When does Labor Unrest Impact Buyer-Supplier Relationships?

Abstract

Recent research suggests the opacity of global supply chains is the main reason firms are unable to make their supply chains accountable. Globally dispersed supply chains mean that labor abuses are often buried many layers back, giving firms the ability to deny labor unrest in their supply chain. Most external stakeholders do not have the ability to link a firm with its suppliers, and a firm’s commitment to improve supply chain sustainability can only be recognized by stakeholders if the firm’s commitment is made public. Drawing on the extant research on attention, visibility, and reputation, I study firms’ responses to labor unrest targeting their direct component suppliers in the mobile phone industry. The main findings demonstrate that social media both enables greater visibility and amplifies the potential impact of labor unrest in supply chains. Suppliers’ labor unrest does not affect buyers’ decision to disengage from protested suppliers unless the unrest receives social media coverage. Firms’ public commitment to promote social supply chain sustainability and hold suppliers accountable influences firms to disengage from protested suppliers. In post-hoc testing, I provide further suggestive evidence that the effect of social media on supplier disengagement is primarily driven by firms that made this public commitment. While the dispersed and opaque nature of global supply chains means that firms can ignore most labor unrest in their supply chains, this study suggests that social media and firms’ public commitment can shed light on supply chain dynamics in the aftermath of suppliers’ labor unrest.