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A CAT Smiles in China

Caterpillar

A corporate strategy article by Thunderbird students Shen-Chun Lin, Aimee DeGrauwe, Eli Darby, Monica Willbrand, Raymond Caruso and James Moore

CSR: The Reputation Necessity

For most companies, Corporate Social Responsibility (CSR) is a face-saving, repair mission in reaction to some recently identified social injustice or industrial accident.  Examples of reputation saving CSR have been seen with Nike’s early reaction to substandard working conditions or Union Carbide’s Bhopal tragic explosion in 1984.  At best, most companies treat CSR as a cost center line item akin to corporate publicity or charity, where a separate division within the organization implements a “community outreach” program.  Although these programs do have merit, they are mainly counter balances to the damages a corporation’s normal operations have on the community and environment.  This inefficiency lies in the fact that many firms’ CSR attempts pit society and business against each other, when in reality they should be dependent.  In addition, CSR tends to push firms into thinking generally, rather than about shared value.  In the developed world, national and regional laws help regulate and limit the damage a company’s presence can have at large. From environmental regulations, to worker safety standards, many US and EU companies meet or exceed the bare minimums laid out by governments.

The developing world has a far greater need to CSR, yet many firms locate operations in these parts of the world to take advantage of less stringent regulations, thus lower operating costs. Take notice that many reactionary CSR programs (Nike and Union Carbide among others) are implemented in the developing world. Lacking safety standards, low minimum wages, and poor enforcement then lull corporations into sub-standard maintenance until disaster strikes. As companies rush to meet the growing demand of the developing world, they set themselves up for disaster as they leave somewhat functional CSR programs at the edge of national shores. It is this chasm between need and supply that can only be meet by corporations implementing CSR programs as part of their overall corporate and product strategies.  Companies must find the areas of overlap between society and their industry to begin to develop opportunities for shared value, positively affecting both the company and the community.  

Caterpillar’s CSR - A Strategic Necessity
At least one company, Caterpillar, Inc. (NYSE CAT) of Peoria Ill, is successfully melding a proactive CSR strategy with a corporate expansion strategy in developing parts of the world. Caterpillar’s CSR efforts not only implement good corporate citizenship strategies, but also enable its equipment customers to implement CSR through higher operator safety standards, and lower emissions. For Caterpillar, the developing world is a key market. One of the company’s eight strategic imperatives simply states “Win in China”. For many corporations, China offers a huge growing market. Yet, when these companies enter the country, they ignore any CSR efforts that have enabled their success in other parts of the world, and by doing so, corporations are largely ignoring another source of differentiation and competitive advantage.
Caterpillar implements a two-pronged approach to CSR, creating a win-win-win condition for the company, society at large, and for its customers. The Caterpillar Foundation is the company’s philanthropic arm that works with various other non-profit organizations around the world. Partners of the foundation include Water.org, Mano a Mano, and the Nature Conservancy.

Caterpillar Foundation Partners
Water.org Promoting the reach of the non-profit through donations, accessibility of sanitation needs and clean water in communities that lack basic necessities.

Coupling resources and knowledge, the program has expanded beyond Africa, Central and South America to India and Bangalore (10).

Nature Conservancy Exercising a partnership based on science and diversity, CAT supports the sustainability of the world’s “Great Rivers”, including the Yangtze, Mississippi, and Paraguay-Parana.

Partnership promotes the longevity of global freshwater supply in the face of pollution, global warming, and environmental factors (11).

Mano a Mano Facilitating medical care and providing opportunity for economic growth through infrastructure by building roads in lesser developed areas.

Infrastructure supports ability to reach schools, obtain education, promoting further economic development.

Agricultural products can be transported to other local markets, further spurring economic development.

Partnering with Mano a Mano, CAT is creating “hope and health” in Bolivia (12).

These efforts provide a unique overlap of areas of social concern and CAT’s core business. While these three partners provide a wide reaching impact there are also unique efforts being pursued in China as well.

Energy Conservation
Historically, the manufacture and use of industrial earth-moving equipment has been difficult to accomplish efficiently.  Typically this type of industry has had to sacrifice efficiency for the unique goals that only large equipment can achieve.  However, CAT China’s energy efficient focus in their machines, factories and offices has led to governmental favor in the Jiangsu Province of China.  In return for CAT’s new R&D facility being LEED certified the local governments have agreed for CAT to remain unaffected by the power brownouts or blackouts that affect other businesses (5).  This type of partnering with local governments both helps CAT’s reputation while also providing a strategic advantage over rivals who do not enjoy the same relationship.  In the realm of energy consumption, CAT has identified a strong overlap with society and business (8).  The more businesses engage in energy conserving measures, the more the rest of society benefits.

Waste and Resource Utilization
According to Caterpillar’s 2009 Sustainability report, CAT is engaged in two methods of utilizing formerly released methane.  As part of the CSR initiative by CAT in China, CAT has discovered ways of capturing the methane released from mining and brewing processes (4).  Naturally released from mining and created during certain brewing processes, methane from these two sources is used as a fuel source to provide electricity for millions.

In addition to these key initiatives, CAT has also been involved in various other activities designed to support the safety, education and environment of the communities in which it operates in China.

