Uncovering Unilever’s tea supply chain in India and Sri Lanka: Drivers and Barriers of Sustainability Implementation

MSc Thesis in International Business & Management

Author: Saverio Mirto – S2933802

Supervisor: dr. M.M. Wilhelm

Uncovering Unilever’s tea supply chain in India and Sri

Lanka: Drivers and Barriers of Sustainability

Implementation

Academic Year 2016/2017

Abstract

Table of Contents

1. Introduction ……….. 2. Literature Review ………..………...

2.1 Challenges for the food industry and the rise of certifications schemes... 2.2 Sustainable Supply Chain Management (SSCM)……..……....………… 2.3 External Factors (drivers and barriers) for Sustainable Supply Chains…. 2.4 Organizational (internal) and Supply Chain related factors………... 2.5 Theoretical framework……….

3. Theoretical Framework 4. Methodology

4.1 Case selection………. 4.1.1 Unilever and the tea supply chain……….. 4.2 Data collection……….... 4.3 Data analysis……… 5. Findings

5.1 Introduction of the Sri Lankan case.………...……….

5.1.1 Institutional (external) drivers and barriers to sustainability in Sri Lanka………..

5.1.2 Organizarional (Internal) factors in Sri Lanka……….... 5.1.3 Supply Chain Related Factors in Sri Lanka………. 5.2 Introduction of the Indian case……… 5.2.1 Institutional (external) drivers and barriers to sustainability in India……….………….. 5.2.2 Organizarional (Internal) factors in India……….... 5.2.3 Supply Chain Related Factors in India……… 6. Discussion

7. Conclusions ……… 7.1 Managerial Implications and Contributions

Introduction

Globalization and today’s economic trends have created highly complex supply chains (Varma et al., 2006). As a consequence, the competitive advantage of a company is no longer exclusively determined by corporate practices and actions within its premises, but it rather depends on how well a company manages its relationships with supply chain partners to improve sustainability (Skjoett-Larsen, 2009).

Firms nowadays increasingly recognize the need to develop strategies that extend their traditional corporate governance processesbeyond the firms’ boundary to their supply chain partners (Kytle & Ruggie, 2005). Over the last decades, globalization has encouraged the diffusion of neo-liberal policies around the globe, undermining government’s regulations both in national and international arenas. Private, voluntary arrangements addressing the environmental, qualitative and ethical dimensions of agro-food production have multiplied, forging a system of “transnational private governance” (Gereffi et al., 2001). Producers around the world are a becoming aware that they must meet these private regulations standards in order to have access to the major European markets (Dolan and Humphrey, 2000).

Despite a great number of multinationals are making efforts and devoting resources to deal with social and environmental issues in their supply chains, ‘a gap still exists between the desirability of supply chain sustainability in theory and its implementation in practice’ (Bowen et al., 2001).

reports critical factors mainly from the perspective of the focal firm. Due to monetary constraints or high costs, companies often struggle to engage in SSCM practices (Ageron et al., 2011). However, previous research has failed to take into account the broader external environmentel (stakeholders’ pressures, institutions, consumers demand for sustainable products). As argued by Sousa & Voss (2008), simply investigating managerial practices may not be enough, and researchers should examine ‘the context under which they are effective’.

Market activities are indeed typically embedded in social and economic institutions. Therefore, regulatory frameworks and guidelines to adhere to sustainability standards do not only originate from the buying companies, but also from the wide institutional context within which the company is operating (Tachizawa & Wong, 2014). Hence, the broader external environment cannot be considered as static because it plays a determinant role in influencing the easiness through which a multinational can implement SSCM initiatives.

This research investigates the factors - drivers and barriers - originated in the broader external environment (general context) through the use of Institutional Theory. Institutional Theory helps to investigate and then to comprehend, how and why, ‘corporations deal with stakeholders in a different manner, depending on the institutions/environments in which they operate’ (Oliver, 1991).

Besides organizational - internal - factors and the ‘external’ ones related to the general context in which firms operate, this paper will also take into account what we call supply chain (SC) related factors, stemming from the very nature and structure of a sustainable supply chain. Indeed, ‘much remains unclear about how the structure of the supply chain influences the management of social issues between a focal firm and its suppliers’ (Awaysheh & Klassen, 2010).

The present paper investigates the tea supply chain of Unilever in Sri Lanka and India and seeks to contribute to the fragmented body of knowledge regarding the implementation of the SSCM approach. Moreover this paper extends existing literature (Silvestre, 2015) by arguing that supply chains in developing and emerging economies face greater barriers when it comes to sustainability implementation compared to supply chains operating in developed countries.

existing literature. The last section consists of a conclusion where we propose our managerial implications and outline our contributions, to then conclude with limitations and further research.

Literature review

Challenges for the food industry and the rise of certification schemes

Firms increasingly recognize the need to develop strategies that extend their traditional corporate governance processesbeyond the firms’ boundary to their supply chain partners (Kytle & Ruggie, 2005). The most prominent indicator of this process is the emergence of corporate social responsibility (CSR) oriented purchasing strategies, also known as sustainable purchasing, which lay down standards that suppliers have to meet in order to win business (Keating et al., 2008).

Corporate Social Responsability activities are defined by McWilliams et all. (2001) as ‘actions that appear to further some social good, beyond the interests of the firm and that which is required by law’. Nowadays companies set aside generous budgets for CSR initiatives for two reasons: to be seen as responsible firms in the eyes of stakeholders, and because investments in sustainability initiatives proved to affect firms’ competitiveness and their profit in the long run (Dauvergne & Lister, 2013). Thus, it is appropriate to report that 80% of the Fortune 500 firm’s website present dedicated sections on sustainability’s related issues. This is because the CSR is perceived as a “insurance-shield” that protects firms against external negative attributions. For instance 80% of Americans adults trust more companies which are highly committed in terms of socially responsible activities (Hsu, 2006). This reserve of goodwill, that organizations can obtain through the adoption of CSR policies, is even more important when companies face social or environmental crisis. When a crisis hits, firms will indeed use ‘these credits’ to offset reputational demages caused by the crisis (Coombs, 1998).

buyer and suppliers in the food industry would ideally allow and require to trace products and ingredients from the upstream to the agricultural production (Smith, 2008).

