Questions 1. Is it possible to align the issues that are addressed by the CSR re
ID: 2746225 • Letter: Q
Question
Questions
1. Is it possible to align the issues that are addressed by the CSR requirements defined
by customers with the issues that are relevant to their smaller suppliers? If yes, how?
2. Can the use of management systems like ISO14001, ISO26000, OHSAS18001 and
FSC help SMEs in complying with the requirements defined by customers?
3. Is it possible to stimulate final customers to pay a price premium for CSR?
4. Can supply chain partners address the issues that are related to the existence of dif-
ferent standards (that also change over time)?
Text
21 Insights into Corporate
Social Responsibility
Practices in Supply Chains:
A Multiple Case Study of
SMEs in the U.K.1
Abstract
The aim of this paper is to investigate the pressure exerted by supply chain partners,
especially large-scale business customers and public authorities, on small- and mediumsized
enterprises (SMEs) to adopt corporate social responsibility (CSR) practices. More
specifically, we analyze how SME suppliers perceive and respond to supply chain pressure,
and then we investigate if such pressure is effective. The analysis is carried out
through four case studies within SMEs in the U.K. These cases are deliberately chosen
to illustrate to students and CSR practitioners the potential range of different viewpoints
in relation to CSR and supply chain management.
Introduction
While the actual components of corporate social responsibility (CSR) are essentially
(and hotly) contested, there appears to have been a recent “tipping point” (Gladwell,
2000) whereby the concept of CSR has now become embedded within a critical mass of
organizations. CSR can be defined as “the voluntary integration, by companies, of social
and environmental concerns in their commercial operations and in their relationships
with interested parties” (Commission of the European Communities, 2001, p. 7). Based
on this definition, the expression “social responsibility” is used in this paper to refer to
the social, environmental and economic attitudes and practices adopted by firms.
Investigating how small and medium-sized enterprises (SMEs), i.e., those having fewer
than 250 employees and a turnover of up to 50 million euros (Commission of the
European Communities, 2003), deal with CSR along their supply chains is relevant for
a number of reasons. Firstly, SMEs account for 99 percent of all European Union (EU)
enterprises and contribute up to 80 percent of employment in sectors such as textiles,
1. Francesco Ciliberti, Polytechnic of Bari, via de Gasperi, 74123 Taranto, Italy (cilibert@poliba.it); Denise Baden,
University of Southampton, Highfield Campus, Southampton, U.K., SO17 1BJ (dab@soton.ac.uk); Ian A.
Harwood, University of Southampton, Highfield Campus, Southampton, U.K., SO17 1BJ (iah@soton.ac.uk).
Copyright © 2009 by Operations and Supply Chain Management: An International Journal and the authors.
This case was prepared solely to provide material for classroom discussion. The authors do not intend to illustrate
either effective or ineffective handling of a managerial situation. The authors have disguised some names
and other identifying information to protect confidentiality. The views presented here are those of the case
authors only. Used with permission.
149
construction or furniture (Spence, 2007). Secondly, the concept of CSR “was developed
mainly by and for large multinational enterprises” (Commission of the European
Communities, 2002, p. 11), making a change in focus on to a smaller scale a welcome
addition. As stressed by Lepoutre and Heene (2006), CSR practices in large companies
are significantly different from those developed in SMEs, due to the peculiarities of
such firms. For example, most SMEs are directly managed by owners, are more linked
to business partners and to the local community, and potentially lack resources and support
to implement CSR. Thirdly, several benefits can be achieved by a company that
behaves in a socially responsible way, among them: the improvement of financial performance
and the reduction of operating costs; the enhancement of the corporate image
and reputation; and the increase of customer loyalty and sales (Blowfield and Murray,
2008). Such benefits go beyond the boundaries of a single firm and involve wider communities.
To be effective in terms of CSR, companies thus need all supply chain partners
to act in a socially responsible manner (e.g., Enderle, 2004).
Although CSR has a long history, applications of CSR and sustainability concepts to
supply chains have only recently emerged (e.g., Roberts, 2003; Maloni and Brown, 2006).
Sustainable supply chain management (SCM) is defined as the management of supply
chains where the three dimensions of sustainability—economic, environmental and
social—are taken into account (Seuring et al., 2006). Supply chain relationships are absolutely
critical in a global marketplace to gain advantage from lower labour costs, since
companies increasingly outsource business activities to developing countries (Wolters,
2003). When sustainable SCM principles are adopted, companies hold themselves
accountable for the social and environmental impacts arising along their supply chains.
Stakeholders, mainly consumers and non-governmental organizations (NGOs), are
increasing pressure upon companies, especially large organizations, to engage in sustainable
SCM practices (Green et al., 1996). Increasing numbers of large companies are in
turn including environmental and social criteria in their procurement processes, which
has a positive influence on the CSR behaviour of suppliers (Roberts et al., 2006). By
encouraging their suppliers to adhere to fixed requirements, such organizations can also
play a role in educating their supply chain partners in CSR-related activities (European
Multi-Stakeholder Forum on CSR, 2004).
