Master Thesis
Stakeholder pressure to extend sustainability throughout the
upstream supply chain
Jozua Meindertsma
University of Groningen Faculty of Economics and BusinessMSc Supply Chain Management June, 2016
Supervisors
Dr. C. Sancha Fernandez and Dr. X. Zhang
Co-assessor Dr. Ing. J. Drupsteen
Dijkstraat 24
9724 KX Groningen, The Netherlands (06)12717434
2
Abstract
Companies have an increasing responsibility to act conform environmental and social norms in their supply chain. The objective of this paper is to study the pressures for the adoption of sustainable development practices (i.e. assessment and collaboration) both at the first and lower tier suppliers of the company. Pressures are identified using the stakeholder theory. In this survey study, out a sample of Dutch manufacturing companies, the results show that customer pressure has a significant and positive effect on the adoption of sustainable SD practices for first and lower tier suppliers, external pressure (i.e. NGOs, media and communities) only for lower tier suppliers. Overall our results suggest that sustainable supplier development can only be pushed by customers and other external stakeholders. The results inform policy makers of how to set the appropriate guidelines to improve sustainability in the upstream supply chain of companies.
Keywords: Sustainable supply chain management, supplier development practices,
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Table of contents
Abstract ... 2
1. Introduction ... 4
2. Theoretical background ... 6
2.1 Supplier development practices: assessment and collaboration ... 7
2.2 Literature review on SD practices ... 7
2.3 Stakeholder theory ... 9
2.4 Internal stakeholder pressure to adoption of SD practices ... 10
2.5 External stakeholder pressure to adoption of SD practices ... 11
2.6 Different pressures to different practices ... 12
3. Methodology ... 13
3.1 Questionnaire design ... 13
3.2 Data collection ... 14
3.3 Response bias ... 16
3.4 Reliability and validity ... 16
4 Data analysis and results ... 18
4.1 Descriptive statistics and general results ... 19
4.2 Results and hypotheses ... 19
4.3 Additional results ... 21
5. Discussion of the results ... 22
5.1 Discussion original results ... 22
5.2 Discussion additional results ... 23
5.3 Theoretical contributions ... 24
5.4 Managerial and policy implications ... 25
6. Conclusion ... 25
Appendix A. Questionnaire ... 27
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1. Introduction
6 need to pay attention to the stakeholders that have influence and avoid negative consequences, like bad publicity or lower revenues.
This study will address the following research question: Which stakeholders pressure the
company to adopt sustainable SD practices for first and lower tier suppliers? By answering
this research question this Master Thesis hopes to contribute to existing research in three ways. First, to extend what is already known about pressures and the adoption of sustainable SD practices by including lower tier suppliers. Second, to extend the knowledge on pressures for the adoption of sustainable SD practices by looking at a different set of stakeholders that might play different roles. Third, to understand if different pressures will lead to the adoption of practices for different supplier tiers (i.e. first or lower tier).
To achieve our research objectives, section 2 provides a theoretical background, after which our hypotheses are developed. Section 3 describes the methodology of the study and the data analysis. Section 4 tests the hypothesis and gives a summary of the results, which are then discussed in section 5. The conclusions of the research and the managerial implications are displayed in section 6, after that the limitations are discussed as well as the recommendations for future research.
2. Theoretical background
7 influence the company’s sustainability at the upstream side of the chain, which can be done by implementing SD practices (Grimm. et al., 2014).
