Corporate Social Responsibility in Supply Chains - Example

CSR in Supply Chains Name Class Unit Table of Contents Table of Contents 2 Executive summary 2 Introduction 3 Global supply chains and CSR 4 Code of conduct and CSR implementation 5 CSR, Opportunism and code of conduct in global supply chains 7 Reputation 8 Enforcing CSR in global supply chains 9 Direct sanctions 9 Goal congruence 9 Intervention 10 Impact on transparency 10 Negative impacts of global supply chains 11 Sweatshops 11 Child labour 12 Multi-stakeholders approach to CSR 14 Ethical products 14 Sustainability on the global supply chains 15 Risk mitigation in global supply chains 16 Conclusion and recommendations for future research 17 References 19 Executive summary This report analyses impacts of corporate social responsibility (CSR) in global supply chains. With increase in outsourcing, global businesses have been exposed to more responsibilities which include managing the CSR of their partners in supply chains. The CSR issues analysed by the report includes collective bargaining, workers’ rights, sweatshops, child labour and right working hours among others. There have been a lot of efforts to come up with a global CSR. This is aimed at eliminating risks and reputational damage. Through examples, the report shows successful implementation of CSR in global supply chains. The report explains how opportunism can occur in a global supply chain among the partners. The main aim of CSR is protecting the brand reputation. Enforcement of CSR in global supply chain is explained through direct sanctions, goal congruence and interventions. CSR has forced global firms to be more transparent in their supply chains. The negative impacts of global supply chain addressed through CSR are; sweatshops and child labour. The report then explains the multi-stakeholder approach to CSR. Sustainability in global supply chains is addressed and lastly, the report looks at risk mitigation in global supply chains. The report recommends more research on sustainability in global supply chains through CSR. Also there is need for research on effectiveness of industry wide collaboration in tackling CSR. Introduction In the modern business world, the concept of corporate social responsibility is gaining a lot of popularity. There has been an increase in the number of companies that has been practicing CSR while others have been initiating it. A lot of firms have become involved in the in integrated supply chains (Amaeshi, Osuji & Nnodim, 2008). Through use of integrated supply chain, there are coordinated networks of firms. The firms are involved in different activities which are related with production and distribution to the final consumers. There has also been an increase in outsourcing of non-core activities (Millington, 2008). Organisations have been exposed to a lot of responsibilities which includes managing the CSR of their partners in the supply chain. This is a reactive movement which has helped a lot in managing risk (Andersen & Skjoett-Larsen, 2009). The notion that the action of one member in the supply chain can taint the whole chain has been a major challenge. Partners’ policies and ethics on both ethical and environmental issues in the supply chain have a major impact on whole chain. A lot of firms have been working hard in striking a balance between the positive impacts of supply chains and the loss of control brought by outsourcing (Pedersen & Andersen, 2006). This has led to them taking responsibility of managing CSR for their partners. This report looks at corporate social responsibility in the global supply and the associated impacts. Global supply chains and CSR The main issue in managing the global supply chain is based on foreign operations. This is due to fact that major companies source their products globally. Most of the global companies have been relying on globally presence to manage their labour costs, gain raw materials and manage competition (Andersen & Skjoett-Larsen, 2009). Global businesses are expected to engage in ethical practices while at the same time demanding similar practices from their partners. CSR issues include collective bargaining, workers’ rights, minimum wages and right working hours among others. Organisations are expected to manage their work relations with partners in the supply chain (Pedersen & Andersen, 2006). Code of conduct and CSR implementation Through use of code of conduct, it becomes possible to come up with a framework from which ethical sourcing can be addressed. The shared principals are identified and used as the base for assigning the rights and responsibilities in the supply chain. In an integrated supply chain, rules and norms occurs during the establishment of trust. There is commitment to shared practices which are used on governing the relationship and setting the rules for engagement with the trading partners (Blowfield, 2005). The norms are very vital in establishing trust which creates a common thread. The main aim of code of conduct is to come up with a system that exposes peoples to the reality in the market place. There has been establishment of a holistic approach to CSR. The intention is to come up with global standards for CSR. Through this, it becomes possible for the global firms to avoid risks and damaged brand reputation (Andersen & Skjoett-Larsen, 2009). Through CSR, a firm is able to build a strong relationship with their current and future customers. CSR helps in providing large and untapped ways of creating customer relationship. For example, a lot of customers avoid shopping products made from the sweatshops. Most of the leading companies are initiating CSR and gaining success with their customers. It is evident that chain managers are supposed to use the supply chains in a responsible manner for them to create customer relationships (Amaeshi, Osuji & Nnodim, 