It is important to highlight that, over the last decades, globalization has encouraged the diffusion of neo-liberal policies around the globe, undermining government regulations both in national and international arenas. As Higgins & Lawrence (2005) pointed out; ‘Deregulation in agro-food sectors – a traditional bastion of government control – has been particularly dramatic’. Private, voluntary arrangements addressing the environmental, qualitative and ethical dimensions of agro-food production have multiplied to fill this regulatory gap forging a system of “transnational private governance” (Gereffi et al., 2001). This shift from public to private regulation in the agro-food sector is well documented in Europe, where few supermarkets dominate the scene and increasingly steer the conditions within their supply chains, creating a ‘system of private interest regulation, which consumers rely on to ensure food quality and safety in the face of weakened and unreliable state regulations’ (Marsden et al., 2000). However, even though participation in certfication schemes is completely voluntary, certifications are becoming more and more a prerequisite for products entering competitive and rapidly growing niche markets aimed at highly conscientious consumers.

Nevertheless, the implications of this shift from public to private regulation in the agro-food sector, continue to remain widely debated. Some authors indeed find that certifications do promote the rise of labour standards, while others argue that private regulations only duplicate government rules and act as new vehicles for corporations to control global food production chains, trade, and consumption (Esbenshade, 2004, Busch & Bain, 2004). Additionally, large and powerful retailers can rise and enforce entry barriers which, in turn, will likely hinder smaller firms’ entrance. Indeed, costs for specific certifications are significantly high for small and medium enterprises, which have few resources at disposal to invest in such schemes (Hervani and Helms, 2005)

Sustainable Supply Chain Management (SSCM)

Globalisation and today’s economic trends have created highly complex supply chains (Varma et al., 2006) where production processes regularly take place around the globe, particularly in developing countries where raw materials are present (Keesing & Lall, 1992). Accordingly, supply chains have become ‘more global’ and it is hard to study them from a single-country perspective. Despite a great number of multinationals are making efforts and devoting resources to deal with social and environmental issues in their supply chains, ‘a gap still exists between the desirability of supply chain sustainability in theory and its implementation in practice’ (Bowen et al., 2001). A high level of environmental and social performances accomplished by one company, can be easily nullified by its suppliers’ poor environmental and social management practices (Faruk et al., 2002). Moreover, although a focal firm may have little control over its suppliers’ unsustainable behaviour and is not even involved directly, consumers will probably hold the lead firm responsible. That is why many big firms are struggling to find new ways of managing their supply chains in order to decrease such chain liabilities (Hartmann & Moeller, 2014).

Carter & Rogers (2008) applied a theoretical framework of sustainability to the supply chain – a concept they refer to as Sustainable Supply Chain Management (SSCM). At the core of this conceptualization is Elkington’s (1998) triple bottom line. In order to be considered sustainable in the supply chain context, firms have to perform well in all three dimensions of the triple bottom line, explicitly, on social, environmental, and economic issues (Elkington, 1997; Klassen & Vereeke, 2012).

Hence, Supply Chain Management (SCM) is a highly relevant topic to both successfully compete in today’s market and to address responsible behaviour at all different stages of the supply chain (Ashby et al., 2012). Together with sustainability, SCM represents an increasingly important research field. Sustainable Supply Chain Management (SSCM) involves the “management of material, information and capital flows as well as cooperation among companies along the supply chain while taking goals of all three dimensions of sustainable development, i.e. economic, environmental and social, into account which are derived from customer and stakeholder requirements” (Seuring & Mueller, 2008b). Companies may avoid, mitigate, and manage social and environmental risks by utilizing SCCM strategies (Cheung et al., 2009). However, as ‘theories of SSCM evolve, the empirical research on corporate motives and barriers to SSCM implementation is rather limited or fragmented’ (Giunipero et al., 2012)

infrastructure and systems that often increase the overall costs of operations. However, due to monetary constraints or high costs, companies often struggle to engage in SSCM practices (Ageron et al., 2011). Moreover, when a company wants to ensure sustainable measures through third parties certifications, its influence is contingent on the interplay of factors not only related and under the firm’s control such as local regulations and goal alignment among different stakeholders. The next section will indeed start with the analysis of those factors (drivers and barriers) stemming from the external environment that affect firms’ implementation of sustainbility inititatives.

External Factors (drivers and barriers) for sustainable supply chains

Market activities are typically embedded in social and economic institutions. Therefore, regulatory frameworks and guidelines to adhere to sustainability standards do not only originate from the buying companies, but also from the wide institutional context within which the company is operating in (Tachizawa & Wong, 2014). Hence, if an organization is part of a global supply chain, it cannot neglect or ignore its suppliers’ practices and has to be aware of stakeholders’ expectations and pressures (Bansal, 2005). As argued by Sousa & Voss (2008), simply investigating managerial practices may not be enough, and researchers should examine ‘the context under which they are effective’. Following Mitchell et al. (1997) argument, this paper starts from the assumption that stakeholder groups are different from each other. Hence, the broader external environment cannot be considered as static because it plays a determinant role in influencing the easiness with which a multinational can implement SSCM initiatives (which in the present paper are also referred to as sustainability or CSR initiatives). Unbundling the institutional characteristics of countries indeed recognizes for the possibly that distinct institutions will shape patterns of CSR activities differently (Brammer et al., 2012)

stakeholders’s pressure is high, as stakeholders’demands are often perceived as strategic for the firm (Sharma & Henriques, 2005). For instance, Jennings & Zandbergen (1995) introduced Institutional Theory to help explain firms’ adoption of environmental management.

Hence, involving additional stakeholders into a firm's SC approach and making use of stakeholder pressures (e.g., regulatory incentives or customer demands) can positively contribute to influence supply chain partners' behavior (Argenti, 2004; Seuring and Mueller, 2008a; Peters et al., 2011; Cheung et al.2009).