Headlights of CAT CSR efforts in recent years Business Unit of CAT Shared value for both society and company Impacting area(s)
Improve onsite monitoring and training. 2011 safety performance was nearly 40% better than best-in-class standards (CAT China) Construction Industries It reduces the injury rate to better protect workers which increases the efficiency on working site and saves cost for CAT customers. Workplace
Olympic Donation Project-Caterpillar donated heavy boring machines worth of millions Yuan for constructions of 2008 Beijing Olympic Construction Industries Providing the supporting technique for construction needed in the most important international event in China history. CAT not only gains reputation and business but also establishes good relationship with China government. Community
Global Great River Project-Yangtze River in 2005. Caterpillar helps to reduce negative ecological impacts from water resource development and hydropower generation. Caterpillar Foundation/Construction The program isn’t just about wildlife or development, but rather how the two can come together. It not only improves local environmental standard but also plants the opportunity for future contract for CAT. Environment
Strategic Partnership 2007 with four universities in China to provide funding to help support student scholarship programs, curriculum development, and faculty development. Caterpillar Foundation Helping education structure and context to be more fit to current market need. On the other hand, it allows CAT to establish pre-relationship with young professionals to strength CAT long-term expansion plan in China. Community & Marketplace
Disaster Relief for snowstorm and Sichuan Earthquake in 2008, Caterpillar contributed $1.5 million to assist in relief efforts. Cat dealers also provided machinery free to help clear major roads and highways. Caterpillar Foundation/Construction Assistance in the most devastating moment is considered the greatest help and remains great impression to the society. CAT dealers reaps rebuild project afterwards. Environment & Community
Clean Energy Project Solar Turbines gas turbines helps a Shandong power company turn waste gas for combined heat and power application with CO2 emission reduction of 188,000 tons per year since 09' Energy & Power Industries This innovation is the first case in China, setting a new market standard of clean energy and gaining reputation for CAT Energy and Power. Environment & Marketplace
Vocational Skills and Safety Certification Education program in 2009 aims to provide heavy equipment maintenance & safety certification program for students in technical schools in China. Business Wide Investing in local technical schools helps CAT to enlarge technician pool for future recruiting as human capital is so vital for CAT China to continually grow. Marketplace & Workplace
Caterpillar Forest project in 2011, a total of 45,800 trees of different varieties are planted in Beijing, Tianjin, Hebei and Inner Mongolia. Caterpillar Foundation By improving environment, it increases the living standard and local population which leads to economic growth. CAT will be benefited from it. Environment

Conclusion
The consolidated CSR efforts by CAT in the developing world must be the benchmark in and beyond China. The “curse” of natural resources which attracts extraction companies to China can also be a blessing if the appropriate CSR is in place.  This CSR will serve as the silver-lining for communities dependent on availability of clean water and air, providing a shared value for Chinese citizens with CAT.  An opportunity to build loyalty and trust in the market which they operate, with the potential to secure long-term business from the staggering 40% of Chinese consumers whom find green conscientiousness a critical factor in brand selection (9).

Initiatives like CAT’s with Water.org ensures not only that basic human survival needs will be maintained, they will be improved and promote the livelihood of communities and the prosperity of their citizens.  Focus on energy efficiency and waste and resource utilization are CSRs that leverage strategy and intersect with organizational capability.

Moreover, with the rapid pace of globalization, it is vital to have CSR initiatives exercised in advance of potential damage to the environment and inhabitants.  As CAT is the benchmark for integration of harmonization of long-term objectives with short-term costs, it is also the benchmark for firms to diligently practice non-reactionary CSR.

Sources:
(1) “Caterpillar in China.”   Caterpillar Inc, 2011.
(2) “2011 Year in Review.”  Caterpillar Inc, 2012.
(3) “Caterpillar, Inc. Becomes an Ethical Role Model.”  Daniels Fund Ethics Initiative, University of New Mexico.
(4) “2009 Sustainability Report.”  Caterpillar Inc, 2010.  p. 42.
(5) ”The China CSR Imperative: Integrating Social Responsibility into the China Supply Chain Industry.”  The American Chamber of Commerce in Shanghai, 2012.  p. 10-11.
(6) “Our Values In Action: Caterpillar’s Worldwide Code of Conduct.”  Caterpillar Inc, 2010.  pp. 28-29.
(7) “Caterpillar China Recognized for Sustainability Efforts.” Caterpillar Inc.  http://www.caterpillar.com/cda/layout?m=389975&x=7&id=3155728.  Accessed: 18 Aug 2012
(8) Porter, M. & Kramer, M.  “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility.”  Harvard Business Review.

(9) “Rare-earth mining in China comes at a heavy cost for local villages.”  The Guardian. Accessed: 19 Aug 2012.

(10)”Caterpillar Inc.: Caterpillar Foundation partners with Water.org to Expand Watercredit in India, Indonesia.”  http://www.4-traders.com/CATERPILLAR-INC-4817/news/Caterpillar-Inc-Cater...

(11)” Caterpillar and the Caterpillar Foundation.”  http://www.nature.org/aboutus/workingwithcompanies/companies-we-work-with/working-with-caterpillar.xml

(12) “Caterpillar video highlighting Mano a Mano.” (http://manoamano.org/blog/vote-for-caterpillar-video-highlighting-mano-a-mano/