How MNC-NGO partnership enables suppliers to overcome the barriers of complying with the codes of conduct

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1 Master Thesis for International Business and Management

How MNC-NGO partnership enables suppliers

to overcome the barriers of complying with

the codes of conduct

A case study of Chinese fashion industry

By

Yanyu Liu

Supervisor: Miriam Wilhelm and Visscher, A.C.C. University of Groningen

Faculty of Economics and Business

Aug, 2013

Plutolaan 329

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Abstract

Multinational corporations face increasing pressure for corporate responsibility, and sustainability. In order to promote sustainable development within a supply chain, numerous buyers have implemented codes of conduct or sustainability standard in their global value chain. However, suppliers in developing countries do not always comply with these standards for certain reasons: they might lack the motivation to comply as the implementation of such standards is related with additional costs, and buyers can’t monitor them effectively. In other cases, suppliers’ capability might hinder them to meet the standards. We divided related reasons into two categories of barriers— external barriers and internal barriers. External barriers are related to supply chain governance, while internal barriers refer to suppliers’ financial, management/technical, and perception barriers. Besides, we identified two important capabilities (sustainable production capability, and management practice) that are highly related to implementation of codes of conduct.

Through analyzing the case study of MNC-NGO cooperation in the Chinese fashion industry, we found that western buyers often have difficulty exerting influence their supply chain in developing countries, particularly in the face of suppliers’ internal barriers. But MNC-NGO partnership can contribute to solving the problem of suppliers’ internal barriers, thereby improving supplier compliance with sustainability standards.

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Chapter 1: Introduction

The issue of sustainability in global supply chains becomes increasingly important. Pressures from stakeholders have motivated MNCs to attach great importance to sustainability issues, which emphasizes the balance among environment, human rights, and economic development. But putting sustainability thinking into practices is not a simple task. It requires a systems approach with an appropriate management system that enables design, management and communication of sustainability policies (Azapagic, 2003). In reality, MNCs are facing numerous challenges in improving sustainability, especially in their supply chain.

Generally, there are three common approaches for improving supply chain sustainability, namely: supplier assessment tools, codes of conduct and collaboration with suppliers (Andersen and Skjoett, 2009). These approaches aim to regulate supplier performance in areas such as pollution, health & safety, labor rights, and working conditions. Subsequently, many MNCs seek to verify supplier performance through various audits (Cramer, 2003; Feldman and Smith, 2003; Kristensen, 2005). However, an article from Business Week showed many suppliers in developing countries behave opportunistically on sustainability standards, they even submit fake codes of conduct records to western buyers (Roberts and Engardio, 2006). Specifically, buyer’s audits usually consist of reviewing documents, interviewing with factory managers or workers, visiting the factory, but suppliers choose to deceive their buyers’ auditors by hiding the non-compliance evidence.It is estimated that only 20% of Chinese suppliers comply with wage rules, and only 5% obey working hour limitations (Roberts and Engardio, 2006). Now Supplier non-compliance on sustainability standards causes high concern from MNCs and scholars.

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6 cost, quality, delivery time, and flexibility. In most cases, suppliers undertake huge pressures from three basic components of a contract: price pressure, production complexity and contract duration. Thus, implementing codes of conduct could generate additional cost for suppliers. (Pedersen and Anderson, 2008)In other words, suppliers are more likely to violate sustainability standards under arm’s-length governance without buyers’ commitment.(Jiang, 2007) Besides, some researchers suggest that supplier non-compliance may caused by imperfect codes of conduct and defective audit procedures. (Emmelhainz and Adams , 1999; Zande, 2007). More precisely, the codes often lack uniformity and substantial detail. Buyers’ monitoring is unable to track suppliers’ violation of sustainability standards.

However, it is possible that suppliers in developing countries, despite being motivated lack capability to fulfill the requirement set by developed country buyers, and environmental norms or sustainability standards may require considerable changes in supplier’s operations and investments beyond the suppliers’ reach (Aleman, 2008). In older to enhance sustainability performance in supply chain, MNCs try to leverage the power of supply chain governance to influence suppliers, however their effort is not enough to solve suppliers’ internal financial, management/technical, and perception barriers. Thus, many MNCs tend to help suppliers in developing countries through collaborating with NGOs that may possess professional knowledge that can relieve negative environmental impacts of businesses (Harangozo and Zilahy, 2012). Schiller argued that NGO-MNC partnership can actually contribute to extensive sustainability works: promoting knowledge and information transfer between NGO and MNC; carrying out environmental or social assessment; developing environmental standard, guideline, manual; developing environmental program (Schiller, 2005).

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7 investigate this question, this study will examine sustainability issues in Chinese textile industry triggered by the engagement from NGOs. Specifically, we will analyze cases in which NGOs engage in assisting suppliers in the Chinese fashion industry.

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Chapter 2: Theoretical background

Sustainability in supply chain

Sustainability is defined as using resources to meet the needs of the present without compromising the ability of future generations to meet their own (WCED, 1987). In recent years, there has been rising awareness on sustainability issues among policy makers and researchers. For example, legislative measures were adopted worldwide over a short period of time to restrict chemicals with Ozone depleting potential (UNEP, 1994).

