Corporate Social Responsibility in Supply Chain - Literature review Example

Corporate Social Responsibility in Supply Chain Name Class Unit Table of Contents Table of Contents 2 Introduction 2 CSR in global value chains 3 CSR Impacts on Global Supply chains 4 Types of global supply chains 6 MNC and ethics 9 Child labour and MNCs suppliers 9 Sweatshops 10 Ethical sourcing 12 Worker rights 14 Enforcing CSR 15 Conclusion 16 References 17 Introduction Corporate social responsibility (CSR) is part of the stakeholders’ theory and emphasizes on social responsibility in business. Stakeholders are individual groups who are capable of affecting the organisations or can affect the organisation (Cramer, 2008). The most common types of stakeholders are; trade unions, shareholders, suppliers, competitors and business associates. Over the years, there has been a lot of pressure on organisations to have responsible supply chains. Pressure groups have been targeting the sourcing activities of industries to ensure they are acting in a responsible manner (Cruz, 2009). This is to ensure that organisations do not engage in exploitation in their supply chains. Most of the global organisations engage in outsourcing which has been under a lot of problems due to ethics. There has been an issue with corporate social responsibility and violation of labour rights in the supply chains. The main challenge for multinationals (MNCs) has been attaining sustainable and ethical supply chains (Boyd, Spekman, Kamauff & Werhane, 2007). This paper analyses corporate social responsibility in supply chains. The paper is based in the context of global supply chains. CSR in global value chains The collapse of Rana plaza building in Bangladesh due to structural failures led to death of more than one thousand garment workers. The factory was owned by different apparel retailer which included Wal-Mart. The publicity surrounding this type of cases led to attention on corporate social responsibility in the global supply chains (Cramer, 2008). The case exposed the working conditions for the workers in low income countries supply chains. The behaviour of multinationals operating in global supply chains has elicited a lot of interest. This is especially after unethical behaviour by several MNCs has led to deaths and even exploitation of the workforce. The everyday activities in the supply chains have led to activities that have numerous impacts on the stakeholders (Matten & Moon, 2008). This has led to the need for CSR in the supply chain to ensure that negative impacts are minimised while the positive impacts are maximised. Social responsibility is one of the main factors that are used in enhancing business reputation. CSR helps to create awareness on the ability of MNC to show responsibility in its actions (Boyd et al., 2007). An organisation can interpret CSR in different ways based on their goals, culture and values. In supply chains, common understanding of CSR has been a major issue for the stakeholders (Tate, Ellram, & Kirchoff, 2010). Through ISO 26000 standard, the points of view on corporate social responsibility are well covered. This is a standard that helps in guiding and giving principles and is not only meant for certification. A comprehensive definition of CSR is provided by the standard. Ethical behaviours are very vital as defined by ISO 26000. Based on ISO 26000, the concept of supply chains is well defined (Boyd et al., 2007). CSR Impacts on Global Supply chains According to Carroll (2004), supply chains involve material flow and largely depend on connections between the stakeholders and existing trust among them. It is very vital for the organisation supply chain to have a network approach when investing in corporate social responsibility. Use of network approach leads to benefit to all members and requires low investment in CSR in each segment. Monitoring of the supply chain is critical to ensure that the reputation is maintained in all links. Organisations that want to operate in socially responsible way must have risk management techniques (Boyd et al., 2007). Multinationals companies drive the global supply chains. This gives them the power to determine the terms for suppliers, contractors and workers. Multinationals determines the products to be produced, how and where. CSR standards are used to determine what constitutes good work ethics and practices in the value chains. Thus, they play a critical role in international production of goods and services (Carter & Rogers, 2008). Carter & Rogers (2008) asserts that all activities of all partners in a supply chain are supposed to be kept under close scrutiny in a global supply chain. This is due to fact that CSR failure at any point in the supply chain may lead to brand damage (Carroll, 2004). Major brands such as Adidas have come under scrutiny due to their supply chains which were found to have child labour. Despite the fact that the mistakes were committed by the subcontractors, they companies were not absolved from the wrong doing. The companies were forced to take the responsibility of the supply chain. The global companies have the ability to control the supply chains despite the fact that they are far. This is through use of