Social Sustainability Practices within the Supply Chain of Multinational Corporations

Table of Contents

List of abbreviations

List of tables and figures

1. Introduction
1.1 Nike as example for the transition of a MNC towards SSS
1.2 Increasingly complex supplier structures

2. International development of MNCs
2.1 Imperatives for MNCs to expand internationally
2.2 Problems associated with expansion ofMNCs
2.3 IncreasedexposureofMNCs

3. Literature review
3.1 Definition of social sustainability
3.2 Social sustainability and performance
3.2.1 Corporate financial performance
3.2.2 Corporate social performance
3.3 SSS within the supply chain of MNCs
3.3.1 Context of SSS within the supply chain
3.3.2 Implementation process
3.4 Institutional social guidelines
3.4.1 The International Labour Organisation (ILO)
3.4.2 Organisation for Economic Co-operation and Development (OECD) Guidelines on Multinationals
3.4.3 United Nations (UN) - Global Compact (GC)
3.4.4 The Fair Labour Association (FLA)
3.5 Individual social guidelines - codes of conduct
3.6 Sustainable risk management ofMNCs as competitive advantage
3.7 Tools to monitor supplier’s adherence: assessment versus collaboration
3.8 Influence of the regulatory environment onSSS ofMNCs

4. Methodology

5. The Otto Group - A case study about social sustainability and its effective implementation within a MNC
5.1 The Otto Group
5.1.1 Company overview
5.1.2 Company history
5.2 The Otto Group and social sustainability
5.2.1 Vision from the top
5.2.1.1 Top management and its influence on SSS
5.2.1.2 The Otto Group’s SSS organisation
5.2.2 Extensive audit system
5.2.2.1 The Otto Group’s codes of conduct
5.2.2.2 The Otto Group’s social programme
5.2.3 Assessment - Collaboration of suppliers
5.2.3.1 The Otto Group’s supply chain management in low regulated markets
5.2.3.2 SocialOfficers
5.2.3.3 Classificationsystem
5.3 Lessonslearned

6. Conclusion
6.1 Roundup
6.2 Future analysis
6.3 Limitations

Bibliography

List of abbreviations

illustration not visible in this excerpt

List of tables and figures

Figure 1: Potential Social Sustainability Issues along the supply chain

Figure 2: The 10 Principles of the Global Compact

Figure 3: The Otto Group’s CR Organisation

Figure 4: Core Processes in the Otto Groups Social Programme

Figure 5: Types & n^ber of violations of The Otto Group’s suppliers from 2009-2010

Social Sustainability Practices within the Supply Chain of Multinational Corporations:

How consistent are Multinationals with the implementation of
social sustainability within their supply chain in regulatory distant countries?

1. Introduction

The topic of sustainability within the supply chain of multinational corporations (MNCs) has been well researched (Murphy and Poist 2002; Carter and Jennings 2004; Carter and Rogers 2008; Andersen and Skjoett-Larsen 2009; Hassini et al. 2012). It is defined as a“development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Brundtland Report 1986, page 1). An increasing amount of companies adapt to this new idea. Hence more than two thirds of the Global 250 firms release, separate from the usual corporate reports, a sustainability report in which they purely concentrate on their sustainable strategies (Carter and Rogers 2008).

As Elkington (1997) indicates, sustainability can be divided into three subcategories which he calles the “triple bottom line”: He states that “sustainable development involves the simultaneous pursuit of economic prosperity, environmental quality, and social equity. Companies aiming for sustainability need to perform not against a single, financial bottom line but against a triple bottom line” (page 397). While economic and environmental sustainability has been well researched, social sustainability (SSS) still lags behind (Meyer 2004; Reuter et al. 2010; Ashby et al. 2012; Klassen and Vereecke 2012). Nevertheless, as it can be seen in the cases of many MNCs and their suppliers that operate in regulatory distant countries, SSS must not be neglected (McMahon 1999; Phillips and Caldwell 2005). Increased public exposure and competition make it essential for MNCs to include SSS into their corporate agenda. However, studies have demonstrated that managers often are uncertain about how to handle such increased exposure and the expectations associated with it (Maignan and Ralston 2002). The following case study gives an idea on how such managerial misconception in regards to SSS may lead to serious damage of financial as well as social resources.

