caso di studio nike (caso di studio economico), Tesi di laurea di Economia

Scarica caso di studio nike (caso di studio economico) e più Tesi di laurea in PDF di Economia solo su Docsity! Università Ca'Foscari Venezia Master’s Degree in International Management Thesis report The Labor issues and workers” rights within the global supply chain. How to manage the work environment: the Nike case. Supervisor Ch. Prof.ssa Vania Brino Assistant supervisor Ch. Prof. Maurizio Falsone Graduand Alvise Fiorellini Bernardis Student number 844307 Academic Year 2018/2019 I INTRODUCTION OF THE ANALYZED PROBLEM In recent years, which represent the modern economic era, the supply chain management has taken on a greater value and it is used as a strategic asset to achieve a competitive advantage in the markets!. In the 1990”s, many companies opted for massive investment processes to streamline their global supply chains. Such investments focused onachieving a better customer satisfaction. In fact, these strategic moves aimed to achieve a greater value of the products/services offered by the company, as well as an increase in the internal production. Nowadays, competition is not only based on a comparison between individual companies, instead it mostly relies on an advantage acquired through the global supply chains, as stated by the economist Christopher?. Indeed, the secret weapon for a company can be obtained thanks to reduced expenses of the supply chain, together with added value given on the outputs sold by the firm. From the analysis of the supply chain management, it is apparent that the fact that the dimensions to be studied are mainly three, characterizing all future entrepreneurial aspects. These dimensions can be categorized as integrations and are defined by means of three different concepts. The first is addressed to as functional integration: it involves the strategic aspects of procurement (such as the purchase of raw materials, machinery, etc.), the production of outputs, being them products or services, and all the distribution decisions, both within and outside the company. The distribution process is represented by the customers, the suppliers and all the third parties involved in the business process. The second dimension (concept) depends the geographical point ofview: the geographical integration. The analysis consists in all the decisions related to the processes of outsourcing, offshoring, insourcing or inshoring. These evaluations are categorized by choices such as where to produce, whether to produce internally or whether to give to a third company the execution of all, or part of, the production. The third aspect (concept), the intertemporal integration, is characterized by all those strategic and operational ! CollinJ., (2003). Selecting the Right Supply Chain for a Customerin Project Business. Helsinki: University oftechnology, pp. 8-213. ? Christopher M., (1998). Logistic and Supply chain Management. Financial Times, pp. 125-131. decisions of supply chain management as when it results advantageous for the company to produce the output and the quantity to produce in order to optimize the production. There are therefore two fundamental business aspects: the acquisition of the resources necessary to acquire a competitive advantage; its allocation and the improvement of it for the operational control of corporate decisions. Planning and strategic control characterize the former (the acquisition) and they are based on the processes that take place before the production process; on the other hand, everything that is represented by planning and zactical control is focused on the latter? (the allocation), focused on the activities that take place after the beginning of the production process. For the abovementioned reasons, the analysis of the supply chain management is of fundamental relevance under a managerial perspective and is one of the principal aspects that can let the company to reach a competitive advantage against its competitors. Many problems are also strictly related and linked to the supply chain management, especially when this concept is globally used. Problems related to workers” rights are most common, but also environments with poor working condition, bad working relationships between employees and employers, and bad governance are often common aspects in companies linked to the global supply chain. II PURPOSE OF THE THESIS With this thesis I will analyze the concept of the supply chain under the global perspective. I will focus on the aspects and on the advantages that can be brought to the company through a great management of the supply chain as whole. The analysis will be dividedinto three parts. The first one will be focused on the managerial point ofview with the consideration of all the aspects purely related to the organizational processes. The second part will be dedicated to the juridical analysis of the supply chain using a legal perspective. There will be also a deep focus on the workers” rights and the work environment. The last part will be the analysis ofthe Nike company and this analysis will be compared and referred to the concepts explained in the previous chapters. In this analysis I will discuss about both of the aspects, the legal and the managerial one, and I will consider how Nike managed to regain its leadership in the global market following 3 Shapiro J. (2002). Beyond Supply Chain Optimization to Enterprise Optimization. Ed: Ascet. the scandals on child exploitation in Cambodia and Vietnam happened during the late 19905. Asl said before, inthe first part I will analyze the concept ofmanagement related to the supply chain, so, in short, I will focus on the supply chain management theory. My analysis will be focused on the strategic use of the supply chain management and I will explain why the strategic supply chain management is essential in order to reach the competitive advantage. Moreover, I will study why and how this strategic concept can be defined as a strategic asset for the company and what it means. Then, I will focus my analysis on the model called SWOT analysis in order to understand the external and the internal points of view of the supply chain management. The evaluation and the application of these two concepts can give the company an additional knowledge of the field and of the environment of the related market. After this, the second chapter will be an analysis of the juridical aspects of the management of the supply chain. This part will analyze the labor law characteristics of corporate supply chain management. This evaluation will analyze what tools, such as governance, self-regulations methods, codes of conduct, CSR, compliance, etc., can be used for the purpose of gaining a competitive advantage. The last chapter will be focused on the case analysis of Nike. I chose to examine this specific company because it is really important under both of the two perspectives for many reasons. Under the managetrial point of view, Nike is considered one of the greatest companies ofthe modern era and it is the first sport brand worldwide under many different aspects. Not only because of the products sold by the company but mainly thanks to the management of the relationships with suppliers, employees and customers. This is one of the reasons why I decided to focus on this particular company. Under the legal point of view, Nike has had many problems of child labor exploitation, and workers” exploitation in general, during the late 1990s. These troubles were really close to destroy the brand image and the brand position of the company. Moreover, I will analyze how Nike has faced these issues and how it managed to regain its leadership in the sports market. The conclusions will be based on the last data belonging to the website Nike.com focused on the managerial developments and on the juridical improvements of the company that help the company cleaning its image worldwide. are also part of its supply chain, because they provide the input for the input that will be used for the final product. When we want to analyze the supply chain and we want to focus on the origins of the products, we can go through the whole process until we are able to trace the point called “Mother Earth” which is the last point at which all the raw materials used for our products are acquired. Then, they pass through the chain to the final product aimed at the consumer. Regarding the internal functions of the firm, all the processes used have to be analyzed because they represent the steps through which the company can transform the inputs provided by the supplier network. The management of a company has to analyze all the different tasks needed to be implemented and, thanks to the use of different techniques, it has to schedule, organize and coordinate all of them in order to achieve the best output possible within the shortest amount of time. The schedule of all of these assignments may involve one, or all, of the following functions such as material requirement planning systems (MRP), scheduling work centers, employees, capacity planning, and machine maintenance®. However, when you go analyzing the management of the supply chain of a Figure 1: The integrated supply chain Relationship Management Ss Flows of Information, Product DISTRIBUTIVE NETWORK ENTERPRISE Engineering Operations vRrEzgzcaoaZzoo SZzZtU Source 1: Handfield, 2002, p.9 company you can notice that it consists in an upstream supplier network and its 5 Mentzer J. T., DeWitt W., Keebler J. S., Min S., Nix N. W., Smith C. D. and Zacharia Z. G. (2001), Defining Supply Chain Management. Journal of Business Logistics, 22: pp 1-25. downstream distribution channel (or distribution network). All the external agents regarding the upstream supply chain are outlined and defined with the analysis of the material flows that pass through all the organization forming part of this chain. The company staff is defined as the company function that must ensure that the necessary materials arrive in time at the planned locations. Suppliers are one of the fundamental parts of the company from a managerial point of view. The acquisition of resources and materials necessary for the correct execution of the production phase is represented by the responsible work force that assume the function of guarantor in order to let the company being able to select the best suppliers. It also assumes the responsibility to ensure that these suppliers are able to meet the cost and performance expectations but above all, with the time necessary for the company to be able to give the customer the best service in the market. The staff, belonging to the supply chain, responsible for these functions, must also ensure that there is a correct communication between the various suppliers and the company. Moreover, it must certify that there is a continuous flow ofinformation between the company’s departments that interact each other for the production of products or services?. Furthermore, there is another part of the supply chain called external! downstream that encompasses all the downstream organizations, processes, and functions that ensure that the product passes through on its way to the end customer as its final destination. Regarding this type of distribution network, we can include the finished goods of the firm, the warehouse, the pipeline inventory, the dealer network, and the sales operations. Different firms can have different sizes and different characteristics of the concepts mentioned above, with small supply chain but relatively widespread downstream distribution channels. The logistic functions really important for this part ofthe company and all the activities related to it because it is responsible to analyze and coordinate the flows of the materials between the firm’s locations. Mentzer® has defined the supply chain with three different notions that are linked to the level of complexity of the supply chain network of the firm. They basically are: 1. Direct supply chain, which consists of a company, a supplier, and a customer involved in the upstream and/or down- stream flows of products, services, finances, and/or information. ' Hanfield R. and Nichols E., (2003). Supply Chain Redesign. Ist ed: Prentice Hall. Pp 9-11. 8 Mentzer J. T., DeWitt W., Keebler J. S., Min S., Nix N. W., Smith C. D. and Zacharia Z. G. (2001), Defining Supply Chain Management. Journal of Business Logistics, 22: pp 1-25. 2. Extended supply chain, which includes the set of suppliers of the immediate supplier, as well as customers of the immediate customer all involved in the upstream and/or downstream flows of products, services, finances, and/or information. 3. Ultimate supply chain, which includes all the organizations involved in all the upstream and downstream flows of products, services, finances, and information from the ultimate supplier to the ultimate customer. The following figure Figure 2: Types of channel relationships (figure 2) can be . . TYPES OF CHANNEL RELATIONSHIPS explained with the three-channel relationships described above and it illustrates SUPPLIER <&® ORGANIZATION = CUSTOMER FIGURE 1a- DIRECT SUPPLY CHAIN SUPPLIERS <>... SUPPLIER «PORGANIZATION@=@ CUSTOMER @... @p CUSTOMERS SUPPLIER CUSTOMER the complexity that can characterizes the FIGURE 1b- EXTENDED SUPPLY CHAIN ultimate supply chain thanks to the use of a lot of different Sme <> SUPPLIER <—PORGANIZATION@=> CUSTOMER @... @ ULTIMATE Pe TON all PROVIDER RESEARCH FIRM FIGURE le- ULTIMATE SUPPLY CHAIN THIRD PARTY LOGISTICS SUPPLIER relationships interconnected. In this type of relationship for Source 2: Journal of business logistics, Vol 22, 2001, p.5 the supply chain, there are third parties which may be financial providers, with the provision of financial advices, risks etc; they may be logistics providers, which can offer the logistic activities between two parties of the supply chain; or many other types of providers necessary for the supply chain to be effective and efficient. The aim of the supply chain of a company is to create value for the company. In doing so, we can talk about the concept of “value system”. According to Handfield? the value system is defined as follows: “A connected series of organizations, resources, and knowledge streams involved in the creation and delivery of value to end customers. Value systems integrate supply chain activities, from determination of customer needs through product/service development, production/operations and distribution, including (as appropriate) first-, second-, and ° Hanfield R. and Nichols E., (2003). Supply Chain Redesign. 1st ed: Prentice Hall. Pp 25. The distinction made with regard to business and organizational processes is differentiated according to the authors who analyzed and explained its characteristics. Figure 3: Relations behveen Management, Business and Organizational Processes Business processes Organizational processes E Plan Business planning Planning organization (a Co] D E) Execute Execution of business Actuating (Staffing/leading) 1 co bj EfiControl Control business Controling organisation Source 3: Author, based on Rozman (2000, p.7) Given these premises, management is therefore defined as planning, organizing, controlling and leading; these are the 4 fundamental aspects that Rozman defined in 2000 as the most important general features. Many authors define the concept of planning by relating it only to the concept of business planning. The company management does not include the concept of business execution but includes the concept of implementation of the business organization also known as "staffing and leading". Rozman wrote in his paper that most economic authors define control as control of the business, control of the magnetization and control of the audit, and this can be the correct definition of it. Finally, Rozman!* defines management as a conscious process and divides it into three phases, as previously described: planning, executing and controlling. Planning is used when it allows you to think ahead about the desired objectives and results and it allows you to think about the best process to achieve them; instead, the execution of the planning is precisely the actual process of carrying out the proper action; and finally the control or the establishment of the will to execute and verify that the previously defined patterns are respected. The planning and control phases ensure the rationality of the (execution) process, while the execution phase generates a product or a service. Thanks to the explanation of Rozman, we can state that planning all the activities can resolve most of the problems because the management of the company can evaluate different possible scenarios. Organizational processes, on the other hand, make the creation of permanent relationships among company employees possible thanks to the evaluation and creation of an adequate organizational structure. Thanks to this creation, 1 Rozman R., (2002). Subject and method of organization. Ljubljana. (English version for the Ljubljana University), Ljubljana, pp 92-94. 