Inhospitable Accessibility and Blurred Liability: Institutional Voids in an Emerging Economy Preventing Supply Network Transparency.
| Autor | Marques, Leonardo |
| Cargo | Research Article |
JEL Codes: M11, M14
INTRODUCTION
In 2013, the Rana Plaza incident killed over 1,000 workers contributing to a peak of awareness to poor working conditions in fashion production (Marshall, McCarthy, McGrath, & Harrigan, 2016). In 2015, the Brazilian branch of Zara was prosecuted for evidence of modern slavery (Agencia Brasil, 2015). In 2016, BBC revealed child labor in apparel firms working for major luxury brands in Turkey (BBC News, 2016). Unfortunately, these are only picked examples of a multitude of denouncements of poor working conditions in the apparel industry, but this could be extended to environmental issues, as well as to a broader array of industry sectors.
We live in an era in which many firms operate through highly complex and globalized supply networks. We use supply network instead of the most commonly adopted counterpart supply chain, as a supply network encompasses not only the linear supply chain of materials suppliers, but also relationships between the focal firm and other entities such as third-party logistics, consultancy firms, as well as non-linear relationships such as suppliers interacting without the purview of the focal firm (Marques, 2019). Given the increasing complexity of such supply networks, focal firms "have been more and more exposed to liabilities caused by unsustainable behavior from suppliers in their globally dispersed supply network" (Marques, 2019, p. 1164).
Unsustainable behavior can range from inadequate working conditions to modern slavery, or from excessive carbon emissions to triggering natural disasters. A number of focal firms have suffered reputational and economic loss as a result of media exposure of the unsatisfactory ethical and/or environmental performance of their suppliers (Marques, 2019). Moreover, there is increasing pressure from stakeholders such as NGOs and activists, demanding higher transparency regarding the focal firm's supply network (Marshall et al., 2016). But so far, research has emphasized suppliers' misconduct, often located in emerging economies, while framing the focal firms as those in charge of changing this scenario (e.g., Villena & Gioia, 2018).
We dive into supply network transparency in emerging economies, but we deviate from the extant research in three key ways. First, we shift the focus to focal firm (mis-)behavior, instead of supplier behavior. We ground this choice on prior evidence that in emerging economies buyer-supplier relationships are often disguised as collaborative, but are often win-lose for the supplier (Pinheiro, 1999), resulting in captive suppliers highly dependent on the buying firm (Vasconcellos, Garrido, Vieira, & Schneider, 2015).
Second, we combine key concepts to ground our theoretical lens. We start with institutional isomorphism to describe how institutions shape the behavior of firms, which slowly become isomorphic. We than focus on how weak regulation in emerging economies provides fruitful land for isomorphism toward buyer (not supplier) misconduct (Sethi, Veral, Shapiro, & Emelianova, 2011). We draw from a study of institutions in emerging economies that called attention to the gap between institutions in rich and emerging economies, where the latter experiences weak or absent institutions regarding (a) product markets, (b) labor markets, (c) capital markets, (d) ambiguities in regulations, and (e) a lack of formal contracting systems, all labeled as institutional voids (Khanna & Palepu, 1997). This study looks at in which ways institutional voids can prevent supply network transparency, more specifically voids in regulation, labor market, and contacting systems. In order to do that, we present an international benchmarking of transparency regulation put against the Brazilian mandated transparency of the apparel sector as an exemplar case.
Third, we combine theorists in transparency to elaborate an intrinsic set of relationships that lead to the lack of supply network transparency. Fung's (2013) democratic transparency defines information availability, proportionality (i.e., proportional to involved risks), accessibility to society, and actionability--which is needed to trigger change. To dive into information proportionality, we combine the studies by Egels-Zanden, Hulthen, and Wulff (2015) and Marshall, McCarthy, McGrath, and Harrigan (2016) to map: buying firm behavior, supply network membership, traceability, and working conditions at suppliers. In doing so, we ask the research question: How do institutional voids influence supply network transparency?
