The Dark Side of Global Supply Chain Cooperation

Coca-Cola and WWF celebrate 14 years of partnership renewal. The partnership will continue its focus on water stewardship and work to reduce the environmental impact across Coca-Cola’s supply chain.

Last week, the Fair Labor Association (FLA) marked its 20^th year of protecting worker rights around the world with the voluntary cooperation of major corporations. The FLA model brings major apparel and agriculture companies to the table with universities and civil society activists. (Forbes Magazine)

There are many euphoric reports and self-descriptions of transnational cooperation along global supply chains. Cooperation to address ecological and social problems in the global economy has been growing steadily for about three decades. Flourishing landscapes of cooperation have now emerged around transnational supply chains. Brands and retailers cooperate with multi-stakeholder networks, certification initiatives, industrial standards initiatives, financial service providers, civil society organizations, governments and international organizations, to name but a few. Even if these solutions are considered by most to be incomplete and not ideal, the underlying trend, which is also supported by several empirical studies, seems to be persuasive: Working together for better supply chain management is having at least an incremental, overall positive effect.

But this is only one side of the story. There is also a dark side to cooperation along global supply chains. While light has been shed on many incremental improvements and reforms emanating from corporate marketing and also rich empirical research, many of the social and environmental impacts of transnational supply chain solutions remain in the dark. Some of these effects are beyond the scope of measurement and evaluation by individual companies or their cooperation partners. From the point of view of an individual company, a standard setting initiative or a certifier, cooperation along the supply chain can lead to meaningful steps towards reform, even if other effects outside one's own sphere of influence or evaluation would be assessed as negative from an environmental and/or social point of view. Additionally, even if such detrimental effects are identified, they are rarely communicated by the involved collaborators. They remain in the dark or are actively hidden. Another reason is that influential parts of regulatory theory, often associated with the so-called New Governance Theory, have increasingly come to the conclusion that such predominantly private forms of cooperative governance are simply necessary in transnational settings, since states cannot provide similar regulation and corporations are both suited to fill the governance gap and too influential not to be part of the solution (Cashore, Auld and Newsom 2004; Ruggie 2014).

For quite a long time, this topic has only generated sporadic controversies within the social sciences and attracted little attention beyond specialized supply chain debates. In recent years, however, a growing body of research in international political economy (Graz 2022; LeBaron and Lister 2022) has shown that the widespread notion that the many incremental advances made by individual initiatives and institutions along supply chains as a whole will lead to continuous improvements on social and environmental issues is overly optimistic, if not completely unfounded. This scholarship also indicates the importance of applying a broader investigative lens to assess the proliferating landscape of these cooperative global supply chain practices and identify their potential pitfalls, especially concerning issues of ecological degradation and over-exploitation of human labour.

The rise of cooperation along transnational supply chains

As part of a trend towards increasing private authority in international relations (Cutler, Haufler and Porter 1999), we can already observe a proliferation of private initiatives, projects and new organizations dealing with social and environmental standards in production since the 1990s (Büthe and Mattli 2011; Levy and Newell 2004). In global supply chains, this usually means that influential companies, lead companies used hereafter, which have strong economic influence on considerable parts of their supply and production network (Ponte, Sturgeon and Dalla 2019), together with other actors, try to reduce certain social and environmental problems or increase positive effects. Transnational brands and retailers in particular have sought such collaborative solutions, driven by civil society campaigns, labour disputes and consumer protests.

While the forms and goals of these collaborations vary widely, they have in common that they build on existing supply chain relationships and management practices. LeBaron and Lister (2022) therefore propose to refer to these collaborations as 'global supply chain solutions'. Although this umbrella term may seem overly broad, it is attractive precisely in order to highlight the commonalities of the many, seemingly fundamentally different initiatives and projects. They all seek to address problems caused by transnational corporate activities and supply chain relationships. Therefore, all of them build on supply chain management, while seeking to address the problematic impacts of supply chain relationships. They do this through partnerships – mostly between private actors, but increasingly involving public institutions such as governments and international organizations.

