Performance of CSR in the UK and China - Literature review Example

CSR: Definition According to Article 14 of the 1994 Company Law in China, "Companies must comply with the law, conform to business ethics, strengthen the construction of socialist civilisation, and subject themselves to the government and public supervision in the course of business". The article further suggests that the companies are not merely obliged to comply with the law but also ensure that all its business activities are ethical in nature (Li, 2010: p.68). The Company Law 2006 however offered explicit definition of the term. According to Article 5 of the 2006 Company Law "in the course of doing business, a company must comply with the laws and administrative regulations, conform to a social morality and business ethics, act in good faith, subject itself to the government and the public supervision, and undertake social responsibility" (Li, 2010: p.69). In the UK the concept of CSR is perceived as the responsibility of the private sector and is reflected in its official definition of the term. According to the UK government the term CSR refers to the manner in which "business takes account of its economic, social and environmental impacts in the way it operates - maximising the benefits and minimising the downsides" (Gov.uk, 2015). Performance of CSR in the UK and China According to Porter and Kramer (2006), the context of competition can significantly affect a company’s ability to demonstrate corporate social responsibility. In their opinion, every company operates in a competitive context that significantly affects its ability to implement its strategies in the long run. They have divided competitive contexts into four broad areas: the quantity and quality of the available business inputs such as human resources and transportation infrastructure; the rules and incentives that guides competition; the size of local demand influenced by things like product quality and safety and local availability of supporting industries (Porter and Kramer, 2006). It should be noted that China is the number one country in the world in terms of population size. Therefore, it is possible for Chinese companies to get cheap labour in their territories. Cheap labour helps these companies to reduce the prices of products produced in China. In other words, Chinese companies try to demonstrate CSR by offering products at affordable rates to the public. On the other hand, UK companies are incapable of doing so. Labour cost in the UK is extremely high compared to that in China. As a result of that, UK’s products are extremely expensive compared to Chinese products. At the same time, UK companies are overcoming this problem by offering quality and reliability to their products. McWilliams and Siegel (2000) mentioned about the way through which UK companies exhibit their CSR by offering high quality products and reliable services to the public. The products manufactured in the UK are believed to be of highest standards since the companies in this country are keen on exhibiting their CSR by making sure that their customer are getting good quality products even if the prices are slightly on the higher side. On the other hand Chinese companies are trying to fulfill their social commitments with the help of cheaply priced products. They are ready to sacrifice quality for price reduction. In other words, Chinese companies and UK companies have different views in terms of CSR. While Chinese companies try to promote their CSR by offering cheaply priced products, UK companies do the same by offering quality and reliability to their products and services. The highly competitive Chinese markets often drive companies to sell cheaply priced products. The case of Sanlu group, a state owned Chinese dairy products company, for instance was recently caught up in a high profile scandal that involved selling of cheap and substandard products resulting in a loss of 300,00 lives (The Guardian, 2008). Similarly the popular e-commerce sites Alibaba (China) and Amazon (UK) differ drastically in terms of pricing and quality of products offered. Alibaba is known for offering substandard products for low price, and Amazon where the prices of products are relatively higher but the products have high quality. Alibaba was recently accused for indulging in fraudulent practices and its management to stop illegal activities and prevent frauds (Johnston, 2015). Amazon on the other hand is known for providing good quality products although the products may be priced higher as compared to its Chinese counterparts. In short, CSR performance is different in UK and China because of the different views about price and quality. While China is better at price (provide low price to customer), UK is better at quality products and reliable services (high quality for customer). Environmental activities and social causes The term “corporate social innovation” demands that companies should learn from social issues and help consumers to solve their problems. For example, people are usually facing problems related to price increases of products in the market. They will be satisfied when they get products at affordable prices. On such occasions they may not give much importance to environmental protection. Many of the companies in emerging markets such as China are developing rapidly because of their abilities to identify the above mentioned consumer psychology. Chinese companies are less interested in environmental protection, social activities, or employee welfare; however, they are keen on exhibiting CSR