Responsible Sourcing - Production Scale and Monitoring: Theory and Evidence

40 Pages Posted: 1 Aug 2017 Last revised: 3 Aug 2017

See all articles by Qiang Fu

Qiang Fu

National University of Singapore (NUS)

Jie Gong

National University of Singapore (NUS) - Department of Business Policy

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems

Ivan P. L. Png

National University of Singapore (NUS)

Date Written: July 31, 2017

Abstract

Previous research has emphasized price incentives, certification, and monitoring as mechanisms to motivate suppliers to behave responsibly. We investigate another mechanism -- the scale of production -- and the tradeoff between scale and monitoring as mechanisms to induce responsible behavior. Our research encompasses both analytical modelling and empirical analysis. Theoretically, reducing the scale of production and monitoring are substitute mechanisms by which a brand can induce suppliers to behave responsibly. If monitoring is more costly, the brand should reduce both monitoring and production scale. To test the insights from the model, we collect and analyze data from Nike contract factories in China between 2013 and 2016. Consistent with the theory, workforce size (representing scale) is negatively correlated with distance from regional hubs averaged by number of factories (representing monitoring cost). Further, the negative relation between production scale and monitoring cost is positively moderated by the rule of law. The managerial implication is that scale matters in responsible sourcing -- to a degree that increases with monitoring cost, moderated by the rule of law. The implication for local government policy is that improving transportation attracts foreign export orders by reducing monitoring costs, and enhancing the rule of law helps to mitigate high monitoring costs.

Keywords: Production Scale, Social Responsibility, Supply Chain Incentives

Suggested Citation

Fu, Qiang and Gong, Jie and Lee, Hsiao-Hui and Png, Ivan P. L., Responsible Sourcing - Production Scale and Monitoring: Theory and Evidence (July 31, 2017). Available at SSRN: https://ssrn.com/abstract=3011140 or http://dx.doi.org/10.2139/ssrn.3011140

Qiang Fu

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Jie Gong

National University of Singapore (NUS) - Department of Business Policy ( email )

15 Kent Ridge Drive, Mochtar Riady Build
Singapore 117591, 119245
Singapore

Hsiao-Hui Lee (Contact Author)

National Chengchi University (NCCU) - Department of Management Information Systems ( email )

No. 64, Section 2, Zhǐnán Rd
Wenshan District
Taipei City
Taiwan

Ivan P. L. Png

National University of Singapore (NUS) ( email )

Singapore, 117543
Singapore
+65 6516-6807 (Phone)

HOME PAGE: http://sites.google.com/site/iplpng/

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