Corporations, Globalisation and the Law series
Chapter 3: Contract law, global supply chains and corporate social responsibility
In the course of globalisation, companies no longer completely produce their goods themselves within the boundaries of their resident country, but rather distribute their production to suppliers in different countries around the world through global supply chains. Companies in the global North and West have increasingly outsourced parts of their production to suppliers in developing and transitional countries in order to reduce cost. This process of outsourcing to suppliers is particularly prevalent in labour-intensive production industries such as the garment industry and also in the food industry. The buyers in these supply chains are often multinational companies. However, reports about human rights violations of employees of suppliers in the developing world, for instance through the use of child labour, unsafe working conditions or excessive working hours, have negatively affected the reputation of some Western companies which trade with these suppliers. The collapse of the Rana Plaza Building in Bangladesh in April 2013, which killed more than 1100 people, dramatically highlighted the often hazardous working conditions at supplier factories. As a consequence of this increasing interest in the supply chain, Western multinational companies, particularly those with well-known brands, have come under increasing public and political pressure to show that they are socially responsible in their supply chain. Many multinational companies therefore implement Corporate Social Responsibility (CSR) policies into their supply chain. Based on a small-scale study of contractual CSR documents provided by multinational enterprises on their websites, this chapter analyses how companies incorporate CSR codes of conduct into the supply chain contracts with their suppliers. To that end they use different mechanisms through which CSR becomes part of the contract, particularly through the incorporation into the buyer’s terms and conditions which are part of their purchase order. This chapter argues that while the buyer’s CSR policies often become part of the contracts between buyer and supplier and hence creates enforceable contractual terms, it is important to note that contract law faces severe drawbacks in its ability to promote socially responsible behaviour in suppliers in the developing world, for example, due to the doctrine of privity of contract. On the other hand, the analysis of the terms and conditions of three multinational companies shows that the buyer would often be able to procure a remedy for breaches of CSR principles in supply contracts.
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