measures through charity works such as ad hoc public charity, strategic charity and ethical business practices (Tang and Li 2009). Chinese companies do not want to extend the meaning of CSR beyond charity works. In other words, the views of Chinese companies related to CSR are narrow compared to that of UK companies. UK companies are ready to attach different dimensions to CSR whereas Chinese companies are not ready to do so. However, majority of the UK companies or companies in the developed world failed to seek lessons from emerging markets in terms of delivery of CSR. For example, Unilever thinks that they can fulfil their social responsivity by reducing consumer concerns about social and environmental issues. Instead of exploiting local strength, Unilever is trying to overcome the local weaknesses as part of implementing its corporate social responsibility (Hockerts and Morsing 2008). In short, UK companies pay attention to: 1. Environment, 2. Philanthropy 3. social causes 4. urban investment and 5. employee schemes (Pour et al., 2014). However, Chinese companies focus on:1. ethical restraint 2. Governmental dependency 3. competitiveness 4. product innovation and process innovation (Tang and Li 2009). According to Campbell (2007) ‘the concept of social responsibility or socially responsible behaviour can be interpreted differently by different countries. The cultures, socio-economic structures and stakeholders have played the key role in the interpretation and implementation of CSR.’ So the researchers studied their effects on CSR performance from the competitiveness, leadership, company environment and shareholder etc. Table 1: Competitiveness In UK, CSR is important, because of its ability to build corporate image. On the other hand, Chinese companies give more importance to self-interests rather than corporate image. An increasing number of the UK companies such as the Body Shop are currently incorporating CSR in their marketing activities in order to exploit the opportunities in different market segments such as “baby-boomers" or old people. These companies are keen on developing a socially responsible image. The products sold by these companies have labels that indicate the ingredients as well as the production methods. For example, socially responsible natural food companies place labels on their products and packages highlighting the use of organic, pesticide-free ingredients; whereas cosmetic firms promote animal-free testing. In short, quality and reliability are promoted extensively by the socially responsible UK companies (McWilliams and Siegel, 2000). In the UK, the scope of corporate governance has improved overtime because of the growing awareness about CSR. Businesses in the UK are starting to look beyond financial accountability as the only one way of creating shareholder value. Long term sustainable strategies are getting more importance among UK’s organizations in recent times (Money and Shepers, 2014). In other words, environmental protection, avoidance of pollution and emission reductions are some of the major objectives of socially responsible companies in the UK. However, Chinese companies take these things lightly. They are keen on improving the economic aspects rather than the social aspect of CSR. Based on a survey among 109 Chinese companies, Graafland J and Zhang L (2014, p.34) found that Chinese companies spend most effort in improving the economic aspects of CSR, such as competitiveness, product innovation and process innovation. At the same time, only a small number of companies set concrete targets and report the realization of these targets related to CSR. From the above observations, it is evident that the attention to social and environmental aspects of CSR is still underdeveloped in China. On the other hand, in the UK, social and environmental aspects of CSR are getting priority over economic aspects of CSR. The reason for the above problem cannot be put on the shoulders of Chinese consumers. In fact Chinese consumers are more supportive of CSR measures. They are well aware of the four responsibilities of companies (economic, legal, ethical and charity) and find that economic responsibilities are most important while charity responsibilities are of least importance (Ramasamy and Yeung, 2009, p.119). However, as mentioned earlier, Chinese companies are trying to put dust in the eyes of consumers by giving more importance to their philanthropic responsibilities and less importance to economic responsibilities with respect to CSR. Pérez (2015) conducted a comprehensive study to learn more about the relationship between corporate reputation and corporate social responsibility (CSR) reporting in the UK. His findings revealed that CSR reporting is useful to generate corporate reputation. He has mentioned the management of corporate transparency, information quantity and information quality as the major parameters successful CSR reporting. At the same time, Noronha et al., (2013) mentioned that CSR reporting in China is at a very preliminary stage. In other words, CSR reporting is not taken as a serious issue by many of the Chinese firms. On the other hand, CSR reporting is taken or accepted as a serious thing by UK firms. In short, Chinese companies are more interested in financial gains rather than corporate image while implementing CSR. On the other hand, UK companies are more interested in building corporate image compared to Chinese companies. Leadership Chinese companies and UK companies have different leadership styles. As a result of that they implement CSR in different