When speaking to firms about starting to develop their sustainability strategy, we push firms to start with having a much deeper understanding of the challenges that their customer, communities, and wider stakeholders face. To understand the issues, at the local level, that are faced on a daily basis by those that you are looking to engage (positively) and build off it. It is a tough request for many, but when done right, it is an investment in social capital that not only protects it during a crisis but creates true loyalty.
The recent Starbucks announcement launching the “Starbucks China Parent Care Program,” which will provide insurance for the elder parents up to 10,000 employees, for us is a great example of how a firm can get it right. It is a program that in our opinion is shows how in-tune their leadership is with the local challenges, and here is why:
Awareness of Tangible Issue: Elderly
While elderly is not an issue that is typically mentioned as an issue of “sustainability,” it is one of the core issues that China faces going forward. As shown in the graphs below, this is a population that will grow dramatically over the next 30 years, and as part of this process will drive their working-to-retired ratio down significantly. A shift that will lead to significant pressure on the government, through the need for social services. Furthermore, at the same time, income taxes are falling, increasing the burden on those who are working.
As the dependency ratio increase, the tax burdens on working adults will be heavier, and the government spending on healthcare has to increase and it may also lead to a shortage of labor. Hence, the private sector has to step in to support the aging population in China. In our report on the elderly of China, we examined deeper into the associated economic, infrastructural, and social challenges.
The implementation of the program is also very timely because the Chinese government is very concern about this issue and has been placing pressure on companies to help support this issue, and while the specifics of the program are still unclear, one thing is clear: Starbucks realizes that “Happy parents” equates to “Happy employees”.
Engagement of Employees
Just like HaiDiLao (海底捞), a famous Hot Pot restaurant in China that is well-known for its employees’ benefits, Starbucks is positioning itself very distinctively from any other company in its market. They understand that for the company to succeed, they need to create programs like these to create loyalty within employees. Similarly, these programs can be found in the USA. Till now.
Although a parental insurance is not common in the States, there are companies that pay for the college education of employees and their children as long as they stay in the company for an agreed duration (i.e 5 years or more). These welfare benefits always existed, but not in China. Which leads us to believe that, just like in the US, they made a financial calculation that shows that paying the insurance for about 10,000 parents of Starbucks employees is of more value to them than the cost of losing the employees who can no longer afford their parents’ healthcare or are very worried about it.
Which is just great HR practice in a country where front-line service staff is notorious for their turnover. This program has the ability to benefit the organization immediately and bring smiles to their HR professions through reduced turnover and increased productivity.
Potential impact of the Program
Currently, Starbucks health insurance policy only covers employees’ parents that are 75 and below and live in China. They are probably trying to get the numbers right and create a good program. But the conditions stated are very clear. The employees have to work for at least two years to qualify for the program, this program could become a great incentive for employees to stay on board longer… and someone who is searching the market for something more than just money, this program could make Starbucks a more competitive and attractive employer in a very competitive labor market.
Scalability of Program
While only beginning with 10,000 employees who have worked for Starbucks for more than two years, and whose parents are below the age of 75, this is a program that has significant opportunity for scale. Not just in the current employee base, many of whom will likely now stay with Starbucks for more than two years. But this program that has the potential to expand alongside its aggressive China market strategy to build a brand with communities, to become a critical program that they are able to leverage to attract talent to join their growing workforce and gain favor with city governments who see this programs as one that relieves their own pressure.
In the end, this is going to play out very well for Starbucks in China.
In aligning the social issue that China faces to their business, and developing this program, Starbucks’s leadership once again has shown just how attuned its understanding of China is.
It is a program that will add to the high social capital it already enjoys with Chinese consumers, and where filial piety plays a crucial role in the society, taking care of employees’ parents is a huge incentive for Chinese staff to stay in the company.