2008). It is also a moral obligation for the managers to ensure that all activities in their supply chain are ethical. Appropriate use of CSR is a major strategy in creating future market with the customers. A lot of supply chains outsources to developing countries with an aim of reducing the costs of production. Also, the firms see the consumers in the developing countries as a future market for selling their products (Blowfield, 2005). An example of an ethical company is Levi-Strauss. The company was founded over 150 years ago based on integrity and quality. The company has been very committed to the local communities whom it does business with. The company was the first US Company to come up with a global sourcing policy (Amaeshi, Osuji & Nnodim, 2008). Under the policy, the company was to ensure that all their workers were in safe conditions and are treated in an appropriate manner. The companies who have ignored CSR in their sourcing have come to face a bigger problem. Tapping cost advantage in the low developed countries does not imply exploiting the wage differential. Ethical sourcing is of great importance and firms which violates it jeopardises consumer finance (Andersen & Skjoett-Larsen, 2009). The high the popularity a brand has, the higher the risk of reputation damage. An example is Nike which was caught in scandal of violating human rights. The company had to resolve the problem with an aim of reducing damage to their reputation (Amaeshi, Osuji & Nnodim, 2008). The company hired 100 people who were to oversee CSR in their supply chain. Nike brand image was at stake which would have affected the company revenues. Supply chain is a critical system when coming up with responsibility strategies (Mamic, 2005). Through the supply chains, it becomes possible to arrange the individual phases in a coordinated manner through a channel leader. CSR is based on different activities from the suppliers to the product promotion (Pedersen & Andersen, 2006). CSR, Opportunism and code of conduct in global supply chains Agency theory is very important in analysing the principal agent relationship. It is also very important in the governance of the CSR initiatives especially the code of conduct. Opportunism is a major threat to inter firm relationships (Neergaard & Rahbek Pedersen, 2005). Hence, opportunistic motives are very crucial for global firms with integrated supply chains. The operations in these supply chains are separated in cultures, geographically and institutionally (Andersen & Skjoett-Larsen, 2009). With increase in globalisation, it becomes vital to develop ways that can be used in governing transactions between firms (Boyd, Spekman, Kamauff & Werhane, 2007). Code implementation requires motivation and commitment. In a global supply chain, all organisations in the supply chain must participate and act responsibly. When the buyer and supplier fail to share common interests, there is always a risk of supplier neglecting their social responsibilities. Opportunism occurs due to fact that the CSR initiatives can be very time consuming and costly (Lund-Thomsen & Lindgreen, 2014). Some of the supplier lowers their CSR with an aim of attaining high economic gains. Also, the benefits accrued from implementing CSR initiatives are not always shared evenly among the members of the supply chain. For example, CSR generates goodwill which might be help by only one company in the supply chain. The main beneficiary in the supply chain receives the full benefits through the introduction of code of conduct. Other companies in the supply chain shares the indirect benefits such as new deliveries (Amaeshi, Osuji & Nnodim, 2008). When the rest of the companies are expected to bear the cost of CSR, conflict of interests arises among the members in a supply chain. This can lead to risk of opportunism in the supply chain. The main problem with the code of conduct is the fact that it is hard to verify whether the suppliers comply with it. The buyer may also become a subject of opportunism. There is lack of appropriate monitoring systems for code of conduct. Only a few firms are able to monitor the code of conduct while majority utilise internal systems. The principal agent situation occurs in cases where a firm introduces a code of conduct with incomplete character of codes. This makes the risks of non-compliance to increase in the supply chain. There is also opportunism among the suppliers (Boyd et al., 2007). Reputation Reputation is one of main reasons why firms adopt the code of conduct. Firm’s aims at showing the prospective customers that their operations are ethical through CSR (Amaeshi, Osuji & Nnodim, 2008). Compliance with the code of conduct helps in maintaining reputation among the transacting partners. The supplier reputation is a resource which determines the firm future income. In cases where the suppliers are opportunistic, buyers tends to avoid future transactions with them. In some cases, the buyer may inform other firms that the supplier cannot be relied on. The suppliers thus may strive to maintain a good relationship with the buyers in order to safeguard their reputation (Andersen & Skjoett-Larsen, 2009). Reputation as a protective mechanism is also based on the likelihood of opportunism detection. This is based on the ability of buyer to report incidence of supplier opportunism. The cost of opportunism is high in cases where the buyer has a prominent position in the industry. This is due to fact that the buyer has the capability to report the incidences of violation of code of business to other partners in supply chain (Nishat Faisal, 2010). Enforcing CSR in global supply chains To enforce CSR, it is important to ensure that the agent is able to fulfil their obligations. Enforcement can be obtained through direct sanctions, goal congruence and interventions (Ciliberti, De Haan, De Groot & Pontrandolfo, 2011). Direct sanctions CSR will be of no use if it cannot be enforced in the organisation. In some cases, codes of conduct fail to entail how non-compliance will be monitored and the consequences of non-compliance. The easiest was to enforce CSR in a contract is termination for non-compliance. Direct sanctions have been used as efficient safeguard for non-compliance with code of conduct. The code of conduct is expected to contain a description of legitimate sanctions. This acts as an indicator for commitment and deterrent to opportunistic suppliers. This is based on the existing buyer supplier relationship that exists (Amaeshi, Osuji & Nnodim, 2008). Goal congruence When conflict of interests exists between the principal and agent, opportunism is likely to occur. The main aim of principal agent relationship is to ensure that the agent is acting based on the principal interests. Non-compliance increases the risk of goal incongruence between the buyer and supplier. In cases where implementation of code of conduct imposes costs to supplier, it is important to ensure that there is goal congruence. This can be achieved through compensating the supplier on the cost accrued due to code compliance and making joint investment (Ciliberti et al., 2011). The supplier can also be rewarded by the buyer due to compliance with the code. Use of top down approach in implementing the code of conduct may lead to poor compliance. A bottom up approach where the buyer is involved in the process is very vital for successful implementation of code of conduct (Amaeshi, Osuji & Nnodim, 2008). Intervention When the agent violates the code of conduct, the conflict is in most cases handled through use of third parties. In this case, use of the legal system has been the most important protective mechanism. In a global supply chain, it is difficult for the legal system to come up with sanctions for agents (Jiang, 2009). This can occur only if they fail to comply with the existing laws. In some cases, lack of compliance with the code of conduct does not imply non-compliance with the legal system. In countries with weak legal systems, it becomes a challenge to enforce compliance with national laws. This has been the case with global companies whose supply chain involves third world countries. It is therefore important to look at third party actors as capable of guarding the buyers from non-compliance (Boyd et al., 2007). Impact on transparency With CSR, global firms have been forced to become more transparent. The companies have been forced to list all their suppliers for the public. This has exposed the global supply chain to a lot of scrutiny. Labour activists have played a very vital role in ensuring that there is transparency in global supply chains working conditions (Jiang, 2009). At the moment, major global companies have come to realise that working conditions in their supply chain is their responsibility. Despite this, only a few companies have the capability to monitor the activities of their suppliers. Supply chains are a major source of competitive advantage if well managed. Poor management of the supply chains is a major source of risk. To minimise this risk, companies have been working closely with their suppliers (Boyd et al., 2007). Negative impacts of global supply chains Sweatshops Sweatshops have been as a result of global supply chains. Most of the global firms outsource their services overseas especially in the developing countries. The working conditions in most of the global supply chains have been horrifying. This has led to condemnation of the sweatshops by activists and scholars. Sweatshops violate the law of the countries they are operating in and are extremely exploitive (Markley & Davis, 2007). In sweatshops, subcontractors work hard with an aim of reducing costs. The fire which broke out in Tazreen Fashion factory in Bangladesh was a major event that led to more attention to sweatshops. During the fire, at least 117 workers in the factory were killed. An investigation revealed that the building did not have fire exits and fire extinguishers. The factory had all staircases padlocked to hinder employee theft. Tazreen factory supplied apparel manufacturers in US and Europe (Al Masud, Hoque, Hossain & Hoque, 2013). Five months after the fire, another disaster struck in Rana plaza in Bangladesh. The building collapsed leading to death of 1,100 workers. The company forced the workers to attend their jobs despite the fact that the building had showed signs of collapse. Rana plaza housed 28 of the world leading apparel brands. This was a great exposure of the operations of sweatshops and the risks they pose to workers (Ter Haar, 2013). In most of developing countries, there are poor safety and health laws. The subcontractors are very desperate for the business and use all means to cut operational costs. This has led to the rise of sweatshops in major supply chains (Amaeshi, Osuji & Nnodim, 2008). Child labour With globalisation, child labour has increased within the supply chains. This is through engaging the children in demanding tasks which hinders their development and interferes with their education. This includes children in employment (Jiang, 2009). Based on International Labour Organisation data (ILO), there are about 168 million child labourers globally. This includes children aged 5 years to 17 years. The figure represents about 11% of the children population. Over 85 million of this figure involves children working in hazardous environment. Boys constitute 60% of the children involved in labour. This has been mainly drive by the global supply chains need for cheap labour (Markley & Davis, 2007). Rapid globalisation has led to an increased reach and complexity of the global supply chains. This has made it hard to identify child labour in them (Markley & Davis, 2007). The