The Fox and the Hound: can multinationals and NGOs have a mutually beneficial relationship?

Like the fox and the hound, multinationals (MNCs) and non-governmental organisations (NGOs) are natural enemies. Historically, MNCs try to run their business as profitable as possible and NGOs try to change business operations that are detrimental in certain ways. But they don’t have to be enemies at all. They can actually benefit from eachother a lot. New research from PhD candidate Wenjie Liu and Prof. Pursey Heugens from Rotterdam School of Management, Erasmus University (RSM) presents new theory and evidence, showing how collaboration between MNCs and NGOs actually accelerates the adoption of sustainable practices in the global business arena.

A great responsibility

Stakeholders now expect MNCs to be accountable for dangerous, illegal, and unethical behaviour in their global supply chains, even when there is no direct contractual relationship. At the same time, most MNCs have a limited ability to effectively monitor the actions of their global suppliers, especially those in developing countries. A recent analysis of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act pertaining to conflict minerals shows that almost 80 per cent of US publicly traded companies admitted they were unable to determine the country of origin of such materials, and only 1 per cent could certify themselves conflict-free with certainty beyond reasonable doubt. Therefore, current research leaves important questions unanswered about how sustainable practices can be effectively spread from MNCs to their global suppliers.

Solving global challenges

A fast-growing group of scholars, practitioners and policy makers have recognised that tackling global problems requires a co-ordinated and collaborative effort. However, our understanding of collaboration across countries, sectors and levels is rather limited, and systematic evidence of how best to tackle global problems by means of collaborative governance arrangements – the government, community and private sectors communicating with each other and working together – is lacking. An emerging phenomenon in the context of governing sustainability issues in global supply chains involves multi-stakeholder private governance, a governance arrangement involving both MNCs and NGOs. Global brands such as Apple, C&A, Dell, H&M, IKEA, and Microsoft have been increasingly collaborating with NGOs around the world to help promote sustainable practice adoption along their global supply chains. So, in this research, Liu and Heugens aim to answer the question: how and to which extent does cross-sector, cross-border collaboration between MNCs and NGOs promote corporate sustainability along global supply chains?

““Environmental collaboration between western MNCs and local NGOs is crucial for improving the sustainability performance of local firms in global supply chain networks.””

China as a useful research context

The researchers studied the collaboration in the area of environmental sustainability between Chinese NGOs and 168 MNEs across 25 countries whose global supply chain networks include Chinese manufacturers in the period between 2014 and 2020. China is an appropriate research context. On the one hand, China has been extraordinarily successful at attracting global upstream players over the past two decades. In 2010, it overtook the US in becoming the largest value-added manufacturer in the world, accounting for 28 per cent of all global production in 2018. On the other hand, China is the largest autocratic economy in the world in which NGOs are subjected to some degree of central state control; from complete and monolithic control in early periods, to administrative supervision and guidance in later ones. Now that the Chinese state no longer controls NGOs outright, Chinese third-sector actors are enjoying greater emancipation and are beginning to influence corporate practices.

To operationalise MNC-NGO environmental collaboration, Liu and Heugens used data scraping techniques to automatically extract a total of 10,431 environmental management records from the internet. They then manually scrutinized the data for the presence of environmental collaboration between MNCs and NGOs. Good examples of such collaborations include:

  • Apple and an environmental organisation motivated a Shanghai-based electronics factory to disclose its pollutant release and transfer register (PRTR) data for the past seven years on 27 October, 2020
  • H&M Group and an environmental organisation motivated a Shenzhen-based chemical plant to complete environmental registration procedures and to disclose its corrective actions on 28 October, 2020
  • IKEA and an environmental organisation motivated a Weifang-based production plant to provide explanations for its previous environmental fines on 2 November, 2020.

The researchers measured MNEs’ supply-chain sustainability performance using the Green Supply Chain Corporate Information Transparency Index (CITI). This index provides the first rating of global firms’ performance in terms of managing the environmental issues of Chinese manufacturers in their supply chain networks. It consists of a comprehensive set of standards co-developed by the Institute of Public & Environmental Affairs (IPE, a China-based environmental organisation) and the Natural Resources Defense Council (NRDC, a US-based international environmental advocacy group).