This implies that regulatory incentives, for instance, can actually become external enablers themself, triggering the adoption of SCCM strategies (Chkanikova & Mont, 2015). The same applies to governments that, as powerfull stakeholders, are able to push for the improvement of companies’s SCCM practices. An extensive body of previous research has indeed shown that ‘regulation and

legislation act as a strong driver for the adoption of SSCM practices’ (Ageron et al., 2011; Giunipero

et al., 2012). For example past research found that government regulation and legislation is a major driver for companies’ environmental efforts (Beamon, 1999) and Min & Galle (1997) identified that both state and federal environmental regulations are two key features affecting a buying company’ green purchasing practices. Similarly, Doane (2005) argues that Government influence and Regulations are one of the key drivers that would induce firms to adopt a CSR programme. Public policy can indeed set the right incentives that encourage corporations to invest in sustainability (Scott 2005). Additionally the government can play an important role by promoting public and customer awareness campaigns about environmental and social sustainability issues (Sajjad et al., 2015)

of corruption, informality and various compelling social issues - increase the degree of complexity supply chains are confronted with, reducing the level of trust in the business environment. This, in turn, raises environmental turbulence and weakens institutions hindering sustainability performance (Silvestre, 2015). Indeed, if on one hand several external factors can contribute to foster a corporation’s ability to engage in SSCM practices, on the other hand, the lack or wrong implementation of these factors can have the opposite effect and act as barriers. For example, the lack of regulation may reduce the pace of SSCM adoption (Cheung et al., 2009; Faisal, 2010). Indeed, when market incentives and fiscal measures tha encourage sustainability initiatives (e.g. levies and taxes) are not present, sustainability implementation for a firm might be much harder harder (Sajjad et al., 2015)

Therefore, even though the external factors just discussed are crucial to understand the behaviour of a firm’s sustainability practices, we cannot prescind from considering the internal (organizational) factors that might moderate the external environment, further fostering or hindering a corporations’ ability to engage in SCCM practices

Organizational (internal) and Supply-Chain Related Factors

of sustainability practices (Bowen et al., 2001; Walker et al., 2008). Technical skills and competences of the purchasing personnel may be critical in building an integrated and effective Sustainable Supply Chain. Indeed, assuring sufficient personnel’s training has been found to be positively correlated to an increase of employees’ competences and understanding of potential environmental issues on the supply chain (Carter et al., 1998). Also individuals’ personal commitment has been found to be positively related to the engaging in sustainable practices along the supply chain (New et al., 2000). The latter could be ensured by a company’s top management support that will help to effectively implemen organizational CSR initiatives (Carter and Dresner, 2001). This is however also true when it comes to middle management and to the overall company culture (Paulraj, 2011).

Besides organizational (internal) factors and the ‘external’ ones related to the general context in which firms operate, this paper will also take into account another set of factors; what it is referred to as supply chain (SC) related factors, factors stemming from the very nature and structure of a sustainable supply value chain. SC-Related factors cannot be considered as purely internal or external. Indeed, on one hand global value chains are immersed in the external environment (not under firm’s control), on the other hand firms can set up incentives and resources with the aim of influencing its value chain under its domain as much as possible.

difficult is to identify its suppliers working conditions, not to mention the fact that the overall cost for active monitoring will consequently rise.

Nevertheless, if a supplier shows a willingness to follow a firm's SC strategies, its low competence level may force the focal firm to increase the investments into the supplier relationship in order to develop the necessary competences that it would need to successfully adopt SC practices (Ageron et al., 2012). This is something that we often see happening in food supply chains, usually characterized by small farmers who may lack of skills and resources.

Theoretical framework

Critical Factors for SSCM implementation Sources

Internal factors

-

Skills & Competencies Bowen et., al (2011)

-

Commitment Walker et., al (2008)

-

Financial Factors Ageron et., al (2012)

Walker et., al (2008)

External Factors

Stakeholders Pressures

-

Regulatory incentives and Government influence Argenti (2004), Faisal (2010); Doane (2005)

-

Inadequate consumer demand

for sustainable products Cheung et al.(2009)

Weak Institutions

-

Lack of infrastructure, Silvestre (2015) compelling social issues,

corruption (creating ‘Institutional Voids’)

SC-Related Factors

-

Size and number of tiers Awaysheh and Klassen (2010)

-

Lack of information and transparency Awaysheh and Klassen(2010)

-

Suppliers low competence level Ageron et., al (2012).

Table 1: External, Internal and SC-Related Factors

Methodology

This study is based on exploratory case study research. Case study research is especially preferable for theoretical development in research fields such as supply chain management (Meredith, 1998). It allows for a more comprehensive understanding of the nature and complexity of a phenomenon that cannot be extracted from a purely statistical method (Meredith, 2002). Specifically, the research design that this paper adopts is the embedded case study design, an empirical form of inquiry which is appropriate for descriptive studies aimed at describing features, contex and process of a phenomenon (Yin, 2003). In our case the two country settings of Sri Lanka and India are embedded in the Unilever tea supply chain case. ‘Embedding’ the two countries within the same firm ‘framework’ excludes any further secondary factors which are not the object of our research but that

might alter its outcome. Sri Lanka and India have been chosen because they are economically relevant for Uniever, and also

because the company has recently expressed its commitment to invest in these nations in order to have a sustainable tea value chain. Moreover, much research does not exist in these country settings up to this date (as opposed, for example, to Kenya).

It is important to highlight that the present paper will not consider the presence of certifications as synonimous of succesfull implementation of sustainable practices. For this reason we will rather take a broader approach from the point of view of the respondents to assess the overall level and progress of sustainability in each country setting embracing, Elkington’s (1997) Triple Bottom Line concept and its three components (social, environmental and economical).

Case Selection

Unilever and the tea supply chain

Unilever is one of the world’s leading companies in the FMCG (Fast Moving Consumer Goods) sector, owning a wide range of food, personal-care and home-care goods. The company has an exceptional global reach, selling in more than 180 countries, half of them being developing countries. Every day more than two billion of consumers around the world use Unilever’s products, and the corporation’s turnover in 2015 was €53.3 billion, with roughly half of its sales coming from the food category (Unilever, 2015).

Although Unilever’s tea portfolio includes several brands (like PG tips in the U.K and Lyons in Ireland), the worldwide famous Lipton Tea is their top tea brand and one of the largest tea brands in the world, with annual sales of approximately €3.5 billion. Lipton’s nearest competitor, Tata Bevareges, has only one third of Lipton’s tea market share (Henderson & Nellemann, 2011).

The company has always been characterized by a strong commitment towards sustainability and, in 2015, the corporation has been named as a leader of the Food, Beverage and Tobacco Industry Group in the Dow Jones Sustainability Index (DJSI), being one of the only 24 companies to be named as Industry Group Leader (Unilever, 2015).

In 2010, the multinational announced its commitment to a new “Sustainable Living Plan,” with the intent to source 100% of (agricultural) raw materials ethically and sustainably by 2020. Obviously, in order to reach such an ambitious goal, a radical transformation of the entire supply chain had to be implemented, especially for a brand like Lipton that sources almost 8 million tons of commodities from 50 different crops around the world.