1.1 Nike as example for the transition of a MNC towards SSS

The example of Nike, the world largest athletic shoe company with nearly 40.000 employees and close to US$21 billion in revenues, is a poster child example of why it is essential for MNCs to move towards SSS. This transition discloses how a multinational company, with over 930 suppliers that employs over one million workers globally, can move from having naive and irresponsible sustainability operations to a company which sets industry wide standards in terms of making information about its network transparent and introducing high standards of supplier requirements within its value chain (United States Bureau of International Labour Affairs 2012; The Economist 2012).

In the early 1990s, non-governmental organisations (NGOs) and other human activists accused Nike and its suppliers of employing underage workers in so called sweatshops. They denounced the dire working conditions and started a global boycott on Nike clothing (Zadek 2004; Lim and Phillips 2007). Sweatshops can be defined as an“employer that violates more than one federal or state labour law governing minimum wage and overtime, child labour, industrial homework, occupational safety and health, workers compensation or industry regulation^’ (United States Bureau of International Labour Affairs 2012).¹ After product boycotts started to increase, Nike finally had to give in and changed its entire corporate social practices by moving from arms-length contracting to collaborative partnerships (Lim and Phillips 2007). The company created a corporate responsibility department, increased the minimum working age from 16 to 18 and set up air quality standards at all of its 350 overseas Asian plants where most of the labour rights scandals took place (Richards 1998; Zadek 2004). In order to guarantee minimal ethical working conditions within the company’s supply chain, Nike introduced social standards in form of codes of conducts that had to be signed by its suppliers (Phillips and Caldwell 2005). In short, a code of conduct is a certificate stating a number of social and environmental guidelines which a company's suppliers have to follow after signing (Mamic 2005; Locke and Romis 2007).² Today, Nike invests large amounts of effort and capital into its social responsibility strategies. The company employs over 80 internal and even more external Corporate Social Responsibility (CSR) and Compliance Managers who visit overseas production sites and use regular monitoring to ensure the accordance of its approximate 900 suppliers with the company’s social guidelines (Zadek 2004; Locke et al. 2007).

1.2 Increasingly complex supplier structures

As the short example illustrates, todays’ stakeholders exert far-reaching pressure on MNCs so that a well-managed SSS strategy becomes as important as any other strategic decisions a MNC is taking. But notjust rising responsibility and exposure changed the decision landscape of MNCs also their globally expanded supplier network complicates SSS concerns. Since the emergence of multinationals like Nike in the 90s, the aligned growth of stakeholder groups has become more complex to manage which implicates high risks on the sustainable operations of such companies (Sama 2006). One of the main issues today’s MNCs are facing is the fact that their suppliers are increasingly located in developing countries (Trent and Monczka 2003; Ruamsook et al. 2007). Because of competitive motives for instance, companies move their supplier network abroad into less regulated countries in order to benefit from lower labour costs and higher capacities. However this fact imposes huge risks for MNCs that are not used to operate within countries with lesser regulated legislation which are more closely looked at in Chapter 2.2 of this thesis. One of these challenges is that, MNCs today are not only expected to take responsibility for their direct own actions, but increasingly also for those of their supplier network (Leire and Mont 2010). In order to avoid unethical working conditions from supplier side, it is essential for MNCs to guarantee sustainable standards across their whole supply chain.

SSS in the context of increased global expansion of MNCs and the associated extended supply chain partnerships within regulatory distant countries lags behind in research. Hence the objective of the thesis is to analyse whether MNCs extent their SSS practices to suppliers in regulatory distant countries the same way as they do within countries close to their home market. The thesis intends to fill the research gap which exists around SSS and provides valuable insides into how consistent MNCs are in extending SSS practices among their supplier network. This objective leads to the following research question:

“Do MNCs use the same practices in different regulatory environments when extending sustainability to suppliers?”

To approach the research question, the thesis starts with a critical examination of the emergence of MNCs and the involved increased exposure. The following chapter begins with a definition of the terminology of SSS. Further it deals with the literature review of SSS within the supply chain and presents examples of current social standards aspects on a company-wide and institutional level. Sustainable risk management and its influence of the competitive advantage are explained. This chapter is followed by a case study analysis about the Otto Group which is successfully managing its SSS practices on a global basis. The case study is examined and provides benchmarking insights into how to handle SSS within environments of higher risks. Finally, to conclude this thesis, a short summary is given and areas for future analyses are proposed.

