Could China lead in developing the Shared Value Economy?

Posted: October 17th, 2011 | Author: | Filed under: Kev's Thoughts On... | Tags: , , , , , , , , , , , , , , , , , , | 1 Comment »

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Photo Credit: itsallaboutimagination.com

In the past year, I’ve met with scores of new people and talked about how the research & consulting company I help lead, China Youthology, has also launched a non-profit platform to directly engage youth called Open Youthology. The most common response I get is “Are you an NGO?”

It puzzled me why so many people couldn’t see the logic: investing directly in what’s good for the community, will secure what’s good for business. I felt a little anxious; why were we the only ones doing this? Are we totally wrong? How come there wasn’t anything to support what we knew in our gut was right?

Then in January 2011, validation came. Harvard Business Review started the year publishing a seminal article titled “Creating Shared Value: How to reinvent capitalism – and unleash a wave of innovation and growth”. Here is a heavy paraphrase of the top-line ideas:

The concept of Shared Value recognizes that societal needs, not just conventional economic needs, define markets. True long-term, sustainable, and competitive economic value is reaped when business aligns with societal needs.  Therefore the purpose of Capitalism and the corporation must be redefined as creating shared value, not just profit per se. A narrow concept of capitalism has prevented business from harnessing its full potential to meet society’s broader challenges, but by broadening our perspective and adopting a Shared Value mindset, we recognize that the competitiveness of a company and the health of the communities around it are closely intertwined.  A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment.

HBR Shared Value Creation

The article laid out paragraph by paragraph, with numerous supporting case examples, everything my partners and I believed and are trying to build at China Youthology. I looked to see who had authored such amazing research: Mark R. Kramer, senior fellow at Harvard’s Kennedy School of Government, and Michael E. Porter, Harvard Business School professor, and one of the greatest business thinkers of our generation.

Read the HBR article if you haven’t already, or take a quick first glance by watching this talk by Michael E. Porter about “Creating Shared Value”.

This article reaffirmed to us that building Open Youthology was not wrong, we were just early.

 

In fact, the concept of Shared Value isn’t that new. Porter’ Shared Value Creation codified the business’ new role in a Shared Economy, but the other half of this equation is Shared Value Consumption, which is better known as Collaborative Consumption. Collaborative consumption is based on the concept that access to goods and skills is more important than ownership of them.[i]  People are building collaborative consumption economic models based on sharing, swapping, bartering, trading or renting access to products as opposed to ownership.[ii]

Fast Company thoroughly explains and showcases the world of Shared Value Consumption in an April 2011 article, “The Sharing Economy”. And you can watch Rachel Botsman give a paradigm-shifting TEDtalk titled “The Case for Collaborative Consumption” during the May 2010 TEDxSydney conference.

 

We must enlarge our purpose for creation to help us discover what really needs our attention. And we must enlarge our definition of consumption so that what we already have can best serve the most of society’s needs.

I believe that Shared Value is the next frontier of Globalization and the true motive behind Free Trade.

Free Trade is built on the law of Comparative Advantage: everyone benefits when everyone can offer what they do best and most efficiently.

Shared Value Creation and Consumption is taking this one step further: We now recognize that by ignoring externalities, especially negative externalities, we are in fact ignoring or even building barriers to other forms of value creation that in the end would help the entire societal ecosystem.

The Shared Value Economy is shifting us away from only thinking about assets, capital and traded goods to repositioning Capitalism for what the law of Comparative Advantage originally intended: the holistic betterment of society.

HBR How to Fix Capitalism

These concepts of Shared Value Creation and Shared Value Consumption are currently early adopter trends, enjoying niche acceptance and having their first initial success cases. But what will allow the Shared Value Economy to gain mass adoption, and benefit an entire society?

Looking at the examples from the rise of past major societal systems – Capitalism, Communism, Feudalism, Imperialism, etc. – we know it takes the right generation of people with fitting cultural traits to collectively buy-in and believe the new model works and must be realized. So will there be a generation that culturally fits to truly push mass adoption of a Shared Value Economy?

It is not a coincidence that it is this current generation that birthed the genesis of the Shared Value concept. The rise of Participatory culture in social media, Web 2.0, Open Source, mobile networks, is teaching us that the whole is greater than the sum of its parts. An entire global generation is now raised with this experience and truth, and we are starting to want it enacted in the other areas of society, from commerce to government to family.

But wanting it and having mass adoption are two separate things.  It still takes the right generation with the right cultural traits and the right environmental circumstances to really embrace the concept and adopt it systemically.

 

Michael E. Porter believes that this generational tipping point may come from places at a disadvantage in the current capitalist system. From the HBR ‘Creating Shared Value’ article:

“Equal or greater opportunities arise from serving disadvantaged communities and developing countries. Though societal needs are even more pressing there, these communities have not been recognized as viable markets. Today attention is riveted on India, China and increasingly Brazil, which offer firms the prospect of reaching billions of new customers at the bottom of the pyramid… As capitalism begins to work in poorer communities, new opportunities for economic development and social progress increase exponentially.”

This and next generation of China’s youth may be the pivotal group the Shared Value Economy is looking for. Here’s why:

1)   Chinese youth are already in-step with the newest global ideas.

