Each of the governance paths and mechanisms has different strengths and weaknesses. Lead firms seeking to address sustainability challenges in their ESNs make decisions on what strategies to employ. This section discusses factors that can shape these decisions.
Vertical Versus Horizontal Approaches
In this case, vertical and horizontal approaches are both being used with some measures of success. However, both approaches face challenges for connecting with lower-tier producers. Hofstetter (
2018) highlights the expense and difficulty of mapping entire ESNs and identifies two ways for lead firms to identify high-risk areas in complex ESNs. One is trying to follow vertical paths and focusing investigation on particular areas of interest. The other, which is more aligned with horizontal approaches, is using economic trade data to gain an understanding of patterns. Ongoing technological developments are helping to facilitate new tracking systems.
Vertical approaches benefit from working with contractual relationships. However, these approaches may have limited reach and may not effectively promote change across local productive systems which have businesses selling to different types of buyers all contributing to a common problem. For instance, an issue related to pollution may not be well addressed with only a small portion of companies in the affected area receiving vertical pressure to change their waste management. Overall, vertical approaches can be enhanced by understanding that vertical pressures are felt in conjunction with horizontal pressures (Gereffi and Lee
2016; Humphrey and Schmitz
2000).
Horizontal approaches can benefit from connecting to a larger set of producers. However, these producers may not actually be contributing to the lead firms’ ESNs. This may be better for addressing sustainability challenges but harder for lead firms to justify the use of resources. While horizontal connections to individual firms were not found in this study, lead firms could benefit from connecting to businesses which Yan et al. (
2015) have referred to as nexus suppliers that play critical roles due to their inter-organisational ties.
Lead firm governance through both vertical and horizontal pathways reaches producers working in distinct local regions. In these spaces, private governance can be seen as compensating for a deficit in public governance (Mayer and Gereffi
2010; Gereffi and Mayer
2006). While this is often the case, there are times when public and private governance can complement each other (Amengual
2010). Lead firms must deal with local challenges whether using vertical or horizontal approaches.
Comparing the Five Mechanisms for Promoting Sustainable Production
The five mechanisms identified for promoting sustainable production can be used in conjunction with each other but have a number of key differences. Major differences are the amount of power a lead firm needs to use each mechanism, suitability for different types of sustainability challenges, who defines sustainability and who enforces the use of sustainable practices. Data collected indicate that in the UK garment industry, while the Compliance model dominated early attempts to govern for sustainability, the use of Support Services, Partnerships and Promotion of Voluntary Change has been expanding. Hierarchical production for the case study retailers is quite rare. However, measuring the exact prominence of each mechanism is not possible with the methods used in this study. An overview of key features of the five model mechanisms discussed can be found in Table
3.
Table 3Mechanisms for lead buyer governance for sustainable production
Hierarchical | Vertically integrated | Suitable for any | Pressures to outsource | Buyers, public governance actors, social governance actors | NA |
Compliance | Relationship facilitating strong role of buyer governance | Straightforward, technical sustainability challenges | More complex sustainability challenges | Buyers, public governance actors, social governance actors | Buyers, public and private service providers |
Support services | Relationship facilitating strong role of buyer governance Support service provider seen as providing useful service | Suitable for any, may involve more complex support for complex challenges | Training or provision of equipment may not result in changed practices | Buyers, public governance actors, social governance actors | Buyers, public and private service providers |
Partnership | Any | Complex sustainability challenges | Power or capacity imbalance between partners | Members of partnership | Members of partnership |
Promotion of voluntary change | Any | Potential to reach producers in situations with limited governance connections Straightforward, technical sustainability challenges | Lack of interaction Adoption of new systems may result in creation of new sustainability challenges | Buyers, public governance actors, social governance actors | Producers |
Suitable Structure for Buyer–Seller Relationship
Governance actors need different levels of power for each mechanism. The first two mechanisms require some direct control over producers. The latter three approaches can be used in situations where governance actors do not have any direct control over producers.
