The corporate social responsibility and the supply chain: an empirical investigation.

Militaru, Gheorghe ; Ionescu, Sorin

1. INTRODUCTION

The purpose of this paper is to provide an overview of the major issues related to integrate the corporate social responsibility (CSR) with supply chain. It is the result of a research project focused on improving the socially and environmental responsible performance across manufacturing and supply chain.

This study investigates the relationships between the ethical behaviour of all players in the supply chain, the social and environmental initiatives and the long-term success of a company such as customer loyalty and brand reputation. It suggests that CSR may lead to significant gains in social welfare.

Structuring a responsible supply chain has the power to yield significant benefits. Lowering the risk profile of the supply chain can potentially decrease the costs of the company, help it wines new contracts and remain responsive to growing customer expectations (Paulraj & Chen, 2007). In fact, improved corporate responsibility enhances the brand reputation and customer loyalty. Most important, the company can begin to wring even greater strategic value out of its supply chain, providing it with a long-term competitive advantage (Tan & Tracey 2007).

In the subsequent sections, we develop the conceptual background and advance hypotheses that specify the impact of corporate social responsibility across the supply chain on long-term success of a company such as customer loyalty, and brand reputation. Using data from a survey of Romanian firms that have initiated CSR programs, we estimate a regression model to test the hypotheses. We conclude with discussion and implications of our findings.

2. THEORY DEVELOPMENT AND HYPOTHESES

In this section, we will explore in more details the literature on corporate social responsibility and supply chain. It is important to know that, to be successful, a company needs to look for competitive advantages beyond its own operations into the value chain of suppliers, manufacturing organizations, distributors, financial institutions, and customers.

Integrating corporate responsibility with supply chain management can be challenging. Supply-chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them to customers. Competition is no longer between companies; it is between supply chains (Senguta et al., 2006).

Ethical decisions are critical to the long-term success of any company. However, the supply chain is particularly susceptible to lapse, as the opportunities for unethical behaviour are enormous. With sales personnel anxious to sell, and purchasing agents spending huge sums, the temptation for unethical behaviour is substantial. Many salespeople become friends with customers, do favours for them, take them to lunch, or present small (or large) gifts. It may be a challenge to determine when gifts become bribe. Many companies have strict rules and codes of conduct that limit what is acceptable. Some companies have developed principles and standards to be used as guidelines for ethical behaviour (Heizer & Render, 2006). Therefore, we formally hypothesize that:

H1: Ethical behaviour of partners from a supply chain is positively correlated to the long-term success of the chain

CSR has the potential to shape the strategic context for company and can exploit longer-term opportunities. The real advantages will only be realised once CSR is tied to business strategy. The key to generating customer loyalty is to deliver high customer value. For example, Volvo's core positioning has been "safety", but the buyer is promised more than just a safe car; other benefits include a long-lasting car, good service, and a long warranty period (Paulraj & Chen, 2007).

A lot of attention is being paid to the topic of integrating social and environmental concerns into core business practice. For some industries, gas and electricity represent a major portion of total operating costs. Reducing energy consumption can significantly decrease these expenses. Using less energy reduces carbon emissions and other air pollutants that result from the burning of fossil fuels. In addition, the companies also contribute to society through their social investment.

Some companies have implemented "green" initiatives to make their corporate operations more environmental friendly. More and more companies may examine the global environmental impact of their supply chains as information becomes public.

The finding that there is weak relationship between CSR and profitability is consistent with a market equilibrium in which firms invest in socially responsible projects until the marginal returns decline to the overall market rate of return. However, companies that are profitable are more likely to engage in more CSR activities.

In fact, corporate social responsibility enhances the brand reputation and customer loyalty. Most important, a company can begin to wring even greater strategic value out of its supply chain, providing it with a long-term competitive advantage (Porter & Kramer 2006). Hence, we formally hypothesize that:

H2: The improvement of the corporate social responsibility across the supply chain by social investment and environmental protection will have a significant effect on the long-term success of a company (customer loyalty and brand reputation)

3. RESEARCH DESIGN AND METHODOLOGY

The research context for this study is the retail companies and their investments in corporate social responsibility. To test these hypotheses, we collected data from a sample of 26 respondents (managers) using self-report survey. Additionally, based on qualitative interviews, and published case studies. The main sources were in-depth individual interviews and annual reports of companies. There interviews helped to confirm the variables of importance, and provide a practical perspective on CSR initiatives across the supply chain.

Using the results of previous section we can specify the theoretical regression model. In this case, we consider the following model:

[Y.sub.i] = [[beta].sub.0] + [[beta].sub.1][X.sub.1i] + [[beta].sub.2][X.sub.2i] + [[beta].sub.3][X.sub.3i] + [[epsilon].sub.i] (1)

Where: [Y.sub.i] is the long-term success of a company such as customer loyalty and brand reputation (dependent variable), [X.sub.1i] is the ethical behaviour of all players in the supply chain (independent variable), [X.sub.2i] is the social investment across all players in the supply chain (independent variable), [X.sub.3i] is the extent in which a player in the supply chain is committed to reduce environmental impact (independent variable) and [[epsilon].sub.i] represents the error term.

