INTRODUCTION TO INTERNATIONAL BUSINESS

2020 – 2021

Assignment: HBR-3

Group number: 15-16 Team number: 01

Tutorial lecturer: J. Shin

Student: Menno Ruijter Student number: S4353765

Student: Yannick Kootstra Student number: S4349539

Date:

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 Part A

1. Villena and Gioia (2020) identify several problems in supply networks. Discuss how
these problems relate to Verbeke his model and the issues of bounded rationality and/or
bounded reliability. (Note: not all elements of the model might be applicable)

The first problem is the pressure that the MNCs put on their suppliers with, for example,
unrealistic deadlines or orders exceeding capacity. While suppliers are afraid of telling the
MNC and losing their business, they do not say anything. Furthermore, MNCs have trouble
managing their lower-tier suppliers because there is a low incentive for these suppliers to
follow MNCs. Next to this, the lower-tier suppliers do not get much attention. So, when
problems occur, there is no need for them to address such problems. Next to that, even when a
lower-tier supplier does want to address the problems, they are unable to. Lacking
information, expertise, and resources, unaware of accepted practices and resources, lower-tier
suppliers are not equipped to handle problems. Lastly, MNCs itself are often unaware of who
their lower-tier suppliers are. Ignorance leads to a lack of information, leading to
uncontrollability over the lower supply network.  
All of these problems have something in common: there is a lack of information for either the
supplier or the MNC. In the model of Verbeke, bounded rationality and reliability are
essential in the transfer of FSAs, which, for example, could also be the collective knowledge
base regarding sustainability. As these concepts block the flow of information between MNCs
and suppliers, such FSAs cannot be transferred, leading to problems along the supply chain. 

2. According to Locke and Romis (2007), what could be a potential problem with the
direct approach that Villena and Gioia (2020) introduce?

The direct approach that Villena and Gioia introduce entails that the relationship between an
MNC and the supplier is well and, therefore, a survey, evaluations, and working together
would lead to clear results. However, Locke and Romis state that global brands and the
accompanying suppliers are often ‘locked in low-trust traps’. In these traps, suppliers claim
that MNCs insist on lower prices, higher quality, and lower cycle times, while also
complaining about the poor working conditions. This while MNCs claim that problems
regarding production and labour standards result from the unprofessionalism and
shortsightedness of the suppliers. So, while the direct approach of Villena and Gioia requires
trust and transparency, the actual circumstances completely lack these aspects. Therefore, the
direct approach might be difficult to implement, which could be a potential problem.

3. Dunn and Yamashita (2003) suggest that firms can do well and do good
simultaneously. Discuss how the advice provided by Villena and Gioia (2020) will not
only help to do good for society but also how it can potentially result in profitable
business models.

The advice provided by Villena and Gioia to increase awareness of sustainability consists of a
better connection between MNCs, its first-tier suppliers, and its lower-tier suppliers. By doing
so, the MNCs could increase the sustainability of its corporation but also encourage both first-
tier suppliers and lower-tier suppliers to be more sustainable. Implementing clear strategies
and sustainability targets are therefore critical. In addition, as described, the lower-tier
suppliers are the highest risk. To manage these suppliers, a combination of the direct, indirect,
collective, and global approach is advised. Overall, the best practices are long-term
sustainable goals for all MNC and all its suppliers, including the lower-tier ones in the MNCs’
overall strategy, and task a person to extend the sustainability program to the suppliers (this
person needs to be trained to do so). If this advice is followed, a company will increase its
sustainability, and this is good for society because it will decrease dangerous and too heavy
working conditions and red-flag social problems. This is better for society. In addition, this
could potentially result in a profitable business. Customers and suppliers who care about
sustainability will desire a situation in which a company cares about this as well. Therefore, if
MNCs improve their sustainability, more customers will buy their products or services and
more groups are willing to work with them. Lastly, the government often provides heavy fines
for companies that ignore the sustainability programs so this can be prevented.  
 Part B

Introduction
The article ‘A more sustainable supply chain’ written by Verónica H. Villena and Dennis A.
Gioia is published in the Harvard Business Review of March-April 2020 and focuses on the
sustainability of supply chains (9 pages). The article discusses that corporations have focused
more and more on corporate social responsibility, which includes sustainability practices
throughout the entire supply chain. This supply network includes higher-tier suppliers and
lower-tier suppliers. However, managing sustainability through the supply chain has proved
itself to be very challenging in practice. Problems along the supply chain can divert to
scandals, leading to exposure to financial, environmental, and social risks. 

