July 1, 2009｜China
Professor, Reitaku University
What is today most demanded of foreign firms doing business in China is honest management and winning the confidence of consumers, local residents, employees, and government. Within the concept of honest management are included: corporate ethics, social responsibility, social contribution, quality control, and accountability.
The affair of the tainted powdered milk contaminated with melamine by Sanlu Dairy Company which occurred in September 2008 is still fresh in the memory. Instances have even been reported of infants having died after drinking powdered milk manufactured by Sanlu. Although Sanlu was a prominent company that made a monetary donation of several million yuan at the time of the Sichuan (Wenchuan) Earthquake, it was also pointed out that: “They actually had no understanding of anything to do with corporate ethics, and their social contribution was a kind of hypocrisy. For them corporate ethics and social contribution are nothing more than being for material gain and a management tool to that end” (Sheng Sixin “Remolding the Business Ethics and Sense of Social Responsibility of Chinese Enterprises” in “Zhongguo naifen shijian yu zhili weiji” [China’s Milk Formula Problem and Its Crisis in Management], edited by Zheng Yongnian and Pan Guoju, World Scientific Publishing, 2009, pp. 75–81).
It was also said that the tainted powdered milk affair was just the tip of the iceberg. In such a situation, what is there to learn from the powdered milk affair and what kind of management is it necessary to undertake for foreign firms doing business in China, and especially foreign firms which have invested in China via the method of a joint venture, etc., and set up a company?
Why did the powdered milk affair arise? First, the quality criteria and management systems within Sanlu were inadequate. Even after the melamine contamination had become apparent, they continued production. Second, Sanlu, when procuring materials, didn’t carry out quality control of the materials from the suppliers. Third, the nation’s food safety standards, and supervisory systems were also inadequate. At the time there was no law on food safety, and the fact that officials at supervisory authorities take bribes and turn a blind eye exists now as ever.
So then, what kind of management is best to undertake in China for foreign firms? In order to avoid trouble which arises from miscommunication and from cross-cultural interaction with each of the stakeholders, there is a necessity to carry out honest management which undertakes—over a wide range including the suppliers of materials, and not only within the company—efforts to assure the quality of products, and achieving accountability.
For example, Teresa DeLaurentis has highlighted the importance of ethical management in the supply chain (Teresa DeLaurentis, Ethical Supply Chain Management, China Business Review, May–June 2009, pp. 38–41). In addition, the education of business partners is also important. When it moved into China, Nestlé, to be able to construct win-win relationships with local farms, instructed local farmers on coffee-growing techniques, and has been providing special financing to farms that grow coffee beans (http://finance.sina.com.cn, 10 August 2005, SINA Finance, China Management Communicating).
Being able to fulfill social responsibilities to all stakeholders, not just business partners, is also an important management strategy for foreign firms. Bayer, together with Tsinghua University, obtained support from the Ministry of Health, and set up the Tsinghua–Bayer Public Health and HIV/AIDS Media Studies Program (Felicia Pullam, Corporate Responsibility as China Strategy, China Business Review, March–April 2006, p. 36).
For future business in China “honest management” will become a key term.