Adopting CSR as a company philosophy in China seems to be more challenging than could be expected. In this article, David De Cremer looks into an example of a Chinese company that has over the years grown into a major global player and in this process has developed a long-term vision embracing the goal of being a responsible value-driven organisation. This company is the telecom giant Huawei.
It is no secret that most businesses have adhered for a long time to Milton Friedman’s wisdom that business should only care about making profits for their shareholders. Since the outbreak of the financial crisis at the end of 2007 – early 2008, this trusted wisdom, however, has been challenged by many in society. An important question emerged: how can business aim to make a profit by also being socially responsible? As a result, the focus within the business world shifted to addressing the questions of what social function businesses have and how they can communicate, implement and manage those functions. One big challenge in this process is to make clear to the larger audience that the motives of companies are coloured by responsible and ethical values. Hence, the management strategy of Corporate Social Responsibility (CSR) was born. As the international magazine The Economist noted in 2008, “CSR has arrived” (19 January 2008, p. 24).
In many Western societies, CSR is now a well-accepted company philosophy, whereas in many emerging markets, CSR is still underway and its shape and implementation processes are not entirely clear yet. Looking at the biggest market in the world, China, several challenges clearly exist when it comes down to making CSR work. Overall, CSR as a concept is generally accepted very well in China. The fact that CSR is looked upon positively in itself is not such a surprise. The country’s history is shaped to a large extent by Confucian values emphasising the importance of building harmony and doing good. Despite Confucius, adopting CSR as a company philosophy in China nevertheless seems to be more challenging than could be expected. Particularly the fact that China is known as the factory of the world and a key supplier to feed western customer markets has not helped when it comes down to CSR. The norms and expectations that have emerged as a result of this focus on manufacturing and export has not fostered a business attitude that takes into account the welfare and well-being of their larger society (see, for example, the local problems with air and water pollution).
In more recent years, however, the results of this manufacturing economy have become more visible to Chinese citizens and business strategies and policies are increasingly being criticised more by society. This increased awareness has led to the situation that Chinese companies that want to go public have become more motivated to signal their social and environmental awareness/responsibilities to customers and stakeholders, both in China and outside of China. Moreover, because CSR is rapidly becoming a globally shared business value, evidence is also mounting that companies could achieve commercial success in ways that create social value for society and its members. This makes that CSR is not only an ethical imperative anymore, it has also grown into having economic value. These reasons have led to a stronger desire from Chinese companies to optimise their CSR implementation and execution. Despite this desire, very little persuasive examples of Chinese companies being able to balance sustainability, responsibility and profitable business are known. This is unfortunate because such examples could inspire and guide other Chinese companies to transform the Chinese business world and market into a more sustainable one.
Huawei as a Case Study
Here, I want to discuss such an example of a Chinese company that has over the years grown into a major global player and in this process has developed a long-term vision embracing the goal of being a responsible value-driven organisation. This company is the telecom giant Huawei. Huawei is considered the pride of many Chinese when it comes down to corporate achievement at both the local and global level. Huawei can be considered a Chinese company in its foundation, but one that has a global appeal (more than 40,000 non-Chinese employees – out of 170,000 – are employed), making that its DNA represent a mix of East and West. Its rise as an international leader was firmly established when in 2012, Huawei surpassed Ericsson as the world leader in terms of sales revenue and net profit. Ever since then, revenue has only increased each year. In the fiscal year of 2015 Huawei’s revenue reached CNY395 billion (US$60.8 billion) and CNY36.910 billion (US$5.68 billion) in net profit, which was an increase of 37% year-on-year (in 2014 revenue reached CNY288.197 billion (US$46.515 billion) and CNY27.866 billion (US$4.49 billion) in net profit.
The interesting aspect of Huawei is that it represents a Chinese example of how to put business first while at the same time being able to make profit in a responsible way. As one executive I interviewed noted, “While we pursue strong growth (see their impressive increases in annual sales revenue), we proactively fulfil our responsibilities worldwide as a corporate citizen.” Huawei is especially known for its relentless focus on customers and improving quality of services to this key stakeholder. Being an information and communications technology (ICT) solutions provider, their social purpose is completely built around this stakeholder, that is, they want to build “A better connected world”. Huawei believes in the idea that connectivity will be everywhere improving life for people even in the far reaches of the world.
Companies being driven by strong social purpose usually endorse one or several of these values: dignity, solidarity, plurality, subsidiarity, reciprocity and sustainability. Based on interviews with Huawei representatives, I identified that the values that resonate the most with their company were the following: reciprocity, sustainability, and solidarity. How does Huawei endorse and put these values in practice?