2. International development of MNCs

2.1 Imperatives for MNCs to expand internationally

The following thesis relies on Dunnings and Lundan’s (2008) definition of multinationals. According to the authors “a multinational or transnational enterprise is an enterprise that engages in foreign direct investment (FDI) and owns or, in some way, controls value added activities in more than one country” (page 3). As the UN estimates, there are approximately 70.000 MNCs worldwide managing hundreds of thousands subsidiaries (Waddock 2008). Many of those MNCs generate more revenue than the gross domestic product (GDP) of the developing country they operate in (Adler 2008). ExxonMobile, the American oil and gas giant, has, with over USD 480 billion revenue in 2011, more turnover than the GDP of for example Norway or Argentina (The World Bank 2012; ExxonMobil 2011).

But why should a company extend its operations abroad and expand internationally? According to Gupta and Govindarajan (2000) there are five imperatives why companies become multinationals and expand globally: the growth imperative, the efficiency imperative, the knowledge imperative, the globalisation of customers and the globalisation of competitors. The growth imperative says that in order to avoid saturation within a mature home market, companies must look abroad for new opportunities. According to the efficiency imperative, companies will benefit from expanding internationally because as soon as their capacities nationally are filled up, they will have the potential of creating cost benefits in markets abroad where they can rely on new capacities. The knowledge imperative identifies that companies, which expand their operations to other countries, can profit from the product adaption they have to perform in order to meet the demand of local tastes of the new market. In some cases this learning experience might help the company to innovate and therefore to set up a competitive advantage. The last two imperatives are rather self-explanatory. Companies have to go global when customers and or competitors expand globally. Customers might be asking for the company’s products in other markets, either because they favour worldwide consistency of the company’s products, they want to deal with only a few suppliers or there is a risk that the company’s customer might switch supplier when entering another country. Additionally, a company has to follow competitors in other markets in order to avoid that either the competitor builds up a first mover advantage which will be hard to tackle, or the competitor might be able to hurt the company in the home market through cross subsidisation. Another important aspect in regards to the expansion of MNCs is whether their subsidiaries adapt a locally responsive or a global strategy when implementing SSS (Rosenzweig and Singh 1991; Husted and Allen 2006; Muller 2006; Jamali 2010). A global strategy with universal norms is dictated by the headquarters which provides only a low degree of autonomy to the subsidy’s activities. Contrary to that strategy, a local strategy is followed if headquarters give a lot of autonomy to the subsidy’s operations, which dynamically responds to local needs. Because of the increasing importance of the right SSS implementation, a MNC must be sure about the distinct advantages and disadvantages each of these two strategies implicate. While global strategies follow a top-down approach and emphasises universal principles which are also referred to as “hypemorms”, the locally responsive approach aims at the conformity of local law and autonomy (Donaldson and Dunfee 1994, page 265). Hence, a global SSS implication can be more efficient, integrated, better controlled and offer synergies across the firm’s subsidiaries, but there is a lack of legitimacy at local level. Contrary, a decentralised SSS implementation might be responsive to local needs but could be fragmented and therefore lack efficiency because of the extensive necessary coordination. Various discussions among researchers about whether a local or a global strategy is recommendable show how complex this topic is (Husted and Allen 2006; Muller 2006; Jamali 2010). It also illustrates that the choice whether to go global or local in terms of SSS most often depends on the individual industry and management setting of the company and cannot be generalized. In response to those debates, Cruz and Boehe (2010) come up with a concept they call “Transverse CSR Management” which is seen as “a corporate organizational entity represented by an international committee or department in charge of CSR projects” (page 251). This entity is composed of different parties like top managers and other representatives of the company, the respective subsidy and external interest groups which interact with each other. According to the authors, this mixed management team allows a facilitated adoption of both, global integration and local responsiveness of SSS and makes it easier to infuse SSS into the organisation so that it becomes part of the corporate routine.

2.2 Problems associated with expansion of MNCs

From 2011 to 2012 FDI inflows to developing countries increased by 11 per cent, reaching a record US$684 billion, that accounted for 45 per cent of global total FDI inflows (Arnold and Hartman 2003; UCTAD 2012) But even though FDI’s into developing countries make up nearly half of all FDI investments, research about positive or negative spillovers of such investments is scarce (Meyer 2004).