The transformational changes happening at Lipton, therefore represent an important cornerstone of Unilever’s plan. Unilever CEO Paul Polman believed that the company’s goals could drive savings, product innovation, and differentiation across the company’s portfolio. Above all, his belief was that a sustainable strategy would also create a company better suited to survive in the future.

whose mission involves the protection of people and the environment through the

improvement of farm management in the agricultural sector (Raynolds et all., 2007). The

second issue was whether and how the multinational could gain a market advantage from its move into sustainable (certified) tea. Certifying the tea industry, and monitoring compliance, would indeed bear several costs and challenges that Unilever would find difficult to recover and overcome if consumers worldwide are not really prepared to pay a premium (Henderson & Nellemann, 2011).

Data collection

For the purpose of this research, we conducted semi-structured interviews with four key informants whose names, in line with their requests, will not be reported. They will indeed be referred to as: Sri Lankan Procurement Manager, Indian Procurement Manager, Unilever Tea Category Manager and Rainforest Alliance Manager responsible for the tea in the Asia-Pacific area. Semi-structured interviews allowed for more flexibility, meaning that new ideas and emerging topics could be discussed without strictly following the questionnaire (Merriam and Tisdell, 2015).

The interviews lasted around 60 minutes and were recorded and later transcribed. Approximately twenty questions investigating internal, external and SC-related factors already discussed in the literature were designed to implicitly assess the impact of a variety of factors in influencing Unilever’s ability to propagate, implement and monitor sustainability practices in the selected tea sourcing regions. The country often used as ‘benchmark’ was Kenya, where Unilever’s sustainability plan seems to be working exceptionally well. When discussing the external context, respondents were also asked about specific factors-barriers encountered in each country as opposed to general barriers encountered in other countries in order to capture issues (external factors) related to the environmental turbulence and institutional voids that the Unilever’s tea supply chains faced. In this way it was possible to gain a detailed understanding of specific barriers (disablers) faced by the company in each country setting and the enabler factors needed to overcome these barriers.

administrator (Awaysheh and Klassen, 2010).

Additionally, following Eisenhardt (1989) suggestion, we combined our case study findings with secondary sources (such as comapany’s websites, documents, and publications) in order to strenghten validity and complement the dynamics associated with a particular aspect.

Data analysis

Before gathering the data, a set of pre-defined codes (based on identified critical factors identified in the literature) was developed in order to match existing theoretical constructs (King, 2004). This pre-structured outline was composed by codes developed ‘a priori’ that functioned as a ‘shell’ for the gathered data, enhancing later comparability (Miles and Huberman, 1994). Table 1 indeed shows the division of the codes (factors) that we obtained from the literature in internal factors, external and SC-related. However the flexibility of the semi-structured interviews allowed for new codes (also called grounded codes) to emerge as well.

This strategy enables to gain an in-depth understanding and map key issues, implications and interconnections among the different factors (Neuman, 1997), particularly looking at the interplay between factors that will be discussed in the discussion section.

Findings

In this chapter the results gained through the interviews are presented in the same interview order for each country setting. Findings are reported in separate sections and analyzed through our analytical lens (full interview transcripts can be found in the appendixes). Relevant sentences-citations that best explain a particular concept or situation are also reported.

Introduction of the Sri Lanka case

is one of the oldest tea producing countries in the world and their tea, commonly known as “Ceylon Tea”, is ranked among the best teas in international trade. At the same time, Sri Lanka is the fourth-largest tea-producing country in the globe, generating around 30 million kilograms of tea, cultivated on almost 200 thousand hectares throughout the year, highly contributing to the nation’s GDP. Thus, the role of the tea sector in Sri Lanka is highly important, and the industry is the country's largest employer, providing jobs to over 1 million people.

Approximately 10% of the agricultural GDP comes from this sector, supporting 10% of the national population directly. Sri Lanka’s tea is grown on large plantations as well as on smallholdings. The country’s tea is mainly exported, satisfying around 19% of the global demand (Van der Wal 2008). The country has a strong association with the Lipton brand as the history of Thomas Lipton basically started with the growing and exporting of Sri Lanka’s tea in 1890. Therefore ‘If you know tea you know Sri Lanka or if you know Sri Lanka you know tea’ (Sri Lankan Procurement Manager).

Institutional (external) drivers and barriers to sustainability in Sri Lanka

When analysing the broader external environment, we see that the general understanding and acceptance of the concept of sustainability is quite well spread in Sri Lanka. The President, as well as other major stakeholders, are really committed to make positive changes and open to discuss sustainable development. Influential stakeholders include relevant authorities linked to the Tea industry (Tea Research Institute, Tea Smallholder Development Authority), academia (Universities) and industry bodies and associations (Planters Association, Private Tea Factory Owners Associations) operating in the Tea industry.

Thus it seems that the external context generally embraces sustainability concepts and does not place additional barriers, but rather creates a favourable environment for sustainability to prosper. The government of Sri Lanka has indeed taken several innovative initiatives to be on the ‘right track’ towards sustainable development, setting up a solid framework at national, regional and multilateral levels with some of these regulations being specific to the tea sector.

protection of Human Rights (‘Sri Lanka Path to Sustainable Development’, 2012).

The Unilever Category Manager describes the Sri Lankan external environment by saying “it’s quite easy to talk about sustainability in Sri Lanka. The government is quite involved and aware of the social and environmental issues and has a lot of socially responsible policies in place”. On the same line of thought is the Sri Lanka Procurement manager who states:

“From a state point of view, they are quite open in doing good farming, because they understand that this is a country which has a long history in agriculture. People are aware of that. Government is aware of that, so there's a lot of positive vibes to adopting good practices for anything that they grow”.

Under the present political leadership the economy grew to a great extent and the country has made significant progress in sustainable environment management and poverty reduction, along with other improvements in the social dimensions (‘Sri Lanka Path to Sustainable Development’, 2012). However, what the government still needs, in order to be properly committed in converting the tea industry into a certified one, is a ‘convincing story’ from Unilever. So far it has been a bit skeptical about those benefits, and afraid that something might be going on ‘behind the scenes’ with big Multinationals such as Unilever. Thus, there is a general feel that MNCs will try to influence the State as much as possible in order to bring in regulations which mainly serve the company’s interest. This is the reason why Unilever needs to deliver a statement (convincing story) that could prove the benefits of the implementation of sustainable practices.