The purpose of the article is identifying the current practices and problems to name solutions
and improvements for managers in managing the supply network. The methodology entails
studying three supply networks of MNCs which are considered sustainability leaders. By
researching these, the authors try to identify the best practices for MNCs and the difficulties
in enforcing them.

Strong points
The first strong point of the article can be found in the explanation of the problems why
MNCs often fail to successfully increase the sustainability of its own, and its suppliers. The
authors investigated three sustainable leaders, and because these companies should lead the
increased sustainability, the investigation of leaders is a good way to see why the overall
sustainability does not improve as much as it should, as these had to meet selection criteria.
Lower-tier and higher-tier suppliers were investigated and it was found out that the problems
mainly started at the MNCs itself. They frequently placed orders that exceeded the suppliers’
capacity. The suppliers are scared to lose customers, so attempts are made to deliver the
orders in time. This can result in terrible working conditions. Furthermore, the article explains
the problem of the insufficient connection between an MNCs and a lower-tier supplier. The
lower-tier supplier does not care that much about a particular MNC because it often has many
more customers, with sometimes bigger assignments. Lastly, the lower-tier suppliers receive
little attention causing them to ignore the issues regarding sustainability.  

The second strong point can be found in the extensive description of how to manage lower-
tier sustainability using different approaches. By using these four approaches, MNCs could
promote suppliers’ sustainability. The direct, indirect, collective, and global approach are
briefly explained. Overall, these approaches suggest MNCs should work together with its
suppliers and set clear goals regarding sustainability. Moreover, training should be provided
to improve the connection between first-tier and lower-tier suppliers. Lastly, these approaches
suggest working together on an industry-wide and a global level, e.g., NGOs and international
institutions. This way, MNCs could increase awareness and improve a sustainable way of
working. 

The last strong point can be found in the improvements of the article for MNCs. At the end of
the article, the improvements are described in three major problems. The first problem is the
pre-approvement of lower-tier suppliers by MNC units while they do not include social and
environmental considerations. The second problem is the lack of sustainability training and
incentives for procurement officers. A third shortcoming is insufficient contact between
MNCs and first-tier suppliers. This relation has to improve to reach the goals together.  
Overall, these improvements are critical when the global sustainability of MNCs has to
improve.

Weak points
The first weak point of the article can be found in the fact that no distinctions are in the
suppliers’ locations. There is no mention of the differences in locations of both first-tier
suppliers and lower-tier suppliers. The red line throughout the article is corporate social
responsibility (CSR), in the form of sustainability. However, the impact of CSR can differ
significantly, depending on the market in which it is deployed. According to Verbeke, a CSR
initiative can significantly improve location advantages of an emerging economy, whereas
CSR initiatives have less impact in developed economies. As the different economies are not
discussed, the differences between different locations and their advantages, as well as the
impact of CSR, are unclear. Ergo, the theory is limited to one, general location.
Secondly, the authors make no distinction in terms of available knowledge regarding CSR at
MNCs. To apply CSR in practice, MNCs need to have enough information to do it
successfully. However, the article does not provide evidence that there exist differences in the
knowledge available for managers of different companies. Therefore, the reader might assume
that every MNC has this knowledge available to apply. The collective knowledge base of a
firm can be very strong and elaborate so that it can be an FSA. However, if this knowledge
base is weak, a company cannot apply CSR. Therefore, the article does not apply to all
companies and managers, whereas this is not explained in the text. 

Lastly, a weak point can be found in the different approaches mentioned to tackle problems in
managing the supply chain. Whereas the approaches themselves are very elaborately
explained, differences between the effectiveness of the approaches are not mentioned, while it
is also not mentioned when to use which approach. To be useful, an approach should fit the
situation where the problem exists. If an approach is introduced, but it does not fit the
problems that exist, it could cost the company a significant amount of money, while the
problem itself is not fixed. Therefore, the article misses an explanation of when which
approach should be introduced. 

