Performance implication of social supplier development practices for suppliers

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Performance implication of social

supplier development practices for

suppliers

Master thesis, MSc, Supply Chain Management

University of Groningen, Faculty of Economics and Business

January 25, 2016

Chuanyu Li

Student number: s2628783

E-mail: superpp34@hotmail.com

Supervisor/ university

dr. C.Sancha.Fernandez

Co-assessor/ university

prof. dr. D.P. van Donk

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ABSTRACT

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1. INTRODUCTION

With the development of economic globalization, many firms outsource part of their processes and/or buy from suppliers located all over the world. In some cases, these suppliers are located in developing countries which enable a prominent saving on labour costs (Akamp and Müller, 2013). Sometimes this reduction in labour costs comes at the expense of employees’ well-being in terms of working conditions or as a result of using child labour (Awaysheh and Klassen, 2010). One example of this situation is the recent Rana Plaza incident, one of the worst industrial accidents that happened in Bangladesh and caused 1000 deaths and more than 2500 injuries (The New York Times, 2013). Such ways of working is no longer accepted in today’s global context since more and more companies pay attention to social sustainability. According to McKenzie (2004), social sustainability is defined as “the formal and informal processes, systems, structures, and relationships actively enhance the capacity of current and future generations to create healthy and liveable communities”.

Against that background, the increasing level of outsourcing to developing countries where suppliers may act unethically has made buying firms better realize the importance of managing their supplier base actively to maintain socially responsible (Anderson and Skjoett-Larsen, 2009; Sancha, Gimenez, Sierra and Kazeminia, 2015). In fact, a high level of social sustainability performance achieved by a buying firm can be damaged by its suppliers’ unsustainable conduct (Faruk, Lamming, Cousins and Bowen, 2001). As a result, it is necessary for buying firms to extend social sustainability to their suppliers and manage the upstream side of their supply chains (Sancha et al., 2015; Gimenez and Tachizawa, 2012). To do so, buying firms implement supplier development (SD) practices, which are defined as “any activity undertaken by a buying firm to improve either supplier performance, supplier capabilities, or both, and to meet the buying firm’s short- and/or long-term supply needs” (Krause, Scannell and Calantone, 2000: 8). In this master thesis we will consider SD practices that deal with social issues.

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Foerstl, 2012). Third, a large proportion of papers in recent years on the topic of sustainable SD practices are based on research conducted in Europe or North America (Gimenez and Tachizawa, 2012). Nowadays, China has been revealed as the world’s tenth-best outsourcing location, according to new research from global real estate adviser Cushman & Wakefield. More research regarding sustainable SD needs to be conducted in the context of China to get a better and deeper understanding of SD practices. Finally, there is scant research that looks at possible contingencies involved in the effectiveness of sustainable SD. More specifically, Vurro, Russo and Perrini (2009) argued that in theory relationship dependability has a positive effect on buyer-supplier relationships and can support the effective cooperation between buying firms and suppliers in achieving sustainability. Although many case studies in the sustainable SCM literature display some sort of power imbalance or relationship dependability, most papers ignore relationship dependability as a contingency and limited empirical evidence has been found to prove that relationship dependability would have an impact on the implementation of SD practices.

According to the gaps mentioned above, the purpose of this research is twofold. The first is to investigate the impact of social SD practices on supplier social and economic performance in the context of China. The second is to analyse whether relationship dependability influences the effectiveness of social SD practices. Therefore, the research questions in this paper are:

RQ 1. Do social SD practices contribute to improve suppliers’ social and economic performance in the context of China?

RQ 2. Does relationship dependability impact the effectiveness of social SD practices?

By answering these questions, the paper makes several contributions. First, it extends current literature on the effectiveness of social SD practices in the context of China which has different social risks than developed countries. Secondly, it examines the implementation of social SD practices from the point of view of suppliers. By taking the supplier’s perspective into consideration, we will have a better understanding of the relationship between SD practices and performance. Last but not least, studying a contingency (i.e. relationship dependability) involved in social SD will enrich the empirical evidence in the sustainable SD literature. This research strives to provide managers with some suggestions that will be useful in their establishment of socially sustainable supply chains with their partners.

