Global Sourcing Decisions under Socially Responsible Challenges - Term Paper Example

Course Professor University City/State Date Table of Contents 1.0 INTRODUCTION 3 2.0 Definition of socially responsible sourcing 4 3.0 Global sourcing strategy and environmental sustainability 4 4.0 Global sourcing and society involvement 6 5.0 Global sourcing and ethical marketing 7 6.0 Drivers of socially responsible sourcing 8 7.0 Barriers to adoption of socially responsible sourcing 12 8.0 Advantages of Undertaking Socially Responsible Global Sourcing 14 9.0 Conclusion 16 10.0 References 17 TABLES Table I Examples of stakeholder actions driving socially responsible purchasing ...pg 12 GLOBAL SOURCING STRATEGY UNDER SOCIALLY RESPONSIBLE CHALLENGES 1.0 INTRODUCTION Sourcing decisions and strategies have become modern means of business organisations to gain competitive advantage offer other businesses, (Trent 2007) and (Cook 2007). They help them in gaining economies of scale as well as being socially responsible through changing their business ethics to suit the environmental and sustainability demands of the society. Organisations have chances of choosing sourcing strategies depending on their needs. They may be country specific, extended across countries, single sourcing or multi-sourcing. (Carrie 2008), notes that cost is still the greatest determinant of sourcing strategy and decisions but mature companies has starting shifting sourcing strategies to those creating better products, minimising the impact on the environment, enhancing collaborative supplier relationship. Clients who are the main stakeholders in profitability of organisations have become more sensitive in terms of associating with socially responsible businesses. Organizations have been forced to adopt sustainability and socially responsible measures to attract clients. Some common means of corporate social responsibility actions include promotion of environmental sustainability, society involvement and ethical marketing. Sourcing strategies and decisions must align with these three corporate responsibility roles in order to promote it. Businesses and organisations are faced will challenges in promoting social responsibility using their global sourcing strategies. In this essay, I am going to analyse the role of global sourcing strategies under socially responsible challenges by looking at areas that sourcing should consider in order to be socially responsible, barriers to attaining it, its benefits and drivers towards social responsible sourcing. 2.0 Definition of socially responsible sourcing Socially responsible sourcing is a kind of sourcing that take into consideration the need of corporate social responsibility. In the global world, majority of organisations have agreed corporate sustainability as one of the precondition in their business ventures (Dyllick and Hockerts 2002). The impacts and aspects of its sourcing need to be looked into effectively since they affect the customers’ perceptions plus the image of the organisation (Bacallan, 2000). Sourcing strategies and decisions of organisations should thus form a starting point in enhancing social responsibility. 3.0 Global sourcing strategy and environmental sustainability Issues of sustainability has become of much importance to organisations, government, customers and consumers. There is high need for sustainable development. Sustainable development is the “ability to make development sustain-able—to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs”, Kates at el, 2005. Sustainable development is thus the attempt to maximise our utility as well as ensuring the future generations’ needs taken into consideration (YCELP 2005). Businesses and all stakeholders in making decisions should ensure that their strategies aim at fostering sustainability. Such decisions may in some cases demand that they not only look at the profitability of their sourcing strategy only since some sourcing strategies may be economically viable but not sustainable in the long-run. Companies should adopt sourcing strategies that foster environmental sustainability. In making decisions on sourcing decisions, they should look for suppliers that provide suppliers that reduce environmental pollution both to the current and future generations. (Krause et al 2009) proposes that environmental sustainability should be added as a priority as a competitive priority for the purchasing department in selecting sourcing strategy. In sourcing, there are various suppliers providing nearly the same products but in most cases, they is a slight difference in the products in terms of their effects to the environment. Organisations should go for those suppliers with quality products that are un\not disastrous to the environment. In most cases the sustainability of the sourced products are determined after the use of the products. To overcome the eventual negative effects of unknown products from unknown suppliers, organisations should carry-out research on those products before sourcing them. In sourcing, there is usually a trade-off between flexibility/responsiveness and cost efficiency (Christopher et al 2006). This is a challenge to organisation in terms of choosing those sources that promote sustainability and responsiveness and those that are cost effective. Some sourcing strategies may be cheap but unsustainable. They may be cheap in terms of various factors as they are locally available or can be sourced from nearby firms; their cost may be lower in terms of market price and transportation cost among other factors. Organisations may have the challenge for going for this sources compared to those that are environmentally sustainable but more expensive. Several companies adopt sustainable sourcing strategies and practise that conflict with cost performance (Pagell et al, 2010). In some rare cases, both the some companies have improved both their sustainability and cost reduction in the use of certain sourcing strategies (Carter and Rogers, 2008). 