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Essay: Maximising CSR Practices in MNCs, from Nike to Ikea: Defining & Measuring CSR in Supply Chains

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Today there are challenges in defining and measuring CSR among buyers and suppliers.  CSR standards and practices can vary between organisations.  CSR is increasingly turning into a required business practice in developing economies as well as western economies. Nonetheless, CSR in Multi-national companies (MNC's) are regularly tested by the worldwide reach of their supply chains and the unreliable practices that can occur along supply chains to which they are associated.   The likelihood of irresponsible practices puts the MNC's under enormous pressure to ensure their brands and reputation is protected regardless of whether accepting responsibilities for the acts of their suppliers.  The irresponsible practice of the supply chain can put the MNC’s exposed to pressure groups and consumers taking advantage of the situation.  This essay will examine contemporary standards of ethical and socially responsible business practice and demonstrate that the appropriate corporate social responsibility (CSR) along the supply chain requires appropriate codes of conduct to manage the relationships. The analysis will include case studies from two different organisations who have implemented CSR within their supply chain.  

Corporate Social Responsibility (CSR) is a self-regulating ethical business model that requires MNCs to conduct business in a way that is ethical and above legal requirements.  To manage and enhance its business MNCs must be socially responsible, responsive to the community and develop ethical relationships with shareholders, employees, consumers, the local community, its suppliers and have consideration of human rights and environmental protection and sustainability (Department for Business Innovation and skills, 2014).  

However, according to Archi Carroll a retired Professor in University of Georgia, defines Corporate social responsibility is an expectation that society has on organisations.  The corporate social responsibility is an ongoing continuous process and do needs to be accommodated over time and country. Any corporate activities should be assessed against the expectation placed on the organisation including, economic, legal, ethical and philanthropic responsibilities. He also argues that the organisations have priorities, it needs to be profitable, obey the law and regulation, be ethical then be a good corporate citizen and finally fulfil its philanthropic responsibilities. There are huge financial costs to embed and maintain the social responsibility so being profitable is essential.  (Carroll, 1991)

Multinational companies (MNC) are increasingly mindful of their social and environmental responsibility. MNC's today must follow ethical business practices to compete with each other and being profitable.  In light of the expanding societal expectation.  MNC's embrace the idea of corporate social responsibility (CSR) by embedding sets of CSR codes of conduct within the company policy and are required to guarantee the social responsibility throughout the supply chain from the supplier of raw materials to consumers. However, the implementation of the code within the supply chain is becoming increasingly challenging (Pedersen and Andersen, 2006a).  

Supply Chain Management (SCM) is a network of companies directly linked or independent, whose main purpose is to serve the end user. Generally begins with suppliers, they provide raw materials, then manufacturers to produce the product ready sell and final stage is distribution, which can involve logistics, wholesalers, retailers to consumers (Larson and Rogers, 1998).  There are many different sectors of the supply chain. One of the main fundamentals of MNC's requirements of SCM is to embed CSR within the SCM. When the brand name and reputation of the initiator is at stake, the implementation of CSR code of conduct is of paramount and crucial importance.  The failure to manage the supply chain for implementing the CSR code of conduct and control the social and environmental impact will increase the risk of non-compliance.  One thing is to be socially irresponsible, another is to be a socially reckless liar.   It is in the interest of the MNC’s to make sure the codes are implemented and monitored and provide training and support where it is needed to the supply chain in every level.  (Pedersen and Andersen, 2006)

Nike is one of the organisations, which had negative publicity with the pressure groups and consumers due to its unethical previous practice in its factories and supply chain.  Early 1990’s, consumers and Non-governmental Organisations (NGO's) were protesting outside Nike town stores all around the world, the badly tarnished images were making the company the global symbol of abusive labour practice. It is difficult to believe given the steady implementation of Corporate Social Responsibility (CSR) within its policy, how Nike has turned its reputation around comparing to the boycotts and public fury throughout the 90’s. Late 90’s at that point CEO of Nike Phil Knight made public announcement promising improvement. The organization attempted to set up new approaches and uphold them, but it was a challenge in implementing the change. 2005, Nike first in its industry to publish a complete list of factories and also published a detailed report of 108 pages disclosing the working conditions and pay in its factories and accepting extensive issues still remains, predominantly in its south Asian factories (“How Nike solved its sweatshop problem – Business Insider,” n.d).

