Fluent Essays

Consider the case study about Vietnam from this module’s resources. In your post, discuss how the company could have planned or reacted differently to reduce the risk associated with a globalized supply chain. What risk mitigation strategy would you recommend that might have prevented the incident? Sustainability along the global supply chain: the case of Vietnam Antonio Tencati, Angeloantonio Russo and Victoria Quaglia Abstract Purpose – The purpose of this paper is to investigate the impact that more sustainable sourcing policies by many multinational companies are having on the suppliers located in developing countries such as Vietnam. Questions are raised about the process through which CSR is reaching the country. Design/methodology/approach – The research was conducted in Vietnam thanks to the support of the United Nations Industrial Development Organization’s (UNIDO) Regional Office. The survey was carried out on the basis of a questionnaire that was used as a support during the direct interviews and was sent electronically when the preferred method of on-site visits was not possible. A total of 25 Vietnamese enterprises were involved in the research. Findings – The results achieved highlight, on the one hand, how CSR does make business sense even in a developing country such as Vietnam and, on the other, the difficulties related to the way requirements of sustainability are moving from Northern consumers to suppliers in Vietnam. Practical implications – This process calls for new forms of collaboration involving firms along the supply chain, local authorities, international players, and civil society. Originality/value – The paper points out the unsustainability of the process through which corporate responsibility is being imposed on Vietnamese suppliers and how CSR, having become a mandatory requirement for access to international markets, might transform itself into a new type of technical barrier to trade. Therefore, CSR needs to be fostered rather than imposed, through the creation of innovative partnerships and locally-rooted solutions. Keywords Corporate image, Social responsibility, Developing countries, Supply chain management, Vietnam Paper type Research paper 1. Introduction Globalization has made the urgency of corporate social responsibility (CSR) a challenge no longer belonging exclusively to Northern enterprises (Beschorner and Müller, 2007; Deloitte Touche Tohmatsu Emerging Markets, 2004; UNIDO, 2002). International trade environments have been made aware of issues such as human rights and labor exploitation in developing countries and requirements of sustainability are moving from northern consumers to suppliers in the south along the global supply chain (Bird and Smucker, 2007). Passing from one actor to the other along a ‘‘reverse’’ supply chain, the requirement of social responsibility is entering the boundaries of countries like Vietnam through a number of codes of conduct imposed by foreign clients and through international standards (e.g. SA8000, ISO 9001, and ISO 14001). De facto, CSR is reaching southern enterprises as a mandatory requirement for the continuation of business relationships with foreign partners. Within this context, sound relationships along the supply chain and between local suppliers and their stakeholders seem to be needed to foster new solutions in how firms actually achieve sustainability targets. Therefore, innovative forms of collaboration (Albareda et al., 2008; Tencati and Zsolnai, 2009; Zadek, 2006) might be the way to help companies in developing DOI 10.1108/17471111011024577 VOL. 6 NO. 1 2010, pp. 91-107, Q Emerald Group Publishing Limited, ISSN 1747-1117 j SOCIAL RESPONSIBILITY JOURNAL j PAGE 91 Antonio Tencati is based at the Department of Management, Università Bocconi, Milan, Italy. Angeloantonio Russo is based at the Department of Management, Parthenope University, Naples, Italy. Victoria Quaglia is based at AP Møller-Mærsk A/S, Copenhagen, Denmark. countries to address new sourcing requirements, to get support from the stakeholder networks of which they are members, as well as to strengthen their reputation in the international markets. With particular reference to Vietnam, this paper aims at investigating the impact that more sustainable sourcing policies by many multinational companies are having on the local suppliers. In this context, it is crucial to understand the process through which CSR is reaching the country, to investigate the effects triggered by CSR strategies on the competitiveness of the enterprises that are managing to comply with imposed international labor standards and regulations, to analyze the monetary and non-monetary costs of CSR, as well as the challenges and difficulties faced by local Vietnamese entrepreneurs when having to implement CSR strategies for the first time. The research findings suggest that CSR does make business sense for the enterprises big and rich enough to comply with international social standards even in developing countries such as Vietnam. However, the process through which sustainability is reaching Vietnam is proving to be unsustainable. The costs triggered by a top-down imposed engagement to CSR are really prohibitive for many enterprises and the consequent incapability of meeting social and environmental standards is starting to mean for these firms impossibility of doing business in international markets. What was originally thought to be a way to fight abuses and exploitation risks transforming itself into a new form of protectionism (Tencati et al., 2008). 