Percepti

Neema Hessami (879)

International Marketing

ons of

Professor Shawn Carraher

CSR in
China
and

Abstract
Purpose A Research/ Literature paper using the ThreeDomain-Model of CSR to highlight how the cultural

USA

differences alter the perceptions of CSR concepts in the United

States and China.

Design/methodology/approach The data was collected through a wide ranging review of
literature available on the subject.
Findings The findings showed that the different and unique socio-cultural contribute greatly to
the different adoption rates of CSR principles in the two countries.

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Originality/value/contribution There are various studies that have been undertaken on the
subject. This paper is a contribution to this literature and provides further insight on the often
complex interrelationships between culture and CSR principles.

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Table of Contents
Perceptions of CSR in China and USA...........................................................................................1
Abstract............................................................................................................................................2
Introduction......................................................................................................................................4
Does CSR positively affect the performance of businesses?...........................................................6
Theoretical Models Analyzed in this review...................................................................................9
The Pyramid of values model......................................................................................................9
The Three domains Model of CSR.........................................................................................11
CSR perceptions in China..............................................................................................................12
Cultural Issues...........................................................................................................................12
CSR perceptions in the USA.........................................................................................................15
Conclusion and Suggestions for Future research...........................................................................17
Suggestions for Future research.....................................................................................................18

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Introduction
Ethical conduct in business operations has gained significant prominence in recent years.
This has led to the development and evolution of the Corporate Social Responsibility concept as
an important component in many firms business operations. Corporate social responsibility
(CSR) is the process by which companies take active measures to show responsibility for their
impact on society it is a set of voluntary behaviors that work towards societal well-being, and
that have been incorporated into business operations, supply chains, and decision-making
processes that have been inculcated throughout companies. CSR therefore describes the
relationship between business and the larger society and the proponents of this practice argue
that businesses exist to serve the greater community as well as direct beneficiaries of the
companys operations. The CSR concept recognizes the fact that corporate growth and
profitability are important, but it also important that a firm should pursue societal goals such as
social justice, equity and environmental protection.
Cacioppe (2008) states that prior to the 1950s, the CSR approach was mainly through
philanthropic acts and generosity. This is what Cacioppe (2008) calls the philanthropic era that
was mainly characterized by the handing out of donations as an approach to ethical behavior of a
business. The philanthropic era was then rapidly replaced by the philosophical era which
was progressively developed in the late 1950s (Cacioppe, 2008). This was because there was
more recognition as well as adherence of the ethical, behavioral and philosophical essentials that
were seen to be related to our contemporary understanding of CSR. During this awareness
period, most of the major companies were seen to pay more attention to their overall ethical
responsibility and positive involvement in community affairs. Murphy (1978) adds that this
period, philosophical era was followed by the issue era which saw business organizations
focusing on very specific issues affecting the host communities of these firms. These issues

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included recruitment and subsequent development of minorities and host community workers,
pollution control and support for educational programs in the areas of operation. A host of other
researchers on the subject, including Murphy (1978) state that the issue era was followed by a
final stage which they refer to as the responsiveness era. This era was characterized by a
serious and determined effort by companies in management and organizational interventions
which were designed to specifically address CSR related issues. These issues were stakeholder
management, corporate social performance (CSP) audits and disclosure, and business ethics
audits.
Since its inception as an important business component in 1912, the CSR movement has
become a truly global phenomenon. It has over the years experienced astonishing growth, by
expanding from the Western Hemisphere (mainly Europe and America) to the entire world,
largely due to globalization. For instance, anecdotal evidence has it that CSR development and
its adoption in China begun in the mid-1990s and was by and large, brought into the Chinese
market business environment by the large multinationals. The spectacular success of the antisweatshop initiative which called for the inhumane conditions in the supply chain in poor
developing countries helped a great deal in make changes to the trade of the other legitimate
businesses. Over the last years, the role of the CSR has come under closer scrutiny due to
notorious corporate scandals involving some of the countrys biggest companies. Globalization is
still likely to increase the complexity of its business environment; the issue of CSR is likely to
become more complex and important than ever especially in the extractive industries.

