Assuming Responsibility

Chinese firms are fulfilling their corporate social responsibility as they venture offshore By Hu Yue

Assuming Responsibility

Chinese firms are fulfilling their corporate social responsibility as they venture offshore By Hu Yue

SIDE BY SIDE:A Chinese worker of CITIC Construction Co. Ltd.teaches a local colleague steel reinforcement techniques at an affordable housing project in Angola,Africa, in September 2011.The Chinese fi rm has received wide recognition in the African country due to a deep commitment to its corporate social responsibility

Like many Chinese companies, China Minmetals is expanding its presence beyond the country’s borders. In Australia, it has solidified its foothold. Many of its operations, such as Century Zinc Mine in Queensland and Golden Grove Copper Mine near Perth, are located in the communities of indigenous people.

While it pressed ahead with overseas forays,China Minmetals has played a significant role in promoting local social progress. It signed agreements with local governments and indigenous groups to provide education, training and employment opportunities for local residents, as well as cultural and environmental assurances.

As of December 2010, 21 percent of the workforce at Century Zinc Mine, and 2.5 percent at Golden Grove Copper Mine, were indigenous people. Hiring local workers helped the company better understand the local market and culture, and minimize the cost of sending Chinese workers to Australia.

China Minmetals is just one of the many Chinese companies trying to become a global corporate citizen.

“As they expand overseas, a growing number of Chinese firms are attempting to align their pro fi ts with lasting contributions to the local communities in which they operate,”said a recent report jointly released by the World Economic Forum (WEF) and Boston Consulting Group (BCG). The report was based on a survey of around 100 Chinese enterprises and 130 senior executives.

The concept of corporate global citizenship advocates that companies engage with other stakeholders to improve the society in which they operate. Elements include ethical corporate governance, philanthropy and corporate social responsibility, as well as an emerging element: corporate social entrepreneurship, that is, the integration of socially responsible principles and ideas into products of commercial value, said the report.

“While they globalize, Chinese companies are able to exert a positive in fl uence on global communities,” said Robert Greenhill, Chief Business Officer and Managing Director of the WEF. “For Chinese businesses, building a better international reputation is also in their best interests,” he said.

Christoph Nettesheim, Senior Partner and Managing Director of BCG Greater China,agreed. “As they strengthen product innovations and adjust their business model to better serve needs of local societies, the efforts would enhance the pro fi tability of Chinese companies,” he said.

“Honoring social responsibility means more than donations of money and other resources,”said Lu Jinyong, Director of China Research Center for Foreign Direct Investment under the University of International Business and Economics. “More importantly, it is necessary to safeguard interests of local employees, obey local laws and regulations, and make greater contributions to environmental protection and economic prosperity.”

Outbound momentum

China ranked fifth in the world in outbound direct investment (ODI) in 2010, which reached a record high of $68 billion, according to the World Investment Report of the United Nations Conference on Trade and Development.

The country’s non-financial ODI stood at $60.07 billion in 2011, according to data from the Ministry of Commerce. By the end of 2011, Chinese companies had established more than 18,000 overseas fi rms in 178 countries and regions.

The expansion of Chinese companies has led to remarkable economic contributions to the foreign markets, in the form of jobs,and contributions to GDP and local taxes.According to the report, in 2010, Chinese firms employed nearly 1 million people in overseas markets, of which 71 percent were local residents, and most of them were midto-high-level managers.

Telecom equipment maker ZTE even partnered with local institutes in Indonesia to train local employees. Similarly, the Industrial and Commercial Bank of China also regularly sends local employees from developing countries to its headquarters in China for jobrelated training.

Meanwhile, policymakers have realized that shouldering social responsibility is a necessity for enterprises. The State-owned Assets Supervision and Administration Commission in 2008 released a set of guidelines for how centrally administered state-owned enterprises (SOEs)engage in corporate social responsibility (CSR)and report on these activities. The requirements included improved product quality and service level, resource conservation and environmental protection, indigenous innovation, CSR information disclosure and facilitating social welfare.

In 2006, the State Grid was the first Chinese firm to release a CSR report to detail its social responsibility efforts. In 2011,Chinese companies issued 817 reports, soaring from only 32 in 2006.

China’s largest mobile network equipment maker Huawei Technologies, for instance, regularly releases CSR and fi nancial reports, though it has yet to go public. As the Shenzhen-based company makes inroads abroad, Europe has become a niche battle fi eld—it now supplies all of Europe’s major operators including Vodafone and France Telecom.

“Our massive investments have delivered a boost to a string of relevant industries in Europe,”said Hu Houkun, Deputy Chairman of Huawei.“In addition, we tied up with many European universities and research institutions to jointly propel technological advances.”

“Those inputs have put pressure on our balance sheet, but it is well worth the effort given its far-reaching implications,” he added. “It reduced public misunderstandings about Huawei, and created a fairer and more friendly market environment for the company to compete.”

Ma Chuanfu, Vice President of CITIC Construction Co. Ltd., said what matters most is integrating into the local society and helping improve the livelihood of local residents.

In Angola, the Chinese construction company successfully won a government contract to build a huge social housing project. What set it apart from competitors were localized operations thoroughly integrated with the surrounding community.

To address local food shortages, the company helped build vegetable gardens and brought in quality seeds and agricultural experts from China to teach Angolans new techniques. It also built schools and hospitals around the construction site and offered medical consultations to local residents.

CITIC’s approach promoted social stability and economic prosperity in the community.Not surprisingly, it led to tangible benefits for the company, as well. The government of Angola invited the company to participate in further construction projects involving infrastructure and agricultural development.

Long way to go

While Chinese businesses have made progress in corporate citizenship, there is certainly room for improvement. Among the central SOEs and the listed companies on the Shanghai and Shenzhen stock exchanges, around three fourths have yet to publish a single CSR report.

“Another major challenge is a reluctance to communicate, such as discussing a company’s plan and thoughts with external stakeholders and trusting local partners,” said the report.

Critics in Western countries have raised suspicions about the image problem of many Chinese fi rms going global. The report cited the following case: A Chinese company submitted a bid for an infrastructure project in Southeast Asia fi nanced by the World Bank.An investigation of the World Bank found that the company had colluded with several others on their bids. It admitted to taking inappropriate actions and was eventually blacklisted from participating in any future projects of the World Bank.

In 2006, six local workers were shot in a riot at the Chambishi Copper Mine in Zambia,owned by the China Nonferrous Metals Co. Ltd.The riot was triggered by a prolonged dispute over delayed wages which the mine’s labor unions said were the lowest in the industry.

“Those negative incidents have tainted the image of corporate China, and cast an ominous shadow over the prospect of fi rms investing abroad,” said Wei Jianguo, Secretary General of China Center for International Economic Exchanges.

“With little experience in cross-border operations, many Chinese fi rms lack public relations expertise, cultural sensitivity, and human rights and environmental awareness needed to build a global footprint,” he added.

In 2010, Chinese firms employed nearly 1 million people in overseas markets, of which 71 percent were local residents, and most of them were mid-to-high-level managers