The Impacts of Corporate Social Responsibility (CSR) on Chinese Business Success

To what extent does the Corporate Social Responsibility (CSR) of companies in the Chinese Technology Market impact business success.

With specific reference to The Alibaba Group and Baidu.

Introduction:

The research question is “To what extent does the CSR of companies in the Chinese Technology Market impact business success. With specific reference to The Alibaba Group and Baidu.” In this question, corporate social responsibility is the duty companies have to not only make a profit but contribute to the world’s issues because, along with consumers, they are partners in change. Business success is defined as a measure of the profit made by businesses and the positive reputation of it domestically and globally. Lastly, the Chinese Technology Market can be defined as the Chinese group of companies or organisations that sell technology or the use of their technology as the basis of their profit.

Companies researched and exploration of the information:

Due to the great firewall of China (Economy, The great firewall), even the biggest technology companies have been blocked in mainland China. There will be specific reference to The Alibaba Group which is an e-commerce company “founded in 1999” (Alibaba, History) and is known as the Amazon of China. E-commerce is defined as “the buying and selling of good and service… over an electric network, primarily the internet” (Rouse, What is e-commerce) so Alibaba allows shipping of goods all over the world in a similar fashion to Amazon, but has a larger domestic customer base because China has tripled the size of its middle class. This means that the amount has tripled on people who have over $10,000 in disposable income. (Feng, 8 reasons why). Alibaba’s market is also almost 4 times as large as the US market. (Wieczner, Alibaba is paying) Its CSR has caused it to achieve business success both domestically and globally. (Alibaba is paying) Baidu is the Google of China as it's a widely used search engine site “founded in 2000” (Lifewire, A Brief Overview). Its ethics are heavily criticized (Custer, Baidu’s problem) nevertheless it is still very successful.

These will be researched through my sources and strategic tools, which are the Root Cause (Fishbone) Analysis and the Stakeholder Analysis/Mapping.

Significance of Topic:

It’s necessary to research this question because CSR as a social trend is growing and the consumer’s global mindset is shifting towards being ethically correct and environmentally and socially friendly . There is a developing culture that the role of a business is to find the balance between making a substantial profit and also contributing to society socially and environmentally in a positive way.

(Bridges, Meanings of CSR)

Some may argue that CSR is just a term that businesses flippantly use to make their business sound more ethically sound and that the “real role of a business is to reduce discrimination and unemployment and primarily make profits” according to Milton Friedman’s wisdom (De Cremer, Huawei as a Case Study), however when more people are self-actualizing now more than ever, CSR’s importance is validated financially as well. Therefore, about how important it is when buying products, it’s to buy into a business’s philosophy that the reader then becomes better able to choose which businesses they support because consuming their product essentially means you are an ambassador for that company and whatever ethical policies and objectives -good or bad- that they hold. In addition, the Pyramid of CSR helps to understand this because it shows how now because of shifting consumer interest, the Philanthropic Responsibilities of the business are the most important in its success and shows that its Economic Responsibilities are playing less of a part in business success than things like ethics and legal responsibilities.

Methodology:

All of the sources for this paper are secondary as this paper is based on the CSR of companies and how that correlates to business success -nothing that requires sufficient primary evidence. The secondary mediums that are used are various websites including online magazines and newspaper articles, company websites and LinkedIn scholarly articles. Advantages of using websites and online articles were that there weren’t vast amounts of unrelated information as due to their short length, they were very concise and focused on the topic for the research question and company. There is very little bias as the academic tone of the articles included an impartial view of the article topic.

In addition, the credibility of the source must be considered which was countered by finding a variety of sources for each company, each saying a similar or the same thing.

Lastly, the only change to the methodology when progressing with my Extended Essay was that books were taken out as a source except for the IB textbook. This is because the volume of relevant information was extremely small and the information in general was quite inaccessible.

Tools:

Two tools of analysis were used: The Fishbone Analysis and the Stakeholder Analysis. The first is in order to derive and visualize the root causes of the issue regarding how the nature of the government skews the success of Chinese businesses and can have absolute power in determining which businesses are in China. The latter is to map the stakeholders and their interests on a power-interest scale.