Does CSR positively affect the performance of businesses?

Ethical corporate performance should be judged through a series of bottom-line benefits
to the company. However, in many cases, it seems that the time frame of the costs and benefits
can be out of alignment - the costs are immediate, and the benefits are not often realized
quarterly. According to Wang (2014) there are some benefits that can be seen from the Modern
enterprise system, it can absorb the labor force, capital and operators and fusion in the corporate,
it can efficiently allocate resources, encourage peoples entrepreneurship and risk taking, thus
help investors, operators and workers realize the value of their life. Some benefits though can be
easily identified. Firstly, ethical and socially responsible businesses benefit from a superior
brand image and reputation. This is because of the widely accepted fact that existing and
potential consumers are by and large attracted to brands and business organizations that have
good reputations which are built through building a robust CSR framework. Additionally, a
company that is perceived to be ethically and socially accountable in its dealings with the
community in which it operates can also benefit from such a reputation within the larger business
community. This can lead to increased access to capital flows from investors and trading partners
alike. The benefits of a good reputation can be very difficult to quantify monetarily and it is even
more difficult to find out by how much CSR activities increase the brand value of the company.
Although according to Zhang & Morse (2014) While the CSR of the SOE has been steadily
decreasing along with the change of ownership structure, its economic performance did not
improve as expected. Nevertheless, over the years, companies have developed quite sophisticated
metrics to quantify the value of their advertisement campaigns; these methods can be employed
in the case of quantifying the value of CSR activities.

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Ethical companies tend to suffer less from rare events. These are incidences that impact
significant risk on the companys reputation and may as well interrupt its operations. In any
business environment, it may be that overlooking any negative components, in both the internal
and external business analysis, when performing a valuation of a company can be equated to
ignoring significant tail risk associated with that particular venture. Some of the risks, related to
CSR, that have been identified by researchers on the subject include: corporate governance,
environmental risks, and socially inclined risks. Businesses that apply CSR policies in addition
to other ethical policies in their operation are likely to be more transparent and corruption averse.
As a defining feature, these businesses usually tend to implement stricter, more costly, quality as
well as environmental controls throughout their business operations; by doing so, they benefit
from a much diminished risk of having to recall defective products or even having to pay hefty
fines for excessive environmental degradation: this is especially true of the extractive industries.
Additionally, they have a lower risk rating of negative social events which may work in
damaging their reputation and cost millions of dollars in information and advertising campaigns.
A good example would be the highly publicized cases of child-labor, forced labor and
sweatshops that affect the apparel industry are two fine examples. Thus ethical companies have a
reduced tail risk and downside volatility component attached to their business. In some instances,
doing that which is good and ethical also converges with prudent and effective management of
the company. In this regard, some CSR interventions have been found to radically reduce the
cost overhead. For instance, a targeted reduction in packaging material coupled with the planning
of optimum routes for delivery trucks and other logistics related businesses is widely recognized
as a way to significantly reduce the environmental impact in the businesses operations as well as
drastically reducing the cost.

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The adoption of CSR policies in a company has also been seen to increase employee
retention as well as talent attraction to the business. In this regard, Turban & Greening (1997)
argue that companies that implement CSR initiatives have the added benefits in recruitment,
employee satisfaction rates and reduced staff training costs which ultimately lead to reduced
turnover of staff. They assert that the employees tend to evaluate their companies CSR
performance to determine if the values that they hold on a personal level are in conflict with
those of the business at which they operate. It is a widely known and accepted fact that in many
companies, employees have often pressured by their supervisors to overlook or bypass many
written ethical laws in order to maximize profits to the organizations. Such cultures have been
known to create an atmosphere of fear within a company and affect employee job satisfaction,
trust and commitment to work in the company.
As CSR interventions are also tied to labor rights, companies that adopt CSR policies
generally foster constructive labor relations with their employees. This is because of the widely
held companies that work towards the improvement of working conditions and other labor
related issues also manifest increased productivity and reduced mistakes. Regular audits in the
production facilities globally are undertaken in order to make sure that all the employees work
under good conditions and earn decent wages. Generally speaking, the initial costs for
implementing such programs are considered inhibitive but the benefits that are accrued from
increased employee performance and the subsequent improved quality of the final products could
easily offset the upfront costs. As a result business organizations can achieve tangible benefits
from increased worker morale and productivity.
Pava & Krausz (1996) categorize the studies that have done numerical analysis the
benefits of CSR into two groups; the first group comprises of studies that utilize the event study
methodology to assess the shorter term financial impact -supernormal returns when business