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2. LITERATURE REVIEW AND HYPOTHESES

2.1 Social Supplier Development and Performance

As pointed out by Krause, Vachon and Klassen (2009), a buying firm is no more sustainable than its suppliers. This means that suppliers’ unsustainable ways of working regarding social issues will damage the high level of sustainability achieved by a buying firm. The misconduct related to social sustainability at the suppliers’ premises could be, for example, the use of child labour, poor working conditions or unfair and low wages (Awaysheh and Klassen, 2010; Klassen and Vereecke, 2012). To reduce unsustainable misconduct on the suppliers’ side, buying firms need to extend social sustainability to their suppliers (Beske and Seuring, 2014; Schaltegger and Burritt, 2014; Sancha et al., 2015). To do so, buying firms can implement social SD practices. In this paper, we classify social SD practices into two main approaches: supplier assessment and collaboration with suppliers. Similar classifications have been found in previous studies (e.g. Klassen and Vachon, 2003; Gimenez and Tachizawa, 2012; Sancha et al., 2015). In social SD, the application of assessment practices is generally concerned with evaluating suppliers in relation to social issues (e.g. use of child labour, working conditions; Lee and Klassen, 2008; Vachon and Klassen, 2006; Klassen and Vereecke, 2012). Being assessed by buying firms, suppliers are exposed to the buying firm’s socially sustainable standards. This practice enables buying firms to understand suppliers’ ways of working and provides insights into whether suppliers are socially sustainable enough for buying firms to ensure the sustainability in their whole supply chain. At the end of the assessment process, buying firms need to provide suppliers with evaluative feedback which helps them to understand the buying firms’ expectation and the direction for improvement (Krause et al., 2000; Prahinski and Benton, 2004). Collaboration with suppliers implies the cooperation between buying firms and their suppliers for the purpose of jointly improving social sustainability (Gualandris and Kalchschmidt, 2014; Klassen and Vereecke, 2012; Lee and Klassen, 2008; Vachon and Klassen, 2006), and includes activities undertaken by buying firms such as training and educating suppliers’ personnel (Galt and Dale, 1991), temporarily dedicating their own personnel to the suppliers (Newman and Rhee, 1990) and carrying out joint applied research (Corbett and Klassen, 2006).

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a positive and significant effect on supplier performance. Based on the literature, mixed results are found and more empirical evidence is needed to test the theory introduced. The purpose of this paper is to attempt to enrich the literature by studying the impact of social SD practices initiated by buying firms (i.e. supplier assessment and collaboration with suppliers) on social and economic performance from the suppliers’ standpoint. Additionally, how relationship dependability influences the effectiveness of SD practices will be discovered. In the following section, we develop our hypotheses regarding the relationship between social SD practices and suppliers’ social and economic performance. We also develop hypotheses with respect to the role of relationship dependability on the above-mentioned relationships.

2.2 Development of Hypotheses

2.2.1 Supplier assessment and supplier performance

Based on Transaction Cost Theory, the threat of opportunistic behaviour by suppliers creates the need for their buying firms to implement costly monitoring and governance mechanisms (Stump and Heide, 1996). In the literature there is empirical evidence for the relationship between supplier assessment and suppliers’ environmental performance. For instance, Klassen and Vachon (2003) discovered that tighter control and monitoring of a firm’s suppliers can have significant, positive environmental benefits due to the suppliers changing their approach to environmental issues. In addition, Theyel (2001) analysed the adoption of different types of environmental supply chain relations and recognized that assessment with an environmental focus is significantly related to environmental performance. Similarly, after conducting several case studies, Lee and Klassen (2008) found that the presence of monitoring results in better suppliers’ environmental performance. The rationale behind the impact of assessment on supplier environmental performance can be explained as follows. Supplier assessment is considered as the initiator for suppliers to make changes regarding environmental issues since they are unwilling to take action unless threatened by external forces such as buying firms’ demand (Holt, Anthony and Howard, 2001). By implementing supplier assessment, suppliers are often under considerable pressure from regulations that are conveyed by buying firms (Green, Morton and New, 2000; Hall, 2000), this pressure pushes suppliers into improving at least some of their environmental capabilities and eliminating several opportunistic behaviours to meet the buying firms’ specific sustainable standards (Lee and Klassen, 2008). Once opportunistic behaviours are decreased, the environmental performance of suppliers would increase.