downward pressure on costs, ignorance and lack of pressure from the consumers have aided in child labour on the global supply chains. The need to subcontract has made it possible for the sub-contractors to use child labour since they are not under direct monitoring from the parent company. This has led to violations of international labour standards (Boyd et al., 2007). Child labour can be seen in different stages of global supply chains. This involves gathering of raw materials and assembling final products (Cruz, 2013). There has been a lot of pressure on the firms to address the child labour challenges in their supply chains. A lot of companies have written code of conduct aimed at addressing human rights, environmental issues and child labour. There have also been calls for use of third party systems to verify and certify organisation against child labour. Supply chain transparency has been a major method of which global organisations have been managing their supply chains (Markley & Davis, 2007). This is through gaining information on where their suppliers are getting the products and the conditions for production. An example of a global supply chain that has faced child labour is cocoa production. The products have a long and complex supply chain made of exporters, processors and traders among others. Cocoa harvesting is a long and labour intensive process. There are thousands of children working in the cocoa plantations through forced labour. Low prices for the produce makes the farmers to look for cheap labour leading to child labour. The issue of child labour is a major source of risks for chocolate manufacturer and stakeholders in the industry (Mamic, 2004). The risk of reputation loss faces the companies engaged in cocoa supply chain. This is due to high rate of child labour and child trafficking. Companies such as nestle have been implicated in child labour and trafficking by human rights organisations. This has made it prudent to come up with a sustainable supply chain both socially and environmentally (Jiang, 2009). Major players in the industry have taken necessary steps in addressing child labour in their supply chains. There have been policies aimed at reducing the instances of the child labour in the supply chain. For example, Cadbury have come up with a human rights monitoring system in their supply chain. This is due to fact that the supply chain exposes the company to risks of human rights abuse. There has also been improvement in supply chain transparency and supplier monitoring program that visits the coffee producing countries (Smith, Palazzo & Bhattacharya, 2010). While the industry may not be able to eliminate child labour alone, their steps are a major development in addressing child labour in supply chains. The policies carried out are expected to work in the long term to eliminate child labour (Markley & Davis, 2007). Multi-stakeholders approach to CSR CSR leads to demand for the business to partner with other actors in the supply chain. Collaboration is an approach used when addressing complex challenges. Most of the challenges in the global supply chain require the stakeholders to collaborate in order to come up with way forward (Jiang, 2009). The CSR approach used engaged different partners through collaboration. Different stakeholders comes up with decisions and demands that leads to a desired outcome. This can be seen in cases such as addressing of the child labour. In Bangladesh, the government and activists worked together to ban child labour in the global supply chain. In such countries, children engage in labour due to poverty and lack of access to education (Mamic, 2004). Despite the success of multi-stakeholders approach, the participants face some challenges. The collaborations require time and in some cases are unstable. There are contradictions and disagreements in some instances especially when giving opinions (Lund‐Thomsen, 2008). The roles of the participants are also not well given leading to conflicts in some cases. This implies that despite the fact that multi-stakeholders approach has an advantage the traditional forms of corporate social responsibility are required (Boyd et al., 2007). Ethical products The attitude by retailers towards CSR has been resolute and innovative in some cases. There have been cases of retailers promoting the products that are approved by the fair trade organisations (Carter & Liane Easton, 2011). Large retailers have been able to gain reputation among the consumers making it possible for them to certify their supply chains. The retailers are able to improve their positioning in the market adding ethical values to their brand. This has enabled them to manage their supply chains and eliminate loyalties based on the certification bodies. Where there have been a lot of pressure from consumers who are highly aware and media, organisations have been forced to look for certification (Markley & Davis, 2007). New CSR methodologies have been developed in supply chains through adoption of ethic codes and ethics standards. Ecological and social aspects of the business have a great influence in the international business. CSR initiatives are adopted with an aim of meeting the profitability and market objectives of a business. This approach has become more vital as consumer awareness on ethical issues has increased (Lund‐Thomsen, 2008). Most of the global investment has taken into considerations the consumer perceptions on ethics and value. The introduction of fair trade product lines will help a lot in improving international supply chains (Carter & Liane Easton, 2011). Sustainability on the global supply chains The global supply chains are expected to be sustainable. This is through their social, environment and economic facts. The global supply chains have been pressurised to take care of the environment which they are