According to stakeholder theory, corporate activity is affected by various stakeholders and company decisions are influenced by stakeholder pressure (Freeman and Reed, 1983). An increasing numbers of firms pay more attention to sustainability issues because of the pressure from stakeholders such as customers, governments, and NGOs. Furthermore, integrating sustainability into business is beneficial to the long-term development of enterprises (Azapagic, 2003). The World Business Council for Sustainable Development (WBCSD) identified a series of benefits resulting from sustainable development, which are mostly related to firms’ cost savings and reputation. Therefore, it is also economically attractive for enterprises to pay attention to such sustainability issues. A KPMG report from 2008 shows that approximately 80% of the world’s largest 250 companies report on their social and environmental performance, up from 50% in 2005 (KPMG, 2005).

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9 sustainability objective also emphasizes the use of sustainable material and renewable energy sources. However, a high level of environmental performance achieved by one firm can be counteracted by its suppliers’ poor environmental management. (Faruk et al., 2002) Sustainability problems that occur outside a firm’s boundary are more difficult to recognize and control and literature shows that firms make their supply chain more sustainable through implementing the following approaches: supplier assessment tools, codes of conduct and collaboration with suppliers. (Keating et al, 2008; Andersen and Skjoett-Larsen,2009). This paper will focus on investigating supplier codes of conduct.

Barriers to comply with the codes of conduct

Currently, a large number of western MNCs have implemented supplier codes of conduct because they fear the risk of negative publicity about poor labor conditions in their supply chain and consequent loss of costumers. However, it is difficult to manage external relationships with independent organizations that often operate in different geographical or institutional setting. Accordingly, several barriers have been identified in the literatures affecting suppliers’ compliance with codes of conduct. These barriers were classified into 2 categories as shown in table 1.

External barrier

The first category can be considered as external to supplier and is related to supply chain governance or buyer-supplier relationship.

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10 party making an investment that cannot be easily revoked or redeployed, as to establish a safeguard to prevent opportunistic behavior. Walker also argues that Poor supplier commitment might leads to suppliers’ poor performance on sustainability. (Walker, el at 2008) Besides, the researchers found that suppliers do not comply with Codes of conducts because focal firms’ monitoring organizations are unable to detect suppliers’ breaches of code standards, or because codes of conduct are incomplete and lax in monitoring and enforcement. ( Egels-Zande´n, 2007; Emmelhainz and Adams, 2006). Delmas’s study indicates that Information asymmetric also can lead supplier to behave opportunistically. Specifically, a supplier tends to have more information about its environmental performance than the buyer, so buyer cannot fully monitor supplier’s behavior. (Delmas, 2009) Furthermore, Seuring and Muller found that insufficient communication in supply chain is a main barrier for implementing sustainable supply chain. (Seuring and Muller, 2008) in sum, we can conclude that external barriers is highly related to the option of supply chain governance and buyer-supplier relationship.

Internal barrier—financial barrier

One major internal barrier for supplier is lack of financial resources. Pedersen and Anderson argue that codes of conduct and CSR could be costly and time-consuming for supplier, since implementing codes of conduct might involve upgrades. (Pedersen and Anderson, 2007). Moreover, recycling activities’ benefits often fulfilled in a long time rather than a short period. (Min and Galle, 2001) Hitchens also suggests that suppliers in developing countries can’t access to financial capital for investment in environmental initiatives.

Internal barrier—perception barrier and management/technical barrier

Other internal categories are concerned with suppliers’ perception of sustainability management/technical capabilities and that can hinder suppliers’ compliance.

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11 Blackburn,2007). Wooi and Zailani’s study shows that many SMEs in developing countries lack environmental awareness, so pay little attention to sustainability problem.(Wooi and Zailani, 2010)

Furthermore, the capabilities of SME suppliers are essential to improving their performance in environmental issues. The Capabilities could refer to suppliers’ assets, technologies, and skills that enable firm to respond to environmental requirement of stakeholders. (Lee and Klassen, 2008) but suppliers in developing countries often are characterized by less capable in environmental management. Lastly, human resources and support from management matters. In Andersen’s report, the suppliers explained that major barriers for working with social and environmental initiatives, in particularly implementation of management system, are lack of human resources and lack of management support.

External barrier/supply network barrier

Internal barrier

Financial barrier Management/technique barrier

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12 Pressure from buyer—

Price, production, and contract duration. (Jiang, 2007)

Codes lack substantial detail, and the codes are particularly lax in the area of monitoring and

enforcement.( Emmelhainz and Adams, 1999)

Supplier hold more information about its environmental

performance than buyer (Delmas, 2009)

Retailers monitoring organizations are unable to detect Suppliers breaches of code standards.( Egels-Zande´n ,2007)

Poor supplier commitment (Walker el at,2008)

Insufficient

or missing communication in the supply chain

(Seuring and Muller,2008)

Codes of conduct and CSR can be time-consuming and costly for suppliers. (Pedersen and Anderson, 2007) High cost of environmental programs

(Min and Galle, 2001) Uneconomic benefits of recycling activities (Min and Galle ,2001) Unavailability of capital for investment in environmental initiatives (Hitchens et al., 2003)