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costs in terms of breakdowns resulting from industrial accidents and higher employee absenteeism (Chapman, 2007). Moreover, better working conditions lead to a more motivated and more productive workforce which would cut down material costs (Locke and Romis, 2007). Thus, a lower cost per business transaction could be achieved, leading to a higher total profit from products. Based on the previous empirical evidence and our reasoning, we propose the following hypotheses:

Hypothesis 1. Social supplier assessment is positively associated with suppliers’ social performance.

Hypothesis 2. Social supplier assessment is positively associated with suppliers’ economic performance.

2.2.2 Collaboration with suppliers and supplier performance

Based on the Resource-Based View, a firm may achieve sustainability improvements by effectively employing its resources (Carter and Roger, 2008). Some researchers have focused on knowledge as a resource, which includes the ability of organizations to effectively learn and implement changes based on what they have learned (e.g. Garvin, 1993). In the context of collaboration, Cousins (1999) claimed that direct involvement of buying firms such as training and education of suppliers’ personnel (Galt and Dale, 1991) and undertaking joint applied research (Corbett and Klassen, 2006) can provide an effective means to transfer critical resources and knowledge from buying firms to suppliers. Similarly, collaborative activities are characterized by tacit knowledge integration (Purdy and Safayeni, 2000). Based on the above argument, collaboration with suppliers implemented by buying firms would increase suppliers’ sustainability performance since suppliers acquire critical knowledge from buying firms which would help them increase sustainable capabilities. In the sustainable SCM literature there is empirical evidence for this relationship. For example, Klassen and Vachon (2003) concluded that collaboration has a significant effect on the development of suppliers’ environmental technologies. Lee and Klassen (2008) showed the positive relationship between support-based SCM (i.e. collaboration) and suppliers’ environmental management capabilities. These results are in line with previous research which showed that activities such as training supplier personnel have a direct influence on the achievement of significant environmental improvement by the suppliers (e.g. Simpson and Power, 2005; Krause et al, 2000). Although most of the empirical evidence adopts an environmental focus, we could still assume that collaboration with suppliers would increase suppliers’ social performance since collaboration provides suppliers with platforms for sharing knowledge and accessing resources (Dyer and Singh, 1996). In fact, Carter (2005) found that collaboration between buying firms and their suppliers concerning environmental and social activities can have a strong positive influence on suppliers’ performance. Being involved in collaborative activities, suppliers are able to learn from buying firms’ expertise and generate knowledge to develop specific capabilities to enhance their corresponding social performance (Krause et al., 2000). Acquiring critical knowledge (resource) regarding social issues could also have impact on suppliers’ economic performance. Suppliers get a scarce resource by absorbing and extending knowledge got from buying firms, and this kind of scarce resource about social issues would help them attract potential customers who care about more on social sustainable performance to increase their sales (Wagner, 2006; Hollos et al., 2012; Hazen, Cegielski and Hanna, 2011). In that sense we hypothesize that:

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performance.

Hypothesis 4. Collaboration with suppliers has a positive impact on the suppliers’ economic performance.

2.2.3 The role of relationship dependability

The implementation of assessment and collaboration entails interactions between buying firms and suppliers. Cox (2007), following the Resource-Dependence Theory (Salancik and Preffer, 1997), claimed that the ability to influence another firm’s behaviour requires this firm to have control over certain resources on which the other firm is dependent. In this paper, the buying firm is influencing their suppliers by implementing assessment and collaboration with the aim of improving its supplier’s social and economic performance. In that sense, the dependent party is the supplier and therefore relationship dependability is seen from the suppliers’ point of view.

