SUSTAINABLE GLOBAL SUPPLIER MANAGEMENT: THE ROLE OF DYNAMIC CAPABILITIES IN ACHIEVING COMPETITIVE ADVANTAGE

• DOI: http://doi.org/10.1111/j.1745-493X.2010.03189.x
• Author: KAI FOERSTL,EVI HARTMANN,CARSTEN REUTER,CONSTANTIN BLOME
• Published date: 01 April 2010
• Date: 01 April 2010

SUSTAINABLE GLOBAL SUPPLIER MANAGEMENT: THE

ROLE OF DYNAMIC CAPABILITIES IN ACHIEVING

COMPETITIVE ADVANTAGE

CARSTEN REUTER AND KAI FOERSTL

European Business School, Oestrich-Winkel

EVI HARTMANN

Friedrich-Alexander-University Erlangen-Nuernberg

CONSTANTIN BLOME

European Business School, Oestrich-Winkel

Organizations face increased pressure from stakeholders to incorporate a

plethora of corporate responsibility (CR) and sustainability aspects in their

business practices. Legal and extra-legal demands are dynamically changing;

almost no organizational function is unaffected. Owing to the outsourcing

wave of the last decade, in particular purchasing and supply management

(PSM) plays an ever more important role in assuring sustainable production

of the firm’s products offered in the marketplace. The supply base of many

Westernfirms has become increasingly global andspend volumes have shifted

towards emergingcountries. In order to avoid the risk of reputational damage

to the buying company, the PSM department must ensure that their interna-

tional suppliers comply with their corporate codes of conduct and that en-

vironmental and social misconduct at supplier premises does not occur. In

this paper,‘‘sustainability’’ refers to the pursuit of the tripartite of economic,

environmental,and social performance. Wecontribute to prior research in the

fields of sustainability and CR by extending insights of the dynamic cap-

abilities view to analyze how the PSM function integrates sustainability

aspects in its global supplier management processes. Based on four case

studies in the chemical industry, we propose that profound sustainable global

supplier management (SGSM) capabilities are a source of competitive ad-

vantage. These capabilities are pathdependent and particularly valuablewhen

organizations are receptive to external stakeholder pressure. Early movers in

the field of SGSM reap competitive benefits to a notable extent as a result of

resource accumulation and learning processes over time.

Keywords: corporate responsibility; sustainability; environmental and social issues; sup-

plier management; case studies

INTRODUCTION

As a response to increased competition and cost pressure

in sales markets, firms increasingly rely on a global supply

base (Krause, Pagell and Curkovic 2001). This predomi-

nantly cost-focused strategy has lead to the emergence of

truly global supply chains (Trent and Monczka 2003;

Steinle and Schiele 2008). Nevertheless, sourcing from a

global supply base also exposes the buying company to a

notable set of risks that require active management

(Craighead, Blackhurst, Rungtusanatham and Handfield

2007; Monczka, Trent and Petersen 2008). Hence, the

mitigation of risk via risk management has become a

critical performance driver for global sourcing (Kamauff

and Spekman 2008; Manuj and Mentzer 2008).

While the risks and effects of supply interruptions as

well as feasible mitigation strategies have been widely

discussed(Kleindorfer and Saad2005; Tang 2006;Tomlin

2006), the risks stemming from supplier irresponsibility,

in terms of violation of ethical and environmental stan-

dards, have only recently become a prominent topic

within the field of purchasing and supply management

(PSM) and global sourcing (e.g., Koplin, Seuring and

April 2010 45

Mesterharm 2007; Darnall, Jolley and Handfield 2008;

Baden, Harwood and Woodward 2009).

The current corporate responsibility (CR) movement

exerts pressure on firms to attain sustainability beyond

their own organizational boundaries. For the purpose of

this paper, we define the term sustainabilityas the tripartite

pursuit of economic, ecological, and social performance,

whichisalsoreferredtoasthetriplebottomlineofthe

organization (Kleindorfer, Singhal and van Wassenhove

2005; Carter and Rogers 2008). Accordingly, firms must

also verify that sustainable operations exist at supplier

premises, since irresponsible supplier behavior of any

kind may be extended to the buying firm, causing adverse

publicity, reputational damage and costly legal obliga-

tions (Carter and Jennings 2004; Koplin et al. 2007).