The aim of this paper is to investigate the pressure exerted by supply chain partners,
especially large-scale business customers and public authorities, on SMEs, i.e., when such
partners specify CSR criteria either as a precondition for tendering to supply or as a
variable to be considered in the purchasing decision alongside value-for-money (Baden
et al., in press). Specifically, we analyze how SME suppliers perceive supply chain pressure
and respond to it. We also investigate if such pressure is effective. The analysis is
carried out by means of four case studies within SMEs in the U.K., which typify different
perspectives and reactions to supply chain pressure.
Literature Review
SMEs often represent a critical part of the supply chain. Sustainable SCM offers
opportunities to influence the operating practices of SMEs to incorporate environmental
and social initiatives (e.g., Seuring et al., 2008). Together with the environment, employees
and the community, supply chain partners (i.e., customers and suppliers) represent
key stakeholders for SMEs (Jenkins, 2006).
Several authors (e.g., Jenkins, 2004 and 2006; Walker et al., 2008) discuss the CSR
drivers in SMEs. As emerging from a literature review conducted by Ciliberti et al.
150 Part 4 Distribution (Customer) Issues
(2008), the most cited CSR driver in SMEs is supply chain pressure. Most of the previous
studies found that supply chain pressure on SMEs is high, especially when pushed by
large-scale business customers (in particular, food retailers and manufacturers of furniture,
automobiles and electronic devices). For example, Roberts et al. (2006), in a survey
on U.K. SMEs, found that exclusion from supply chains was the most often cited risk
associated to an inadequate progress on CSR issues. According to these scholars, SMEs
can feel that the environmental and social criteria included by large organizations in
their procurement processes exclude them from competing for such contracts.
Large companies usually have to take responsibility also for their smaller suppliers’
actions as they are more visible than such suppliers (Bowen, 2000). It is also easier for
non-organizational stakeholder groups to pressure large companies to address social and
environmental concerns, rather than pursuing a large number of their smaller suppliers
(Hall, 2001). Since large-scale customers often dominate the supply chain, they can dictate
conditions to smaller suppliers (Holmlund and Kock, 1996), by seeking assurance that the
SME is compliant with some defined CSR standards (Hamann et al., 2005) like the largescale
customer’s code of ethics, Social Accountability 8000 (SA8000) and/or ISO14001.
Large companies often require SME suppliers to provide evidence of the actions undertaken
to improve the environmental and/or social performance (DTI, 2002; Jenkins, 2004). In
some cases (Yu and Bell, 2007), the SMEs citing supply chain pressure as one of the main
drivers of their environmental or social improvements were found to be those with a higher
level of internationalization, which are directly affected by the global market.
On the other hand, irresponsible behaviour by large-scale customers can impede
SMEs’ efforts to engage in CSR practices (Bhide and Stevenson, 1990). According to the
European Multi-Stakeholder Forum on CSR (2004), “heavy demands placed on SMEs at
the end of long supply chains can translate into pressure to cut costs in such a way that
social and/or environmental responsibilities are jeopardised” (pp. 65–66). Another drawback
from the SME perspective is that acquiring the necessary CSR credentials presents
relatively higher costs for smaller firms due to fewer resources such as time, money and
expertise (Côté et al., 2008).
Many SMEs are somewhat cynical about being asked to demonstrate their CSR credentials
by their customers, and view these requirements as an extra administrative burden.
According to such firms, business customers only implement CSR in a formal way
and are not really committed. Supply chain pressure can thus be perceived as a “boxticking
exercise” (Baden et al., in press). This happens especially when buyer requirements
are noncontractual and not subject to verification (Jørgensen and Knudsen,
2006). Some SMEs also think that business customers should improve their CSR practices
before asking them to demonstrate theirs. The perception is that buyers ultimately
still make their purchasing decisions based more on price and delivery times (Jørgensen
and Knudsen, 2006).
In a survey on English SMEs, Baden et al. (in press) found that a third of the analyzed
firms thought that imposed requirements would set lower standards then they would set
for themselves, providing an indication of the “ceiling effect,” whereby once the imposed
standards were reached, no further effort was taken. Supply chain pressure in such cases
risks being counterproductive as it reduces the intrinsic motivation to engage in CSR
beyond the set level.
The results of another survey on U.K. SMEs (Jenkins, 2006) suggest that internal
drive rather than external pressure was their main motivation for CSR. Some external
pressure was applied down the supply chain from customers and legislation, but this
Case 21 Insights into Corporate Social Responsibility Practices in Supply Chains 151
was weak and focused mainly on environmental rather than social credentials. Research
on Chinese SMEs showed similar findings (Yu and Bell, 2007). Most Chinese SMEs in
the study did not consider an environmental record along the supply chain as an issue
and argued that final customers had not pushed environmental pressures when choosing
them as a firm to trade with. The situation was even worse in a social context, since Yu
and Bell (2007) found a very low market demand for social engagement. Worthington
et al. (2006) conducted a multiple case study on South Asian-owned and/or managed
SMEs in the U.K. and found almost no evidence of pressures in the supply chain nor
from other stakeholder groups driving socially responsible behaviour in the sample organizations.
Since Roberts et al. (2006) found that supply chain pressure was a weak force
in persuading companies to undertake CSR, according to such scholars the success of
supply chain pressure as a CSR driver may depend on how much SMEs trust the motivations
of large organisations (Jenkins, 2006).