When a supplier is dependent on its buying firm, the buying firm controls certain resources that are critical for the supplier. In that sense, the buying firm has more power than its supplier since mutual dependence and power are closely related concepts (Caniëls and Gelderman, 2007). Theoretically, supplier dependability could moderate the relationship between social SD practices and supplier performance. For supplier assessment, suppliers could achieve a higher social and economic performance when they are highly dependent on the buying firms since powerful buying firms can better implement evaluating activities (Millington, 2008; Vurro, Russo and Perrini, 2009). After conducting several case studies, Touboulic, Chicksand and Walker (2014) found that suppliers have little chance but to comply with the buying firms’ requirements when there is strong buyer dominance. By maximizing their power, buying firms could transfer the burdens of socially sustainable responsibility onto their suppliers more simply. At the same time, suppliers are under the pressure of losing clients if they fail to comply with sustainable standards (Jiang, 2009). By receiving better evaluative activities and greater pressure to be sustainable created by powerful buying firms, suppliers are being pushed to make major changes respecting opportunistic behaviour which results in a higher social performance and lower production costs. Thus, supplier dependability positively moderates the relationship between supplier assessment and supplier social and economic performance.

Hypothesis 5. Supplier dependability positively moderates the relationship between supplier assessment and suppliers' social performance.

Hypothesis 6. Supplier dependability positively moderates the relationship between supplier assessment and suppliers' economic performance.

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they need. Greater collaboration among suppliers and their buying firms can foster the development of environmental systems and reduce the overall environmental impact across the supply chain (Handfield, Walton, Seeger and Melnyk, 1997; Geffen and Rothenberg, 2000; Klassen and Vachon, 2003). We believe that supplier dependability would enhance cooperation between suppliers and buying firms regarding social issues as well. A higher cooperation regarding social sustainability may lead to higher supplier social performance and increase the market share of suppliers. In that sense, we make the following hypotheses:

Hypothesis 7. Supplier dependability positively moderates the relationship between collaboration with suppliers and suppliers’ social performance.

Hypothesis 8. Supplier dependability positively moderates the relationship between collaboration with suppliers and suppliers’ economic performance.

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3. METHODOLOGY

3.1 Research Design

In this Master Thesis, survey research was used as this is seen appropriate for the issues under discussion (Karlsson, 2010). One main reason to conduct survey is that the aim of this research is to investigate ‘how variables (i.e. supplier dependability, social SD practices and suppliers’ social and economic performance) are related’, survey is a suitable way for us to get empirical evidence by performing good quantitative analyses regarding our assumptions.

3.2 Questionnaire Design and Measures

All measures are adapted and developed based on a literature review. Multiple items are considered for each of the studied constructs. In Appendix 1, a detailed list of the items used can be found.

Supplier assessment—this construct includes the assessment of suppliers with respect to social performance, perform auditing for evaluation and the provision of feedback at the end of valuating process. This construct and items were adapted from Min and Galle (1997), Large and Thomsen (2011) and Krause et al. (2000).

Collaboration with suppliers—visits of suppliers’ premises, training suppliers’ employees and joint efforts between buying firms and suppliers in the area of social sustainability were taken into account. These three items were adapted from Krause et al. (2000).

Suppliers’ social performance— based on Awaysheh and Klassen (2010)’ work, this construct was measured across the commonly used items which are safety and labour conditions in our facilities, compliance with human rights, compliance with child labour employment and social reputation. Suppliers’ economic performance—this construct was measured through both financial and market criteria which in line with previous studies (e.g. Li, Ragu-Nathan, Ragu-Nathan and Rao, 2006). The items included in this construct are return on investment, market share, total profit from products/services, profit from socially friendly products, time-to-market for products, cost per business transaction, cost on energy savings and cost on waste disposal.

