More and more companies are investing in China, to share the incredible profit generate from the 1.4 trillion people. One of the US based company, which it’s going to invest 35% of its stake, to a fast growing China private-owned timber flooring company. Like most local Chinese company, CSR is not implementing in that company as well as no management working on it. Generally speaking, CSR (Corporate Social Responsibilities) is a form of corporate self-regulation integrates into business model, in which a company monitors and ensures its active compliance with the spirit of law, ethical standard and international norms.
Although this timber company has high growth in the market and generate good profit, it may easily pose a risk to investor if they are not pay attention to social and environmental issues. Below summaries would like to analyst the potential impacts may arise from different parties such as employees, consumers, environment, and communities and how they may be affected by the decision.
First of all, it’s no doubt that employee are the basic component of an industry.
By taking measures from the Social Accountabilities 8000 (SA8000), they should consider if the company has employed child labor. Child labor is very popular in China and other developing countries like Guatemala especially industry like involving agricultural and manufacturing that need high working force. It may violate the law and damage the company brand easily. Other than legal extend, an interesting figure showed that (www.DoWellDoGood.net), “83% of the employee will leave the job if their employer used child labor.” Obvious, child labor nowadays give more harm than good, instead, providing wellness program for employee and their families create certain shared value that they will love more the company in both mentally and physically. Moreover, it’s also important that the firm should provide adequate safety working environment as well as organize enough safety training. It will certainly reduce the number of accidents occurs.
In the early 80s, China had launched Social Security Fund, all companies must follow closely and provide all kinds of insurances to employees in order not to obstruct from the law and political issue. In addition, the company should encourage workers to form union and those who involve won’t be discriminated. Because employee more involve in the discussion regarding payroll, community welfare and company development will surely increase their loyalty at all. The investor has to review all the working hours, salary standard and penalty and make sure it’s fair to everyone. Secondly, the investor should concern to the consumers’ feedback in which the company has to create customer’s satisfaction to their products.
However, in this competitive world, many companies like to exaggerated the usage and beauty of their products to attract more customers by means of media as a communication platform. For this reason, the investor should review all these products advertisement that might cause harmful effect to the product brand name. Reputation of the timber flooring company takes years to come to the top five in China can be ruined in hours. One accident always cause in flooring industries may be the level of formaldehyde is so high that cause toxic to human.
Heath problems always cause fatal to death of company. One of big scandal happened recently nearly killed AJISEN – one of the ramen restaurant in which “has been accused of making their broths using soup concentrate and cheap flavoring powders, known for a guarantee that all their soups come from a broth of pork bones simmered to perfection.”(Patrick Keefe) Stock price of AJISEN drops from HK$17.82 to HK$9.32 (51.7%) within 2 weeks just right after the scandal and never climb back up until now. Indeed, customer are all likely the same, they only purchase goods they fell confidence by faith as choices are not the only one. Above example shows a warning signal that in case the company has listed in the stock market in the future. They have to take care much more than now on the CSR issues as media can spread out news within one day.
Thirdly, the company should put more efforts not to interfere the environment. Recently, Chinese government has set up many laws to preserve environmental friendly after enter the WTO, ISO14000 standard is basic management standard that has to follow. Due to their factories including plantation, chemical working for production and raw material importation, there are a lot of chances may encounter to environmental dispute. As an investor, other than make sure correct documentations and license for environmental issue, they also have to study all the process in terms of energy use and logistics.
Considering the firm has 50% of timber source globally and 10% of their customers are overseas, excess packaging of products and greenhouse gases are not just costly to the environment but also costly to the business. “By reducing it’s packaging and cutting 100 million miles from the delivery routes of it’s trucks, Wal-Mart lowered carbon emissions and saved $200 million in cost”. (Harvard Business Review). Above example shows typical how mutual benefits if we re-arrange business decision and enhance regulation reforms even just simple as logistic. Besides, China has a lot of tax reduction and funding approaches to achieve government supports by encouraging people to protect the nature.
Furthermore, the investor should also pay attention to their suppliers. Not only to check if the imported products are fulfill the regulations but also review the availability and the ease of transportation as 50% outsourcing of the company is not a small figure to ignore. Above all, CSR is not a short term objective, the investor should set up a CSR team in the company for promoting and working for long term prospective. It’s clearly that CSR is helping to build up the company brand far more easily than performing marketing and sales on timber flooring only.
According to Harvard Business Review, “Not all profit is equal. Profit involving a social purpose represent a higher form of capitalism, one that creates a positive cycle of company and community prosperity”, it’s no doubt that customer will purchase more if the timber flooring shows “green” and if the company anticipate more social welfare activities. To conclude, the investor should immerse CSR into each employee and the community in order to enhance share value to form a mutually beneficial society.