2. From developed to developing countries: CSR along the global supply chain Over the last years, CSR has become a fundamental requirement for doing business for most of the companies in the world. Claims from several stakeholders are therefore contributing to modify the structure of the global supply chain, starting from developed to developing countries. The requirement of social responsibility is entering the boundaries of countries like Vietnam, and the traditional supplier relationships are assuming the form of a ‘‘reverse’’ supply chain. In more detail, three critical passages are characterizing this process, which starts from consumers, goes through multinational companies (MNCs), and arrives to manufacturers. Figure 1 presents the reverse supply chain. 2.1 From consumers to MNCs: first passage The transmission of CSR from developed to developing countries begins with the requirements deriving from ethical consumerism. Recent studies on ethical consumerism suggest that consumers increasingly care about the characteristics of business products and processes, encompassing the importance of non-traditional and social components such as environmental protection, elimination of child labor and so on (Auger et al., 2003; Pivato et al., 2008). Thus, ethical features have a substantial impact on the purchase intentions of consumers (Castaldo et al., 2009). Therefore, the requirements of social and environmental sustainability are firstly transmitted by ethical consumers to businesses (Zsolnai et al., 2004), in particular to MNCs, that is, in many cases, producers of valuable brands, companies whose production is effectuated in countries with weak law enforcement, firms characterized by labor intensive production, businesses with a high impact on the communities where their operations are located. These MNCs are the first players sensitive to CSR along the supply chain. They are also capable of Figure 1 The reverse supply chain PAGE 92jSOCIAL RESPONSIBILITY JOURNALj VOL. 6 NO. 1 2010 exploiting the advantages deriving from globalization bringing their production activity abroad, where there is a major availability of human resources at a lower cost. So, such companies contract with suppliers located in ‘‘remote’’ parts of the world and in emerging markets to manufacture their products. Globalization has also enabled these parts of the world to be less remote and isolated, that is, to be at reach of the media. So, activities fostered by Northern firms are more easily monitored by consumers and international associations, non-governmental organizations (NGOs), policy makers, financial markets, and civil society. 2.2 From MNCs to their manufacturers: second passage Having to respond to increasing requirements of a sound supply chain, companies see themselves obliged to pass onto their manufacturers the necessity of sustainability. This constitutes the second passage of CSR along the global supply chain. MNCs must prove to northern societies the soundness of their manufacturers’ working places, otherwise their reputation could be ruined and sales will tend to decrease (O’Higgins, 2002; Weiser and Zadek, 2000). Manufactures must prove to MNCs their capability of complying with the required social standards, otherwise they will lose their contracts, as MNCs are their main, and in most of the cases only, clients. The tools used by MNCs to export CSR practices are basically two: first, their own codes of conduct and independent monitoring schemes; second, international certifications. In the marketplace, there are at least more than 1,000 codes of conduct and standards (The World Bank Group, 2003). The most common elements of them are wages and working hours, freedom of association and collective bargaining, discrimination, and occupational health and safety (The World Bank Group, 2004). The difficulties in handling so many different codes of conduct and the discrepancies with the national legal framework constitute a major obstacle in the implementation of sustainability. The manufacturers involved have to pay annual audits and any required remedial action and infrastructure upgrade for the certification process. The related costs are in most cases unbearable, if not for major enterprises, and therefore such certifications risk becoming technical barriers to trade for the companies that cannot afford them. 2.3 From manufacturers to raw material suppliers: third passage In order to be considered entirely socially responsible and therefore able to trade with northern clients, a manufacturer must guarantee that materials used for the production derive from responsible suppliers. Raw material suppliers are considered to be the most ‘‘irresponsible’’ actors along the supply chain and a lot of pressure is put on this delicate phase. The relation between supplier and producer is fundamental in that producing a safe product with low impacts on the surrounding environment and society greatly depends on the raw materials used in the manufacturing processes. In this way, CSR reaches also raw material suppliers that have to re-think and re-design their business to be not cut out from a demanding market. 2.4 CSR as a driver of innovative forms of collaboration Given the above-mentioned peculiarities of the modern ‘‘reverse’’ global supply chain, a top-down approach aimed at imposing CSR requirements is not the only way to manage the supply chain. A new relational perspective of governance (Albareda et al., 2006; Albareda et al., 2009) is taking the floor among researchers and practitioners as the strategic option that might lead to more responsible practices in the society and to a more sustainable development (Aras and Crowther, 2009; Tencati and Zsolnai, 2009). In particular, cross-sectorial partnerships (e.g. joint ventures, local sustainable development projects, multi-stakeholder initiatives, and alliances) among governmental organizations, civil-society organizations (CSOs), and firms are increasingly considered as the way to achieve more sustainable patterns of development and overcome the limits related to top-down approaches in promoting