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3.3 Sample and Data Collection

Data collection took place during October 2013 – February 2014. The original sample was made up of 974 firms. A phone call was made to all firms to inform them about the study and a survey was sent to all of them by e-mail. After two weeks, a reminder was made. A total of 129 companies provided useful and complete responses. This results in a response rate of approximately 13%. A comprehensive sample descriptive can be found in Table 1.

Table 1 Sample descriptive

Position n %

Director 25 19.38%

COO 17 13.18%

Chairman 14 10.85%

Manager of Operation Management Department 18 13.95%

CEO 17 13.18%

Manager of Environmental Department 18 13.95%

Others 20 15.50

Total 129 100%

Industry n %

Textile mill products (NACE code 22) 14 10.85%

Apparel and other finished products made from fabrics and similar materials (NACE code 23)

37 28.68%

Chemical and allied products (NACE code 28) 47 36.43%

Leather and leather products (NACE code 31) 11 8.53%

Industrial and commercial machinery (NACE code 35) 10 7.75% Electronic and electrical equipment and components (NACE code 36) 10 7.75%

Total 129 100% Number of employees n % Between 1 and 10 28 21.71% Between 11 and 50 36 27.91% Between 51 and 100 24 18.60% Between 101 and 500 23 17.83% More than 500 18 13.95% Total 129 100% Turnover n %

Less than ＄10 million 75 58.14%

Between ＄10 and ＄20 million 13 10.08%

More than ＄100 million 9 6.98%

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3.4 Construct Validation

Exploratory factor analysis (EFA) was performed to explore the number of latent constructs underlying a set of items (using varimax rotation) and to provide evidence of construct validity. Before EFA, two steps were taken to ensure the quality of data analysis. Firstly, missing data was excluded listwise due to its diminutive portion (1.5%). Secondly, KMO and Barlett’s Test were conducted and corresponding results can be found in Table 2. As shown in Table 2, KMO>, 600 which meant the sample size is adequate for factor analysis. Moreover, Barlett’s Test was significant (<0, 05). This result showed that there are relationships between the items we hope to include in the analysis. Based on these sufficient results, EFA was conducted efficiently and results for supplier dependability, supplier assessment, collaboration with suppliers and supplier performance are listed in Table 3, 4, 5.

Table 2 KMO and Barlett’s Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy ,766 Barlett’s Test of Sphericity Approx. Chi-Square 1559,098

Df 253

Sig. ,000

Results in Table 3 indicated that the items measuring relationship dependability form the following two latent constructs: Factor 1 (In the absence of this key customer, we will be able to continue our business processes; There are alternative customers in the marketplace) and Factor 2 (It is costly for us to change customers; Overall, we are highly dependent on this key customer). Based on the items in Factor 1, it was a construct related to business and sales of suppliers, so we named Factor 1 as supplier business dependability (SBD). Factor 2 reflected the overall extent to which suppliers are dependent on buying firms, so the name of Factor 2 was supplier overall dependability (SOD). Furthermore, the eigenvalues for the two constructs were 2.220 and 1.100. These figures provided evidence for the validity of the constructs in relationship dependability. Cronbach’s alpha was used to test the reliability of multi-item constructs. Alpha values of 0,828 for SBD and 0.686 for SOD indicated an acceptable level of internal consistency for both constructs (Nunally and Bernstein, 1994).

Table 3 EFA on supplier dependability

Supplier dependability Factor 1 Factor 2 Supplier dependability factor 1

α=0,828; Initial Eigenvalue=2,220;

SD 1 ,855

SD 2 ,883

Supplier dependability factor 2

α=0,686; Initial Eigenvalue=1.100;

SD 3 ,843

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As shown in Table 4, the factor loading of all items in supplier assessment were greater than commonly used cut-off value 0.70 (Nunally and Bernstein, 1994). The initial eigenvalue of supplier assessment was 2,542, and Cronbach’s alpha was 0,886. These results indicated that supplier assessment was a reliable and valid construct and had only one latent variable. Results in Table 4 indicated that collaboration with suppliers was a reasonably valid and internally consistent construct because the initial eigenvalue was 1,224 and Cronbach’s alpha was 0,831.

