Compliance cascades in global value chains

Description

Modern multinational enterprises (MNEs) are controlling and overseeing globally dispersed networks of suppliers most of which are small and medium sized enterprises (SMEs) (Buckley & Strange, 2015). National legislation and policies that support the UN’s Sustainability Development Goals (SDGs), such as the UK’s Modern Slavery Act, are targeting these MNEs with the expectation that they cascade down through their networks legal and ethical expectations (Narula, 2019). However, it is unclear to what extent the cascading is happening and effective due to cross-system factors, double agency problems in global value chain (GVC) governance relating to transparency, accountability, and monitoring. SMEs that are not engaging in these processes face the threat of being excluded from GVCs which would affect a number of the SDGs including 1, 8, 10 and 16.

As part of this project we aim to:

• Conduct a systematic multi-disciplinary review on GVC governance, double agency problem, compliance cascadence/trading, and social upgrading;
• Facilitate a network building and problematisation stakeholder event;
• Conduct scoping interviews with key stakeholders and SMEs for problem diagnosis;
• Host a stakeholder event to share findings

In 2019, the International Labour Organisation (ILO, 2019) estimated that 25 million people worldwide work and live under forced labour conditions, that is, in ‘modern slavery’. In recent years, legislators have started to address the risk of modern slavery in businesses and GVCs. As early as 2005, the Brazilian government launched a voluntary multi-stakeholder initiative “the National Pact for the Eradication of Slave Labour” (2005) and the California Transparency in Supply Chains Act (2012) requires companies doing business in California to report on their efforts in eliminating slavery and human trafficking from their supply chains. The UK (2015) and Australia (2018) have introduced Modern Slavery Acts (MSAs) to require businesses with an annual turnover over £36 million and AUD$100 million, respectively, to produce annual statements on the steps they are taking to respond to the risk of modern slavery in their business operations and supply networks.

The laws are significant in naming ‘modern slavery’ and placing human rights obligations on businesses. While the laws focus on large business entities, there are a number of other significant stakeholders in tackling modern slavery – their role in contributing to tackling the issues and their perspectives on modern slavery is underexplored. These stakeholders include SMEs who are supposed to experience ‘trickle-down’ effects of compliance cascadence from the MSAs, policy-makers, law enforcement, and non-governmental organisations.

While cascading compliance (Narula, 2019) is expected to lead to ‘trading up’ of standards by SMEs (Malesky & Mosley, 2018), there is very limited research and evidence that this is actually happening in the field of modern slavery (Benstead, Hendry, & Stevenson, 2018) and it is unclear to what extent the cascading is effective. The assumption that cascading compliance (e.g., Narula, 2019) will lead to ‘trading up’ of standards by SMEs (Malesky & Mosley, 2018), however, underlies the regulatory approach adopted through the UK’s and Australian’s Modern Slavery Acts. This assumption has not been adequately assessed or challenged empirically, particularly not with regards the focal topic of modern slavery.

Awareness of regulation is one factor, however, we are interested in cross-system factors and double agency problems relating to GVC governance, compliance cascadence and social upgrading. That is, we are not merely interested in the contractual relationship with Tier 1 suppliers, but the whole value chain. In particular, where regulations vary across a GVC (e.g., see child labour definitions) and multiple standards are created by brands, challenges arise for businesses along the value chain as to how to engage with diverging demands from buyers/principals, legislators and civic society.

As such, there is limited work on understanding how the spatial configuration and hence positioning of SMEs vis a vis GVC lead firms influence the responsibility of the lead firm towards regulatory mechanisms such as the Modern Slavery ACT. We fully accept that there is more to (non)compliance than awareness; a range of structural, cultural, financial and psychological factors are involved.

Building on our British Academy grant, we are not exploring the definition of MS but using it as the case study to explore the ambiguities that arise in the cascading regime through the supply chain. SMEs that are not engaging in these processes face the threat of being excluded from GVCs. Exclusion would have negative effects on achieving the SDGs 1, 8, 10, and 16.