For any kind of business it is important that stakeholders adopt a positive attitude to you and that a sense of reciprocity is built. To establish such reality, a socially responsible company takes the first step towards their stakeholders to establish such a reciprocal relationship in which shared value is created. Huawei is no stranger to this idea as can be illustrated by their focus on two important stakeholders: their customers and their own work force.
A focus on customers: The founder of Huawei, Ren Zhengfei already argued in the early years of Huawei that everyone in the company had to turn their eyes to the customers and their backs to the bosses. For example, several years ago an institutional investor delegation led by Stephen Roach, chief economist for Morgan Stanley, visited the Huawei’s headquarters in Shenzhen. Such visits were usually made by venture investors hoping to get a buy in to Huawei. Ren Zhengfei asked Fei Min, his executive vice president of R&D, to entertain the delegation. Later, Roach said, in disappointment, “He was rejecting a team with $3 trillion.” The explanation by Ren Zhengfei was quite telling: he told us that he would meet any customer in person, no matter how small they were, but that Roach was not a customer. This example illustrates that Ren Zhengfei walks the talk by signalling that customers are the soul of the company and therefore the focus of the company.
A focus on employees: Huawei considers employees as their most valuable assets and key to retaining their competitiveness and leadership position in the long run. This focus is reflected in the way they provide appropriate career paths. The company invests heavily in employee training. For example, in 2013, an average of 37.29 training hours per employee was provided. In line with their ICT focus they have instituted an eLearning system to provide online interactive training that assists employees to enhance their capabilities. As of 2013, employees have attended eLearning training 3.32 million times.
Another important focus concerns health and safety. To battle air pollution, Huawei uses since November 2013 high-voltage electrostatic air purifiers at Beijing campuses. This initiative has led to a reduction of PM2.5 (particulate matters with a diameter less than or equal to 2.5 micrometres and considered responsible for lung cancer) to below 35, whereas the average outdoor levels are 298. Also food and water safety concerns are addressed by improvement of drink water quality by means of modernising water purification systems and employees are reminded and encouraged to monitor food safety for a healthier life.
The value of sustainability is crucial to Huawei’s long-term vision to create benefits for each stakeholder. One important reason why a focus on the long-term in itself is sustainable for Huawei is that the company is privately held. Not being a public company allows Huawei to work on its 10-year plans, while its competitors struggle to follow near-term fluctuations of the capital market. Furthermore, in line with Huawei’s focus on connecting people to make the world a better place, a long-term vision is needed as of today still about 4 billion people are not connected in the digital world thereby lowering their life quality as a result of being deprived from important opportunities and information.
According to Huawei, a healthy and steady development of the supply chain is the key to the sustainability of the entire industry chain. Huawei works hard to achieve sustainability but also pushes suppliers to conduct sustainability management. In fact, all suppliers must follow sustainability agreements with Huawei if they want to engage in any business activity with them. Huawei audits the performance of suppliers in terms of labour, human rights, the environment, social impact and their ability to comply with the Supplier sustainability agreement. In addition, suppliers also have to formulate plans to ensure continuous improvement, which is crucial for suppliers if they want to continue working with Huawei. Finally, in light of each of these requirements, each supplier also has to sign the honesty and integrity agreement. This agreement ensures fairness, justice, and integrity and prohibits bribery, unfair competition and fraud. Overall, about 95% of suppliers sign this agreement.
What the above signals is that Huawei believes that collaboration regarding sustainability will reveal better business. For this reason, Huawei collaborates with suppliers worldwide for the purpose of win-win development. This win-win idea is an important value for Huawei and is advocated by its founder’s philosophy that business is not only about winning by being a ruthless competitor rather it is winning by means of cooperation. As one executive explained, “Merely maximising our own interests is not a long-term strategy. Only sustainability can keep a company growing.”
This attitude and the fact that sustainability is part of Huawei’s global strategy and DNA is also a reason why employees want to join Huawei, which was illustrated by Huawei being considered an employer of choice by Linkedin 2015. Moreover, Huawei’s value-driven approach to adopt a cooperative mind-set in a competitive market can be illustrated by, for example, their efforts in the UK. Huawei has put much effort into convincing the British government and general public that they and their procedures can be trusted, by (a) setting up the Cyber Security Evaluation Centre in Banbury to ensure the quality of their equipment, and (b) cooperating with the GCHQ, the UK’s signals-intelligence agency, to ensure that the networking equipment and software is reliable and secure. In fact, one could even argue that the recent and growing success of Huawei in Europe can be attributed partly to their philosophy of developing cooperative relationships with competitors in the market.
