Corporate social responsibility and suppliers

Competence Capacity to provide a good quality product, which will make the buyer keep buying repeatedly.

Source: Author

Respondent 3 believes that CSR is not something decisive. The focus should be in price, technology, innovation, and delivery. The certifications and audits will be a part of the technical requirements. This can be seen in the excerpt below.

In practice, I don't think it is something that is a determining criterion. I think that a company that does not reach the CSR level, the business already dies before reaching the conclusion stages. It is not something that is given the main focus.

The focus is price, technology, technical part and delivery. It is not determinant.

These analyses, certifications and evaluations end up coming together in the technical part. [Respondent 3]

Respondent 2 states that CSR counts a lot for a company's reputation. The market is looking for these answers and the more these issues are worked on, the better it is. The purchasing function, in this case, is to look for suppliers that are engaged with these principles that meet the company's ethics and values.

Today, a company that wants to be successful needs to work on these issues, which will improve its reputation. Because today the market demands this response and we, as the person responsible for our supply chain, what we do is exactly that, we look for suppliers who are engaged with this principle and with all the responsibility that my company has before the market. Today, without a doubt, the reputation of a company is fundamental. [Respondent 2]

To check if the supplier is being truthful, the buyers check if the companies have certifications that collaborate with what the supplier is saying, usually companies have a manual to guide the verification. The manual is the minimum that a supplier needs to do in order to supply for that company. This verification happens both in the national and international market. According to the respondent 2 it is to prove that the manufacturer is fulfilling its social responsibility and not just stating that it has.

Then there is the manual, the supplier has to go through a very complex and complete audit. It goes from the question of quality, innovation, technology, but it also has other requirements. We can talk about requirements, like the supplier cannot be using child labor, cannot have forced labor, all those issues that are very prominent in the manual. I do believe in the cycle where the company committed to society has a positive image attracting new business and promoting its perpetuity by developing new products and presenting quality solutions to consumers. We have our manual here, if you want to start supplying, it has the requirements there. So, all these are public materials, if you go to our website today, you will see the manual for suppliers. That is the minimum. Then, of course, there are the commercial issues, the other issues that are part of our day-to-day negotiation. But there are the minimum necessary prerequisites. And there is no point in saying that we have them, because we go there and audit them to see if they are really being practiced. [Respondent 2]

Inspections and visits to factories are part of the routine with international suppliers, either for supplier maintenance or new suppliers from an ongoing development.

Two of the six companies interviewed have offices in China with Chinese employees that assist in this control, one of the respondents lived in China and assisted in this kind of work. These visits happen with the purpose of getting to know the supplier, know the productive processes and how the supplier will deal with the employees and problems that may happen. This way buyer and seller can connect faces and check if what the supplier is saying matches the reality of what is being done.

[…] In this development we do an audit with our Chinese employees to get to know the contact people, to get to know the production process, how this supplier deals with the problems, with the employees. These are some of the topics to be addressed. And this also includes the request for documentation and certifications that these suppliers have, which also support what they say. [Respondent 4]

So that we can include all of this in our daily purchasing routine, that we have our internal audits and external audits. What I would say is that there is this issue that in purchasing is very strong in terms of compliance. [Respondent 2]

Every new supplier that is going to start supplying us, we are going to make a visit, sooner or later. During the pandemic we had cases where we couldn't make any kind of visit because the cities in China were closed. It is inevitable that we go there to visit them and see the factory. […] It is done this way, our auditor makes a report and we decide if the risk is too big, weather it is social, environmental or technical, we do not collaborate with him. Then we make frequent visits, up to three times a year, depending on the intensity of the business with these companies. [Respondent 5]

However, before making the visits, the buyers check if the companies have certifications that collaborate with what the supplier is saying. This verification happens both in the national and international market. According to the respondents it is to prove that the manufacturer is fulfilling its social responsibility and not just stating that it has.

