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 Wenjie Liu (City University of Hong Kong) and Pursey P. M. A. R. Heugens (Erasmus University Rotterdam)

Non-governmental organizations (NGOs) often seek to make global supply chains more environmentally friendly. However, in autocratic countries, they often cannot openly pressure local firms to improve their sustainability practices.

Recent work by Professors Liu and Heugens examines a sample of global brands engaged in environmental collaborations with Chinese NGOs and shows that these collaborations helped improve the sustainability of global supply chains, but only if their objectives were filling a gap left by the government. Instead, when the local government was highly committed to the environmental agenda, these partnerships would lose their effectiveness as a sustainability-enhancing governance tool.

The Two-Step Influence Model

Sustainability is important for global supply chains, as it can provide multinational companies (MNCs) with competitive advantages, enhance their reputation, reduce costs, and improve stakeholder relations. However, in China, NGOs face a power imbalance when they try to influence local firms because they depend on the government's support for legitimacy. They can try to reduce this imbalance by collaborating with MNCs to influence their suppliers to adopt more sustainable practices. This “two-step influence model” allows NGOs to indirectly influence local firms without the risk of direct confrontation with the government.

Local NGOs have worked with well-known technology firms like Dell and Apple to influence contract manufacturers to improve the transportation of hazardous goods and avoid wastewater discharges, respectively. Such collaborations are important in promoting corporate sustainability in areas where autocratic regimes see environmental protection as a low priority. The lower the government's priority of environmental policy, the stronger the impact of these NGO-MNC collaborations.

Working with Local NGOs

Regions that have been more influenced by historical trade routes with the West, such as Shanghai, were more likely to have NGOs that were willing to work with foreign MNCs and support the idea that people can organize themselves independently from the government. They were less prevalent in inland regions of China, such as Shanxi, where the Communist Party is often viewed as the only legitimate authority. Inland regions tend to be more isolated, generally less developed, and have lower GDP per capita and higher poverty rates. They also suffer more from environmental degradation, natural disasters, and climate change.

Working with NGOs can help MNCs achieve various sustainability goals, but it also entails some difficulties and trade-offs. First, MNCs can improve their sustainability performance in global supply chains by leveraging the local knowledge, legitimacy, and networks of NGOs. They may also provide access to new markets and opportunities for innovation where social and environmental challenges are seen as important. At the same time, working with NGOs requires a high level of trust, commitment, and alignment between the partners, which may not be easy to achieve or maintain given their different goals, interests, and expectations. Managers of MNCs need to carefully select, manage, and evaluate their NGO partners to ensure a mutually beneficial and sustainable relationship. Working with NGOs may also expose MNCs to greater scrutiny, criticism, or pressure from other stakeholders.

For managers of MNCs considering collaboration with NGOs, especially in emerging markets like China, it is crucial to understand the nuances involved. Drawing from these findings, managers are advised to be selective in choosing NGO partners to ensure mutual alignment and benefit. Effective management and continuous evaluation of these partnerships are also vital. Lastly, balancing stakeholder needs, transparent communication of actions and impacts, and tailoring strategies to specific contexts are essential for a successful collaboration.

Original Work

Liu, W., & Heugens, P. P. (2023). Cross-sector collaborations in global supply chains as an opportunity structure: How NGOs promote corporate sustainability in China. Journal of International Business Studies.

Contact

If you are interested in learning more about this work, contact Professor Wenjie Liu at: w.liu@cityu.edu.hk