2.1 Supplier development practices: assessment and collaboration
SD practices have been described in literature as a set of practices aimed at improving suppliers’ performance and/or capabilities (Krause et al., 2000). In this Master Thesis, these practices adopt a sustainability orientation and hence are aimed at improving suppliers’ sustainability performance and/or capabilities. In the SSCM literature, there are two types of SD practices that have been widely used to manage supplier sustainability: assessment and collaboration. (Grimm, Hofstetter and Sarkis, 2016; Vachon and Klassen, 2008; Klassen and Vachon 2003). Assessment entails arm’s length transactions performed by the buying firm to evaluate its performance (i.e. to see if the suppliers comply with the firms’ sustainability requirements) (Grimm et al., 2014; Sancha, Gimenez and Sierra, 2016). Assessment tools to monitor and evaluate suppliers are the use of certifications (e.g. ISO14001), questionnaires and auditing programs (Grimm. et al., 2016; Brammer, Hoejmose and Millington, 2011). During feedback sessions, the buying firm can give an evaluation of their current performance and of its expectations (Prahinski and Benton, 2004) so that the supplier can identify directions for further improvement. Collaboration with suppliers is based on the cooperation of the buyer with the supplier to jointly improve the practices and the relationship with the firm (Grimm et al., 2014; Vachon and Klassen, 2008). There is a high involvement between the buyer and the supplier, which implies coordination of activities and the joint investment in resources (Gadde and Snehota, 2000). It is a joint effort to improve the sustainability of the supplier. Tools within a collaborative approach are the training of suppliers’ employees, the transfer of employees between the companies, investment in the suppliers’ resources and the exchange of technical information (Grimm et al., 2014; Vachon and Klassen, 2008). Whereas assessment practices have a more indirect approach with gathering information and evaluation, collaboration practices have a more direct approach, through the sharing of information and knowledge and the joint process to find sustainable solutions (Klassen and Vachon, 2003; Vachon and Klassen, 2008).
2.2 Literature review on SD practices
9 the buying firm. To study how different stakeholders may influence the adoption of these practices, we are going to use the stakeholder theory.
2.3 Stakeholder theory
10 specifically, we will study how internal and external stakeholders influence the adoption of sustainable SD practices for both first and lower tier suppliers.
2.4 Internal stakeholder pressure to adoption of SD practices
Employees are employed by the company. In return for their effort and time, they expect
benefits like a salary and meaningful work. The individual values of employees can affect the company’s actions. In the field of purchasing, Carter and Jennings (2004) found that the norms and values of purchasing employees relate positively to purchasing social responsible. In a similar line, Ehrgott, Reimann, Kaufmann and Carter (2011) found that employees influence the selection of suppliers and employee motivation is important in the company’s social sustainability. In that sense, employees can influence on the adoption of practices that aim to make the first and lower tier suppliers of the firm more sustainable (i.e. practices). Top
managers are the highest rank executives of the company. Depending on their norms and
values, the company will be inclined to implement a certain set of environmental practices (Björklund, 2011; Bansal and Roth, 2000; Cordano and Frieze, 2000). Several studies have found that top managers are an important force in the adoption of sustainability (Ageron, Gunasekaran and Spalanzani, 2012; Walker and Jones, 2012). Top managers might want to show customers and other stakeholders a good corporate image (Ageron et al., 2012) or their individual values support sustainability (Walker and Jones, 2012). Therefore we expect that top managers lead the first and lower tier suppliers of the company in a sustainable direction, by adopting practices such as assessment and collaboration. Shareholders are the actual owners ofthe company and can therefore influence the company’s policy. Companies need to maximize their value. Studies showed that companies with environmental practices have improved business and financial performance (Zhu and Sarkis, 2004). Therefore, shareholders might be willing to implement SD practices as a way to improve performance. Financial
institutions perceive companies with a lower environmental record as riskier to invest in
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H1: Internal stakeholder pressure is positively associated with the adoption of first tier
sustainable supplier development practices.
H2: Internal stakeholder pressure is positively associated with the adoption of lower tier
sustainable supplier development practices.
2.5 External stakeholder pressure to adoption of SD practices
Governments and regulatory bodies are the entities that control countries and have legal
12 H1
H3
improve the sustainability. Competitors, who are operating in the same business, push firms to imitate successful performers (Aerts, Cornier, Magnan, 2006). Assessment and collaboration with suppliers have a positive impact on the environmental performance and corporate social responsibility of the company (Gimenez and Tachizawa, 2012) and firms that adopt proactive environmental practices improve their financial performance (Zhu and Sarkis, 2004). Companies will follow the actions of these successful competitors (i.e. environmental and social responsible), as a way to have the same results. The pressure that stakeholders can exert on the company is confirmed by the results of several studies. NGOs, media, governments and communities and social groups can influence the adoption of environmental SD practices (González-Benito and González-Benito, 2006). Also Gualandris and Kalchsmidt (2014) show that customer pressure is an essential driver of sustainable SD practices and lastly, Meixell and Luoma (2015) conclude that stakeholder pressure may influence the adoption of sustainable SD practices in the supply chain. Based on the argumentation for the different external stakeholders, we expect that together the external stakeholders can pressure the company to higher upstream sustainability for first and lower tier suppliers. In that sense, we hypothesize the following:
H3: External stakeholder pressure is positively associated with the adoption of first tier
sustainable supplier development practices.