Thus, it comes with no surprise that Unilever, in collaboration with Rainforest Alliance and a local university, has indeed recently commissioned a research report (more precisely an impact assessment research) that will hopefully provide concrete evidence of the benefits of sustainability. This clearly indicates that Unilever is trying to conform to social expectations/demands in order to gain external legitimacy and the support of important stakeholders such as the government.

“Broadly, I would say that the industry is open to listen to sustainability agriculture, it's just that you need to go with the right kind of convincing stories to make certain big changes” (Sri Lankan Procurement Manager).

focus on building a ‘convincing story’ supported with sound proofs.

While, on one hand, lots of government regulations seem to work in the same sustainable direction of the company, on the other hand, some existing laws actually act as impediments. For example, by law, small farmers in Sri Lanka have to be able to choose at least among two buying companies (i.e., processing factories) to whom to sell their tea to. But this law is clearly counterproductive for ‘sustainability purposes’ because buying companies would be particularly reluctant to invest in smallholder training or production as they fear that once they have helped and invested to get those small farmers certified, those farmers can then switch to other buyers.

Finally, it seems that the biggest disabler to sustainability implementation can be identified in the output market where the country’s tea is mainly sold. Indeed 90% of the country’s tea is exported to the Middle East and Russia, where consumers do not really ask for certified tea.

“There are very few companies that buy tea from Sri Lanka and sell it in the western world” (Sri Lankan Procurement Manager).

If we make a comparison with Kenya, for instance, tea there is mainly exported in Western Europe where consumers instead really value certifications. Hence, the output market of the Sri Lankan tea, clearly makes things further complicated: the lack of a strong demand for sustainable products represents an important challenge that companies will face if they want to certify tea. The Sri Lankan Procurement Manager indeed argues:

“this is giving us a huge problem to convert the tea industry to RA certified”.

Growers do not have an incentive to adhere to RA schemes because it is something that consumers in their markets simply do not value.

“Big investments need to come from the tea industry itself. Otherwise the business model is not going to be sustainable” (Unilever Category Manager).

The costs of Sri Lankan tea are already higher due to two main factors. The first one is that lands where tea is cultivated are really steep and thus it is harder to pluck the plant. The second one is that the labor force working in the plantations has political power and, throught the use of cooperatives, they often use to re-negotiate salaries and to obtain an increase. This challenges make the tea price higher and, as a consequence, it becomes harder for Unilever to further push for a sustainable tea that would need to be sold at a much higher price to final consumers.

This is beyond Unilever’s control and it is negatively affecting their ability to certify tea: when the price of tea is higher, it is more difficult to charge a premium price to the output market.

Going back to the external factors of our theoretical framework table, under ‘Weak Institutions’ we labelled factors that could act as potential barriers to the implementation of sustainability, namely: lack of infrastructure, compelling social issues, corruption and informality. Nevertheless, none of them were outlined by respondents as being relevant or as playing any major role. Contrarily to expectation, the Sri Lankan Procurement Manager stated:

“For this project corruption doesn't seem to be a major hindrance”.

When asked about the potential problems stemming from obsolete infrastructures, the Rainforest Alliance Manager drew a comparison with India and highlighted the following:

“The infrastructure in Sri Lanka is way better than it is in India. The roads are better, they're really upgrading that country. There's a lot of foreign investment”.

Overall, it can be said that ‘weak institutions’ do not appear to act as big disablers for sustainability practices implementation in Sri Lanka.

Organizational (Internal) factors in Sri Lanka

At the moment the only active buyer in Sri Lanka who is really showing an interest in buying certified tea is Unilever, who is buying around 5-10% of the total national production. However, this is not a huge amount and Unilever still has ‘very little buying leverage’. Compared to Kenya where Unilever has a far bigger buying leverage we can see how it would be easier to convince producers to switch to ‘sustainable farming’. This is consistent with what the Unilever Category Manager reported:

“Unilever does not have a market pull big enough, we do not buy sufficient quantities of tea. The suppliers mostly see sustainability coming at a cost. They will need to invest to become RA certified. They would need to do things differently and they see that coming at a cost. It is very difficult to explain them the benefits. Now, tea is already a commodity, it comes with a very low margin. Anything that they need to do on top of that for them, comes as a huge investment and cost. Since we are not big enough we cannot really pull that”.

Tea growers are aware that farming in a sustainable manner will increase their yields, but a real commitment to do so from their side is lacking.

The limited buying leverage of Unilever has been repeatedly reported to be a key factor limiting the company’s capacity to drive sustainable changes in the tea industry by all respondents.

“Unilever should buy more tea from Sri Lanka, but of course that doesn't work that way” (Sri Lankan Procurement Manager).

So tea growers shall either see an immediate cost benefit to grow certified tea or they shall see a demand for it, but neither of these things are happening at the moment. From this point of view, as in the case of the government, Unilever in Sri Lanka needs to deliver evidence that sustainable production of tea will improve yields.

“Farmers know it is good and makes logical sense but where are the numbers? There is no baseline in Sri Lanka that adopting sustainability has given positive effects, there is no research” (Sri Lankan Procurement Manager).

Hence, they need to be better convinced of the long term benefits, especially from the moment that currently Unilever is not offering any premium that could cover their initial costs for certified tea. Nevertheless, Unilever is putting a lot of effort in the process; they help and listen to small farmers, trying to understand their problems and showing them different options to get certifications. However financial resources are still lacking and the investments from the company are still limited. The corporation cannot bear the whole costs associated with the implementation of sustainable initiatives on its own, implying that a multi-party approach that involves several stakeholders is needed.

“If we want to drive bigger social impact we need start doing additional things, additional programs but we need to do it with other organizations as well as we cannot continue to subsidize the whole tea industry, otherwise we will need to do it everywhere” (Unilever Category Manager).