Table 4 EFA on social SD practices

Social SD practices Factor 1 Factor 2 Supplier assessment

α=0,886; Initial Eigenvalue=2,542

ASS 1 ,791

ASS 2 ,843

ASS 3 ,873

Collaboration with suppliers

α=0,831; Initial Eigenvalue=1,224 COLL 1 COLL 2 COLL 3 ,767 ,833 ,832

Factor scores for supplier performance are shown in Table 5. Results indicated that there were two latent constructs in supplier performance which were supplier social performance and supplier economic performance. The eigenvalue of suppliers’ social performance is 4,269 and the Cronbach’s alpha is 0,871. The alpha value for supplier economic performance is 0,886 and the eigenvalue for this construct is 4,841. All factor loadings were greater than 0, 70. These outcomes meant that supplier social performance and supplier economic performance were reasonably reliable and valid constructs.

Table 5 EFA on supplier performance

Supplier performance Factor 1 Factor 2 Supplier social performance

α=0,871; Initial Eigenvalue=4,269;

SupSPerf 1 ,791

SupSPerf 2 ,827

SupSPerf 3 ,827

SupSPerf 4 ,778

Supplier economic performance

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SupEPerf 6 ,905

SupEPerf 7 ,812

SupEPerf 8 ,783

In conclusion, after EFA and Cronbach’s Alpha Test, we found six multi-item constructs which were SBD, SOD, supplier assessment, collaboration with suppliers, supplier economic performance and supplier social performance.

4. DATA ANALYSIS

The objective of the data analysis was twofold. The first goal was to address whether implementation of supplier assessment and collaboration with suppliers with respect to social issues directly improve supplier social performance and supplier economic performance. The second objective was to discover whether supplier dependability (both SBD and SOD) moderates the relationship between social SD practices and supplier performance. We carried out a series of ordinary least square (OLS) regression analyses using the mean composites for SBD, SOD, supplier assessment, collaboration with suppliers, supplier social performance and supplier economic performance. In the data analysis, there were two different dependent variables which were supplier economic performance and supplier social performance, so the OLS analysis was conducted in two models shown in Figure 2. The independent variables were supplier assessment and collaboration with suppliers. SBD and SOD were the moderating variables in these two models.

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4.1 Social SD Practices and Supplier Social Performance

Table 6 shows the results of analysis regarding the relationship between social SD practices and supplier social performance in Model 1. Results implied that there was no direct relationship between supplier assessment and supplier social performance because the p-value was not statistically significant (P>0, 05). Collaboration with suppliers has no effect on supplier social performance as well since p=0,318. In that sense, our results provided no support for H1 and H3 since no relationship was found between social SD practices and supplier social performance.

Table 6 OLS analysis of social SD practices and supplier social performance

Relationship between social SD practices and supplier social performance in Model 1

Variable B coefficient B coefficient

(p-value) p-value

IV: Supplier assessment ,087

(,449)

IV: Collaboration with suppliers ,114

(,318) Note: Significance at: *0, 05 and **0,01 levels

Adjusted R Square=3.6%

Dependent Variable: Supplier social performance.

4.2 Social SD Practices and Supplier Economic Performance

Table 7 gives the results of regression analysis regarding social SD practices and supplier economic performance in model 2. The p-value of supplier assessment was 0,119 (>0, 05) which provided evidence that supplier assessment was not statistically related to supplier economic performance. Thus, no support was found for H2. For collaboration with suppliers, we found that p-value was lower than significance level, so there was a relationship between collaboration with suppliers and supplier economic performance. The Beta coefficient of collaboration with suppliers was 0, 209. In that sense, collaboration with supplier had a significant and positive effect on supplier economic performance (B=0, 209, p<0, 05).