manners. According to Yin and Zhang, (2012), the understanding of Chinese companies about CSR is largely based on ethical activities such as ethical leadership, governmental dependency, and cultural traditions. These companies have little awareness about things like healthy social environment or geographical environment. Christensen et al. (2014) mentioned about the role of leadership in the implementation of corporate social responsibility and corporate social irresponsibility in the UK’s context. As per their views, new forms of leadership such as ethical, responsible, and servant leadership have the ability to affect CSR in one way or another. While ethical leaders encourage CSR practices in terms of ethical standards such as encouraging ethical conduct, and modelling ethical behaviour, responsible leaders do so in terms of a limited economic view and an extended stakeholder view. On the other hand, servant leadership exhibit its CSR by giving more importance to the needs of the followers, organizations and the society (Christensen et al., 2014). Customer The needs of the customers in the UK and China are slightly different. As mentioned earlier, quality and reliability are most important things in UK whereas cheaper price is more important in the China. Company structure UK is a capitalist country whereas China is a socialist country. Therefore, private firms have more importance in the UK than in the China. Only in recent times, China started to encourage private capital. Still many of the firms in China are operating under public sector. According to Li and Zhang (2010), ownership structure plays an important role in shaping the CSR of companies. They have conducted a study to examine whether and how ownership structure affects CSR in emerging markets such as China and found that for private firms in China, corporate ownership dispersion is positively associated to CSR. At the same time, for public enterprises, corporate ownership dispersion is negatively associated to CSR. It should be noted that political interferences in public undertakings in China is more than that in private firms. Zhang et al. (2014) have supported the claims of Li and Zhang. According to Wang and Chaudhri (2009) that CSR in China has been growing in momentum of late, and Chinese companies are now observed to incorporate various aspects of CSR including greater accountability and transparency in their corporate practices. Corporate Social Responsibility, Ownership Structure, and Political Interference: Evidence from China This article by LI & Zhang (2010) suggests that CSR activities on the part of organisations, especially, in developed countries are largely influenced by ownership structures. However in countries like China where the organisations are under state ownership the relation and implications / benefits that CSR activities tend to offer in developed countries are reversed. The authors argue that increased political interference in organisations has a negative effect on CSR and it applies to countries like China where companies are largely state-owned. Zhang et al., (2014) explore and present the concept of CSR from the perspective of firms in China. The authors argue that the implementation and outcome of CSR policies differ greatly between China and the western world mainly due to the stark contrast in the composition and cultural and economic backgrounds. The authors also suggest that the differences in performance of firms with regard to implementation and adoption of CSR can be attributed to the lack of knowledge and awareness regarding the significance of CSR among Chinese firms. While the CSR of the State Owned Enterprise (SOE) has been steadily decreasing along with the change of ownership structure, its economic performance did not improve as expected. (On the other hand, with a steady improvement in economic performance, the small private firms are showing a great reluctance to engage in CSR. The results indicate that implementation of CSR in China needs both the manager’s ethical awareness and the change of institutional framework (Zhang et al., 2014, p.7647) (this should be in leadership) From the above findings, it is evident that even better performing firms in China are not much interested in enhancing their commitments with respect to CSR. On the other hand Li et al., (2013) have expressed slightly different views. They have mentioned that better performing firms are delivering their obligations with respect to CSR in China while worse performing firms hesitant in fulfilling their commitments related to CSR. They found that better-performing firms are more likely than worse-performing ones to disclose CSR information and to produce higher quality CSR reports. At the same time, both better performing and worse-performing firms in the UK are considering CSR as an integral part of their corporate strategy. For example, British Petroleum, (BP) one of the leading oil companies in the world has recently caught the attention of the world because of the Gulf of Mexico oil spill which is caused by one of BP’s oil tankers in 2010. It is believed that this accident is the biggest accident happened in the petroleum industry in recent times. This accident resulted in the death of 11 men working on the platform and injured 17 others. Moreover, it caused the destruction of entire marine and wild life near the Gulf of Mexico. BP has not shown any reluctance in paying $20 billion as compensation to the victims of this accident even though the company faced bankruptcy later because of this huge compensation (Blum & Snyder, 2010). Shareholder Tang and Li (2009) mentioned that the differences in the views of Chinese and UK companies about CSR occur mainly because of the differences in relationship between the companies and its stakeholders in UK and China. In other words, stakeholders of Chinese companies are entirely different from that of UK companies. UK stakeholders are well aware of the broad meaning of CSR whereas Chinese stakeholders are still unaware of the exact meaning of corporate social responsibility. The arguments of Tang and Li are substantiated by the findings of Wang and Chawdhri (2009). They have conducted an extensive study to know more about the importance of relationship management in corporate social responsibility (CSR) and public relations functions in China. They found that even though Chinese companies know the importance of various CSR measures, they are ready to give importance only to charity works and disaster relief programs. O’Riordan and Fairbrass (2008) have stressed the importance of the communication between companies and its stakeholders in enhancing and managing stakeholder relations. In their opinion, stakeholder communication helps UK companies to exchange the views of the company and its stakeholders about corporate social responsibility each other. Such a communication will help the companies to realise their social, economic, and environmental obligations and also in identifying, evaluating, addressing, and balancing the demands of their stakeholders. On the other hand stakeholder communication is not so important in Chinese context. CSR reporting is very much important for the stakeholders of UK companies whereas such things are not much important in China. Agency theory seems to be relevant in explaining the above arguments. Agency theory explains problems that can exist in agency relationships; that is, between principals (such as shareholders) and agents of the principals (for example, company executives) (Fombrun, 2006). It should be noted that shareholders and company executives in the UK and China may have different views about the objectives of doing a business. UK shareholders are particular in enhancing the corporate image of their company and therefore the company executives do not have any reluctance in implementing suitable CSR measures to boost the company image. On the other hand, Chinese shareholders are not much interested in corporate image and they are keen on getting maximum returns for their investment. As a result of that Chinese company executives cannot spend more money for CSR measures. The study conducted by Liu et al., (2011) further supported the above arguments. They have identified the needs of greater corporate attention to societal needs in China. However, their findings revealed that companies in China are citing multiple reasons to stay away from their obligations with respect to corporate social responsibility. O’Riordan and Fairbrass (2014) conducted an extensive study to investigate the CSR practices of major pharmaceutical companies in the UK and concluded that CSR business practice in the UK is determined by a range of internal and external environmental factors. They found that 1) the business managers in UK’s pharmaceutical industry assume that stakeholders have negative views of the pharmaceutical industry, 2) there may be conflicts between stated company values and actual CSR practices/policies within the management process and 3) a major amount of management uncertainty prevails in the implementation of CSR because of the concerns about operational difficulties and stakeholder reactions (O’Riordan and Fairbrass, 2014). Liu, Jia and Li (2011) emphasised on the concept of CSR from a wider social and economic perspective. They argue that CSR is directly linked with positive growth for companies since it is known to elevate the image of the company /brand in the perceptions of the general public. CSR activities help build a bridge between the organisations and the society, resulting in improved social benefits for the consumers via philanthropic activities carried out by the corporations and improved revenues for the organisations due to positive response from the consumers. In a study carried out by Li et al., (2013) the authors offer an in-depth review of the various conflicts and debates surrounding the concept of CSR. The authors argue that one of the most significant aspects of CSR is disclosure and transparency. However in case of Chinese firms there is heavy emphasis on disclosure as most of the firms are state owned which in turn leads to positive firm performance. Conclusions To conclude, companies in the developing world like China and that in the developed world like the UK have different views about the dimensions and implementation of CSR. Developing world tries to limit the scope of CSR whereas developed world tries to expand the scope of CSR. For example, even worse performing firms in the UK are ready to give more importance to CSR. The people and the companies in the UK are well aware of the principles of CSR. UK firms believe that strong commitments shown towards CSR would help them in the long run. On the other hand, Chinese firms try to limit the scope of CSR. They usually give more importance only to the charitable aspect of CSR and less importance to the economic, environmental and social aspects of CSR. The institutional frameworks in China are helpful for the companies to put dust in the eyes of the people in the name of CSR and still able to develop properly. 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