4.0 Global sourcing and society involvement Organisations have corporate social responsibility of involving the local society in which it is located in their production activities, (Zadek 2006). Organisations are supposed to involve the local community in their sourcing activities as a way of giving back to the society. Emergence of global sourcing has denied a chance to local suppliers to supply goods and services to companies. Global sourcing has seen many companies preferring to look for sourcing in China and some other Asian countries that offers suppliers at a lower price. Local society has been left with little market to supply their raw materials. Since companies have social corporate responsibility to the local community, they should put in place measures that ensure the locals given a share in their sourcing strategies. Considering the local community in sourcing is a good practice that resonates well in enhancing good public image. This is because the locals will see themselves as part of the organisation hence liking to be associated with it. They will be suppliers as well as providing other after sale services in the sourcing activities. Many people may be encouraged to be clients of the organisation thus increasing their market share and profitability. 5.0 Global sourcing and ethical marketing Sourcing not only involves consideration of the cost of the sourced products of the services and goods but also the eventual value to the final consumer. In sourcing organisation should highly take into consideration the social responsibility of provision of ethical and quality products to the customers. Customers should be able to get value for their money. In coming up with decisions and strategies on global sourcing organisations must thus analyse the products or services in terms of their quality and whether they are healthy for final customer use. Sourcing should also consider selection of suppliers that adhere to ethical standards, (Karen and Ashford, 2007) and (Karen 2012). Companies face the challenge of justifying the need of appointing suppliers that adhere to ethical standards. There is high justification given the fact that ethical suppliers will help in uplifting their public image and their long-term sustainability. Organisations should consider in looking at various ethical measures of suppliers like; sourcing from companies that do not participate in child labour, have dangerous working health or safety conditions, too much bribery and corruption, workforce exploitation among other ethical conditions. Such unethical conditions make consumers not to want to be associated with such companies and hence make contribute to bad image to those organisations sourcing from them. Organisations have a role in ensuring that ethical global sourcing is attainable. This may be realised through reaching out to suppliers, rewarding/ penalising suppliers’ behaviours, incorporating ethical sourcing language, managing risk at source and collaborating with a wider audience. Organisations should develop strategies where they not only use its internal assessment but also external types of sources in the evaluation of its supply chain partners. This is helpful given that in most cases sourcing is the initial stage of production. Governments, activists, non-governmental organisations and competitors may take advantage of sourcing from a bad supply to kill the market share of the organisation. They should thus use all means available including prototyping and partnerships in assessing their suppliers’ suitability in terms of their ethical standards since it will promote their corporate image. In their sourcing, they should also ensure there is continuous monitoring and rating of their suppliers in terms of their ethical standards. This will give organisations chance of knowing which suppliers to continue working with and those that should be dropped. It is also the role of organisation to develop ethical sourcing language in their sourcing strategies to guide the sourcing activities. This will give clear terms and conditions in the standards required from suppliers. Such policies should be uniform worldwide for multinational organisations to guide its sourcing activities uniformly. There should be a wide collaboration framework between various stakeholders in the organisation, clients and management in making sourcing decisions. Carrying out of these measures will ensure there is clear control of sourcing from the initial stage hence managing risk at the source. Risks like creation of bad public image, entrance into costly legal cases and provision of low quality products to the final consumers is reduced among other risks. 