Improving sustainability performance

Liu and Heugens found that environmental collaboration between western MNCs and local NGOs is crucial for improving the sustainability performance of local firms in global supply chain networks. This highlights their symbiotic relationship. On the one hand, western MNCs need local NGOs, “people who are doing real work, not just talking,” to understand the situation on the ground and determine whether or not local suppliers provide sustainable materials and components to their international buyers and the extent to which their manufacturing activities contribute to the pollution of water, air and land. On the other hand, global supply chains that tie western MNCs to foreign suppliers offer NGOs in autocratic contexts an opportunity structure to shift the balance of power across geographic boundaries, and this helps NGOs leverage competencies and resources to facilitate the adoption of sustainable practices by local firms within the MNCs’ global supply chain networks.

Governments can complicate matters

But, this mediated stakeholder effect decreases when governmentally produced structural conditions reduce the perceived effectiveness of this collaboration: greater priority given to environmental protection by governments substitutes private governance arrangements involving MNCs and NGOs. In institutional environments in which there is a power imbalance that favours the government, public governance is more influential than private governance. To the extent that governments prioritise environmental protection, MNC-NGO environmental collaboration has less of an effect, as some of the resources and attention NGOs allocate to collaboration with MNCs may be redirected to collaboration with governments to encourage better environmental governance.

Additionally, greater curtailment of civil liberties during the COVID-19 pandemic suppresses their synergistic potential. The COVID-19 pandemic has led governments to implement containment measures that have led to a ‘people-based’ crisis, in the context of which NGOs are unlikely to provide MNCs with locally verified information, thereby diminishing the efficacy of collaboration with MNCs. So, the more governments claw back civil liberties that have been extended to civil society, the less of an effect MNC-NGO environmental collaboration may have.

Three actionable insights for MNCs and NGOs

These findings generate a host of actionable insights for MNCs, NGOs, and international policy makers. First, they break down widespread misconceptions about the relationship between MNEs and NGOs. In spite of deeply ingrained beliefs about discord between MNCs and NGOs, they can in fact have a mutually beneficial relationship. To tackle grand environmental challenges besieging our global community, it is imperative to safeguard effective collaboration across sectors and countries. Western MNCs need to collaborate with NGOs that are able to provide them with locally verified information about their suppliers’ (mis)conduct (such as focusing on low visibility, illegal subcontracting practices, and symbolic compliance in supply chain factories), and NGOs should strategically target western MNCs that have the ability and are motivated to help enforce sustainability claims vis-à-vis local firms in global supply chains (such as partnering with the MNCs’ home-country stakeholders like governments and their counterpart NGOs that can impose pressure on the MNCs).

Secondly, the MNC-NGO tandem should be agile and work agile. Private governance does not exist in a vacuum. MNCs and NGOs should dynamically assess the effectiveness of their collaboration, compare it to alternative structures, such as collaborating with local governments that tend to prioritise environmental protection over economic expansion, and allocate the resources and attention they possess in an optimal and strategic way.

In the third place, preparing for and adapting to unexpected and far-reaching global crises. Crises test the robustness of collaboration. In a post-COVID world, where containment measures and associated retreat of democracy continue to compromise civil liberties in many developing countries, it is thus important for MNCs and NGOs to reconsider and restructure their symbiotic relationship, such as establishing trilateral or multilateral collaborative arrangements with more stakeholders in local communities and in home countries to cope with the new situation.

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This article draws its inspiration from the working paper MNEs’ embeddedness in global supply chains as an opportunity structure: How NGOs promote corporate sustainability in China, written by Wenjie Liu, MSc and Prof. Pursey Heugens.

Rotterdam School of Management, Erasmus University (RSM) is one of Europe’s top-ranked business schools. RSM provides ground-breaking research and education furthering excellence in all aspects of management and is based in the international port city of Rotterdam – a vital nexus of business, logistics and trade. RSM’s primary focus is on developing business leaders with international careers who can become a force for positive change by carrying their innovative mindset into a sustainable future. Our first-class range of bachelor, master, MBA, PhD and executive programmes encourage them to become to become critical, creative, caring and collaborative thinkers and doers. Study information and activities for future students, executives and alumni are also organised from the RSM office in Chengdu, China. www.rsm.nl

For more information about RSM or this article, please contact Danielle Baan, Media Officer for RSM, via +31 10 408 2028 or baan@rsm.nl.

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