Table 7 OLS analysis of social SD practices and supplier economic performance

Relationship between social SD practices and supplier economic performance in Model 2

Variable B coefficient B coefficient

(p-value) (p-value)

IV: Supplier assessment ,146

(,119)

IV: Collaboration with suppliers ,209

(,026) Note: Significance at: *0, 05 and **0,01 levels

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4.3 Supplier Dependability In Collaboration With Suppliers and Supplier

Economic Performance

Based on results in previous sections, no direct relationship between supplier assessment and supplier performance were found, no direct effects between collaboration with suppliers and supplier social performance as well. Thus, there was no moderating effect of supplier dependability regarding these variables. Table 8 provides the results of the analysis of moderating effect of supplier dependability in Model 2 in the direct relationship between collaboration with suppliers and supplier economic performance. We found that the interaction effect of collaboration with suppliers and supplier dependability (both SBD and SOD) on supplier economic performance was significant (B= 0,247 for SBD; B=0,213 for SDC 2; p< 0, 05).

Table 8 OLS analysis of moderating effect of supplier dependability

Moderating effect of supplier dependability in Model 2

Variable B coefficient B coefficient B coefficient

p-value p-value p-value IV: Collaboration with suppliers , 209

(,026)

Moderator: SBD , 179

(,127)

Moderator: SOD , 074

(,350) Interaction: Collaboration with suppliers

×SBD

, 247 (,005) Interaction: Collaboration with suppliers

×SOD

, 213 (,011) Note: Significance at: *0, 05 and **0,01 levels

Dependent Variable: Supplier economic performance.

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In conclusion, after the OLS analysis of data, we found that our results did not support H1, H2, H3, H5, H6, and H7. The results provided support for H4 and H8. In that sense, we can conclude that collaboration with suppliers is positively related to supplier economic performance and supplier dependability moderates the positive relationship between collaboration with suppliers and supplier economic performance, such that the relationship becomes stronger when supplier dependability is high rather than low.

5. DISCUSSION

In the sustainable SCM literature, papers with social focus are limited to the buying firm’s performance and there’s few literature observe social SD practices in the context of China.In that sense, in this master thesis, we studied the relationship between social SD practices and supplier social and economic performance in the context of China. In addition, we added supplier dependability in our analysis and tried to discover the moderating effect of this neglected factor. Our discussion will be centred on three main points:

1. The impact of supplier assessment on supplier performance. 2. The impact of collaboration with suppliers on supplier performance.

3. The moderating effect of supplier dependability in the relationship between collaboration with suppliers and supplier’s economic performance.

5.1 Supplier Assessment and Supplier Performance

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Hall, 2000). In addition, several researchers believe that suppliers may have better economic performance by receiving assessment and becoming more socially oriented (klassen and Vereecke, 2012; Chapman, 2007; Locke and Romis, 2007). These unexpected results, can be explained as follows: only knowing what to improve is not enough in enhancing supplier performance. After supplier assessment, suppliers may recognize the opportunistic behaviour regarding social issues and potential improvement in developing, such as, a healthier working way to prevent production accidents. But If the suppliers don’t have ability or capability to improve their performance and receive no support from buying firm, then improvements both in economic performance and social performance are hardly to happen (Holmen et al., 2012). An alternative explanation for the findings is that suppliers may have their own performance measurement systems different from those used in the buying firms. Like stated in the introduction, this research was conducted among suppliers in Chinese market which differ from occidental market because of issues regarding, such as, society, politics, culture and code of conduct. In that sense, suppliers and buying firms may have different performance measurement systems that focus on divergent dimensions of supplier social and economic performance. This kind of non-inclusiveness among performance measurement systems may conceal the actual improvements achieved. For example, a buying firm, might perceive that supplier performance improves after receiving evaluation and feedback (Murray, 2000; Ciliberti, de Groot, de Haan and Pontrandolfo, 2009; Vachon and Klassen, 2008) based on lower accident rate and breakdown costs. However, such kind of performance improvement on suppliers’ side may be hidden or less prominent when investigated in suppliers’ performance measurement systems which pay attention to welfare and material costs. Although supplier assessment does not seem to improve supplier performance, it is a practice extensively used by buying firms (Murray, 2000).