We have our manual here, if you want to start supplying, it has the requirements there. So, all these are public materials, if you go to our website today, you will see the manual for suppliers. That is the minimum. Then, of course, there are the commercial issues, the other issues that are part of our day-to-day negotiation.

But there are the minimum necessary prerequisites. And there is no point in saying that we have them, because we go there and audit them to see if they are really being practiced. [Respondent 2]

The company that I work at is a company that has an integrated management system, which involves all systems related to quality and certification. Like ISO9001, ISO14000, this kind of process. For the internal market suppliers, a check is made where the quality area has a procedure. The supplier has to send its certifications, environmental certifications, and the documents are checked. A

physical check is only done for suppliers that are considered critical items, safety items. [Respondent 3]

Well, we have a supplier manual. We have ISO, so there is a whole internal audit process, and we also audit the suppliers. I think that is it, with periodic audits of suppliers. [Respondent 1]

To maintain a supplier, the same concept of visits is applied. The same factors are evaluated in development and maintenance. According to them, there are topics that need evaluation on these visits, for example garbage disposal, how employees are treated.

However, protocols change according to the demand of each company.

We try to make this contact with suppliers and maintain our current suppliers through audits and visits to the factories. In these audits, some of the topics, of course we also look at other details, is to have a general notion of the factory, a general notion of the production capacity, some topics more related to product quality, packaging, how the internal processes are. But some of these topics are linked to the environmental issue and to the employees. Some questions that end up being considered and analyzed in these visits: how the disposal issue is handled, how the company organizes it. If they have a method, if they have no method, how they try to reduce the environmental impact. We have suppliers in several segments, but if they work with filters for the reduction of carbon dioxide emissions, this is one of the criteria that is questioned in these audits we do. Also, if the employees that are working in this company, depending on the function they are performing, have the adequate equipment. We usually end up looking at these criteria during the audit. [Respondent 4]

As for the visit, we have some protocols that are already practically automatic, we look at the factory, we observe the location - if it is located in an urban center or in an industrial area, we know that this factory is not inside an industrial zone, it is not well seen, so we know that we will not have a long-term partnership with it.

[Respondent 5]

Through questionnaires, quality certifications and eventual visits to suppliers.

[Respondent 6]

We have a schedule of audits that all suppliers go through. So, these audits can be in person, the vast majority are. Of course, because of the pandemic, we kept the audits because we ask for documentation, a series of other questions. But the main issue is the audits that we have and the daily contact. Because we have a whole criterion, which is not only the auditing issue. [Respondent 2]

When asked if adopting this socially responsible practices the companies could see a return in investment, they all agreed that this is important, and it brings returns to the company. Nowadays, it is something no longer optional, it is a must have in business theses days. The market is each day paying closer attention to these issues and it consequently makes this factor more important to investors.

Yes, it is important, we evaluate this a lot, our supply chain, because the responsibility in these issues that we mentioned are essential, and today this is what we did. That is, I need, as a buyer, to seek in my chain all this clarity, these issues of concern with auditing. Because this certainly helps the people responsible for the company, in terms of sales, market, all of this. [Respondent 2]

A lot. I think there is a difference between a private and a public company. Closed capital is questioned, but it is not decisive to work or not, but it will weigh a lot in the decision. In publicly traded companies then yes, and there are people who say that these demands are already exaggerated. I don't think so, I think you have to be really tough. You have to have a balance, but be careful, otherwise things won't happen. [Respondent 5]

I do believe in the cycle where the company committed to society has a positive image attracting new business and promoting its perpetuity by developing new products and presenting quality solutions to consumers. [Respondent 6]

Respondent 5 comments that corporate social responsibility has a new term that is being used in the market nowadays, it is environmental social governance (ESG). In the past 5 to 10 years, big multinational retailers, like Walmart and Home Depot, were suffering from activists that were demanding better conditions in the factories located in low-cost countries in Asia. At the time, some European companies were fulling compromises with social responsibility, but they did in a painful way, almost against their will. According to the respondent, it was not the right time. Since then, the concept has been evolving and becoming more natural to companies all over the world. At this moment in time, what keeps countries doing business with countries that were known for exploiting child labour is the fact that the rest of the world does not have the conditions to manufacture the products anymore. It is a matter of dependence. ESG will gives us guidance to the future.

