In a world of global supply chains, does a company’s responsibility extend beyond its national boundaries?
Dec 07, 2018 10:22AM
By Kathleen Maris
By Dr. Daniel Ostergaard
International Business Professor, Darla Moore School of Business, University of South Carolina
The idea that societies evolve with influence from external sources is nothing new. History is replete with examples of this. What makes a difference today, however, is that this process is fast and it is derived from individuals.
Juxtapose these two points with the traditional spread of culture and trade around the world.
For thousands of years, armies marched across the globe conquering land and spreading religion, ideas, and commerce. The rapidity of this change could be measured in the footsteps of soldiers or in the speed of a wooden sailing vessel. Globalization was happening, albeit at a slow and incremental pace.
With the advent of steam power and mechanical engines in the 1800s, globalization underwent a transformation. Whereas governments and armies were once the purveyors of globalization, corporations increasingly played a role in pushing boundaries and entering new markets.
Over the last 30 years, we have seen another wave of technological progress fundamentally change the speed of globalization. Today, we see individuals with cell phones able to record and transmit world events in real time. The internet has opened the door for individuals and small groups of people to spark change and even revolutions around the world.
And so we find ourselves in a new era of private and public sector leadership, an era in which individuals can have far greater impact in a relatively short time. The question then arises: how do we, as private and public sector leaders, use this knowledge and the effects of globalization to our advantage? How do we harness these powers to increase market share and promote our own agendas?
The first is recognizing the inherent interconnectedness of global economics. Just-in-time delivery, global sourcing, instant communications, and newly emerging technologies like blockchain are enabling us to expand our businesses well beyond the traditional storefront. Whereas a customer once had to visit your physical location, the internet now gives every business owner the ability to reach billions of potential customers. As this has evolved, so too has the role of the firm.
But first, what exactly is the role of the firm in the year 2018? There are serious questions we should be asking ourselves with respect to the role of the firm, the role of the state, and, more importantly, our own role in the global interconnectedness.
For example, when you purchased the shoes you are wearing today, you are completing the final link in a global chain of activities that produced those shoes with products and labor from many different countries.
A timeless short story by Leonard Reed, written in 1958 and entitled “I, Pencil”, recounts the process of creating a pencil as if the pencil were conscious of itself. At the end of the production for this simple, No. 2 pencil, the author wrote that it was impossible for any one person to truly understand how to make something as simple as a pencil. The thousands of different people along the way, ranging from wood cutters to miners to transportation specialists, all contributed their share to the production of the pencil.
When viewed collectively, the entire process is simply too complex for any one person to truly grasp every part of it. And yet, thousands of people working in their own interest each contribute a part to producing a product that people want to buy. This invisible hand of the market—leading to self-regulation—has contributed to the strength of the American economy over our history.
This is not to suggest that there has been no need for regulation, but compared to many other countries, deregulation has generally won out over time. However, in a globalizing world, this is not without its own pitfalls.
Thus, when you wear those shoes mentioned earlier, do you feel a sense of connection toward the global network that helped produce them? Do you feel a sense of morality toward the global actors who participated in the global production network? Would you purchase the same pair of shoes if you learned that part of the material was made by child labor in forced sweatshops? Would you be willing to pay more for a product if you could be assured of how it was produced?
Several years ago, an investigation uncovered egregious labor practices by a major U.S. multinational corporation’s subcontractors in Asia. These sub-contractors were neither owned nor led by the American firm, yet their use of child and forced labor became a rallying cry that the U.S. corporation should do something.
But what exactly is the American firm expected to do? Does a company’s responsibility extend beyond its own boundaries and into the realm of its subcontractors? But if this were the case, what liabilities does the firm assume if it were responsible for its sub-contractors? Thus, we see an ongoing tension between global cooperation and global competition.
Richard Haas, a former president for the Council on Foreign Relations, once wrote, “At any one moment in history—and this is no exception—there are forces of order and disorder, integration and disintegration, society and anarchy. At any one moment, forces and actors are trying to bring the world together by creating rules, orderly interactions, institutions, or arrangements. And there are forces and agents doing just the opposite, either consciously, as a goal, or simply because of who or what they are.”
And thus, it is this world that we find ourselves navigating today. Returning to the example of the multinational corporation mentioned earlier, should the American firm’s behavior have been regulated? Should the company be held accountable for the actions of its extended supply chain? If so, which entity would have primacy over that accountability? Should the foreign government be expected to regulate the U.S. firm’s behavior? Should the U.S. government play a greater role in holding companies accountable for the actions of their sub-contractors in a globalized world?
At various points in history, there have been some calls for an international agency of some type that would regulate this type of behavior. However, this idea of some outside body exercising regulatory authority over U.S. sovereignty seems like a bad dystopian novel. One cannot imagine a scenario where it would be acceptable for an international enforcing entity with authority to enter the U.S. to hold firms accountable. Thus, it seems that we can nix the idea of some international entity with this authority.
Nevertheless, in a rapidly globalizing world, what is the role of the firm? What is the role of the state? For that matter, what are our individual roles considering the wider world out there beyond our borders?
These roles continue to become more muddled over time. We see this with the privacy concerns expressed over Google’s actions in Europe. We also see this when social media outlets state their intention to decide for themselves what constitutes “acceptable” posts on their services.
What is the role of the firm and what is the role of the state in a semi-globalized world? To exercise leadership both in the private sector and the public sector, we must think about how these roles are evolving.