6.0 Drivers of socially responsible sourcing There is a wide range scholarly work have looked into the drivers of organisations to participate in corporate social responsibility activities like (Mackeyet et al 2007), (Graafland et al 2006), ((Palazzi and Starcher 2000) among others. Despite this only few studies has been done on why organisations should engage in socially responsible sourcing. Some of the reasons why organisations should undertake such measures include the following: 6.1 Driving force from media: Publications of news, articles, movies and newspapers on organisations/companies that do not follow ethical and social responsibility are a driving force to organisations to change their sourcing strategies. This is because they should not be reported negatively. Negative publicity will be disastrous to their profitability and maintaining their market share. 6.2 Consumers: The continued consumer and client awareness on social responsibility measures and sustainability measures is a driving force for organisations to change their strategies and be socially responsible. (Wallace 2006) notes that increasing client awareness and voting through makes organisations to me more socially responsible. With modern technology, consumers can also participate in boycotts and campaigns against companies that do not participate in socially responsible sourcing. Given the driver from consumers who are the greatest determinants of the success of businesses, organisations should take into consideration the implementation of socially responsible global sourcing despite the challenges that may arise. 6.3 Competitors Competitors in many occasions, like taking advantage of their rivals’ weakness to their advantage. They usually study the existence of lob-holes in their rivals to gain advantage from them. To avoid the possibility of competitors looking at lack of socially responsible sourcing in them as a weakness to attack them they should adopt good sourcing strategies that a responsible socially. This will help them avoid the possibility of negative publicity and commencement of legal battle by the competitors. 6.4 Investors Some investors demand that they only invest their resources in very social responsible organisations. One of the areas of analysing this may be through looking at their sourcing strategies and decisions. This usually forces organisations to adopt good sourcing strategies that are socially responsible. (Ekobanken, 2008) explains that the company has formulated certain environmental and social norms and criteria for their investments in start-up companies and in continuous environmental and socially responsible sourcing. 6.5 Governments and non-governmental organisations Governments and other regulatory organisations usually come up with laws and regulations governing sourcing (Zadek, 2005). To avoid breach of legal laws organisations should thus adopt sourcing strategies that are legal. For instance in Sweden there is directives on public sector on socially responsible purchasing and sourcing. International and regional trading blocs also have sourcing governing legislations that ensure socially responsible sourcing. Non-governmental organisations, human activists, advocates also influence the adoption of socially responsible sourcing. Table II Examples of stakeholder actions driving socially responsible purchasing Driving Stakeholders Example Media News, movies and articles in newspapers about activities of Swedish companies and their suppliers in many countries that do not follow basic human rights principles and conventions on decent working conditions, e.g. Swedish SVT1 programme Uppdrag granskningon practices of Indian and Chinese suppliers to Swedish producers and retailers Non-governmental organisations Include environmental and human rights groups, consumer advocates and other potential activists who together represent ‘‘civil regulation’’. For example, the work of SwedWatch, Fair Trade Center and Rena Kla¨der on investigating in what conditions medical instruments and hospital cloth are produced in Pakistan and India (Bjurling, 2007) Another example is the Swedish campaign ‘‘Mina skattepengar’’ that provides some examples for how to ensure that tax money are spent in an ethical and socially responsible way (Mina skattepengar, 2007) Competitors For example, Dem Collective – a small company that is built on principles of ethical and environmental sourcing is driving other companies in textile business to consider more socially responsible purchasing (Dem Collective, 2008 Investors For example, Ekobanken has defined specific environmental and social criteria for their investments that support start-up companies and continuous environmental and socially responsible sourcing (Ekobanken, 2008) Consumers The growing consumer awareness and voting through purchase of Fair Trade products, such as coffee (Wallace, 2006), or textiles and clothes, or plants with Fair Flowers Fair Plants label Consumers can also take part in boycotts or campaigns against specific products, e.g. toys produced in China, or companies Government EU and Swedish legislation – directives for the public sector on socially responsible purchasing ,e.g. EU Directive COM (2001) 566 (European Commission, 2001 Source: social responsibility journal 7.0 Barriers to adoption of socially responsible sourcing There exist a wide number of barriers to organisations towards adopting socially responsible sourcing strategies. These barriers can be classified into three groups, that is those internal barriers for the focal organisation, external barriers for the focal organisation and external barriers for suppliers. 