Research Design and Methodology
The aim of this paper is to investigate the CSR-related pressures exerted by supply
chain partners, especially customers (both public--central government or local authorities
and private--large businesses), on SMEs. We do not investigate the pressure applied by
final customers (e.g., through consumers’ associations or the involvement of mass media)
since the previous literature review showed that they, as yet, do not exercise significant
pressure directly on SMEs. We also do not investigate the pressure exerted by smaller
businesses, since the literature review also showed that they do not have generally
enough power to stimulate their suppliers to implement CSR practices. Specifically, we
address the following research questions:
1. How do upstream SME suppliers perceive supply chain pressure? For example,
they may think that such pressure is a competitive advantage or alternatively a
burden.
2. How do upstream SME suppliers respond to such pressure? For example, they
may respond positively or negatively.
3. Is such pressure effective in order to increase CSR commitment in SME suppliers?
For example, it can increase or decrease their motivation to implement CSR.
Denscombe (2003) highlights how a case study approach can unearth the subtleties
and intricacies of complex social situations. Harrison and Leitch (2000) also suggest
that case studies are now an established approach for management research. Therefore,
we have adopted a multiple case study design (Yin, 2003) incorporating four SMEs that
had implemented CSR practices. Cases were selected on the basis of a replication logic
(Yin, 2003), aiming for as much diversity as possible among the case firms in terms of
their position with respect to the three research questions. We thus selected firms that
have different perceptions about supply chain pressure, reply in different ways to such
pressure and experience different levels of effectiveness of such pressure. In selecting
cases we also took into account different sizes and industries, in order to give as much
generalizability as possible to our results. We chose SMEs from the U.K., since in that
country the role played by government in supporting CSR is evident. As a historical
example, former Prime Minister Tony Blair created the position of Minister for CSR
within the Department of Trade and Industry, a focal point for CSR within government
by encouraging research and development on CSR issues. The richness of such different
cases provides both literal and theoretical replication (Yin, 2003).
152 Part 4 Distribution (Customer) Issues
In total, four semistructured interviews were conducted with owner/managers of these
SMEs. All respondents were the main person in charge of strategy, generally being the
founder or one of the directors. The interviews and observations were transcribed and summarized,
and the results were fed back to the respondents for validation and verification.
Then these reports were coded according to the literature review summarized in the previous
section. To address intercoder reliability, each of the authors read the transcriptions
separately so as to develop an independent point of view, and then a comparison among
the authors was conducted. When evaluations by the authors were conflicting, a discussion
among the discordant authors was conducted until a final agreement was reached.
Analysis
Table 1 summarizes the information gathered from the analyzed firms. Their businesses
came from a variety of sectors: manufacturing (e.g., printers) and the service sector
(e.g., recruitment and cleaning). All of the analyzed firms supply large-scale business
customers or public authorities (located both in U.K. and in other E.U. countries). For
each firm, information was given on its size, the products or services sold, the stakeholder
groups toward which the firm is most responsible, the main motivation for CSR,
if they experience pressure from large-scale customers or public authorities or both, the
perception by SMEs on such pressure, the response to this pressure and its effectiveness.
Among the case study firms, both small and medium firms are present. Three of the
firms experienced pressure from their customers. In general, customers are very relevant
for all the considered companies, whose missions mention these stakeholders.
The following sections expand on the summaries in Table 1 to provide more in-depth
accounts of the four case SMEs and their views on CSR. Numerous verbatim quotations
from respondents are embedded throughout the analysis in order to illustrate key points
and increase validity.
Table 1 Summary of the Case Organizations
Firm Size Products /
services
Stakeholder
groups
toward which
the firm is
most
responsible
Main
motivation
for CSR
Pressure
from largescale
customers /
public
authorities
to engage
in CSR
SMEs’
perception
of CSR
SMEs’
response
to pressure
from
customers
Effectiveness
of customer
pressure to
engage in
CSR
UK1 Small Recruitment Employees External Yes Both
positive
and
negative
Positive Low
UK2 Medium Cleaning
services
Customers External Yes Negative Negative Low
UK3 Small Animal
feed
Natural
environment
Intrinsic No Slightly
positive
Slightly
negative
High
UK4 Medium Printers Employees
Local
community
Customers
External During
tender
processes
Slightly
positive
Positive Quite low
Case 21 Insights into Corporate Social Responsibility Practices in Supply Chains 153
UK1
UK1 is an environmental recruitment consultancy established in 1993. Clients are
mostly located in Europe, Middle East, Australasia and Asia. The company has a written
environmental policy and also publishes a CSR report. UK1 believes that the most valuable
asset for any business is the people employed. The corporate vision, namely “putting
our people and our customers at the heart of our business,” is to ensure that the company
invests in the best, therefore guaranteeing that the staff are well trained, informed
and qualified.
One of the company’s objectives is to manage emissions by developing a carbon
reduction plan with SMART (Specific, Measurable, Achievable, Relevant, Timeconstrained)
targets, while also raising the awareness of staff about climate change and
empowering them to take action. The company was one of the first 100 participants of
the Climate Neutral Network, i.e., an initiative led by the United Nations Environment
Programme (UNEP) to assist companies achieving big cuts in greenhouse gas emissions.