Main Body, Analysis and Discussion

Fishbone Analysis

The aim of this fishbone analysis was to dissect the root causes of the Government’s impact on business success to hopefully find solutions because it’s not fair to businesses that do have positive ethical objectives but lose out simply due to overwhelming strength of competitor. A cultural change is changing the official language of your company to English so that it fosters a sense of camaraderie, respect and trust that the nature of Mandarin as a business language doesn’t have.

A Stakeholder Analysis is a process of systematically gathering and analyzing qualitative information to determine whose interests should be taken into account when developing and/or implementing a policy or program. It can help us understand which stakeholders the companies have to take into account when making a decision, in this case about ethical objectives and initiatives. In China, the government has control over the media which has control over how businesses are perceived so the businesses have to take extreme precaution in satisfying the needs of those two key players (Economy, The Great Firewall). Also, of course the consumers and owners are key players as well. The owners are also key players because China has a power structure in its business dynamic so it’s important to satisfy the owners. (Nie, Beyond Economy). The media would be in the keep informed category because those stakeholders can’t harm the business as much because they don’t have the power (Economy, The Great Firewall). However, the local community in China is a bit more powerful as they can cause stock changes if the unhappiness in the business is high. (Koetse, Baidu Scandal). The lack of diversity in businesses China allows businesses who have bad publicity and somewhat unhappy customers can still thrive, such as Baidu. (Koetse, Baidu Scandal). The CSR pyramid here in China is consequently more towards economic responsibility coming first, however the few companies who put philanthropic responsibility as a high priority are really successful not just domestically but overseas.

G= government

LC= local community

Me= media

S= suppliers

C= consumers

F= financiers

E= employees

O= owners

Ma= managers

Any decision will elicit a different reaction from each stakeholder as, from their position, they have a different view of the business. According to Lominé et al. “A stakeholder is an individual or group who has an interest, often financial, in the activities and success of an organization.” (page 56)

Alibaba and the CSR shift in consumer market

For Alibaba, the owner and Executive Chairman Jack Ma has high power and high interest in the company. He has lots of influence in the company, but high interest to focus on coordinating their business strategy and delivering profits and returns that satisfy shareholders. According to Lominé et al. (page 56) a key part of business strategy is their business objectives.

As an e-commerce company, one where customers have the choice to buy a product at the click of a button, one of the pillars of its success is its CSR pyramid. Highlighting importance for ethical objectives and policies in companies as a direct metric for success is true now more than ever, as shown by the CSR pyramid and that top 5 firms in philanthropy are really successful in China (Yan, Alibaba tops). Perhaps this social trend is what has attributed to the national Chinese company shift to more CSR. The role of businesses have changed, thus, so has nature of Chinese businesses. The social trends in the consumer market has become more ethically focused meaning that “9/10 consumers expect companies to do more than make a profit, but also operate responsibly to address social and environmental issues.” (Cone Communications). Alibaba in particular contributes via its subsidiary foundations tackling job opportunities, role of women, rural development and poverty (Alibaba Group, “Sustainability”). For example, “as of December 2016, it is estimated that [their] China retail marketplaces contributed to the creation of over 33 million direct and indirect job opportunities.” In addition, “[their] Chinese retail marketplaces supported the livelihoods of approximately 160,000 disabled sellers.” (Alibaba, “Sustainability”) Because they are a global business, they need to keep up their brand image and adhere to the wants of global consumers. “8/10 global consumers would be willing to consumer fewer products or buy from an unknown brand with strong CSR values”, (Cone Communications). What sets Jack Ma and Alibaba apart and has made them so successful is that they have understood this early: consumers are becoming increasingly sophisticated and personally accountable. They want to have a purpose when buying a product and want to feel empowered and significant in the fight for addressing the problems of this world. “Nearly, 72% believe their purchases make a moderate to significant positive impact on social and environmental issues.” (Cone Communications)