working on (Jiang, 2009). This is through ensuring that they take care of air, water, land, mineral and energy use and existing systems. Environmental sustainability in the global supply chain has been one of the most measured in the supply chains. The human capital in the supply chain refers to the social dimension. To improve social dimensions, global supply chain is expected to have favourable labour practices and good relationship with the neighbouring communities and is in contact with the supply chain (Ciliberti et al., 2011). A sustainable global supply chain is expected to have better wages, benefits and healthcare for the employees (Barin Cruz & Boehe, 2008). Lastly, the economic dimension looks at the benefits earned by the members and economic impact on the host country. Improving the supply chain sustainability is the ultimate goal for an organisation (Markley & Davis, 2007). Risk mitigation in global supply chains Identifying the risk is and mitigating it is the main focus on global CSR management. Most of the firms have been required to acquire a proactive strategy based on their CSR principles. This is especially when faced with pressures in the market. Protection of brand reputation, maintaining product safety is major consideration in global supply chain. CSR is about good management (Mamic, 2004). In most cases, CSR is deeply rooted in the industry commitment to good practices. The effective implementation of CSR is based on the managerial capacity in an organisation. Open communication is also required for an organisation to have effective management. When the suppliers fail to understand the importance of good CSR, they are likely to undermine it. There is need for all stakeholders involved to be informed through right communication channels. Open communication makes it possible to understand the existing similarities and differences among the different stakeholders (Boyd et al., 2007). With global operations, the impacts of multinational companies are felt in large areas. The impacts of MNCs have been receiving attention from both local and international stakeholders. Multinational NGOs have been very vocal in pressurising MNCs towards ethical practices. There has also been increase in role of standardised CSR for international operations. This has led to most MNCs integrating their CSR strategies to business strategy (Polonsky & Jevons, 2009). This is aimed at giving the firm long term sustainability. With mounting criticism and pressure from the consumers, it has become critical for the global firms to change their supply chain practices. This is through ensuring that their suppliers are giving employees safety, liveable wages and safety among other needs (Markley & Davis, 2007). There has been strengthening of the labour rights with organisations allowing their members to join trade unions. Despite this, the effectiveness of these initiatives is still not well attained. There are still cases of low wages, child labour and poor working conditions. Sweatshops are still in operation in several developing countries where multinational firms outsource. Some of the global companies have been demanding code of conduct from their suppliers. They have also adopted auditing and monitoring their suppliers to ensure that they comply with the code of conduct. Despite the challenges, adherence to CSR in global supply chain is still gaining prominence among the MNCs (Andersen & Skjoett-Larsen, 2009). Conclusion and recommendations for future research With globalisation, the impact of MNCs has impacted a lot of countries. Most of the MNCs have their global operations through outsourcing leading to global supply chains. CSR has been a major tool used in mitigating risks in the global supply chains. CSR issues include collective bargaining, workers’ rights, minimum wages and right working hours among others. CSR includes code of conduct that can be used in ethical sourcing among the members of a supply chain. Most of the global firms use an integrated supply chain. In an integrated supply chain, rules and norms occurs during the establishment of trust. Trust is vital for the partners in a supply chain to implement CSR. Companies that have an effective global CSR such as Levi Strauss have been very successful in their operations. Popular brands suffer high risk in case they fail in ethics. An example is Nike who has to suffer from loss of reputation due to poor CSR. Through an appropriate code of conduct, it is possible to eliminate opportunism in the supply chain. To enforce CSR, it is important to ensure that there is goal congruence among the players. Non-compliance should be dealt with through direct sanctions and third party interventions. With global CSR, firms become more transparent in their supply chains. This is aimed at protecting their reputation. Negative impacts of global supply chains are child labour, sweatshops and unethical sourcing. Multi-stakeholders approach has been used to address CSR in a global supply chain. This is through collaboration with different partners to ensure CSR is adhered to. Measures of sustainability in the global supply chain are; social, environment and economic factors. These can only be achieved with an appropriate CSR in place. It is important to note that the major role of CSR in global supply chain is risk management and mitigation. Through open communication, it becomes possible to implement CSR among all partners. Poor communication among the partners on CSR may lead to failure of its implementation. There is need to address all challenges faced by global firms as they implement CSR in their supply chains. There is need for more research to focus on sustainability of the supply chains through CSR. There is need to develop a global measure of sustainability in the global supply chains. 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