Lack of skills, know-how & technical expertise(Lee, 2008; Lee and

Klassen,2008)

Lack of human resources; the negative attitude of management(Andersen,2008) Perception of no benefits from improving environmental performance (Revell and Blackburn, 2007) Lack of environmental awareness (Wooi and Zailani, 2010) SMEs are heterogeneous & operate in different contexts (Merritt, 1998)

Table 1. Barriers for suppliers to compliance with codes of conduct

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Supplier’s management/technical capability

As previous section described, suppliers in developing countries may lack management/technical capabilities apart from their negative perception of sustainability and financial burden. In general, supplier capabilities include production, delivery performance, process improvement, innovativeness, information technology, and customer understanding (Möller and Törronen, 2003). Vonderembse and Tracey (1999) also argue that the decision to select a supplier must be based on supplier product quality, production cost, delivery performance and product efficiency (Vonderembse and Tracey, 1999). Furthermore, in Hofmann’s (2012) study, they pointed out that adoption of advanced technology, experiences with inter-firm relations and capacity for product innovation are three essential capabilities that motivate and enable small and medium sized manufacturers to become ‘greener’ (Hofmann el at, 2012). Finally, Subic and Shabani (2012) suggest that a sustainable manufacturing framework is necessary for buyers to assess capabilities across a supply chain. They worked out a SMF model that includes environmental indicators and initiatives set up by the manufacturer, and also industry practices within the environmental indicators and initiatives (Subic and

Shabani, 2012). This framework considers supplier capabilities that relate to resource efficiency work, emission reduction work, and improved management practices (see figure 1). As can be seen in figure 1, these groups and clusters were combined with the main sustainability objectives of the manufacturer. From reviewing existing researches, we can conclude that

sustainable production capability and management practices are crucial in complying with

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14 Figure 1. Levels 1 and 2 of the finalized sustainable manufacturing framework.(Subic and

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Buyer’s effort to overcome barriers

Pressure from government, non-governmental organizations, and customers has led MNCs to develop their own codes of conduct and install a variety of monitoring mechanisms to ensure supplier compliance (Mamic, 2004). Although buyers enact supplier codes of conduct for suppliers, it is possible for suppliers to have an opportunistic attitude towards sustainability, especially in developing countries that lack developed institutions. As agency theory argues, individuals are self-interested creatures and opportunistic. The implementation of codes of conduct and sustainability standards might be costly and time consuming for suppliers, and reducing social and environmental standards can be a cost reducing motivation. (Pedersen and

Andersen, 2006). In addition, Emmelhainz and Adams (1999) argue that codes often lack uniformity and substantial detail, and are particularly lax in the area of monitoring and enforcement (Emmelhainz and Adams, 1999).Therefore, the challenge faced by MNCs is not only the implementation of sustainability standards in their supply chain; the more complex issue is how to motivate supplier to comply with these standards.

In order to influence supplier’s compliance with Codes of conducts, some protective mechanisms can be introduced to safeguard the buyer from non-compliance with Codes of Conduct in global supply chains. Safeguards include direct sanctions, goal congruence, trust, third-party monitoring and enforcement, and reliance on reputation effects (Pedersen and

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16 power of safeguard and governance to monitor and motivate suppliers more effectively, thereby reducing the negative effect of external barriers on suppliers’ compliance.

However, implementing additional standards might be a great difficulty for suppliers in developing countries, who face a wide range of internal barriers (financial, perception, and management/technical barriers). Sometimes Suppliers in developing countries are expected to meet requirements that do not apply to their market (Keesing and Lall, 1992). Gereffi argues that value chain governance is determined by three factors: complexity of transaction, ability to codify transaction, and supply-base capabilities (Gereffi, 2006). Transaction complexity increases when buyers from developed countries make new demands on their supply chain. In fact, suppliers in developing countries usually conduct low-skilled work and possess low-tech competences (Emmelhainz and adams, 1999; Benton and Maloni, 2005).

In order to deal with this situation, collaborative partnerships could be established. An example of this could involve buyers and suppliers investing in relation specific-asset and working together closely (Jiang, 2008). However, enterprises may lack the expertise on how to deal with environmental problems in their supply chain (Harangozo and Zilahy, 2012). Third party organizations like NGOs that possess professional knowledge and skills could help MNCs to solve the problem. Further, partnerships with NGOs can generate huge added value with relatively little investment. Currently, numerous companies have started to work with NGOs. For example, Adidas established a partnership with an American NGO in China, and offered training programs for suppliers. So it is worthwhile to investigate NGOs’ role in influencing supplier’s compliance with sustainability standards.

