Labor, Risk, and Uncertainty in Global Supply Networks—Exploratory Insights

• Date: 01 September 2013
• DOI: http://doi.org/10.1111/jbl.12022
• Published date: 01 September 2013

Labor, Risk, and Uncertainty in Global Supply

Networks—Exploratory Insights

J€

org Sydow

1

and Stephen J. Frenkel

2

1

Freie Universit€

at Berlin

2

University of New South Wales

Arising from widespread outsourcing and, in particular, offshoring, goods and services are increasingly provided by supply networks that

rely on global logistic systems. While the risks and uncertainties involved in this strategy have been widely acknowledged in the literature

on interorganizational networks and supply chain management, labor conditions and labor relations—and related human resource management

issues—have thus far been neglected. Starting from a perspective that takes into consideration that global supply networks are not only con-

fronted with calculable risks but also genuine uncertainties, we explore the conditions under which labor may constitute a source as well as a

means for dealing with risk and uncertainty. The study is based on a review of the relevant interorganizational network and supply chain man-

agement literature and is informed by an investigation of International Framework Agreements (IFAs) in 10 European corporations and their

supply networks. IFAs—in addition to unilateral codes of conduct—could be used to detect and cope with labor-related risk and uncertainties.

However, our findings reveal that this is not the case. This leads to some tentative theoretical conclusions and implications for dealing with risk

and uncertainty in global supply networks.

Keywords: interorganizational networks; global production networks; supply chains; supply chain risk management; employer–employee issues;

labor relations; risk; uncertainty

INTRODUCTION

There was no need to wait for the financial crisis or the problems

that Foxconn/Apple and Toyota faced in China in 2010 and the

protests following the burning of apparel factories in Bangladesh

in 2012 to acknowledge the vulnerability of global production

and supply networks. A much earlier and often reported event in

this respect was a strike at a company supplying brakes to Gen-

eral Motors (GM) that idled workers at 26 of that company’s

assembly plants for 18 days in 1996 and caused a reduction of

US$900 million in quarterly earnings; and this although GM

already then opted for a dual sourcing strategy that allowed some

buffering in supply chains for catastrophic supply disruption

(Meena et al. 2011).

The abundant literature on risk and uncertainty in supply

chains (e.g., Waters 2007) or, more generally, interorganizational

networks (e.g., Beckman et al. 2004) has contributed signifi-

cantly to our understanding of this problem. For example, some

studies have tried to clarify how risk and uncertainty are per-

ceived, interpreted, and eventually managed and what this may

imply for a focal firm’s operating performance and shareholder

value (cf. Zsidisin and Wagner 2010). At the same time, sub dis-

ciplines like “supply chain risk management”(SCRM) (e.g.,

Paulsson 2004), more recently extended to “global supply chain

risk management”(e.g., Manuj and Mentzer 2008a,b) have

developed, focusing for understandable reasons more on calcula-

ble risks than on fundamental uncertainty. This is also true for

the first handbooks that helped to assess and manage supply

chain risks (e.g., Zsidisin and Ritchie 2008). Nevertheless, this

research provides not only important insights into potential

sources of risk and uncertainty but also some useful distinctions

such as demand versus supply side risks, operational versus cata-

strophic risks, and between cause- and effect-oriented approaches

to risk management (Wagner and Bode 2008).

A noteworthy feature of this literature is that it largely

neglects the role of labor as a potential source of risk and uncer-

tainty or as a potential means to cope with them. This is surpris-

ing given that labor conditions and labor relations, at least for

the more relational forms of global production and supply net-

works (Rinehart et al. 2004; Golicic and Mentzer 2005; Nyaga

and Whipple 2011), are essential for smooth functioning of inter-

organizational systems where risk and uncertainty surrounding

labor issues can neither be eliminated nor managed by simply

switching suppliers of goods or services in a market-like fashion.

The neglect of labor in the research on SCRM or uncertainty in

networked constellations of organizations is particularly surpris-

ing because the availability of cheap and/or qualified labor is an

important driver of investment/divestment and outsourcing/offsh-

oring decisions (e.g., Cooke 2001; Lewin and Peeters 2006).

Consequently, the organization of production in global supply

chains or networks makes such practices an important (addi-

tional) source of risk and uncertainty and a relevant “object”for

monitoring and control.

In this article, we aim to explore the dual role of labor as a

source of risk and uncertainty and as means of coping with asso-

ciated problems in global supply chains/networks. As a first step,

we define global supply chains or networks as interorganizational

arrangements of contractors and subcontractors that span several

continents whose products and services contribute to the final

product or service of a focal firm. Starting from a perspective

that strictly differentiates between risk and uncertainty (Knight

1921), also with regard to such arrangements, we argue for a

Corresponding author:

J€

org Sydow, Management Department, School of Business & Eco-

nomics, Freie Universit€

at Berlin, Boltzmannstr. 20, 14195 Berlin,

Germany; E-mail: joerg.sydow@fu-berlin.de

Journal of Business Logistics, 2013, 34(3): 236–247

© Council of Supply Chain Management Professionals