Some researchers that dealt with this topic came to diverging results (Osland 2003; Fortanier and Kolk 2007). The emergence of multinationals in developing countries has brought about positive implications, since it involves many learning effects and creates healthy competition within the market which, in turn, helps innovative processes to develop (Sethi 2002a). According to Bansal and Roth (2000), companies transferred best practices across boarders which led to an improvement of socialjustice and standards of living in general. Even though the effect is dependent on factors like local human capital (Borensztein et al. 1998), technology standards in the host country (De Mello 1997), or the openness of the economy (Rudra 2005), the risen capital inflow helped many economies to develop important capabilities and resources and hence made it possible to put these economies on a track towards modern, developed nations (Maxfield 1998; De Soysa 2003; Li and Reuveny 2003, Rudra 2005; Bardy et al. 2012). Furthermore suppliers in developing countries can benefit through the business relationship with MNCs (Meyer 2004). Ivarsson and Alvstam (2010) found out in their study about IKEA and the company’s’ international supply chain that small suppliers benefit a lot though the learning and technology transfer they experience when engaging with such a large MNC.

Contrary to these beneficial effects, also negative implications are connected to the fast worldwide spreading of MNCs (Sethi 2002a; Ite 2004; Strike et al. 2006). Strike et al. (2006) argue that MNCs might act socially irresponsible when expanding since the marginal coordination and complexity costs rise and it becomes more difficult to balance the different demands from the increased amount of stakeholders. These challenges lead to a decrease in the quality of social practices.

It is further commonly known that different cultures have different conceptions when it comes to what is ethically right and wrong (Donaldson and Dunfee 1994; Gugler and Shi 2009; Robertson 2009). Certain ethical principles might be considered appropriate in some but not in all cultures which Donaldson and Dunfee (1994) called the “moral free space”.

Many researchers have dealt with the ethical differences between developed and developing countries (Blodgett et al 2001; Mohamed et al. 2003; Jamali 2007; Shafer et al. 2007). These differences pose a great threat on the operations of western MNCs that do business in such culturally different environments but can also act in favour for opportunistic actions of MNCs as Falkenberg (2004) explains. Hence, through for example hazardous working conditions or corruption, they might take advantage of the predominant conditions in order to cut costs and increase revenue (Osland 2003).Refereed to as “regulatory arbitrage”, MNCs exploit regulatory differences between states by expanding their production facilities in countries with more favourable regulations (Jenkins 2005).

The next problem is closely related to this culture difference. Since developing countries are typically less regulatory distinct and have more loose legal guidelines, companies that move their manufacturing activities in these regions will not be exposed to public examination as they are used to in their western, developed home countries. As described in the introductory case study about Nike, many western multinationals occupy their employees at sweatshops under harmful conditions or source from suppliers that do so (Baram 2009).

Furthermore suppliers from mostly developing countries are more and more confronted with an imbalance of negotiation power. Since there are regularly few MNCs facing many potential suppliers as well as great differences in size and market power, MNCs can often dictate prices to the supplier (Cox 2004; Arnold and Hartman 2006). This makes suppliers take part in the so called global “race to the bottom’ throughout which they compete with other local suppliers to attract MNCs and foreign direct investments by offering the lowest possible prices. The term “race to the bottom” is most often related to developing countries trying to attract MNCs for investments in their economies, by lowering labour standards like reducing the minimum working age or increasing maximum working hours (Winston 2002; Hsieh 2006). However, it can also occur on a business level, whereby suppliers try to cut costs through the reduction of labour conditions in order to gain business contracts with foreign companies. MNCs thereby enjoy low costs which might lead to a competitive advantage (Clavet et al. 2008). Necessary conditions for a race to the bottom are mobility of firms and goods as well as that “regulation and factor costs are heterogeneous and the heterogeneity leaves gaps that can be turned into the firm’s competitive advantage” (Spar and Yoffie 1999, page 565).

However the paradox thing about this predominant power balance in favour of the MNC is that this imbalance could actually favour SSS. MNCs that are usually used to high regulated social standards from their home countries could follow up on such standards when operating in developing countries. Because of their negotiation power, they would make suppliers adhere to their standards automatically. Because of non-existing effective universal standards and the associated opacity of SSS however, MNCs respond to competitive dynamics and take part in the“race to the bottom’.

Another problem often associated with the incident of multinationals operating in countries with loose guidelines is corruption (Steidlmeier 1999; Rodriguez et al. 2005; Spencer and Gomez 2011; Barassi and Zhou 2012). In order to get important contracts signed, companies might adopt the predominant habit of local firms and bribe officials. A survey carried out by a China based consultancy revealed that of all 500.000 bribery acts in China in 2007, nearly 65% could be traced back to foreign companies (Tan 2009).