According to the Stakeholder Analysis, Alibaba has their consumers as key players because of their high sensibility to the market and what each company is doing so will take this into account. That’s why they tackle pertinent problems like poverty and women’s roles (Alibaba group, “Sustainability”) as these are issues that are being heavily talked about in society. Through its Poverty Relief Fund, Alibaba has committed US$1.5 over the next five years to help alleviate poverty (Alibaba group, “Sustainability”). In addition to working towards several of the Millennium Development Goals being ‘to eradicate extreme poverty and hunger’, ‘to promote gender equality and empower women’ and ‘to ensure environmental sustainability’, they are using that money on “China’s poor with a focus on education, entrepreneurship, empowering women and environmental protection.” (Long). This shows that they have great ethical objectives and have a strong sense of social responsibility. This is all part of the fund’s long standing commitment to give back to society. In this sense, media is a very powerful asset to Alibaba as it promotes them. According to Lominé et al. “media focuses on the impact of business in terms of new stories” (page 56). Also helping to promote Alibaba as a result of its CSR efforts are the consumers, which make it all the more successful. “80% would tell friends and family about a company’s efforts” and “72% would volunteer or a cause supported by a company they trust.” Lastly, “ 9/10 are likely to purchase based on companies’ responsible practices” (Cone Communications) so there is a direct link between profit and their CSR, and consumer affinity generally upsurges so, overall, they will have a more successful business.

This changing consumer culture is due to globalization and the advancement of technology, which allows people to spread trends faster and share mindsets. Consumer culture is the social norms revolving around the consumer market. Globalization is the growing economic interdependency and interconnectedness of businesses, franchises and companies that results from technological advances (World Health Organization, Globalization). This means that consumers have more access to technology so they are more aware of the issues and not in a bad way of them becoming desensitized. Their culture becomes more personally accountable because they have been empowered by others around the world. There is positive propaganda for being environmentally friendly everywhere in the Western World, so with corporations adding to this, consumers want to buy their products.

On the other hand, with regards to their products, some may say that it’s possible to find a negative in their business ethics, with Alibaba, this means their legal responsibilities in the CSR pyramid were neglected. This is because ‘US$1.7 trillion was declared to be fake goods according to the International Anti-Counterfeiting Coalition’. (Marco della Cava). However with this, this is to be expected to some degree because it’s a large company and it may be hard to manage it all. It’s a form of diseconomies of scale, where they had cost disadvantages because of having to spend money on trying to find all the counterfeit sellers. This shows that whenever they have a problem with their business ethics, they will do the best they can to solve it. They aren’t an inherently unethical company.

Alibaba is also known in China for how they treat their employees, for example employee rights and fairness is shown by their detailed code of ethics (Alibaba, “Code of Ethics”). It applies to everyone in the business so no one’s status is above treating people right. This is really important considering the cultural differences in leadership style in China versus the Western World. In China, there is usually more bureaucracy and there is a power dynamic, much like other East Asian countries where the directors and managers reign in the business and while strategically this is great, for fostering a collaborative and positive working atmosphere this is not (Flannery, On the front line). So their ethics have strategically allowed them to foster a better productive atmosphere as well. Their code of ethics says that they should comply with “the highest standards of business ethics” (Alibaba, “Code of Ethics”) and to make it clear they specify that the workplace must have the following values: respecting each other, information privacy, equal opportunity and non-discrimination and safety in the workplace (Alibaba, “Code of Ethics”), promoting privacy and dignity, respect and trust, all stakeholder values. Alibaba also uses Taylor’s reward-oriented motivation technique for employees by paying them more and stock compensation as financial rewards. Of Alibaba’s “$11.9 billion in revenue during those… three quarters, almost 15% of which went to stock-based compensation.” (Wieczner, Alibaba is paying)

(Yan, ‘Alibaba tops the charts on responsibility’)

They have thrived not only as an e-commerce company but also as a business that fights for social problems. This composes the core of what has made Alibaba so successful: the business philosophy that Jack Ma has communicated to the world being implemented in its operational culture and HR practices is what is giving Alibaba a competitive advantage not only in China but globally. Alibaba’s unique selling point is that it treats its employees well through financial rewards for example. (Wieczner, Alibaba is paying) This is it’s USP because in China there is a large development pressure and it’s the supplier of western companies’ products so profits would be the most important. (Flannery, On the front line)

