SIEMS Monthly Briefing 2011-08 Eng

8/4/2019 SIEMS Monthly Briefing 2011-08 Eng

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the PoliticAl DimenSionof Doing gooD:mAnAging the StAtethrough cSr in ruSSiAAnD chinA


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research augus t , 2011

i. introDuction 2

ii. DAtA AnD methoDS 4

iii. A tyPology of cSr-bASeD StAte

mAnAgement StrAtegieS 6

iV. how PoliticAl contextS influence

comPAnieS StAte mAnAgement

StrAtegieS 14

V. concluSion 22


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3I . In t roduc t Ion / 2 / I . In t roduc t Ion


i.introDuction

Corporate social responsibility (CSR) is conventionally defined as the so-cial involvement, responsiveness and accountability of companies in ad-dition to their core profit activities and beyond the requirements of the law.However, CSR has never been isolated from the political conte t whereinthe state deploys incentives and enforces policies to facilitate CSR. Thestate has instrumental reasons to promote CSR policies, which could beconducive to competing with other countries for foreign direct investment,

enhancing the domestic companies international competitiveness, as wellas maintaining social stability.

Doing good does has potential to serve the business interest. The po-litical dimension of this process in China and Russia is particularly important.States in China and Russia control crucial resources for the business, usedto intervene in the business operation and maintain a regulatory systemfull of uncertainty. They are able to generate pressuresfor compliance through formal regulations, administra-tive requests and normative influence. How companiesbuild, maintain and strengthen the relationship withthe state to respond to and manage these pressuresconcerns their survival and growth. CSR in this conte tcould be a useful tool for companies to access politicalresources and reduce political risks. This articles moveson from this observation to e amine the CSRs role in thebusiness-state interaction in China and Russia.

A political dimension of doing socially and environ-mentally good highlights a companys strategic role ofusing corporate social responsibility (CSR) to deal withthe state. This article proposes an idea of a CSR-basedstate management strategy. The CSR-based state man-

agement strategy refers to the strategic action (not subject to the states regulation or administrative request)that a company takes to influence the states agendaor to seek various forms of resources from the statethrough social-environmental practices.

This report provides a conceptual framework with empirical evidenceto help managers and scholars to understand the following points. First, ite plains how businesses use CSR in different ways to serve their need tomanage their relationships with the state. Second, it reveals how CSR-activecompanies in China and Russia seek state resources through CSR. Finally,this report e plores the difference between Chinese companies, Russiancompanies and multinational corporations (MNCs) from OECD countries interms of their adoption of CSR-based state management strategies.

The CSR-based statemanagement strategyrefers to the strategicaction (not subject tothe states regulation oradministrative request)that a company takesto influence the statesagenda or to seek variousforms of resources fromthe state through social-environmental practices.


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5I I . da ta and Methods / 4 / I I . da ta and Methods


ii.DAtA AnDmethoDS

We conducted a systematic content analysis of a majority of publicly avail-able CSR-related reports (CSR reports, sustainability reports, social reportsand non-financial reports) from China and Russia. We collected these reportsfrom public databases and the companies official websites. According to theestimated number of CSR reports in China and Russia 1, our database hascovered 64% of all Russian companies and 95% of all Chinese companiesthat have released a CSR report as of the end of 2009 2. We also included

all Chinese and Russian reports issued by foreign MNCs in the 2010 For-tune Global 500. Foreign MNCs in this report come from si OECD coun-tries (France, Germany, Japan, South Korea, the UK and the US), which allrank similarly high in their income and their human development indices incontrast to China and Russia. These si countries are also similarly commit-ted to the ideas of market economy and political democracy. We thereforetreat them as one reference group to e amine whether there is a systematicvariance in the CSR-based state management strategies across companiesoriginating from China, Russia and the OECD countries. This data collectionprocess yielded 660 companies and 664 reports 3, from which we analyzed1,097 te t segments 4 for evidence of how companies strategically interactwith the state in various CSR areas.

Through our content analysis, we identified a typology of CSR-basedstate management strategies 5. We then used a linear regression analysis tostudy how Chinese companies, Russian companies and OECD MNCs differthrough their strategy adoption. All regressions in this report control for thefollowing variables: CSR report length, CSR report age, reporting standard,firm size, firm age, firm ownership type, firm total operation revenue, firmtotal asset, a dummy of manufacturing industry vs. service industry anda dummy of e tracting industry vs. non-e tracting industry. We use thesecontrols because they may influence the companys reported choice of

state management strategies.

1 Russian Union of Industrialists and Entrepreneurs (RSPP) estimated that the number of non-financial reports inRussia reached 193 by October 2009, among which 112 were comprehensive social reports, 48 sustainability reports,and 33 environmental reports. The CSR Development Center at China WTO Tribune estimated that the number ofCSR reports in China reached 582 in 2009.2 The actual proportion of Russian reports should be higher because we focused on business enterprises while theRSPP statistics includes nonprofit agencies such as labor unions, universities or charities.3 Some OECD MNCs issued CSR reports in both China and Russia.4 A te t segment describes e plicitly how a company claims to strategically (not under force) deal with thegovernment or Party agencies in certain way. As the unit of analysis, one te t segment needs to meet three criteria:1) it clearly describes the reporting companys relationship with the state; 2) it includes at least one full sentence oran independent phrase; 3) it is about a unique case of business-state relationship that has never been mentionedelsewhere in the report. For e ample, if a company simply mentions twice that it develops a conference together withthe state about the topic of alternative energy, we count the te t segment as only once. It is important to note that ate t segment on the business-state interaction is not equal to an event or a program. This means a report may usemultiple te t segments, with differences on interaction nuances, to describe the companys work with the state in oneevent or program. For eample, a company may discuss how it negotiates with a government agency to initiate aconference and how it invites government officials to attend the conference. In this case, we count them as two te tsegments although they describe the same event.5 We took four steps to do the content analysis: confirming the analytical framework based on a pilot analysis,identifying possible locations of interaction cases in CSR reports, identifying the te t segment that indicate interactioncases, and categorizing interaction cases using the analytical scheme. The Cohens kappa on all four strategies islarger than .8 which shows a strong inter-rater reliability.


