Businesses in developed countries tend to think of Corporate Social Responsibility (CSR) as a characteristic that is centered in their own businesses or, failing that, situated in the industries of wealthier nations. The CSR movement is substantively skewed in the direction of the developed world where the motivation for adopting a CSR initiative is driven more by altruism -- or "enlightened self-interest" (Vogel 2006: 18) -- than profit margins. It is unusual to find a perspective that considers CSR from the perspective of a sourcing company. In the centrically-oriented corporate arena of the developed world, CSR is seen as originating with the company that establishes a supply chain with a multinational company -- not the other way around. In order to manage and control ethical issues arising from doing business with overseas markets, many corporations rely on a social compliance model (PricewaterhouseCoopers 2007).
The social compliance model requires first an assessment of local laws and the supplier's own standards or codes of conduct, and second, compliance monitoring of the supplier against those foundations. Typically, the monitoring functions are carried out by the suppliers' own specially trained staff or by external agencies. That this system is not entirely effective does not come as much of a surprise. A number of factors contribute to the poor outcomes and lack of rectification. Auditors (PricewaterhouseCoopers 2007) have identified several relevant factors, of which one is pivotal to this research: A lack of leadership from senior management.
2. Research objectives/questions
A working relationship with suppliers that facilitates the development of an implementable plan to address the scope and depth of supply chain issues, and to manage associated business risks, is a requirement of successful supply chain management. The following research questions will inform the process of model development that will help achieve these objectives with a Chinese supplier of high-end outerwear garments.
1. What model can be used to engage the supplier in a rectification program?
2. How can management be encouraged to take ownership in the model?
3. What training is available to inform management philosophy and practice?
4. What systems and controls can be used to monitor supplier performance?
3. Significance of the research
The ethical implications of sourcing from overseas markets extend to a broad set of supply chain issues and a range of corporate social responsibility issues, including the following: Impact on brand, consumer attribution, intellectual property, financial security, sustainability, and product quality / safety / traceability (PricewaterhouseCoopers 2007). Consumers are able to communicate -- about brands, products, services, and the companies responsible for these market components -- in extraordinarily efficient and diverse ways. Consumers are less passive in their role than they have ever been in the modern market. Positive consumer attribution of brand and company are imperative to corporate success. Managers have a keen and demanding responsibility to address any and all issues that have the capacity to undermine positive consumer brand attribution and stockholder value. Information about corporate social responsibility issues can quickly move to the center stage of the market and remain top-of-mind with consumers long after any problems have been resolved. A management and supplier relations model that promotes performance and quality improvement is requisite for sourcing partnerships with multinational companies.
4. Literature review
Certainly, the goals of CSR are to move industries toward achieving greater ethical, social, and environmental performance. It is questionable whether these objectives are sufficient to change the practices -- or the philosophies -- of sourcing partners in overseas markets. The dearth of management goals unrelated to profit margins, as communicated by sourcing partners, indicates that the strongest motivation is inextricably linked to the financial success of suppliers.
The current literature on CSR can be summarized by this phrase: "Doing good to do well" (Vogel 2006: 19). A 2002 survey of CEOs by PricewaterhouseCoopers revealed that, "70% of global chief executives believe that CSR is vital to their company's profitability" (Vogel 2006: 20). If there are clear links between profitability and social responsibility, they have not been sufficient established to drive CSR consciousness to the top of supplier agendas. However, the occasional case study does demonstrate that business success, and particularly business sustainability, can be linked to the social, ethical, and environmental performance of an industry (Luce 2004, Patagonia 2011). How, then, might the profitability and sustainability aspects of CSR be used to improve management practices in a manufacturing facility in a developing country? Specifically, what model provides a guide to developing an understanding of the relationship between socially responsible management practices and manufacturing quality and productivity in a Chinese factory?
Krueger (forthcoming) describes ethical norms and compliance components that will need to be institutionalized industry-wide in multinational companies that are sited in developing countries. The Chinese economy is slow to recognize that ethical standards, codes of conduct, and manufacturing practices must be made integral to their industries in order to compete effectively with other developing countries for the production of high-end goods (Eslenshade 2004, Isaac 2001, Shkolnikov 2004). Krueger emphasizes that emergent ethical issues in the global supply chain manufacturing enterprises engaged in the production of consumer electronics, textiles, and toys are showing receptivity to the institutionalization of these practices.
According to Martin Ma, China Program Director of Social Accountability International (SAI) and author of Democratic Workers' Representation in China as a Tool for Better Business, "the missing link in efforts to achieve quality and sustainability of such programs is grassroots participation in workplace governance by motivated management and informed workers (Nadgrodkiewicz 2009: 6)." In accordance with a solidifying international consensus on how to strengthen implementation of codes of conduct in developing world industries, SAI focused on one of the key strategies: "Worker participation and management engagement in better workplace governance" (Nadgrodkiewicz 2009: 7). In fact, the SAI program at Ying Xie factory to establish "the first independently elected workers' committee in China's garment industry" was one of the first attempts at such a grassroots strategy in China (Nadgrodkiewicz 2009: 6). The grassroots efforts of SAI,
"helped the management at Ying Xie build a new monitoring system for tracking the costs and benefits of improving working conditions. The results clearly showed that the new mechanism for democratic workers' participation in creating a better workplace also brought about significant business payoffs in terms of workforce retention, efficiency, and company reputation" (Nadgrodkiewicz 2009: 8).
If, as Vogel believes, there is actually a market for virtue (2006), then the question becomes which is greater: The costs associated with socially responsible business behavior, or the loss of revenue due to disengaged consumers and litigation expenses resulting from hostile consumer action (Eslenshade 2004; O'Rourke 1997, O'Rourke 2008)? A recent survey by Environics International reported that 25% of consumers across 25 countries have "punished companies for being socially irresponsible" and that another 21% have "considered doing so" (2002). In addition, the survey found that, globally, people "have high expectations for companies to go beyond their traditional economic roles" and eight in ten people say companies need to "do more to help solve social problems than provide charitable funding" (2002). In Buying Your Way into Trouble: The Challenge of Responsible Supply Chain Management, the authors note that,
"Companies face real ethical challenges associated with using supply chains in these countries, particularly with respect to labour standards abuses in suppliers' operations. As many companies have recognized, failure to respond effectively to these challenges as they move into less developed markets can give rise to significant operational and reputational risks that can threaten to undermine any potential gains from doing so."
The World Bank commissioned PricewaterhouseCoopers and the Danish Institute for Human Rights and Business for Social Responsibility to "identify the key barriers to improved implementation of codes of conduct at the level of suppliers and develop potential options for addressing these barriers" (Halle, et al. 2003). The study found that developing and establishing codes of conduct for and by suppliers were not enough to generate sustained improvements. Improvements required that steps be taken specifically to implement capacity building and worker empowerment programs. Two important examples of the need for these programs are:
1. Workers in China were not aware of their rights under Chinese law.
2. Suppliers currently do not understand the benefits to a business that makes the required investments in CSR. For instance, SA8000 standards are viewed in China as just another form of Western trade barriers.
The authors of the World Bank report observed both a top-down approach and a bottom-up, collaborative approach would be needed to implement sustainable changes. The focus of this research is to the exploration of best practices to develop bottom-up leadership in senior managers at supplier companies regarding the importance of CSR
5. Research design
The finding of the World Bank report function as the basis for the development of research plan to answer the research questions introduced above. In this section, each research question is followed by a summarizing statement generated against the background of the literature search and the World Bank report.