In order to reduce emissions, the company invited Envirowise (a program launched by
the U.K. government in 1994 to help businesses increase profitability and reduce environmental
impact) to conduct a thorough Environmental Audit. This included an examination
of energy consumption and recommendations on how to reduce it. Waste to landfill, energy
usage, water usage and transport were areas identified as having significant environmental
impact. The company is in the process of implementing some of Envirowise’s recommendations,
for example: (1) establishing a wormery to reduce waste to landfill by an estimated
50 percent; (2) installation of thermostatic controls to the heating system to save energy;
and (3) when possible, sourcing from local and environmentally assured suppliers. In 2007
and 2008, the company also offset employees’ car travel emissions (to and from work and
client visits) with Climate Care (a U.K.-based carbon offset company). The company feels
that it is extremely important to give back to the community both locally and globally. By
offsetting its carbon emissions, the company can help invest in innovative low-carbon technology
projects worldwide, thus helping to improve the quality of life for the communities
involved. In 2008, the company also raised money for a wide spectrum of charities.
UK1 has to find the right candidates for its customers, which always try to drive the
costs down (“we are seen as an unnecessary expense”). Large-scale business customers of
UK1 work with preferred supplier lists, which include potential suppliers on the basis of
social, health and safety, and environmental issues. The company had not been asked
about social issues until two years ago; now these issues are becoming increasingly relevant.
UK1 has to complete straightforward pre-tender questionnaires that ask if the firm
has a health and safety and an environmental policy.
UK1 perceives supply chain pressure both as a potential competitive advantage and as a
burden. As a potential competitive advantage, supply chain pressure is considered as a support
to the formalization of CSR. Seven years ago, the company had to fill in for the first
time a questionnaire on environmental issues for the Environment Agency: “At that time it
was quite uncomfortable but it was actually very useful because it forced us to look at how
we were answering those questions.” Supply chain pressure thus helped UK1 to devise and
implement an environmental policy: “Most of the people in the company are very aware of
environmental issues. We were doing things well before, but we did not actually have an
environmental policy until we were asked that question. Now we have got one.”
As a burden, it is something extra that a company has to do (“another box that you
have to tick”). According to the company, “The burden was us having to put a policy
together and do the formal work.” In addition, the firm believes that most of the customers
that push pressure on them to implement CSR are not really committed: “The reality
is that I do not think it makes a lot of difference to their decision-making what
154 Part 4 Distribution (Customer) Issues
answers we give.” However, the company has no difficulties in filling in pre-tender questionnaires,
which are not very bureaucratic.
According to UK1, supply chain pressure can increase the motivation to implement
CSR, but it might decrease the effectiveness of what a firm is doing: “Your effort goes
into what you are being asked to do rather than what you think is the most appropriate
and the most useful thing to do.” Such pressure can also kill spontaneity and creativity to
do positive things beyond the legal remit. According to the firm, “The main criticism is
that it can stifle some creativity, if you have just got to tick boxes. Anyway such pressure
did not stop us doing anything that we would have done otherwise.” In the end, supply
chain pressure is considered effective: “The overall improvement in the environmental performance
of companies is definitely worth a slight frustration from our side.”
One of the key points is making sure that the issues that are being addressed are the
ones that are relevant to the company: “The time that it gets most frustrating for people,
and that has been for us as well, is when you are being asked a series of questions that
have no relevance to the businesses you are in.”
UK2
UK2 is a cleaning and support services provider. The corporate mission is “to provide
the highest standard of services to our clients at competitive prices using safe
working methods, highly trained staff, and eco-friendly products and systems.” The
company’s aim is to exceed customers’ expectations as the quality leader in providing
office, window, carpet and floor cleaning and other related support services for commercial,
industrial, professional and retail facilities. UK2 defines itself as customer
focused and customer driven. The company thinks that “deeds are more eloquent than
words.” Consequently they usually make a commercial offer: they visit the customer’s
facility, learn about the customer’s needs, and give them their professional opinion free
and at no obligation. The company has always considered environmental issues
extremely important and consequently has an environmental policy. Continuous initiatives
are taken to reduce any negative effect caused by the company’s operations to the
environment. The directors are charged with the responsibility of ensuring that only
those suppliers that satisfy the strictest code of conduct on environmental issues are
used. According to the company’s environmental policy, only equipment and materials
that are environmentally friendly are used, and in the event that a supplier is discovered
in violation of such policy, it will be removed from the approved list of suppliers.
However, in the company’s point of view: “We will use products that are as environmentally
friendly as possible to get the job done, but that does not mean all of them
are a hundred percent environmentally friendly.”
UK2 has to complete questionnaires submitted by its customers on health and safety,
especially focused on the Control of Substances Hazardous to Health. According to the
internal policy on health and safety, the company has a continuous program for the systematic
development of standards and procedures concerned with the prevention of accidents
and damages to health. The application of these standards and procedures is recognized as
an integral part of effective resource management and supervision at all levels.
Supply chain pressure is not perceived as a competitive advantage: “Anybody can fulfill
environmental or health and safety criteria. It is very easy to tick the boxes.” Such
pressure is instead perceived as a “waste of time.” According to UK2, “most of it is
rubbish.” As an example, in the opinion of the firm, although central government pushes
pressure on companies, the government itself “does not understand what they are talking
about.” An example is recycling: “They insist on recycling. Well, sometimes it costs
more. So we remove the products to where they are going to be recycled, but they do
Case 21 Insights into Corporate Social Responsibility Practices in Supply Chains 155
not understand. How are we going to recycle the plastic bottles? It is never thought
through, really.” In the opinion of the firm, “Most of it is sound bites from politicians.