Lead firms’ involvement in any of these strategies depends on their connections with producers. The Hierarchical approach requires vertically integrated production and involves complete power over production. The Compliance approach is supported through relationships that involve a strong role of buyer governance. This approach often requires having direct power over producers. However, it can involve lead firms with limited powers over producers aligning with other governance partners that do have power to enforce compliance. Alternatively, Compliance approaches can be promoted as voluntary with producers deciding to join certification schemes in order to gain expected benefits. In this case, the approach could be considered a combination of the Compliance and Promotion of Voluntary Change models. Use of the Support Services mechanism can involve buyers having mandatory requirements for producers to participate or can also be used in situations where producers feel that the Support Services are worthwhile. The Partnership and Promotion of Voluntary Change models can be used in any relationship.
Ability to Address Different Forms of Sustainability Challenges and Potential Obstacles
Each mechanism has different potentials for addressing sustainability challenges and faces different potential obstacles. Hierarchy can address any sustainability challenges and involves complete control. Compliance is better for straightforward challenges and difficult to apply for complex challenges. Support Services are suitable for any sustainability challenges. However, a challenge in cases where resolving a sustainability challenge requires behaviour change, is that receivers of support may not change their practices. Partnerships are particularly useful for complex challenges but a difficulty can be power imbalances between partners. The Promotion of Voluntary Change model is beneficial for reaching producers in hard to connect to parts of ESNs. However, it is seen as being best suited to simple challenges. A weakness of this mechanism is that it can result in changes that do not address the sustainability challenge being targeted.
It is important to consider how potential alternate production practices can address sustainability challenges. Just creating a blanket policy saying producers need to change “x” behaviour can create unexpected consequences. Identifying forms of governance that are compatible with producers’ local experiences of multiple governance pressures can be more useful.
The prevailing structure of productive systems may be based on historical trajectories and may not be in the ongoing best interests of producers and other actors (Wilkinson
2003). In these cases, promoting change can be more acceptable to producers. In some cases, this can be related to the introduction of new technologies.
A representative from a retailer discussed the need for using multiple approaches to governance for sustainability. He described challenges with relying on a Compliance model for complex challenges and the potential benefits of using the Support Services and Partnership models.
Unfortunately, we’ve pushed auditing… but… the key issues that needed to be dealt with: worker-management dialogue, freedom of association, wages, etc., auditing has just never had the capacity to deal with those. Those are the kind of [issues] where you’re not able to pick it up on a checklist. Auditing is like a 60 billion dollar business a year… Yet, if you look at the impacts in the last 10 years, it’s been very minimal, very!… [Retailer A] has been at the forefront of this saying, “go beyond auditing”… there’s a lot of issues… that will never be properly addressed because they’ve never been able to be picked up and the only way you’re going to be able to resolve those is to ensure that the responsibility goes back into the workplace, for the workers and the management, to be able to negotiate effectively… giving workers the skills, the training, awareness and management the skills and training for being able to work with each other to address the issues within the factory but also to have mature industrial relations… instead of just getting a third party to go and visit a factory… We’re building the relationships more with the unions and the NGOs and the other industry players, saying, “look, you know, you need to have the right management systems, workers need to have a grievance procedure, etc.” but… it can’t be that somebody just gives you a management system handbook and says put that in your factory… It has to be done properly and there has to be buy-in… I would say, we’ve let the workers down quite a lot because in auditing, we promised a lot but delivered very little (Retailer A, UK-based CSR Manager).
However, it is not always clear what mechanisms may be best to address a particular challenge. While challenges that are based on physical technology may be less connected to deeper culturally embedded practices and easier to address, Bartley (
2010) points out that it is not a clear distinction between social challenges being complex and environmental challenges being simple and ‘technical’.
For sustainability challenges which involve high levels of pressure to maintain current practices (sticky challenges), higher levels of cooperation and deliberation involving multiple stakeholders may be necessary to develop new systems which actually address these challenges. This is particularly important as externally driven pressures to address these challenges can just push the problematic behaviour out of sight.