Supply Chain Related Factors in Sri Lanka

Approximately 40% of the tea in Sri Lanka comes from plantation companies. These are corporate entities (around 23 in total) that grow tea on lands that they have leased from the government. In these lands, almost the entire population lives and works in the tea sector. The remaining 60% of the tea production is carried out by smallholder farmers (more than 400.000 individuals).

discussions around sustainability implementation, not only limited to Rainforest Alliance but also to the Ethical Trade Partnership and quality management systems. As a consequence most plantations are either certified or on their way to do so. But when it comes to small farmers, things get more complicated. They are not well-structured and organized (i.e. cooperatives are lacking) and thus it is hard for a proper ‘knowledge transfer’ to happen and thus the development of a good competence level on the supplier side is hard. As stated by the Rainforest Alliance Manager:

“if you want to drive changes you have to link growers to a supply chain, like Unilever did in Kenya where small farmers all fall under the umbrella of the KTDA organization’and have a very good structure. In Kenya they are linked up to factories and they need to deliver to those factories. In Sri Lanka that is different, they are not organized”.

Thus, differences in the tea producing models (plantations vs small farmers), and the way in which the supply chain is organized, affect the ease with which certification schemes can be implemented.

Introduction of the India case

Tea cultivation in India was started in the nineteenth century by the British, and has now grown to the extent that India is today the second largest tea producer in the world, with a total of 900,000 tonnes produced every year (‘Top 10 Tea Producing Nations’, n.d). The Indian tea industry is the second largest employment provider in the organized manufacturing sector, giving direct employment to more than 10 million families on the estates and approximately the same number of people work as casual workers on the smallholders’ farms. Tea production in India is indeed carried out both on tea plantations (estates) and smallholder farms. The cost of production of smallholder tea farms has remained relatively lower compared to the tea estates, mainly because there are many hidden family labour costs, and also because the smallholders do not have to bear the social costs. Plantation

workers, who are mostly migrants, are provided with housing on the estates. Similarly to Sri Lanka, also in India, Unilever’s commitment to sustainable and ethical sourcing has

Institutional (external) drivers and barriers to sustainability in India

The Plantation Labour Act (PLA), enacted in 1951, still remains one of the most significant Acts in the Indian Tea Industry, regulating the welfare and conditions of labour on tea plantations. When it comes to regulating the tea sector, the most important regulatory body is the Indian Tea Board, which sets up the regulative framework to promote all-round development of the tea industry. This body promotes the tea industry by extending tea cultivated areas, implementing development schemes and undertaking promotional campaigns to grow national and international markets.

In 2013 Unilever’s initial plan was to certify its tea value chain with the RA code, a worldwide recognized certification that sets environmental and social standards. But then the plan suddenly changed and the company opted for a local code that was much easier to implement: Trustea.

As stated during the interview by the Indian Procurement Manager:

“We were not moving at the correct pace to implement the sustainability standard of Rainforest Alliance with our suppliers, and it was really not up to our expectations”.

The decision was taken by the Unilever Indian subsidiary with the complete involvement of the Unilever Global Sustainability Committee. Unilever was indeed having troubles convincing their suppliers to certify their tea with the Rainforest Alliance certification and the reason for that, similarly to the Sri Lankan case, had to do with the inadequate consumer demand for sustainable products. Indeed Indian consumers still display a low level of involvement with environmental and social issues in the food industry (Krisch, 2006). That is why the use of an internationally recognized certification like RA would have not made sense. For example Trustea is not used when it comes to certifiying coffee, as it is an export-oriented product (70% exported especially in Western countries). On the contrary a great percentage of Indian tea is instead destined for the internal market and not, for instance, to Western countries, where consumers are willing to pay premium price for sustainable products. As the Indian Procurement Manager perfectly summarizes: ‘We thought to implement a local code for the simple reason that 85% of India’s tea is consumed domestically and implementing a code which is meant for domestic markets makes sense’.

on Indian realities and existing legal provisions but references were drawn from existing global standards like Rainforest Alliance, thus the code is ‘less’ strict in the sense that is ‘locally adjusted’. Besides the output market, several stakeholders contributed to the adoption of the Trustea code in the first place. The code was indeed created in collaboration with Tata Global (Unilever’s competitor) and other certification bodies (i.e. Ethical Tea Partnership and Solidaridad). Also the government was relevantly involved, since 65% of the code’s requirements are minimal requirements that smallholders have to meet by law (Plantation Labour Act 1952). Trustea is indeed led by the Indian Tea Board, a body representing the government: 50% of the Trustea audit costs (a key cost element when it comes to implementing this code) are subsidized by the state. Hence it appears that regulatory incentives go in the same direction as the company’s objectives in terms of sustainable intiatives. However this is not always the case and, even if government support seems to be there with some targeted regulations, many barriers still orginate from ‘Weak Institutions’. Regulations, for example, are often not strictly enforced and there exist a high level of informality.

“There are local regulations and the plantation labor act, but even the government is not strictly enforcing that, so there's a lot of ... What's the English word? Like slack and a general lack of clarity regarding penalties. Furthermore there are a lot of things running behind what it should be, and in a way, it's just grown like that” (Rainforest Alliance Manager)

When compared to Sri Lanka, India is characterized by pressing social issues that are far more difficult to tackle:

“Some of them are embedded in the country’ society, like child labour, trafficking, and all of that. This is not something Unilever can change overnight; we can support the programs that can start the changes and that's what we're doing” (Unilever Category Manager).

That said, if Unilever wants to really drive changes, the company has to involve and obtain support and resources from different stakeholders and implement a multi-party approach, something that the corporation is trying to achieve:

Organizational (Internal) factors in India

Unilever in India is seen as one of the biggest and most important companies. As said earlier, the company is one of the co-founder of Trustea and they are supporting the code implementation not only with financial investments but also with a lot of effort, personnel resources and genuine commitment.

They are guiding tea growers through the whole process of certification, from gap assessment to the final verification of standards. The company has a team of 30 people at their disposal to carry out the training at suppliers’ locations, which is a huge support.

Unlike the previous case of Sri Lanka, Unilever buys huge quantities of tea from India and therefore is in the right ‘position’ to drive sustainable initiatives and to exercise a strong power over its suppliers. This can be easily understood from the following comment made by the Unilever Category Manager:

“They are looking at us to make changes. We have to be the first ones to do this and to lead the agenda. We're also the biggest ones who can do it, who can drive that change. In Sri Lanka we're not that big as a company overall. We've got a lesson, we can play a less dominant role in Sri Lanka than we probably can in India”.

This is why the company was in the position to announce that, from 2020, they will not buy non-certified tea anymore. Hence a high buying (the capability to buy high quantities of tea) allows unilever to exert a great amount of power over suppliers, almost ‘forcing’ them to adapt to the requested sustainable changes along the supply chain. But being in such a dominant position also entails some additional responsibilities for Unilever. The company has sometime to fill institutional voids and ‘moderate’ external barriers originating from Indian (weak) institutions.