11 the execution of business plans and objectives is permitted. When it comes to dealing with communication and motivation of workers related to the company, the most important aspect is the leadership of a leader, or more the one, to the command that knows how to organize and implement the actions planned as optimal for a long-term goal. Moreover, there is the need to observe and control the auditing of the behavior of the workers in order to have and produce results that will be analyzed and controlled, but, above all, that will be compared with those initially planned in order to understand if there were deviations or if everything worked as planned. In conclusion, I can state that management can be divided as follows: business and organizational planning, the definition includes short or long-term objectives, company policies and processes related to them; guide for all the people of the company thanks to the use of company’s activities and support from leaders, that is basically the process of coordination; and finally control which is the final part of the management process. Its philosophy is based on the verification and comparison between the objectives achieved and the imposed ones by the company at the beginning of the activity. Business processes ensure efficiency and organizational processes guarantee the rational achievement of goals. A very important aspect from the business point of view is that the behaviors of the employees, like those of the chiefs, are coordinated among themselves for the achievement of a unique goal. It is therefore important that the company requirements can be known by all parts of the company in order to reach the objectives in an effective and, at the same time, efficient way. 1.1.3. Definition of supply chain management The definition of supply chain management is one of the most argued definitions regarding the economic world. The following definitions, represented in table 1, explain the difficulties in finding a single explanation on the meaning of supply chain management. Many authors have different opinions and different definitions. When we want to define correctly what supply chain management means, hence the need to define correctly what is our best definition of supply chain. As mentioned before in the paragraph 2.1., the supply chain can be defined as the “processes from the initial raw materials to the ultimate consumption of the finished product linking across supplier-user companies,” or as the “functions within and outside a company that enable 12 the value chain to make products and provide services to the customer”?!4. Moreover, we should define what is the definition, according to the APICS dictionary, of the concept of value chain. It is defined as those “functions within a company that add value to the products or services that the organization sells to customers and for which it receives payment”. There is only a subtle existing difference between these two concepts. The supply chain can be defined as precise sequence of actions, or activities, that are performed in order to take the input and transform it into the desired output ready to satisfy the customer. Doing so, the input moves from the raw material stage to the end costumer. Each stage can be represented by a different entity, so by a different firm. On the other hand, the value chain is represented and characterized by all of those functions within one single firm that can add the value at that specific stage of the process, and that, of course, add the same value to the final product or service sold to the customer. Regarding these concepts, another fundamental notion has to be specified before analyzing and understanding what the management of the supply chain is. The mentioned term is “pipeline”. A pipeline is basically a part of the supply chain that is used only for one part of the product. We can have many different pipelines within the same supply chain because every process can be represented by a single pipeline. Now we can define what a supply chain management is. It is still not easy to be defined but going through different definitions, we can have a better understanding of'it. I Apics dictionary, 1995, 8th edition. 13 These two authors explained a concept that is really important when we want to analyze the managerial aspect of the supply chain. This concept is the interna! customer. This is defined as the recipient (person or department) ofanother person’s or department’s output (product, service or information) within an organization!S. The purpose of the internal customer logic is to keep each employee focused on the needs ofthe end customer (Fredendall L. D. and Hill E. 2001, p.8), and this can enhance the possibilities of a better understanding of how to satisfy the requests and the needs of the customers. The end customer is the most important part of the supply chain because he is the one that purchases your products and gives you the money to keep your company active and healthy through the years. The customers’ requirements have to be well known throughout the whole supply chain and all the parties have to know what and how to do their job. The focus has to be on the needs of the customers and the information about them must be spread throughout the supply chain as soon as possible. The faster they are spread, the faster will be the reactions to the changes. Going back to the concept of uncertainty we can state that reducing it, the firm may reduce the need of inventory, as explained before, because there is less need for just-in-case inventory. And thanks to this, the members ofthe supply chain can have a better knowledge about the necessary quantity and they can make plans in order to produce only the inventory needed with small percentage of rescue. This will improve the level of service ofthe firm. We can state that the information is one of the most important aspects of the supply chain management and that the companies must have an advanced information system networks that canimprove their management and that can help then in the decision-making processes. The analysis of the drivers of the supply chain management is also fundamental because it can give the knowledge about what should be implemented and what resources are necessary to be acquired and used in order to achieve a better level of customer satisfaction. According to Fredendall L. D. and Hill E.!”, there are two forces driving supply chain management. These forces are divided into two basic points. The first is related to the customers’ satisfaction and it is based on the continuous change of the customers’ demand that require lower prices for better products or services. The second one consists in a new communication technology available that allows managers to actively manage a supply chain. AIl the goals of improving the techniques to satisfy the 16 Apics dictionary, 1995, 8th edition. 1 Fredendall L. D. and Hill E., (2001), Basic of Supply Chain Management. 2nd ed: St. Lucie press. Pp. 29-30. 16 customers’ demand are shared in many different philosophies that are represented mainly by supply chain management just-in-time production (JIT), quick response manufacturing, vendor management and agile manufacturing. There are many other techniques that can change the aspect of a firm, but these are the basis to create a competitive advantage. They attempt to improve customer service thanks to the elimination of waste from the system. The role of the supply chain management is to embrace the other philosophies and extends their scope from one firm to all the firms in a supply chain!8. As I explained before, one of the elements that can create a barrier for the management of the supply chain is the human element that can cause a lack of communication. This can enhance the possibilities of misunderstanding, lack of knowledge and bad behaviors that open up to bad payoffs for supply chain managers and that doesn’t let the company increase the profit for their shareholders. When the communication is not adequate, the supply chain cannot improve itself and is not able to increase the profits. The human element is one findamental aspect for the management of the supply chain!°. Supply chain management requires great level of communication between the members of the supply chain?°. The sharing of a continuous flow of information within the supply chain allows all parties to reach a higher level of productivity, thus allowing the entire system to take a competitive advantage both from the customer relationship point of view, both in terms of timing and quality of production and therefore of production processes. We can state that the final point of the supply chain management, regarding the way thanks to which a firm can reach the competitive advantage, is based on the concept of collaboration. Collaboration can allow companies to have a better knowledge of many different aspects of the supply chain, and the management of it can open up new possibilities for a better output or a cost reduction that means, with the same level of sales, increasing profits. According to Fredendall L. D. and Hill E., collaborative planning requires from the firm to work with customers and suppliers in a continuous flow of information in order to ensure that the needs of the customers can be satisfied every day !8 Fredendall L. D. and Hill E., (2001), Basic of Supply Chain Management. 2nd ed: St. Lucie press. Pp. 29-30. 1° Fredendall L. D. and Hill E., (2001), Basic of Supply Chain Management. 2nd ed: St. Lucie press. Pp. 31. 2° Fredendall L. D. and Hill E., (2001), Basic of Supply Chain Management. 2nd ed: St. Lucie press. Pp. 8. 17 but, more than that, that every parties of the supply chain knows what the need of the costumers are. This has to be done every day, so routinely, and not only when a crisis occurs. One of the most famous and important tools used by companies in order to succeed in the communication is the APS software, the Advanced Planning and Scheduling. 1.1.4. The APS software used to manage the supply chain The Advanced Planning and Scheduling software can be developed into a set of methods that can allow the company to create and analyze forecasts and/or production plans and it can permit a better and faster control and monitoring by the other parties of the supply chain that can transmit immediately their analysis to the next partner. According to the definition given by the APICS organization, these APS systems are: “real computer programs that use algorithms and mathematical logics for questions of optimization and production simulation, in order to solve scheduling problems. Thanks to these techniques, APS can simultaneously manage a wide range of production limits by offering decision support to production planning and scheduling”. The meaning of these two new concepts are important to be explained in order to better understand what these systems are. Planning means basically to describe the activities that have to be implemented and how to perform them with both a medium and a long-term view. Scheduling, instead, is the proper schedule, so it consists in the decisions about the time of the processes to be executed in the short-time. Differently from the planning, the scheduling is more precise because it is based on the short term. In fact, in the scheduling, precise days and times are determined. The analysis of the management fields is really important and this evaluation has to focus on the tools that can be used to accomplish it. According to the APICS website?!, the APS software can be used in all the productive sectors, starting from the Make to Stock to the Engineering to Order. o First, we can analyze the companies that are represented by the Make to Stock productions (MTS). This type of production is based on forecasts and therefore on Manufacturing Forecasting. Thanks to the availability of a lot of time, these 2! Apics.org. APICS is now part of the Association for Supply Chain Management (ASCM). [online] Available at: http://www.apics.org/ [Accessed 23 Jul. 2019]. 18 integrates them for an advanced approach. He points out, in his research paper, that it is known that ERP systems are not made to work in the area of strategic business planning, so APS systems were invented to fill this gap and integrate ERP systems for optimal efficiency for the company. According to Ou-Yang and Hon?5, APS systems develop adequate production planning to support potential orders, while ERP systems are used to integrate the execution of orders related to business processes and to manage activities and transactions basic, such as customer orders, accounting, etc. The extraction of information belonging to ERP systems is the task of the APS system which then analyzes and calculates the plans for the production and distribution of products. So, the task ofthe APS system is to extract the information belonging to and produced by the ERP system through the user interface, to then analyze the data, make the appropriate calculations that follow and then develop the resulting plans for distribution and execution. The APS sends to the ERP manufactured part needs, purchase part needs and projected order completions. The ERP sends APS requests (customer orders, forecasts, MPS, security stock orders, transformer orders), item information, BOM (Bill of Material) information, operational information, resource information, resource group information, WIP status, completed jobs and released, planned works, perform parameters, calendar, shifts and holidays. Planning and usage results can be saved in the database through the output interface??. 1.1.5. Supply chain management as a set of activities When a company establishes a philosophy, it has to ensure that a set of activities will be implemented in order to perform a consistent behavior. According to Mentzer?8, these activities can be summarized as: - Integrated behavior. - Mutually sharing information. - Mutually sharing risks and rewards. - Cooperation. % Ou-Yang C, Hon S. J. (2008). Developing an agent-based APS and ERP collaboration framework. The Intemational Joumal of Advanced Manufacturing Technology, pp 943-967. 2? Bothello de Sousa T., (2014), Describing the APS Systems: a Software Overview. 8th Intemational Conference on Industrial Engineering and Industrial Management, pp 2-4. 28 Mentzer J. T., DeWitt W., Keebler J. S., Min S., Nix N. W., Smith C. D. and Zacharia Z. G. (2001), Defining Supply Chain Management. Journal of Business Logistics, 22: pp 8. 21 - The same goal and the same focus on serving customers. - Integration of processes. - Partners to build and maintain long term relationships. The integrated behavior is basically a set of activities that must be performed in a precise way in order to create a coordination effort that allows the company to have a great connection between all the actors of the supply chain. The management of this behavior, according to Mentzer is personal but has to have a correlation between suppliers, carriers and manufacturer in order to be able to respond and to satisfy all together the needs of the customers. Due to the fact that the coordination is one of the most important aspects of the management of the supply chain, the mutual sharing ofinformation takes on an aspect of fundamental importance for all the players in the supply chain. According to Cooper, Lambert and Pagh?, updating information through the supply chain can give to the management an advantage because all the parties can have a more in-depth knowledge of all the processes executed for the output. Thanks to the mutual sharing ofinventory levels, sales strategies, forecasts, marketing strategies etc., companies can be able to reduce the uncertainty level that, as explained in the previous chapters, can be a problem under a firm’s perspective. Sharing information is important, but also sharing risks and rewards can give to the supply chain sense of belonging to the same group. Risks and rewards sharing are important for long-term focus and cooperation among the supply chain members®0. An effective SCM requires a great level of cooperation ads explained in the previous chapters. Coordination allows companies, so the various parties of the SC, to perform the activities in a business relationship that open up the possibilities to reach a superior mutual outcome?! Cooperation starts with joint planning and ends with joint control activities to evaluate performance of the supply chain members, as well as the supply chain as a whole??. As explained before, planning and control are essential for the 2 Cooper, Martha C., Douglas M. Lambert, and Janus D. Pagh 1997, “Supply Chain Management: More Than a New Name for Logistics,” The International Joumal of Logistics Management, p. 1-14. 