Role of Non-government organizations

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17 or environmental goals, rather than the achievement of economic power in the marketplace or political power through the electoral process. Another general definition is “private, not-for-profit organizations that aim to serve particular societal interests by focusing advocacy and/or operational efforts on social, political and economic goals, including equity, education, health, environmental protection and human rights” (Teegen and Vachani, 2004). In most cases, NGOs are regarded as secondary stakeholders, but can still influence company activities significantly. Members of the civil society can increase their influence by aligning with primary stakeholders, or by putting pressure on companies via indirect channels (e.g. media, broader public opinion) (Henriques and Sharma 2005; Reuter et al. 2010). In general, NGOs influence supplier compliance through monitoring their behaviors. Companies rely on a wide variety of monitoring parties, ranging from internal agencies to external organizations specialized in auditing or NGOs (Kolka and Tudler, 2002). For example, Gap has entitled NGOs to monitor supplier compliance. In China, workers increasingly have mobile phones with cameras, and collaborate with labor activists to publicize video evidence of labor abuses (Barboza and Bradsher, 2010). Under the scrutiny of a third party, suppliers may fear that negative audit reports cause reputational damage and the loss of business with other buyers ( Plambeck and Taylor, 2012). In sum, NGOs play the important role in restricting suppliers’ unsustainable behavior since they have capabilities to monitor manufacturers, and identify problems earlier than MNCs. With the development of MNC-NGO collaboration, NGOs begin to engage in other essential areas such as design of sustainability standards, environmental solutions, supplier training and technical assistance. I will discuss these new functions in the next section.

MNC-NGO partnership’s effort to overcome barriers

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business-18 NGO relations started to change in the early 1990s with the emergence of sustainable development partnerships between these rival parties (Murphy and Bendell, 1999). Besides, the character of business-NGO interactions has shifted from being generally confrontational to being more collaborative or a combination of the two (Borchert et al, 2010). In sum, the collaborations and interactions between MNC and NGO are becoming more frequent and collaborative.

The resource- based view can be used to explain why NGO and MNC enter the collaboration. Firm usually collaborate with other firms to gain knowledge and technology (Inkpen, 2001). In fact, most firms aim to pursue the external legitimacy through working with NGOs. Austin also argued that main resources of NGOs are their reputation and legitimacy within society (Austin 2000b; Lucea 2010). Furthermore, Multinational corporations may be interested in the knowledge NGOs possess on the subject of environmental management or when operating on an international scale, knowledge of local NGOs on habits and customs in a specific region (Rondinelli and London, 2003). By contrast, NGOs usually form partnerships with corporations in order to achieve ideological goals (protection of the environment) and gain financial resources.

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19 compliance serves as a protective mechanism, which can prevent violation of the codes. Involvement of third parties can improve the credibility of the codes and signal commitment to the company’s stakeholders (Pedersen and Andersen, 2006). Thus, NGO’s involvement can contribute to overcoming external barriers through helping MNC better understand the supplier’s situation, and monitoring their suppliers more effective.

Most of all, MNC-NGO partnership’s function is not limited to standard design and monitoring. MNC-NGO can provide financial and technical support to suppliers in developing countries, who often face various internal barriers. (Perez-Aleman, 2008) specifically, MNC-NGO partnership that has ties to government and financial institution can provide financial assistance through affordable credit to suppliers has been central for upgrading. Their Technical supports often include professional training and consultation that help suppliers to enhance environmental awareness, improve management capability, and optimize production. For examples, Starbucks help coffee farmers in South American to get short-term loan from financial institutions. A US-based NGO ISC, with support from multinational buyers like Wal-Mart and GE, trains Chinese suppliers in environmental management techniques. (Cheung, R., 2011) Thus, support from MNC-NGO partnership may be helpful for those suppliers who do not comply with codes of conduct, because of their financial barrier, negative perception, and low management/technical capability.

Research aim

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Chapter 3: Methodology

This research is explorative; since little existing empirical research exists regarding to what extent MNC-NGO partnership affects the sustainability of supply chains. Thus, a qualitative research based on case study is used to build novel theory rather than test an existing one. I use a case study for its potential to provide a better understanding of the nature of complexity phenomenon (Benbasat, Goldstein, and Mead, 1987).

The research began by choosing the Chinese fashion industry as the objective of case analysis. Fashion industry is one of most polluted industries, and raises concerns of various stakeholders. Moreover, China is the world’s largest garment producer and exporter, but manufacturers in this industry still lack effective production and experienced management. Thus, analyzing the Chinese fashion industry is particularly well-suited for this study. In order to understand the detailed endeavors of MNC-NGO partnerships, I selected two NGOs called NRDC and ISC to investigate NGOs’ work with MNC and suppliers. These two NGOs are both American organizations, with operating subsidiaries in China. Compared with Chinese counterparts, they are more professional and have more experience of contracting with other enterprises.

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21 with customized project. In summary, NRDC and ISC’s work is highly related to the research objective.

Several sources of data were used for building the case. First, general information and data was collected from considerate researches on fashion supply chains in China, which includes information on production, industry actors, NGOs activities, and condition of suppliers in China. Second, I collected material on MNC-NGOs partnership activities including various fashion brand reports, NGO reports, web pages and brochures of programs. In addition to secondary data, two semi-structured interviews were conducted with project managers in two NRDC and ISC. Project managers of NGOs are responsible for managing the development and practice of environmental programs in MNCs’ supply chain. Their work includes: program improvements, promoting supplier practice, and communicating with suppliers and their buyers. Thus, they have deeper understanding of MNCs’ supply chain conditions and problems faced by garment suppliers in China. These managers were contacted by email to explain the purpose of the research and ask for cooperation. Then, a telephone conversation ensued in order to provide more details and arrange the interview. Once interviews had been confirmed, telephone interviews were carried out, lasting half an hour. The language of the interview was Chinese and the interview questions focused on details of their joint projection with MNCs (see interview content in appendix). The interviews were taped, and a transcript sent back to the interviewee for validation.