Nike was not the only organisation known to have used sweatshop condition, but due to the size and brand name, it was the one everybody knew.  Nike taking the first step in its industry to implement the CSR in its factories and supply chain, made the company a leader, rather than denying every allegation, Nike being responsive and managed  to put the most part of the history behind and other MNC who outsource could learn from Nike's CSR implementation in its supply chain and how it turned the business around for better and more profitable.  (Doorey, 2011)  It is also asking other MNC's to follow and join collaborative efforts. Nike says:

"Our industry is at a crossroads. Individual companies, Nike included, now realize there are limits to what we can achieve independently. By being open with this list, and by providing the depth and breadth of information in our CR report, we hope it will encourage others to join collaborative efforts"

IKEA is another organisation made a success of its CSR by implementing its code of conduct within its own organisations and its supply chain, despite past negative publicity in its supply chain. IKEA works very closely with its supply chain and embedded its CSR code of conduct called IKEA way (IWAY).  IWAY was introduced in the year 2000. IWAY characterises what the suppliers can anticipate from IKEA and what IKEA requires from its suppliers with appropriate working conditions, minimum wages, overtimes, prevention of child labour and discrimination in the workplace and the environmental issues and adhering to the national laws.  It has a total of 80 requirements within the IWAY code of conduct and every single code must adhere.  One of the policies is on corruption and illegal activities, regardless of whether direct or indirect, if it detects it will do everything within its power and disassociates itself.  Rules of Prevention of Corruption, and an investigation policy that obviously states what suppliers ought to do on the off chance that they suspected corruption, fraud or other illegal activity.  IKEA's position is clear and within its IWAY code of conduct which all suppliers within the supply chain they must adhere.  IKEA works very closely with its suppliers, provides training for its policy and even provide financial support if need be.  Financial support is payable through the delivery process.  IKEA has scheduled internal and external trained auditors visiting the suppliers, checking to make sure if the IWAY code of code is being implemented and adhered to, whether improvements or training is needed.  IKEA systematically applying IWAY and supporting its suppliers, IKEA is able to initiate thousands of improvements in social and working conditions globally. IKEA policy of IWAY is always looking to improve and update its code of conduct for better for all.  IKEA one of the Regional managers says:

"We tell the suppliers that 'we will give you all the time you need, we will provide you with all the help you need and if it costs you money, we will discuss that as well'.  They have nothing to lose everything to gain"

All suppliers are audited against the code by IKEA's very own trained auditors. As the organization has a methodology of participating in long-term associations with its suppliers, it does not sever relations due to non-compliance or underperformance, as long as suppliers demonstrate the willingness to improve and cooperate.  IKEA gives its suppliers 24mths for the correction action plan to show improvements and correct the items that failed on its code of conduct.  On the off chance that a provider can't satisfy the IWAY necessities inside this time allotment, however, demonstrates an improving approach towards the execution of IWAY.  Suppliers are put on a 'risk register' and given extra time to satisfy the requirements, However, IKEA will not hesitate to terminate contracts with its suppliers who do not demonstrate an enthusiasm for satisfying all the IWAY requirements or even lack of cooperation of fulfilment. IKEA's ultimate goal is to make sure the suppliers adhere to its code of conduct so that way it safeguards its brands and reputations. Non-compliance of suppliers can have a detrimental effect on its brand.

There are a few difficulties to the management and control of the code of codes sets in worldwide supply chains. Dynamic responsibility is required for the implementation of the of the CSR codes, however, the incentives to comply does not really reach out to everyone in the supply chain. In addition, it is challenging to monitor the supply chain, due to geographically located i.e. being offshore, economically, legally, culturally and politically. In consequence, there is a chance of non-compliance.  However, non-compliance can have severe consequence for the MNC's due to consumer sanctions, negative press, loss of capital, damaged the brand or even governmental intervention.  (Pedersen and Andersen, 2006)

Ethical trading initiative (ETI) was formed by large supermarkets in the UK, Non-governmental organisations (NGO) and also the UK government-sponsored the organisation. ETI has focused on African agricultural supply chains as one of its best needs for making considerable enhancements to the lives of poor working individuals.  This is to increase the standards of supply chain and bring them to compliance of the ETI base code, which maintains similar standards of International Labour work associations, among working conditions, wage levels and child labour. But it also had a negative impact on the workers and farmers. The suppliers were supplying high value micro vegetable to UK supermarket. It was expected to comply with the ETI code of conduct, increase the standards, which increased the production price, but the organisations not willing to increase the buying price.  This put the suppliers in a difficult position as they did not want to want to lose of their largest customers.  The most sensitive rule they imposed was not allowing children to be with their parents at work, rather leaving them in the crèche facility, which must be provided by the farmers at their expense.  Leaving children with strangers is not within the culture of Africans and that became another challenging for workers. (Freidberg, 2003)

Conclusions

Ethical business practice should be fundamental of MNC's, which includes in all levels of the business from suppliers of raw materials to delivering to the end user.  Every stage, every level whether directly linked or indirectly linked. It must also be monitored, provide training and financial incentives were required to less experienced in the supply chain.  It has been realised that adherence to ethical and socially responsible business principles might be disadvantageous to the organisation, as it is costly. However, the organisation's disadvantages are debatable but the advantages to the wider society are immense.  MNC's are more accountable now for any failures by MNC or its supply chain.  As seen in this essay the non-compliance of ethical business can be a detrimental impact on the organisation's brand and capital.

Consumer sanctions, especially at this day and age of social media, press and pressure groups and consumers, are a lot more aware and demands are very high, for ethical business to be conducted globally including developing countries.  While the MNC's expected to conduct the business ethically and socially responsible manner, there are challenges and limitations involved, which they need to be aware of and deal with

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