H4: External stakeholder pressure is positively associated with the adoption of lower tier
sustainable supplier development practices.
Given the hypotheses above, the following conceptual model can be displayed.
H2
H4
Figure 1: Research model
2.6 Different pressures to different practices
Nowadays, the supply chain of firms is often fragmented and globalized (Miemczyk et al., 2012) and buyers have often less information about them (Choi and Hong, 2002). This has
Adoption of first tier sustainability practices Internal stakeholder pressure
13 raised concerns about the management of sustainability, especially at lower tier suppliers (Tachizawa and Wong, 2014). Therefore only a small proportion of the upstream supply chain might be covered by sustainability practices (Ciliberti, Pontrandolfo and Scozzi, 2008). We expect that the adoption of SD practices is especially costly and difficult for lower tier suppliers, because there is no direct contact between them and the buying firm. Top managers and shareholders will keep this in mind in making their decisions, knowing that they need to guarantee a sufficient cash flow to ensure liquidity and a persistent above average return to their shareholders (Dyllick and Hockerts (2002). Because implementing sustainability SD practices is especially more expensive to lower tier suppliers, we expect that the pressure from shareholders and top managers to implement sustainable SD practices at these suppliers will be low. On the other hand, we expect that media, NGOs and communities will earlier publish information about the circumstances at lower tier suppliers because most environmental and social issues are generated by these suppliers (Ernst and Kim, 2002). Therefore we expect that external pressures for the adoption of lower tier suppliers will be higher than internal pressures. In that sense we will hypothesize the following:
H5: External stakeholder pressure has a stronger influence on the adoption of lower tier
sustainable supplier development practices than internal stakeholder pressures.
3. Methodology
To test the conceptual model, we conducted a survey research. Companies were selected by the use of NACE code lists. The firms are in the following sectors: Textile Mill manufacturers, apparel and other finished products made from fabrics and similar materials manufacturers, chemicals and allied manufacturers, leather and leather manufacturers, electronic and electronic equipment and components, wood and cork manufacturers, plastic and cork manufacturers, car manufacturers, food industry and beverages and paper manufacturers. We aimed for firms with more than 50 employees, the expectation is that they have sufficient resources and have time to think about and invest in sustainability and supplier relations.
3.1 Questionnaire design
14 external pressure are government and regulatory agents, customers, communities and social groups, NGOs, competitors and media. The items are measured on a five point scale (1 ‘not important/ no pressure’ - 5 ‘very important/ great pressure’). The items are derived from González-Benito and González-Benito (2006). Section 2 measures the adoption of sustainability practices, which looks at the adoption of assessment and collaboration at first and lower tier suppliers. To measure assessment we have considered the following dimensions: assess performance (i.e. formal evaluation, guidelines and procedures), perform audits and provide feedback. For collaboration we have considered the following dimensions: provide training, company visits (i.e. advice suppliers and share knowledge) and make joint efforts. The items are measured on a five point scale (1 ‘none’ - 5 ‘high’). The items are derived from Krause et al. (2000) and Large and Thomsen (2011).
Section 3 asks for general company information (i.e. size of the company, amount of employees, annual sales, companies’ industry) and questions related to the structure of the supply chain (e.g., number of first and lower tier suppliers).