Although there is previous empirical research on institutional voids and supply chain management (SCM) in emerging economies, previous work has emphasized the protagonism of multinational focal firms in overcoming such voids (Parmigiani & Rivera-Santos, 2015; Silvestre, 2015). Instead, we argue that when it comes to transparency, focal firms take advantage of these voids in order to delay adherence to supply network transparency.
By investigating the context of institutional voids typical of emerging economies (Khanna & Palepu, 1997), we explore how such voids enable focal firms to manage easy pressures and avoid supply network transparency. In other words, we discuss how voids can ease pressures for higher transparency by legitimating opacity with weak regulation and allowing firms to navigate 'below the radar' without the expected level of conflict (Besharov & Smith, 2014). As a result, focal firms can take an opportunistic approach by exploring these voids to prevent supply network transparency and delay sustainable practices. At the same time, within this context, consumers and the broader society have limited capability to assess and pressure focal firms due to two key voids, namely the regulatory void, which we label 'inhospitable accessibility,' and the voids in labor market and contracting systems, which we label as 'blurred liability.'
The remainder of this article is structured as follows. First, we review the institutional theory as well as the transparency literature to pinpoint the key constructs used to build our theoretical framework. Next, we describe our qualitative approach based on secondary data. Then, we provide our findings covering the influence of voids on (lack of) supply network transparency. We then provide a set of propositions and offer contribution to both theory and public policy, closing with a reflection on limitations and future research.
LITERATURE REVIEW
Institutional isomorphism
According to Powell (2007), the main level of analysis in institutional research is the organizational field or societal sector. The initial argument emphasizes the salience of symbolic systems, cultural scripts, and mental models in shaping institutional effects. To Powell, an 'organizational field' is a "community of disparate organizations, including producers, consumers, overseers, and advisors, that engage in common activities, subject to similar reputational and regulatory pressures" (Powell, 2007, p. 3). This community is formed by the complex combination of human actions, social contexts, and institutions (March & Olsen, 1984), and thus, the role of institutional theory is to observe how these interactive processes of action and the formation of a meaning to social life evolve. In this sense, institutional theory understands organizational change as driven by 'legitimacy' or the need to conform to expectations of critical stakeholders in the external environment (Ashworth, Boyne, & Delbridge, 2009). That explains why such theory emphasizes social and cultural elements that attempt to understand similarity and stability rather than what makes organizations different. Toward this goal, the identification of institutional aspects that lead to social stability is vital. Therefore, research must understand the reproductive processes that function as patterns for sequences of activities that, in turn, end up achieving normative and cognitive fixity and become taken for granted (Meyer, Boli, Thomas, & Ramirez, 1997).
Institutional theory is multifaceted, although different perspectives tend to emphasize different aspects of social systems (Fleck, 2007; Scott, 1987). On the one hand, the old (i.e., classic or traditional) institutionalism is a theoretical paradigm that focuses on roles, structures, norms, and processes inside the organization (Selznick, 1957). The new (or neo) institutionalism, on the other hand, switches the focus to the interaction of the organization with other stakeholders in the external environment, trying to understand the constant and intense pressures from outside the boundaries of the firm reaching inside organizational structures in the pursuit of legitimacy. To DiMaggio (1991), the new institutionalism, where we ground our research, stresses the relationship between the stability of structural forms and the search for legitimacy by organizations that, by trying to fit into a common understanding of the institutional constituents, end up replicating such forms. The new institutionalism stream of thought seems more adequate to be used within the SCM perspective as supply chains necessarily encompass actors beyond the boundaries of the firm, and the relationships and power balance between the focal firm and its stakeholders are critical to understand supply chain structures and practices (Marques, 2019; Touboulic, Chicksand, & Walker, 2014).
Conformity to outside expectations and rules also impact organizational efficiency, as organizations tend to develop strategies to reduce the conflict between the institutional rules and internal operations (Meyer & Rowan, 1977). Furthermore, myths of best practices also emerge based on the supposition that they are rationally more effective. In this sense, "organizations that incorporate societally legitimated rationalized elements in their formal structure maximize the legitimacy and increase their resources and survival capabilities" (Meyer & Rowan, 1977...
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