3° Ibidem. ?! Mentzer J. T., DeWitt W., Keebler J. S., Min S., Nix N. W., Smith C. D. and Zacharia Z. G. (2001), Defining Supply Chain Management. Journal of Business Logistics, 22: pp 9. # Cooper Martha C., Douglas M. Lambert, and Janus D. Pagh (1997), Supply Chain Management: More Than a New Name for Logistics, The International Journal of Logistics Management, Vol. 8, pp. 1-14. 22 SCM but, at the same time, they have to be implemented thanks to the addition of a great coordination that can reduce the inventories of the supply chain and pursue supply chain wide cost efficiencies. Hence the need that all the parties related to the SC have the same goal and the same focus on serving costumer. This is the basis of the firm and of course the basis on how to satisfy the customer, everyone has to have the same final objective. This can be described and established as a form of policy integration that can allow the company to be successful in the market. This point of view can also avoid or reduce redundancy and overlap that can be a problem for the management of the supply chain?3. An integration of all the processes of the supply chain is necessary to perform a better output*4. Starting from the R&D to manufacturing and distribution, the integration must be accomplished throughout all the teams belonging to the SC, the cross-functional team, in-plant supplier personnel and third parties service providers*°. The last point to reach a great level of effectiveness of the supply chain management is focused on the creation of many different partnerships that have to be built and maintained with a long-term relationship vision. Cooper (1997) claimed that there is the necessity to understand if the company wants to have a SC with less partners in order to increase the cooperation, and this is usually the better option, or with more partners in order to have more possibilities for the processes, but this supply chain is usually harder to be managed. Thus, forming strategic alliances with supply chain partners such as suppliers, customers, or intermediaries (e.g., transportation and/or warehousing services) provides competitive advantage through creating customer value®9. * Mentzer J. T., DeWitt W., Keebler J. S., Min S., Nix N. W., Smith C. D. and Zacharia Z. G. (2001), Defining Supply Chain Management. Journal of Business Logistics, 22: pp 9. # Cooper Martha C., Douglas M. Lambert, and Janus D. Pagh (1997), Supply Chain Management: More Than a New Name for Logistics, The International Journal of Logistics Management, Vol. 8, pp. 1-14. 35 Ibidem. # Langley C. John, Jr. and Mary C. Holcomb (1992), Creating Logistics Customer Value, Journal of Business Logistics, Vol. 13, pp. 1-27. 23 technology, operation management and many others. All of this is done in order to gain the so called competitive advantage. The question now is: what is a competitive advantage? How can firms gain it through the supply chain management? Porter in his book defined competitive advantage as an advantage gained by firms thank to the use of lower costs and greater differentiation compared to the other firms or the other supply chains*!. He stated also that the strategic management should be linked with building and sustaining competitive advantage ofthe firm. Basically, he claimed in his books and research papers, that a company can reach the competitive advantage when an attribute, or a group of attributes, allow the supply chain to outperform its competitors. The competitive advantage is actually reached thanks to the value generated by the strategies utilized and pursued by the supply chain management than can bring something unique to that industry. Another necessary thing for a firm perspective is that this advantage (or advantages if more than one) has to be unique but, more than that, has to be protectable. This means that the firm must use regulations and laws in order to protect their advantage, using for example patents, trademarks, copyrights, etc., in order to defend their benefit from the possibility of copy. Competitive advantage can give to the company the possibility to achieve greater value for the customer and for the stakeholder in general and thanks to this they can not only outperform their competitors but also have an improvement of the performances of the supply chain in general. This advantage can be obtained thanks to several different processes such as differentiation, innovation and cost leadership with lower costs than the competitors in the market, operational effectiveness and efficiency in general along the supply chain. Porter stated that to be successful in the market, an industry must focus beyond its own operations by opening the view on its competition and studying its movements and developments, and then focusing on its own value chain where it can bring processes that increase the value for its stakeholders. 4! Porter M. E. (2004). Competitive Advantage. New York: Free Press. 26 According to Porter, nowadays the competition is no more based only on the firms and their products / services but on their supply chains, that are able to give to the companies the advantages in many different ways. Itis therefore necessary to incorporate competitive strategies into the value chain of a firm. The difference that is calculated between the costs belonging to the supply chain, that are incurred for the production processes, and the value that the final product takes on thanks to these production processes, therefore capable of satisfying the needs of the customers, is defined as the actual value of the supply chain. Porter in 2004 developed a competitive strategy plan in which the activities of the supply chain are divided in two main categories, primary and secondary activities. Those classified as primary activities are inbound logistics, outbound logistics, sales, operations and marketing. On the other hand, he defined the secondary, not for importance but only for the differentiation of them, activities as technology development, HRM (human resource management), infrastructure and procurement, outlining them as support activities (figure 5). Figure 5: Porter's value chain with primary and secondary activities INBOUND ‘OPERATION ‘OUTBOUND SALES& LOGISTICS LOGISTICS MARKETING Examples: Examples: Examples: ì Quality control; Manufacturingì Finishing goods; receiving; packaging; order handling; raw materials production dispatch; order taking; control; control; quality delivery; promotion; supply schedules control; invoicing sales analysis; maintenance market research ® d s È <q x 6 a a s 8 2 È < E a E E a Source 5: Porter, M. E. (2004). Competitive Advantage. 4 Porter M. E. (2004). Competitive Advantage. New York: Free Press. # Lambert D. M., Cooper, M. C., & Pagh, J. D. (1998). Supply chain management: Implementation issues and research opportunities. International Joumal of Logistics Management, pp 1-20. 27 Porter in his book claimed that the starting point ofthe supply chain is the proper development of the product, ofa new product, that must be marketed and publicized based on the customer needs*. If the customers’ needs are satisfied, the customers will buy more products / services and this will increase the value of the company. The basic of these activities, according to Porter, is to create a greater value than the costs of conducting those activities in order to generate a higher profit. He explained the primary activities as follows: e InboundLogistics: it includes most of the processes related to the raw materials such as warehousing, inventory and receiving them, so basically the control of the raw materials of the company. It also comprehends the relationships with the suppliers that supply raw materials. e Operations: itincludes all the operations that must be used and performed in order to transform the raw materials (input) in final product (output) or product used by the next step of the process. e Outbound Logistics: it includes all the processes used in order to distribute a final product to the consumer. It incorporates storage and distribution system, and also the delivery. This system can be external, direct to the final customer, or internal, within the supply chain. e Marketing and Sales: it includes all the strategies aimed at making consumers aware of company products such as promotions, advertising and pricing strategies. These activities are made in order to “persuade” customers to buy the products. e Services: it includes activates such as customer service, repair, refund, exchange of the product etc., that are post sales services to maintain the fidelity of the customers. Porter, then, defined the secondary activities with a precise purpose “they should improve, thanks to their support, the value of the primary activities” and he defined them as follows!5 49: e Procurement: it consists in the process through which the companies acquire raw materials and it includes also the bargaining and the negotiations with suppliers * Porter M. E. (2004). Competitive Advantage. New York: Free Press. 4 McGee J. (2014). Value chain. In book: Wiley Encyclopedia of Management Strategic Management Edition, 3rd Chapter: value chain. 4 Porter M.E., (1985) Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press. 28 A good implementation of a good strategy helps the supply chain to be the first company in the market90, 1.2.3. Supply chain integration: Vertical vs Horizontal integration Nowadays companies need to face a highly competitive market in which economic globalization, information technology and global supply network are pushing companies with their supply chains onto a focus on performance efficiencies. However, there are problems related to the supply chain, such as uncertainty in supply and demand, complex product structures or incomplete product life cycles that prevent supply chains from acquiring faster responsiveness and flexibility!. Because of this problem, supply chain integration (SCI) was formed in order to increase the level of flexibility and responsiveness of the supply chain. According to Du, Supply Chain Integration consists in the degree of integration between the firm, its customers, and its retailers or distributors. The supply chain integration is represented by a system that allows coordination and alignment within the supply chain in order to use a network of shared management systems between different companies belonging to the same supply chain. The integration of processes is based on several pillars such as trust, understanding, communication and above all common goals between partners along the supply chain. When the analysis of the integration is necessary, two types of SCI exist: Vertical and Horizontal. 1. Vertical Integration: this type of integration is based on the analysis and on the proper integration of the upstream or downstream supply chain. It is based on the acquisition of the control of another part of the supply chain in order to increase the power of the principal firm over the marketplace. Vertical integration is based on the fact that common objectives, pre-agreed standards, pre-decided working methods are analyzed and performed within the supply chain in order to reach a maximization of efficiency, costs reduction and a sustainability improvement. Through the use of vertical integration, a company of the supply chain acquires another company that operates in the same production process of the same 5° Chopra S., and Meindl P. (2010). Supply Chain Management: Strategy, Planning and Operation. Hoboken, NJ: Prentice Hall. 5! Du L. (2007). Acquiring competitive advantage in industry through supply chain integration: A case study of Yue Yuen Industrial Holdings Ltd. Joumal of Enterprise Information Management, pp 527-543. 31 industry. This process can open up to new possibilities such as the acquisition of upstream or downstream profits or can create new opportunities for new distribution channels. This process can also give to the company other advantages such as new operations to sell products to customers, new and higher efficiencies, or reduce the time of delivery and transportation. Vertical integration can be divided into three types: I. Forward Integration: it is focused on the downstream part of the supply chain. The implementation of this type of integration allows the company to achieve higher economies of scale and bigger market share. When the company that performs the acquisition is efficient enough to manage the downstream supply chain on its own, it can use this forward integration because it will be able to do it more effectively than in other situations. In this case retailers and distributors are less in number, are unproductive or are untrustworthy and this forces the company to work by itself. Thanks to this process the acquiring company will have a better control on the downstream processes and on every stage ofits distribution process. II BackwardIntegration: contrary to the forward integrations that is based on the downstream of the supply chain, the backward integration is based on the upstream flow ona firm’s supply chain. An efficient supply process of resources for the firm is the base of this integration. A firm should implement this process in order to have a maximization of the effectiveness of it when a limited number of suppliers is present in the supply chain, when there are higher margins for the suppliers and when they are inefficient or unreliable or when the input costs are volatile. These are the most common situations in which a company can opt for a backward vertical integration. The company basically decides to buy another company that makes an input product for the acquiring company's product. INIL Balanced Integration: it consists in a combination of the two above mentioned integrations. It is used in order to maximize the value creation throughout the firm’s supply chain. 2. Horizontal Integration: this type of integration is based on the fact that a firm acquires another firm that works in the same industry. This strategy is used in order to strengthen the position in the industry thanks to different processes such 32 as mergers, acquisitions and hostile takeovers of the competing firms in the same value chain. These three terms are different but they have the same final goal. Hostile takeover means to force an acquisition ofa company that is hostile, so that does not want to be bought. Mergers means a collaboration when two different entities decide to join together. Acquisition is a basic acquisition of another company that is opened to the possibility to be bought. Companies may choose to undergo horizontal integration in order to increase their size, diversify products or services offerings, achieve economies of scale, or reduce competition. These are the fundamental advantages that a company can opt for with this type of integration. The aim of the horizontal integration is to allow the companies to reach higher revenues compared to the ones reached working independently. It can also open up to overseas possibilities and it is usually used when the industry is growing. The basic question that everyone has at this point is: is it better to implement a vertical or a horizonal integration? This cannot be answered easily because it really depends on the company’s policies and value propositions. There are companies that should implement one integration and company, in the same industry, that should implement the other one??. Table 2: Advantages and Disadvantages of Vertical Integration Advantages Disadvantages + Lower transaction costs Increased costs to company to manage new activities e Less uncertainty e Chances of reduced efficiency and quality of products because of + Strategic independence competition Better positioning of local companies against foreign Higher investments lead to reduced flexibility competition + Clash between new and old scopes of the firm, leading to confusion + Synchronization of supply and demand along the supply chain | and disarray Rigidness of organizational structure Source 6: Katie J., A report on horizontal and vertical business integration 2013 Firm’s decisions will determine the strategies and the designs of the supply chain and this will let the management understand, after an in-depth analysis what integration is better to be applied in order to have all the several advantages related to it. Here below I put three tables that will explain, according to Katie J. in her book “A report on horizontal and vertical business integration”, the advantages and the disadvantages of both the two 5° Katie J., (2013). A Report on Horizontal and Vertical Business Integration. California: GRIN Verlag. 