3.2 Data collection
The data collection took place from March 2016 through May 2016. Executives, such as CEOs, supply chain managers, purchasing managers, operation managers, environmental managers an plant managers were identified as target group because of their knowledge about sustainability and supplier management. The selected person of each firm was first contacted by telephone and asked to fill in the questionnaire. When they agreed, an e-mail was sent with the questionnaire. If needed, a reminder to fill in the questionnaire was sent after two weeks. A second reminder was sent a week after the first reminder. A total of 97 companies provided data, 3 respondents were removed because they did not provide enough information to be interpreted. 69.1% of the respondents have worked for 3 or more years for the company. Out of the 515 firms contacted, 350 companies agreed to fill in the questionnaire. The willingness to participate was 68%, the response rate 28%. Table 1 summarizes the profile of the respondents and their companies.
Table 1: Descriptive statistics Sector
Textile Mill manufacturers
15 manufacturers
Chemicals and allied manufacturers Leather and leather manufacturers
Electronic and electronic equipment and components Wood and cork manufacturers
Plastic and cork manufacturers Car manufacturers
Food industry and beverages Paper manufacturers Others Unknown Total 17 1 15 3 3 2 15 4 3 3 94 18.1 1.1 16.0 3.2 3.2 2.1 16.0 4.3 3.2 3.2 100 Turnover Between $10 and 20 Between $ 20 and 50 Between $ 50-100 More than $ 100 million Unknown Total N 12 32 21 24 5 94 % 12.8 34 22.3 25.5 5.3 100 Number of employees 1-10 11-50 51-100 101-500 More than 500 Unknown Total N 1 2 20 54 14 3 94 % 1.1 2.1 21.3 57.4 14.9 3.2 100
Position of the respondent
Supply Chain Manager CEO
Purchasing manager
Manager of Operations Management Department Manager of Environmental Department
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3.3 Response bias
If responders differ significantly, it can be a bias to the results of this study. To see if there were any differences, we made a distinction between early and late responders, where early responders (66%) responded after the first contact, and late responders (34%) responded after the first or second reminder. An independent samples t-test is appropriate to analyze differences among groups to see if there are significant differences among groups (Trochim, 2002). We applied the t-test, comparing the early and late responders with the company size (i.e. the amount of employees and the revenues of the firm). The results showed that there were no significant differences between the groups at p < 0.05. This shows that response bias is not an issue, there is no significant difference between early and late responders.
3.4 Reliability and validity
An exploratory analysis was done to ensure that the instrument (i.e. the questionnaire) measured what it was supposed to measure using varimax rotation. First, the adoption of sustainable SD practices will be assessed, after that the stakeholder pressure. To ensure the quality of the data for the adoption of sustainable SD practices, the Kaiser-Meyer-Olkin (KMO) and the Bartlett’s Test were conducted. As shown in table 2 the KMO is above the required 0.600, so the sample size is adequate for factor analysis. The Bartlett’s Test is significant (<0.001), which shows that there is a relationship between the items that we want to include in the analysis. We conducted an exploratory factor analysis on the adoption of sustainability practices, to validate our proposed factor structure. Table 2 shows that two factors for the adoption of sustainable SD practices were identified.
17 relatively strong (Nunnally, 1978). These results show that the adoption of first tier sustainability practices and the adoption of lower tier sustainability practices are valid and reliable constructs.
Table 2: Reliability and validity assessment adoption sustainable SD practices
Construct Item Factor 1 Factor 2
Adoption of first tier sustainability practices Cronbach alpha: 0.945 FAss1 FAss2 FAss3 FColl3 .417 .842 .924 .913 .739 Adoption of lower tier sustainability
practices Cronbach alpha: .916 LAss2 LAss3 LColl1 LColl2 LColl3 .819 .840 .896 .856 .907 .398 .354 Eigenvalue
Percentage of variance explained (%)
5.856 65.071
1.580 17.558 KMO:
Bartlett’s Test of Sphericity: - Approx. Chi-Square: - Df.: - Sig.: .850 839.005 36 .000
18 above the required 0.7, suggesting that reliability is relatively strong (Nunnally, 1978). These results show that the internal pressure and external pressure are valid and reliable constructs.