A well-known example is the FLA quoted above. The organization was founded in 1999 on the initiative of the then US President Bill Clinton and a number of large leading companies in the apparel and footwear sector. Since then, it has been active in many countries as a collaboration between non-governmental organizations (NGOs), universities and companies. Under the umbrella of the FLA, the partners agree on a code of conduct that participating companies must adhere to, as well as regular audits of participating factories. Other supply chain solutions work differently but typically include, firstly, a normative policy level, i.e. the setting of standards of conduct or codes (Egels-Zandén and Lindholm 2015); secondly, a level of targets, for example through sector-wide benchmarks (LeBaron and Lister 2015); thirdly, ways of monitoring compliance with these standards, in particular through audits at production sites (e.g., a plantation or factory) by contracted partner organizations or the certification of intermediate products in the supply chain (Fransen and LeBaron 2019); fourthly, forms of reporting on the measure (Andrew and Baker 2020). All of these components need not always be present. Collaborations can be driven by a single company, such as an individual code of conduct between a major brand company and a major accounting firm; they can be sector-wide, where an industry agrees on certain standards and processes; and they can involve multi-stakeholder partnerships, including governments, civil society, trade union federations, IT service providers or financial service providers.

For over three decades, such transnational collaborations have expanded and spread. Some of the standards that have emerged are well known worldwide and have almost become globally accepted, such as the label of the Forest Stewardship Council as an indication of compliance with minimum standards in timber production.
 

At the Forest Stewardship Council (FSC) we unite citizens, businesses, governments, and NGOs under a common goal: protecting healthy, resilient forests for all, forever. (https://fsc.org/en)

The dark side of transnational supply chain politics

As the comprehensive literature review by LeBaron and Lister (2022) on the ‘hidden costs of supply chain solutions’ shows, existing empirical research emphasises very specific effects: Incremental impacts, which mostly focus on processes and efficiencies in the company, rather than the performance outcomes of the initiatives in relation to specific societal problems associated with global production, such as the existence of poverty wages, lack of and declining trade union freedoms and increasing biodiversity loss. Accordingly, when studies look at the outcomes of supply chain solutions, the thresholds of the applied effectiveness criteria are often very low, such as an increase in investor pressure on the sustainability of the company, an improvement in the company's image or an increase in the company's legitimacy (LeBaron and Lister 2022: 680–681). Nonetheless, a number of negative effects have been identified, such as the displacement of local industries by increasingly powerful transnational corporations (TNCs) and certification schemes, higher costs for local workers or residents, increasing informality of work, declining real wages, growing pressure on smaller companies and deterioration of labour standards, shifting supply chain influences in favour of companies at the expense of workers, residents or trade unions and increasing overall emissions (see e.g. Le Billon and Spiegel 2022; Ponte 2022). Thus, even from an incremental evaluation perspective, the track record of global supply chain solutions seems rather mixed.

We can link this line of research on ‘hidden costs’ to other recent work in political economy that underlines how the cooperation of TNCs with different partners is never a neutral enterprise to fill governance gaps but a political strategy that has displacement effects 'on the ground' (Graz 2022). Therefore, effects on political power are inherent to these collaborations (Bartley 2022), which also favour certain regulatory or management practices shaped by the respective industrial sectors and translations into corporate cultures over other approaches. One example is the use of so-called heat maps, in which companies of a sector categorize and assess their risks in a comparable way. However, in their case analysis of a reinsurer, Scheper and Gördemann (2022) find that both the individual market assessment of the lead company and organizational processes determine how the risks are actually handled. For example, while French reinsurers would rate energy from coal as much more damaging and risky than nuclear power, German reinsurers would rate it the other way round, reflecting the different importance of their national markets .

