Social management capabilities of multinational buying firms and their emerging market suppliers: An exploratory study of the clothing industry

• Author: Robert D. Klassen,Ilma Nur Chowdhury,Fahian Anisul Huq
• Date: 01 September 2016
• Published date: 01 September 2016
• DOI: http://doi.org/10.1016/j.jom.2016.07.005

Social management capabilities of multinational buying firms and

their emerging market suppliers: An exploratory study of the clothing

industry

Fahian Anisul Huq

a

, Ilma Nur Chowdhury

a

, Robert D. Klassen

b

,

*

a

Alliance Manchester Business School, The University of Manchester, Booth Street West, Manchester M156PB, UK

b

Ivey Business School, Western University,1255 Western Rd., London, Ontario, N6G 0N1, Canada

article info

Article history:

Accepted 25 July 2016

Available online 8 September 2016

Accepted by: Mikko Ketokivi

Keywords:

Social sustainability

Supply chain

Capabilities

Clothing industry

Longitudinal case study

Stakeholder theory

abstract

For sustainability, research in operations and supply chain management historically emphasized the

development of environmental rather than social capabilities. However, factory disasters in Bangladesh,

an emerging market and the second largest clothing exporter in the world, revealed enormous chal-

lenges in the implementation of social sustainability in complex global supply chains. Against the

backdrop of a building collapse in Bangladesh's clothing industry, this research uses multiple case studies

from two time periods to explore the skills, practices, relationships and processes ecollectively termed

“social management capabilities”(SMCs) ethat help buyers and suppliers respond to stakeholder

pressures; address regulatory gaps; and improve social perform ance. The study not only captures the

perspectives of both multinational buyers and their emerging market suppliers, but also provides sup-

plementary evidence from other key stakeholders, such as NGOs andunions. Ourfindings show that, in

the absence of intense stakeholder pressure, buyers can lay the foundation for improved social perfor-

mance by using their own auditors and collaborating with suppliers rather than using third-party au-

ditors. However, in the face of acute attention from customers, NGOs and media, we observed that

consultative buyer-consortium audits emerged, and shared third-party audits offered other advantages

such as increased transparency and improvements in worker education and training. Finally, we present

research propositions derived from our empirical study to guide future research on implementing socia l

sustainability in emerging markets.

©2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND

license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

1. Introduction

Multinational firms that source materials, components and

products from emerging markets face increasing scrutiny on the

sustainability of their suppliers for economic, social and environ-

mental performance ereferred to as their “triple bottom line.”

Intense examination has arisen for multiple reasons. In the clothing

industry, recent tragedies in Bangladesh have spurred customers,

non-governmental organizations (NGOs) and regulators to

examine the degree to which suppliers in emerging markets follow

socially sustainable practices. For example, the Rana Plaza building

in Bangladesh collapsed in April 2013, killing 1129 people ethe

deadliest incident in the clothing industry to date. This facility

housed five clothing suppliers for such international brands as

Primark, Loblaw, and Benetton (Forbes, 2014). Unfortunately, this

disaster followed other large-scale problems in clothing factories

supplying Wal-Mart, Sears and Inditex, the world's largest clothing

retailer (New York Times, 2013).

These repeated social failures - defined here as events that have

a negative impact on the well-being of employees, local commu-

nities or customers - were linked to inadequate attention to safety.

In light of global outsourcing, adverse publicity surrounding such

socially unsustainable practices has caused significant damage to

the image of international brands (Clean Clothes Campaign, 2013).

Not surprisingly, stakeholder attention has increasingly focused on

this and similar industries, and expectations and pressure have

increased on multinational clothing firms to identify, develop and

implement higher social sustainability standards. For the most part,

these efforts focus on upstream supply chain partners, often located

*Corresponding author.

E-mail addresses: fahian.huq@manchester.ac.uk (F.A. Huq), ilma.chowdhury@

manchester.ac.uk (I.N. Chowdhury), rklassen@ivey.uwo.ca(R.D. Klassen).

Contents lists available at ScienceDirect

Journal of Operations Management

journal homepage: www.elsevier.com/locate/jom

http://dx.doi.org/10.1016/j.jom.2016.07.005

0272-6963/©2016The Authors. Published by Elsevier B.V. Thisis anopen access article under the CC BY-NC-NDlicense (http://creativecommons.org/licenses/by-nc-nd/4.0/).

Journal of Operations Management 46 (2016) 19e37

in distant emerging markets (Hoejmose et al., 2013),particularly for

high profile brands (Hartmann and Moeller, 2014).

A body of research is slowly developing in supply chain man-

agement (SCM) that addresses sustainability (Pagell and

Shevchenko, 2014); however, much of the research has focused

on environmental issues rather than social ones (Carter and Rogers,

2008; Zorzini et al., 2015). Recently,social sustainability issues have

received growing attention, partly driven by enhanced sensitivity

in developed countries to concerns such as employee pay

inequality (e.g. Fairtrade) or advanced community-oriented pro-

grams (e.g. education and healthcare) (Moxham and Kauppi, 2014;

Marshall et al., 2015). Also, the problem of worker safety in

emerging countries can overshadow issues of employee pay and

environmental protection in developed countries, as evidenced by

recent problems in Bangladesh. Critical gaps remain in our under-

standing of how multinational firms might better implement social

sustainability in supply chains that extend to emerging markets, as

well as the capabilities for internal development or external

diffusion of best practices in complex global supply chains (Zorzini

et al., 2015). Multinational firms must do more than adopt internal

practices: they must ensure the timely implementation of their

own or third-party socially sustainable practices into their

emerging market suppliers.