The frequent changes in the plethora of environmental

and social standards issued by regulatory bodies and

nongovernmental organizations (NGOs) cause dynamic

swings of stakeholder interests and continuous alterna-

tions in the type of pressure exerted on firms(Hall 2000).

In responding to this pressure, firms must create orga-

nizational capabilities that allow them to detect changes

in CR requirements and to incorporate these changes in

their sourcing and supplier management processes in a

timely and rigorousfashion in order not to be considered

‘‘irresponsible’’ (Porter and van der Linde 1995; Litz

1996; Hall 2000). Extant literature suggests that organi-

zations which pursue activities not solely focused on

economic return, but also consider the impact of their

actions on the environment and society, will attain a

long-term competitive advantage (e.g., Hart 1995).

To address the reputational risks resulting from global

sourcing, in particular Western multinational corpora-

tions (MNCs) voluntarily establish corporate codes of

conduct for suppliers and demand self-declarations from

suppliers that theycomply with these codes (Baden et al.

2009). Suppliers should demonstrate transparency of

their social engagement and their undertakings to reduce

the impact of their business activity on the natural en-

vironment. However, product recalls due to environ-

mental hazards (Handfield, Walton, Sroufe and Melnyk

2002) and continuous violations of human rights, es-

pecially in emerging countries (Lobel 2002), provide the

evidence that sustainability criteria are still not suffi-

ciently and effectively embedded in MNCs’ global sup-

plier management processes. Thus, sustainable supplier

management mustgo beyond supplier self-declarationto

foster responsible behavior of the entire supply base.

The management of suppliers requires Western MNCs

to build up particular capabilities (Min 1994; Trent and

Monczka 2003) which enable them to ascertain and

implement CR standards within their steadily growing

global supply base (Handfield et al. 2002; Carter and

Rogers 2008; Baden et al. 2009). However, knowledge as

to how buying firms can design and structure such pro-

cesses to assure sustainable supplieroperations is limited

(Carter and Rogers 2008). Therefore, it is of strong aca-

demic and practical relevance to investigate how firms —

in particular those pursuing successful and genuine

sustainability practices — integrate economic, ecological

and social criteria in their sourcing processes and sourc-

ing decisions.In line with our definition of sustainability,

we will refer to the joint integration of environmental

and social criteria into economic supplier management

processes as sustainable global supplier management

(SGSM) throughout the course of this paper. The fol-

lowing researchquestions will be addressed in this paper:

1. How do successful sustainable firms design and con-

figure SGSM processes to dynamically respond to

changing sustainability requirements?

2. How can SGSM capabilities be a source of compet-

itive advantage to the buying firm?

In order to approach these research questions, we

elaborate on our research framework from the dynamic

capabilities view (DCV) of the firm (Teece, Pisano and

Shuen 1997; Eisenhardt and Martin 2000), a sub-stream

of the resource-based view (RBV) (Wernerfelt 1984;

Barney 1991). We seek to enhance knowledge on SGSM

by elaborating on Litz’s model of adaptive behavior

which integrates CR capabilities with the RBV (Litz

1996). This model of adaptive behavior enables us to

study the response of the PSM function to the dynamic

changes in stakeholder pressure. The applied research

framework, depicted in Figure 1, commences with the

perception of an external stimulus for sustainability,

continues with deliberation of response for SGSM pro-

cesses and their content, and terminates with the per-

formance of the selected SGSM response.

The remainder of the article is structured as follows: we

present a review of extant literature on the concept of

sustainability in global supplier management, linking it to

the assumptions of the DCV of the firm. The research

method, a multiple case study approach in the chemical

industry, is elaborated upon. The analysis of our findings

on SGSM processes are presented, leading to empirically

testable propositions. The paper concludes by highlighting

managerial implications and paths for further research.

LITERATURE REVIEW AND THEORETICAL

BASIS

CR and SGSM

Throughout the course of this paper, we rely on

Campbell’s (2007) definition of CR:companies act re-

sponsibly and genuinely when ‘‘they do not knowingly

do anything that could harm their stakeholders’’ and

‘‘they [. ..] rectify it whenever the harm is discovered and

brought to their attention.’’ According to this definition,

firms, which are able to detect and correct misbehavior

and accommodate changing attributes of CR require-

ments, experience competitive benefits over their

competitors (Campbell 2007). Moreover, responsible

Journal of Supply Chain Management

Volume 46, Number 246