Lessons for managers

As Villena and Gioia describe it, ‘’The article describes various ways that MNCs can defuse
the ticking time bomb for financial, social, and environmental risks’’. So, the article shows
how managers can tackle risks caused by, mostly, lower-tier suppliers. This is done by
showing the strategies the certain MNCs use that are considered successfully sustainable. This
entails a direct approach, an indirect approach, a collective approach, and a global approach. 

Next to that, managers are recommended to use four different measures, which are also used
by sustainable MNCs: 
 Establish long-term sustainability goals
 Require first-tier suppliers to set their own long-term sustainability goals. 
 Include lower-tier suppliers in the overall sustainability strategy. 
 Use expatriates to expand the MNC’s sustainability program to both first-tier suppliers
as well as lower-tier suppliers. 
Furthermore, the article also provides three improvements for managers in already known
problematic practices. The first known problem is the predicaments regarding pre-approved
contracts with undesirable partners. To avoid this, the MNC should create aligning
sustainability goals and incentives for all functions that interact with suppliers. The second
problem, the lack of training and incentives for purchasing officers to pursue sustainability
goals, can logically be solved with extra training and incentives. The third problem entails
that first-tier suppliers’ procurement personnel is poorly informed about sustainability
requirements. Managers can try to improve this, by including that personnel to their industry-
wide sustainability training. 

Relation to the theory

The obvious topic discussed in the article related to the theory of Verbeke is the desired
sustainability created because of Corporate Social Responsibility. This CSR is the red line of
the article while it is also extensively discussed by Verbeke in chapter 16. Furthermore,
looking at the model of Verbeke, the bounded rationality is a topic which is often discussed in
the article. This can be clearly seen in the problems section of the article, where the vast
majority of the problems is a consequence of bounded rationality. Another point that is briefly
discussed is the use of expatriates for suppliers. This can be linked to chapter 10 of Verbeke’s
book. Lastly, the ‘sustainable leaders’ described in the article, leading the improved
implementation for sustainability, can be linked to the theory of Bartlett and Ghoshal about
subsidiary classification.  

Conclusion
The strong points of the article briefly explain the way how MNCs should improve
sustainability and the main problems why the improvements regarding sustainability are not
as successful as desired. As for the weak points, the research and article are somewhat limited
in different aspects. Firstly, no distinctions are in the suppliers’ locations. Therefore, the
differences between different locations and their advantages, as well as the impact of CSR,
are unclear. Secondly, the article does not explain that there exist differences in the
knowledge available for managers of different companies. Hence, the article assumes that
every MNC has the same possibilities in decision-making. Thirdly, the application of the
approaches is not concrete in terms of when to use which application. Therefore, the
weaknesses show all limitations for usage for managers. However, if managers are not limited
in those aspects, the article provides useful information for managers. Strategies, measures,
and improvements are given, which managers could implement. Furthermore, the article can
be linked to Verbeke’s theory through various topics, inter alia bounded rationality, CSR,
expatriates, and subsidiary classifications.
Overall, the article is strongly written, with great use of various theories, using logical
argumentation. The article is somewhat limited, but the content is elaborate and broadly
applicable. 

Questions
1. In the article, the different strategies are introduced to spread good practices
throughout supply networks. Which of the four approaches, do you think, is the most
effective in managing the supply network?
2. In the conclusion, you state: ‘’A supply chain is only as strong as its weakest link’’.
Do you feel like the supplier with the lowest degree of sustainability is the bottleneck
and should therefore be firstly handled, or is the overall sustainability of the supply
chain more important?
3. During the corona pandemic, the global emission reduced significantly. This is, of
course, partly because of the decrease in production, but which things can be learned
from this period about the decrease of emission (and could be implemented after the
pandemic)?

REFERENCES

Periodicals:
Locke, R. M., & Romis, M. (2007). Improving work conditions in a global supply
chain. MIT Sloan Management Review, 48(2), 54.
 Villena, V. H., & Gioia, D. A. (2020). A More Sustainable Supply Chain. Harvard
Business Review, 2020(March-April), 84–93. https://hbr.org/2020/03/a-more-
sustainable-supply-chain

Books: 

Verbeke, A. (2013b). International Business Strategy (2nd edition). Cambridge

University Press.