sustainability (Ählström and Sjöström, 2005; Argenti, 2004; Gerencser et al., 2006; Hamann and Acutt, 2003; Hartman et al., 1999; Loza, 2004; VOL. 6 NO. 1 2010 jSOCIAL RESPONSIBILITY JOURNALj PAGE 93 Macdonald and Chrisp, 2005; Moody-Stuart, 2004; Rigling Gallagher and Gallagher, 2007; Rondinelli and London, 2003). In this collaborative perspective partnership can be defined as ‘‘people and organizations from some combination of public, business and civil constituencies who engage in voluntary, mutually beneficial, innovative relationships to address common societal aims through combining their resources and competencies’’ (Nelson and Zadek, 2001) sharing both risks and benefits. These collaborative efforts could have a major impact on developing countries in mobilizing and aggregating resources towards sustainability purposes especially because the industrial base is made of small- and medium-sized enterprises (SMEs) and much of the business is informal (Russo and Tencati, 2009). In fact, if we look at the varying context of developing countries, in which specific tasks are required to companies, governments, and several other organizations, there is an enormous potential, even within current corporate structures and market systems, to think about fundamentally new, more collaborative types of governance mechanisms and partnerships that can serve to increase responsibility and sustainability, set progressive new policy agendas, and activate both public and private resources to tackle key sustainable development challenges (AccountAbility et al., 2005; Nike Foundation, 2008; Pélouas, 2004; Stakeholder Research Associates Canada et al., 2005; Scherer and Palazzo, 2007; Zadek, 2006). With particular reference to Vietnam, this paper aims at investigating the impact that more sustainable sourcing policies by multinational companies are having on the local suppliers, also influencing the relationships characterizing the global supply chain. Our research questions are built on previous research on CSR in the international context (Beschorner and Müller, 2007; Boda, 2002; Crowther and Caliyurt, 2006; Haltsonen et al., 2007; Sethi, 2003) and tested through a specific research design focused on Vietnamese firms. CSR strategies by Vietnamese enterprises and their relationships with other organizations, not only belonging to the global supply chain, to address the sustainability challenge have been investigated, with the aim of answering the following research questions: B Is CSR reaching Vietnam and how? B What are the effects triggered by CSR strategies on the competitiveness of the enterprises that are managing to comply with imposed international labor standards and regulations? B What are the costs, monetary and non-monetary, as well as the challenges and difficulties faced by Vietnamese entrepreneurs when having to implement CSR strategies for the first time? 3. Methodology The research was conducted in Vietnam in 2004 with the support of the United Nations Industrial Development Organization (UNIDO)’s Regional Office (Bekefi, 2006) based in Ha Noi, Vietnam, and through direct interviews to sector associations, such as the Leather and Footwear Organization (LEFASO), the Vietnam Textile and Apparel Association (VITAS), the Vietnam Promotion Agency (VIETRADE), and the Vietnam Chamber of Commerce. The survey was conducted on the basis of a questionnaire that was used as a support during the direct interviews mainly to the chief operating officers (COO) or their representatives, and was sent electronically when the preferred method of onsite visits was not possible. The questionnaire was originally formulated in English, translated into Vietnamese in a second moment and consisted of 52 questions (see the appendix). The research saw the involvement of 59 Vietnamese enterprises, 42.37 percent of which (25 companies) agreed to collaborate either through direct interviews (for a total of ten, seven of which operating in the footwear sector and the remaining three in the garment sector) or by answering the questionnaire that was sent electronically (fifteen companies returned the questionnaire completed, of which one was a footwear enterprise, five were garment and nine seafood enterprises). Regarding the other 34 companies, they were excluded from the final sample in that either it was impossible to conclude a direct interview or the questionnaire was incomplete. PAGE 94jSOCIAL RESPONSIBILITY JOURNALj VOL. 6 NO. 1 2010 Enterprises were selected on the basis of three criteria, the first of which was the sector of their business activity. In particular, the research focused on enterprises operating in three sectors: footwear (32 percent of the firms in the sample), garment (32 percent) and seafood (36 percent). Being, after crude oil, the main sources of Vietnam’s exports (Ministry of Labour – Invalid and Social Affairs, 2004), the enterprises operating in such sectors are characterized by intense international business relations and are the first ones to have to cope with the new sustainability-oriented trends and requirements deriving from foreign markets. The direct contacts of the enterprises operating in the three sectors were obtained from the databases of respectively LEFASO (for the footwear companies), VITAS (for the garment companies), and the Ministry of Fishery (for the seafood companies). The databases provided a general profile of the firms in terms of date of establishment and dimensions (number of employees), type of ownership, export markets and most relevant clients. Secondly, among the ones operating within the three sectors, the enterprises were selected on the basis of their export markets. Having analyzed the profile provided by the databases, the enterprises contacted were the ones that were characterized by international clients (with preference for the EU and