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organizations participate in socially responsible or ethical behavior. The second group, on the
other hand, investigates the relationships between CSR interventions and more longer term
financial benefits that may be available to the firms studied. For studies belonging to the first
group, Pava & Krausz (1996) found that the results of most of these studies have been mixed and
thereby inconclusive. Waddock and Graves (1995) discovered a negative relationship while
Roman, Hayibor, and Agle (1995) found no direct relationships between CSR interventions and
financial performance. Other studies, discussed in McWilliams and Siegel (2000), are just as
inconclusive with regard to the relationship between CSR and short run financial returns.
In the second set of studies that were investigated by Pava & Krausz (1996) the results
were inconclusive and mixed. This is to say that the studies that investigate direct relationships
between ethical business conduct and contemporary accounting-based metrics have also
produced mixed results. Ochran and Wood (1984) reported an affirmative relationship was to be
found between social and ethical responsibility and accounting performance after redacting the
age of assets in their analysis. On the other end of the spectrum, Aupperle, Carroll, and Hatfield
(1985) did not find a correlation existing between the risks adjusted financial performances of
firms and their social responsibility. In contrast, Waddock and Graves (1997) found significant
positive relationships between an index of CSP and performance measures, such as ROA in the
following year.

Theoretical Models Analyzed in this review

The Pyramid of values model
A complex relationship exists between organizational value systems, individual values
and CSR and can be presented as in figure 1. The pyramid shown represents the
interrelationships between individual ethical value systems, organizational ethical values, and

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CSR based on the theory of corporate morality. According to Schwartz and Carroll (2003),
corporate morality should be viewed as an account of the moral obligations of corporations.
Accordingly, if CSR is viewed under corporate morality theories, it can then be interpreted as a
type of moral values in itself.
Ethical values of individuals within an organization form the base of the pyramid and
thus sustaining and providing for individual and organizational culture. In this model, the
individual ethical values describe the individual perceptions of morality, in other words - what is
wrong or right. They are based on individual perceptions of fairness and responsibility towards
other people and towards the natural environment. According to this value system, the individual
ethical values should not be taken to only refer to the corporate and organizations members, but
other stakeholders as well. These can also be from the community in which the business operates
in. Numerous organizational studies and literature usually define the often complex relationship
between corporate values and individual values as dialogues The predominant corporate culture
that affects and is in turn affected by the management styles these are as well reflected by
individual values.

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Figure 1: The pyramid of Values Model

The Three domains Model of CSR

The three domains model was developed from the pyramid of values model of CSR. As is
with the pyramid of values model, the three domain model also consists of three main areas for
social and ethical responsibility; these are the economic, ethical and legal domains.

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Figure 2: The Three Domain Model for CSR

Schwartz and Carroll (2003) argue that even though the Pyramid Model of CSR is highly
valuable to CSR researchers and academia, its highly stratified structure may be problematic for
managers to implement in real organizations as it may be interpreted to mean that some of the
modules have a higher importance than others. Consequentially, Schwartz and Carroll (2003)
further developed the three module model to complement the Pyramid Model.

