Chinese customers value products made and traded fairly which address China’s urgent environmental and poverty challenges?
This returns us to the topic of the culture from which China’s SR entrepreneurs have emerged. The traditional cultural values and ‘tong’ relations that shape entrepreneurial behavior could also be tapped to cultivate socially responsible Chinese consumers. This could become a marketing reality if business, government, education, and community leaders combined their efforts to promote responsible consumerism. ECOLOGIA is working with student environmental NGOs who are already addressing this; they are educating their members to be green consumers. Large supermarkets already offer a wide variety of naturally produced and organic products. And a recent survey of China’s future leaders suggests that they expect more corporate social responsibility from Chinese companies they will consider working for.
We are concerned about the lack of socially responsible behavior of the many consumers whose core lifestyle is the pursuit of “more stuff for the lowest price”, regardless of the social or environmental costs. This consumerist ethic, where shopping is sport, entertainment, and personal as well as social validation is distinct from the penny-conscious purchasing choices that the marginally poor struggle with daily. ECOLOGIA is addressing this problem in our environmental work, for example in our support of the Earth Charter which recognizes that “with increased freedom, knowledge, and power comes increased responsibility to promote the common good.” This global ethical framework for promoting sustainable development encourages people to “be more, not consume more”. Could socially responsible businesses promote the same ethic? Until recently it was thought that such a consumer attitude was anti-growth. However, recognizing the finite nature of energy, water, natural resources, and the Earth’s ability to absorb CO2, economists and environmentalists are now recognizing that changing patterns of consumption is as important as changing corporate culture and patterns of production.
What lessons does China offer here? We believe that the same cultural dynamics are operating in China’s consumer culture that we see in its entrepreneurial culture. Beneath the too-well-publicized stories of nouveaux riches Chinese entrepreneurs gobbling up western brand name items and the obvious skyscraper booms, irrefutable and easily observable facts suggest that the brakes are on rampant consumerism in China. The Chinese savings rate is extraordinarily high by any global standard, so high that the government has extended holidays to allow for and encourage the development of a stronger domestic consumer market. For every story of a mob scene at a new mall or trendy store opening, there is a Chinese mega-mall standing half empty, with corridors sparsely populated by a few sightseers and fewer shoppers. A significant portion of Chinese new, and often very affluent, entrepreneurs live a material lifestyle nearly indistinguishable from that of a more moderate income middle class.
Taken together, Chinese SR entrepreneurs and financially conservative consumers present a unique opportunity for creating a significant alternative model economy where values of sustainability are mutually reinforced. China has the capacity to develop not only the world’s biggest national market, but also the world’s biggest and most culturally grounded market for sustainably produced goods. China’s future may depend on this development. We have encountered many Chinese manufacturers, other than Bao JiJun, who have told us that they cannot much longer endure the minuscule and continually declining marginal profits involved in the international supply chain. One furniture manufacturer expressed grave concern over the unsustainable forestry practices that his business supports. In particular, he noted that the explosive rate of growth within his sector forced lumber processors to accelerate the kiln drying of timber, much of which is sent to market over-dried and cracked, while another large portion is not adequately dried. Waste is enormous. But most seriously, he felt a downward pressure on wages which compels factory managers to treat workers in an unsustainable way. He told us that, because of these foreign supply chain pressures, his profit center is actually in the higher end value-added furniture sold in the domestic Chinese market. His foreign sales now merely provide continuity in his work force. An internal market willing to pay real and sustainable prices may be China’s economic, environmental and social salvation.
Chinese supermarkets selling organic and natural production food items are selling value added goods. We visited a village in Guizhou where farmers were growing premium quality peaches produced without pesticides. Each peach was wrapped in a reusable paper bag that protected it from insects and weather damage. This labor intensive production provided work for China’s rural labor force, while removing pesticides from the environment. The value-added produce is sold in Guiyang and then shipped to Guangzhou where it brings a premium price.
Ultimately, the struggle to transform China’s and the world’s consumer culture is going to be won at the level of individual retail shops where packages are read by customers and where merchants feature and explain sustainably produced and fairly traded products. Everyday consumer decision-making is the critical battleground in the struggle for corporate social responsibility. Multinational corporations with their large advertising budgets, celebrities promoting brand names and corporate reports on sustainability may play a critical role in educating consumers. But the balance cannot be tipped without the full involvement of and partnership of small and medium-sized enterprises that engage customers in tong relations.
The work of introducing an ethic of social responsibility is also being advanced in the workplace by small scale SR entrepreneurs. Real-life practices on the factory floor, in a mine, or in the office set standards for what workers can expect. Workers who are treated fairly are more likely to think about what kind of workplace their own consumption supports.
The mutually interdependent cycle of consumers and producers is the critical and neglected connection in understanding the future of SR entrepreneurs in China and around the globe.
The Global Market and China’s New Entrepreneurs –practical recommendations for supporting China’s SR entrepreneurs
There are several steps that can be taken immediately to support the emergence of China’s SR entrepreneurs
- SR entrepreneurs in China need to be recognized and understood by policy makers and global opinion makers as a significant economic phenomenon. Only then will their potential significance be addressed.