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7I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes / 6 / I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes


iii.A tyPology of

cSr-bASeD StAtemAnAgement

StrAtegieS

We used two frameworks to conduct a careful content analysis of 1,097cases of the business-state interactions described in the CSR reports. Thetwo frameworks respectively capture different aspects of the state systemthat the company deals with as well as the different approaches the com-pany uses to do this. We based our first framework on our observationthat when companies interact with the state through CSR, they either limitthemselves within or try to break through the boundary of the formal policy

arrangement and the public management capacity of the state. Indeed,the state prioritizes setting the rules of the game through formal policiesand solving social-economic problems through public management. Thebusiness-state interaction covered in CSR reports actually describe howcompanies CSR takes advantage of or influences the policy and the ca-pacity aspects of the state. In addition to our focus on policy-capacity, thee ploration-e ploitation framework of organizational strategies 6 is a usefultool to categorize the interaction cases. This frameworksuggests different ways a company can invest in social-environmental activities that may directly or indirectlyreward the business with state resources.

The e ploration-e ploitation framework helps usto distinguish two types of strategy choices. Compa-nies can either concentrate on currently available op-portunities in the state system to improve present re-turns or they can invest in new opportunities to improvefuture returns. Accordingly, two alternatives are pre-sent for companies to handle CSR. First, companiescan take CSR as an opportunity to change their statespolicy arrangement or to provide innovative solutionsthat enable their state to address social-environmental

issues in a more efficient or productive way. In return, companies couldbenefit in multiple ways, such as occupying a favorable competitive posi-tion under new regulations, e ploring new market opportunities throughCSR programs or deepening their partnerships with the state. Second,companies can also treat CSR as a socially desirable tool to appropriatestate resources available in the e isting policy arrangement. Alternatively,they can provide conventional solutions to strengthen the states e istingcapacity to solve social-environmental problems. Investing money to buildphysical public infrastructures such as schools, hospitals or museums is atypical way that a company can facilitate the states e isting public policyefforts. Although this kind of solution does not address the substantivecause of social problems, it can help companies to build and maintain

6 See March, J. 1991. E ploration and e ploitation in organizational learning. Organization Science, 2: 71-87.

Companies can eitherconcentrate on currentlyavailable opportunitiesin the state system toimprove present returnsor they can invest in newopportunities to improvefuture returns.


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9I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes / 8 / I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes


a relationship with states. The e ploitation strategy allows companies todeal with the state without challenging the incumbent rules of the gameor challenging the public sectors capacity. Our analysis suggests that wecan categorize companies state management strate-gies according to how they e plore or e ploit state poli-cies or capacities.

Through a content analysis, we identified four

types of CSR-based state management strategies.They are state policy e ploration, state policy e ploi-tation, state capacity e ploration and state capacitye ploitation. When we analyzed each interaction case,we decomposed the case into four aspects: 1, whetherthe case relates to a states policy or capacity; 2, thespecific form of the policy or capacity; 3, whether thecase involves e ploration (policy change or innovativesolution) or e ploitation (policy appropriation or con-ventional solution); and 4, the specific form of the e -ploration or e ploitation. We categorize an interaction case into one ofthe four strategies when the four aspects clearly fit into the theoreticalunderstanding of that strategy. Table 1 shows the analytical framework ofthese strategies.

Each strategy applies a distinct form of business-state interaction,takes a specific approach to generate social-environmental values, e -pects specific business returns from the interactionand applies a unique nature of CSR. The policy e plo-ration strategy aims to change the e isting policy ar-rangement on social-environmental issues, which maydirectly or indirectly serve the business interest. Com-

panies e ploring the state policy can potentially cul-tivate a favorable socio-political environment for theirbusiness. They therefore e plore long-term returnsfrom the state beyond what are currently available. Fore ample, a company may enjoy a competitive marketposition by lobbying for a strictly enforced greenhousegas emission regulation in the industry. CSR in this case acts as an agen-da to influence policies that relate to the value chain of the business. Thepolicy e ploitation strategy appropriates the e isting policy arrangementin social-environmental areas to seek state resources. Companies adopt-ing this strategy provide products or services to meet the states need inareas of policy priority. For instance, a bank can develop financial prod-ucts to serve small and medium sized enterprises (SMEs) in response

to the governments call to support SMEs. CSR in thiscase helps companies to legitimize and access newbusiness deals or business-related project opportuni-ties with the state.

The capacity e ploration strategy provides in-novative solutions that create new capacities for thestate to address social-environmental issues. This may

directly or indirectly serve the companies interests.Companies adopting this strategy are able to upgradethe states operational or decision making capacity inpublic policy domains such as education and publichealth. They do this by drawing on their business ortechnological e pertise to develop innovative CSR programs in targetedsocial-environmental areas. This may improve the conte t in which thecompany operates, boost the companys know-how and credibility in spe-cific policy areas and ultimately contribute to a lasting partnership with thestate. CSR is thus an agenda that e tends core business e pertise intothe social-environmental realm. Finally, the capacity e ploitation strategyseeks the state resources by utilizing conventional so-lutions that cater to and strengthen the states e ist-ing capacity to manage social-environmental issues.Companies could strengthen their personal relation-ships with government officials or even win policy privi-leges by engaging in conventionally used and officiallyrecognized social-environmental solutions. Commonlyused approaches include giving donations to the gov-ernment and working with the government to developawareness-raising activities in the local community.

