Socially responsible supplier development and organizational performance : evidence from China manufacturers

Abstract

Some recent ethical incidents such as melamine-tainted milk, lead-tainted toys, and fake medicines reveal that suppliers' unethical behaviour not only badly impact on their own performance, but also cause significant and broad damage to the buying firms. Existing research, however, offers very limited insights into categorizing this kind of supply chain risk and mitigating it effectively. Based on the literature on supply chain risk and stakeholder theory, we develop a new category of supply chain risk called supply ethical risk, which is about the possibility that suppliers engage in unethical behaviours because of their lack of concerns towards stakeholders. Regarding the means for mitigating supply ethical risk, corporate social responsibility (CSR) is a widely recognized approach for organizations to enhance ethical performance, whereas supplier development (SD) is considered as an effective approach for buying firms to improve the capabilities of their suppliers. By integrating the concepts of CSR and SD, we propose that buying firms can enhance suppliers' CSR adoption capabilities and ethical performance by adopting a new approach called socially responsible supplier development (SRSD), which refers to a buying firm's concerted supplier development efforts on improving its important suppliers' CSR adoption capabilities. We then develop a number of hypotheses concerning the direct relationships between SRSD adoption, CSR adoption, and various performance-related outcomes (e.g., supply ethical risk, operational performance, financial performance) of the buyer and supplierinvolved in the SRSD programme. In order to provide more precise insights to the literature and practitioners, we also develop several hypotheses on how some of the hypothesized direct relationships are moderated by various pertinent organizational theories, including social capital and market turbulence. To test the hypotheses, we collect survey data from four manufacturing industries, namely food, pharmaceutical, automotive and clothing industries, in China. We employ both qualitative (e.g., expert panel discussions and a pilot test) and quantitative (e.g., statistical techniques such as reliability test and confirmatory factor analysis) approaches to develop the research instruments. In total, we collected survey data from 200 matching pairs of buyers and suppliers. We use Structural Equation Modelling (SEM) to analyze the data and test the hypotheses of this research. The results concerning the direct-effect hypotheses indicate that buyer's CSR adoption is an antecedent to its SRSD adoption and that its SRSD adoption leads to supplier's CSR adoption. We also find that supplier's CSR adoption directly or indirectly leads to a reduction in supply ethical risk and improvements in several performance outcomes of both the buyer and the supplier. Regarding the analyses on the moderating-effect hypotheses, the results indicate that some of the examined theories have moderating effects on the direct relationships concerned. Overall, this research offers concrete empirical evidence that SRSD is an effective approach to mitigate supply ethical risk and enhance the performance of the organizations involved. The results regarding the moderating-effect hypotheses extend the literature on four examined theories and provide guidelines to practitioners on the important factors to consider when making SRSD-adoption decisions.