33 This process in basically divided into four main areas included in two dimensions. The internal factors, as I explained before, are the first two letters of the word “strengths and weaknesses”, that are attributes of the organization. The external factors are instead the last two letter of the word “opportunities and threats”, that are attributes of the environment and of the market in which the company is settled in. In fact, we can state that the strength and the weak aspects of an organization are analyzed thanks to the analysis of the environment of it while the opportunities and the threats are determined examining all the elements that belong to the outside. SWOT analysis in typically drown down ina quadrant made by four part but I will underline it as follows: =» Organizational Strengths: Characteristics that give advantage over others in the industry. =» Organizational Weaknesses: Characteristics that the competitors have at a higher level and that are problems for the analyzed organization. = Environmental Opportunities: Benefits that can be given to the company due to the reaching of prospects of the external market. =» Environmental Threats: External elements in the environment that could cause troubles for the organization. Going deeper, strengths are those elements that can give or create an advantage for the firm, they are those characteristics that add value to the product or service sold and that allow customers to have something more special compared to the competition in the market. When we analyze the strengths under the organizational point of view, this involves the assets and abilities thanks to which a company gains a competitive advantage and thanks to which it is able to give something different and better perceived by the customers. These strengths are reveled as a result of the analysis of its internal environment. Strengths are strictly connected to the increase the efficiency and effectiveness of the company. According to Pearce and Robinson55: “a strength is a resource, skill, or other advantage relative to competitors and the needs of the markets an organization serves or expects to serve. It is a distinctive competence that gives the organization a comparative advantage in the market place. Strengths may exist with regard to financial resources, image, market leadership, buyer/supplier relations, and other factors”. In conclusion, strengths are necessary for the firm in order to answer to the threats of the outside environment. 5 Pearce J. A., and Robinson R. B. (1991). Strategic Management, 4th ed USA: Irwin Inc. 36 Weaknesses are the opposite of the strengths. While the second ones are a point of advantage, these are a point of disadvantage when compared to the other companies in the market. Weaknesses refer to something that the analyzed company does worse than its competitors because of various reasons, competencies, machineries, employees and many others possible causes. These are defined as negative and unfavorable for the company. When we explained this concept regarding the organizational level, we can state that the current existing capabilities of the companies are weaker compared to the ones of its direct competitors and this means that the firm is less effective and efficient in performing something than the others. The performances of the organization are badly influenced by these weaknesses and consequently products and services are negatively affected. According to Pearce and Robinson": “a weakness is a limitation or deficiency in resource, skills, and capabilities that seriously impedes an organization’s effective performance. Facilities, financial resources, management capabilities, marketing skills, and brand image can be sources of weaknesses”. The analysis and the knowledge of the weaknesses are fundamental for the correct management of the firm because inefficiencies and ineffectiveness should be known, improved and solved. This can help the organization in the long-term plans. Opportunities are a positive goal-driven. Environmental opportunities can create something new with a positive trend for the company. They are situations or conditions suitable for activities that can create advantages against the competitors. Thanks to the opportunities, that can be of many different types, organizations can achieve their goals easier and faster than before and they can also create and sell their products or services more effectively and, at the same time, more efficiently. We can easily define an opportunity as a convenient time or situation that the external environment presents to the organization. Thanks to environmental opportunities, companies can take advantage of organizational strengths, overcome organizationalweaknesses or neutralize environmental threats. “Threats are situations or conditions that jeopardize the actualization of an activity”S?. Threats are referred to a bad situation that can create and bring to the company disadvantages. They are characterized by negative aspect that should be avoided or, at least, overcame. For the organizational point of view, threats are elements that can avoid 5 Pearce J. A., and Robinson R. B. (1991). Strategic Management, 4th ed USA: Irwin Inc. su: °° Ibidem. 37 the possibility of reaching the goals and the objectives and they can happen because of the changes of the environment that may create a bad situation for the company or, worse than this, can prevent it from maintaining its existence or superiority in the market. They are basically defined as an impediment to success. A deep difference between the internal factors, such as strengths and weaknesses, and external factors, such as opportunities and threats, exist. This dissimilarity is based on the fact that the external elements are referred to economic, demographic, political, social trends and events that can change the environment of the company and the market but that are not under the control or decision of the firm, the internal aspect instead are controllable activities that are performed especially well or poorly. The last ones related to the management are, the production/operations, the financial area etc. of a business. Strengths and weaknesses associated to them must be analyzed and evaluated in order to perform the best strategy possible for the firm that is directed to the achievement of the goals. To be successful a company must align internal activities with external activities thinking of what actions are necessary to satisfy the objectives. This is the basic assumption of the SWOT analysis, maximizing strengths, minimizing weaknesses, seizing opportunities and avoiding threats. SWOT analysis can have advantages and also disadvantages that I will explain here below. The following advantages can also be depicted as characteristics that give something more to the business. + SWOT analysis has general perspectives and general solutions that allow companies to focus deeper on the fundamental activities to be performed. It is also defined as a map that guides the management to the correct activities. + SWOT analysis helps management in the macro evaluations providing tools to have two points of view, the internal and the external one. It allows businesses to add positive aspects to the company and to avoid those that badly affect it. + SWOT analysis forms a thinking model that opens up possibilities for the firm to gather information, analyze them and then decide the best activities that must be performed. It basically prepares the substructure for the strategic decisions®8. + SWOT analysis is a tool the allows managements to think about the future and to have a long term vision that opens up to forecast and to analyze for the future and the goals of the organizations. 5 Pearce J. A., and Robinson R. B. (1991). Strategic Management, 4th ed USA: Irwin Inc. 38 Table 4: Benefits and Barriers of supply chain management practices Benefits Barriers e Increased customer e Inadequate information sharing responsiveness e Poor/conflicting measurement e More consistent on-time delivery e Inconsistent operating goals e Shorter order fulfilment lead . times . e Reducedinventory costs . e Betterassetutilization e Lower costs of . purchased items . e Higher product quality . e Ability to handle . unexpected events e Faster product innovation e Preferred &tailored relationships Organizational culture & structure Resistance to change — lack of trust Poor alliance management practices Lack of SC vision (understanding) Lack of managerial commitment Constrained resources No employee passion/empowerment Source: Fawcett, 2003. This research demonstrated also that many bridges exist in order to help managers to overcome these barriers and to perform at the best efficient and effective level reachable. The following table will present some of them: Table 5: Bridges to overcome barriers Bridges e Senior & functional managerial support Open & honest information sharing Accurate & comprehensive measures e Trust bases, synergistic alliances e Supply chainalignment & rationalization e Cross-experienced managers Process documentation & ownership Supply chain education and training Use of supply chain advisory councils 4l e Effective use of pilot projects Source: Fawcett, 2003. All of these “bridges” can be summarized into management and organizational issues related to the organization with third party options, so with basically all the external partners of the company. I can conclude that before we can have an efficient implementation of supply chain management techniques and before the principles attached to it can take place, there are numerous business activities that must be performed correctly. These practices are represented in the context of the right corporate strategic choices therefore aligned with the company’s requirements, defining then what is critical and what is not for an appropriate execution and implementation of the demarcated strategy. In the company, having the right work force to allow the development and execution of supply chain processes is absolutely necessary and fundamental to perform at the best possibilities. It is also necessary to possess and use a support that makes it possible to monitor the company's operational performance. Therefore, a system that can allow and facilitate the measurement of these practices efficiently is a prerequisite of fundamental importance from a managetial point of view for every company that belong to the supply chain. Last but not least, the collaboration. This term indicates one ofthe aspects previously described in the chapters of this thesis that outlines how communication and the desire to reach a common goal is of vital importance for the corporate well-being. Communication, coordination and cooperation in the supply chain can bring enormous cost advantages to the company that can reach levels of flexibility on the service that are difficult to obtain if these requirements are not met. I can therefore state that one of the most complex tasks in the business sector is the implementation of supply chain management. In fact, it requires specific managerial and organizational capacities to consolidate relationships between the various partners in the supply chain. 42 1.3 The Global Supply Chain I argued about the concepts of supply chain and supply chain management without defining the boarder of them. I defined the supply chain in its home country never talking about those supply chain that involve products, customers, distribution centers, technologies and suppliers across multiple and different countries. These supply chains are called global supply chains (GSC). I can also state, and it derives from the proper definition of the paragraph 1.1.3., that the management on a global view, so the management related to the global supply chains is defined as global supply chain management and I am going to present it in order to understand the differences between the home country supply chain management and the global supply chain management. Global supply chain management has been spured by different new aspects of the market that basically derived from new trade agreements, the increase of the competition, the easier accessibility to customers worldwide, the lower costs of production in different countries and the necessity of satisfying different needs. The concept of global supply chain not only refers to the process of export of the product to other countries but it is also connected to the processes called outsourcing and offshoring. e Outsourcing is defined as the process by which a company relies on an external company for the provision of services or for the production, in whole or in part, of company assets aimed for the end customer or intended to be inputs for the end products. This practice is usually used to reduce production costs. Production is often delegated to companies that are characterized by higher capacities, higher technologies or simply for general capabilities that allow them to have lower production costs. e The offshoring process, differently from the outsourcing process, does not refer to foreign companies. This process is based on the transfer of one or more business operations to a different country. This may have several reasons but the most frequent is the shift in company production to third world countries, or to developing countries (such as China, Vietnam, Cambodia, Eastern Europe) thanks to different labor policies, but above all to lower costs of production. This process ® Investopedia. Investopedia. [online] Available at: https://www.investopedia.com [Accessed 9 Aug. 2019]. 43 advanced, harbors, roads, airports are all features that can create problems for the headquarter of the company or for the head of the value chain. All of these countries belonged to the third world are characterized by poor intra-countries linkages that can block the connection between different countries. More than that, within the home country supply chain, the transportation normally involves only one type of system, on the other hand performing or producing on a global scale require capabilities of multi-transportation systems management. These different infrastructures can create problems to the home country. Manufacturers may opt for a change also in the home country company even if this may not be the best move. Therefore, there is a need to increase and involve communication and transportation systems that allow companies included in a global context to be able to communicate and transport the necessary materials and information without hindrance. = Economic and political issues: companies that decide to enter the global supply chain must refer to, analyze and study political factors such as the stability of the governments where they wish to be inserted, the tariffs and duties of the new countries and other various factors in the socio-political sphere?°. One of the simplest examples to do is currency exchange rates. The price of the products and services that are purchased using the supplier's currency may have a monetary value that has a profound effect on the financial performance of the global supply chain. Producers must therefore analyze the various scenarios meticulously by making correct decisions on time and quantity of purchases from foreign countries. There may also be natural disasters linked to that country that can strongly influence the economy of that country and the consequent profitability or disadvantage of entering that country. = Language and communication barrier: this is the easiest example that everyone can think about when the company opts for cross boarder business practices. Communications challenge to the business operating in global supply chain represents the most common one but also the easiest one to override. Communication is fundamental under a supply chain point of view, moreover if it is involved in a global vision in which languages of different suppliers or ® Golgeci, I., & Arslan, A. (2014). Internationalization of emerging economy firms to developed economies: a discussion on institutional pressures and marketing and supply chain capabilities. Joumal of Strategic Marketing, pp. 587-602. 