Most of the stuff is driven by people who do not understand what they are doing.”
UK2 is aware of the chance of an opportunistic approach by SMEs in replying to
supply chain pressure. As an example: “As of somebody selling the product, you find
out what the client wants and then you fit your product round it.” UK2 is not motivated
to be green due to the government pressure: “People do it. We do it because the
world now demands it.” In its opinion, what all the small companies can save by being
green is still little compared to what the government wastes. According to the firm,
most of the small companies adopt environmental practices by the very nature of
what they do, for example, because using less bottles and concentrates of detergents is
also cost-effective and easier to control: “We do CSR because it is a natural part of the
business, not because we are driven to do it. If you are not ethical, you will not stay in
business for long.”
UK3
UK3 was established in the 1920s and has remained in the control of one family ever
since. The company stocks a wide range of leading products (e.g., feeds, bedding, medications
and supplements) to keep horses, pets or livestock in the best health. The staff
are trained and offer advice on animal nutrition and health. The company also supplies
electric fencing and equestrian hardware.
UK3 has to respond to large buying groups such as dairy farmers who apply pressure
for service and price. UK3 is not asked about health and safety, environmental or social
issues by customers. According to the UK3 respondent: “We do not consciously get
involved in ethical projects, but as a small organisation we tend to operate ethically and
responsibly within our own small sphere. We do not have to think about things on a
global basis like a multinational might have to. We will not sit down at a board meeting
and decide what our ethical policy should be, but we work to ethical standards because
that is the sort of people we are. On the environmental side, we own a mile or so of
river, and with people like the Environment Agency we work hard to look after and
maintain that. There is no commercial advantage to do so, but it is part of our ground,
and that is what we should look after, that kind of thing.”
UK3 would have no problems in dealing with such pressure as long as it is a “level
playing field,” with equal pressure being placed on all firms in the marketplace. “In the
agricultural world, very often we do not see a level playing field. Someone might say we
need to do certain things over here, and that is the standard, but then they buy it from
abroad where the standards are worse but it is cheaper. So we satisfy ourselves, but we
vote with our pockets. The farming of pigs is a very good example of that. We bring in
a standard here which gives everyone a nice warm glow, but at the end of the day we
buy pig products from abroad where it is cheaper because they do not have those
standards.”
Supply chain pressure could be negative because, according to the firm, SMEs do not
want more regulation, which would cause an increase in the administrative burden they
have to deal with: “There are enough hoops to jump through as it is.” There could also
be the chance of opportunistic behaviour by SMEs, but according to UK3 it is unlikely
that such firms would risk being detected by customers as being dishonest. “For example,
Waitrose (a UK large-scale food retailer) demands higher social or environmental standards.
So if they ask for food made from non-genetically modified (GM) crops, then the
farmers will have to certify that they come from non-GM crops. It might be a bit like
box-ticking, but I doubt they would risk being dishonest.”
156 Part 4 Distribution (Customer) Issues
According to UK3, if the supermarkets included social or environmental criteria into
buying decisions, SMEs in the agricultural sector would be encouraged to be more
responsible. According to the firm, in order for supply chain pressure to be more effective,
final customers have to accept to pay a price premium for CSR: “We accept products
from farmers that are certified as non-GM, and it is certified. But then there is a
price premium, and it is up to the customer if they will pay that.”
UK4
The company’s mission is “to provide the best service and product, within our field,
of any printing company in Britain.” Customers include the leading U.K. publishers of
technical, financial and educational work, scientific and professional associations, societies,
institutions and universities. The company was established in 1884 and now continues
as a private business in its fifth generation of management and direction by the
same family. UK4 is now a specialist print firm with nearly 200 employees, housed in a
large, modern purpose factory, and utilising the latest and most efficient plant and technology
available. The company has obtained accreditation in the ISO14001 and
Occupational Health and Safety Assessment Series (OHSAS) 18001 standards, and
Forest Stewardship Council (FSC).
UK4 feels a responsibility to work in the local community. Consequently they try
to support local initiatives—e.g., in colleges—and by means of such practices they try to
“give something back to a community which is clearly giving us a resource, which is the
people, to do our job well.” The company is under an increasing financial pressure from
its customers. According to UK4, showing their social or environmental or health and
safety credentials “is a major requirement now for any large tender, so a lot of our
work will be tendered through the European Union processes … And frankly if we do
not have all the ticks in the boxes, we would not even pass the stage of pre-qualification
questions. So environmental policies tick, Investors in People tick, quality standards tick,
Forest Stewardship Council, tick tick tick. If we do not have those, not a chance.”
Supply chain pressure to engage in CSR is perceived as “a burden that has to be
addressed sometimes begrudgingly, but it can also be an advantage if we perceive the
pressure is in a direction that can bring value to our supply chain and is, therefore,
worth investing appropriate resource in.”