Development and Implementation of Interventions
Humphrey and Schmitz (
2001) draw attention to the contrast between who defines governance interventions and who enforces them. There are multiple possibilities across the five mechanisms. For Hierarchical, Compliance, Support Services and the Promotion of Voluntary Change models, there is potential for multiple actors to be involved in developing an intervention. This can range from lead firms internally setting priorities to broad stakeholder consultations. The only model that specifically involves producers in developing a strategy is the Partnership model. Partnership approaches are developed and implemented by members of the partnership. However, in practice, some partnerships involve relationships, with high power differentials, that do not actually allow all partners to contribute to designing strategies.
Often civil society groups are drivers for addressing sustainability challenges. A representative from a retailer’s India-based code of conduct team spoke about the potential for NGOs to shape the firms' sustainability agenda, “It does happen that NGOs will come and approach us and they will say, ‘we’re doing’, let’s say ‘child labour eradication from the supply chain, so would you be interested’ and then we would deal with the proposals (Retailer A, India-based CSR Manager)”. However, in many cases NGOs have been unable to stimulate change. Despite input from multiple stakeholders, often lead firms decide what type of sustainability issues they want to address and what approach they want to use.
Implementation strategies are based on the type of mechanism. Implementation of the Compliance and Support Services models can involve the buyer or public or private service providers. The actors involved in implementing a plan developed through a partnership would depend on the design of the strategy developed. Producers are responsible for implementing practices encouraged through the Promotion of Voluntary Change model.
Enforcement mechanisms differ greatly across these mechanisms. In the Hierarchical model, the lead firm designs production systems and hires people whose job responsibilities include working within these systems. In the Compliance model, lead firms, private third-parties, government monitors or even supplier self-evaluation can be responsible for ensuring the producers meets the required standards. In the Support Services model, there is often little enforcement over whether the new skills or technology are actually integrated into a producer’s systems. In the Partnership model, each actor could be responsible for themselves or a monitoring system could be developed, depending on the strategy used in the partnership. In the Promotion of Voluntary Change model, changes by producers are not enforced by outside actors.
Choice of Path and Mechanism
A key factor when choosing an approach is the nature of the challenge a lead firm is seeking to address. Multiple methods exist for identifying sustainability challenges in ESNs (Guinée et al.
2011; Kühnen and Hahn
2018). The firms in this study seem to have an ad hoc approach in the choice of challenges they seek to remediate. Often actions are reactions to stories in the media or pressure from NGOs. Carter and Rogers (
2008) highlight the importance of businesses taking into account economic, social and environmental factors when they seek to have SSCM, noting that much research focuses on social and environmental aspects. To develop globally sustainable production systems, operationalising systemic methods for identifying pressing challenges caused by activities in ESNs is an important step. A key consideration in this process is who defines the nature of the challenges as these can be seen differently by diverse stakeholders (Alexander
2018).
Mechanism choice is dependent on lead firms’ power over producers. Power is shaped by the relationship between the buyers and suppliers along with the firms' network locations and consequently how much pressure exists to maintain current practices vs. the difficulties that would be involved in changing current practices. Lead firms with high power over their top-tier suppliers have been able to enforce straight forward changes through the Compliance mechanism. However, lead firms using this model have had more difficulty promoting changes that require more complex behavioural shifts. When looking at governance of lower-tiers, lead firms may have less power to mandate and persuasive approaches may need to be considered.
Combining governance mechanisms can be beneficial in some situations. Evidence has been found that combining the Compliance model with the Support Services model through running capacity building programmes simultaneously to implementing codes of conduct can address limitations of approaches purely based on compliance (Locke
2013). A study by De Marchi et al. (
2013) finds that mentoring approaches, which can be considered as a combination of Support Services and Partnership, may be a good choice when suppliers are smaller and cannot afford certification. The study also showed a benefit of this approach can be enabling the co-development of environmental innovations.
Additionally, for any of the mechanisms, support from intermediaries may be needed. As new approaches develop, new forms of intermediaries can develop. This has already been the case for Compliance and Support Services, which have been popular approaches that now involve many specialised external service providers, such as social auditors. Jooste and Scott (
2011) describe the creation of enabling fields which can connect potential intermediaries with existing skills to new initiatives that can benefit from these skills. Additionally, De Marchi and Grandinetti (
2013) find that external knowledge, accessed through universities, research institutions and competitors, can play a large role for innovations related to sustainable production.