46 subsidiaries are different. Errors in communicating a need can destroy the company and can create bullwhip effects that are dangerous for the company and the whole supply chain as well. Communication is fundamental in order to give information to all the parties of the global supply chain. Differences in communication methods combined with language and cultural constraints may result in higher order taking and fulfilment error rates”. = Unique demand patterns: entering the market of a new country sets the company the obligation to face new models of demand that characterize that country. They are unique and not similar to national ones. They are defined as market share, price, order sizes and product life cycles. The market and product offer must therefore be adapted to the needs of the new countries, thus characterizing a new production quantity. This can have a strong impact on the general supply system and this can cause greater complexity throughout the global supply chain both from a management and coordination point of view ofall activities. With growing product differentiation, maintaining and ensuring quality becomes critical. “Companies that expand into the international market often suffer from the lack of necessary market insights and perceptions about the value of customers in the host country”?2. The risks described above make it clear that extending the supply chain in a global perspective beyond the borders of the mother nation lengthens the chains and intensifies relationships by increasing problems and difficulties associated with it. These problematics can for example be defined as border crossings, multiple different modes of nation-to-nation transportation, different governmental systems and associated issues related to information and security flows. As described above, large geographical distances not only negatively affect transport costs but also make all operational decisions more complex. The differences in language, such as all the different cultural aspects, on the other hand, reduce the effectiveness of the processes which is a cornerstone of the well-being of the company and its annexed chain, due to difficulties in interaction with suppliers and customers themselves and many other problems. The lack of resources and infrastructure, on the other hand, may slow down the entire operational aspect of the 7! Lin C., Chow W. S., Madu C. N., Kuei C. H., & YuP. P. (2005). A structural equation model of supply chain quality management and organizational performance. International joumal of production economics, pp. 355-365. 7° Flint, D. J. (2004). Strategic marketing in global supply chains: Four challenges. Industrial Marketing Management, pp. 45-50. 47 company as it delays efficiency in company operations at a global level. Furthermore, the connection ofthe various business activities and the global supply chain requires effective and at the same time efficient coordination in order to maximize profits and costs. These difficulties can erode the competitive advantage that the company may be able to achieve thanks to its operational phase??. The aforementioned themes define the changes that characterize the company peculiarities. These describe the management limits that companies, that are part of the global supply chain and non-global supply chain, must overcome to compete at the highest levels. 3 Ibidem. 48 e freedom of association and the effective recognition of the right to collective bargaining e the elimination of forced or compulsory labour e the abolition of child labour e the elimination of discrimination in respect of employment and occupation The core labor standards represent the main dangers and difficulties that can be encountered within multinational companies, particularly within their global supply chains. These can be defined as the poor health of the workplace often referred to these standards which are treated in the following eight conventions issued by the ILO. Freedom of Association and Collective Bargaining — Convention 87 and 98 o C87 Freedom of Association and Protection of the Right to Organize Convention (1948). This convention provides for the possibility for workers the right to build and organize all of their own organizations together without having to receive a prior authorization. o C98 Right to Organize and Collective Bargaining Convention (1949). This includes the provision that: i. Workers are adequately protected against anti-union discrimination based on their employment. Specifically, they will be protected against the employment subject to the condition of not joining the trade unions they call. Furthermore, they will be protected from the obligation to renounce union membership. They will also have protection against dismissal or other prejudices that may be caused by union membership or participation in union activities. li. Workers” organizations shall enjoy adequate protection against any acts of interference by the employer. Prohibition of Child labour — Conventions 138 and 182 o C138 Minimum Age Convention (1973). This includes the following provisions: i. The minimum age for employment cannot be less than 15 years old. The completion of compulsory education is therefore defined as limits. ii. In the event that a Member State does not have economically and educationally advanced structures, or sufficient for the growth of the person, permission is granted to lower the minimum age ofemployment to 14 years old. SÌ iii. 18 years oldis taken as the minimum age for workers belonging to any member state, in the event that the worker is forced to do a job that involves dangerous circumstances that endanger his safety and health. o C182 Worst Forms of Child Labour Convention (1999). This Convention outlines the prohibition and elimination of the worst forms of child labour which is defined as work performed by persons under the age of 18 which falls into the following categories: a. AIl forms of slavery or practices similar to slavery, such as the sale and trafficking of children, debt bondage and serfdom and forced or compulsory labour, including forced or compulsory recruitment of children for use in armed conflict; b. The use, procuring or offering of a child for prostitution, for the production of pornography or for pornographic performances; c. The use, procuring or offering of a child for illicit activities, in particular for the production and trafficking of drugs as defined in the relevant international treaties; d. Work in which, by its nature or its circumstances is carried out and likely to harm the health, safety or morals of children. Prohibition of Forced Labour — Conventions 29 and 105 o C29 Forced Labour Convention (1930). This Convention requires the ILO Member States to eliminate any type of forced or compulsory labor for all age groups. Forced or compulsory labor is defined as any kind of work forced by threats of sanctions or in which the person in question has not tried to pursue it. o C105 Abolition of Forced Labour Convention (1957). This convention has for goal that every Member of the ILO who ratifies the Convention must repress all types and forms of forced and / or compulsory labor. Non-discrimination — Conventions 100 and 111 o C100Equal Remuneration Convention (1951). This Convention provides that the Member States, which ratify it, grant equal salaries to every person who performs work of equal work, regardless of male or female sex. o C111 Discrimination (Employment and Occupation) Convention (1958). It provides that Members oblige non-discrimination, preference or exclusion in 52 workplaces based on race, color, sex, religion, political opinion, national background or social origin”. There are obviously other preventions and other benefits that are known as cash standards. They are represented by working hours, wages, health and safety. They are not part of the core labor standards but they are nevertheless assumed as fundamental and of absolute importance in the work policies andin the dialogue regarding the work standards within the global supply chains”. As previously announced, companies are in danger of violating labor rights laws because they have less control than suppliers belonging to their global supply chains. This risk is linked to very specific sectors in which organizations such as the ILO have found the most frequent deficits and major violations. These global supply chains are characterized by subsidiaries or suppliers belonging to them and threatened in certain countries. Most ofthem belong to the third world or to developing countries. The outputs that come out of the production chains, denounced for the violation ofworkers' rights, are often associated with large productions that require intensive labor. Furthermore, strong pressure on price is a fundamental characteristic of these products and of these processes as it is the main source of the competitive and comparative advantage of companies. The sectors most affected by these deficits are clothing, footwear, toys, agriculture and consumer electronics”. The most recent years have been characterized by an exponential increase in requests for products belonging to clothing and footwear (which are however part of clothing). They are mostly produced in factories located in developing countries and this has resulted in an increased production of the factories themselves. What does the increase in production entail? Surely it can help these nations as new job openings are available and previously unemployed people can now find a job. However, these workers are required to make a greater effort to produce the quantities required by the market. The increase of the workload leads to consequences in work environments including working conditions, working hours and workers' health?9. 7 Ilo.org. (2019). ILO Declaration on Fundamental Principles and Rights at Work (DECLARATION). [online]. ? Unglobalcompact.org. (2019). Homepage | UN Global Compact. [online]. 78 Elris, Experts in Responsible Investments Solutions (2009). A Risky Business? Managing core labour standards in company supply chains. pp.8-20. 7 Ibidem. 53 Labor, Luis Alexandre de Faria, who took part in two blitzes at the factory - The workers had to ask the owner of the laboratory for permission to leave and they had to communicate where they were going”. The problems described above all refer to the directives issued by the ILO mentioned at the beginning of the paragraph. The Brazilian unions have demanded more control from the parent company, Inditex, although this has managed to escape accusations without too many problems. The Zara brand has freed itself from the accusations by communicating the impossibility to directly and “personally” control all the suppliers connected to its GSC. In an audit released in Brazil, Inditex, the group that owns Zara, stated that there was an unauthorized outsourcing by a supplier (the company Aha) and that it had committed an infringement of its code of conduct, which establishes rules for companies that work on direct and indirect order. 2.2 Human rights in global supply chain Human rights are rights that belong to all people, all human beings, regardless of nationality of origin, residence, ethnicity, skin color, sex or any other social status that can differentiate them even in minimum part. All people have the same human rights without any discrimination. These rights are sometimes called universal and are expressed by law in various forms. These can be dealt with, general principles, customary international law, or other forms related to international law. International law has the power to manage and force governments to act in a certain way. AIl this has a specific purpose andit is to protect the human rights described above and to promote the freedoms of both groups and individuals8!. As explained in the first chapter and partly in the second, the economy today can be defined as globalized because the companies belonging to the most different sectors refer to and are characterized by goods and services coming from, or produced by, complex supply chains. They are themselves characterized by suppliers located in countries all over the world. The main problem linked to human rights and workers' rights is that these different countries in tum have different legal practices, different regulations and therefore human rights can be analyzed and judged differently depending on the 8! Ohchr.org. (2019). OHCHR | Home. [online] Available at: http://ohchr.org/ [Accessed 17 Aug. 2019]. 56 country in which they occurred. One of the organizations dealing with these issues is the International Labor Organization (ILO). According to a study carried out by this organization, more than 450 million people worldwide work in global supply chains. The main problem related to global supply chains refers to the fact that from the moment they can offer multiple different jobs and employment possibilities, at the same time they can present serious risks related to human rights in their chains. Many companies are still unable to mitigate and respond effectively and efficiently to these issues. As already mentioned, the GSCs in order to increase their value, to have a cost advantage and, therefore, to have a competitive advantage on the market, refer to a large number of different suppliers and subcontractors. This leads to a control deficit and the possibility for suppliers, or companies in offshore contracts, to violate certain rights. The groups, or individuals, most affected by these violations in the GSC are those who do not have the real possibilities of attracting the attention related to these issues. They are people, workers, who find the remedy of these impediments difficult. These groups are usually female workers, migrant workers, underage workers and people living in rural or poor areas, such as the countries belonging to the so-called third world. There are rules designed to regulate the conduct of companies regarding human rights. These international norms, such as the UN Guiding Principles, state that there is a need to adopt “human rights due diligence” measures. AIl this aimed at guaranteeing the rights to all workers from the human point of view and in order to control and, where possible, prevent violations of human rights by subjects belonging to the global value chains. Due diligence is a concept that derives from the American private and commercial law and indicates the investigation activity regarding the situation of a company or a supply chain in general. With this verification the value of the company is generally ascertained, assessing the risks and analyzing the strengths and weaknesses. In my analysis, due diligence refers to human rights by understanding and analyzing various measures aimed at evaluating probable and real risks in the area of human rights. They also aim to adopt measures to alleviate these risks but above all they are used in order to put an end to these abuses®?. The fundamental problem of our days is that these international standards, such as the aforementioned UN Guiding Principles, have no legal value and are not legally £ IONOS Startupguide. (2019). Due Diligence: significato, definizione e storia della valutazione preventiva dei rischi. [online] Available at: https://www.ionos.it/startupguide/avvio/due- diligence/ [Accessed 19 Aug. 2019]. ST binding for the considered companies. Many companies do not “follow” them and decide to ignore these directives as they are not affected by doing so. Many companies in the most varied global supply chains lack any form of due diligence on human rights. Very often, according to the carried out studies, these companies are the ones that are precisely characterized by the exploitation of child, racial, sexual or other different type of labor. Companies that do not have a corporate obligation to analyze and to follow human rights are those characterized by the violation of workers' rights. Human Right Watch is a company that requires itself to control and check these problems worldwide. In the last twenty years it has controlled, analyzed and found all kinds of violations of human rights in the GSC in agriculture, clothing and footwear industry, mining, construction and many other sectors®3. In 2016, there was a global summit of governments, employers and trade unions that set out to think about how to draft and set up changes regarding the security and protection of human rights. The name of this summit is “The International Labor Conference”. The main objective of this summit is to guarantee minimum work requirements within the global supply chains so as to allow what is called “decent work”. The ones that should have the responsibility to control and protect human rights are the governments of the various nations, both those where the company has its headquarters and those where the supply chains have their suppliers (which is where they usually play their part against the human rights). The people who work and who are part of the GSC should be protected by these governments through national and international laws and / or regulations. Unfortunately, more and more often, governments are not able to supervise these practices implemented by the companies that have built their factories in their territories. From the moment that there are no legally binding standards, companies feel entitled to act as they wish. Despite this premise, many companies take their responsibilities seriously and they usually opt for the drafting of binding corporate self-regulation directives in the field of human rights due diligence. These voluntary standards, such as the above described Code of Conduct, Compliance, Governance etc. are precious, important and absolutely valuable but not sufficient. 