The effect of institutional pressures on business-led interventions to improve social compliance among emerging market suppliers in global value chains

Anthony Goerzen, Simon Peter Iskander & Joerg Hofstetter (2020)

Journal of International Business Policy. Online first

Abstract. Emerging market governments are incented to attract global value chain (GVC) activities to fuel economic growth. At the same time, in light of real and perceived workplace-related injustices within emerging markets, GVC lead firms are under pressure to improve social standard compliance within their upstream supply chain. Among the most common approaches to achieve these outcomes is to impose standards of conduct that are vetted by on-site audits. Research has shown, however, that improvement in GVC performance using this approach has been slow and sometimes leads to negative consequences, leading us to our research question: under what conditions do interventions by GVC lead firms yield significant improvements in social standards among upstream supplier workplaces? We hypothesize that a country’s institutions not only have direct effects on social upgrading but also indirectly affect the ability of third parties to bring about social compliance. Our findings, based on two longitudinal datasets, suggest that GVC lead firms must account for the unique country-level institutional pressures that either propel or hamper improvement over time in private social standard compliance among upstream suppliers. In addition, governments must develop new policy responses to target the prevailing institutional pressures that dampen social upgrading if they are to attract and retain GVC investment.

Extract. ‘Using Convention Theory to Examine GVC Governance
We draw upon Convention Theory (CT) to explain both GVC lead firm and GVC supplier firm behavior in the context of a national institutional environment. CT defines a convention as a system of mutual expectations about the rules and standards that should be followed (Diaz-Bone, Didry, & Salais, 2015). These conventions can refer to product attributes (e.g., quality or type of ingredients) or they can denote attributes related to production and process methods (e.g., labor and environmental standards). If there is a common agreement between the GVC lead firm and its suppliers on a given convention – for example, a defined set of criteria related to responsible behavior that must be fulfilled by the supplier firms wishing to transact with the lead firm – and if there are monitoring mechanisms in place to verify adherence, conventions are more easily adopted and transmitted throughout the GVC lead firm’s upstream suppliers. However, if GVC lead firms and suppliers do not share a common view of a specific criterion, or if it is difficult to monitor and/or enforce, the uncertainty that emerges exacerbates the abovementioned coordination problem (Ponte & Sturgeon, 2014).’ (p. 3)

Link to the review