7.1 Internal barriers in the organisation There are many internal factors in the organisation that may act as a barrier towards implementation of socially responsible sourcing measures. Some of such factors include the absence of information on how to formulate and implement socially responsible sourcing (SRS); lack of management commitment towards the implementation of SRS, Lack of viable justification of the change in the profitability motive of the organisation. Other factors include the need of implementation of various supplementary changes in the organisation like training, educating staff among other measures that may be costly to the organisation. These drivers of responsible sourcing has necessitated the adoption of socially responsible sourcing so as to be able to operated economically and be socially responsible. Despite sometimes, there being challenges and being costly to be socially responsible it have its advantages that merit being undertaken. Organisations should thus as much as they can to adopt socially responsible sourcing decisions and strategies. 7.2 External barriers to the organisation Organisations face also external challenges and barriers in adoption of SRS. Such barriers range from high costs in auditing and analysing suppliers in order to know whether they subscribe to the required ethical contact required. They is also lack of understand for the need of social responsibility among some suppliers hence some may support the need of maintenance of old standards. 7.3 External barriers for suppliers Suppliers also face challenges that may make them unable to attain or practice social responsibility practices required by organisations they supply their products. Some of the challenges include the pressure of meeting short-terms high demand from the organisations, balancing a wide range of contradictory requirements from different clients, lack of clear sourcing legal requirements from different countries and conflicts between their profitability motive and the corporate social responsibility measures among other challenges. Existence of these challenges to organisations is a big hindrance towards implementation of socially responsible sourcing strategies. Organisations should analyse each of these challenges in order to see how they can come up with solutions to overcoming them. 8.0 Advantages of Undertaking Socially Responsible Global Sourcing Undertaking socially responsible global sourcing is of much benefit to organisations. Some of its benefits include the following: 8.1 Promotion of market image Responsible business practices usually promote the corporate image of the organisation thus necessitating organisation to undertake it. Consumer perception and their buying habits are mostly swayed by how a company conducts or how it does not conduct itself. Good sourcing strategies that are socially responsible will aid the company in overcoming and avoiding adverse or negative publicity that may result from being associated with unethical undertaking like child labour, forced labour, corruption, unhealthy or poor quality products, and environmental pollution among other unethical practices. Promotion of good image of the company will aid the company in maintaining and extending its market standings and profitability. Organisations should thus put in place measures that enhance social responsibility in order to achieve these. 8.2 It reduces risk exposure Relying on socially responsible sourcing suppliers is resourceful to organisations in helping them not to be exposed to a wide range of risks. Businesses and organisations operate in environments full of risks that are disastrous to them in case they strike. Good global sourcing decisions and strategies aid organisations in overcoming legal battle risks that are usually expensive, production of poor quality and unhealthy products and the possibility of being seen as unreliable. Maintaining of high social standards in sourcing help organisations seal lop-holes that can be used by governments, non-governmental organisations, regulatory bodies and competitors in commencing expensive legal battle against them. This hence is a preventive measure of cost saving. 8.3 It benefits the society Socially responsible sourcing is of great importance to the society due to various reasons. Some of the benefits to the society include, provision of a response to public concern, it help in promotion of responsible practices through the industry. SRS also aid in the elimination or reduction of provision of socially unacceptable or unhealthy products and services to the society and ensuring the society enjoy the fruits of market expectation. 8.4 It aids in maintaining organisation values Most of multinational corporations have great market norms and values that have made them to be liked worldwide by their clients. By maintaining and implementing socially responsible sourcing measures will ensure that their values in the market are maintained thus helping them maintain their market share. Their product social and ethical profiles will also be uplifted. 