8 Human Rights Watch. (2019). Human Rights in Supply Chains. [online] Available at: Ittps://www.hrw.org/it [Accessed 15 Aug. 2019]. 8 Ibidem. 58 follow these guidelines. The communities that are near to sources useful for global trade find themselves deprived of access, or in any case with less possibility of access, to water, food, or even to the possibility of cultivating products useful for their self-sufficiency. The indigenous beginnings are often the most affected because they are deprived of their territories that are bought by large companies. These companies buy commercial land that is useful for the sustenance of their global supply chain. According to international law, however, companies that want to build their factories and use these territories should seek free, preventive and informed consent before proceeding to the indigenous people living on those territories. However, they often do not act in this way by directly purchasing the territory and taking away the resulting resources. The protection and safeguarding of human and workplace rights should be the responsibility of the governments of the various nations. They are obliged to draft laws that target the welfare of workers in commercial activities. Labor laws and imposed standards must be respected to remain in line with the International Labor Organization (ILO). The failure to comply with these standards is the main cause of gaps in labor law which therefore undermine workers' human rights. These standards should be applied as binding standards and they should be legally binding for companies in order to force them to comply with these directives. In the absence of these national and / or global standards, it is impossible to guarantee the protection of workers' rights in the various global supply chains in the various territories. Companies should take human rights due diligence seriously and apply it nationally and globally. The problem seems to be when a company decides to apply strict due diligence on human rights and, instead, another one decides to ignore this practice. The competing company that will ignore it will have an economic advantage, even if resulting from corporate misconduct, and will lead the company to a greater capital gain and monetary gain, which is the main objective of the company. A new legally binding international standard on due diligence in human rights in global supply chains would be an important step towards strengthening responsible businesses around the world. 6l 2.3 Child labor in lobal Supply Chain85 Another important and serious problem affecting the current global economy is child labor. A subject that I will then go into in the practical case of the third chapter regarding the Nike company and the case of child exploitation of the 90s that created a big scandal in the world of sports shoes and more. Human Rights Watch has estimated that there are over 160 million children involved in child labor and about 50% of them, a number that is around 80 million children, are used for dangerous jobs that put their own lives at risk, both in terms of health and safety. Many of these children not only work underpaid and are too young to work, but they are also physically and psychologically abused, they are exploited and they are subjected to trafficking. Many of these children, find themselves being exploited from an early age so as to no longer be able to escape given the denial of the right to education, thus remaining trapped forever in the poverty trap. All this happens because many companies derive economic benefits thanks to child labor in their global supply chains. Children are used for tobacco cultivation, for example, in which pesticides are used, products that are very harmful to the body, especially if you are very young or very old. This exploitation can also be used for the purpose of exporting precious minerals from mines or processing and sewing leather for footwear and clothing companies connected to the world's largest brands. Following and analyzing international laws, these forms of child exploitation are absolutely prohibited and condemned, but many governments belonging to third world countries do not take the necessary precautionary measures to avoid this process. Governments often don't even want to end this exploitation because they take advantage of it because companies that set up their factories in their territories invest and bring money to these governments. Many of these children who find themselves part of these global supply chains, without even wanting to, find themselves having diseases, pains and injuries that in some cases can lead to death. AII of this because of the dangerous nature ofthe work to which they are obliged. Human Rights Watch has analyzed and noted that at the global level the most frequent area in which these children are exploited is agriculture, addressed both to local and global markets. Child labor in agriculture is harmful to anyone because of pesticides and all other harmful substances used, but it is especially dangerous for children who 8 ILO-IPEC (2013). Marking progress against child labour. Geneva: International Labour Office, pp.1-60. 62 have to handle these substances without being prepare on how to do it. These children are forced to work with and use materials that are too heavy for their age or too sharp for their abilities. They are also exposed to unsuitable amounts of heat that is not healthy for their age. To take a simple example, Human Rights Watch in its research found children used and exploited in Israeli agricultural settlements located in the West Bank. These children were subjected to inhuman conditions, all the more so given their young age. They were forced to handle heavy and dangerous objects, to spend hours in the scorching sun and to use and handle pesticides. Most of the agricultural products deriving from this exploitation are destined for the foreign market and for export between Europe and the United States. Table 5: Children in employment, child labor and hazardous work. 5-17 years old. (‘000) % (‘000) % (‘000) % 2000 351,900 230 245,500 16.0 170,500 111 2004 322,729 20.6 222,294 14.2 128,381 82 2008 305,669 19.3 215,209 13.6 115,314 3 2012 264,427 16.7 167,956 10.6 85,344 5.4 Source 11: ILO-IPEC (2013). Marking progress against child labour. A study based on the child labor was conducted in 2012 by the International Programme on the Elimination of Child Labour (IPEC), part of the ILO (International Labor Organization), in which the authors claimed that the latest global estimate results indicate that the world is moving in the right direction regarding the issue of the child exploitation. This study analyzed a 12 years period starting from 2000 to 2012. The result of this investigation was that in 2012 there was about 78 million fewer child laborers compared to the data of year 2000. The study conducted among children aged 5 to 17 years old has analyzed that there has been a drastic decrease, in a positive way, ofthe dangerous work done by these subjects. This type according to the ILO is the absolutely most serious and dangerous form for children's health. It has therefore decreased by more than half of the initial value for the year 2000, from 171 to 85 million children. The best period for the decline was the last four years, which is the period between the year 2008 and the year 2012. This means that there were important variations and important applications of standards in this area that have diminished the exploitation. 63 This means that more than 1 out of 5 childred, almost 1 out of 4, is subject to forced labor at a young age only because they are born inlow-income countries. These data should be compared with the 9% of the children belonging to lower middle income countries and 6% of those belonging to upper middle income countries. However, by analyzing these data differently, a different image can be considered. Middle-income countries, which include the last two data in the table (lower-middle and upper-middle income) host a greater number of workers. In these middle-income countries, according to the ILO- IPEC, there are a total of around 93 million child laborers compared to around 74 million in low-income countries. Table 9: child labor distribution by level of national income. 5-17 Years old group. (‘000) (‘000) (%) Low income 330,257 74,394 225 Lower middle income 902,174 81,306 90 Upper middle income 197,977 12,256 62 Source 15: ILO-IPEC (2013). Marking progress against child labour. The next table number 10 will be focused on the sectorial distribution of the child labor as described at the beginning of this paragraph. As previously explained, agriculture is the predominant sector for the exploitation of minors in the workplace. In this sector, Table 10: sectoral distribution of child labor, number and percentage share. 5 to 17 (‘000) % share (‘000) % share Agriculture 129,161 60.0 98,422 58.6 Industry 15,068 70 12,092 7.2 Services 55,109 25.6 54,250 323 (of which domestic work) (10,557) (4.9) (11,528) (6.9) Note: (a) Excluding children with missing information on economic sector. Source 16: ILO-IPEC (2013). Marking progress against child labour. according to the IPEC, around 59% of all child laborers worked in the agricultural sector, more than 98 million children in global terms in the year 2012. A big drop considering that in 2008 this number was about 129 million, so 31 million less only in this sector over 4 years. However, 54 million children in 2012 worked in the service sector and about 12 million in the industrial sector. In all sectors, as shown above, there is a greater influence of male workers with the exception of domestic work in which girls are more exploited. During the period analyzed, between 2000 and 2012, there have been important changes thanks to political help from various world governments. This commitment is perhaps best illustrated by the historically rapid ratification of ILO Convention n. 182 on the worst forms of child labor and the parallel increase in the ILO Convention n. 138 on the minimum age for admission to work, the two main legal pillars for the global fight against child labor. 14 The Convention n. 15182 - adopted in 1999 - recorded the fastest rate of ratification between the ILO Conventions and 2000 was the year in which the Convention n. 138 has passed the 100-ratification mark. In ratifying these conventions, countries are formally recognizing that child labor is no longer acceptable and are taking responsibility for putting an end to it8. These ILO standards on child labour have acquired recognition as part ofthe internationally accepted standards related to children’s rights. The following figure number 8 will show the various and different mechanisms that has been reported thanks to the use of Convention Nos. 138 and 182. They will be divided by type and by year with three different colors related two three different periods of time: orange for 2010-2013, light green 2006-2009 and dark green 1999-2005. 8 ILO-IPEC (2013). Marking progress against child labour. Geneva: International Labour Office, pp.1-60. 67 Local legislation is the directive that the various companies must follow when they decide to build their manufacturers within that nation. Rights and responsibilities are established by the legislation. Companies must comply with the internal legislation ofthe state in which they operate. Mechanisms such as CSR or codes of conduct are tools that integrate but are not able to replace regulatory requirements because they do not have the Figure 8: Number of children in child labour and hazardous work, actual 2000-2012 and levels for 2016-2020 assuming pace of progress during 2008-2012. Monitoring mechanisms Special attention children most at risk National CL policy formulated Withdrawal & rehabilitation Prevention Plans of Action Any other penal and other sanctions Prohibition of hazardous work Legislative prohibitions on trafficking Determination of hazardous work Measures to ensure universal basic education Adoption/amendment of legislation on minimum age Legislative prohibitions on pornography Legislative prohibitions on prostitution Legislative prohibitions on illicit activities Definition and regulation of light work Legislative prohibitions on child soldiers Special attention girls Legislative prohibitions on forced labour, bondage Legislative prohibitions on slavery IPEC supported Time-bound measures Other Time-bound measures 0 MI 2010-2013 MI 2006-2009 MM 1099-2005 80 100 Source 17: ILO-IPEC (2013). Marking progress against child labour. 120 effective power to do so. The real problem lies in the fact that laws of the countries of production, are weaker and less advanced in terms of workers' rights and this involves the exploitation of possibilities of action that companies would not have if they acted in more legislated countries on a legislative point of view. Lately, according to the ILO, many 68 The concept of governance, one of the most analyzed concepts in the economic field in recent years, is defined as a process of analysis of the inter-organizational relationship that is then manifested in the structures and in the business processes. In my analysis I referred the concept of governance to the notion of global supply chain, abbreviated as SCG (Supply Chain Governance). The economic performance of corporate governance is analyzed and used as the largest source of information for the corporate administrative department. Supply chain governance analysis allows the management of the parent company to analyze the supply chain performance (SCP). Control practices and roles description in the organizations are the main objectives of governance. Different practices need to be coordinated in order to guarantee a perfect governance success throughout the global supply chain. Governance can be basically descripted by the rules, the structures and the institutions that help companies, and the whole supply chain, in guiding, regulating and controlling social life, features emanated from the power at the top of the supply chain. Governance is not decision making, it is not management, but it is the framework where decisions are made, for any system. The concept of Governance, associated with the definition of the global supply chain, takes on two aspects, similar but at the same time differentiable. Two “bands” of corporate governance can be categorized, one attributable to the sphere of work and one attributable to the normative sphere. The issue of governance in the workplace perspective requires considering tools developed by international institutions and by the govemments of the States, and the tools introduced by the companies”. The last one mentioned introduce the concept of corporate governance as a control of the supply chain mostly in the form of soft laws which aim to define common parameters for the protection of workers regardless of where they are located. The second aspect of this concept, the normative part, is attributable to the normative aspect that characterizes it or rather the fact that the dominant company can be a multinational company that exercises control over the branches but it can also be a company that exercises a check on suppliers / contractors solely on the basis of commercial relationships. The question that companies, and not only them, ask themselves in the discussion of the concept of governance is “what are the measures to be adopted in order to guarantee and promote decent work within the ° Despres C. (2011). Models for supply chain governance. London: Academic Publishing Limited, pp.535-537. 9! ILO. (2016). Sectoral Studies on Decent Work in Global Supply Chains. Geneva: ILO, pp.19- 36. 71 global supply chains?”