Huawei supports the communities where they operate and contribute to their well-being. Closely related to the value of reciprocity they believe in the social power of giving back to the communities where they operate via social programs on education and entrepreneurship. In their efforts to contribute to local communities, Huawei depends to a large extent on the willingness of their employees to participate in these activities. This type of employee engagement is inspired by Huawei’s philosophy that doing good to their local communities is a strong incentive in itself.
The implementation of this philosophy varies from country to country. In China, the Charity Love Association is brought to life through which Huawei employees can volunteer to support educational initiatives. Related to this is the Dream Library program Huawei initiated that provides books to children in mountainous areas to help them, through education to achieve their hopes and dreams. In Australia the Huawei community Fund is created to offer Huawei employees the opportunity to apply for support from Huawei via cash donation. For example, Huawei Australia has made such donations to support study on children’s diseases and MediaPads to enable training for doctors and pediatric nurses in poor, remote areas that lack internet connectivity. This type of support is established so that Huawei’s employees are motivated to introduce inspiring ideas and initiatives to their communities. Finally, in the US, Huawei supports NGOs such as K to College, which is a non-profit organisation that operates free school and dental supply programs for underprivileged students in California.
Another way to ensure that communities benefit from Huawei’s key business, that is, to connect people, the company also creates value by measuring the value of solidarity through the Global Connectivity Index (GCI). This index measures how 50 nations are progressing with digital transformations using information and communications technology (ICT). Huawei believes that digitalising the economy will improve the quality of economic growth to ensure a sustainable tomorrow. Much work is still to be done because, for example, 41% of enterprises within EU borders are non-digital and only 2% of enterprises in the EU truly exploit digital opportunities.
Huawei sees contributing to communities (by means of education and social contributions), and assessing and monitoring (by means of GCI) as important strategies to create sustainability in a connected world that drives on reciprocity and solidarity. Indeed, it is their belief that for a country to fully realise its full potential, a strong relationship must exist between government leadership, a trained workforce and investment in supply-side ICT, all aspects that can be found in the three values that Huawei prioritises: reciprocity, solidarity and sustainability. And it is the combination of these three values (reciprocity, sustainability and solidarity) that makes Huawei a believer but most of all an important leader and example in the field of CSR for Chinese companies today and in the future. That such examples are needed is further underscored when looking at the Corruption Perceptions Index which indicates that China is currently ranked 100 out of 175 countries, scoring only 36 on a scale from 0 (highly corrupt) to 100 (very clean).
Of course, it is also necessary to note that in order to truly influence the larger audience, it is also necessary that customers are aware of the CSR activities that are initiated and how they reflect the values of the company. Especially, in China’s awareness among customers when it comes down to knowing the social purpose of companies is relatively low. Huawei tries to address this awareness challenge by conducting an annual survey among their stakeholders and shares these results in their Annual Sustainability Report which can be read via the corporate website and distributes results and CSR activities via social media. The company also organises several CSR and sustainability events to raise the awareness of their key stakeholders such as Huawei-CSR Europe conference, Huawei sustainability conference, and Huawei supply chain and sustainability summit. These events allow the key stakeholders to provide feedback to Huawei and exchange thoughts about what can be done more. Finally, Huawei, as a global company, is also involved in industry associations such as GeSI (Global e-Sustainability Initiative) to share best practices and alongside with customers identify new opportunities.
Chinese customers care more about the (financial) consequences of business strategies rather than the social motives of a company. As such, CSR is, although generally accepted, evaluated mostly in terms of “what” results it can achieve rather than “how” it achieves those results. Huawei does deliver the numbers and thus satisfies the what-question, but in contrast to many other companies in China, they also address explicitly how they do business. The notion of business ethics is continuously used as a quality indicator of how business is done, which entails, for example, demanding honest ways of doing business without bribery from their suppliers. In fact, in societies where feelings of ethics and trust are evaluated as relatively low (China reports each year lower scores on the trust present in their society), it is necessary that giant players like Huawei lead the change of how to do business if they ever want to change the rules of the business game and endorse higher values in the operation of their local markets. The continuous efforts of Huawei to bring the “how” and “what” together in their CSR strategy testifies to this ambition.
Featured image courtesy of: mediaonlinevn.com
About the Author
David De Cremer is the KPMG professor of management studies at the Judge Business School, University of Cambridge, UK, and a fellow of the Ruihua Innovative Management Research Institute at Zehjiang University, China. He is the head of the department of Organisational Leadership and Decision-Making at Judge Business School and was currently named one of the 2016 Global Thought Leaders on Trust. Before moving to the UK, he was a professor of management at China Europe International Business School in Shanghai. He is the author of the book Pro-active Leadership: How to overcome procrastination and be a bold decision-maker (2013) and his new book on The Huawei Story will be out in print in September 2016.