For example, Bought Leaf Factories are required by law to pay a minimum wage to workers, but this is not the case for small farmers that do not have a notified minimum wage that by law they have to pay to their farm workers. In order to compensate this ‘deficit’, Unilever tries to engage with small farmers to convince them to pay the same minimum wage that Bought Leaf Factories pay to their workers.

That is because in India, financial constrains are not the biggest problem when a company wants to implement sustainability practices. Indeed The Indian Procurement Manager states:

“There are key challenges on ground while implementing , more important than funding”.

Compared to Sri Lanka, the overall income in India is way lower and lots of people (including tea workers) lives below the poverty threshold and poverty also brings several social issues (mentioned in the previous section. Some of these social problems such as child labour and trafficking are embedded in the society, and this makes us understant the answers of the Rainforest Alliance Manager brlow. When asked about what Unilever could do to drive additional faster, he summarized in the following way:

“Well, I think Unilever is already having quite a lot of programs to improve conditions for workers on estates, I think as a main buyer of the tea, there is a role. Unilever cannot change things overnight. we can support the programs that can start that change and that's what we're doing is supporting ...”

Supply Chain Related Factors in India

Similarly to Sri Lanka, there are two tea producing models in India: Tea plantations and Bought leaf Factories that source from smallholder farmers. Because of their fragmented and unstructured nature, small farmers are really dependent on middle-buyers also known as green leaf agents or aggregators, which are crucial elements in the supply chain. The problem with green leaf agents is that they keep changing their tea suppliers (smallholders) constantly. This is something that goes against the very basic logic of codes implementation which, instead, requires the supply chain to be static.

“If you keep changing your growers every month or every three months, it’s difficult to implement a code” (Rainforest Alliance Manager).

In the previous section we argued that the major reason for coming up with a local code (trustea) rather than an internationally recognized one like RA was due to the nature of the output market (i.e. concept of consumers demand for sustainable products). However there is another reason for that, this time related to the very structure of the supply chain.

Indeed, through the use of the Rainforest Alliance code, Unilever was not covering all the tea production coming from smallholder factories in India, meaning that one third of tea production was not being attended to the need of developing it into sustainable source.

“This was one major reason for coming up with Trustea Code. Trustea Code is primarily meant for a Bought Leaf Factory, as well as for estate factory. It covers both models, something which was not possible with Rainforest Alliance” (Sri Lankan Procurement Manager).

External Factors Sri Lanka India

Stakeholders pressures

Weak Institutions

Positive regulations and awarness but general distrust towards MNCs.

Local Institutions need a

convincing story from Unilever that would prove the benefits of sustainability implementation. Output market: 90% of Sri Lankan tea is exported in countries with low demand for sustainable products (i.e. Russia, Iraq).

Strong government support for the implementation of Trustea code since the code covers minimal

environmental and social

requirements also required by the Indian Law.

Output market: 80% tea consumed internally where there is low demand for sustainable tea. That is why Unilever decided to substitute the RA certification with a less strict code: Trustea

Institutional voids

INTERNAL FACTORS

Strong commitment from Unilever

to implement sustainability

initiatives, but sufficient financial resources and adequate personnel related resources are still lacking. Unilever does not have a high buying leverage (only buys 5-10% of the country’s total produced tea).

Unilever has a strong brand image and a strong buying leverage (biggest tea buyer in the company). This means Unilever bears the

additional ‘burden’ to fill

institutional voids that exist within Indian institutions.

Strong commitment, financial and personnel related resources on the ground to drive these changes (dedicated team of 30 persons)

SUPPLY CHAIN RELATED FACTORS

Small buying leverage gives Unilever little power over suppliers and thus Unilever really needs to convince tea growers of the long-term benefits of certifications as the company cannot assure them that will buy high quantities of certified tea

By law, smallholders can choose to whom they sell, further hindering the implementation of any code as no firms will be willing to make any investments in a supplier that can suddenly switch and sell to other firm (thus they will hardly develop sufficient competence levels)

High buying leverage allows Unilever to exert strong power over its suppliers, driving sustainable changes easily.

Discussion

This study investigates the internal (organizational), external and supply-chain related drivers and barriers that might hinder or foster the implementation of sustainability initiatives by a buying firm (Unilever). We started with the analysis of the external environment in each country setting (Sri Lanka and India) through the use of Institutional Theory. Then we switched to the analysis of the internal factors and those related to the supply chain.

The choice of Institutional Theory is motivated by the fact that distinct institutions shape patterns of CSR activities differently (Brammer et al., 2012). In line with this argument we found that Sri Lanka and India present differences in both their institutional environments and general external contexts. In both countries commitment towards the implementation of sustainable practices is present, but in India some social issues (which have their roots in the society and in the culture) and ‘weak institutions’ seem to act as additional barriers, while in Sri Lanka we did not find any evidence of that.

Proposition 1: Even if government supports the adoption of sustainability practices through ad hoc

regulations, Unilever in Sri Lanka still needs to give proof (‘convincing story’) to institutions and tea growers that sustainable certifications will bring concrete benefits.

Internationally recognized certification schemes, like the Rainforest Alliance, would make perfectly sense if Sri Lankan tea was destined to Western countries that would actually pay a premium for certified tea. However this is not the case, and 90% of the country’s tea is exported in countries where consumers still do not show interest for sustainably sourced tea. This is why some tea growers already abandoned certification schemes in order to compete on a price level with other countries (i.e. Vietnam). We can say that small farmers do not see any economical reason to invest in sustainable methods that will bring their benefits only in the future. Thus, Unilever should ‘absorb’ these costs (covering the short term investments that small farmers have to make) by paying them a premium for certified tea. Alternatively, Unilever should invest more in their promotional campaigns in order to boost consumers’ preferences for certified products. However, none of this is currently happening, and both choices would entail monetary constraints or high costs, which were previously identified as first impediments that may separate companies from their Sustainable Supply Chains ambitions (Ageron et al., 2012; Walkert et al., 2008).

The situation is however different in India. Unilever has a huge buying power that allows the company to exert a great influence over suppliers and easily convince them to adopt certification schemes, as they can be sure the company will later buy their certified tea. That is why Unilever has announced that, from 2020, the company will not buy non-certified tea anymore.