. The ILO, as the main body, which aims to guarantee decent work in all national borders, emphasizes the role of national governments with regard to strengthening the control and inspection systems of companies within their borders??. According to this body, legislative measures must be applied in order to guarantee transparency and traceability in the global chains. Making the companies responsible for their work is another key point that the ILO defined as essential. Transparency standards must be instituted and applied in order to allow (to oblige) companies, both the leading companies of the chain and the suppliers associated to them, to draw up the necessary reports for the control of their chains. This because, when the governance from a work point of view is the focus of the discussion, stakeholders and shareholders have, in recent years, taken a critical point of view regarding the reputation of the company which they are associating with. Business partners must be reliable and completely transparent in order to prevent any damage to the corporate image (I will analyze this problematic with the help of the Nike case of the 1990s considered in the third chapter on my thesis). The governance system therefore aims to control the production of the outputs, whether they are intermediate inputs, semi-finished products or outputs destined for the final customer, through systems mainly in the form of soft laws that do not have a real legal aspect, as explained before, but that they are “only” necessary aspects to be part of the global supply chain in which the parent company imposed those directives as mandatory for them?3. In this context, this control takes place, under the legal aspect of production, keeping as its main objective, the achievement of the decent work as defined by the International Labor Organization. Tools such as corporate social responsibility (CSR), codes of conduct, corporate compliance and due diligence are precisely corporate laws that companies impose if they want to be part of the global supply chain associated with it. The fundamental problem still has to find the best way to overcome the extra- territorial limit, which is the pivotal point of the GSCs (or GVCs) because of the concept that different nations are and will be characterized by different legislative systems”. Companies, exploiting extra-territorial limits paralyze the legal rules on the responsibilities associated with the company. At the same time, the ILO instead seeks to respond to these problems by requiring the introduction of new regulatory systems °° ILO. (2016). Sectoral Studies on Decent Work in Global Supply Chains. Geneva: ILO, pp.19- 36. 9 Ibidem. “ ILO. (2015). Decent work in global supply chains. Geneva: ILO, pp.10-170. 72 including the due diligence. The ILO, as above explained, does all of this in order to respond to the difficult questions on the protection of workers within the many global supply chains in order to try to impose a regime of control within all the countries worldwide. Therefore, the problem found in this analysis, dealing with the concept of governance, is to whom to attribute the responsibility of the actions towards. Is it either the employees of the subsidiary companies (parent company liability) or of the suppliers (supply chain liability)? This fact wants to be accomplished without having territorial barriers, meaning regardless of where they occur, thus applying a standardization of global rules. In certain countries, there is a legal rule that recognizes different degrees of responsibility for the chain’s leader for the behavior of the affiliated branches associated with the value chain. On the other hand, however, it remains difficult, from a regulatory point of view, to assign responsibilities to the leading company when the network of connections with suppliers and across different countries is very extensive?S. Collaboration is one of the most important terms when it comes to the concept of governance in global supply chain management. Efficient and effective cooperation is what allows corporations to have a long life. Reputation is another very important aspect for companies that are part of the GSC. In order to anticipate and eliminate any threats that may interact with the well-being of the company and the chain, the parent company opts to adopt sustainable practices aimed at anticipating these threats with, as a consequence, their elimination. These practices have therefore led to a governance system that is called sustainable supply chain governance. Several different objectives should be analyzed by the global supply chain such as: reassessment, adaptation, efficiency, cooperation. Along with these goals, long-term contracts will increase the chain's predictability and confidence for all chain members. Gereffi in 2010 has divided the concept of governance into 5 different types all, related to the global value chain: hierarchy, captive, relational, modular and market (arranged in a precise order according to the power levels of the mother company, from the strongest to the weakest). The hierarchical relationship, that is the one defined by Gereffi as the most powerful, refers to the fact that a company can have total control over the relationship with the partner. The opposite situation is instead defined as a market 95 Ibidem. % Blowfield, M., and Dolan, C. (2010). Outsourcing governance: Fairtrade's message for C21 global govemance. Pp. 484-489. 73 One of the fundamental problems of compliance, related to the loss of competitive advantage in terms of cost, is based onthe concept ofthe codes of conduct. Supplier wage competitiveness would be lost due to the increase in costs, and for example delivery times could be increased and buyers could opt to move to other suppliers. AIl this can happen in the clothing sector in which companies, at the head of global supply chains, can change suppliers at a cost close to zero. In 2008, for example, following national policies that increased Chinese labor costs, many manufacturing companies moved their factories to Vietnam or Cambodia in order to save almost a third ofthe cost oflabor for production!®. However, the ethics of codes of conduct is one of the fundamental reasons why suppliers can loose their customers. However, some relationships that still last after the buyer is aware of ethical violations by suppliers who do not comply with the imposed codes of conduct. There are suppliers who specifically choose to deceive their buyers, the parent companies, in order to maintain a cost advantage. They voluntarily decide not to adhere to the compliance of the codes of conduct, compromising imposed standards such as wages, working hours, employee conduct, quality of work environments. As Vogel points out, “Non-compliance may risk suppliers reduce sale to western market, but compliance does not necessarily increase sale”! Although the workers are aware of the codes of conduct and are aware of the rules and their rights, regarding the conditions of the working environments and the freedom of association, there are doubts about the real awareness of employees regarding their position on the global supply chain and on the value and the influence they have on it!°2. The fact that the code of conducts is not mandatory for the suppliers is important to be stated. Suppliers are not obliged to follow the code of conducts because ofa legal aspect but they should comply with it only because they are part of the global supply chain, otherwise the parent company could opt for changing the supplier. The importance of compliance analysis within the global supply chain management is of absolute importance for an effective and efficient management that makes possible the analysis of risks and performances of the chain in its entirety. Essig stated that guaranteeing correctness, continuity in both business and financial terms, and 19° Mason P.Low (2010). Wage costs attract investors to Vietnam. (In BBC AsiaBusiness Report) BBC: London. 19! Vogel, D. (2006). The Market for Virtue: The Potential and Limits of Corporate Social Responsibility. Brookings Institution Press: Washington, pp. 95. 12 Huong, D. (2019). Labour Standards in the Global Supply Chain: Workers” Agency and Reciprocal Exchange Perspective. Leeds: Leeds Beckett University, pp.2-17. 76 creating a reputation in the market, are objectives associated with and attributed to the concept of compliance!?. All stakeholders are involved in this process, suppliers, clients, employees, shareholders, government parties etc., despite all ofthem with a different role. The compliance resources are many and can refer to laws and standards used to monitor and, when possible, standardize the behavior within the GSC in order to increase its value. There are two concepts of absolute importance from a management point of view: “transparency” and “validity”. One of the most difficult management aspects for companies is the effective monitoring of supplier behavior. Suppliers that do not comply with company rules are increasing this problem. The compliance that characterizes the suppliers in the global supply chains characterizes also the relationship that the company has, and will have in the future, with its customers that are the reason why the company is able to “live”. This compliance helps streamline companies and standardize their internal procedures for dealing with vendors. In recent years, studies on corporate compliance have focused on the codes of conduct required from suppliers, on supplier risk management and on the actual selection of the best suppliers for the company. The monitoring of supplier behavior involves a combination of publicly available data, the supply of qualitative and quantitative data relating to supplier performance, ongoing audits. These activities obviously have a cost and the collection of these data requires time and money. This is a reason why the company must analyze various advantages and disadvantages and different alternatives as well. These problems include how to prioritize, simplify questionnaires and data gathering, or should they leverage third party services!%, Companies at the head of global supply chains should analyze the compliance life cycle and improve their awareness by analyzing and understanding the compliance issues that exist within the GSC. These problems are increasingly linked to legal concepts attributed to the exploitation or bad management of subsidiaries by suppliers. Internal rules and processes should therefore be carried out and imposed within the chain, and parent companies should conduct continuous analyzes regarding compliance or non- compliance by suppliers with regard to these “rules”, also called codes of conduct. Rules and systems should therefore be defined and be imposed as mandatory when entering a 1° Essig M., Hiilsmann M., Eva-Maria Kern, & Klein-Schmeink S. (2013). Supply Chain Safety Management. Springer. 1% McBeath B. (2012). Supplier Risk and Compliance Management in Practice. Chainlink, pp. 1- 9. 77 specific global supply chain. Currently, companies are approaching compliance through business process management and data management. Thus, the need arises for companies to create an alignment between the specifications of processes and company data, and the specifications of all legal documents called Figure 10: Compliance framework o N prescriptive. The first point that companies define in the design of compliance standards is the compliance objectives. These are goals to which companies aim under the I legal, labor and working conditions. The ani regulations that the company wants to relate “o to its objectives, the processes through which the company wants to meet these objectives and the data that the company makes available in order to achieve the previously defined obiectives are then Source 19: Mauermair, J. (2013) defined. Finally, the legal limits that the company needs for the production of its final inputs or outputs are then outlined. Later, legal requirements and processes and data will be compared and evaluated!95, These systems that are part ofthe compliance management system are represented by different approaches, structures, processes and applications that are used and addressed in order to build, carry out and refine the company's business from a management and financial point of view. Therefore, the goal of compliance management is to meet the administrative and financial requirements that are part of the company's business. AII the stakeholders roles are then called into question in order to deal with and meet compliance requirements. 195 McBeath B. (2012). Supplier Risk and Compliance Management in Practice. Chainlink, pp. 1- 9. 78 corporations in charge of supply chains, in most cases, have their control centers (their headquarters) in developed countries and their factories in developing countries!!°. Their international power derives from the quantity, quality and scarcity of the resources they use, as well as the control that these companies have on the resources, just mentioned, necessary for the sustainability of the global supply chain. These companies also communicate their suppliers about what, how much and when output should be produced by providing their suppliers with the necessary support for the activities!!!. Fundamental under the CSR point of view is not only the support given regarding the above mentioned aspects but regarding working conditions and environmental impacts. Following the improvement in the technological and multimedia field in recent years, hiding the practical suppliers considered unethical is increasingly difficult for multinational corporations. Furthermore, an increasing number of stakeholders are exerting pressure in the ethical sphere. These stakeholders can be business partners, NGOs, shareholders, employees, trade unions and many others. Companies that therefore decide to undermine their factories in developing countries must take these aspects into account in order to control the environmental and social impact they have in offshore production locations. New technologies, and advances in communications, have allowed information regarding exploitation, or at least concerning irresponsible practices by companies practiced beyond national borders, to be communicated in a very short time. The violation of trade union rights, the use of child labor, racial discrimination, the dangerous conditions of the workplace, are just some of the most common violations for the largest multinational companies in the world. There are in fact, some examples of very famous brands including Gap, H&M, Walmart, Mattel!!? and Nike, which I will analyze in the next chapter. By now, most of the MNEs have decided to develop, define and adhere to systems that are able to support and ensure compliance with certain rules by their subsidiaries. The interested parties described above have in fact lobbied for compliance at an extra national level with rules against the exploitation, or against general bad activities, performed by these corporations. Social and environmental standards have therefore been 1° Ibidem. !!! Gereffi, G. (1994), The organization of buyer-driven global commodity chains: how US retailers shape overseas production networks, in Gereffi, G. and Korzeniewicz, M. (1994), Commodity Chains and Global Capitalism, Greenwood Press, Westport, pp. 95-122. !!2 Frost, S. and Burnett, M. (2007), Case study: The Apple iPod in China” Corporate Social Responsibility and Environmental Management, pp. 103. 81 set by companies in order to be diligently respected. Most companies then opted for a system based on corporate social responsibility in their global supply chains. However, most companies have opted in recent years for what are defined as corporate codes of conduct. 2.7 The codes of conduct How can a code of conduct be explained? Some scholars define it as a document that indicates a series of social and environmental standards and principles that a company's suppliers should respect!!3. The codes of conduct have become part of the contracts that are drawn up between the purchasing company and its suppliers. What are these codes of conduct based on? When companies identify the principles they want to be associated with and the values that are absolutely fundamental for them to improve their appearance with their stakeholders, they decide to introduce these codes into their contracts. They are often based on previous conventions, local legislations, international standards and principles (such as the United Nations Global Compact, Sullivan Global Principles, Social Responsibility 8000, ISO 14001, Global Reporting Initiative and ILO Declaration on principles and fundamental rights at work)!!4. Many MNEs do not only includes these codes of conduct in contracts but often coordinate advanced management systems with them in order to define, control and review the standards applied and defined by their codes of conduct!!5. However, according to some scholars, many large companies have implemented, and are still struggling to implement, these codes of conduct in their global supply chains. Because of this fact, one of the largest global multilateral company that deals with bad corporate conduct, called ILO, has performed an empirical study to investigate what are the management and control systems that MNEs use in order to implement these codes of conduct. This study was done on companies that work in the field of sports shoes, clothing and retail!!5. 