Discover more from Pekingnology
Do Good and Prosper: Interplay Between Philanthropy and Business Innovations
Edison Tse of Stanford University reviews how China's Internet companies integrate philanthropy into their operations.
Today we share with you an extract from Do Good and Prosper: Interplay Between Philanthropy and Business Innovations, a recent book by Edison Tse of Stanford University.
Edison Tse, Associate Professor of Management Science and Engineering and Director of the Asia Center of Management Science and Engineering at Stanford University, developed a framework for analyzing dynamic competitive strategy that would shape the formation of an ecosystem supporting a value proposition. Within such a framework, he developed dynamic strategies for firms entering an emerging market, latecomers entering a matured market, and firms managing transformation. Using this framework, he developed a new theory on the business transformation of a company and the economic transformation of a developing economy. He applied his theory to explain China’s rapid growth since 1978, changing from a production economy to an innovation economy. His current research is extending the theory to managing product success, managing inflection point disruptions, sustainable growth strategy in a dynamic changing environment, and industries’ strategy responding to geopolitics disruption. He has published over 180 papers on his research activities.
Philanthropy consists of private initiatives for the public good. Market economy consists of private initiative for private good. Government welfare consists of public initiative for public good. In the literature, these three systems have been treated separately. However, there is a strong interplay among these three systems that would shape the social and economic dynamics in a nation.
Two important messages are conveyed in this book. The first message is that there is a strong interplay between philanthropy innovation that create social value and business innovation that creates commercial value. The second message is that to achieve sustainable equitable economic growth, a coordinated effort among the three systems is required.
Starting in 2009, a surge of Chinese internet companies integrate philanthropy into their corporate strategy that totally change the landscape of philanthropy system in China. Two visible changes were the formation of online charity platforms that greatly help the public foundations to raise money and the mass participation of young donors who are not necessarily rich. A deeper implication is that the disruption of the philanthropy system in China seems to be a real case example that reflects some degree of truth in the two messages that book wants to convey.
In this book, I document the history of emergence of internet businesses in China, expansion of Chinese internet companies, and their active engagement in philanthropy as part of their corporate strategy. The two messages are conveyed through synthesis of the case history based on some theoretical foundation.
Why successful US internet and mobile related companies failed in China?
Innovative welfare products that turn massive young people to become engaged donors.
Chinese internet companies strengthen the philanthropy ecosystem in China.
The role that Chinese internet companies play in rural revitalizing projects in China.
The three systems succeeded in eradicating extreme poverty in China by 2020.
Chinese internet companies blend philanthropy innovation with business innovation.
Sustainable growth for companies and nations.
(Excerpt from Preface)
Internet Philanthropy System in China
Internet companies emerged in China in 1999 that set a new phase of growth in the Chinese economy. The growth of Chinese internet companies consists of two phases. The first phase, which started in 1999, is the emergence of online internet companies like Alibaba which dominated the e-commerce business, Tencent which dominated the social networking business, and Baidu which dominated the search advertising business. The second phase, which started in 2008, is the emergence of online to offline (O2O) companies like Didi which dominated the ride-hailing services business, and Meituan which dominated the local life service business. The expansion of these internet companies did not follow their US counterparts that expanded through business by setting up the same business internationally, instead, they expanded through people by offering new products and services to their ecosystem members and thus strengthen China’s economy.
Tencent was the first Chinese internet company that engage in philanthropy by setting up the Tencent Charity Foundation in 2007. The Wenchuan earthquake in 2008 was the triggering point for the growth of online charity giving in China. Tencent was the internet company that went beyond fulfilling its corporate social responsibility by donating money to social courses, it actively engages in philanthropy by integrating a full range of philanthropic activities into its corporate strategy. Shortly after, Alibaba also played a similar role in integrating the company’s business with the charity industry. Starting in 2011, a surge of Chinese internet companies followed suit that totally changed the landscape of philanthropy in China.