Table 3: Reliability and validity assessment stakeholder pressure
Construct Item Factor 1 Factor 2
Internal pressure Cronbach alpha: .840 Shar1 Empl1 TopM1 Cust1 .889 .760 .852 .710 External pressure Cronbach alpha: .800 Gov1 ComS1 Ngo1 Media1 .421 .573 .889 .892 .725 Eigenvalue
Percentage of variance explained (%)
3.602 45.029
1.821 22.763 KMO:
Bartlett’s Test of Sphericity: - Approx. Chi-Square: - Df.: - Sig.: .758 356.745 28 .000
4 Data analysis and results
To analyze the data we used ordinary least squares regression (OLS), in which stakeholder pressure is the independent variable and the SD practices are the dependent variables. To isolate these relationships, in all our models we have controlled for the following variables:
(1) Company size. This variable was included in the analysis to control for the effect of scale economies, where big companies have more resources to act sustainable. Several papers reveal the importance of company size in relation to environmental awareness (e.g. Gil, Jiménez and Lorente, 2001). Company size is measured by the firms’ revenues and the amount of employees, measured on 1-5 Likert scale.
19 Excluding the misinterpreted questions did not lead to other results. We decided to keep the question in to keep the sample size high.
4.1 Descriptive statistics and general results
Table 4 shows the results of descriptive statistics and the correlations of the variables. The means show that Dutch manufacturing firms encounter both pressures for adopting sustainability. Additionally, the results show that firms implement first tier sustainable SD practices at higher levels compared to the adoption of lower tier sustainable SD practices. A possible reason for this result could be the higher cost or the lack of supply chain integration. The correlation between the variables is generally low.
Table 4: Descriptive statistics on stakeholder pressure and adoption of sustainable SD practices
Variable Mean SD 1 2 3 4 5 6 7
1. Firm revenues
2.Firm’ size (employees) 3. Length supply chain
3.64 3.86 2.98 1.03 0.74 1.67 - .35* -.09 - .07 - 4. Internal pressure 5. External pressure 3.12 2.88 1.03 0.97 -.10 -.03 -.13 -.05 .02 .04 - .36* - 6. first tier SD practices
7. lower tier SD practices 2.71 1.76 1.30 1.04 .21 .16 .02 -.25* -.09 -.15 .37* .32* .29* .31* - .58* - Notes:
- Stakeholder pressure: 1= not important/no pressure – 5= very important/ great pressure - Adoption of sustainable SD practices: 1= none – 5= high
- *Correlation is significant at 0.01 (two-tailed)
4.2 Results and hypotheses
20 SD practices. The length of the supply chain does not have a significant effect on the adoption of sustainable SD practices.
Model 1 shows the results of the independent variables (i.e. internal and external pressure) on
the adoption of sustainable SD practices for first tier suppliers. The results show that internal pressure has a positive and significant effect on the adoption of sustainable SD practices for first tier suppliers. The effect of external pressure is not significant.
Model 2 shows the results of the independent variables (i.e. internal and external pressure) on
the adoption of sustainable SD practices for lower tier suppliers. The results show that internal pressure has a positive and significant effect on the adoption of sustainable SD practices for lower tier suppliers. The effect of external pressure is positive and almost significant (p= .109).
Table 5: Result OLS analysis
Parameters Depedent variable: sustainable SD practices (SSD)
Model 1 First tier Model 2 Lower tier Control variables Firm’ revenues
Firm’ size (amount of employees) Length of the supply chain
.232* .022 -.013 .285** -.236* -.065 Hypotheses
H1 and H2 Internal pressure - > SSD .346* .146
.262* .179 H3 and H4 External pressure - > SSD
Constant (B0) -.587 .227 .176 4.468** .633 .242 .192 4.799** R Square Adjusted R Square F Value Notes:
21 H1 .346* (≤ 0.05)
H3 .146 (.182) H2 .262* (≤ 0.05)
H4 .179 (.109)
Given the results, the following model can be displayed:
Notes:
- *significant (p ≤ 0.05)
Figure 2. The influence of stakeholders on sustainable SD practices
H5: The external stakeholder pressure to adopt sustainable SD practices for lower tier
suppliers is not higher (and not significant) than the internal stakeholder pressure. Therefore hypothesis 5 is rejected.