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Chapter 4: Case study

Fashion industry in China

The fashion industry plays an important role in cross border trade, providing essential products to global customers. A survey shows that over 26 million people are working in the fashion industry, and over one trillion US dollars are generated by the garment industry per year (Allwood, 2007). Moreover, globalization of fashion supply chain has contributed to the economic development of developing countries. However, the operation of the supply chain is often unsustainable. Typically, a fashion brand outsources the manufacturing of specific product to suppliers. The raw materials are often processed through processes such as spinning, weaving and dyeing. Then, they will be transported to production plants to be sewn into finished products (Silkey, Bannister, and Anderson, 2010). The World Bank estimates that 17 to 20 percent of industrial water pollution comes from textile dyeing and treatment. Researchers have also identified 72 toxic chemicals in water solely from textile dyeing, 30% of which are cannot be removed. This represents serious environmental problems for fashion retails and their suppliers.

This research will focus on analyzing supply chain in the fashion industry in China. Generally, the garment industry has been a major industry in China for a long time, and it became more important and active since Chinese government implemented open door policy and economic reform in 1979. China is the largest exporter of textile and clothing products in the world. In 2006, China produced 17.8 billion apparel items, which account for 30% of the world apparel exports (Claudio, 2007). Additionally, the garment industry is the largest manufacturing industry in China. It has about 24,000 enterprises and employs about 8 million workers. The value of its total output was 1,064 billion Yuan in 2002.

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23 Although fashion industry in China has contributed to economic development and job creation, the pollution from fashion industry has negatively affected the air, rivers, lakes, ocean, and ground water in China. China environmental statistical yearbook in 2010 shows fashion industry ranked fourth in wastewater emission among 39 major industries and third for overall wastewater. Wastewater can be generated by different phases in supply chain, wastewater from dyeing and finishing process accounts for 80% of total wastewater. China has implemented regulations to prevent pollutants from fashion industry, but lack of effective enforcement and protection of local interests impede the implementation (IPE, 2012).

Fashion brands’ supply chain in China

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24 Figure 2: Textile complex

(Source: Hermann(1996), p.88)

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25 like improving resource consumption provides long-term cost savings, but the payback for making such investment takes so many years to complete. Thus, such investment is financial impossible for many Chinese suppliers. Additionally, western buyers are often unwilling to provide Chinese suppliers with financial incentives such as purchasing commitment, long-term purchasing contract. Furthermore, majority of textile suppliers in China are small and medium-scale enterprises. These small firms often do not familiar with sustainability, and lack environmental awareness. In China, SMEs only account for less than 10 percent of all bank lending. In addition to financial factors, many fashion suppliers still using traditional way to do manufacture, which means they lack management experience and measuring instrument to deal with sustainability issues.

In addition to improving development of sustainable supply chain, many fashion brands have been carrying out their won sustainability programs in their supply chain. In Walmart’s 2010 sustainability report, Walmart emphasized they will work with suppliers to improve efficiency of energy and resource, and required 200 suppliers to decrease 20% of Unit energy consumption. At the same time, GAP inc. launched a clean water program to address wastewater created by production process, engaging suppliers as partners. However, these policies or project may not enough to achieve the desire effect in China, since these policies probably reach to their first tier of suppliers who are responsible for cutting and sewing fashion products, but ignore the most polluted part- dyeing and finishing suppliers. Besides, the project manager of NRDC also mentioned that many buyers request suppliers to improve sustainability performance, but do not offer some helps. Thus, many fashion brands haven’t generated enough influence on their supply chain in China, and decided to collaborate with professional NGOs to tackle this dilemma. In the next 2 sections, I will discuss the influence of NGOs on the fashion supply chain in China, and how NRDC and ISC work with global fashion brands and suppliers to improve the compliance.

NGO and fashion supply chain in China.

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NGO-MNC partnership

ISC-CASE

ISC started working in China in 2007. In partnerships with various public and private organizations, ISC make continuous efforts to reduce carbon emissions, explore energy efficiency practices, improve environmental health conditions, and promote worker health and safety. Currently ISC’s projects involvegreen supply chain (EHS), low-carbon urbanization, sustainable education, and environmental NGO capacity building. This research focuses on the program ‘Environment, health and safety academy’, which provides training to managers at supplier companies.

It is known that Guangdong and Jiangsu provinces play central roles in economic development in China. There are a number of garment plants that are located in these two provinces. Also, these two provinces face energy shortages and numerous environmental problems.

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28 that they should collaborate with NGOs to rectify supply chains, rather than ignoring warnings from NGOs.

In 2008, with support from enterprise partners like Adidas and Wal-Mart, ISC established two Environment, health and safety academies in Guangdong and Jiangsu. These academies aim to increase the pool of qualified EHS managers and industrial energy efficiency managers (IEE) serving plants in China. Two academies are located in Lingnan (University) College in Guangzhou and in Nanjing University's Research Center. In 2009 the Guangdong Bureau of Labor and Social Security officially endorsed the Academy and is working with Academy experts to develop China's professional, government sanctioned EHS certification protocols. Obviously, the ESH academy is a good representation of collaboration among private organizations, governments, NGOs and academies.