CSR in this situation is unrelated or loosely related tothe companys core business. CSR becomes an agen-da for companies to do philanthropy or conduct short-term activities to take care of social-environmental wel-fare in e change of state resources. Table 2 describesthese strategies in detail. In the ne t part, we discusshow strategy adoption varies across Chinese companies, Russian com-panies and OECD MNCs.

The policy explorationstrategy aims to changethe existing policyarrangement on social-environmental issues,which may directly orindirectly serve thebusiness interest.

The policy exploitationstrategy appropriates

the existing policyarrangement in social-environmental areas toseek state resources.

The capacity explorationstrategy providesinnovative solutions thatcreate new capacities

for the state to addresssocial-environmental.issues.

The capacity exploitationstrategy seeks the stateresources by utilizingconventional solutions thatcater to and strengthenthe states existingcapacity to managesocial-environmentalissues.


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11I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes / 1 0 / I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes


tAble 1: AnAlyticAl frAmeworK of buSineSS-StAte interAction cASeSStrategytype

Company Te t quote Framework1: policy vs.capacity

Form of policyor social solu-tion

Framework2: e plorationvs. e ploita-tion

Form ofe ploration ore ploitation

Social-en-vironmentalvalues/areas(self-claimed)

p ie -i

Mary Kay (US) We assist theprovincial health &hygiene superviso-ry agency to drafta regulation onGood Productionand ManagementPractice

Industrypolicy

Regulation onGood Pro-duction andManagementPracticeabout healthand hygiene

Policychange

Providingprofessionaladvices onpolicy change

Health

TCL (China) Our board chair-man proposedto speed up theestablishmentof a regulationon the flat paneltelevisions energyconsumption stan-dards

Industrypolicy

Regulation onthe energyconsumptionstandardsof flat paneltelevision.

Policychange

Appealing forpolicy change

Environment

Unified EnergySystem (OAORAO UES)(Russia)

We have madepropositions to theMinistry of Energyabout Environ-mental Security inthe Electric PowerIndustry.

Industrypolicy

Policy on theenvironmentalsecurity inthe elec-tronic powerindustry

Policychange

Providingprofessionaladvices onpolicy change

Environment

p ie i-

i

BASF (Ger-many)

BASF providesinsulation technol-ogy for the Nanjingcity governmentsEnergy-EfficientBuilding project

Public policy The localgovernmentspublic policyon environ-ment protec-tion

Policy ap-propriation

Developingbusiness dealswith local gov-ernments in thearea of policypriority

Environment

NationalDevelopmentBank of China(China)

We signeddisaster recoveryagreements withgovernments of

the Chengdu city,Mianyang city

Public policy States disas-ter recoverypolicy


Developingbusiness dealswith local gov-ernments in the

area of policypriority

Disaster relief

Federal GridCompany ofUnified EnergySystem (FGCUES) (Russia)

We are introducedin the Ministry ofEnergys five-year investmentprogram with totalfunding of

Industrypolicy

States indus-try policy onnational en-ergy security


Getting in-volved in state-sponsoredprojects inareas of policypriority

National En-ergy Security

c -i

e -i

Coca Cola(US)

We are workingwith the Chinesegovernment todevelop a sustain-able post-con-sumption recyclingmechanism...

State capac-ity

State capacityin facilitatingthe recyclingof post-consumptionwastes.

Capacity in-novation vianew solution

Adopting neworganizingmechanisms:Newly-devel-oped post-consumptionrecyclingmechanism

Environment

Lenovo(China)

Lenovo (China)partnered with theCommunist YouthLeague to launcha Rural YouthStartup Promotionproject. It providestrainings based onLenovos county-level suppliers

Statecapacity

State capacityin facilitatingthe employ-ment andeconomicdevelopmentin rural areas

Capacity in-novation vianew solution

Adopting neworganizingmechanisms:Large-scaledtechnologicaltraining in ruralareas based onthe private busi-ness suppliernetwork

Employment,Rural devel-opment

c -i

e i-i

Hitachi (Ja-pan)

Hitachi (China)works with theWuhan citygovernment tolaunch the HitachiE hibition 2008 topromote the ideaof environment-friendly society

Statecapacity

State capac-ity of raisingthe publicsenvironmentawareness

Capacity re-inforcementvia conven-tional solution

Initiating shortterm activitiesto assist thestate to raisethe publicsenvironmentawareness

Environment

China Machin-ery IndustryGroup Co.,Ltd. (China)

We donated100,000 US dollarsto assist the Burmagovernment torecover from thetropical stormdisaster

Statecapacity

State capacityof recoveringfrom the dam-age causedby naturaldisasters


Making dona-tions to addfinancial re-sources for thestates disasterrecovery

Disaster relief

Eurochem(Russia)

We support hock-ey for children andyouth through apublic-private part-nership modelThe program is runjointly with the Min-istry of Sport

Statecapacity

State capacityin facilitatingthe sport de-velopment


Conductingphilanthropyto assist andadd financialresources forthe state todevelop sport