This social responsibility issue I think has evolved and changed, but it is going through a maturing process. At least a few years ago in Asia, the big companies Home Depot, Walmart, they had a lot of problems with factories in Bangladesh, Vietnam and then a whole policy came up, a more activist thing that started to charge these companies to be more careful and to demand from the factories the minimum conditions. This was maybe 5, 6, 10 years ago that we heard about this.

What I did at the time when I participated in many supply chain events in China, many European companies did this, but they did it with a lot of pain, it was not yet the time. Economically it was becoming a very painful thing for them. I think that this has been evolving, the factories themselves have evolved a lot. Today there isn't much exploitation of cheap labor anymore. I think that today this is much

more in the condition of the country, of the place, of being able to make a business viable or not. Now at this moment that we are living is very complex. It is not the cheap labor in China that makes a product viable, it is our dependence, we are no longer able to make it here - this did not happen a while ago. Now then you have the ESG, which has been addressing this issue, has been guiding this issue.

[…] Now, how this will unfold is a question that many people are asking themselves at this moment. [Respondent 5]

The figure 3 shows a summary of the aspects regarding corporate social responsibility in suppliers’ respondents' point of view.

Figure 3 - Summary of the aspects regarding corporate social responsibility in suppliers

ATRIBUTIONS DEFINITIONS

Values Values need to be aligned in order to get business done Environmental sustainability

Companies must reconcile their economic growth with environmental issues

Company's reputation

Reputation is about how the public, the market, and investors view the company

Certifications

Its goal is to improve management processes on an ongoing basis

Periodic visits It allows a company to know how the supplier works

Shareholders Shareholder is someone who holds interest in the company Environmental social governance Most up-to-date term for corporate social responsibility Source: Author

5 RESULTS ANALYSIS

In this chapter, it is presented the main considerations of the respondents about the proposed questions, establishing a comparison with the conceptual basis presented in the theoretical framework, in order to analyze and understand if the theoretical elements, related to global sourcing and corporate social responsibility are consistent with respondents statements.

Regarding the selection of international suppliers, the criteria cost was mentioned by all respondents when it comes to selecting a new supplier in the international market.

This is one of the most important factors when looking for a supplier in the international market. Going outside of your country to look for suppliers, companies will usually want to make a long-term relationship to make the effort worthwhile. This same idea is proposed by Min (1994) that states that cost minimization means profit maximization. He proceeds to state that a firm must look for a low-cost supply base, where all costs involving the operation can be minimized.

Another factor mentioned by the respondent that interferes directly in international supplier development is quality. Respondents stated that quality is one of the three pillars that they look for in a supplier. They added that most of their international suppliers are in countries that are considered low cost. However, according to them, it doesn't necessarily mean that they have low quality, on the contrary, they present quality in their products. In addition, Min and Galle (1991) stated that executives would be unsure of the quality provided by low-cost countries. According to them, firms frequently would prefer higher cost in outsourcing rather than guaranteeing cost in emergent countries. However, Ruamsook, Russell and Thomchick (2007) stated that the situation has changed, now low-cost countries also present quality to their products and services.

In addition, the big majority of the respondents believes that delivery is a very important factor in global sourcing. Moreover, Min (1994) states that delivery can be a big obstacle. According to the author, delays in transportation and consequently increase of delivery times disturbs the fulfillment of just in time principles. The author proceeds to state that the buyer should evaluate the length of the supply chain as well as the supplier’s commitment for on-time delivery services.

Respondents also stated that technology and innovation are other factors important in the international market. In addition, Lengnick-Hall (1992) explain that are numerous capacities that a firm needs to keep updated to be effective. Innovation, according to the author, offers an attractive source to create competitiveness, whether in the company's processes, products, or services. Therefore, this is what respondents stated that they look for when looking for new supplier. In this way, a company can absorb its supplier's innovation and incorporate it into its products, making the whole chain more competitive.