113 Mamic, I (2005), Managing global supply chain: the sports footwear, apparel and retail sectors, Joumal of Business Ethics, pp. 81-100. 14 Organization for Economic Co-operation and Development (2001), Making Codes of Corporate Conduct Work: Management Control Systems and Corporate Responsibility, Organization for Economic Co-operation and Development, Paris. 115 Ibidem. 116 Mamic, I (2005), Managing global supply chain: the sports footwear, apparel and retail sectors, Journal of Business Ethics, pp. 81-100. 82 Although the use of the codes of conduct is widely common nowadays, not all the corporations are positive regarding their effect. Why this issue? Codes of conduct are not mandatory. “They cannot be imposed as legal obligations and they cannot be used as legal requirements nor they are drafted in response to the needs of the employees of the companies they are directed towards”!!7. According to some scholars, codes of conduct are often used only to prevent new pressures by the stakeholders. Even if the efforts of many multinational companies are directed towards the application and legal activities of CSRs in their GSCs, a considerable gap can often be found between what is the theory of social responsibility and what is instead the effective implementation of the directives and therefore of the working conditions at their suppliers. The codes of conduct, such as all the issues related to the CSR in supply chains, are strongly linked to the concept of embeddedness. These regulations in fact have to be embedded within the entire organization. This means that there must be a high degree of integrity throughout the global supply chain. When we analyze a company and its supply chain, from the point of view of the CSR, there is a need to analyze how deeply this concept is embedded throughout the global supply chain as a whole!!8. Four are the main methods in which the level of embeddedness within the organization can be analyzed and manifested. These four mechanisms are defined as follow: knowledge enhancing mechanism, knowledge controlling mechanism, firm specific assets, and corporate history (also defined as path dependency)!!9, e The Knowledge enhancing mechanisms are used by the companies in order to make the work better for all the actors connected to their supply chain and therefore involved in their CSR processes. These mechanisms can therefore increase the skills and abilities of the actors involved. They are then divided into two different categories, those directed and used to improve internal knowledge and those aimed at improving external knowledge. The most common way to enhance the internal knowledge of the employees is through a training period in which the company aims to control employees’ conduct. This control is defined 17 Andersen, M. and Skjoett-Larsen, T. (2009). Corporate social responsibility in global supply chains. Supply Chain Management: An Intemational Joumal. Emerald Group Publishing Limited, pp. 75-86. 18 Schmidt, K., Chiistsen, F.M. and Oligaard, H. (2001), Product orientation of environmental work, Corporate Environmental Strategy, pp. 126. 19 Andersen, M. and Skjoett-Larsen, T. (2009). Corporate social responsibility in global supply chains. Supply Chain Management: An Intemational Journal. Emerald Group Publishing Limited, pp. 75-86. 83 for the use of suppliers’ codes of conduct as a voluntary-regulatory measure. Companies are using these features in order to promote and follow the international labour standards in suppliers’ factories!?°. The introductions of the above-mentioned codes of conduct (CoC) by global brands aim at addressing these issues. Lately, there have been many criticisms regarding the aspects just described. Some scholars believe that the rules ofthe workers in the global value chain have not received the necessary theoretical improvements. They define the use of the codes of conduct as ineffective and inefficient as they are not mandatory. They believe that the implementation of the CoC in some production facilities located in developing countries have highlighted operational and institutional obstacles and therefore are resulted totally inefficient!??. Autonomy, self- determination, self-discipline, mobilization, self-confidence, participation, are aspects of accountability which, according to some scholars, can help employees in fulfilling the imposed codes of conduct. Nowadays, however, there are still few certainties about how the role of workers has a real influence on codes of conduct and how these can positively or negatively influence working relationships. 12° Huong, D. (2019). Labour Standards in the Global Supply Chain: Workers® Agency and Reciprocal Exchange Perspective. Leeds: Leeds Beckett University, pp.2-17. 12! Ljubicic R. J., (1998). Corporate codes of conduct and product labelling schemes. The limit and possibilities of promoting International labor rights through private initiatives. Law policy international business, pp 111-125. 86 Chapter 3: Nike 3.1 History of the brand and its development Figure 13: Nike logo The Nike brand was bom in 1967 from the idea of Bill Bowerman, an athletic trainer bom in Oregon with a passion for this sport and in particular for the race, and Phil Knight a sports athlete who had Bill as his coach. They initially started Source 22: Nike.com with the creation ofa brand to be applied to the shoes producedin Japan that they imported directly to America. In 1962 Phil Knight put his idea into practice by designing the “Blue Ribbon Sports” brand, which was the precursor of the world famous Nike brand. At that time, the companies that dominated the athletics shoe market were Adidas and Puma, two German shoe companies. Knight analyzed that many athletes belonging to the track and field were not fully satisfied with the characteristics of the shoes produced by the two brands just mentioned. His goal was to produce athletic shoes that were designed and produced by athletes like them. Everything started thanks to a trip to Japan in 1962 where Bill Knight contacted the company called Onitsuka Tiger. In 1963, in December, Night received the first delivery of 200 Tiger shoes. He tried to think a way in order to sell shoes to truck and field athletes, that lived in Oregon, knowing that his brand did not have the fame that brands like Puma or Adidas had. He then began a process of dialogue and conviction sharing his passion for running with these athletes he wanted to sell his products to, 87 listening to their feedbacks of the shoes and speaking in the same sports language of these athletes!?2, 1964 was the year that Knight asked his trainer, Bill Bowerman, to share his corporate concept. They decided to found the Blue Ribbon Sports brand by investing $ 500 both. In the first year of partnership they sold 1300 pairs of Tiger shoes, generating revenues of around $ 8,000. In 1965, revenues rose to around $ 20,000 and profits came to just over $ 3000. In 1967 they created the first shoe called “Marathon”. This shoe was made from a lightweight and durable nylon upper. The following year two new products were created: the shoe called Cortez, which was for some years the best seller of the company, and the shoe called Boston, the first shoe entirely padded on the sole. In 1969, two years after the first shoe was created, sales reached and exceeded $ 300,000. Knight therefore decided to dedicate himself entirely, full time, to his own brand which now also included 20 employees. In 1971, Knight decided that the time had come to change the name of the brand. Initially he had thought of the name “Dimension Six”, connecting to the six dimensions of sport, the name however tumed out to be too long according to the other executives of the Blue Ribbon Sports company. One day, Jeff Johnson, an employee of the company, proposed the name Nike referring to the Greek god of victory. Due to the fact that there were no other better proposals than this one, the name Nike was accepted and branded. However, the problem of the logo remained. Twelve proposals had been suggested to Knight, but, at the end, the famous “Swoosh” that we all know was chosen and branded for a price of only $ 35123. In 1973, Nike made its first marketing move by signing a partnership with Prefontaine, a controversial truck and field athlete. He therefore was the first athlete to wear a pair of Nike shoes during the competitions. This athlete was categorized as a rebel with a tough past and because of this reason many people were asking why Nike opted for this partnership. Knight explained this partnership with the spirit of the athlete. He stated that this spirit was part of the soul ofthe company as well because Nike wanted to do everything necessary to beat the competition, that was the main aspect of the 122 Harvard Business School, (n.d.). Nike, Building a global brand, pp.330-351. 123 Ibidem. 88 Nike, as a company, has now a portfolio featuring 4 important and different brands: Nike Brand, Jordan Brand, Hurley and Converse. The geographical segmentation that characterizes this company, the point ofview of the global supply chain, the sales network and all the retail stores linked to the brand are worldwide. In fact, the segmentation includes North America, China, Europe, Middle East and Africa, Greater China, Asia Pacific and Latin America, in a nutshell, the whole world. Nike.inc operates throughout the whole world thanks to its vast and profitable global supply chain. Its suppliers and customers are located in many different countries of the world, going to characterize all continents. Product categories, distribution channels, customers and suppliers all belong to different countries and they consequently have different preferences and requirements. So, how can Nike be able to satisfy everyone? How can the firm know the preferences of individual customers belonging to different countries? This is one of the advantages that led Nike to be the company that sells the most sportwear products and accessories in the whole world. I will go deeper on the details of this fact in the following paragraphs. In recent years, the sale of sports products has undergone major changes and the introduction of innovative sales mechanisms have changed the sports market. Mechanisms such as e-commerce, online sales, healthy lifestyle, the growth of women in sports activities have together changed the concept of sales and increased, and, at the same time, shifted, the competitiveness of the sector between the biggest global brands: Nike, Adidas, Puma and Under Armor. Nike, being considered as the absolute leader in the sports sales sector, has many competitive and comparative advantages compared to its direct competitors. One of the fundamental advantages of the Nike brand is its iconic figure that is distinguished all over the world easily. The famous “swoosh”, symbol of the Nike brand, which at the time costed only $ 35 to be branded, now (2019) has an estimated value of $ 32.5 billion, about 1 billiontimes higher 38 years after its creation!?7. This appreciation makes Nike able to put premium prices compared to the price charged by the direct competition. One of the advantages derives directly from one of the most important sources ofthe global value chain (or global supply chain) of Nike: the suppliers. Nike has a huge bargaining power with its suppliers that none ofits competitors has. The depth of the portfolio that characterizes Nike allows the company to increase its 127 Statista. (2019). Nike's global net income 1995 to 2019 | Statista. [online] Available at: https://www.statista.com/statistics/241685/net-profit-of-nike/ [Accessed 10 Aug. 2019]. 9l bargaining power with its suppliers. Nike, thanks to this fact, can decide when to change its contractors without risking too much cost increases, production deficits or product quality losses. This, which I will analyze later in my study during the paragraph 3.5, has however led Nike to legal problems because of the fact that the deeper your suppliers” portfolio, the more difficult it will be to control it. This fact can consequently lead to a bad supervision intended for the control of finished products for the direct sales or intended to be input of other products (semi-finished products). The problem takes place due to the toughness of controlling a portfolio characterized by too many suppliers. Furthermore, the company may not be able to verify that all products are executed without the exploitation of resources such as people or children, or without the privatization of health care at the workplace. 3.2 The Nike global value chain As explained in the previous chapters, innovation along the global supply chain is one of the fundamental aspects for a profitable growth. Scholars and researchers have emphasized and highlighted this business aspect during the 21st century. Innovative practices in the Figure 15: Nike global supply chain. Upstream and downstream flows. global supply chain Upstream are essential to keep pace with the times Capacity, Inventory level, delivery schedule, payment terms «st = and characteristics m- È x &_=>i ofthe world trade in 37 recent years. Since Tr La product quality is a (ia Orders, retum requests, repalr and service requests, payments fundamental part of 5 ar Downstream company's sales, a Ter merz Teri Suppliers Suppliers Suppli careful management S*PPies. Supplier. Supoles of all the features Source 24: Nike.com and aspects of the supply chain must be pursued in order to reach and gain competitive advantages in the market. Nike, which is considered the largest manufacturer of sports shoes and sportwear, owes its success to the quality and efficiency of its global supply chain. The techniques developed and persecuted by Nike in its global business allow the 92 company to have an efficient and effective global supply chain. When we argue about Nike, we don't just talk about the quality of the products, which is unquestionable, but we discuss about the efficiency of the communication channels of the firm’s products. This communication is realized through specifically designed marketing channels and marketing strategies. This communication allows Nike to connect with its customers and make them fall in love with the products even before trying them. Thanks to methods and marketing strategies, that have been studied in depth to meet the needs and attract the attention of customers, Nike has maintained, and still maintains, a strong competitive advantage. Nike reached the first place in the market especially thanks to a great management of its global supply chain. However, in recent years Nike evolved its supply chain by following the trends of the moment. The company opted to make the necessary changes in order to satisfy all the new desires ofits customers. The supply chain network of Nike, at the global level, is of absolute importance and it allows the company to grow constantly and it allows the firm to be able to modify small details in a very short time. In the last two decades, Nike has evolved in terms of product quality, costumers service and quality ofwork environments in most of its manufacturing factories where, in the late 1990s, it had had several legal problems. The global supply chain of Nike has taken on important advantages in all the key areas for the growth of the brand. Nike, along its global supply chain, has reached an intelligent, efficient and agile level of management. When the global supply chain is the focus of the analysis, discussing regarding the necessary resources that the parent companies need is necessary. Debating about raw materials and the manufacture ofthe products, Nike completely relies on external sources. It can indeed be said, through a careful analysis of the geographical distribution of its suppliers, that almost all Nike’s products are produced by independent contractors. The growth of Nike’s global supply chain business vaunts a large mumber of different suppliers. Although many suppliers are linked to its GSC, Nike’s goal is certainly to guarantee and maintain the high quality of its products. The company, thanks to its management in the control center, is committed to guarantee the achievement of top quality raw materials. In the headquarters of Nike in Oregon, a global procurement team has been created with the objective of the analysis and the acquisition of raw materials with the best quality of the market. This team takes charge of the entire procurement 93