Sport


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13I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes / 1 2 / I I I . a typology of cs r -Based s ta te ManageMent s t ra tegIes


tAble 2. A tyPology of cSr-bASeD StAte mAnAgement StrAtegieSStrategytype

Definition How the companyinteracts with the state

How the companycreates social-envi-ronmental values

How the businessmight be rewarded

What is the nature ofCSR

p ie -i

Creating new policyarrangements onsocial-environmentalissues, which maydirectly or indirectlyserve the businessinterest

Policy change:1. Appealing for policychange2. Providing profes-sional advices onpolicy change3. Participating in thelegislation process

Creating values byimproving regulationsand policies on social-environmental issues

Rewarding thebusiness through afavorable competitiveposition under newpolicy arrangementsor through strength-ened state relation-ship that may enableaccess to stateresources

CSR is an agenda toinfluence policies thatrelate to the valuechain of the business

p ie i-

i

Appropriating thee isting policy ar-rangement in social-environmental areasto seek for businessinterests

Policy appropriation:1. Developing busi-ness deals with thestate in the social-environmental areassupported by e istingpolicies2. Getting involved insocial-environmentalprojects sponsoredby e isting policies

Creating values bydoing business withthe state or carryingon state-sponsoredprojects that havesocial-environmentalimplications

Rewarding the busi-ness through access-ing state resourcessuch as businessopportunities, tradingincome, subsidies,grants or ta benefits

CSR is byproduct ofdoing business withthe state or carryingon state-sponsoredprojects in social-environmental areasthat enjoy the policysupport.

c -i

e -i

Providing innovativesolutions to createnew capacities forthe state to addresssocial-environmentalissues, which maydirectly or indirectlyserve the businessinterest.

Capacity innovation:1. CSR project basedon technological in-novation2. CSR project us-ing new organizingmechanisms

Creating valuesby providing newsocial-environmentalsolutions such astechnological innova-tion or new interven-tion mechanisms

Rewarding thebusiness througha better-performedpublic sector orthrough strengthenedstate relationship thatmay enable access tostate resources

CSR is an agenda toutilize core businesse pertise to addresssocial-environmentalissues, through part-nership with the state

c -i

e i-i

Utilizing conventionalsolutions to reinforcethe states e istingcapacity of managingsocial-environmentalissues to seek stateresources.

Capacity reinforce-ment:1. Making donationsto the state2. Initiating short termsocial-environmentalactivities with the state3. Participating ingovernment-runsocial-environmentalactivities4. Conductingphilanthropy throughagreements with thegovernment

Creating values byproviding convention-al social-environmen-tal solutions such asdonation or buildingschools

Rewarding thebusiness throughstrengthened staterelationship that mayenable access tostate resources

CSR is an agenda do-ing of philanthropy orshort-term activities totake care of social-en-vironmental interestsin e change of stateresources. CSR isonly loosely related tothe core business.


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15IV. how pol I t Ica l contex ts Inf luence coMpanIes s ta te ManageMent s t ra tegIes / 1 4 / IV. how pol I t Ica l contex ts Inf luence coMpanIes s ta te ManageMent s t ra tegIes


iV.how PoliticAl

contextSinfluence

comPAnieS StAtemAnAgement

StrAtegieS

POLICY ExPLORATIONWe compared CSR-active companies in China and Russia with OECD MNCsthat operate in China and/or Russia with regard to their adoption of the fourstrategies. We found that OECD MNCs are significantly more likely to e plorepolicy boundaries of social-environmental issues than are Chinese compa-nies, whereas Russian companies e plore policy boundaries about as muchas OECD MNCs do. The policy e ploration strategy has the potential to

change the rules of the game in certain social-environmental areas. The mul-tinational energy giant Shell urges host countries to establish or improve theirpolicy frameworks on CO 2 reduction. Shell makes it clear that their purposeis to become the leading CO 2 reducer as soon as the new policy is adopted.Celanese, the global chemical product producer, endeavors to lead the civicvoice calling for changes in public and business policies that have the poten-tial to impact the social-environmental issues in the industry.

Large MNCs have been practicing the policy e ploration strategy fordecades with the aim to get ahead of government regulation. This behaviorreflects the business-government relationships in developed countries thatfeature an active role of the business in the transformation of public poli-cies. An instrumental motivation for companies to take on this strategy isthat it is more costly for them to take on responsible actions under forcethan to have a public policy that requires all firms to take similar action. Anearly e ample is DuPont aggressively pushing for new environmental poli-cies in early 1990s under the pressure of environmental activists.

Russian companies actively e ercise this strategy as well. RAO UESof Russia, SUEK, Rosatom and several other energy companies are in-volved in the environmental legislation of the industry. State-owned bankssuch as Vnesheconombank and Bank VTB make efforts to influence poli-cies that could e pand investment opportunities of the State Management

Company, strengthen the banks support for small a nd medium enterprisesor e pand investments into economic sectors with national priority. UnlikeOECD MNCs, which utilize political activities to address the social-environ-mental impact of their core business, Russian companies policy e plora-tion focuses on national energy security and on the macro social-economicdevelopment of the country.

Policy e ploration is an unfamiliar strategy for most CSR-active Chi-nese companies regardless of their ownership type. For Chinese compa-nies who do engage in the legislation process, the ambition is different fromOECD MNCs. While Chinese companies advance restrictive rules to reducethe negative social-environmental impact generated by all companies in theindustry, they also e plicitly use policy efforts to serve the macro-economicprogress, such as industry upgrades and market competition. For e ample,Sinopec and COSCO proactively promote anti-trust legislation. TCL is ap-


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pealing for the draft of a new regulation on the energy consumption stand-ard of flat panel televisions. Tencent has been pushing forward the issue ofregulations to protect intellectual property on the internet.Taking care of themacro market and industry development issues indicates a locally-definedscope of CSR for Chinese companies. The point is that Chinese compa-nies, Russian companies and OECD MNCs differ in terms of the intensity ofthe strategy adoption and the policy area they e plore.

