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.
How do global leaders manage social and environmental issues in their supply chains? Recent research by Sheila Puffer and colleagues addresses this question, particularly in the context of emerging markets. To this end, they introduce a typology of four strategic responses to CSR pressures in the supply chain, namely the “neglecter,” the “compiler,” the “disrupter” and the “exemplar.” This typology is important for managers and policymakers because it helps them understand the trade-offs and consequences of different approaches to CSR in the supply chain, and how they can leverage their institutional environments to create value for their companies and stakeholders.
Four Examples of CSR Responses
The “neglecter” is a company that neither leads nor follows in CSR and often ignores regulations and local interests, risking reputational damage. For example, in Peru, US-based Newmont Mining outsourced its mine waste supply chain. When a mercury-laden truck leaked, affecting over 1,000 Choropampa residents, the company denied accountability. Additionally, Newmont leaned on its local partner, Buenaventura, which ignored local Indigenous concerns about mining a sacred mountain. Facing protests, Newmont retaliated, even cutting off water supplies, inciting more backlash. These missteps halted their expansion plans.
“Compliers” are companies that prioritize compliance with laws and regulations but fail to go beyond what is mandated. They often seek to avoid sanctions that could harm their profitability and stock prices, but still outsource unethical practices to other companies in their supply chain. Coca-Cola had strict internal auditing and compliance systems to comply with US and international laws. However, in the 1990s and 2000s, some of Coca-Cola's bottling plant partners engaged in environmental and human rights violations, including the murders of union organizers in Colombia. While independent audits found no wrongdoing by Coca-Cola, the company approached this as a legal rather than ethical issue. Coca-Cola cited court's exoneration as proof of innocence. However, these incidents harmed its reputation, especially with young consumers who were key to its marketing.
The “disrupter” is a company that exhibits qualities of globally responsible leadership while disregarding formal regulatory institutions. It believes that strategic choices benefiting its success are more important than following rules. Companies such as Airbnb and Uber transformed the hotel and taxi industries by bypassing local regulations. They justified their actions as making the world a better place, despite criticism and legal challenges. Recently, cities such as Barcelona and Medellin have seen rising real estate costs due to Airbnb, displacing locals and increasing hostility towards tourists.
Finally, “exemplars” are companies that act in accordance with formal regulations, but also go beyond requirements to create value for shareholders and stakeholders. Charles River Labs, with its patented flu vaccine process, partnered with Mexico's family-owned ALPES, to produce the vaccines while adhering to strict international regulations. Instead of exploiting Mexico for cheap labor, they viewed it as a lab for world-class biomedicine. They invested $2 million in a state-of-the-art specific pathogen-free (SPF) egg production facility, working closely with Mexican, US, and European regulators. “Exemplars” counter the stereotype of emerging markets offering only low-cost products and demonstrate commitment to their supply chain partners.
Managerial and Policy Implications
Managers need to stay knowledgeable about existing regulations and respond appropriately, as some responses may be initially costly but bring long-term benefits. Increasingly this also means paying attention to their companies' environmental and social footprints. Best practices include collaborating with partners who are willing to improve labor and environmental practices and engaging in dialogue with regulators to encourage best practices and listen to community stakeholders.
Puffer, S. M., Wesley, D., Dau, L. A., & Moore, E. M. (2020). Responsible Global Leadership in Downstream and Upstream Supply Chains: A Typology of Archetypes of Strategic Responses to CSR Pressures. In Responsible Global Leadership (pp. 80-100). Routledge.
If you are interested in learning more about this work, contact Professor Sheila M. Puffer.