What produces corporate social irresponsibility in offshore outsourcing? The effects of interorganizational relationship governance and institutional distance

Abstract

We theorize on how institutional distance and interorganizational relationship (IOR) governance interact to produce corporate social irresponsibility (CSiR) in offshore outsourcing. Managers generally find it challenging to align practices with stakeholders’ responsibility expectations and more so when activities occur offshore and outside organizational boundaries. This is evident from Apple’s repeated problems in China but insufficiently understood in international business (IB) literature. Institutional distance increases the likelihood and severity of CSiR because it produces a gap in buyers’ and suppliers’ stakeholder expectations and leads to divergence between suppliers’ practices and buyers’ responsibility policies. Trust-based cooperative IORs reduce CSiR and lessen the effect of institutional distance on CSiR. Supplier dependence also reduces CSiR but increases the effect of institutional distance on CSiR and is therefore a double-edged sword. Our novel framework generates insights into CSiR, a dark side of IB, by uncovering the mechanisms that co-produce CSiR in the offshore outsourcing context. We enrich work on offshore outsourcing by suggesting that CSiR represents a hidden cost and advance multilevel theorizing in IB by showing how institutional distance interacts with IOR governance. Managers should consider the tradeoff between performance and CSiR in offshore outsourcing and the downside that comes from (over)exploiting supplier dependence.