When developing a new supplier, there are a lot of attributes to consider. Quality, cost, innovation, delivery performance, structure and so on. A study conducted by Verma and Pullman in 1998 concluded that the more meaningful attributes are cost and on-time delivery. In this study they also considered attributes like flexibility, lead-time, and quality.

All these were mentioned by the respondents but there is one that was not in spotlights in the late nineties. And that is corporate social responsibility. All respondents mentioned the importance of CSR in the conduction of business nowadays.

Respondents mentioned that CSR is important to understand the activities that an international supplier is performing. This companies that were interviewed, all practice CSR in its own form. Literature agrees that it can be a subjective concept. Which can mean various interpretations. However, most respondents agreed that they look for suppliers that have the same values, meaning that in some way they will practice CSR very similarly. Fontaine (2013) defines CSR as a way that businesses must align their values and behavior with the needs and expectations of stakeholders, not only investors and customers, but also suppliers, employees, regulators, and society.

One way that the respondents stated that they supervise suppliers in these practices is by making periodic visits. The frequency of the visits depends on the intensity of business and the importance of a given supplier. According to the respondents, visits take place to promote a better relationship with the supplier, to get to know its physical structure, and to initiate the customer-supplier relationship. Holmlund and Tornroos (1997) stated that relationships can be complex and versatile, as well as extremely dependent on the context in which it is installed. These visits manage to build a relationship with the supplier to deepen contact and create a better understanding of both worlds, the buyer and the customer.

Another way that respondents can check if a supplier is being truthful or not is through certifications. Respondents stated that international certifications say a lot about how a company conduct its processes and protocols. Besides, Chen and Deng (2013) explain that certification appeared as a solution to repress the imbalance in the information between suppliers and buyers. The authors proceed to explain the benefits of having certifications. It can present a verifiable source of information to buyers that the supplier uses the best practices in the industry, resulting in providing the best products and services.

Respondents also emphasized the fact that these practices bring more investments to the companies. Publicly traded companies are under great pressure from the market to be up to date with these practices and it is becoming a decisive factor for investors. Most companies already have a report available on their website that describes the actions they are taking. Closely held companies are also under pressure to do this, but it is not becoming a deciding factor for investors. In addition, Verbeeten, Gamerschlag and Moller (2016) affirm that indeed CSR is very influential aspect when deciding where to invest.

6 FINAL CONSIDERATIONS

This chapter will present the final considerations about the influence of CSR on the suppliers of global companies, considering that the study counted on the perception of six respondents about the proposed theme. Moreover, it also presents the limitations of the research and suggestions for future research.

Based on the literature and information obtained through the interviews, it is possible to conclude that corporate social responsibility is key factor in business nowadays. It is an aspect that customers, investors and interested parties are looking for in companies. Moreover, a company does not simply state that it does something towards this matter, the company needs to have proof that it is practicing CSR on a day-to-day basis.

This study also concluded that, to control CSR initiatives in suppliers, buyers analyze all certifications and make visits. The frequency of the visits depends on the intensity of business. The protocols also change according to the product or the importance of the development, however some aspects are basics. For example, check structure, organization, how the company treats the employees, how the company treats the waste, weather it has child labor, a good work environment for the employees.

Companies that adopt a global sourcing strategy also the rely heavily on the international market and outsource a lot from Asian countries, usually have an office with native employees in the country with the most suppliers so that cultural and geographical barriers are lowered.

From the results presented, this study fulfills its general and specific objectives, and represents a contribution about international supplier selection and global sourcing strategies and their relationship with corporate social responsibility. It is hoped that this research can help purchasing executives and investors to better understand the buyer-supplier relationship and encourage corporate social responsibility practices within companies.

As it is common in all research, this research also has limitations. One of them is an interview that was received in writing, and it was considered for the research, which differs from the original data collection method. Another aspect that can hinder the results