Another consideration is that lead firms facing pressures to produce sustainably can seek to change the structure of their networks. Related decisions can involve the processes outlined in the transaction cost economics model. In recent decades many firms made decisions to outsource. These decisions have led to current systems involving many sustainability challenges, such as production taking place in countries with weak or weakly enforced labour and environmental regulations. As sustainability considerations begin to play a larger part in lead firms’ decision making, it remains to be seen how this will affect connections with suppliers.
However, lead firms’ ability to change the structure of ESNs may be limited. Considered as CASs, these large and complex networks cannot be directly controlled. Lead firms' market-based decisions involve rapidly changing product offerings which necessitate relying on numerous producers with various specialties. Many lead firms are actively trying to reduce the sizes of their supplier bases. However, even with dramatic reductions (see Schüßler et al.
2018)|companies in the case study still have hundreds of first-tier suppliers supported by networks of thousands of lower-tier suppliers. Attempting to make targeted changes within these networks can involve a lot of uncertainty.
Synergies may exist between lead firms' sourcing practices and the type of governance for sustainability in which they engage. Lead firms which engage in process monitoring to ensure quality standards can more easily incorporate monitoring related to codes of conduct as these buyers already have a presence in their suppliers’ factories. For lead firms that do not directly monitor production and for stages of production that do not involve custom-made products, current relationships between buyers and suppliers may be weak or non-existent. These sourcing models may be less conducive to developing partnerships or even providing support services.
Multiple frameworks provided by SSCM literature can be used to aid in choosing how to promote sustainable production. Notably, Tachizawa and Wong (
2014) identify contingency variables that shape the approaches lead firms take as: power, stakeholder pressure, industry, material criticality, dependency, distance and knowledge resources. Additionally, the four groups of MT-SSCM critical success factors proposed by Grimm et al. (
2014) can be used to evaluate potential interventions. The first group is lead firm-related or internal, which includes the lead firm having knowledge about its supply chain. The second group is relationship-related, which includes lead firm buyer-power (over direct supplier), direct supplier buyer-power (over sub-supplier), trust between the lead firm and the direct supplier, trust between the direct supplier and the sub-supplier and the existence of a committed long-term relationship between the direct supplier and the sub-supplier. The third group is supply chain partner-related, which includes the direct supplier’s willingness to disclose sub-suppliers, involvement of the direct supplier, perceived value for the direct supplier, perceived value for the sub-supplier, low risk of supplier-by-passing (involving the lead firm cutting out the direct supplier and sourcing directly from the sub-supplier, also known as disintermediation) and the sub-supplier’s capability to comply with requested sustainability standards. Finally, the fourth group is context-related, which includes geographical distance between supply chain partners and cultural distance between supply chain partners. They note that further research is needed to better understand how dynamics of these factors can lead to success.
Also notable is the multi-level framework developed by Sauer and Seuring (
2018), which is designed for choosing between Tachizawa and Wong’s (
2014) MT-SSCM practices. Three drivers of uncertainty in lead firm’s relationships with suppliers are identified in the framework. First, members of an ESN experience pressure from being in the network and from their local environments (vertical and horizontal pressures). Second, the lead firm has uncertainty in maintaining secure supply. Third, suppliers experience demand uncertainty. Levels for these three types of uncertainty are measured as low or high to identify eight model situations that can guide the type of practice a lead firm should use for MT-SSCM.
While forms of buyer-driven governance are fundamentally shaped by behaviour of lead firms, in order to really address sustainability challenges more voice needs to be given to actors in lower-tiers, who may be the ones facing the consequences of sustainability challenges. Different industries currently face varying pressures related to raw material sustainability. However, as these issues tend to be driven by scandals, any industry could be the next one to face public pressure. Proactive lead firms can assess activities in their own supplier networks to determine where key challenges lie and base their actions on the needs of the people working in their ESNs and the communities affected by their practices.