The company decided to obtain the FSC certification “because of slight but growing
pressure from within the industry and particularly from high-level prospects, e.g., government
tenders. We took the view that what we were doing was right, and the investment
followed; subsequently, as it happens, this has proved to be wise, given that a lot of
our work must now be produced on FSC materials, which means we would be excluded
from this work had we not taken the initiative some years ago.” The firm also asks its
own suppliers to fulfill the requirements of the forest management standard and the
tracing of forest-derived products. To check their compliance with FSC, the firm tends
to inspect suppliers instead of submitting long questionnaires to them: “We do not
tend to create forty-page questionnaires about it. What we tend to do is what we inspect.
We would not necessarily expect them to have all sorts of certificates, but we will inspect
what they do and where they do it.”
According to UK4, there is a strong risk of opportunistic behaviour (i.e., “a boxticking
exercise”) when dealing with such pressure: “We talk quite openly to our competitors,
there is a federation that would monitor us, which is fascinating because we actually
talk about what is going on in the market. When dealing with European tenders,
most of our competitors said: ‘oh we just tick the boxes, no one ever checks.’ We are
therefore at a disadvantage because we are not lying about it.”
Case 21 Insights into Corporate Social Responsibility Practices in Supply Chains 157
Such pressure is considered an incentive because “companies dare not, not do it.”
However, it can also be a disadvantage, especially for smaller firms, because related
efforts and costs can be very high: “The smaller you are, the percentage of effort and
cost involved to achieve some of the social or environmental standards can be quite
alarming. We have probably half a dozen international standards, and they all need to
be monitored and maintained and so on. You practically need full-time staff to do it.
Well if you have twenty or thirty people you cannot afford it, because the standards are
practically the same. So for us the overhead is relevant, for the smaller businesses some
shorter cuts may be taken.” The company did not reduce its commitment due to a lower
level set by a standard: “If we have set it at a higher level, it is because we believe the
benefits to the bottom line are for us; therefore if that ultimate benefit means we have
gone past some qualification marker, we would be just one step ahead when they raise
the bar, if they ever do next time.”
One problem concerns the existence of several standards: “We actually do not think
FSC is likely to be the international standard for long, and it is already being overtaken
possibly by others.” Customers are now “listening to other standards being bandied
around as maybe the international one, the standard of the future. And obviously all
these standards will gradually change over time.”
According to UK4, “we try to justify everything on the bottom line but there are still
(other) things in life. When we built our latest factory, we built it environmentally, well
beyond the standards of the time, because what the standards were at the time were not
acceptable to us. So what we did was we built ways to avoid doing that and to recycle it.
It is now becoming law and that is great. It was something we did that was not for the
bottom line. It was extremely expensive and it was the right thing to do.” In the end,
UK4 believes that “our decisions are made from well judged arguments which are sometimes
brought about by external pressures and just as often from internal pressure.”
Discussion
The case study firms have different perceptions of supply chain pressure as a CSR
driver and respond in various ways to it. The effectiveness of such pressure on SMEs
implementing CSR is a questionable issue.
How SMEs Perceive Supply Chain Pressure
Werther and Chandler (2006) suggest that engagement in CSR activity can be driven
by the moral case (business-society relationship is interdependent; see UK2 and UK3),
the rational case (be proactive to gain social legitimacy and avoid sanctions; see UK4)
and/or the economic case (UK1).
The analyzed companies perceive supply chain pressure both as a competitive advantage
and as a burden. Supply chain pressure to undertake CSR may provide a competitive
advantage if related benefits are higher than the attendant costs. The incurred costs
may depend on several parameters, e.g., if the social or environmental impact of the
SME is not strong (UK1), and if the requirements defined by the customers are not
too challenging (UK4). Perceived costs can depend upon whether the firm takes a
short- or a long-term view. For example, UK4 took on board short-term costs to
improve environmental standards that turned out to be of benefit to them in the longterm.
Benefits are in most cases commercial: CSR can be a necessary requisite for SMEs
being suppliers of large companies or public authorities (especially when joining EU
tenders), since obtaining a social or environmental standard can cut off potential noncertified
competitors (UK4). In addition, implementing environmental practices can
158 Part 4 Distribution (Customer) Issues
potentially be cost-effective (UK2). In some cases, benefits could be more difficult to
measure, i.e., when supply chain pressure helped companies formalizing their CSR strategy
and practices (UK1), although these benefits could be as relevant as or even more
significant than the commercial advantages. Supply chain pressure can also be perceived
as a burden because it forces companies to do some formal work in addition to the routine
work (UK1). This additional work is in some cases perceived as bringing no value to
the company (UK2).
How SMEs Respond to Supply Chain Pressure
Supply chain pressure can push or even force firms to have a written policy to deal
with CSR, e.g., an environmental policy (UK1, UK2), a health and safety policy (UK2)
and a CSR report (UK1); or to obtain a social or environmental standard like ISO14001
(UK4) or FSC (UK4) or a health and safety standard like OHSAS18001 (UK4).
There is the risk that, by imposing CSR requirements to their suppliers, large companies
transfer to them the attendant costs and thus make it more difficult in particular for
the smaller companies to implement CSR practices. As a consequence, SMEs can be
tempted to behave opportunistically (UK2, UK3 and UK4), i.e., to declare they fulfill
CSR requirements even if this is actually not true. In order to reduce the risk of an
opportunistic behaviour, a level playing field would be in some cases (UK3) preferred.