Two visible changes that one observed are the formation of charity fundraising platforms set up by internet companies that greatly help the public foundations to raise money from the public and the mass participation of young donors who are not necessarily rich. It was reported that 120 million donors made donations through internet fundraising platforms in 2021. The Internet companies try to build up a group of regularly engaged donors that blend donations with their daily life activities. They tried to make charity not a privilege for the rich only, but everyone can participate based on their capacity. They made charity giving like a game that is fun, usual, and meaningful.
But maybe there is a deeper implication of Chinese internet companies actively engaging in philanthropy that meets the eyes. What I find more amazing is that most Chinese internet companies, other than Tencent, Alibaba, and Baidu that are profitable, integrated their businesses with charity while they were still not profitable. All these internet companies were still relying on their ability to raise venture money for their survival. How did they convince their venture investors to let them do so? Is there a linkage between creating social value and commercial value for companies? These prompted my interest to investigate the historical events in more detail to understand why and how the Internet philanthropy system emerged in China in this time frame. Through this investigation, I conclude that there is a strong interplay between philanthropy system, market economy, and welfare system. Proper collaboration of these three systems would lead to sustainable equitable economic growth.
(Excerpt from Chapter 4: Innovation to Building Engaged Donors)
Innovative Welfare Products
Tencent set out to develop an Internet philanthropy system with ordinary people as the major donors. The challenge was to build a group of regular donors that would accumulate at an exponential speed. For ordinary people, the commitment to regular donations can be difficult. In economic hard times, people may not be able to donate because they need to consider saving for the future. For example, in the Covid-19 lock period, a lot of people would want to save up for contingency planning. So, the focus should be to develop a group of regularly engaged donors rather than regular cash donors. A regular engaged donor is one who engages in welfare donation activities regularly. Starting in 2015, Tencent came up with a variety of innovative welfare products that cultivate regular engaged donors. These donors sometimes make cash donations, while other times engage in activities that help in raising contributions to welfare projects.
“Donating step” has a long history in philanthropy. Many schools all over the world use this as a way to raise funds to support some school activities. Tencent implemented this idea online but added many creative ideas to make it fun, useful, and meaningful. WeRun on WeChat or Movement on Mobile QQ can record the number of steps a user made in a day. In 2015, Tencent launched a Charity Hike program where a user will earn a “little safflower” when the user makes ten thousand steps in a day. The little safflower is a cute symbol to represent the love that Tencent designed and is considered as a token that the user can donate to a worthy cause. The user can collect a little safflower daily by stepping and deciding when to make the donation and to what cause. Every little safflower donated will be converted to a certain amount of cash a company sponsor (Tencent Charity Foundation is one of the sponsors) will make to the welfare project that the user specifies. The cash amount for each little red flower is unknown depending on the amount of sponsored funds and the number of little safflowers donated. A sponsoring company also indicates what projects it would support. The Tencent platform will do the matching between the user and the sponsor company.
This allows the user to convert daily activities to worthy donations. Normally, people do less than ten thousand steps a day. To earn a little safflower, people must exercise more. To earn a little safflower, many people walk to work instead of driving. This would help to improve personal health while also helping to reduce pollution and traffic congestion. Tencent will also let the user know who the sponsoring company is. This would also help to build a positive brand image for the sponsoring company.
This became a very popular program because people find it fun. Not knowing the conversion of a little safflower to cash amount makes it like a game that many people like to play. People find it useful because it would improve their health and help the environment. It is meaningful because the donation will make the world better. The sponsoring companies find this not only to fulfill their corporate social responsibility (CSR), but they can also get exposure to users that have similar preferences. This would have a positive impact on their current business.
More importantly, this helps to get the user more engaged with welfare donation activities regardless of their financial situation. Tencent encouraged people to make cash donations by rewarding every cash donation with a little safflower. In 2022, because of the COVID-19 lockdown, many were concerned about the economic outlook and made fewer donations. In 99 Charity Giving that year, the total number of cash donation time was 58.16 million, while the number of little safflower donation time was 59.54 million. Many maintained their engagement in welfare activities by doing step donations.
