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/