2.3 Increased exposure of MNCs

More and more MNCs are subject of increased exposure to different stakeholder groups like NGOs or other human rights activists. This aspect of increased scrutiny is fairly new to most multinationals that were used to operate in developing countries somehow in disguise.

Media is one of the main triggers that enabled customers and other interest groups to have access to detailed informationabout a company’s operations abroad (Cordeiro 2003a; Cordeiro 2003b; Sharma and Ruud 2003; Brammer and Pavelin 2004; Falkenberg 2004; Carasco and Singh 2008). They can exchange and upload information about possible scandals which otherwise could have stayed within the borders of the MNC. Next to the eased access, the Internet also contributed to the increased speed by which information is spread among stakeholders.

Furthermore customers nowadays pay increased attention on whether the products they buy are actually produced under ethically correct standards and hence put pressure on companies to act socially responsible (Brown and Dacin 1997; Handelman and Arnold 1999; Waddock et al. 2002; Prasad et al. 2004; Lamberti and Lettieri 2008; Auger et al. 2010; Park-Poaps and Rees 2010). Since they are increasingly informed about social practices of MNCs they more and more include this aspect in their buying decisions.

Another reason why MNCs experience higher exposure to the outside is because of the intensified activities of NGOs (Diller 1999; Sethi 1999; Falkenberg 2004; Reimann 2006). Since NGOs comprehended their power, they try more and more to influence and put pressure on MNCs to include social responsibility into their agenda by acting as watchdogs within the mostly blurry areas of SSS (Winston 2002; Falkenberg 2004; Aguilera et al. 2007). Most publicized scandals that had been investigated and unfolded by these organisations dealt with problems amongst working conditions at the MNCs’ suppliers’ site (Antonio 2011). Hence companies no longer are responsible solely for their own operations but, because of increased exposure, also have to take responsibility for the actions of their suppliers (Pedersen and Andersen 2006; Koplin et al. 2007; Jiang 2009).

Additionally, industry peer pressure can influence companies in their social responsible actions. Since customers put increasing significance on social values within a company’s operations, the firm might integrate social practices into their corporate agenda in order to align themselves with competitors. Jorgensen et al. (2003) and Neef (2004) find out that companies in the apparel and footwear industry comply with standards that other companies within the same industry have set themself.

This listing of SSS triggers is not claimed to be mutually exclusive nor collectively exhaustive, but is supposed to show the complexity of interest groups that directly influence the ethical decision making oftoday’s MNCs. The question nowadays is no longer whether or whether not to include SSS in the corporate agenda but how to do it (Smith 2003). When going abroad, firms have to ask themselves whether to adapt to the predominant labour conditions of the host country. In case of low regulated developing countries, where SSS standards usually are lower, cultural differences higher and the regulatory and legal framework more incomplete than in developed countries those local labour conditions would often be morally difficult to transfer to their home country social policies (Kostova and Zaheer 1999; Falkenberg 2004; Visser 2008).

Another decision companies have to take is whether to follow up on the social standards they set themselves at home and allow only a narrow window for adaption to local habits. This consideration does not end at company borders. As the Nike case study has shown and as many researchers over the last few decades have advocated, MNCs have to include social standards into their supply chain in order to secure full responsibility (Poist 1989; Bowersox 1998). In case suppliers are also located in regulatory environments that are more relaxed than the institutional environment of the home country, the increased exposure becomes even more complex and problematic for internationally operating enterprises.

The last paragraphs show that SSS within the whole supply chain is essential for all companies today, especially for those that operate in low regulated, complex and ethically insecure environments. The following chapter tries to bring some clarification over the terminology of SSS and dives deeper into current research of SSS.

3. Literature review

3.1 Definition of social sustainability

As already mentioned the terminology around SSS is extremely complex and even among researchers not clearly stated (Littig and Grießler 2005; Eltantawy et al. 2009; Vallance et al. 2011). In many cases SSS is synonymously used with social frameworks like CSR, Business Ethics or Corporate Citizenship (Vogel 2007; Schwartz and Carroll 2008; Andersen and Skjoett-Larsen 2009; Spence and Bourlakis 2009; Klassen and Vereecke 2012). As the frameworks are difficult to distinguish, there exists a lot of confusion among researchers when defining these terminologies (Harwood and Humby 2008).