8.5 Improves suppliers profile Socially responsible sourcing by organisations also helps in uplifting the image of the suppliers they source-from. The suppliers’ profiles are maintained as socially responsible organisations. They also develop good corporate relationships with organisations they supply to hence maintaining their security of supply. 9.0 Conclusion Globalisation has necessitated the adoption of various sourcing strategies by organisations. In the adoption of these strategies organisations need not only to look at the profitability motives of the strategies but also the social responsibility part of the strategies. Sustainability and corporate social responsibility among organisations have become an area of much interest by a wide range of stakeholders in the business world. Many customers for instance are very kin in the analysing of the sustainability part of businesses when choosing products and services from organisations. Customers also consider ethical conduct of businesses and the consideration of social responsible sourcing. Business organisations should take matters of ethical sourcing serious in coming up of sourcing strategies despite there being socially responsible challenges. Implementation of socially responsible global strategies as analysed above faces a wide range of barriers and challenges range from those that are internal to the organisation to those that are external. Organisations should come up with means of overcoming these challenges in order to enjoy the advantages and benefits of socially responsible sourcing strategies. As stated social responsible sourcing, have advantages like promotion of good public image, reducing risk exposure and maintaining organisation norms and values. It also benefits the suppliers and the society. Its implementation will see the realisation of these benefits. 10.0 References Bacallan, J. J. 2000. Greening the supply chain. Business and Environment, 6(5): 11-12. Bjurling, K. 2007. Vita rockar och vassa saxar. En rapport om landstingens brist pa˚ etiska inko¨p, SwedWatch, Fair Trade Center and Rena Kla¨der, p. 86. Carter, C.R. & D.S. Rogers. 2008. A framework of sustainable supply chain management: Moving toward new theory. International Journal of Physical Distribution & Logistics Management, 38 (5): 360–387. Christopher, M., Peck, H. & Towill, D. 2006. A taxonomy for selecting global supply chain strategies. International Journal of Logistics Management, 17 (2): 277 -328. Cook, A. Global Sourcing logistics. Journal of international business management. 33 (21): 23. Dem Collective 2008. Retrieved on 22th February, 2014 from www.demcollective.com/. Dyllick, T. & Hockerts, K. 2002. Beyond the business case for corporate sustainability, Business Strategy and the Environment, 11(2): 130-41. Ekobanken. 2008. Retrieved on 22th February, 2014 from www.ekobanken.se. European Commission. 2001. Commission Interpretative Communication on the Community Law Applicable to Public Procurement and the Possibilities for Integrating Social Considerations into Public Procurement, European Commission, Brussels, p. 24. Graafland, J. & van de Ven, B. 2006. ‘‘Strategic and moral motivation for corporate social responsibility’’, The Journal of Corporate Citizenship, 22 (Summer): 111-123. ILO. 2008. Subjects covered by International Labour Standards,Retrieved on 22th February, 2014 from Karen, B. & Ashford, R. 2007. Market planning. London: cengage publishes. Karen, B. 2012. CIM Course book 03/04 Marketing Planning. Google books, pg 330 . Kates, W. K., Thomas, M. P. & Leiserowitz, A. A. 2005. What is sustainable development. Retrieved on 22th February from Mackey, A., Mackey, T.B. & Barney, J. B. 2007. Corporate social responsibility and firm performance: investor preferences and corporate strategies, The Academy of Management Review, 32(3): 817-35. Minaskattepengar. 2007. Guide till etisk upphandling, Retrieved on 22th February, 2014 from Oksana Mont & Charlotte Leire. 2009. Socially responsible purchasing in supply. Social Responsibility Journal, 5(3): 388-407. Pagell, M., Z. W. & Wasserman, M.E. 2010. Thinking differently about purchasing portfolios: An assessment of sustainable sourcing. Journal of Supply Chain Management , 46 (1): 57–73. Palazzi, M. & Starcher, G. 2000. Corporate Social Responsibility and Business Success, European Baha’i Business Forum, Geneva. Trent, J. 2007. Strategic Supply Management. Global responsibility Journal, 4(11): 344-456. Wallace, W. 2006. Marketing sustainable products in the retail sector: The potential integration of sustainability marketing, IIIEE at Lund University, Lund University, Lund, p. 105. YCELP. 2005. Environmental Sustainability Index – Benchmarking National Environmental Stewardship, New Haven, CT: Yale Center for Environmental Law and Policy. Yu, C. 2008. Global sourcing: Shifting Strategies http://www.pwc.com/en_gx/gx/retail-consumer/pdf/global-sourcing_2008.pdf accessed on 22th February, 2014 Zadek, S. 2006. The logic of collaborative governance: corporate responsibility, accountability and the social contract, Working Paper No. 17, Cambridge, MA: Centre for Government and Business, Kennedy School, Harvard University. Zadek, S., Merme, M. & Samans, R. 2005. Mainstreaming Responsible Investment, WEF, Geneva. Read More