THE DIFFUSION OF CORPORATE SUSTAINABILITY IN GLOBAL SUPPLY NETWORKS: THEORETICAL AND EMPIRICAL PERSPECTIVES

Abstract

The rapid increase in the adoption of global sourcing practices that took place in 1980’s led to significant transformations in traditional value chains, which were encompassed by single, vertically integrated organizations, and became globally dispersed networks of independent buyers and suppliers, where each of these firms performs specific value-adding activities that will ultimately result in that value chain’s final output. As concerns over the negative social and environmental impacts caused by industrial activity continue their rise to prominence, stakeholders are starting to realize that the changes through which value chain structures underwent have shifted the locus of corporate sustainability from individual focal firms to entire supply networks. This wider scope of stakeholder expectations has, thus, created a necessity for corporate sustainability initiatives to be diffused to all members of the supply network. Chapter one constitutes a theoretical investigation of the strategic relevance of corporate sustainability diffusion in global supply networks for both focal and non-focal firms within global supply networks, as well as the determining factors of a firm’s capacity to diffuse and performance in diffusing corporate sustainability within its supply network? The theoretical contributions of this study are divided into two parts. The first part seeks to establish a more solid cause and effect relationship to explain why firms that are more highly exposed to stakeholder scrutiny (i.e. focal firms) should necessarily face a higher risk of being held responsible for the sustainability-related misconducts of lesser exposed members of the network (i.e. supplier sustainability risk). The first part also proposes an expansion of the dichotomous categorization of corporate sustainability initiatives as either mandatory or voluntary, to add what we termed: semi-voluntary corporate sustainability initiatives. This addition serves to explain why certain firms adopt non-mandatory corporate sustainability initiatives, which apparently destroy shareholder value. We argue that this distinction is important because cases concerning semi-voluntary initiatives are likely to involve higher levels of supplier sustainability risk. In part two of the theoretical development we introduce a theoretical framework to explain the existing heterogeneity among different firms within a supply network in regards to their ability to implement the diffusion of corporate sustainability initiatives in the network (i.e. network dominance) and propose that it results from the interaction among three network-related firm characteristics: relative resource value, resource substitutability, and relative network position. Lastly, we discuss why higher levels of network dominance increase the likelihood that firms will be able to ensure a high level of corporate sustainability diffusion in the network. Chapter two aims at empirically testing a set of hypotheses derived from the propositions put forth in the second part of chapter one’s theoretical development Therefore, it seeks to answer questions, such as, who is responsible for ensuring that all network members meet the necessary corporate sustainability standards in order to adequately fulfill the demands of stakeholders? Why do some firms engage in corporate sustainability and others do not? What contributes to the effective diffusion of corporate sustainability in a supply network? These hypotheses are tested on a sample of 10,728 firms in the automotive sector, linked by 45,044 inter-firm relationships. Strong support for our hypotheses provides both researchers and managers with an interesting discussion of how this emerging business paradigm, where corporate sustainability is becoming the norm and no longer the exception, may have significant implications on how value chains are structured within this sector.