CSR perceptions in China

Cultural Issues
The concept of ethical and socially responsible business is believed to have been
conceived more than two thousand five hundred years ago by the Confucian entrepreneurs who
are reported to have pursued their business interests and profits with integrity and commitment
to the communitys prosperity. Specifically, the concept of ethical business in Chinese history
has a lot to do with the Confucian virtue of Yi which can be loosely translated to mean

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righteousness this implies using the norms of obtaining and distributing financial benefits and
profits (Liu, 2004). In direct contract to Yi is the concept of Li. Li can be taken to mean that
the benefits and profits kept for themselves. Yi and Li interrelationships can best be described
by the then Confucian philosophy that held that an individual of noble character understands Yi:
on the other hand, a less noble individual only knows Li. Accordingly; a trader or businessman
exhibiting a Li character was one who only pursued and sought to maximize short-term benefits
and self-interest. Conversely, a Yi trader prioritized longer-term profits and communal rather than
individual gains. This is to say that the Chinese ancient viewpoint of moral behavior in business
(Yi rather than Li) can be interpreted as being an ethical approach to business as opposed to just
simply being for profit. This viewpoint is widely recognized as one of the core tenets of western
CSR theory. The difference being that in the Chinese culture, Yi also requires that the
businessman acts and behaves in the right way while strictly adhering to the laid out social
hierarchy.
The modern day evolution of CSR in China is related linked to the opening up of the
Chinese economy and the numerous reforms that have taken place since. One can classify the
reforms into two broad stages:
1. The planned-economy during the socialist period (1950s1978)
2. The liberalization period (after 1992) when China fully opened up to the global economy.
This led to the liberalization of the Chinese economy and the subsequent adoption of a
market economy.
During the time of the Command / Planned economy, sustainability of economic
undertakings was a central theme for the government. Chairman Mao Zedong famously called
for the adoption of green policies, in 1955, because he was of the opinion that they would greatly
benefit industry, agriculture as well as other aspects of the Chinese economy (Liu, 2004). In

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addition, equality and social justice were also very important themes for the Chinese government
ideologists two among many of Chinas objectives during the Mao era (Liu, 2004). During
Maos reign, he introduced the slogan serve the people, when announcing the formation of the
Peoples Republic of China this slogan called for state corporations and government apparatus
to be socially and ethically responsible. As the primary points of contact between the state and
the people, the state-owned enterprises were expected to selflessly serve the people from cradle
to grave. This often meant keeping people in their employ for life and comprehensively
providing employees and their families welfare services such as free or heavily subsidized
education, food, accommodation, medical services and so on. Another characteristic of this
period in Chinese history was that workers rights were paramount. As regards the welfare of the
people, CSR in both the urban and rural areas existed to a very high degree (in rural areas,
peasants were taken care of in their communes). The existent social responsibility was highly
politicized largely due to the socialist nature of the firms that existed. These firms were also
important tools for the government to ensure adherence to state orders and serving the personnel
was a running theme for socialist enterprises. CSR took on a political responsibility. After the
abolition of the command economy in China, CSR principles were relegated as a market
economy took root in the country. Overall, the transition from a command economy to a market
economy has been marked by a low sense of responsibility in China, and increasing profit rates
seem to be driving most firms (Li, 2010). Various commentators and researchers alike have
attributed the situation to Chinas distinctive culture and its current stage of development. More
specifically, the country has often been criticized for lagging in its corporate social responsibility
culture and is under constant pressure to make progress.
With Chinas ascension into the World Trade Organization (WTO) and its ever increasing
role in the global economy, the country is increasingly facing a lot of criticisms due to its

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perceived disregard of CSR principles. According to Tang & Lu (2012) Chinese newspapers side
with the corporations and shed enough light to placate the people while the bigger issues remain
hidden. Several factors are thought to contribute to Chinas current lack of enthusiasm for CSR
policies in its business dealings. Some of the reasons that have been forwarded to explain the low
levels of prioritization of CSR in China are; income, culture dynamics (egalitarianism,
individualism, autonomy and harmony) and power distance. Researchers like Li (2010) reported
that China scored very poorly with regard to harmony, egalitarianism, autonomy, and
individualism when compared to other developed countries and even other developing countries
like South Korea and Taiwan. As regards power distance, China scores very highly, a similar
trend is observed in other big developing nations like Brazil.
Additionally, CSR may be perceived differently in different countries. Campbell (2007) asserts
that ethical corporate behavior may be interpreted differently in different places and thus should
be taken to mean a completely different thing to different people and at different
times.Campbell (2007) reports that although the perceptions of the significance of most of the
CSR initiatives e.g., legal responsibility, environmental protection, customer orientation,
economic responsibility, employee relations, and philanthropic contributions, are generally
similar between Chinese CEOs and their western counterparts, prioritization of other distinct
features, such as ethics national employment rate and social stability, is placed higher among
Chinese CEOs than by their western counterparts. What is more, there are some CSR
interventions that are perceived as of paramount importance in the western world, but less so by
Chinese CEOs. Such CSR features include shareholders rights.