We use the term social management capabilities (SMCs) to

encompass the skills, practices, relationships, and processes that

enable a firm to improve its performance on human safety, welfare

and community development (Klassen and Vereecke, 2012). In this

paper, we narrow the focus to capabilities that advance social

practices of suppliers in emerging markets. Based on our field data,

this construct is multi-dimensional, as it encompasses capabilities

in both multinational buyers and emerging market suppliers.

Moreover, particularly in emerging markets with less effective so-

cial public policies, SMCs also must explicitlyconsider the nature of

relationships and pressures from other key stakeholders (De Brito

et al., 2008), ranging from unions, to industry associations, to

government agencies and NGOs (Vachon and Klassen, 2006;

Meehan and Bryde, 2011). Stakeholder theory examines how

firms attend to stakeholder interests and corporate interests

(Mitchell et al., 1997) and guides the development of processes that

address the concerns of groups who have a stake in the business

(Freeman, 2010). For the development of SMCs, thoughtful stake-

holder management is expected to be a keysuccess factor (Ehrgott

et al., 2011;Schneider and Wallenburg, 2012), and we explore how

multiple stakeholders play different roles in the development of

SMCs.

However, stakeholder pressure is not necessarily a uniform,

slowly building (or declining) force over time. Instead, crises and

social failures, such as supplier behavior resulting in the deaths of

workers, can create a sudden impetus for a focal firm to attempt to

regain legitimacy (Hartmann and Moeller, 2014). Stakeholders

naturally attribute significant responsibility and liability to the focal

firm for any unsustainable supplier behavior in their supply chains

(Snir, 2001). Yet, relatively little is understood about how such

disruptive events substantively alter the development of social

practices of supply chain partners (Meyer, 1982). To that end, this

paper examines the nature of firms’SMCs before and after the Rana

Plaza collapse in Bangladesh.

This study explores two primary research questions: what social

management capabilities (SMCs) are needed in multinational

buyers and their emerging market suppliers; and how do external

factors affect the development and evolution of buyer and supplier

SMCs in emerging markets? Drawing on field data from the

clothing industry in Bangladesh, acquired both before and after

recent disasters, this study better defines the nature of, and

development paths for, multiple capabilities that address social

issues in a complex global supply chain. Three major contributions

emerge. First, based on a synthesis of prior literature, we identify

and assess how SMCs potentially link multinational buyers and

emerging market suppliers. Second, we conducted a two-period

analysis epre- and post- Rana Plaza collapse, (i.e. 2011e13 and

2013e15) eto explorethe evolution of SMCs in Bangladesh during

a period of intense stakeholder pressure when social improvement

and standards were rapidly evolving. Third, by integrating prior

theory with our field data, we derived research propositions to

guide future research in emerging markets.

2. Literature review

Sustainability for business is often operationalized as the triple

bottom, encompassing environmental, social and economic per-

formance. Environmental sustainability captures resource use and

impact on the physical environment;social sustainability considers

the health and well-being of people in the supply chain and impact

on society (Huq et al., 2014; Marshall et al., 2014). Firms that have

strong sustainability practices in one area may have weak practices

in another. For example, Wal-Mart is known for having stringent,

industry-leading environmental practices in its supply chain, but

the company has been criticized for the treatment of people in its

supply chain (Pfeffer, 2010). Although significant insight into the

strategic importance of social sustainability has developed, more

research is needed to understand the capabilities and practices

required to implement social sustainability. In a systematic review

of socially responsible supply chain practices, Zorzini et al. (2015)

point out that the focus of research to date has emphasized a

buyer's demands, with that buyer being located in a developed

nation. We address this important research gap by exploring social

management capabilities (SMCs) in an emerging market context

and by considering the emerging market suppliers' perspectives

and their relationships with multinational buyers.

Social sustainability can be broadly characterized in at least two

ways: avoiding social failures with adverse impact, such as child

labor or loss of life; and improving employee and community

health and welfare. Social failures in the clothing industry have

been in the public eye for decades. For example, retailers like Wal-

Mart and Nike were subjected to media scrutiny in the 1990s

following several sweatshop scandals (Emmelhainz and Adams,

1999). Important insights on the implementation of socially sus-

tainable practices are emerging from the few studies that focus on

the emerging market supplier's perspective. For example, Jiang's

(2009) study into Chinese clothing suppliers discovered that a

buyer's enforcement of its code of conduct (CoC) only encourages

suppliers to undertake “just enough”responsible practices to avoid

being caught. As a result, code of conduct enforcement fails to

significantly increase social sustainability over the long term.

However, firms that shift from threatening non-compliant sup-

pliers to collaborating with them ultimately experience better

compliance. Huq et al. (2014) found that external stakeholder

pressure is an important motivator for emerging market suppliers

and CoCs of multinational buyers oblivious to the cultural and

socio-economic conditions of emerging markets act as barriers to

implementation of socially sustainable practices. Mamic's (2005)

research highlighted the important catalytic role of training and

education of emerging market suppliers by multinational buyers

for achieving social performance objectives. Using these studies as

a starting point, the following section draws on stakeholder theory

and sustainable supply chain management as theoretical founda-

tions for our empirical study focusing on social management

capabilities.

F.A. Huq et al. / Journal of Operations Management 46 (2016)19e3720