Global Purchasing as Labor Regulation: The Missing Middle

Abstract

<jats:p> Do purchasing practices support or undermine the regulation of labor standards in global supply chains? This study offers the first analysis of the full range of supply chain regulatory efforts, integrating records of factory labor audits with purchase order microdata. Studying an apparel and equipment retailer with a strong reputation for addressing labor conditions in its suppliers, the authors show that the retailer persuaded factories to improve and terminated factories with poor labor compliance. However, the authors also find that purchase orders did not increase when labor standards improved. If anything, factories whose standards worsened tended to see their orders increase. Contrary to the conventional wisdom, this “missing middle” in incentives for compliance appears unrelated to any cost advantage of noncompliant factories. Instead, lack of flexibility in supplier relationships created obstacles to reallocating orders in response to compliance findings. </jats:p>

Buyer Engagement and Labour Conditions in Global Supply Chains: The Bangladesh Accord and Beyond

“…Moreover, even well‐intentioned firms struggle to coordinate different functions within the organization. Amengual et al. (forthcoming) use micro‐level purchase data to show that even a retailer with a strong reputation for social sustainability fails to integrate compliance into sourcing decisions.…”

Power at a distance: Organizational power across boundaries

“…As leading retailers and brands have faced criticism for exploiting workers and environments in their supply chains (Bartley & Child, ), they have taken on “second identities as transnational labor regulators, [who] ask the factories and farms they purchase from not only to meet technical and quality standards, but also to comply with private codes of conduct governing wages, occupational health and safety, and other labor standards” (Amengual, Distelhorst, & Tobin, forthcoming, p. 2).…”

“…Using data from a large sourcing company, Distelhorst and Locke () find that suppliers that improve their performance on labor and environmental audits do subsequently receive larger orders. On the other hand, looking closely at one retailer with a reputation for social responsibility, Amengual et al (forthcoming) find that improvements were not generally rewarded with larger orders. In fact, orders increased slightly when labor conditions worsened , seemingly because the retailer did not find attractive alternative suppliers.…”

Working conditions and factory survival: Evidence from better factories Cambodia

“…Distelhorst and Locke (2018) estimate that a record of social compliance increases average sales by 4%. An important exception to the positive relationship between social compliance and orders concerns suppliers that have monopoly control of essential inputs to the production process (Amengual, Distelhorst, & Tobin, 2019).…”