Schwartz and Carroll (2008) try to find differences among these frameworks. On the basis of the three core concepts, value, balance and accountability, they distinguish between the meanings of the mentioned four social frameworks. According to the authors,“value is primarily created when business meets society’s needs by producing goods and services in an efficient manner while avoiding unnecessary negative externalities” (page 168). It is stated that all companies have the responsibility to create societal values. As second core concept, balance has to be managed between the diverse stakeholders of the company as different interest groups have their individual concerns and moral standards which have to be balanced out. Thirdly, accountability means that“companies need to assume responsibility for the impacts of their practices, policies and processes and the decisions that stand behind those practices” (Waddock 2002, page 219).

Even though the different social frameworks share all three core concepts, the extent to which each framework covers each core concept differs and thereby can make a difference when defining them. In relation to the other three frameworks, sustainability has two major characteristics which differ from the others. The first is that even though sustainability includes all three core concepts, value, balance and accountability, it does not focus on accountability as much as for example CSR. Secondly the concept of sustainability focuses, again in comparison to the other three frameworks, on the long term perspective. Because of such subtle distinctions most researchers recommend not to limit SSS to a single definition (Littig and Grießler 2005; Vallance et al. 2011). Nevertheless, the following definition of McKenzie (2004) encompasses many different aspects of SSS and hence is used as indicator of the discussed topic:

“Social sustainability occurs when the formal and informal processes, systems, structures and relationships actively support the capacity of current and future generations to create healthy and liveable communities. Socially sustainable communities are equitable, diverse, connected and democratic and provide a good quality oflife” (page 18).

3.2 Social sustainability and performance

Given that the adoption of SSS is associated with costs, it is not always entirely obvious why companies adopt sustainable practices within their operations (Pava, and Krausz 1997). In order to fully understand the situation of MNCs and their decision about if and how to follow up on their SSS within the supply chain in distant countries, it is therefore important to know whether and how SSS actually has a positive link to a fimis’ performance.

3.2.1 Corporate financial performance

There are two different performance measurements which indicate the success of social undertakings. On one side there is the corporate financial performance (CFP) measure that has been well researched and usually is the performance indicator which is put in relation with social practices. Even though some researchers find a negative (Vance 1975; Tirole 2001) or neutral (Alexander and Buchholz 1978; Abbott and Monsen 1979; Aupperle et al. 1985; McWlliams and Siegel 2000) relationship between SSS and the economic performance of MNCs, the majority of researchers identify positive impacts, especially in the long term (Posnikoff 1997; Waddock and Graves. 1997; Carter 2000; Carter and Jennings 2002; Carter 2004; Carter 2005; Lin et al. 2009; Rettab et al. 2009; Antonio 2011). A close relationship between suppliers and the associated trust, lowers transaction, agency and monitoring costs and will lead to a competitive advantage over firms that do not cooperate on a socially trustful basis (Barney and Hansen 1994; Jones 1995). Illustrated through the example of the international operating home products company IKEA, Andersen and Skjoett-Larsen (2009) identify that a close relationship with suppliers on the basis of social sustainability brings about mutual advantages. Suppliers benefit from the international experience the MNC brings and the MNC benefits from the eased processes with the supplier. Hence financial performance generally is positively related to SSS.

3.2.2 Corporate social performance

The second measurement aspect is the corporate social performance (CSP) of a firm. Because of its complexity CSP is problematic to define (Wartick and Cochran 1985; Clarkson 1995). Nevertheless, Wood (1991) describes CSP, as “a business organization's configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm's societal relationships” (page 693). On the basis of the four examples: labour equity, healthcare, safety and philanthropy, Hutchins and Sutherland (2008) give quantifiable indicators and measures of social performance. Gauthier (2005) arrives at similar indicators but categorizes them into two different dimensions, the internal and the external. The internal criteria are the consideration of employees and quality, health and safety at work. Criteria that consider the company’s employees include “the existence of a corporate code of conduct, the involvement of different levels of hierarchy, dialog with employees, the lack of racial or sexual discrimination, the insertion of people in difficulty (physically or mentally disabled persons), further education and training and the level of the employees” (page 201). Aspects of quality, health and safety are indicators whether a company follows health and safety criteria at all stages of its products’ life cycles, or whether it proves adherence to certain norms and standards.