The frequency and thoroughness of the audits conducted by customers can also decrease
the risk of opportunism (UK3).
Opportunistic behaviour can also be associated with large business customers (UK1),
which may claim to incorporate social or environmental criteria in their purchasing decisions
while in practice selecting suppliers based only on price. Similarly, central government
and local authorities can be perceived as not genuinely operating for the public
good (UK2) if their CSR requirements demonstrate insufficient understanding of the
procedures that the companies have to implement in order to fulfill the requirements.
Thus, there seems to be the need of a higher trust in such actors and a better communication
with them in order to share among all supply chain partners all the potential benefits
and costs related to CSR. This partly extends the existing literature (Jenkins 2004,
Jørgensen and Knudsen 2006), which focused only on trust in large business customers
and not in public authorities.
Some of the analyzed companies are very pragmatic when dealing with CSR (UK2,
UK3), especially when procuring products from their suppliers. This is mostly due to cost
considerations. In general, SMEs wish to minimize regulation (UK3), which is associated to
an increase in the administrative burden. There also seems to be the potential for further
improvements in the behaviour of SMEs as a partner of upstream suppliers along their
supply chain. As a consequence of the adoption of social or environmental standards, it is
possible for SMEs to transfer in turn pressure to their own suppliers (UK4). In the case of
UK4, a direct inspection is preferred to check the compliance of suppliers, rather than
using self-evaluation questionnaires, because it is considered to be more effective.
The Effectiveness of Supply Chain Pressure
The effect on a supplier’s motivation is a controversial point. On the one hand,
according to some of the case firms (UK3), supply chain pressure is effective in increasing
such motivation. On the other hand, according to other case firms (UK1), supply
chain pressure can be detrimental to the initiatives they voluntarily carried out and consequently
can decrease their motivation to engage in CSR. This result seems to confirm
the “ceiling effect” described by Baden et al. (in press). When SMEs are already implementing
CSR (UK1), it is more difficult for them to adapt to requirements defined by
Case 21 Insights into Corporate Social Responsibility Practices in Supply Chains 159
large business customers or public authorities. In this case, they have to modify their
CSR strategy to fulfill such requirements. Consequently there is the risk that the spontaneity
of the companies is stifled and thus such firms can decrease their effectiveness in
dealing with CSR as a result of reluctant compliance. It is thus a key point that the
requirements defined by customers are relevant also for the supplier companies.
Interestingly, the “level-playing field” induced by supply chain pressure can be perceived
both as negative (UK1) and positive (UK3). In the latter case, the company does
not implement a higher number of CSR practices than its competitors and thus does not
have a competitive disadvantage. This happens when SMEs do not trust how customers
evaluate their CSR commitment and when SMEs give a low value to CSR. If SMEs want
to be proactive, the negative effects of the “level-playing field” can also be softened (as in
the case of UK4). In this case, SMEs do not decrease their commitment because they
believe their CSR practices will be the new level-playing field in the future.
UK4 raised the issue of the multitude of different standards that impose a significant
cost on smaller businesses who do not have the resources to monitor all the various criteria
and requirements. The fact that standards change over time increases the cost burden
further. UK3 claimed that potential improvements could also be focused on the
relationships with final customers. When such customers become more aware of CSR
and are willing to pay a price premium for products sold by socially responsible companies,
benefits deriving from CSR could increase and be shared among all the supply
chain actors.
Conclusions and Insights for Further Research
In general, we can conclude that supply chain pressure can be effective in order to
stimulate CSR in small and medium-sized companies. However, this pressure is not the
only CSR driver in these companies. SMEs are also pushed to implement CSR by their
ethical values. Both internal and external drivers can push the same company (as in the
case of UK4) to CSR. In order to enhance the perception of SMEs about supply chain
pressure as well as the effectiveness of such pressure, several means can be used:
(1) When benefits (moral, rational or economic) deriving from CSR are not clearly
identifiable, SMEs should be supported by their large-scale business customers
or public authorities. In addition, such support can also help clarify how benefits
can be distributed among the supply chain actors.
(2) The risk of an opportunistic behaviour both on the SME suppliers’ side and on
their business customers’ or public authorities’ side could be reduced through a
wider diffusion of social or environmental standards that rely on independent
third parties, due to the periodic audits conducted by such parties on both sides.
(3) Such standards could solve the problem experienced by SMEs when dealing with
different requirements defined by different business customers or public authorities.
By having, for example, a single standard (preferably an accreditation system)
for a whole sector, SMEs would not have to demonstrate their social or
environmental commitment each time large-scale business customers or public
authorities request them to do so. They would only have to deal with the periodic
audits conducted by the accreditation authority. By passing such audits, they
would automatically achieve the requirements defined by supply chain partners.
It is relevant, due to the scarce resources available to SMEs, that such a prospective
standard is as lean as possible (the forthcoming ISO26000 standard may be a
step in the right direction).
160 Part 4 Distribution (Customer) Issues
(4) In order to increase the awareness of consumers and consequently make them
willing to pay price premiums for CSR, SMEs could consider investing in communication
activities aimed at educating final customers. Since the smaller companies
have limited resources and visibility, it is more likely that communication
activities will be conducted by medium-sized firms that act as chain directors,
which could have the adequate structure to define such a marketing strategy.
