Richard Brubeck: 'Responsible' Chinese supply chain, economic incentives are key

CSR (Corporate Social Responsibility) expert, founder of the consultancy Collective Responsibility, and visiting professor of sustainable development at CEIBS, Richard Brubaker, was interviewed by GlobalSources.com During the interview, he explained why the economic mechanism plays an important role in the fulfillment of corporate social responsibility by Chinese manufacturers. He also explores the challenges big retailers face as they try to develop "more responsible" supply chains. Brubeck said that CSR will not directly create competitive advantage in the next five years, but will become a core element of the operation of leading manufacturers. The following is his answer to the Global Sources reporter's question.

Corporate Social Responsibility (CSR) in the broadest sense refers to a company's impact on society, however the terms we commonly hear are: sustainability, corporate citizenship, "green" companies or buildings, cleanliness Technology and compliance suppliers, etc. Which of these concepts are relevant to Chinese manufacturers and international importers sourcing in China?

This largely depends on the industry they are in, the relevant labor standards, environmental emissions and energy intensity etc. involve almost all manufacturers operating in China.

Over time, as the problems in each area deepen, companies will move away from CSR in favor of simply "more responsible" business models.

What is the difference between CSR and "responsible"?

Traditionally, CSR has been separate and project-based from corporate business models. And "responsibility" is strategic and systemic.

Companies will become more efficient due to rising resource costs, more law-abiding due to increased transparency, and more focused on employee well-being due to difficulties in attracting or retaining frontline workers.

Major retailers are increasingly demanding social responsibility from their suppliers, even removing non-compliant ones. What challenges do these large companies face in making their Chinese supply chains more responsible? In order to strengthen their social responsibility, what else should they do?

Cultivating inner strength to cope with change will be one of the main challenges. One of the biggest difficulties for large companies is taking a global framework and putting it into practice.

Regional business units often have to figure out how serious headquarters is about sustainable development, the impact on the local area, and the resources that global headquarters can give to implement the strategy. Then, together with other multi-departments, through professional sustainability, labor, environment, occupational health and safety management (EHS) third parties, work with suppliers.

Supplier education and engagement can be an issue at times; economics are often a factor, as companies are often reluctant to be forced to cut prices while bearing the full cost.

Execution is ultimately about investment, and as we've seen with Apple, Yum, and Mattel, failure is often the result of not investing in the infrastructure needed for effective oversight and timely error correction .

Supply chain outsourcing (in whole or in part) increases risk, and the only way to minimize risk is to invest in systems to ensure that the integrity of the supply chain is not compromised. This requires financial, human, and wise decisions in choosing partners.

Why don't Chinese manufacturers fulfill CSR?

Economy is the primary cause, so small businesses often lack awareness of efficiency and have different short-term values on environmental and social issues.

The textile industry is different because labor issues have always been recognized and addressed as part of the business model.

Esquel's experience in Xinjiang is perhaps one of the best examples to date of a family business (SME) that values the long-term strategic value of responsibility. After years of planning and trial and error, the strategy now supports the Group's core business.

Maverick businesses are trying to do the "right thing" with smart employee development programs, and these tend to be large businesses of scale or brand; compliance is not an easy goal for them, let alone small and medium-sized business.

This is true in many parts of the world, such as Bangladesh and Cambodia, where labor standards have been the subject of much debate.

What are the strategic benefits for manufacturers to do the "right thing"?

The economic value of "doing good" ultimately needs to be established, and for some manufacturers, doing the "right thing" means higher profitability in the long run as buyers "clean the door."

Strategic interests come from both outside and inside the business.

Internally, reducing employee turnover can lead to cost savings; investing in green or clean processes can also lead to cost reductions associated with wasted resources.

For the outside world, the expansion opportunities brought about by manufacturers' merit are perhaps the most exciting. Likewise, staying ahead of the policy will bring long-term benefits to the company.

Are you seeing more importers looking for responsible suppliers?

In some niche product areas, I see. In recent years, green organic products have become popular. But on a broader level, I see a trend where executives give up high-ranking jobs to start their own businesses and do things the "right way."

My favorite example is the founder of Wobabybasics and Bambu. They have worked in large multinational companies, have ideas and actions, and established their own companies to produce products with sustainable development concepts.

These two China-based companies are proof that people can build profitable industries while seeking to respect the balance of social, environmental and economic sustainability.

What questions should importers ask to understand a potential supplier's level of sustainability?

Honestly, given the many examples we've seen in the supply chain industry, to understand the level of responsibility a supplier insists on (or strives to achieve), you need more than just asking questions .

You can send out a questionnaire for the supplier to tick off. But that might just be going through the legal process.

To understand supplier practices in areas such as labor and environmental practices, product quality and governance, you need to invest time and perhaps money. For companies that make the investment, the payoff is not just the moral production of higher-quality products, but the long-term investment in the brand. It's an investment, not an expense.

What are the first steps for small and medium manufacturers to be more responsible?

The first step is a value chain assessment to understand where manufacturers are at risk, or where opportunities exist.

For many businesses that utilize third-party vendors, risks are ubiquitous at every stage, requiring them to assess, prioritize and focus on the greatest risks.

The next step is to establish a vision and/or strategy for the adjustment or expansion of the business, followed by a consensus among stakeholders on the actions that need to be taken.

It is best to start the implementation with a pilot, and after the impact of the pilot is evaluated, the implementation standards are compiled into the system.

What else should the Chinese government do to encourage sustainable production?

With regard to the role of the Chinese government in promoting CSR and sustainable development, I think three areas are critical.

First, policymakers at the highest level pushed progress through a five-year plan aimed at weaning China from an economic model that relied on manufacturing to produce low-end, inefficient, resource-intensive goods and services.

The ultimate goal is to improve the quality of the manufacturing sector, in particular to reduce the overall strength of the economy.

The second is law enforcement. China is arguably struggling in this regard, especially environmental protection and food safety are the most relevant examples of how the government will act. We've seen the government move, and more and more factories are fined and/or closed for non-compliance, and those legal provisions used to be ignored.

The third is motivation. Governments should incentivize businesses to include solutions that balance economic, environmental and social as part of their aggressive strategies. This role is perhaps the most interesting, and there has been a lot of movement in this area recently, which China sees as a process of moving up the value chain.

How do you see the development of CSR in China in the next five years?

CSR will not directly create a competitive advantage, but I think CSR will become a core element of the operations of leading companies in the next five years.

CSR will become part of the disaster reduction strategy, reducing the risks faced by enterprises to various existing problems, and at the same time actively serving as a participation mechanism to stabilize the military, reduce production failures, and build external social capital.

How does your company help Chinese companies fulfill their social responsibilities?

Collective Responsibility focuses on examining clients' value chains and developing customized solutions that align core business mission with the economic dynamics of the environment, society and markets.

For some, our programs focus on mitigating external risks through executive awareness and stakeholder engagement, but increasingly we will work with companies actively seeking to strategically adapt their business models . Committed to promoting business beyond conventional business models, we are a solution provider in markets facing environmental, social and economic challenges.

Collective Responsibility, founded by Professor Richard Brubeck, is committed to driving sustainable development into the core of corporate business. By partnering with government, business, academic and non-profit organizations, the organization brings together the knowledge, teams and tools to develop and execute sustainable development projects.