Another interesting welfare product that helps to get people to engage in welfare activity is “daily welfare learning”. Every day a question related to welfare is posted on Tencent Charity platform. There are multiple-choice answers. If the user clicks on the right answer, a little safflower is awarded to the user. If the user clicks on the wrong answer, an explanation of why it is wrong, and the right answer is displayed. The whole objective of this game is to educate the user on the value of public welfare to society and to cultivate regular engagement with welfare donation activities.
There are many young people who do not like to interact with others and like to do things on their own. Tencent designed a welfare product that helps these people to interact with others while engaging in philanthropic activities. A user can write something, draw a picture, or video record a smile and send it to his or her social group via a WeChat-designed H5 page and earn a little safflower. A H5 page is essentially a well-designed mobile web app (or page) that can be shared
easily on chat applications. The receivers will see this as a friendly gesture from the sender and that the sender is doing this to support some welfare program. Moreover, the sender encourages the receiver to do the same. The product helps someone who does not like to interact with others for some psychological reasons to find an indirect way to communicate and interact with others. The receivers also see the good-hearted nature of the sender and treasure the friendship. This also helps Tencent to spread the value of regular engagement in welfare donation activities.
Tencent Charity designed many welfare products that allow users to spend time and effort instead of cash in supporting philanthropic activities. For example, users can receive a little safflower by doing some voluntary work, contributing some used product for charity support, helping in some charity project, etc. Every commercial product division in Tencent also designed welfare products that link users’ usage of the commercial product with little safflower. Gradually, little safflower became a brand name, and a glue that got users more engaged with charity activities, and more engaged with Tencent. All users are provided with their historical charity donation records: cash donations, the number of little safflowers earned through different activities, donations of little safflowers, specific welfare projects and amount donated, status of the donated projects. In 2022 Charity Day, regularly engaged donors could also propose and design their dream charity projects. Those that got many donors to support would get match funds from the Tencent Charity Foundation and the Foundation would take charge of implementing the projects. In the event, 16 proposed dream projects attracted 59 million engaged donors and a total donation of 107 million little safflowers. This makes the users feel that they are totally involved in welfare contributions that help to make a better world.
In 2016, Ant Financial Charity Platform launched a creative welfare product, called Ant Forest, which links online payments and daily activities to the reduction of carbon emissions. A user can set up a personal carbon account on the Ant Financial Charity Platform. The user’s daily activities that could reduce carbon emissions would be converted into virtual green energy to grow a virtuous tree in his or her Ant Forest account. These activities include walking, traveling by public transportation instead of driving, paying utility fees online, paying traffic tickets online, making hospital registration online, etc. When a user earned 17.9 kilograms of green energy, Ant Financial and its charity partner, the Alxa SEE Foundation, would plant a real tree in the deserted area of Alxa in Inner Mongolia. Users could see the trees they planted through a satellite map and see the impact they brought to the world. It was hoped that this would encourage users to develop a lifestyle that reduces carbon emissions and would also encourage more people to engage in charity donation activities. As of March 2023, 600 million Ant Forest users planted 320 million trees. This product also greatly increases the stickiness of users to Ant Financial service offerings.
Ant Financial Charity Platform developed additional welfare products like Ant Farm that used game simulations to allow users to have fun while engaging in charity activities by raising virtual pets. Ant Farm is such a product. Users can get a virtual chick (or a pet) from Ant Farm and can get free feed by answering questions, doing tasks, such as offline and online payment, financial management, inviting friends, etc. Users can start feeding the chick and accumulating love points. A simulation program displays the growth of the chick based on the feeds. When the chick is fully grown into a chicken, the user can donate the cumulated love points to a specific charity project supported by the Ant Financial Charity Platform. Users can set up a “Love Account” for each project and Alipay would provide the details on each user’s philanthropic footprint and assets.