US markets). The research analyzed Vietnamese suppliers of foreign markets and big multinational companies, therefore exposed to their social and environmental requirements. The following chart (see Figure 2) indicates the export markets of respondents. Finally, the choice of enterprises was led by their dimensions (in terms of number of employees) and the ones selected are of medium to large size, as can be observed in Figure 3. The rationale of such a choice has been the following: Higher the number of employees, wider the effects of CSR on the day-by-day management of the firm. 4. Results and discussion 4.1 Benefits of CSR implementation In developed countries the acceptance of a positive correlation between profit and CSR is somehow growing, but it is still not totally or sufficiently proven (Margolis and Walsh, 2003; Orlitzky et al., 2003; Rubbens and Wessels, 2004). In Vietnam such acceptance does not exist at all. Several have been the attempts of defining a correlation between sound policies and a better economic performance, but the debate is still very open and characterized by different opinions (Barnett, 2007; Friedman, 1970; McWilliams and Siegel, 2000; Waddock and Graves, 1997). On the basis of our data, what can be affirmed is that the enterprises Figure 2 Export markets of respondents VOL. 6 NO. 1 2010 jSOCIAL RESPONSIBILITY JOURNALj PAGE 95 involved are starting to benefit from the recent implementation of more sustainable policies through the compliance with codes of conduct and international certifications (see Figure 4). In fact, what can be highlighted is the impact of CSR on variables such as productivity, quality of the final output, competitiveness, and retaining of skilled human resources (see Figures 5 and 6). In more detail, our findings suggest that depending on the sector different benefits are emerging from CSR. Looking at the garment sector, an improvement in quality (75 percent) and competitiveness (62.5 percent) are the main benefits that such companies are experiencing. Same considerations can be argued referring to the seafood sector (respectively, 100 percent and 77 percent), whereas companies are also managing the chance to expand their activity into new markets (77 percent). Broader results are related to the footwear sector, whereas companies reveal benefits associated with several functions throughout the managerial process. The greatest relevance is recognized to productivity improvements, such as the standardization of procedures (50 percent) and a better quality management (50 percent). Benefits are also associated with the human resource management, through the retention of skilled employees (25 percent) and a decreasing number of accidents (25 percent). Moreover, companies experience advantages in the Figure 3 Respondents by size (number of employees) Figure 4 Main certifications in footwear, garment and seafood sectors PAGE 96jSOCIAL RESPONSIBILITY JOURNALj VOL. 6 NO. 1 2010 management of specific relationships along the supply chain, such as the opportunity of reaching new clients and improving client’s trust (both 25 percent). These results are also confirmed by the analysis of the direct interviews. As declared by the Chief of Quality Management of a garment company, ‘‘the company now works like a system’’ and, with regard to the adoption of specific international standards, he recognized that ‘‘having the SA8000 certification, the company has noticed an increased facility in recruiting acknowledged and hard-working employees. This will positively affect the productivity in a medium-long term. Only in the last six months, 200 new people started working for our company.’’ In light of the above results, CSR is being first of all a business lesson for the companies that had the strength to commit to it. When we think of CSR and its effects on companies, what immediately comes to mind are concepts such as better working conditions and less negative impact on society. CSR is actually more than that for the enterprises contacted. CSR and its regulations that take shape in standards and codes are bringing standardized procedures and organized behaviors. Production is starting to be planned with a longer-term perspective, on the basis of past orders. Daily reports on the quantity of items produced or the number of employees working per line are required by and submitted to the clients. The quality of management increases and the understanding of business issues such as efficiency and effectiveness is starting to enter realities where ‘‘quantity’’ was considered the only real indicator of success. This points out how deeply CSR can change the business model in companies never run before according to economic principles because of a number of reasons such as a regime that owned most of the companies and a cultural disapproval for whoever shows off profit and richness. Especially according to the direct interviews with managers from the footwear and garment sector, once the whole Figure 5 Benefits of CSR in the footwear sector Figure 6 Benefits of CSR in the garment and seafood sector VOL. 6 NO. 1 2010 jSOCIAL RESPONSIBILITY JOURNALj PAGE 97 business system gets standardized and organized, the following benefits may result as consequences of a more integrated system: B Decreasing number of mistakes. According to international standards, the different stages of the production chain must be regulated in order to deliver a final product compliant with technical and quality standards. Standardized procedures help the employee in the implementation of her/his work and the chance of committing mistakes decreases. Moreover, mistakes can actually be foreseen and prevented. B Decreasing number of accidents. Standardized procedures and compulsory training courses on the use of machines are de facto reducing the number of accidents on