We can identify at least three areas that remain largely in the dark but are essential to understanding the impact of global supply chain solutions as normative infrastructures (see Gadinger and Liste in this issue). Shedding light on each of these areas in future research could show that the impacts of global supply chain solutions are much broader and potentially more problematic for people and the environment than the more specific consideration of individual measures suggests. The first area concerns the particular business model on which the supply chain solution is built. Supply chain strategies almost never fundamentally challenge the underlying business model of the lead company and its underlying ways of extracting value, even though the business model is usually at least partly responsible for the problems addressed in the supply chain. A hypothetical example: As part of a cooperation in the textile sector, one hundred thousand cotton farmers are being trained in 'sustainable cotton cultivation' on a private basis. An evaluation of the intervention by the lead company shows that the farmers were able to reduce the amounts of pesticide used by one third in the following years and that the business relationship was strengthened. However, if at the same time the lead company is pursuing a business model based on the mass sale of short-lived, very cheap clothing, then the 'dark' effect of the measure could be that precisely this business model, which is problematic for working conditions and the environment, is stabilized in the long term by improving the brand's image, increasing its power over suppliers and improving relations with cotton farmers while the business with short-lived, cheap clothing continues to expand on a global scale.

The second area concerns the constitution of TNCs and their embeddedness in national and international institutions. In the context of supply chain solutions, companies appear as neutral actors, not as political actors. However, they are legal constructs derived from specific political objectives, and their transnational scope for action has been deliberately created by these legal constructs and by international institutions. Only in this way has it been possible to exercise the enormous economic power that representatives of the New Governance literature consider necessary to close existing regulatory gaps (Scheper 2022). However, the constitution of the corporation cannot be separated from the emergence of problems in supply chains for people and the planet. The TNC as a concept is historically based not only on economic interdependence through trade, but also on the limitation and fragmentation of responsibility (‘limited liability’). For example, Grotius – generally regarded as a pioneer of modern international law – was also an advisor to the Dutch East India Company (Baars 2019). Historically, the decoupling of responsibility and economic agency became an essential guiding principle of capital accumulation. Supply chains and production networks, which consist of private contracts between legally independent entities, are now extensively based on corresponding legal constructs (Pistor 2019). For leading companies, supply chains mean not only concentrating on the most profitable stages of value creation but also outsourcing social-ecological risks. Through the legitimacy effects (Scheper 2019) and power gains (LeBaron and Lister 2022) that TNCs achieve through successful supply chain cooperation, they contribute to the expansion of these managerialist processes as structure or institution-building processes. However, this generally remains invisible because these effects are difficult to measure and unlikely to be attributed to a single collaborative action. A key task for future critical social science research on supply chain governance is to shed light on the constitutive aspects of corporate power and rule.

The third area that is often left in the dark concerns the interaction between private and public regulatory institutions. Given the transnational fragmentation of law and the patchiness of regulatory institutions, supply chain solutions significantly shape the emergence of regulatory practice and increasing transnational legalization. Not only are corporations influential actors that have shaped international economic law (Perrone 2021), but their practices and logics of action are often inscribed in emerging transnational regulatory solutions. On the one hand, they shape the forms of regulation – for example, the increasingly important concept of due diligence, which attributes a significant part of the shaping of norms in practice to management processes (Scheper and Gördemann 2022); on the other hand, through their practices, they significantly shape what is legally defined as compliance, which then feeds back into hard law (Edelman 2016; Monciardini, Bernaz and Andhov 2021). The emergence of national legislation on global corporate supply chain due diligence in recent years may exacerbate this problem: Although the direction seems to be increasingly moving from voluntary soft law solutions to hard law, the corporate due diligence approach – which is the dominant concept in new supply chain legislation – also reflects an increasing acceptance, and thus institutional consolidation, of the dark side of private supply chain solutions. Rather than challenging or replacing the status quo, the still evolving legislation essentially builds on these solutions. However, the legislation could impose public obligations on them in terms of their minimum requirements, such as better transparency and outreach, and a more systematic consideration of risk. However, in order to clarify this blurring of private logics of action, private information and transparency politics with these new transnational public regulatory approaches, a further illumination of the dark side of private supply chain solutions is urgently needed.