The support from large-scale business customers or public authorities should be necessary
when dealing with all the above-mentioned issues, since SMEs generally do not have
adequate resources to do so themselves. If such customers are able to view the pressure on
smaller suppliers as a way to improve the performance of suppliers and consequently of
the entire supply chain and not only as a means to transfer them costs, it is likely that
supply chain pressure could become an even more significant driver in the future, as seen
recently when Wal-Mart held a sustainability summit among its suppliers in China (www
.wal-martchina.com/english/news/2008/20081006.htm). Yu and Bell (2007) also reveal that
Chinese SMEs presented a better environmental or social performance when under supply
chain pressure to do so. For example, in most cases, SMEs having certified management
systems in place were responding to foreign clients’ requirements. Therefore, if supply
chain management was more widely adopted, supply chain pressure may become more
effective in motivating SMEs toward sustainable practice.
Further research could investigate in more detail some of the issues that are most
controversial in our analysis, i.e., the risk of opportunistic behaviour by competitors and
large-scale customers; the need of a higher trust in public policies; the risk of decreasing
the effectiveness of firms if they have to fulfill many different CSR requirements.
Additional case studies and a survey on SMEs, in cases located in other countries,
could be useful to these ends.
Discussion Questions
1. Is it possible to align the issues that are addressed by the CSR requirements defined
by customers with the issues that are relevant to their smaller suppliers? If yes, how?
2. Can the use of management systems like ISO14001, ISO26000, OHSAS18001 and
FSC help SMEs in complying with the requirements defined by customers?
3. Is it possible to stimulate final customers to pay a price premium for CSR?
4. Can supply chain partners address the issues that are related to the existence of different
standards (that also change over time)?
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Case 21 Insights into Corporate Social Responsibility Practices in Supply Chains 163
Explanation / Answer
The concept of CSR “was developed mainly by and for large multinational enterprises” (Commission of the European Communities, 2002, p. 11), making a change in focus on to a smaller scale a welcome addition. CSR practices in large companies are significantly different from those developed in SMEs, due to the peculiarities of such firms. For example, most SMEs are directly managed by owners, are more linked to business partners and to the local community, and potentially lack resources and support to implement CSR.
The customers CSR requirements are generally based on their basic way of working, i.e. what their moral definition says, like using environment friendly products and practices, investing in the local community’s health and education, etc. Whereas, CSR in smaller companies is more focused on the improvement of financial performance, the reduction of operating costs, the enhancement of the corporate image and reputation; and the increase of customer loyalty and sales. To align the issues that are addressed by the CSR requirements defined by customers to the issues those are relevant to the smaller suppliers, the large companies’ needs to understand and keep in view the size of the smaller company, and expect the CSR efforts accordingly. Basically, CSR can be defined as “the voluntary integration, by companies, of social and environmental concerns in their commercial operations and in their relationships with interested parties” (Commission of the European Communities, 2001, p. 7). It is the “social responsibility” that refers to the social, environmental and economic attitudes and practices adopted by firms. Hence, for smaller suppliers to voluntarily engage into practices that support the social and environmental wellbeing, the scale of CSR expected should be as per the affordability of the supplier. Also, the nature f the CSR activities should also be beneficial for the supplier, i.e. should not necessarily cost the supplier extra money.
2. Can the use of management systems like ISO14001, ISO26000, OHSAS18001 and FSC help SMEs in complying with the requirements defined by customers?
Use of management systems like ISO14001, ISO26000, OHSAS18001 and FSC help SMEs in complying with the requirements defined by customers, if these tools are used honestly and not just as an formality to pass the customer’s compliance needs. As the article says, “Since large-scale customers often dominate the supply chain, they can dictate conditions to smaller suppliers (Holmlund and Kock, 1996), by seeking assurance that the SME is compliant with some defined CSR standards (Hamann et al., 2005) like the large scale customer’s code of ethics, Social Accountability 8000 (SA8000) and/or ISO14001.” But if the small supplier abides by these management tools just due to the pressure of the large customers, and use it just as a ‘box ticking exercise’, actual compliance to the requirements defined by the customers will not happen.
3. Is it possible to stimulate final customers to pay a price premium for CSR?
The final customer is generally price sensitive, which is why so many companies outsource their work to the developing countries to enjoy the benefit of lower labour costs and hence higher profit margins. This makes it tough for convincing the final customer to pay the price premium for CSR> But in case of luxury goods, or for goods and services that are targeting a niche that is sensitive to the social and environmental causes, sensitizing them to pay the price premium is possible.
4. Can supply chain partners address the issues that are related to the existence of different standards (that also change over time)?
Existence of different standards for the CSR requirements often irk the smaller suppliers, who are striving to achieve the CSR standards set by the large customers, even after the resources constraints, when the large customer companies are following lower standards. To address this issue, the CSR requirements defined can be based on the percentage of the financial size of the firm. For example, both the customer and the supplier are following the standard to invest 2% of their annual profits into CSR activities, this way the relative size of the CSR efforts will be according to the capacity of the organization and hence will not be just a burden on the smaller suppliers.
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