contractual agreements and product designs (Boyd et al., 2007). According to Carter & Rogers (2008) global firms supply chains has been accused of having a notorious dark side. This is through their working conditions in their supply chains, and their subcontractors who in most cases are accused of being bad (Cramer, 2008). There have been issues such as child labour, lack of overtime pay, lack of trade unions and slave like working conditions. In some cases, the working conditions are slave like. In the 1990s, there were campaigns against Nike who were selling products make in poor working conditions. The public opinion was that the firms should work in responsible working conditions in their supply chains. This involves overseeing all suppliers even those who are independent. This public opinion has shaped the corporate social responsibility for the multinationals (Carter & Rogers, 2008). As a result of the public opinions, MNCs has started taking a lot of concerns on their supply chains. MNC s fear damaging their reputation through not meeting the public expectations. This is due to the negative economic consequences that they face (Cruz, 2009). There is always an economic argument for the global companies fulfilling their CSR. Despite this, it is important to note that the economic argument works well with famous brands have high visibility and high venerability to reputational damage (Cramer, 2008). In the wake of globalisation, a lot of MNCs has outsourced a lot of their supply chain activities with an aim of lowering the production costs. Most of the outsourcing activities involve use of independent contractors in the developing countries (Carter & Rogers, 2008). The contractors may then engage subcontractors and so on. This process makes the supply chain more interconnected and complicated. Complex supply chains have become an integral part of the multinationals enterprises. This has made the question of responsibility more complicated (Boyd et al., 2007). The power relations and coordination of economic activities in the supply chain are referred as supply chain governance. Global value chains looks at actors and the linkages between them in the supply chain (Cruz, 2009). Types of global supply chains According to the global value chains, there are five structures of value chain governance. The main types of supply chain structure are; hierarchies, relational value chain, markets, modular value chains and captive value chains (Carter & Rogers, 2008). Hierarchy structure involves supplier being part of vertically integrated firm. The firm has direct managerial control over the subordinates in all supply chains. The supplier becomes a part of the multinational. Hierarchy chains were once the main type but have since been replaced by other type of value chains (Carter & Rogers, 2008). Captive value chains are independent from the suppliers. They are confined to a narrow range of tasks and in most cases simple assembly. In this case, the supplier becomes dependent on the lead firm in complimentary activities such as logistics, technology upgrading and design. The suppliers face very high switching costs making them captives (Cramer, 2008). This makes it possible for the lead firm to have high control and monitoring. The lead firm has the ability to exert powers directly to the supplier firms since they act as hierarchies. This shows high degree of explicit coordination where there is unidirectional flow of information with the lead firm becoming the dominant party (Carroll, 2004). In relational value chains, the suppliers are highly competent and cooperate with the multinational. The power balance between the supplier and the firm is asymmetrical. The risks associated with the close cooperation are regulated through regulation, spatial proximity and close ties (Porter & Kramer, 2006). The lead firm and the supplier are expected to exchange complex tacit information which is governed by explicit coordination. The costs of switching partners in this case are very high. This is very common in the apparel industry (Smith, Palazzo & Bhattacharya, 2010). Modular value chains utilises codified technical knowledge to the lead firm and have the ability to take responsibility of competencies in a given knowledge. The suppliers and buyers in this case work with a lot of partners making the switching costs low. The power asymmetries in this case remain very low. This is very common in the electronics industry (Cramer, 2008). The market supply chain structure are very common in the fresh vegetables trade and commodities such a coffee. The buyers are expected to respond to the specifications and prices which the sellers set. The different types of supply chain are not static and can evolve to each other. The different structural characteristics of MNC supply chains imply that there is need for responsibility. The power and influence that the MNC has over the supplier determines the level of responsibility. There is also the level of cooperation between the supplier and MNC. MNCs have an outcome responsibility based on the working conditions in their supply chains. The purchasing policies of most of the global companies lead to strong incentives for independent suppliers. The