Participatory culture from the Internet, social media, and mobile has been the experience of Chinese youth, similar to those in other countries. New concepts such as Shared Value not only have a receptive audience with Chinese youth, they are actively advocated and spread.  Isaac Mao, one of China’s earliest bloggers, leads Sharism.org in China, an organization dedicated to educating and advocating the philosophy and practice of Sharism. “The more you give, the more you get, the more you share, the more you’re shared”. Frequent meetings and conferences are held in Beijing and Shanghai, attended by some of the top thought-leaders and internet influencers in China.

Sharism photo credit Mary Berstrom

photo credit: bergstromtrends.com

Other than the Internet & Social Media, Youth growing up in China have few other social spaces to call their own. So Participatory culture and derived concepts have become important for them to cling to, as it makes up a larger piece of their generational identity.

2) Hyper growth means less entrenched traditional norms.

Chinese youth have only known fast and radical change. New is normal.  Therefore Chinese Youth are seeking new meaning in all aspects of their life; the meanings of self-identity, of being an individual, of being a society. This extends to re-examining old ideas that older generations hold so dear. Chinese youth are less resistant, and more willing to re-define the meanings of ‘business’, ‘industry’, and ‘capitalism’. Unlike other developed societies where the definitions of these concepts are treated as sacred and entrenched at an early age, in China these terms are newer, and much greyer. Other developed capitalist countries will take longer to extricate themselves from what they know and dare to reconsider the validity. China’s youth do not have that problem. They are re-defining traditional capitalism right now.

3) China’s next generation cannot keep up with traditional consumption.

This is one of the most important drivers for China’s potential leadership in Shared Value. Young people’s job and income prospects are far worse in China than in many other developed countries, while competition is several times greater. Even the hopes of achieving middle class consumption levels are a real struggle in China. A young person would need to take out a 70-80 year mortgage to buy a small apartment in one of China’s major cities.  The traditional expectations of a consumption economy are not possible in China’s reality. Chinese youth are driven towards different solutions to survive and flourish. Shared Value can fit this need.

4) First chances for creation, making new rules

If we had the first 3 reasons but a completely restrictive government and market, there would be no chance for this generation of China’s youth to champion Shared Value. Luckily this is not the case. China’s emerging marketized economy means there is room for new Firsts in everything. Few legacy systems or processes means entrepreneurs and organizations have the chance now to re-structure the market and industries to newer business concepts. In addition, few legacy ecosystems and competencies mean entrepreneurs and organizations must develop new clusters to create markets and pool resources to gather strength enough to build something of value. This is Shared Value in action.

 

We already see Shared Value Consumption taking root in China.

Swap shops are opening and swap markets are being organized by normal members of the community. Chinese youth love the feeling of surprise they get from thinking they can turn old, under-used items into something useful they need – all without spending more money.

Swap Shop in a popular Beijing Hutong

Swap Shop in a popular Beijing Hutong

Buy42.com is a new website and service that asks people to donate their second-hand clothes. The people at Buy42 then mix and match the donated clothes to create fashionable vintage or alternative, edgy ensembles to be resold. This provides a few important societal values: 1) educates & leads a larger mass population about vintage and alternative fashion styles 2) makes it easy for them to buy whole outfits at low prices 3) does it all using existing products without new manufacturing.

Buy42.com now has a fast-growing following on Sina Weibo, China’s Twitter.  It has set up dedicated channels for the clothes donated by leading indie designers and influential arty-youth.  Buy42 only takes a percentage of the money made from the resale of clothes to run the website and staff the company; the rest of the income is donated to charity for China’s poor.

Buy42.com

 

Shared Value Creation in China is still in its infancy, but companies large and small are finding numerous fertile opportunities to align business value chains with society. One important role companies can play for this Chinese generation is creating Shared Value in culture.

Nike China invests in underground street-ball tournaments, sponsoring local rap artists to write street-ball anthems, and even designing and freely giving away customized street-ball Nike products. Nike understands that directly investing in a strong street-ball culture builds Nike’s future China market.

China Youthology also strives to lead by example in Shared Value Creation.

Open Youthology, a platform offering youth free inspirational conferences, equipping community research, and funding for innovative new cultural assets, is China Youthology’s current strategy for Shared Value Creation.  Developing China’s youth in cultural creativity, the courage to explore, and critical questioning, we are enlarging and strengthening our own market.

Open Youthology

By helping Chinese youth grow as bright, inquisitive minds, we benefit from a larger and stronger pool of young researcher talent that we can hire. We also benefit from deeper acceptance into youth subculture communities because of the added credibility and legitimacy gained from our youth engagement. This benefits our research insights as we can dive deeper than normal researchers, into the lives of Chinese youth. We then in turn offer better research to our clients, who keep us profitable so we can continue investing in youth engagement and building China’s youth communities.

Through this Shared Value business model, we not only create a competitive advantage for our business and ensure greater market sustainability, but more importantly, Shared Value enables the leaders of tomorrow’s China a greater youth experience and more positive life inspiration.

Perhaps Shared Value Creation as a business model came quicker and more naturally for us because China Youthology is so immersed in Chinese youth’s mindset and culture – or because we are Chinese youth ourselves. But as we see other young entrepreneurs building Shared Value Creation business models, we think we’re only at the beginning, with the potential to bring the Shared Value Economy into greater mass adoption.

Someday when I introduce Open Youthology, instead of a confused responding question about maximizing profits, I hope I get a response of illumination: “ah! You’re creating Shared Value!”

China Youthology Butter Conference

Youth attending a Butter Youth Conference by Open Youthology


[i] http://www.fastcompany.com/magazine/155/the-sharing-economy.html

[ii] http://en.wikipedia.org/wiki/Collaborative_consumption

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