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CSR perceptions in the USA
CSR in the United States is deeply rooted in the Anglo-Saxon culture which asserts that
liberty is the primary value, but where freedom requires taking voluntary responsibility Elisabet
& Domnec (2004). As such, the corporate culture in United States views ethical responsibility
as an integral and natural part of a corporations role in society. In America, due to the
entrenched culture of very little state and governmental intervention when it comes to social
issues as well as other legislative controls, business and the private sector in general is expected
to play a much larger role in the community it operates in. This, however, does not mean that all
the companies operating in the United States necessarily have adopted and implemented CSR but
this culture has nurtured an enduring tradition of corporate charity and philanthropy and
incidentally, it is how CSR is traditionally understood in America (Elisabet &Domnec, 2004). In
stark contrast to the Chinese cultural and institutional system, the US political system can be
characterized as the complete opposite to the Chinese socio-political system which has a greater
power distance. In the US, individual freedom a very high sense individualistic responsibility
supersedes the role and power of the central government. It could even be argued that the vast
majority of citizens prefer the role of the government to be kept at a bare minimum. In America,
the government is not usually expected to take care of the general social welfare of people. As
such, coverage of health insurance and other public and social commodities are mostly left to the
individual citizen and market forces the corporate level.
CSR perceptions in the USA and differences in views of CSR derive from both
institutional environments and social value bases. According to Matten & Moon (2004),
companies in North America typically address issues of responsibility explicitly in corporate
policies, programs and strategies, whereas in China the responsibility for such issues is more
implicit in the formal or informal institutional business environment. Additionally, as has been

17
hinted before in this text, American corporations tend to be more distant to the state as compared
to their Chinese counterparts. This is mainly as a result of the structure and value system of the
existing American socio-political system, which allows companies in the United States to get
greater options of choosing how they want to contribute to society. As a result of this, and also
due to the prominence of self-regulation doctrine adopted by business organizations in the USA,
organizations have to demonstrate their responsibility towards the community far much more
extensively than in China which has a much more prominent role of the government.

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Figure 3: CSR Ratings by Industry

Conclusion and Suggestions for Future research

The intended aim of this paper was to briefly explore how CSR initiatives are approached
in the United States and China, the cultural values that underpin the perceptions of CSR in both
countries and what limits CSR in China as opposed to its success in the USA. This was achieved
by the process of establishing and describing the cultural contexts which have been shown in
literature to greatly influence the divergent CSR practices in both countries.
As the literature reviewed in this paper has shown, CSR development in China is still in
its infancy. As has been discussed in this paper, the general populace of China is more inclined to
equate philanthropy and monetary donations to CSR. In addition, we have seen that the average
Chinese is becoming increasingly aware of corporate social responsibility as a result of active
involvement of the Chinese government and social media.
Although the comparative analysis of the two countries is hardly enough to give an
accurate picture of how CSR is approached, it provided an insightful peek into the origins
culture - and perceptions of social responsibility in two countries.

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Suggestions for Future research
It is important to note that this paper was only concerned with the culture that underpins
the perceptions of CSR concepts in two different countries. Due to the growing importance of
China in the global economy and its perception of poor implementation of CSR concepts in the
country; more research is needed concerning CSR across similar industries/companies in order to
form a more accurate picture of CSR in China as compared to the United States. In that
connection, a representative cross section of companies in each country would be in its place.

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