The impact of multinational corporations’ socially responsible supplier development practices on their corporate reputation and financial performance

Abstract

PurposeIn the literature on sustainable supply chain management, the social pillar of sustainability has received relatively little attention, especially in developing countries. The purpose of this paper is to test empirically the impacts of supplier development practices on suppliers’ social performance. Furthermore, the impact of suppliers’ social performance on MNCs’ social performance was investigated and corporate reputation was proposed as a potential explanation for the relationship between MNCs’ social and financial performance.Design/methodology/approachData were obtained from a survey of 141 multinational companies (MNCs) in Malaysia which were listed in the Federation of Malaysia Manufacturers’ directory 2017. Data were analyzed using partial least squares structural equation modeling.FindingsThe results show that among the four proposed practices, supplier development and supplier collaboration have significant effects on suppliers’ social performance and consequently on the multi-national companies’ social performance. According to these results, multi-national companies’ corporate reputation mediates the relationship between their social and financial performance.Practical implicationsThese results will be useful in helping managers of MNCs to realize that simply monitoring suppliers and giving them incentives are not effective ways of enhancing social responsibility among suppliers; instead, supplier development and collaboration such as technical support and training are needed.Originality/valueThe results extend the literature on socially responsible supplier development practices by testing empirically the impacts of four popular practices in the literature and showing that supplier monitoring and incentives have no effect.