This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.
By Lutz Preuss (Kedge Business School), Ralf Barkemeyer (Kedge Business School), Bimal Arora (Manchester Metropolitan University), and Shilpi Banerjee (Hult Impact Labs, Hult International Business School, Dubai)
In short: Multinational companies are increasingly expected to address complex sustainability challenges in their supply chains, including environmental impacts from suppliers, labor conditions (such as child and forced labor), human rights concerns, and resource scarcity. Genuine progress on these issues requires more than top-down directives; it calls for a collaborative approach that involves all stakeholders in clarifying the responsibilities of multinational companies. Recent research by Preuss, Barkemeyer, Arora, and Banerjee highlights that by fostering open communication, building trust, and aligning sustainability goals with the needs of local communities, multinational companies can shift their sustainability initiatives from mere corporate statements to tangible improvements in the lives of suppliers' workers and their families. However, as these initiatives move through different levels of the organization and supply chain, a “funnel effect” shifts priorities—from broad corporate strategy to more immediate, locally relevant concerns at the supplier and workers' levels—highlighting the need to effectively unite these different priorities in a coherent corporate strategy.
Preuss, Barkemeyer, Arora, and Banerjee took an in-depth look at a European agri-chemical multinational company with supply chain ties in India and Ethiopia, exploring the challenges and opportunities it faced in translating corporate sustainability goals into meaningful outcomes for its farmer suppliers. In 2003, NGOs accused the company of using child labor in its Indian supply chain. The multinational responded with a sustainability program that included innovative initiatives, such as hiring puppeteers to deliver child labor awareness training in rural villages. However, as the company sought to further improve the welfare of its farmer suppliers, it encountered unexpected challenges in meeting their varied expectations—revealing a gap between corporate intentions and stakeholder expectations, for instance in relation to the provision of healthcare and medical insurance.
Preuss and colleagues further noted that perspectives on the nature of the multinational company's social and environmental responsibility shifted along the organization's hierarchical structure and its supply chain. At the corporate level, sustainability is seen strategically, aimed at aligning objectives and enhancing brand reputation. Country managers, however, focus more on operational aspects, such as labor policies and wages. At the production level, attention shifts to immediate concerns like working conditions and living standards. Finally, at the farm level, farmers prioritize their own and their families' well-being, including income, education, and healthcare. This narrowing of focus, referred to as the “funnel effect,” underscores the diverse and sometimes conflicting priorities within global supply chains with which multinational companies need to contend.
Managerial Implications
For multinational companies to effectively address sustainability challenges, they must ensure that their initiatives are understood, embraced, and practically implemented by all stakeholders, especially those at the far ends of their supply chains.
To achieve this, first, communication must be both bi-directional and culturally sensitive. Companies should not only clearly articulate their sustainability goals—particularly on sensitive issues like child labor—but also translate these goals into actionable steps tailored to each level of the supply chain. Creative methods, like the puppet shows in the example above, can be highly effective for engaging local communities and raising awareness of critical issues. Equally important, companies must actively listen to ground-level stakeholders, understanding their unique perspectives and incorporating their feedback into the sustainability strategy.
Second, collaboration and community engagement are crucial for the long-term success of these initiatives. Sustainability efforts, especially those targeting complex issues like child labor, are far more effective when they resonate with the community's existing social dynamics and broader needs. For instance, addressing child labor holistically requires a community-wide approach, as children may simply shift to other work outside the company's direct influence if the initiative lacks local buy-in. Therefore, sustainability programs should not only target individual suppliers but also address the underlying economic and social factors that perpetuate such issues.
Third, building trust and fostering relationships with stakeholders is essential. In the case of the agri-business multinational, farmers were far more likely to support sustainability programs when they perceived these efforts as beneficial to their livelihoods and community well-being. Trust can only be built by demonstrating a genuine commitment to improving farmer livelihoods and treating them as valued partners, rather than mere participants, in the supply chain.
Finally, companies should identify and empower middle managers with a sustainability responsibility who can bridge the gap between various levels of the organization and local stakeholders. These individuals assume a linchpin role within the value chain, acting as interpreters and translating high-level sustainability concepts—such as eliminating child labor—into tangible actions that resonate with local communities. As advocates for both the company and the community, they have the capacity to ensure that communication flows smoothly in both directions, fostering an environment where sustainability efforts are not only understood but also supported and implemented effectively.
Ultimately, multinational companies must recognize the “funnel effect” at work within their supply chains, where priorities shift from broad corporate strategies to immediate local concerns. Addressing this requires a nuanced approach, empowering each level to interpret sustainability goals in a way that aligns with their specific needs and contexts.
Original Work
Preuss, L., Barkemeyer, R., Arora, B., & Banerjee, S. (2024). Sensemaking along global supply chains: implications for the ability of the MNE to manage sustainability challenges. Journal of International Business Studies, 55(4), 492–514.
Contact
If you are interested in learning more about this work, contact Professor Lutz Preuss at [email protected].