We used regression analysis (Ordinary Least Squares) to obtain numerical values for the coefficients of the regression equation. Then using the regression results we can test the hypotheses. The first step to use the t-test consists of set up null ([H.sub.0]) and alternative ([H.sub.A]) hypotheses. From regression equation the one-sided hypotheses are set up as: (1) [H.sub.0]: [[beta].sub.1] [less than or equal to] 0; [H.sub.A]: [[beta].sub.1] > 0 (2) [H.sub.0]: [[beta].sub.2] [less than or equal to] 0; [H.sub.A]: [[beta].sub.2] > 0 and [H.sub.0]: [[beta].sub.3] [less than or equal to] 0; [H.sub.A]: [[beta].sub.3] > 0. Then we can calculate t-values for each of the estimated coefficient in the equation. The larger in absolute value this t-value is, the greater the likelihood that the estimated regression coefficient is significantly different from zero.

Further on we choose a level of significance and therefore a critical t-value about 5 percent as the level of significance with which we want to test. There are 26 observations in the data set that is going to be used to test these hypotheses, and so there are 26-3-1 = 22 degrees of freedom. At a 5 percent level of significance, the critical t-value is [t.sub.c] =1.717. We consider that the level of significance is the same for all the coefficients in the same regression equation.

4. ANALYSIS AND RESULTS

Now we must run the regression by using a computer package (SPPS) and obtain an estimated t-value. Results of the regression model are reported in Table 1.

The results show support for our [H.sub.1] ([[beta].sub.1] = 26.42 and t = 3.7), because 3.7 > 1.717 and the sign of the multivariate regression coefficient [[beta].sub.1] is positive then we reject the null hypothesis. Therefore ethical behaviour of partners from a supply chain is positively correlated with the long-term success of the whole chain.

In the case of the social investment across all players in the supply chain, we reject the null hypothesis, because 2.4 > 1.717 and the sign of the coefficient is positive. Then the social investment will have a significant effect on the long-term success of a company. We suggest that a company by improvement the social responsibility enhances the brand reputation and customer loyalty. Therefore a lot of attention is being paid today to the topic of integrating social concerns into core business practice.

For the reduction of environmental impact, as expected, we find that t-value calculated (t = 2.977) is greater than the critical t-value ([t.sub.c] = 1.717) and the calculated t-value has the sign implied by p3. Thus, we can reject the null hypothesis.

5. DISCUSSION AND CONCLUSIONS

In this research the authors have noticed that most firms consider their socially responsible actions in the same way that they perceive the most of traditional business activities. Instead of altruistically sacrificing profits, they engage in a more limited--but more profitable--set of socially beneficial activities that contributes to their financial goals.

The findings confirm that the companies are realizing the added value of being socially responsible such as lower energy consumption and environmental protection. Firms that are the most profitable are the most able to sacrifice profits in the public interest. However, the opportunity cost of sacrificing profits may also be the greatest for these firms, assuming that they could otherwise invest the resources in their businesses and earn similarly high returns.

From these results, we can develop some implications. First of all, firms have additional moral or social responsibilities to commit resources to environmental protection. It is therefore important to influence the company's suppliers in the reduction of their environmental impacts and improve the environmental value of its brand. Secondly, many companies contribute to society through their social investment. The companies are sacrificing profits in the social interest. Thirdly, ethical decisions are critical to the long-term success of any company. Finally, we recognize that our empirical study only deals with data collected from a small sample. Therefore, future research may be directed toward testing our hypotheses in companies from different industries.

6. REFERENCES

Heizer, J. & Render, B. (2006). Operations Management, Pearson Prentice Hall, ISBN 0-13-185755-X, New Jersey

Paulraj, A. & Chen, I. (2007). Environmental Uncertainty and Strategic Supply Management: A Resource Dependence Perspective and Performance Implications. The Journal of Supply Chain Management, (Summer 2007), pp. 29-42, ISSN: 1523-2409

Porter, M. & Kramer, M. (2006). Strategy and Society. The link between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, (December 2006), pp. 78-92, ISSN 0017-8012

Senguta, K.; Heiser D. & Cook L. (2006). Manufacturing and Service Supply Chain Performance: A Comparative Analysis. The Journal of Supply Chain Management, pp. 4-15, ISSN: 1523-2409

Tan, C. & Tracery, M. (2007). Collaborative New Product Development Environments: Implications for Supply Chain Management. The Journal of Supply Chain Management, (August 2007), pp. 2-15, ISSN: 1523-2409

Tab. 1. Regression results

 Independent Estimated Estimated t-value
 variable coefficients standard
 errors

The ethical behaviour of all 26.42 7.13 3.7
players in the supply chain

The social investment across 9.85 4.1 2.4
all players in the supply
chain

The degree to which a 12.8 4.3 2.977
player in the supply chain is
committed to reducing
environmental impact