POLICY ExPLOITATIONUnlike policy e ploration, which potentially generates business returnsthrough changes in the regulatory system, a company using the policy e -ploitation strategy looks for direct material resources. Companies adoptingthis strategy sell products or services to the state or get involved in state-sponsored projects in areas of policy priority. When the company securesbusiness with the state or access to a state project, it will be rewarded withtrading income, subsidies, grants or policy support. Correspondingly, thereare two basic forms of this strategy: building business deals and carrying ongovernment projects. This strategy does not try to change the rules of thegame or create new state capacities to solve social-environmental problems.Since companies focus on policy areas concerning public interest, social-environmental values are inherent in their business deals or in project agree-ments with the state. For e ample, BASF provides insulation technologyproducts to serve the Nanjing city governments policy of developing energy-efficient buildings. FGC UES Russia accesses the Ministry of Energys five-year investment program, which aims to secure the national energy supply.

We found that Russian companies and Chinese SOEs are far moreactively appropriating e isting policy domains that contain social-environ-mental implications than are OECD MNCs. Russian companies and Chi-

nese SOEs hold more e tensive discussions about their businesses or pro-ject relationships with the state. Fifty-five percent of all Chinese SOEs and83% of all Russian companies that have revealed their interactions with thestate have described the activities they employed to obtain trading incomeor government sponsorship. Contrastingly, the percentage of all OECDMNCs involved in the state that have also revealed such activities is a mere17%. Policy e ploitation seems to be a much more popular state interac-tion strategy for Russian companies than for OECD MNCs, regardless oftheir ownership type. One reason for this could be that CSR-active privatecompanies in Russia are often former SOEs that still have strong businessconnections with the state.

The particular form of policy e ploitation varies by conte t as well.OECD MNCs business trade with the state, as presented in their global CSRpractices, characterizes technology-based products or services that e plicit-

ly address the social-environmental needs of local conte ts. DuPont providestraining and consulting services to multiple governments to build more envi-ronmentally friendly and safer working spaces. OKI, the Japanese electronicsmanufacturer, sells a specially designed automatic ticket selling system thathelps local transportation departments to more efficiently control transporta-tion flow. In contrast, Chinese companies e pect CSR in business relation-ships to contribute to national interests. For e ample, pharmacy companies

seek contracted services for national medicine reservation. Banks makeloans to national major construction projects and disaster recovery projects.Transportation companies take business from events of national importancesuch as the Olympic game. Additionally, Chinese companies seek the statesfiscal support by either carrying on established government projects or byturning their own projects into a national policy framework. For instance, steelcompanies apply for subsidies for their state-supportedemission reduction programs. Banks receive e clusivebusiness deals from the state by integrating financialservices into the social welfare system. CSR-activecompanies in Russia are often SOEs or former SOEsthat have traditionally strong business relationships withthe state. Their products and services to the state havedirect impacts on the local social-economic welfare,such as energy security, financial security or physi-cal infrastructure construction. According to RussianSOEs, taking care of national interests and the generalsocial-economic development seems to be e change-able with social performance. For e ample, VTB bank argues that loaning tolocal governments is a social project, because the money will go to publicservices.

CAPACITY ExPLORATIONWe found that OECD MNCs are far more active than Chinese and Russiancompanies in utilizing their business or technological e pertise to develop in-novative CSR projects. These projects are able to create new capacities forthe state to address social, economic and environmental issues of policy pri-ority. This is consistent with the e isting observation that MNCs often need tobuild up local governmental capacity in order for their CSR efforts to take ef-fect 7. Companies adopting this strategy offer new solutions through techno-logical or mechanism innovation for important public policy territories, suchas education or public health. For e ample, IBMs Kidsmart program provides

7 Ward, H. 2004. Public sector roles in strengthening corporate social responsibility: Taking stock. Report forCorporate Social Responsibility Practice of the World Bank Group.

According to RussianSOEs, taking care ofnational interests and thegeneral social-economicdevelopment seems to beexchangeable with socialperformance


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comprehensive and innovative education services rangingfrom physical infrastructure to pedagogy to parent trainingfor public schools in developing countries. The educationauthorities of multiple countries have incorporated this pro-gram into their national education reform policies. Unilevercooperates with local governments in China to develop atechnological base for the manufacturing, processing and

distribution of organic agricultural products. The projectprovides a model for governments to upgrade the workin two public policy spheresenvironment and rural de-velopment. DSM, the global giant in bio-based products,has brought its nutrition facilitation project to China. DSMcooperates with the National Center for Disease Control and Prevention to pro-vide comprehensive intervention activities in schools for children of migrantworkers.

This strategy e pands e isting ways that the state has organized so-cial-environmental activities. In addition, some projects also aim to buildup the states basic operational and decision-making capacities. For e -ample, BP trains local government officials in Indonesia how to manageassets, how to conduct accurate accounting and how to plan their budg-ets. The capacity e ploration strategy resembles the concept of corporateshared value 8. This concept describes social or environmental programsthat can enhance the business performance along the companys valuechain and simultaneously create value for stakeholders. The difference isthat companies e ploring state capacity have a particular interest in obtain-ing state-related resources to sustain their growth, often in countries withless-developed regulatory and public management systems.