In addition, it’s important when people like Jack Ma see their employees as more than just a means of production, especially in today’s world where people are looking for self-actualization/ mastery, purpose and autonomy, according to Pink’s theory (Tutor2u, Pink). Huawei has a similar USP and its focused on improving the environmental and social implications of its business. For example, part of its sustainability mission is to “deliver innovative technologies to make our world greener” (Huawei, Sustainability). In a growing economy like China, people are looking for these things and Daniel Pink’s method works as it’s becoming less of a BRIC, which is an acronym for rapidly developing countries. China has the stereotype for rapidly developing due to its factory industry but now they are also developing because of their CSR mindset. “Alibaba’s leaders will have to know how to help people to be more creative and give work a meaning from the heart. But we have confidence that companies like Alibaba can take leadership responsibility for the future not only for China but for the world.” (Audrey).

Overall, there are many benefits of better ethical objectives and policies, the biggest ones being business success and pristine brand image. There are little disadvantages and they only hover around extra cost for care of employees and environment and the startup of subsidiary foundations. However, these costs seem negligible when one considers the positive emotional feeling the person gets from feeling empowered by their job. There is also a fundamental shift in priorities. The business has adopted the priorities of society as the definition of the business’s purpose. If the businesses don’t evolve they will fall behind. Globalization and business culture celebrates innovation and developments so this technological market is moving fast.

Baidu as a Case Study

Baidu is also successful, but in contrast to Alibaba, it’s not internationally successful because it doesn’t manage it’s shareholders well, doesn’t understand the root causes of their problems and isn’t abiding by the CSR pyramid as a model for success. This is because it controls 61.6% of the Chinese search-engine market, approximately 660 million people use Baidu. (Lifewire, A Brief Overview) so the monopoly means there are no other comparable search engines. The public wants to use other search engines because their ethical reputation has decreased. This is mainly due to its hardships in the medical industry, especially with Wei Zexi (Koetse, Baidu Scandal highlights ethics). He is a dead college student who used Baidu to search the best medical practice for his sickness and died because the treatment was ineffective and untrusted. The backlashed ensued resulting in a “7.92% loss” (Koetse) on their NASDQ stocks afterwards. This is because “Baidu makes big money by offering different kinds of advertising, including so-called Paid Search (Koetse). For Paid Search, advertisers can choose keywords that potential customers may use to search the products or services they offer (Koetse). Their ads are then displayed at the top of the ‘related search’ result lists.” (Koetse) Thus they were criticized of worrying more about money that morality. With medical ads, they do this to over the line promote their treatments but this mass promotion could lead to a misconception that it must be reliable. These ads put Baidu in a difficult position because around “30% of their revenue come from these ads and if they try to stop them and be ethical, the hospitals organize a fit and threaten Baidu and it’s other medical clients.” (Custer, Problem goes deeper)

Overall, this shows that if a business gets the wrong balance of helping achieve social justice and aiming for profit such as giving in to the private hospitals advertisement cash instead of promoting hospitals with less risky and unreliable treatments, it can result in serious inhibition of business success and lack on international success It placed Economic responsibilities before legal and philanthropic responsibilities in the CSR pyramid and that caused the public opinion (from local communities) of Baidu to go down. Also, this meant that because they are in the ‘keep satisfied’ quadrant of the stakeholder analysis, and they have relatively high power and interest, they had a big role in causing the stock to decrease by almost 8% after the incident (Koetse). In addition, to become internationally successful, they had to realize that they have to break out of the mold of a traditional Chinese business model as that is focused on developing as fast as possible (Flannery, On the Front line) and as seen on the Fishbone analysis, that’s a cause for why they aren’t internationally successful. They need to take into account more public opinion and having CSR as a higher priority to be more successful as we have defined it.

Also, due to a more sophisticated and personally accountable consumer resulting from globalization and consumer culture, ethical policies are at the forefront of what makes a company internationally successful. This is rather than just domestically successful like Baidu. People didn’t like Baidu but they had to use it because there was no other internet search engine. Baidu was successful in profits but consumer values show true sustainable success come from its CSR mindset. We saw this by analyzing 3 companies and seeing that Alibaba and Huawei were the companies most revered for ethical objectives, and also most internationally minded and expanded. They were most successful overseas because of their ethical reputation. They capitalized on media for good publicity and understood a consumer’s perspective about what they want in a company.

