My new research project is largely about how fragmented production networks affects firms' ability to exert pressure on suppliers/affiliates as well as their ability to express power in relation to governments. There are many conceptual issues that I need to address as I begin this research.
1) Power. Start with Barnett/Duvall as well as Strange and her typologies of power. I am interested in multiple expressions of power. First, how do different nodes in a complex production network exert pressure on each other? This pressure could be related to contracts (pricing of inputs/outputs) as well as to standards for production processes (adherence to fair labor standards) and standards for ethical sourcing (particularly related to environmental issues). Power here can be top down (buyers exerting pressure on suppliers) or bottom up (suppliers refusing to conform to buyers' demands). Second, to what extend are firms able to extract benefits from governments? Third, to what extent are governments able to regulate firms (and what part of production networks - lead firms or suppliers). Fourth, to what extent can societal interest groups, in particular workers rights and environmental NGOs, influence firm behavior and government regulation? Finally, how do different actors organize into institutional configurations that transcend geographic and/or market boundaries, if at all?
2) Fragmentation. How is this best measured? Conceptually, I am interested in how complexity both within firms as well as in their supply chain affects their political power. By political power I mean their ability to influence government policies in areas that direct affect their business as well as their ability to obtain incentives from governments. Thus, the central "thing" I need to measure is how much of multinationals' activities are contained within the firm, across borders but within affiliates, and outsourced. Ideally, it would be great to trace value chains at the firm level so that we could know how many firms supply a parent with the same input, etc. However, that may be very difficult. Another way to measure this is thru value added. A third is to get data on the percentage of MNE's exports and imports that are between parent and affiliate vs. parent and non-affiliate vs. affiliate and affiliate.
Thursday, June 4, 2015
Complex Production Networks and Corporate Social Responsibility - Reflections on Patagonia.
According to received wisdom, globalization has reached such a fever pitch that governments have ceded their regulatory power to large multinational corporations that, driven by a relentless search for efficiency, move economic activity to developing (and mostly Asian) countries to take advantage of cheap labor. In the process, firms have repeatedly shown an antipathy toward labor rights. This narrative emphasizes the strength of firms vis-a-vis other market and political actors.
However, as production networks become more fragmented and complex, lead firms have less control over their suppliers, not more. The difficulty firms have in exercising power in the supply chains is clearest when we look at the experience of firms that try to create labor and environmental standards in their production networks. For example, Patagonia is an industry leader in creating fair labor standards. Yet, internal audits routinely reveal substantial exploitative behavior by suppliers. The root of this problems is three-fold. First, lead firms oftentimes have few credible exit options as pulling a contract is costly and leaves the firm with fewer units to sell. Firms sometimes try to protect against this by increasing the number of suppliers of any given product. However, this strategy creates it's own problems. In particular, excessively large numbers of suppliers make it difficult for lead firms to audit and manage business practices in their suppliers. Third, even if lead firms successfully exert pressure on their first-tier suppliers, it is difficult for them to do much to affect practices in the suppliers to their suppliers.
Some useful stories:
http://www.theatlantic.com/business/archive/2015/06/all-your-clothes-are-made-by-exploited-workers/394658/
http://www.theatlantic.com/business/archive/2015/05/the-importance-of-supply-chain/393320/
However, as production networks become more fragmented and complex, lead firms have less control over their suppliers, not more. The difficulty firms have in exercising power in the supply chains is clearest when we look at the experience of firms that try to create labor and environmental standards in their production networks. For example, Patagonia is an industry leader in creating fair labor standards. Yet, internal audits routinely reveal substantial exploitative behavior by suppliers. The root of this problems is three-fold. First, lead firms oftentimes have few credible exit options as pulling a contract is costly and leaves the firm with fewer units to sell. Firms sometimes try to protect against this by increasing the number of suppliers of any given product. However, this strategy creates it's own problems. In particular, excessively large numbers of suppliers make it difficult for lead firms to audit and manage business practices in their suppliers. Third, even if lead firms successfully exert pressure on their first-tier suppliers, it is difficult for them to do much to affect practices in the suppliers to their suppliers.
Some useful stories:
http://www.theatlantic.com/business/archive/2015/06/all-your-clothes-are-made-by-exploited-workers/394658/
http://www.theatlantic.com/business/archive/2015/05/the-importance-of-supply-chain/393320/
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