Although most Chinese companies active in CSR have not e plicitly

started a capacity e ploration strategy, there have been a few recent casesof Chinese companies utilizing technological advantages to develop newapproaches that facilitate the macro social-economic progress. For e am-ple, Alibaba launched multiple projects with local governments to assisthundreds of thousands of small and medium enterprises to use e-com-merce. Lenovo works with the Ministry of Education to develop computerproducts specific to the needs of rural businesses. Their training programshave reached more than 20 millions farmers. In contrast, Russian compa-nies almost uniformly skip this strategy in the report of their social-environ-mental efforts. MNCs high level of involvement in the policy and capacitye ploration strategies helps them to lead the global emergence of CSR

8 See Porter M., Kramer M. 2011. Creating shared value: How to reinvent capitalism--and unleash a wave ofinnovation and growth. Harvard Business Review.

institutions 9 in both policy and technology domains. Chinese and Russiancompanies are new to developing systematic CSR programs that closelyalign with the core business. In a global sense, they are lagging behind incontributing to the global and regional standard setting and the state ca-pacity building on social-environmental issues.

CAPACITY ExPLOITATION

Companies are able to mobilize the states resources through philanthropyor by investing in acti vities loosely related to their core business. Comparedto capacity e ploration, capacity e ploitation does not provide new ap-proaches or create new capacities for the state to solve social-environ-mental problems. These companies seek the states resources or protectagainst political risk by assisting the state to use e isting methods to ad-dress social-environmental problems.

Compared to OECD MNCs, Chinese and Russian companies operatein a conte t where the state has e tensive control over domestic economiclife and the level of uncertainty in the implementation and enforcement oflaws is comparatively high. These companies often need to secure busi-ness survival or reduce regulatory uncertainty by accessing tangible or in-tangible state resources. Skillfully doing social good may open a door forcompanies to enter a deeper level of value-based or affection-based rela-tionships with government officials. The state e pects the business sectorto invest more in social-environmental welfare. Some states promote CSRthrough guidance, while some more aggressively push it through regula-tory or non-regulatory devices such as administrative requests or social-economic partnerships. The pressure often leads to symbolic compliance.Meanwhile, for government officials, philanthropy or nonprofit causes maybe conducive to their political careers or may provide an attractive place

for retirement. All this provides companies the option to adopt conventionaland short-term social solutions that can provide e tra resources for thestate to handle social-environmental problems and meet the states e pec-tations regarding CSR. Building physical infrastructures, making donationsor developing short-term advocacy activities are popular approaches. Inreturn, the strengthened state relationship may grant a company prestig-ious policy status or protect it against the impact of an uncertain regulatoryenvironment or even against direct political harassment.

Since OECD MNCs feel pressures to overcome the liability of foreign-ness in developing countries, we assume that their CSR marks a similarlevel of capacity e ploitation compared to the levels of Chinese and Russian

9 See Waddock, S. 2008. Building a New Institutional Infrastructure for Corporate Responsibility. Academy ofManagement Perspective. 87-108.

OECD MNCs are far moreactive than Chinese andRussian companies inutilizing their business ortechnological expertise todevelop innovative CSRprojects.


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companies. We actually found that Chinese companies and OECD MNCs aresimilarly active in adopting the capacity e ploitation strategy, while Russiancompanies are significantly more aggressive. Again, the particular form ofpractice varies. We found four basic ways that companies currently e ercisethis strategy. First, companies donate money, products or other materials tothe state, especially for natural disasters, poverty reduction or national events.They are basically one-off activities that companies conduct in e change for

enhanced visibility and official recognition. Second, companies work with thestate to initiate short-term activities such as conferences, tree planting ac-tivities or scholarship programs. Third, companies support or participate inshort-term social activities run by the government. Chinese companies andOECD MNCs often get involved in government projects for environmentalprotection, health promotion or community services. The above activities aremainly undertaken by Chinese companies and OECD MNCs.

Russian companies use a unique form of capacity e ploitation. Rus-sian companies develop long-term social projects through formal agree-ments with the government that follow the governments social partnershippolicy framework. Under such an agreement, the company may provide asocial insurance scheme for employees or conduct environment protectionactivities in the local community. The companys social investment is oftenlong-term, because it wants to sustain its operation in the local area by gain-ing continuous support from the state. Several Russian companies haveclaimed that investing in social programs helps them to avoid political risks.

The large Russian companies in our dataset tend to integrate business re-lationships and continuous social programs in the same plan of cooperation withthe state. A Russian company may promise to pay more ta es and invest in localsocial programs. In e change, the government is likely to support the companythrough sharing local development plans and setting up favorable policies to e -

pand the local demand for the companys products. Therefore, there are directeconomic benefits of investing in social programs seemingly unrelated to thebusiness. For instance, a coal mining company in Russia may set up an agree-ment with the government to resettle slums and shelters and to develop socialhousing programs. Like many other companies, Vyksunsky Metal Plant stressesa need to assist the government to build social infrastructures of the city. Thiswork neither draws on their business e pertise nor i s directly related to their corebusiness. This type of public-private partnership is rarely seen among Chinesecompanies or OECD MNCs. This public-private partnership is institutionalizedin Russia through regulations associated with the states support of investmentactivities in local regions. What many Russian companies e pose in CSR reportsis that how well a company can operate in the local region is to a large degreedetermined by how well it addresses the social and economic needs of localgovernments. In contrast, Chinese companies and OECD MNCs are character-

ized by a relatively informal connection between social activities for relationshipbuilding and business engagement with the state.