Conclusion

There were a lot of sources to pull information from and this was beneficial during planning however, when writing, this got very overwhelming. The answer to the question, amongst research also became very clear as it’s hard to dispute the emerging ethical values of society and how it relates to business success when you have the qualitative data. My sources explained how Alibaba and Huawei’s ethical polices were very extensive and how Baidu’s ethical reputation was tarnished. These correlated with their international business success almost directly. However, to answer the question with absolute certainty, primary data would be needed to see the reaches of the companies both business-wise and also socially in addition to further researching online about their individual successes.

In conclusion, it’s clear that the CSR of a company will greatly influence its success. On one hand, seen in the Fishbone Analysis, as a result of the Great Firewall of China, all the big companies have been blocked so new companies have taken their place in China. This means that success is skewed so that even companies with a bad ethical reputation can still thrive solely based on the monopoly they have on the market, e.g. Baidu. Therefore, the government is a powerful stakeholder in the companies. They have absolute power when it comes to controlling these companies legally and that is a key component in their success. They can monopolize a market completely. Unlike in the Western Market where there is innovation, this power of the Chinese Government suffocates innovation and growth of new businesses, even though that was one of the main goals of Western Business being banned in mainland China.

Works Cited:

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Appendix:

CORPORATE GOVERNANCE

CODE OF ETHICS

ALIBABA GROUP HOLDING LIMITED

ALIBABA GROUP CODE OF ETHICS

(Adopted on September 2, 2014 by the Board of Directors)

Introduction

This Alibaba Group Code of Ethics (the "Code") applies to all directors, officers and employees of Alibaba Group Holding Limited and its consolidated subsidiaries, including variable interest entities that are consolidated pursuant to United States generally accepted accounting principles (collectively, "Alibaba Group" or "Alibaba", and each a "Group Company"), whether such individuals work for Alibaba Group on a full-time, part-time, consultative, or temporary basis (including employees outsourced from employment agencies or other entities) (each, an "Employee" and collectively, "Employees").

Alibaba Group is committed to the highest standards of business conduct in our relationships with each other and with our users, customers and suppliers, shareholders and other business partners. This means that while we should conduct our business in accordance with Alibaba Group's values and all applicable laws and regulations, we should also conduct ourselves in accordance with the highest standards of business ethics. This Code provides an outline of the fundamental principles and key policies and procedures that govern the conduct of our business. Alibaba Group shall have the sole discretion to construe and interpret this Code.

In this Code, unless otherwise specified, the following terms shall have the following meanings:

"Compliance Officer" means the person(s) in charge of the Internal Audit and Compliance Department and the Legal Department of Alibaba Group."Related Alibaba Group Policies and Guidelines" means the relevant policies and guidelines listed in Appendix I to the Code, as amended or superseded, and other such policies and guidelines as may be adopted by Alibaba Group from time to time.

This Code contains general guidelines for conducting the business of Alibaba Group consistent with Alibaba Group's values and the highest standards of business ethics, and applicable laws, rules and regulations. To the extent this Code requires higher standards than those required by local commercial practice or applicable laws, rules or regulations, Alibaba Group adheres to these higher standards. To the extent any of the Related Alibaba Group Policies and Guidelines contain provisions that are more restrictive on Employees than the policies and guidelines contained in this Code, Employees are expected to follow the Related Alibaba Group Policies and Guidelines.

Meeting Our Shared Obligations

Each Employee is responsible for knowing and understanding the policies and guidelines contained in this Code. Employees with questions are encouraged to ask them; Employees with ethical concerns are encouraged to raise them. The Compliance Officer (who is responsible for overseeing and monitoring compliance with this Code) and the other persons designated in this Code are available to answer Employee questions and provide guidance on how to comply with this Code, the Related Alibaba Group Policies and Guidelines and Alibaba Group's other standards of business conduct and how to report any suspected misconduct.

The conduct of all Employees should reflect Alibaba Group's values and promote a work environment that upholds and improves Alibaba Group's reputation for integrity and trust.