main aim is to produce goods as cheaply as possible. The suppliers also want to produce goods with the lowest margins possible. The suppliers are able to get goods and services at lower costs which enable them to reduce the cost of production. This in most cases leads to bad working conditions (Pedersen & Andersen, 2006). In case the global firms want good working conditions, they can force the suppliers to modify them. This makes it hard to claim that the MNCs are neutral in the working conditions experienced in their supply chains. Through their purchasing policy, MNC can be able to influence the working conditions of their suppliers (Carter & Rogers, 2008). MNCs using the hierarchies and captive value chains have the ability to dictate the working conditions for the suppliers. This makes it possible for the multinationals to be blamed for the wrongdoings of the supply chain. For example, if the MNC wants the production time to be reduced, the suppliers may be forced to overwork the employees. In this case, the multinational should bear the whole responsibility for their action. In the case of relational value chain, the buyer has no direct power over the supplier (Mamic, 2005). The supplier in this case is independent and there is little monitoring and control. There is no influence of the buyer in the supplier wrong doings. In the modular value chain, the suppliers are independent hence there is very little direct monitoring and control. This implies that there is very little interactions hence the multinational may lack direct link to the supplier (Blowfield, 2005). MNC and ethics There has been a lot of evidence that some of the countries have been lowering their wages, workplace safety and other workers’ rights with an aim of attracting large multinationals (Blowfield, 2005). This implies that some off the countries are ready to lower their ethical values with an aim of attracting business. The competition for development among the developing countries has in some cases been races to the bottom (Amaeshi, Osuji & Nnodim, 2008). This were some of the countries have been offering working environment with the least regulations. Which some of the multinationals do not engage in human right violations in their supply chains, they are indirectly involved (Horvath, 2001). For example, the rising demand for rubber has made Chinese companies to make deals in Myanmar to have rubber plantations. Despite this, Myanmar suffers from food shortages and insecurity. In some cases, farmers have been forced to allow Chinese enterprises to plant rubber. There have also been cases where multinationals have been able to interfere in politics for their benefits. These acts of taking advantage of countries with low ethics have led to poor CSR (Blowfield, 2005). Child labour and MNCs suppliers According to Zutshi, Creed & Sohal, (2009), child labour has been one of the biggest challenges in the MNC supply chains. Most of the cases of child labour facing the multinational supply chains are in the developing countries.There have been cases of children working in the factories of major suppliers in developing countries. These are products which are later old to the developing countries at lower prices (Andersen & Skjoett-Larsen, 2009). The children are exploited by the multinationals supply chain for the sake of profit. This involves paying the children low wages and in some cases they are unpaid. In the Asian continent which has been a major area for suppliers to US based countries, child labour has been on rise. There have been a lot of cases of children under age of 18 years working (Amaeshi, Osuji & Nnodim, 2008). China which has a lot of suppliers to multinationals has been on the frontline to fight child labour. The country has introduced a lot of measures which includes licence revocation to those employing children. Despite the countries actions against the child labour practices, MNCs has also been taking steps to initiate responsibility (Blowfield, 2005). In 2005, Wal-Mart was involved in CSR breach. The company had employed children who worked in hazardous working environment. Other multinationals that has been under scrutiny due to child labour practices includes GAP. Despite this, GAP fired the subcontractor in the Indian company who used child labour (Andersen & Skjoett-Larsen, 2009). Sweatshops Sweatshops are resultant of emerging international market which lacks proper regulations. The rapid growth of the global market has allowed the multinationals to profit from unregulated cheap labour. In the sweatshop, workers are subjected to poor working conditions, low wages ad violation of their rights (Bartley & Child, 2011). Despite this, sweatshops have become very common in the developing countries. In these countries, labour laws are rarely followed and enforced. Sweatshops have been a major problem due to fact that they are always shifted by suppliers to the less regulated regions (Amaeshi, Osuji & Nnodim, 2008). In some cases, the building conditions in the sweatshops are not tolerable. This is due to cramped space, heavy machinery and lack of air conditioning. In case of emergency, it becomes hard for the workers to evacuate since there are no emergency exits. Most of