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Russian companies vs. Chi-nese companies

p i i MNC more active* Similarly active Russian companies moreactive*

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23V. conc lusIon / 2 2 /V. conc lusIon


V. concluSion This report e amines an under-studied aspect of the business-CSR-staterelationship, which is the interconnection of the political conte t, the CSRand the business enterprises state management strategy. We propose aconcept of CSR-based state management strategy and provide evidenceto show that the political conte t is able to influence what counts as sociallyand environmentally responsible for companies and shapes the particularform of business-state interaction. We found that: 1) CSR-based state man-

agement strategies take on four forms with regard to how they e plore ore ploit the states policy or capacity; and 2) the adoption of these strategiesvaries systematically between Chinese companies, Russian companiesand the OECD MNCs operating in these two countries.

CSR in the each strategy plays a distinctive rolein the companys agenda to influence the state and toobtain state resources. A company can lobby for or par-ticipate in the change of the policy environment on so-cial-environmental issues; appropriate the establishedpolicy support in certain social-environmental areas;create new capacities for the state to address social-environmental problems; or simply seek the states rec-ognition and trust by doing good to facilitate the statespublic services. We argue that while the political conte ts provide incen-tives and constraints for companies to behave in certain ways, companiesretain the power to make choices. This report reveals the pattern of whatcompanies are currently doing and the pattern of alternatives.

We also point out how Chinese and Russian companies are differentfrom OECD MNCs in terms of their state relationship management throughCSR. OECD MNCs are significantly more active than Chinese companiesin lobbying for or participating in the draft of new policies regarding so-

cial-environmental issues. They are also far more active than Chinese andRussian companies in e tending their business or technological e pertiseto develop lasting and innovative CSR projects. These projects provide anew set of approaches for the state to manage social-environmental issues.Russian companies and Chinese SOEs are significantly more active in ar-eas locally defined as of social importance, such as rural development ornational energy security. They are hence more active than OECD MNCs toseek tangible state resources such as trading income, subsidies, grants orta benefits in these areas through doing business with the state or access-ing state-sponsored projects. The regulatory restriction on foreign MNCsindustry entrance may account for this situation to some e tent. Finally,both Chinese companies and OECD MNCs actively gain trust from andstrengthen relationships with the state by making donations and initiating orparticipating in short-term social-environmental activities. Russian compa-

CSR in the each strategyplays a distinctive role inthe companys agenda toinfluence the state and toobtain state resources.


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25V. conc lusIon / 2 4 /V. conc lusIon


nies are even more aggressive in dealing with the statethrough conventional social solutions, but in a uniqueway. They develop long-term social projects under for-mal agreements with the government. They tend to re-ceive direct state support by investing in social activitiesseemingly unrelated to their core business.

The CSR-based state management strategy sug-

gests that CSR is not simply a spectrum ranging from aphilanthropic end to a strategic end. The first take-awayfrom this report is that the approach through which com-panies use CSR to serve the business agenda variesin different political conte ts. In China and Russia, theutility of CSR practice and the value of CSRs alignmentwith business activities will only be partially understood if we do not takeinto account the political conte t and the companys political strategy. Phil-anthropic activities seemingly unrelated to the business value chain couldactually play a crucial role in mobilizing state resources to facilitate thebusiness development. Another implication of our analysis is that neithera response to regulatory pressures nor voluntary philanthropy is able tocapture the full picture of CSR in China and Russia. Chinese and Russiancompanies treat CSR as an e tension of their conventional efforts to seeklegitimacy with the state. The CSR-based state management in China andRussia is more implicit in the background of the politi-cal conte t, which is composed of a network of regula-tory and non-regulatory forces 10. In contrast, the CSRof OECD MNCs is more e plicit, considering their vol-untary incorporation of the state relationship into theirown CSR agendas to simultaneously address selected

social and environmental issues and access the politicalcapital.

Finally, this report shows that Chinese and Russiancompanies have not been proactively using state interac-tion as an opportunity to e plore new institutional capaci-ties for the social-environmental progress of the country.CSR-active companies in China and Russia are rela-tively ine perienced in developing a CSR agenda closelyaligned with their core business. Even more rarely donefor these companies is using CSR to deal with the state ina way that may reward the business with improved public

10 See Matten, D., & J. Moon. 2008. Implicit and eplicit CSR: A conceptual framework for a comparativeunderstanding of corporate social responsibility. Academy of Management Review. 33(2): 404-424.

management and policy environment. While OECD MNCs tend to act as rulechangers and capacity builders to pursue long-term returns through CSR,the role of Chinese and Russian companies resembles the roles of businesspartners and resource traders who use CSR to seek a license of growth.In other words, their CSR-based state management is characteristic of le-gitimacy building rather than of environment manipulation. In a global sense,Chinese and Russian companies are lagging behind in contributing to the

global and regional standard setting and state capacity building on social-environmental issues.

AUTHOR:Meng Zhao, Ph.D. (Research Fellow at SIEMS)

EDITOR-IN-CHIEF:Sam Park, Ph.D. (President of SIEMS)

CONTACTS:[email protected]

While OECD MNCs tendto act as rule changersand capacity builders to

pursue long-term returnsthrough CSR, the roleof Chinese and Russiancompanies resembles theroles of business partnersand resource traders whouse CSR to seek a licenseof growth.

Philanthropic activitiesseemingly unrelated tothe business value chaincould actually play acrucial role in mobilizingstate resources tofacilitate the businessdevelopment.


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2 6 /V. conc lusIon

research augus t , 2011 research june, 2011

27

SiemS reSeArch monthly briefingS

Vol. 09-01 The global financial crisis: impact and responses in China and Russia (February 2009).Vol. 09-02 Managing through the global recession: Opportunities and strategic responses in China and Russia(March 2009).Vol. 09-03 Global e pansion of emerging multinationals: postcrisis adjustment (May 2009).Vol. 09-04 Operational challenges facing emerging multinationals from Russia and China (June 2009).

