Theory, policy and practice perspectives from Royal Holloway

Working Conditions and Global Supply Chains

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Despite the expansion of international trade and advancements in global monitoring systems, poor working conditions remain a serious problem in small supplier facilities in developing countries. As part of my PhD, I conducted extensive empirical research on small Indian Knitwear suppliers in Tirupur, Tamil Nadu to understand the reasons behind limited improvements in working conditions in such supplier facilities. The results tend to shake numerous assumptions drawn largely from a developed country perspective, that we (i.e. scholars, practitioners and policy makers) usually work with when dealing with small businesses. Here, I briefly highlight some of the assumptions and the counter arguments based upon my findings.

Assumption 1: Small business is a lonely planet where the owner-manager is king, or occasionally in India, queen.

Counter argument: We often tend to assume that small businesses are isolated from the rest of the primary business world and that they are not expected to respond to complex sets of demands from external and internal stakeholders. Contrastingly, my research shows that although the owner-managers are the primary decision-makers of small businesses, they belong to a wider institutional context, especially when they are part of global supply chains. Consequently, in order to survive, they ought to respond to numerous overlapping, contradictory or competing sets of demands from a wide range of stakeholders. Therefore, an owner-manager can be the king/queen of his/her firm, but he/she is only a minute node in a much complex and large network.

Assumption 2: Small businesses are resource-dependent.

Counter argument: A prevailing notion among scholars and policy makers about small businesses is that they are resource dependent. Indeed they are, but only in terms of physical/infrastructural resources. Because they are entrepreneurial in nature and have control over all of their everyday activities, they tend to skilfully draw upon many favourable contextual features such as cultural idiosyncrasies, worker trust and dependency, the social acceptance of ethically questionable practices and so forth as resources to realise their own interests..

Assumption 3: Small businesses are passive respondents

Counter argument: Because of the – physical – resource-dependent nature, generally, small suppliers based in developing nations are presumed to be powerless and passive in global supply chains. Indeed, small suppliers are resource dependent and may hesitate to retaliate against multinational corporations’ requirements or other institutional ones. But, abandoning the trade relationship is not the only way in which they can respond. They discreetly bypass various demands by being involved in many ethically questionable practices such as bribing, manipulating, double bookkeeping, operating multiple units, grooming factories and training workers for inspections etc.; what I call ‘creative-evasion’ practices. Thus, small businesses are resource-deprived, but not passive adopters of the standards of others.

Assumption 4: Global standards/codes designed for large enterprises can help improve small business practices

Counter argument: In practice, global standards or codes designed to improve the standards of business practices in large enterprises are imposed on small businesses, especially when they are part of global supply chains, with an assumption that they can bring about positive improvement in small business practices. But, in reality, these standards/codes are counter-productive. Although small suppliers appear to positively implement such standards/codes, actually, because of their – physical – resource-dependent nature, they don’t. However, in order to survive, they tend be involved in numerous ethically questionable practices or ‘creative-evasion practices’ (as I term them), and mislead demanding stakeholders by tricking them into thinking that they are playing by the rules of the game. Therefore, in a way, these standards/codes per se are a reason for their ethically questionable behaviour.

Practical Implications:

Acknowledging Small Suppliers. There is very little connection between what global standards/codes/initiatives demand of small businesses and what small businesses are actually in a position to implement. Therefore, there is a very real need to differentiate less resourceful smaller firms from more resourceful large ones with respect to the development and implementation of the different provisions of such initiatives. This differentiation is essential, but it could also discourage firms from expanding beyond a certain level, resulting in an increase in the number of smaller firms, so as to take advantage of unregulated work settings. Therefore, what we need is not just such a differentiation and modification of initiatives, but management processes tailored to small businesses and to the context in which they are located. Certainly, small businesses must be brought into the development of initiatives, but they should be explicitly acknowledged as separate stakeholders. They should be consulted during the development phase of such initiatives and should be partnered for their implementations.

Training the ‘gatekeepers’. The owner-managers are the legitimate gatekeepers of small businesses and they possess a high level of authority in deciding the internal dynamics of their firms. Yet they do not appear to have an ample understanding of what is expected of them. Unlike the owners and managers of large firms, the majority of these owner-managers in developing nations have little formal education, meaning that they have very little understanding of legal documents or standard management-orientated discourses. There seems to be a gap between the prescriptions of standards regulations and the owner-managers’ understanding of them. Therefore, it is necessary to translate regulations, standards or any other demands into a format that is comprehensible to local owner-managers both in terms of content and language.

From ‘policing’ to ‘cooperative development’. Most buyers or global brands appear to play a dominant role and sometimes are even involved in creating a price competition among suppliers to obtain price concessions and an uninterrupted supply. They do not appear to value the suppliers’ abilities, and assume that no supplier has anything unique to contribute in their struggle for competitive advantage. Consequently, compliance with standards/codes per se is becoming the basis for the nature of relationships or an aspect of political conflict between buyers and suppliers. The buyers could change the nature of their relationship with their suppliers by moving beyond this established arms-length relationship towards a closer or collaborative relationship. The buyers should realise that their suppliers create value and enhance organisational effectiveness. They could initiate this style of relationship by providing incentives and support in the form of financial sustenance, changes in price structures, increases in turnaround times and by showing a willingness to share risks. This, in turn, could provide suppliers with an economically sustainable context to both balance trade and avoid ethically questionable practices and could lead to numerous concrete benefits, such as an increase in the level of compliance, a reduction in monitoring costs and a venture to generate more solid long-term buyer-supplier relationships.

Making the ‘invisible hands’ visible. Most of the employees working in small businesses in developing countries have limited formal education and are economically marginalised. They are attuned to work for the garment industry. Their everyday life depends on the work they do. Because of such conditions, they are less likely to stand up to their owner-managers. Because of the industry subculture, they are quite fragmented; most workers are unaware of their own rights, so providing the owner-managers with abundant scope to engage in ethically-questionable practices. To overcome this, there is a need to empower workers. They should be made aware of their own rights and of established standards for business practices. In addition, they should also be consulted while designing obligatory and voluntary regulatory initiatives so as to arrive at a realistic depiction of what their real requirements are, and how they could be fulfilled.

Some of these implications may appear to be a flight of fantasy. Nevertheless, there is some evidence of better performing small as well as large businesses, so there still is hope!


 

Vivek dissertation award

Vivek Soundararajan

Vivek was awarded his PhD from the School or Management in July 2014. He received the Prize for the Best Doctoral Dissertation from the Social Issues in Management Division of the Academy of Management (see picture).

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