One important objective of ESH academies is training of ESH professionals who can help persuade actors in the firms (from the factory owner to line worker) to embrace their role in achieving EHS compliance. Project manager of ISC, Bill Gong argues that EHS management is a team effort that requires coordination and support from various departments. EHS training is designed for a wide range of managerial positions in enterprises such as human resources manager, procurement manager, and project manager.

A core group of Chinese and international master trainer are responsible for continual curriculum development, Chinese EHS regulatory policy, as well as mentoring academy instructors. Most trainers had worked as ESH engineers or managers in MNCs before being employed by ESH academies. Moreover, MNCs like Adidas, Wal-Mart, and Honeywell also take an active part in the development of training program, as well as sponsorship. Moreover, these MNCs have rich experience working with suppliers in China. They share their health and safety training modules and subsequent work experience with the ESH academy, and refine these materials into the EHS academy's core curriculum.

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29 have different needs so selection of curriculumcan be based on individual situations. The curriculum is organized into 2-4 days in length accommodating the schedules and demand of working participant. Core courses are mainly related to EHS management approach including introducing ESH management system; auditing and identifying risk about environment and safety; improving production process, and working conditions (See figure 3).

Figure 3: The EHS academy curriculum

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30 But as ISC’s manager Billy gong said ESH management need time and patience to produce value. ISC is trying to change suppliers’ thought of sustainability, which regard sustainability as a financial burden. Fortunately, most participants attach more importance to sustainability issue after received training. Besides, implementing ESH may require investment and management support. ISC is able to help these suppliers who lack resources, by using its own ties with various institutions and government. For example, several suppliers who faced financial barrier were introduced to ISC’s partnering institution IED. This institution is focusing on green fund program that help sustainable suppliers to raise financing.

NRDC CASE

Compared with ISC, NRDC has a longer history of working with enterprises. This group is made up of more than400 lawyers, scientists and policy experts, and supported by 1.3 million members and e-activists. NRDC work with businesses, elected leaders, and community groups to tackle various big issues: including Curbing Global Warming and Creating the Clean Energy Future, Reviving the World's Oceans, Defending Endangered Wildlife and Wild Places, Protecting humans’ Health by Preventing Pollution, Ensuring Safe and Sufficient Water, Fostering Sustainable Communities

Upon contacting a business, NRDC usually allies with customer and media power to monitor firms’ behavior, and pressures MNCs with the threat of legal action. Now, NDRC is trying to support active MNCs to design a clear and applicable project that could contribute to improving environment, and reduce the cost of production in supply chains.

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31 by Nike attentions water quantity and quality. Nike is working to design products from materials that require less water, and help suppliers and factories to reduce water-related impacts, and eliminate hazardous substances from wastewater. In addition, Marks and Spencer are working with customers and suppliers to tackle climate change, reduce waste, and increase the use of sustainable raw materials via a project called Plan A. However, green supply chain is a very complex task that requires the alleviation of negative environmental impacts caused by production designment, manufacture, transportation, and even the recycling process. So establishing a partnerhip with professional NGO like NRDC is a good way to access knowldege and skill.

As previously discussed, upgrading facilities to meet standards is financially impossible for Chinese suppliers, since most suppliers are small firms and can’t get access to financial resources. Fortunately, NRDC provides free assistance to these suppliers. Moreover, RSI does not motivate suppliers to upgrade facilities radically, but selects basic, applicable, low-cost solutions based on existing conditions. Global brands or retailers like Gap, Levi, Nike, and Mark & Spencer established partnerships with NRDC several years ago, and offered their list of suppliers to NRDC. After receiving the list, NRDC arranged an expert group to investigate suppliers’ plants and produce a report about factory conditions. Then, NRDC discussed with suppliers to receive feedback, and worked with suppliers to formulate a customized action plan. After implementing the project, NRDC arranged four specialist seminars within six months, and conducted field visits four times to ensure suppliers genuine compliance. In the end, NRDC conducted an evaluation of suppliers’ performance and published a summary report, which might contribute to improvement of a future plan. So far, NRDC has completed the RSI program with twelve suppliers. In general, the results vary with different plants, but some cases experienced obvious reduction in water consumption, energy consumption, and pollutant discharge (see figure 4 in appendix).

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32 saved around 23% of water and 32% of fuel for every ton of fabric produced. During the investigation, NRDC concluded three critical challenges faced by fashion suppliers in China. Firstly, most Chinese suppliers in the fashion industry lack effective management for controlling energy and material consumption. Secondly, building a complete measurement system and the data recording is a primary task for these plants. Thirdly, MNCs play a key role in enabling suppliers to improve sustainability. But many MNCs don’t have real understanding about their supply chain. For example, some MNCs don’t know who is responsible for production printing and dyeing process, but this process is most contaminative part. Furthermore, certain MNCs leave the “enabling” work to NGOs after they established partner relationship with NGOs. But as a project manager of NRDC and ISC said, MNC is the key actor who can directly influence suppliers to become sustainable.