5.2 Collaboration With Suppliers and Supplier Performance

In data analysis, we found that collaboration with suppliers regarding social issues has no effect on supplier social performance but enhances supplier economic performance. These two extinct findings are discussed separately in this section.

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suppliers’ side would also have effect on supplier social performance (Arroyo-Lo´pez et al., 2012). Because of language obstacle, Chinese employees would take more time to understand the knowledge got from buying firms. In that sense, learning and sharing knowledge from buying firm, suppliers are not like to have a better social performance in a short run.

On the other hand, there is a direct and positive relationship between collaboration with suppliers and supplier economic performance. This finding provides empirical evidence to support that social SD practice (i.e. collaboration with suppliers) leads to a better economic performance achieved by suppliers. Collaboration with suppliers may have impact on supplier economic performance both internally and externally. Inside suppliers, collaboration with suppliers results in cost reduction (Hollos et al., 2012). By receiving training and learning from buying firm, suppliers are able to establish healthier working condition and introduce social standards regarding welfare and labour safety. All these changes would help suppliers to reduce safety costs, recruitment costs and costs in terms of breakdowns (Chapman, 2007; Carter, Maloni and Pullman, 2009). Being more socially-oriented would also reduce the absenteeism of personnel since employees working for suppliers are motivated by innovations occur in their organizations (Holmes, Power and Walter, 1996). Acquiring knowledge and paying attention on social issues would have external impact on suppliers as well. Being involved in supplier development programs helps suppliers to access critical resource on the subject of social performance enhancement issues. Suppliers get a scarce resource by absorbing and extending knowledge got from buying firm, and this kind of scarce resource about social issues would help them to stand out from the competition and attract potential customers who are eager to share knowledge and improve social performance. (Wagner, 2006; Hazen et al., 2011).

5.3 Moderating Effect of Supplier Dependability

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the resource efficiently by well cooperation activities such as employees trained by buying firms. More effective changes regarding to social issues imply higher cost reduction and market share.

6. CONCLUSION

The objective of this paper was to investigate the impact of social SD practices on the supplier social and economic performance and to analyse if supplier dependability would moderate the effectiveness of supplier assessment and collaboration with suppliers. Regarding the first objective, we found that collaboration with suppliers is positively related to supplier economic performance. For the second objective, the results showed that, supplier dependability positively moderates the relationship between collaboration with suppliers and supplier economic performance. By including supplier perspective, we have been able to overcome the limitation of previous studies which investigate the implication of SD practices only from buying firm’s side. This paper also enrich the SD literature by adding a neglected factor (supplier dependability) in research. Moreover, our results encourages managers in suppliers to comply with SD programs since they could get a better economic performance.

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APPENDIX 1

Construct No. Phrase Sources

Supplier Assessment

Ass1 Our key customer assesses our social performance through formal evaluation, using established guidelines and procedures.

Adapted from Min and Glalle (1997), Krause et al., (2000), Large and Thomsen (2011). Ass2 Our key customer performs social

audits for our internal management systems.

Ass3 Our key customer provides us with feedback about the results of the social evaluatioin

Collaboration with suppliers

COLL1 Our key customer provides training related to social practices to our personnel.

Adapted from Krause et al., (2000).

COLL2 Our key customer visits our premises (e.g. factories) to help us improve our social performance (e.g. provides advices and shares know-how about social issues)

COLL3 Our key customer makes joint efforts with us to improve our social performance.

Suppliers’ social performance

SupSPerf1 Safety and labour conditions in our facilities.

Adapted from Awaysheh and Klassen (2010) SupSPerf2 Compliance with human rights.

SupSPerf3 Compliance with child labour employment.

SupSPerf4 Social reputation. Suppliers’

economic performance

SupEPerf1 Return on investment.

SupEPerf2 Market share.

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Dependability

SD1 In the absence of this key customer, we will be able to continue our business processes.

Adapted from Pfeffer (1981), Buchanan (1992).

SD2 There are alternative customers in the marketplace.

SD3 It is costly for us to change customers. SD4 Overall, we are highly dependent on

Performance implication of social supplier development practices for suppliers