- Since SR entrepreneurs represent a cultural, as well as an economic phenomenon, social rewards such as community and official recognition need to be used to reinforce this business model. New national organizations such as the China Business Council on Sustainable Development could play a critical role in establishing and reinforcing a new business culture.
- The foreign press and foreign NGOs can be more nuanced and discriminating in their portrayal of the “world’s factory”. They need to document shining good examples as well as “naming and shaming” bad actors. Only then will global consumers begin to look for means to distinguish between “fairly made and fairly traded in China” products and “made in China” products.
- Chinese businesses and international organizations developing standards, such as ISO with the emerging ISO 26000 social responsibility standard, need to cooperate in the creation and implementation of internationally recognized means of reporting on social and environmental performance, so that consumers can easily and legitimately distinguish between responsible and not-responsible businesses.
- Chinese and foreign corporations need to proactively cultivate and educate socially responsible consumers. This obligation must become a key component of practicing corporate social responsibility (CSR). CSR reporting must be expanded beyond the pages of sustainability reports and investor newsletters, and presented on the store shelf as part of normal packaging and advertising.
- Market forces must be aligned with social and ethical incentives so that SR entrepreneurs are financially rewarded for their behavior.
- SR entrepreneurs who invest in social and environmental responsibility should share in the rewards of doing so, and be fairly compensated for their investment.
- Existing standards for improving corporate performance, such as ISO 9000 (quality management) and ISO 14000 (environmental management), should be properly explained and applied so that they reduce the costs of doing business through reductions of inefficiency and wasteful resource use. Too often the economic value of implementing these standards is lost through meaningless, perfunctory, and expensive certifications sought only for trade purposes and viewed as a “cost of business”. In fact, real management system implementation is a great opportunity to reap economic benefits for doing well.
- China needs to shift its dominant business strategy away from a comparative advantage based primarily on lowest possible labor costs and decreasingly marginal profits, toward a competitive advantage based on quality value added products with brand name recognition and credibility in the global and domestic marketplace.
Toward A New Economic Social Contract
China’s SR entrepreneurs present an opportunity to address the economic state of nature that characterizes some aspects of globalization and emerging free markets where regulations are weak or virtually non-existent. Market pressures in and on China concerning wages, working conditions, natural resource exploitation, and profit margins often approximate what 17th and 18th century European philosophers referred to as “the state of nature” which, as Thomas Hobbes noted, is “solitary, poor, nasty, brutish and short”. These philosophers argued that the only solution for those living in a state of nature was to enter into a covenant or “social contract” whereby all agreed to live by the rule of law rather than by the rule of brute force. This voluntary and collective ethical decision was the logical pre-condition for the existence of all governance and civil society.
China’s often humble SR entrepreneurs, bearers of millennia-old traditions, point the way to a similar economic contract that embeds business activity in a web of social restraints and responsibilities. While proponents and opponents of globalization often look for top-down solutions, one of the world’s oldest civilizations is offering a literal grassroots solution. The challenge, for those who think and act globally, is to find ways to confirm and build upon the native roots of social responsibility found in China and to make this part of a global business culture.
The Chens: Epilogue and Prologue
Late in our research for this briefing paper, we uncovered another case study of a Chinese family enterprise sprung from the countryside. We offer it here as an epilogue to our report, but also as a prologue to a potentially more significant tale about how we may learn from one another and extend our definitions of stakeholders in sustainable development.
The Chens escaped rural poverty by pursuing a familiar strategy. They seized an opportunity to relocate from their rural village to a small city in the early 1990s. Four daughters and a son were educated as the family applied many of its meager resources to the pursuit of intellectual self-improvement. The Chen daughters migrated to Beijing where they used their office jobs and retail experience to develop a computer based small business. The computer business grew quickly. It was able to spin off another computer business for the husband-to-be of a younger daughter.
The wealth of the extended family grew and was administered as an asset of the family enterprise. If the entrepreneurial elder daughter acted as its CEO, younger siblings and parents acted as the board of directors.
A modern and roomy ancestral family home was built in the native village which the Chens all had left many years ago. They returned with special honor as their success had been won through learning and entrepreneurship, not by sons engaged in menial labor at construction sites or by daughters working in factories.
During the annual Spring Festival (Chinese New Year), the Chens of all ages return to their ancestral village. They share their success and good fortune with family and neighbors in banquets and celebration. They also convene at the family tomb where they provide recently departed and ancient ancestors with an accounting of the year’s accomplishments. The business success of the extended family enterprise is part of this report to ancestors. The ancestors are told that they may rest in peace knowing that their descendants are doing well.
For at least one Chinese family, the annual corporate sustainability report is delivered standing before those who invested long long ago.
Funding for this report was provided by a grant from The Rockefeller Brothers Fund. Research and writing were conducted by Randy Kritkausky with Dr. Rachel Golden. ECOLOGIA briefing papers are designed to stimulate discussion and comment. Please contact us at:
Randy Kritkausky, President, ECOLOGIA
Research Scholar in Environmental Studies, Middlebury College
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PO Box 268, Middlebury Vermont 05753 USA