Cross-case analysis

In order to better understand the role of MNC-NGO partnership in our case, a cross-case analysis is introduced to clarify the differences and similarities between activities of NRDC and ISC.

Main obstacles for sustainability on supplier’s side

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Relationship between NGO and MNC

Both NGOs have established partnership with a wide range of fashion brands. NRDC are working with GAP, Levi, H&M, Mark Spencer, while ISC provide training to suppliers of Adidas, Wal-Mart, and Nike. But NRDC is more economic independent and has uncompromising attitude. MNCs play a less important role in their joint activities. They are responsible to provide their supplier list, and accompany NRDC to visit suppliers’ plants. By contrast, ISC has more close relationship with enterprises, it receive various supports (financial support and technical support) from these enterprises. Enterprises not only fund the development of ESH academy, but share their experience related to sustainable work.

Activities of MNC-NGO partnership

Basically, NRDC and ISC provide different form of assistance to suppliers of global brands. NRDC make customized action plan for every cooperative supplier. Action plan includes technical advice and guidance that can help supplier to improve their production process, pollution reduction work, and management efficiency. By comparison, ISC aim to train participant to implement environment and safety management system in firm, which is a more professional and systematic approach, but is more difficult to carry out.

Contribution to overcoming barriers

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34 numbers of ESN managers, and strengthens the environmental awareness of participants. In long term, implementing ESH management system can better sustainable development, since this system can optimize most activities (management and production) related to sustainability issue such as clean production technology, risk analysis , regular audit, and maintenance. In sum, NRDC’s joint activities are beneficial to improving supplier’s sustainable production capabilities and sustainable management practices, thereby overcoming management/technical barriers. Moreover, these activities can reduce suppliers’ financial burden. By contrast, ISC’s joint activities can train professional personnel for suppliers, and change suppliers’ negative views of sustainability. In long run, supplier can improve sustainable production capability and management practices by implementing ESH management system.

Main obstacles for collaboration between NGO and MNC

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Chapter 5: Discussion

As the literature part described, suppliers violate codes of conduct due to the external or internal barriers. In older to overcome these barriers, buyers take advantage of supply chain governance and various safeguards to manage their suppliers effectively. But their effort is not enough to overcome supplier’s internal barrier, including financial barrier, perception barrier, and management/technical barrier. Because solving these problems are too costly for them, and they may lack expertise related to professional training and technical guidance service. Thus, partnering with professional NGO becomes inevitable choice for these enterprises, which could not solve the barrier problem.

Previous researches already proved that NGOs can be important partners for enterprises. They can help buyers to form well-suited standards for suppliers in developing countries, since they better understand suppliers’ real situation. Additionally, NGOs is famous for their effective monitoring that can supplement buyers’ monitor system. In addition to these functions, my research found that NGOs that align with enterprises are able to provide suppliers in developing countries with various supports that contribute to overcoming suppliers’ internal barriers. First, suppliers that regard sustainable development as financial burden are more likely to violate codes of conduct. So changing their perception is very essential to improving their compliance. NGO’s training can lead suppliers to better understand the value of sustainability. In our case, most suppliers who have received ISC’s ESH training pay more attention to sustainability than before, since they think improving sustainability performance and complying with codes will bring about long-term benefits for their company. So the first proposition is:

P1: MNC-NGO partnership’s training can help suppliers to better understand the value of sustainability, thereby improving suppliers’ compliance with codes of conduct.

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36 study shows two NGOs relieve suppliers’ financial barriers through offering free training, economical plan, and affordable credit. Thus, the second proposition state:

P2: MNC-NGO partnership can help suppliers to overcome their financial barrier through providing appropriate financial support, thereby improving suppliers’ compliance with codes of conduct.

Additionally, suppliers in developing countries often marked by their out-dated management and technology, so some of them are unable to meet the requirements in codes of conduct. Technical Support that provided by MNC-NGO partnership is beneficial to improving suppliers’ technical and management capability. NRDC’s customized project proved that the technical support could be very helpful for these suppliers who are confused about how to make production more sustainable and assess their work. ISC’s training program also teaches manager to implement a more efficiency management system, which is a long-term investment. P3: MNC-NGO partnership can help suppliers to overcome their technical and management capability barrier through providing technical support, thereby improving suppliers’ compliance with codes of conduct.

In sum, support from MNC-NGO partnership could be an important solution for buyers and suppliers who are struggling with non-compliance issue. The last proposition could be:

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Chapter 6: Conclusion

While the case discussed here focuses on the fashion industry in China, the implications can applied to similar manufacturing (footwear, toys, furniture) industries, as well as other highly polluting industries like electronics, and to other developing countries where less capable suppliers need assistance. Currently MNCs face increasing pressure for corporate responsibility and sustainability development. In order to promote sustainable development within a supply chain, numerous enterprises in western countries have implemented supplier codes of conduct in their global supply chain. However, implementing these standards is not an easy work for suppliers in developing countries. The non-compliance behavior can damage buyers’ reputation. This study indicates that certain joint projects implemented by MNC-NGOs partnership are addressing the challenge of various barriers, thereby improving suppliers’ compliance with codes of conduct.

