Understanding of CSR among Taiwan’s Business Community

The concept of CSR is young and still developing in Taiwan. Business leaders mainly adopt CSR upon requests from their customers and often do not have a clear understanding of the concept. One of the early surveys about CSR in Taiwan, carried out among publicly traded companies in 2005, showed an inconsistence about perception and implementation of CSR practices:

Rank The most importantly viewed CSR items in Taiwan

% How CSR is actually implemented in Taiwan

%

1. Shareholders’ rights 87.2 Paying taxes honestly 77.8 2. Employees’ rights 84.9 Respecting ethical norms 76.7 3. Corporate governance 68.5 Protecting the environment 69.9 4. Financial disclosure 66.8 Improving labor relations 69.6

5. The environment 66.5 Providing employment 67.9

6. Customers’ rights 63.6 Philanthropic activities 50.6 7. Honestly paying taxes 60.5 Protecting consumers’ rights 49.7 8. Community relationship 34.9 Practicing fair competition 30.1

9. Fair competition 30.7

10. Supply chain management 21.6

Figure 12: Perception and implementation of CSR practices in Taiwan.

Source: Ip, 2007, p. 168-169.

The selection of CSR items shows that the survey was adapted to local conditions:

e.g. paying taxes honestly in most Western countries would be considered as obeying law rather than aspect of social responsibility. The inconsistencies are clear-cut:

paying taxes was ranked the highest in terms of implementation, but quite low (rank

144 CommonWealth, August 10, 2011.

7) in terms of perception. Similar discrepancies exist regarding customers‘ rights and other items, suggesting that corporate leaders in Taiwan either do not mind the gap between the idea and practice or understand CSR vaguely. In China, “the true determination of CSR is still firms‘ economic features, and managers‘ interpretations of CSR activities could be seen in terms of economic incentives.“¹⁴⁵

Currently, surveys about CSR in Taiwan are carried out annually by two magazines:

the CommonWealth Magazine and the Global Views Magazine. Global Views Magazine examines three CSR criteria when granting the CSR Award to companies:

social participation, environmental protection and financial transparency. Yet, this magazine only takes into account corporations listed on the Taiwan Stock Exchange.

The information is gathered from questionnaires designed by a German sustainable performance rating agency OEKOM and ranked upon the three criteria.

Surveys conducted by The CommonWealth focus on four categories considered as strategic for CSR in Taiwan: corporate governance, corporate commitment, community involvement and environmental protection.¹⁴⁶ The list of Taiwan’s top 30 large companies in 2011 with the best CSR practice according to the CommonWealth Magazine is available below. Lite-On ranks as the second best for 2011 and the fourth best in 2010 based on the four criteria mentioned above. AU Optronics, a Taiwanese corporation whose CSR performance is regularly evaluated with A+ GRI degree, does not figure in the list at all. As mentioned before, the company is known for law violations in Taiwan and thus holding a place among the top corporate citizens would be contradictory.

145 Chan, Ip & Lam, 2009.

146CommonWealth, August 10, 2011.

Figure 13: Taiwan’s 30 best corporate citizens in 2011 according to the CommonWealth Magazine.

Source: CommonWealth, August 10, 2011.

Public and media attention to CSR in Taiwan primarily focuses on large corporations.

Indeed, researchers worldwide have observed that companies engaging in CSR are companies with excess profits, but it is not true vice-versa.¹⁴⁷ Yet, Taiwan has a large number of small and medium enterprises, which have limited resources and take longer time to develop CSR strategies and activities. Thus, many enterprises are reluctant to invest in CSR. The period after which CSR pays off, if at all, is also a matter of uncertainty for most Taiwanese businesses. According to an empirical research carried out among Taiwanese companies listed on the stock exchange, although social responsibility and maximization of profits are not conflicting goals, financial performance of corporations with CSR programs only slightly outperforms those without CSR (and only for two indicators: return on assets and return on earnings per share).¹⁴⁸ After all, CSR has to make sense economically and financially, as John Anderson, CEO of Levi Strauss & Co, points out:

“That’s why it’s very important we link it to profits with principles. One of the dilemmas that we’ve been dealing with over time is that there are many people who say ‘let’s do it regardless of the impact on profit’. (...) I’ll be honest, we do it because it’s the right thing to do but it’s also got to make business sense.”¹⁴⁹ 6.5 Suppliers‘ Motivation for CSR

In fact, even if there was a clearer understanding of CSR in the Chinese business communities (and generally in the world), there are still questions about the actual implementation of the concept and the distribution of CSR costs. Louder voices of stakeholders demand transparency and justice from multinational corporations reaping profits. Multinationals, pushed to take actions, respond by auditing their suppliers and pressuring them to rectify problems, all this paid for from suppliers‘

pockets. But, downstream suppliers often operate at very low margins, as confirmed during the interviews. Yet, they still engage in CSR programs, despite lacking means enabling them to show their good will to consumers.

147 Shen & Chang, 2009.

148 Shen & Chang, 2009. Note: In fact, there was a systematic divergence of characteristics of the companies with and without CSR. Consequently, the results of the survey should be treated with cautiousness.

149 INSEAD Knowledge, 2009.

The analysis below shows the supply chain profit analysis (first-tier suppliers) illustrated by an example of iPhone product:

Figure 14: Supply chain analysis on the example of iPhone.

Source: Kraemer, Linden & Dedrick, 2011.

First, it should be noted that although the iPhone products are assembled on the territory of China, this happens in the factories owned by Taiwanese Foxconn. No Mainland Chinese first-tier suppliers are involved in the production of iPhone.

Second, the share of value for Apple’s suppliers is very low, at only 0.5% for Taiwan, 0.5% for Japan and 4.7% for South Korea. With such low margins, suppliers‘

managers face a dilemma when allocationg their resources. The costs of CSR are clear-cut, while benefits are still difficult to calculate. Third, suppliers (e.g. Foxconn, Lite-On) do not benefit from CSR in the same way as the multinationals (e.g. Apple), especially when corporations use CSR as a PR tool. Interestingly, one study about Asian consumers showed that Asians are more supportive of socially responsible activities than their Western counterparts, and that they even better distinguish between economic, legal, ethical and philanthropic responsibilities of businesses.¹⁵⁰ But again, consumers are more likely to identify responsible behavior with a global

150 Chan et al., 2009.

brand rather than with an OEM/ODM company. Moreover, consumers‘ willingness to pay a higher price for a branded product reflects their higher expectations about the product. Yet, majority of them will associate these expectations with product safety, quality and technical parameters, and not with labor and environmental conditions, under which the product was made. These facts naturally decrease suppliers‘

motivation for CSR.

Despite the low margins and no recognition from customers, Lite-On still invests its resources and efforts to develop a pioneer CSR program. The following table summarizes motivational factors behind the CSR in Lite-On Technology:

Figure 15: Motivational factors for Lite-On Technology CSR program.

Source: Author’s scheme.

In fact, if environmental and working conditions are to be improved, there has to be a transformation of relationship between the global brand and its suppliers. This relationship has to be more stable, collaborative and exclusive. Most importantly, global brands need to share their gains from the new, more efficient production

processes with their suppliers.¹⁵¹ In other words, the distribution of profits in the supply chain needs to be more equitable.