Proposition 2: The higher the buying leverage, the easier it will be for companies to implement

sustainable initiatives (certifications) in their suppliers.

Proposition 3: The demand for sustainable (certified) products is strongly related to the output

market, and greatly influences the easiness and the type of certification schemes that can be implemented.

Historically, Unilever in India has always had a strong brand image (of course linked to their strong buying leverage). Their position of ‘power’ in the country allows the company to convert the industry into a certified one without struggling too much. However, this also means that the company bears the additional responsability to fill those ‘institutional voids’ left by Indian’s (weak) institutions. Indeed it is true that institutions are formed to reduce uncertainty in human exchange, but ‘weak or absent institutions generate institutional voids that can significantly increase the degree of uncertainty within the business environment’ and create additional barriers to the long-term implementation of sustainable measures (Webb et al., 2010; Hall et al., 2012). While in Sri Lanka we did not find evidences that the weak institutions represented major problems and created institutional voids, it seems instead to be the case in India. The country has indeed several social issues such as lack of infrastructure, lack of clarity regarding penalties, low enforcement of regulations. In turn these problems create institutional voids that increase the degree of complexity that supply chains face and negatively affect the easiness with which sustainable initiatives can be implemented (Silvestre, 2015). For example, the lack of regulation may reduce the pace of SSCM adoption (Cheung et al., 2009; Faisal, 2010). This is consistent with Meyer et al., (2009) who has already examined the negative effects of institutional voids in India and other countries.

Unilever tries to moderate these challenging and complex external environment with the use of several financial and non financial resources (personnel-related), trying to conform to social expectations and social norms. This is vital for its survival and success and to gain legitimacy within society (Baum & Oliver, 1991; DiMaggio & Powell, 1983).

However the company cannot bear the whole responsibility of improving sustainability in the tea industry. Some social issues are really embedded in the society. Thus, Unilever cannot change things overnight, and above all cannot implement long term changes by itself: a multi party approach involving several stakeholders is needed.

Proposition 4: Weak Institutions can create Institutional voids that hinder the implementation of

This proposition is indeed in line with previous research which argues that the involvement of additional stakeholders and making use of stakeholder pressures can positively contribute to influence supply chain partners' sustainable behavior (Argenti, 2004).

When it comes to the supply chain structure we observed that differences in the tea producing models (plantations vs small farmers) are key elements to be taken into account when a company wants to implement certification schemes. When it comes to certifying, it’s much easier to do that in plantations rather than in small farms. The latter are indeed fragmented and dispersed, and is difficult to monitor compliance. That is why there is a strong need to link them into a single supply chain like in the case of Kenya, where they all fall under the KTDA (Kenyan Tea Development Agency) umbrella. Additionally small farmers in India sell their tea to middle buyers (Green Leaf Agents) who constantly change their suppliers, something that goes against the very logic of code’s implementation that requires ‘static’ supply chains.

Proposition 5: The supply chain structure (tea platations vs small farmers) influences the adoption,

Conclusion

We have examined the drivers and barriers that Unilever faces when the corporation wants to implement sustainable initiatives along its tea value chain in Sri Lanka and India. Drawing from the Sustainable Supply Chain Management literature, we identified a number of drivers and barriers (factors) that we divided in external (stemming from the general context), internal (related to the organization) and Supply-Chain related. We created a pre-structured scheme with a priori factors identified in previous literature, but allowed other factors to emerge thanks to the flexibility of the interviews. We then focused on specific interactions among different factors. For example we found that Unilever has to provide the government and tea growers with evidence that sustainable initiatives will bring positive benefits in the future. This can be seen as an attempt of the company to moderate the external environment. Moreover we found that the easiness with wich a company can convert the tea industry into a certify one, really depends from their buying leverage as they have to ensure tea growers that they will be able to buy large quantities of their tea and pay a premium for that. Alternatively tea growers have to be sure that final consumers will pay this premium, but this is something related to the output market of the countries’ exported tea, a factors that revealed to be crucial for sustainability implementation purposes. We also found evidence that the structure of the supply chain really influences the easiness of implementation of these practices. Tea plantations, compared to small farmers, have a more ‘stable’, less ‘fragmented’ structure. In this way they are better linked to one (well structured and organized) value chain, which facilitates sustainability implementation.

Finally we saw how corporations cannot drive the necessary sustainable changes alone. Even if companies commit several resources in order to have sustainable supply chains, there is a need of involving additional stakeholders, especially for countries (i.e. India) where ‘weak institutions’ leave space to institutional voids.

Managerial Implications and Contributions

In line with Gimenez & Tachizawa (2012), we sustain that the main managerial implication is that having a clear statement on sustainability is not enough. If companies truly want to implement a Sustainable Supply Chain, commitment and financial investments might not be enough, but just the starting point. Managers need to make sure that additional stakeholders will be involved in the process, and that major impedements originating from weak institutions will not create additional insurmountable barriers. In this sense, this research extends existing literature (Silvestre, 2015) by arguing that supply chains in developing and emerging economies face greater barriers when it comes to sustainability implementation compared to supply chains operating in developed countries. Indeed, even if companies have truly genuine intentions to implement sustainable practices along their valuie chain, the success of the implementation might be strongly dependent from factors outside a firm’s scope. For example, before choosing the type of certifications comapnies want to use, managers shall understand and investigate which will be the output market of their products, as consumers will be the ones that have to be prepared to pay a premium price.

The present research also provides a partial (for the tea supply chain) answer to Awaysheh & Klassen’s (2010) concern that ‘much remains unclear about how the structure of the supply chain influences the management of social issues between a focal firm and its suppliers’ as we found evidences that a certain type of tea producing model makes the implementation of sustainable practices easier.

Finally this paper contributes to the fragmented body of knowledge regarding the implementation of the SSCM approach. It does so, by providing both practitioners and policy-makers with an up-to-date knowledge of what factors motivate and inhibit SSCM implementation and how these factors interact.

Limitations and Further Research

Third, this study only focused on leading organization such as Unilever, this may not be a generalizable reflection on the general state of SSCM adoption and drivers/barriers in different (non-leaders) companies. Moreover smaller companies might face more difficulties to overcome barriers due to their more limited resources and lower bargaining power compared to larger firms such as big retailers and multinational consumer goods manufacturers (Ciliberti et al., 2008). Thus, future research would be needed to examine the issues related to adoption of SSCM practices in smaller companies.

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