Previous research often focuses on external barriers. By comparison, this research highlights that suppliers’ internal barriers (including financial, perception, and management/technical barriers) are huge difficulties for standards compliance. MNC-NGO partnership can enable suppliers to overcome these barriers through providing financial support and technical support. The analysis also identified the capabilities that are highly related to implementation of sustainability standard. The capabilities include: production technologies about resource efficiency, and pollution treatment; management practices about performance audit, risk assessment, and improvement measures. As the case study described, the assistance is usually carried out in the form of training and technical consultation.

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38 issue through establishing partnership with civil organization. Through allying with NGOs, MNCs can not only gain reputation and legality, but access to complementary capabilities and resources. Most of all, this partnership can contribute to improving suppliers’ compliance with sustainability standards by assisting suppliers.

Limitations and future research

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39

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Appendix

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48

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49

Interview content

Interview with NRDC

1. How did NRDC establish partnership with enterprises, how does NRDC work with enterprises?

NRDC is an American NGO, which aims to help industrial plants to clean waste and pollution. NRDC is very an influential organization in America, and often takes tough strategies to prevent firms’ pollution behavior. In China, the legal system about environment is not perfect, NRDC are engaging in sustainability issue through collaborating with American enterprises. In fact, dyeing and printing is most contaminative work in fashion production, but Global brands often contact with their direct supplier, and ignore the second-layer supplier who work on dyeing and printing. Now, NRDC are trying to identical these neglected suppliers and help them to handle sustainability issue.

2.How many suppliers have participated in this project?

We investigated around 40 suppliers, and have started to work with around 20 suppliers.

2. Did these suppliers have serious environmental problems before joining the project?

Not exactly, global brands introduced these suppliers to us. These suppliers like some experimental units. specifically, it takes time to prepare the specific scheme before implementing the detailed project. Then, we will start the project in certain units, and test the feasibility of our project.

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50 do manufacture. They lack management experience and measuring instrument to avoid excess waste. In addition, they are facing so many requirements from government and buyers. So it is difficult for them to fulfill these standards.

4. How does NRDC manage this project when it starts? Is it costly for suppliers who lack capital?

There are several procedures for doing it. Firstly, we visit supplier’ plant and make a report for them. After receiving feedback from these suppliers, we will work with them to make a specific project, which include various suggestions. For example, we will tell them how to choose appropriate equipment. Then, the project will be implemented in the plant. During the implementation process, we supervise and urge them regularly. Moreover, we will hold a meeting every 3 Months, the suppliers must report their rate of progress and communicate with each other. In sum, it is very essential to share information with each other.

About the cost, we actually provide free service for these suppliers. Most of all, customized plan aim to find fix existing problems, and try to avoid costly upgrade.

5. How is the effect of responsible sourcing initiative so far? How does NRDC

evaluate the effect?

In generally, the effect is not bad. Different suppliers show different attention on the project, so the effect will vary with suppliers. Suppliers will hand in some reports that show data about energy conservation and emission reduction. Our researchers will identify the authenticity of the report.

6. What’s the role of global brands in this project?

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7. Do they satisfy the effect of this project?

After carrying out the RSI for a period, We received some annual reports from the suppliers. The data shows that our action project not only relieve the environment pollution, but also reduce a large amount of cost for them. Buyers are also happy about these improvements.

Interview with ISC

1. How did ISC establish partnership with enterprises, how does ISC work with enterprises?

As you know, many global brands have enacted sustainability standard for Chinese suppliers. ISC aims to help these Chinese firms to improve capability of dealing with pollution, health and safety issue, Air Emissions problem and Energy Efficiency.

We have established partnership with some MNCs that support our works related to sustainability.

2. Is this project only aim at cultivating ESH manger? It is known that so many companies don’t have this position

Not exactly, we provide training to people from different departments such as human resources department, procurement department, Project management department. ESH work could be related to most works and positions in a firm, because ESH work is a team work, and requires coordination and management support from different departments. We suggest that firms in high risk industries should set this position, which could provide more support for sustainability work.

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52 Some people know something about it, while most people do not familiar with ESH management. Now we are providing training for suppliers of partnership regularly.

4. Did they realize the value of ESH management during the training?

In most cases, participants pay more attention to the value of ESH management after they have finished our training. However, applying their knowledge to their company is a tough work. This work not only need management support, but is influenced by organizational culture that is related to environment awareness of firms. So we encourage the top management team of firm to join our training, because they have more freedom to make decision.

5. How long will it takes to finish the project?

It often takes three months, and divided into 3 phrases.

6. What difficulties do suppliers have if they want implement ESH management systems in companies.?

Generally, implementing this management system is time-consuming, and require various resources. Our training try to change suppliers’ negative perception of sustainability, and train necessary personnel for them. In special cases, we even can help these suppliers who lack financial resource to do this work. For example, we have relations with some NGOs and institutions who are specialized in green financing program. We can introduce these suppliers to them.

7. Do you satisfy the effect of ESH training project so far? How does ISC test participants after they have finished this training?

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8. How do buyers feel about this project? Does the supplier compliance enhanced through the training?

How MNC-NGO partnership enables suppliers to overcome the barriers of complying with the codes of conduct