4.3 Additional results
The factor analysis for stakeholder pressure gave some unexpected and unclear results. For that reason, we should critically look at the results. Two things stood out in particular. In the first place, governments and regulatory bodies have cross-loading with the internal stakeholders. This could suggest that it has characteristics of external and internal stakeholders. González-Benito and González-Benito (2006) also found a difference between governments and regulatory bodies and other stakeholders, and therefore treated government and regulatory bodies as a separate variable in their analysis. Another unexpected result was the loading of customers on the internal stakeholders, where the literature identifies it as an external stakeholder. Because of these mixed signals, we ran an additional regression analysis with governments and regulatory bodies and customers separately to see if this has impact on the results of the first analysis. The independent variables are: internal stakeholders (employees, top managers and shareholders), external stakeholders (communities and social groups, NGOs and media), customers and governments and regulatory bodies. The dependent variable stays the same. The results of this additional analysis are shown in table 6.
Adoption of first tier sustainability practices Internal stakeholder pressure
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Table 6: Additional OLS analysis
Parameters Depedent variable: sustainable SD practices
Model 1 Model 2
First tier Lower tier
Control variables
Firm’ revenues .192* .284**
Firm’ size (amount of employees) .028 -.245*
Length of the supply chain .026 -.091
Hypotheses
Internal pressure without customers - > SSD -.030 .093 External pressure without government - > SSD .057 .257*
Customers - > SSD .470** .293*
Government and regulatory bodies - > SSD .129 -.157
Constant (B0) -.702 .908 R Square .320 .312 Adjusted R Square F Value .255 4.965** .246 4.721** Notes:
- Standardized regression coefficients are reported. - *p ≤ 0.05 **p ≤ 0.01
5. Discussion of the results
We hypothesized the direct effect of stakeholder pressure on the adoption of sustainable SD practices for first and lower tier suppliers. In this section, the results will be discussed. The discussion will mainly focus on the second OLS analysis (table 6), because it makes a further dividing between the stakeholders.
5.1 Discussion original results
23 practices for lower tier suppliers is almost significant with a significance level of 0.109. There is not enough support for hypothesis 5, which states that external stakeholder pressure will be higher for the adoption of lower tier suppliers than internal pressure. However, it can be said that external stakeholder pressure correlates more with the adoption of SD practices for lower tier than for first tier suppliers. Overall our results suggest that internal stakeholders play the most powerful role in the firms’ implementation of sustainable SD practices.
5.2 Discussion additional results
The results, shown in table 6, differ considerably with the results of the first regression. The biggest difference is shown at the internal stakeholders. Table 6 shows that customers pressure companies to adopt sustainable SD practices for first and lower tier suppliers. This result is in line with Gualandris and Kalchschmidt (2014), who also found a direct relationship between customer pressure and the adoption of sustainable SD practices. But there is no indication that the other internal stakeholders (i.e. employees, top managers and shareholders) push the company towards more sustainability at the upstream supply chain partners. This might be due to two reasons. First, the implementation of sustainable SD practices at first and lower tier suppliers is difficult and often does not pay off immediately. This could discourage firms to adopt them. Second, employees and top managers might not be able to act in favor of their norms and values because they need to work within the boundaries of the firms’ policy.
24 2014), which makes it harder to interfere. The fact that external stakeholders do not have an effect on the adoption of sustainable SD practices for first tier suppliers is in line with the findings of Zhu et al. (2013) and Sancha et al. (2015). This might be due to the following reason. First tier suppliers are selected directly by the buying firm, and therefore evaluated on their sustainable performance during the supplier selection. For that reason the first tier suppliers might have better sustainability performance. If the performance is not outstandingly bad, the external stakeholders will pay less attention to it. Government and regulatory bodies did not have a significant effect for the adoption of first and lower tier sustainable SD practices. This finding is in line with the research of Zhu et al. (2013) and Sancha et al. (2015), who found that coercive (regulation) pressure did not have a positive effect on the implementation of external SD practices. A reason for this can be found in the following: the implementation of sustainable SD practices goes further than the governments’ requirements and might therefore not relate to it (Sancha et al., 2015). Furthermore, Esty and Winston (2006) argue that lower tier suppliers can be located in countries that are less demanding regarding environmental and social regulations. Additionally, Henriques and Sadorsky (1999) pointed out that government pressure is more related to reactive company action instead of proactive company action, such as sustainable SD.