(Excerpt from Chapter 6: Innovation in Poverty Alleviation)
China’s long-term vision was commonly prosperity, but to realize the vision, eradicating extreme poverty would be the first step. Therefore, poverty alleviation has been the central policy in China ever since the beginning of reform and opening-up in 1978. There are two common approaches to poverty alleviation. One is referred to as “blood transfusion” approach. This is characterized by humanitarian aid or welfare mechanisms to assure that the basic needs of the poor are met. This is also referred to as relief-based poverty alleviation. The other approach is referred to as “blood generation” approach. The focus is to create employment or business opportunities for the poor to increase their income. The second approach is also referred to as “hematopoietic” or development-based poverty alleviation.
However, for some poorest regions in China, these two approaches alone cannot eliminate poverty. Deserts, villages hidden in the mountains, and many villages that lack natural resources or have no easy access to the market would need special targeted assistance to eliminate poverty. In addition to a minimum income, China’s poverty alleviation program ensures that five other indicators are met: the ‘two assurances’ of food and clothing and the ‘three guarantees’ of basic medical services, safe housing with drinking water and electricity, and free and compulsory education for children.
From 2011, China's poverty alleviation policy changed from “blood fusion” to “blood generation”. The way to implement poverty alleviation changed from the government led to the mobilization of all sectors of the society to participate. The targeted poverty alleviation was launched in 2015 and focused on getting all households out of poverty. The targeted poverty alleviation policy is more people-centered and thus highlights the importance of accurate poverty identification to ensure accurate assistance to the targeted poverty-stricken households.
JD.Com played an active role in “hematopoietic” poverty alleviation. There is a Chinese saying: "Give a man a fish and feed him for a day. Teach a man to fish and you feed him for life.” As an e-commerce and logistic company, JD.com leveraged its core competence to practice “hematopoietic” poverty alleviation in helping farmers in poor regions to get out of poverty. A good example is the "Running Chicken” Poverty Alleviation Project.
“Running Chicken” Poverty Alleviation Project
As China’s economy was improving quickly, food safety issues received widespread attention from society. Chicken is the most important category of daily poultry meat consumption in China. Negative news has been reported on the harm of eating hormone-injected chicken to our health. This created a strong demand for chicken farmed in a green and healthy way. JD.Com developed a guide on the “free-range” green breeding method. Through studies and experimentation, JD established JD Fresh criteria. A smart device attached to the chicken’s foot would measure how active the chicken is in running. The JD Fresh criteria are based on the running history of the chicken.
A user can participate in this philanthropy project by donating through Tencent Charity Hiking. Each day, a user can donate at least 1,000 steps. When 100,000 steps have been donated by a user, the JD Foundation would buy a chick and give it to a poor farmer's household. Based on the poverty level of the household, JD would also extend a loan to the household. The household would raise the chick following JD's guidance. If the chicken the farmers raise meets the JD Fresh criteria, they could be sold through JD.Com’s e-commerce platform. The running history of the chicken would be advertised in the e-Commerce platform which would help the farmer to sell the chicken at a good market price. JD.Com also promised to pay two times higher than the market price if the chicken had made over 1 million steps as an incentive reward.
A user who desires to eat a healthy running chicken would be very likely to be a step donor because he or she would like to see there are more healthy running chickens in the market. This would also lower the market price for running chicken. Tencent Charity would build up a bigger group of regularly engaged donors. The poor farmer households would find a new way of earning income. After their initial success, they can allocate some of their profit to reinvest and buy more chicks and raise them following JD guidance to meet JD Fresh criteria and sell them on JD.Com’s e-commerce platform. This would enable them to get out of poverty not through charity but their hard work. JD.Com also benefits from this by having a high-quality product sold through their e-Commerce. Society is better off because there would be more reasonably priced quality organic health food in the marketplace. This is a multi-win situation for the whole society. (Enditem)