the workers in the sweatshops are women who are subjected to harsh working conditions. The women are forced to use birth controls and undergo routine pregnancy tests to ensure that the supplier avoids maternity leave and health benefits associated (Andersen & Skjoett-Larsen, 2009). Despite the campaigns by NGO and global firms, sweatshops are still in existence. Due to increasing powers among the global companies and globalisation, it has become hard to end sweatshops (Blowfield, 2005). There has been a constant pressure to the corporate chains to lower their prices. This has led to search for low cost areas to lower the production costs. Workers have been reduced to contingent labour which is only employed when needed. Workers are forced to work for long hours and given unrealistic deadlines. The pay is also below the minimum wages (Andersen & Skjoett-Larsen, 2009). There has been an argument that people choose to work to sweatshops since they offer them better pay than their current situation (Markley & Davis, 2007). The fact that the workers choose to work in poor environment shows that it is the best preferred alternative. Therefore, it I argued that stopping sweatshops will lead to loss of jobs. Despite this, the main aim should not be eliminating sweatshops but making them better with good working conditions (Bartley & Child, 2011). The management and owners of factories has the responsibility of the workers. Their actions and decisions affect the workers and hence are to blame for the violation of employees’ rights (Amaeshi, Osuji & Nnodim, 2008). The state is also an agent who can pressure for better working conditions for the employees. The states where sweatshops operate should be blamed for their actions. Workers have basic rights which should never be violated irrespective of location of their workplace. Global companies should respect the human rights while utilising the global workforce in their supply chains (Bartley & Child, 2011). Failure to utilise CSR in the free market has led to decline in the expected benefits. This is due to fact that labour standards are not followed especially in the outsourcing firms. Workers are made to agree to work in sweatshops due to fact that they lack other alternative (Andersen & Skjoett-Larsen, 2009). They may also fail to make an informed decision due to fact that they lack sufficient knowledge. One a worker agrees to work on a sweatshop it becomes hard to get out of it. There are also health and social costs associated with working in a sweatshop that cannot be justified. Lack of CSR in the supply chains for the multinationals has led to violation of basic human rights. The suppliers expose workers to hazardous working conditions which affects their wellbeing. There is no code of labour rights in most countries where sweatshops operates (Amaeshi, Osuji & Nnodim, 2008). Ethical sourcing The main aim of CSR is to ensure that the suppliers are able to follow same standards as the MNCs. The MNCs are expected to engage with suppliers who are able to follow the standards set by CSR (Andersen & Skjoett-Larsen, 2009). Despite this, the main problem occurs when the supplier does not share the compliance costs or help in implementing the policies. In some cases, the suppliers remain unconvinced on the importance of following CSR. If the suppliers believe that the lead company does not follow CSR, they are highly likely to refuse adopting it either (Amaeshi, Osuji & Nnodim, 2008). As the multinationals operates in different countries, there are different cultures and operating environments. Each of the country of operation has its unique culture and infrastructure. The social expectations of every country are thus different based on their culture (Kolk & Van Tulder, 2004). MNCs are thus required to tailor make their CSR programs to fit the unique expectations of each country. The suppliers and subsidiaries have to interact with their local government to come up with an effective CSR (Blowfield, 2005). The stakeholders approach has been one of the most effective tools in developing CSR which address the host country culture. The stakeholders’ approach has served as the cause effect relationship that exists between the organisation responsibility and its impact on the stakeholders. There is also need to consider Hofstede cultural dimensions (Andersen & Skjoett-Larsen, 2009). Stakeholders refer to all individuals and business that may affect or be affected by the operations of a business. Supply chain maintenance is not only about development but also efficient business output (Blowfield, 2005). Supply chains are levers which an organisation can enhance their development impact to society. Through supply chains, it becomes possible to manage reputation risk. Bad labour in the supply chain of multinationals has been exposed through pressure groups. This has helped to increase the reform in global supply chains (Amaeshi, Osuji & Nnodim, 2008). Worker rights Any business that uses suppliers must know that it’s part of their CSR to ensure that the business is conducted following ethics (Moon, 2007). An example is Apple who was exposed in 2011. The company suppliers in China were accused of environmental problems, pollution