5.3 Theoretical contributions
In this study, we examined the pressure of internal and external stakeholders to adopt sustainable SD practices. The use of the stakeholder theory allowed us to get a better view of the internal and external stakeholder pressure that a company faces. This study enriches the literature of SSCM, more specifically the SD literature, in different areas. First, it looks at pressures for first tier and also for lower tier suppliers, an area that is still underexposed. Second, it looks at the adoption of environmental as well as social SD practices, where previous research often only focuses on environmental SD practices. Third, it compares the effect of different stakeholder groups, by dividing internal and external stakeholder pressure.
25 that external stakeholders, customers included, pressures companies more to extend sustainability to its upstream supply chain partners than the internal stakeholders.
5.4 Managerial and policy implications
This study has several managerial implications and can provide policy makers with the knowledge of how to improve sustainability at firms’ suppliers. Regarding managerial implications, it is important to understand that the firms’ environmental and social behavior impacts their reputation (Foerstl et al., 2010). Firms need to make decisions based on this knowledge. The decision to implement SD practices is commonly initiated by the firm’s management, implying the investment of resources and the relationship with suppliers (Sancha et al. 2015). We show managers that customers and external stakeholders (i.e. communities and social groups, media and NGOs) determine what to do in terms of sustainability at suppliers, because they have the power to influence sustainability practices. Therefore it is important to have knowledge about their wishes and not neglect them. The results also have an implication for policy makers. There are a lot of abuses in the world regarding environment and people, especially at the lower tier suppliers (Ernst and Kim, 2002). It is one of the governments duties to take action to improve these issues. This can be done by using sustainable SD practices. The adoption of SD practices by firms is still low (Zhu et al. 2013). If policy makers want to encourage firms to act more sustainable at their first and lower tier suppliers, they need to focus on raising customer and external pressure. Regarding customers, they need to encourage them to change their norms and believes and promote sustainable products/companies. Regarding external stakeholders, they could give external stakeholders the freedom and resources to detect and report abuses. Negative publications will push firms to more sustainable operations.
6. Conclusion
The objective of this paper was to investigate the impact of stakeholder pressure on the adoption of pressures for first and lower tier suppliers. Customers play the most important role in pushing companies to sustainability. We found that they can pressure companies to extend sustainability to first and lower tier suppliers. In addition we found that external pressure can push firms to adopt sustainable SD practices for lower tier suppliers.
27
Appendix A. Questionnaire
Construct No. Phrase Source
Internal pressures
Shar1
Empl1 TopM1
FInst1
The pressure that internal stakeholders exert with respect to sustainability issues Shareholders Employees Top Managers Financial institutions Adapted from González-Benito and González-Benito (2006) External pressures Gov1 Cust1 ComS1 Ngo1 Comp1 Media1
The pressure that external stakeholders exert with respect to sustainability issues
Government and regulatory agents
Customers/consumers
Communities and social groups
Non-governmental organizations Competitors Media Adapted from González-Benito and González-Benito (2006) SD practices first tier suppliers - Assessment - Collaboration FAss1 FAss2 FAss3 FColl1 FColl2 FColl3
We assess our suppliers’ sustainability performance through formal evaluation, using established guidelines and procedures
We perform sustainability audits for our suppliers’ internal management systems
We provide our suppliers with feedback about the results of the sustainability evaluation
We provide training related to sustainability practices to our suppliers
We visit our suppliers’ premises (e.g., factories) to help them improve their sustainability performance (e.g., provide advice and share know-how about sustainability issues) We make joint efforts with our supplier to improve our sustainability performance Adapted from Krause et al. (2000), Large and Thomsen (2011) SD practices lower tier suppliers - Assessment - Collaboration LAss1 LAss2 LAss3 LColl1 LColl2 LColl3
We assess our suppliers’ sustainability performance through formal evaluation, using established guidelines and procedures
We perform sustainability audits for our suppliers’ internal management systems
We provide our suppliers with feedback about the results of the sustainability evaluation
We provide training related to sustainability practices to our suppliers
28
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