Impacts of leadership on corporate social responsibility management in multi-tier supply chains

Abstract

As supply chains become more complex and multi-tiered, managing corporate social responsibility (CSR) of lower-tier suppliers is more challenging and draws increasing attention. In this paper, we develop a game theory model with a multi-tier supply chain, which consists of a Tier 0 buyer, a direct Tier 1 supplier and an indirect Tier 2 supplier. To reduce the CSR violations of Tier 2 supplier, the Tier 0 buyer can either provide funding to the Tier 1 supplier (delegation strategy) or fund the Tier 2 supplier directly (control strategy). We theoretically analyze the optimal strategy under two different supply chain leaderships: Tier 1 leads Tier 2, and Tier 2 leads Tier 1, and further discuss the impact of supply chain leadership. Unlike empirical studies arguing that delegation is more effective when the Tier 1 leads Tier 2, we find that when the funding factor is uniform among suppliers (exogenous), the control strategy is more likely to ensure a lower violation probability than the delegation strategy. Besides, when the loss of Tier 0 buyer due to violations in Tier 2 is relatively small, the buyer may adopt the strategy with a higher violation probability to maximize his profit. In addition, we also consider information asymmetry between the Tier 0 buyer and Tier 2 supplier, and find that the buyer is more inclined to choose the delegation strategy if he is more uncertain about the Tier 2 supplier. Finally, we explore four model extensions and show that the main results are robust.