the workplace. The benefit for the employees’ safety is obvious, but the benefit is not enjoyed solely by the single worker. In fact, the costs of frequent absenteeism are extremely high in terms of productivity and image of the firm. B Lowering employee turnover. A lower turnover is a result of safety-related rules and training. As the interviewed managers affirmed, compulsory working behavior imposed by codes in order to assure the occupational safety; increased awareness of what is dangerous; fire-emergency prevention training courses are all elements that benefit directly the single worker, but also they are actually enhancing the overall performance of the firm, which sees decreasing employee turnover ratios. Thus, costs caused by the necessity of re-training unskilled workers decrease and benefits triggered by timesaving increase. B Higher productivity. Increased managerial skills, and a better operative capacity and effectiveness lead to higher productivity. Moreover, CSR does not only enable an enterprise to operate according to principles of efficiency and effectiveness, increasing its overall productivity, but it also gives the power of attracting and retaining skilled employees. The Deputy Managing Director of a footwear company pointed out that ‘‘a sound working environment is considered as the only way to attract skilled and committed workers.’’ In more detail, because of the need of increasing production, the firm decided to build a new factory in which potentially ten thousand employees could operate. In order to find workers willing to leave their homes to be employed in the company a specific area devoted to facilities for the employees (e.g. dormitories, nurseries for medical assistance, a training school, and so on) was constructed. Finally, an integrated management system, increased operative capacities, higher productivity, and higher level of commitment, all result into a higher quality of the final product: More sustainable policies lead to high quality, as confirmed respectively by 75 percent and 100 percent of the respondents in the garment and seafood sector. Quality is what Vietnamese companies need to face the stiff competition of, in particular, the neighbor China. In brief, CSR strategies trigger increased productivity and quality enabling a major competitiveness. Commitment to more sustainable policies does not only provide a license to operate in international markets and to attract an increasing number of foreign clients; it also gives the opportunity of creating a whole new market where sound companies can prosper. CSR will have to be the perspective through which re-designing a strategic positioning and re-creating a competitive arena in which certified Vietnamese companies will be more attractive for foreign investors and clients. In this new competitive strategy, the image that an enterprise is able to communicate is obviously fundamental, and a recognized commitment to sound policies improves such image. 4.2 Unsustainability of CSR requirements Evidence gained from Vietnamese companies big and rich enough to make social responsibility an element of their business suggests that CSR is reaching Vietnam through globalization, but the way it is reaching the country is to some extent unsustainable. From a theoretical point of view, the passage of CSR from one actor to the other along the global PAGE 98jSOCIAL RESPONSIBILITY JOURNALj VOL. 6 NO. 1 2010 supply chain seems obvious and logical, and no difficulties seem to occur. As emerged from interviews, reality proves the opposite instead. An interviewed Chief of Quality Management in the garment sector highlighted that ‘‘the criteria used to select the suppliers are imposed by the foreign buyer.’’ Specifically, foreign companies dominate their suppliers and expect them to have specific certifications: ‘‘There is a very strong relation between the foreign client and the raw material supplier and this also means very competitive prices.’’ In order to assure that a product is entirely sustainable and accepted by consumers, the integrity of its supply chain must be guaranteed. The same Chief of Quality Management declared: ‘‘We must constantly monitor our suppliers in terms of time of delivery and quality of the raw materials; this means additional costs for implementation.’’ In general, the interviews and the collected questionnaires point out that in all three sectors the main criteria adopted to select suppliers are price and quality. The point is that the global supply chains go through several different countries, different legal frameworks, mentalities and cultures: If these differences are not taken into account, the supply chain management and the related introduction of CSR requirements and policies could become unsustainable. What resulted from the interviews and responses to the questionnaires is that the compliance with international standards triggers: B monetary costs, such as costs of certification, annual audits, and technical updates; and B non-monetary costs, such as those related to reassessment (in terms of a change of mentality and culture), monitoring (introduction and use of formal procedures, time consumption), and training (capacity building, educational upgrading, technical skill building). The monetary costs triggered by CSR seem to be common and evenly impacting all the enterprises of the three sectors, whereas non-monetary costs revealed some differences among the three sectors (see Figures 7 and 8). Talking about monetary costs, an interviewed manager in the garment sector revealed that ‘‘the costs of certification are prohibitive, therefore only few competitors can possibly afford to have the certification. To what extent this is not a ‘technical barrier to trade’, given that there is not any kind of financial assistance for these companies, could be an …