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When China really and truly goes green
January 20, 2010, Wednesday
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Editor's note:
Will going green hurt business profits? Who is to blame for the poor quality of some Chinese-made products?
Richard Locke shared his opinions on these issues and others with Shanghai Daily reporter Ni Tao in an interview on January 9 at Three on the Bund. Locke is deputy dean and professor of Entrepreneurship and of Political Science at Sloan School of Management at MIT.
Q: AFTER the Copenhagen climate change summit, there seems to be a convergence of interests between businesses and consumers in going green. But will going green in the economic downturn get in the way of turning a profit?
A: Turning truly green and more sustainable actually is good for business in the long run. It means being much more efficient in the use of resources. If companies are less wasteful, they have better margins.
We are living in an era of increasing transparency. People care about what's in a product and how it's made. They buy personal care products for their babies and want to make sure they don't have any bad chemicals.
Because of the availability of databases, anyone with an iPhone app called "GoodGuide" can scan any product and see what's in it and how it's made. That drives businesses' decisions.
And they are doing it not because they are tree-huggers. They want to make sure the products they are using are good for them.
Q: In your lecture, you talked mostly about corporate social responsibility (CSR) of big businesses like Nike and Nestle. But much remains unsaid about small businesses. Small, obscure ones may care less for they are relatively less exposed to outside scrutiny. Is this true?
A: I don't think that small firms care any less about CSR issues than large enterprises, although they often don't have the resources and capabilities to deal with these issues as well as more established, better-resourced larger firms.
And it is true that they certainly receive much less scrutiny than larger enterprises which are supplying global brands. But regardless of the size of firms, the real way to address CSR issues is to train the managers in these firms, both large and small.
The networks of small, family-owned firms that populate parts of north-central Italy (Tuscany, Emilia Romagna) or southern Germany (Bavaria, Baden Wurtenberg) in the 1960s also experienced many of the same problems among small firms in the Yangtze and Pearl River deltas.
There were labor abuses, environmental problems, not full compliance with the laws of the land, etc.
But over time, and with the help of business associations that helped firms develop their own capabilities, these firms evolved, became more sophisticated, more profitable, invested in modern production and human resources management techniques ... and eventually, all of these abuses went away. I expect the same can happen in China.
Q: Public demand has to some extent advanced the evolution of CSR in the West. In China, is public demand strong enough now?
A: It took the public in the West decades to become aware of environmental and CSR-related issues. And still today, not all Western consumers really care that much about these issues.
I would expect that over time, especially as China struggles with some of its very real issues related to air quality, water scarcity, environmental degradation, etc, and as the public becomes more aware of these issues and sees that they can be addressed without undermining the economy, awareness among the Chinese public will grow.
But this takes time and requires that people in media and academia work hard to get across this message, educate the public, show that sustainability and economic vitality can go hand in hand.
Q: What's your view of the image and quality of Chinese-made products?
A: My sense is that Chinese products are clearly improving in terms of their quality and their image and that consumers around the world are recognizing this.
The recent scandal relating to certain Made-in-China products, such as toys and dairy products, was misdirected since the focus was entirely on Chinese producers and not on the basic business model of the global brands that drove these domestic producers to manufacture ever-cheaper products at higher standards and quicker turn-around.
This model requires that suppliers reduce their prices, their margins every year or else the brand will go elsewhere.
This model essentially is creating the conditions for suppliers to take short-cuts, use less expensive inputs, make their employees work longer hours, etc because this is the only way they can compete.
In other words, this is a problem of the basic business model, a global business model, not one unique or particular to Chinese producers. It is the business model that needs to change.
(The article is adapted from Ni Tao's lengthy interview with Richard Locke during Three Talk at Three on the Bund on January 9. The event was co-organized with the MIT Sloan School of Management.)
Will going green hurt business profits? Who is to blame for the poor quality of some Chinese-made products?
Richard Locke shared his opinions on these issues and others with Shanghai Daily reporter Ni Tao in an interview on January 9 at Three on the Bund. Locke is deputy dean and professor of Entrepreneurship and of Political Science at Sloan School of Management at MIT.
Q: AFTER the Copenhagen climate change summit, there seems to be a convergence of interests between businesses and consumers in going green. But will going green in the economic downturn get in the way of turning a profit?
A: Turning truly green and more sustainable actually is good for business in the long run. It means being much more efficient in the use of resources. If companies are less wasteful, they have better margins.
We are living in an era of increasing transparency. People care about what's in a product and how it's made. They buy personal care products for their babies and want to make sure they don't have any bad chemicals.
Because of the availability of databases, anyone with an iPhone app called "GoodGuide" can scan any product and see what's in it and how it's made. That drives businesses' decisions.
And they are doing it not because they are tree-huggers. They want to make sure the products they are using are good for them.
Q: In your lecture, you talked mostly about corporate social responsibility (CSR) of big businesses like Nike and Nestle. But much remains unsaid about small businesses. Small, obscure ones may care less for they are relatively less exposed to outside scrutiny. Is this true?
A: I don't think that small firms care any less about CSR issues than large enterprises, although they often don't have the resources and capabilities to deal with these issues as well as more established, better-resourced larger firms.
And it is true that they certainly receive much less scrutiny than larger enterprises which are supplying global brands. But regardless of the size of firms, the real way to address CSR issues is to train the managers in these firms, both large and small.
The networks of small, family-owned firms that populate parts of north-central Italy (Tuscany, Emilia Romagna) or southern Germany (Bavaria, Baden Wurtenberg) in the 1960s also experienced many of the same problems among small firms in the Yangtze and Pearl River deltas.
There were labor abuses, environmental problems, not full compliance with the laws of the land, etc.
But over time, and with the help of business associations that helped firms develop their own capabilities, these firms evolved, became more sophisticated, more profitable, invested in modern production and human resources management techniques ... and eventually, all of these abuses went away. I expect the same can happen in China.
Q: Public demand has to some extent advanced the evolution of CSR in the West. In China, is public demand strong enough now?
A: It took the public in the West decades to become aware of environmental and CSR-related issues. And still today, not all Western consumers really care that much about these issues.
I would expect that over time, especially as China struggles with some of its very real issues related to air quality, water scarcity, environmental degradation, etc, and as the public becomes more aware of these issues and sees that they can be addressed without undermining the economy, awareness among the Chinese public will grow.
But this takes time and requires that people in media and academia work hard to get across this message, educate the public, show that sustainability and economic vitality can go hand in hand.
Q: What's your view of the image and quality of Chinese-made products?
A: My sense is that Chinese products are clearly improving in terms of their quality and their image and that consumers around the world are recognizing this.
The recent scandal relating to certain Made-in-China products, such as toys and dairy products, was misdirected since the focus was entirely on Chinese producers and not on the basic business model of the global brands that drove these domestic producers to manufacture ever-cheaper products at higher standards and quicker turn-around.
This model requires that suppliers reduce their prices, their margins every year or else the brand will go elsewhere.
This model essentially is creating the conditions for suppliers to take short-cuts, use less expensive inputs, make their employees work longer hours, etc because this is the only way they can compete.
In other words, this is a problem of the basic business model, a global business model, not one unique or particular to Chinese producers. It is the business model that needs to change.
(The article is adapted from Ni Tao's lengthy interview with Richard Locke during Three Talk at Three on the Bund on January 9. The event was co-organized with the MIT Sloan School of Management.)
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