Vol. 09-05 MNC Operations in Emerging Markets: Post-Crisis Adjustments of FDI Inflows in China and Russia(August 2009).Vol. 09-06 Is Demographics Destiny? How Demographic Changes Will Alter the Economic Futures of the BRICs(September 2009).Vol. 09-07 E ecutive leadership structure in China and Russia (December 2009).Vol. 10-01 Size Matters: Just How Big Are The BRICs? (January 2010).Vol. 10-02 Decoupling Revisited: Can the BRICs Really Go Their Own Way? (February 2010).Vol. 10-03 The New Geography of International Trade How the Emerging Markets are Rapidly ChangingGlobal Trade (March 2010).Vol. 10-04 Chief E ecutive Officer Turnover in China and Russia: Implications for Corporate Governance andStrategic Management (April 2010).Vol. 10-05 Sovereign Wealth Funds and the New Era of BRIC Wealth (July 2010).Vol. 10-06 Corporate Giants and Economic Growth A Case for China and Russia (August 2010).Vol. 10-07 Is Low Wage Manufacturing in China Disappearing? - Who will be the Worlds ne t Workshop? (No-vember 2010).Vol. 11-01 The New Oil Paradigm: Can the Developing World Live with $100 Plus Oil? (January 2011).Vol. 11-02 Beyond Business, Not Beyond Government: How Corporate Social Responsibility Leaders in Chinaand Russia Do Philanthropy (February 2011)Vol. 11-03 All Roads Lead to Rome: High Performance Firms in China and Russia (June 2011).Vol. 11-04 Stock Market Development and Performance in the Emerging Economies (July 2011).Vol. 11-05 The Political Dimension Of Doing Good: Managing the State Through CSR In Russia And China (August

2011).

SiemS iSSue rePortS

Vol. 10-01 The Worlds Top Auto Markets in 2030: Emerging Markets Transforming the Global Automotive Indus-try (May 2010).Vol. 10-02 The Productivity Prize. Accounting for Recent Economic Growth among the BRICs: Miracle or Mi-rage? (June 2010).Vol. 10-03 The Great Equalizer. The Rise of the Emerging Market Global Middle Class (September 2010).

Vol. 10-04 Central Bank Independence and the Global Financial Meltdown: A View from the Emerging Markets(November 2010).Vol. 11-01 Brave New World, Categorizing the Emerging Market Economies A New Methodology, SKOLKOVOEmerging Market Inde (February 2011).Vol. 11-02 The New Geography of Capital Flows (March 2011).Vol. 11-03 All Thats Old is New Again: Capital Controls and the Macroeconomic Determinants of Entrepreneur-ship in Emerging Markets (April 2011).


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29V. conc lusIon / 29V. conc lusIon /

[email protected]

The M c sch Ma ageme t skolkovo is a joint project of Russian and international businessrepresentatives, who joined their efforts to create abusiness new-generation school from scratch. Focus-ing on practical knowledge, the Moscow School ofManagement dedicates itself to training leaders, whointend to implement their professional knowledge in the

conditions of rapidly developing markets. SKOLKOVOis defined by: leadership and business undertakings,rapidly developing markets focus, innovative approachtowards educational methods.

The Moscow School of Management SKOLKOVO proj-ect is fulfilled by the governmental-private partnershipwithin the framework of the Education Foreground Na-tional Project. The project is financed by private inves-tors, and doesnt use governmental budget recourses.The President of the Russian Federation Dmitry Ana-tolyevich Medvedev is Chairman of the SKOLKOVO In-ternational Advisory Board.

Since 2006 SKOLKOVO conducts short educationalE ecutive Education programmes for top and medium-level managers open programmes and specialized,integrated modules based on the companies requests.SKOLKOVO launched E ecutive programme inJanuary 2009, first class of the international Full-timeMBA programme in September 2009.

M c sch Ma ageme t skolkovoNovaya ul. 100, Skolkovo village,Odintsovsky district,Moscow region, Russiatel.: +7 495 580 30 03, fa : +7 495 994 46 68

skolkovo i t t te Eme g g Ma et st d eUnit 1607-1608, North Star Times TowerNo. 8 Beichendong Road, Chaoyang DistrictBeijing, 100101, Chinatel./fa : +86 10 6498 1634

The skolkovo t t te Eme g g Ma ett d e (siEMs) is a knowledge centre at the Mos-cow School of Management SKOLKOVO that special-izes in the research of the economies and businessesof the emerging markets. It provides a research plat-form that attracts and links leading thinkers and e -perts from around the world, who can collaborate on

studying timely and critical issues in emerging markets.Its research is rigorous, field-driven, and comparativeacross emerging markets and offers practical, broadlyapplicable, and valuable guidelines and frameworks forbusiness leaders, entrepreneurs, policy-makers, andacademics with interests in emerging markets.

It currently has offices in Moscow and Beijing and plansto open the India office in the near future. Its research-ers include several full-time and part-time research fel-lows who are leading scholars and e perts in variousfields. Its current research focus covers economic andfinancial development, firm growth and sustainabil-ity, CSR practices, and indigenous innovations in fastgrowing countries. Its research output is distributedthrough various forms of reports, publications, forums,and seminars. We welcome feedback and suggestionsfrom our readers on the research findings and futureresearch directions.


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SIEMS Monthly Briefing 2011-08 Eng