Additionally to such internal criteria, an external criterion to assess a company's CSP is the relation with contractual stakeholders like suppliers or clients and various other stakeholders like NGOs or local communities. The presence of codes of conduct and their effectiveness on those stakeholders serve as indicator for a good CSP. Moreover, transparency has to be present in the company’s operations.

Those social measures are examples for companies to assess their SSS performance. Even if not all of such criteria have to be fulfilled, since they are not applicable for all kind of firms, they present a valuable approach on how to successfully perform socially sustainable. Nevertheless, when assessing a company’s CSP, it is essential to include different stakeholders. Since CSP is multidimensional construct, considering only single stakeholder groups will have negative impacts on the validity of the performance assessment as it neglects other interest groups (Rowley and Berman 2000).

It is difficult for CSP to produce valuable comparisons across social initiatives since it is dependent on a respective operational setting (Rowley and Berman 2000). In regards to this complex understanding of CSP, the authors Gond and Crane (2008) relate to it using the definition of Hirsch's et al. (1999) umbrella concept: “a broad concept or idea used loosely to encompass and account for a broad set of diverse phenomena’ (page 200).

By today, CSP has mainly been researched in relation to CFP (Waddock and Graves 1997; Rowley and Berman 2000; Simpson and Kohers 2002; van Beurden and Gossling 2008). Generally seen, CSP is positively related to CFP. As Brown et al. (2000) discover, a good CSP in terms of improved worker safety is linked to better economic performance. Moreover, increased adoption of SSS lead to higher quality standards, which in turn leads to decreased costs (Flynn et al. 1995; Pullman et al. 2009). In addition to that, social performance has a positive influence on innovation, human capital and reputation (Surroca et al. 2010). Accordingly, the following paragraph about CSP does not provide a listing on whether or not SSS has positive or negative implications for a company, but rather illustrates the bandwidth of criteria and stakeholders that need to be addressed in order to increase the chances of a successful SSS implementation. Among others, suppliers form a part of a company’s stakeholders. Since suppliers stand in direct contact with the buyer, they are primary stakeholders, contrary to secondary stakeholders like the community who interact with the company only indirectly (Laan et al. 2007). According to Laan et al. (2007) suppliers are directly related to a company’s CSP and hence put a lot of emphasis on itsbuyers’ SSS efforts. In regards to the subject of the thesis, the next chapter presents current discussions among researchers within the field ofSSS and the supply chain.

3.3 SSS within the supply chain of MNCs 3.3.1 Context of SSS within the supply chain

Even though companies are no longer only responsible for their own actions but increasingly also for the operations of their suppliers, social practices within the supply chain of MNCs have lagged behind in research compared to other functional areas of the firm (Murphy and Poist 2002; Linton et al. 2007; Salam 2008; Leire and Mont 2010). However, more and more authors dedicate their research capacities to this topic since they understand the increasing importance within today’s corporate world (Murphy and Poist 2002; Maloni and Brown 2006; Andersen and Skjoett-Larsen 2009).

Eltantawy et al. (2009) define a social sustainable supply chain as “managing the optimal flow of high-quality, value-for-money materials, components or services from a suitable set of innovative suppliers in a fair, consistent, and reasonable manner that meets or exceeds societal norms, even though not legally required” (page 101).

As Figure 1 shows, potential social issues within the supply chain are not only diverse but can also be found in all steps within the value creation. Such issues are usually tried to be prevented by codes of conduct and typically comprise issues like safe and hygienic working conditions, enforcement of child labour laws, reasonable working hours and payment (Jiang 2009). They are going to be explained in more detail in chapter 4.4.

illustration not visible in this excerpt

Figure 1: Potential Social Sustainability Issues along the supply chain

Source: Corporate Social Responsibility - The WBCSD’s Journey: 2003, World Business

Council for Sustainable Development (WBCSD), Geneva.

Since the supply chain network ofMNCs is more and more located in developing countries, SSS compliance is further complicated. As every country has its own regulations, legislatives and social policies, MNCs have to find the right implementation process to respond to such influences (Cruz and Boehe 2010).

[...]

¹ For an overview over the different definitions of sweatshops and the issues connected to this variety in meanings see Radin and Calkins (2006)

² For detailed mfomation about Nike’s responsibility practices see: http://www.nikeresponsibility.com/ or http://www.nikebiz.com/crreport/ (last accessed on 31/10/2012) For a global map with all Nike suppliers: http://nikeinc.com/pages/manufacturing-map (last accessed on 31/10/2012)