and employees health issues. At first apple denied the report on any wrong doing. It was later discovered that pollution problem by some of Apple suppliers had led to a lot of damage to the environment. Despite the efforts by the suppliers to cover the claims, the exposure led to penalisation for more than ten violations (Boyd et al., 2007). The volume of discharge from Apple suppliers had a great damage to the environment and public health. There had been a lot of complaints from the local community to the suppliers. Some of the Apple suppliers had failed to fully dispose of hazardous materials which were harmful to the local population health (Moon, 2007). This shows that the global industry has to be held accountable for the actions of the suppliers. Corporate social responsibility has been a positive step towards labour rights in the global economy. CSR has been able to force the MNCs to take greater responsibility in their operations. This enables the global business to expand their best practices (Blowfield, 2005). The idea that businesses are expected to take social responsibility for their operations has evolved a lot. Through CSR, the business is able to fill the gaps that are left by weak laws by the agencies (Boyd et al., 2007). As the anti-sweatshop movement has gained prominence, MNCs has worked hard to come up with codes of conduct for their business. This includes monitoring and mechanisms for enforcement. There has been a lot of press exposure and pressure for organisations to be ethical in their supply chains. Labour unions have been highly critical on the multinational CSR which does not defend the workers interests. This has also been supported by calls for ethical consumerism. This is where the consumers will only buy goods and services that are produced ethically (Andersen & Skjoett-Larsen, 2009). Modern organisations cannot limit their activities to production and marketing without addressing the impacts they have on the society. For the MNCs to be trusted by the employees and consumers, they must be socially responsible (Gugler & Shi, 2009). They must work with their suppliers to ensure that they are acting in an ethical manner. At the moment, most of the global business issues their social corporate responsibility annually. Most of the organisations use CSR to restore their public image enhances brand equity and employees loyalty. This has been caused by the anti-corporate activism made by the pressure groups. Business has realised that CSR is not optional activity and they have to take care of all stakeholders (Andersen & Skjoett-Larsen, 2009). Enforcing CSR The power of the global firm has the ability to influence the partners in supply channel to comply with CSR. Sustainable supply chain is attained through dialogue with the supply chain partners (Hirschland, 2006). There is need for a strong collaboration among the partners in a supply chain. Collaborations based on joint effort among the decision makers in the supply chain. This helps in coming up with a common goal to implement in the supply chain. Compliance with CSR has been noted to lead to positive outcomes (Andersen & Skjoett-Larsen, 2009). Enforcement of CSR in a global chain can be attained through use of code of conduct. The code of conduct is able to state clear terms on the suppliers’ orientation. The firm has to agree with the suppliers after consulting on what to implement in the code of conduct (Gugler & Shi, 2009). This is a consultation based on genuine intentions, dialogue and fairness. The firm can call for submission of ethical audits from the suppliers in annually. Through this, suppliers who are found to have gone against the code of conduct in the CSR are named and punished. Use of centralised control is very vital in enforcing compliance. This is through vertical integration, contracts, third party audits, and transparency (Christopher & Peck, 2004). Conclusion The report has looked at corporate social responsibility in supply chains. This is based on the context of global supply chain. The concept of CSR has generated a lot of interest globally. Global business operates in different countries with varying cultures and economies. This is through use of suppliers who acts on their behalf. The relationship between the suppliers and MNCs differ and hence determines the level of control. It’s important to note that the level of control determines the ability to influence the activities of the suppliers. Those MNCs with high level of control on their suppliers are able to control their activities and monitors their social responsibility. Lack of CSR in the global business has led to child labour and sweatshops. This has led to pressure groups leading anti-corporates campaign. The global business has to ensure that they are able to enforce CSR on their suppliers to avoid economic and reputational damage. The cases of Apple and collapse of Rana plaza are few examples of poor CSR and its impacts. Organisations are supposed to ensure that human rights are upheld in their working conditions. This is through having a CSR that encourages labour rights. CSR is a vital requirement and not an option for the modern business. 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