Blog 4: Social Systems - Policy and Management

I enjoyed watching the documentary: "A Decent Factory". This documentary took place in 2004 in both Finland and China, where auditors undertook an ethical assessment in an attempt to address some of Nokia's ethical concerns towards its suppliers. The documentary highlighted how little communication was actually taking place between Nokia and its suppliers? This happened to be my strongest concern, which does not lie only with Nokia alone but with many multi-national corporations. I find it somewhat ironic being that Nokia's mission statement is: "connecting people".  

Legitimacy

In the documentary both Nokia and one its suppliers are faced with legitimacy challenges. Legitimacy tends to be referred to the activities of a firm that satisfy the socially constructed norms and values in which the take place. According to DiMaggio and Powell, businesses are constantly striving for institutional legitimacy (1983). Furthermore industries tend to reach congruence as they evolve (DiMaggio and Powell 1983). This can be caused by coercive, mimetic or normative mechanisms (DiMaggio and Powell 1983). In the case of Nokia and its supplier they strive for legitimacy in very different ways. Multinational corporations such as Nokia are constantly in the spotlight which forces them to strive even more than other businesses for legitimacy. A core issue is the socially constructed norms and values which are culturally dependent, therefore differing from country to country. The supplier in China has a different approach to achieving legitimacy than Nokia in Finland does, because they exist in different social systems.

Nokia

Nokia is based in Finland which subjects it to different norms and values, forcing Nokia to require its suppliers to work practices that would be considered ethical in Finland. Also being a multinational it has many stakeholders that all have their own expectations on how the company is required to deal with its social responsibilities. Because it is a multinational corporation it is forced to comply with all laws and regulations of each country it does business with. According to Prakash corporations make further steps than is legally required from them in order to become socially responsible in order to achieve legitimacy (2001).

Supplier

While it may not directly appear to be so the supplier is also striving for legitimacy. The supplier is in a process of coercive isomorphism. The supplier does attempt to take Nokia's request and its recommendation seriously. Otherwise it would have rejected Nokia's request to be documented on. In any case the supplier should be complying with labor legislation and the Chinese authority’s conditions. This coercive power comes from Nokia. However the supplier is a German company, therefore there are deeper underlying issues. The supplier is faced with the dilemma that in order to remain competitive, they must be able to keep cost relatively low while at the same time complying to the regulations and expectations of Nokia and the Chinese government. It appeared from the documentary that the coercive power from Nokia was greater than that of the Chinese authorities. Management from the supplier openly admitted to not adhering to the rules and regulations of China. Thus, you may assume that financial coercion is more effective than legal coercion.

Supplier
While it may not directly appear to be so the supplier is also striving for legitimacy. The supplier is in a process of coercive isomorphism. The supplier does attempt to take Nokia's request and its recommendation seriously. Otherwise it would have rejected Nokia's request to be documented on. In any case the supplier should be complying with labor legislation and the Chinese authority’s conditions. This coercive power comes from Nokia. However the supplier is a German company, therefore there are deeper underlying issues. The supplier is faced with the dilemma that in order to remain competitive, they must be able to keep cost relatively low while at the same time complying to the regulations and expectations of Nokia and the Chinese government. It appeared from the documentary that the coercive power from Nokia was greater than that of the Chinese authorities. Management from the supplier openly admitted to not adhering to the rules and regulations of China. Thus, you may assume that financial coercion is more effective than legal coercion.

Nokia’s approach in dealing with its social sustainability views to their supplier was ineffective. While it appeared that Nokia had made a sincere attempt to address some ethical issues it failed to make clear guidelines on their expectations as a company. Repeatedly throughout the inspection the auditors made many vague remarks, "we believe that is too much" or "that does not sound right". It is easy to make such remarks, however they tend to have very little influence. I feel that it is unfair to expect the supplier to react to such remarks because they are difficult to implement. Nokia's dominant position as the word leader of mobile telephones gives the company significant power to influence its supply chain. I believe that Nokia should have thought more about what it expects from its suppliers before undertaking in such audits. For example, the maximum amount of hours a worker may work per day or how much living space one is required to be given. Clearer guidelines would make it easier for auditors to implement effective advice and change the supplier's practices.                                                                         .                                                                                                                                                                                                                           

Alternative Coordination Mechanisms 

It is clear that there not yet has been an effective incentive for the factories to actively change their current practices, there are there are four possible forms of coordination mechanisms offered.

•           Self-organization: emerging patterns in social actors interaction

•           Self-governance: interaction based on certain rules implemented, enforced and monitored

•           Private interest government: intersection of private and public actors, the latter setting goals to be met and threatening with formulating rules.

•           Government: External control entity sets the rules. The mechanisms discussed above; coercive and normative pressure

It might be necessary for Nokia to be the party to initiate and to financially facilitate the transition of the current factory practices to its desired system.

·                     One effective mechanism for Nokia to implement its standards would be a legally-binding contract for all its suppliers. Nokia could specify its standards to the supplier and if they are not met, Nokia would have the legal right to withdraw its contract with the supplier. This would surely deter the supplier from deviated from the guidelines set by Nokia.

·         Another effective mechanism would be better communication between the supplier and Nokia. There could be monthly conference calls and quarterly visits by not only auditors but also from management. This would insure more collaboration and effective policy.

Nokia could possibly change towards a more self-governance coordination mechanism. Within this category of self-organization Nokia could enforce its own standards, rules and a code of conduct. Any violation could result in action such as contract termination. As long as these rules are communicated clearly to the supplier, Nokia could improve its coercive power. In fact both Nokia and its supplier would be categorized as using coercive isomorphism.  Both Investors and pressure groups are pressuring Nokia to incorporate more socially sustainable practices and its suppliers. That being said if the supplier is aware that Nokia would not be able to find an alternative supplier who actually meets its requirements, they don´t have to fear Nokia threatening to terminate their supply contract. Thus, by mimicking each other Chinese factories became a mimicking isomorphous organizational mechanism. Furthermore due to the low skill levels in the workers it the supplier maybe also influenced from normative pressure. External control by a The Chinese government is also involved, setting rules for working conditions. However it fails in monitoring and sanctioning mechanisms. As a result these rules are totally disregarded by the factory, proving that more government is not an effective mechanism.  In order to improve the situation I already indicated self-governance would allow for effectively change in Chinese factories.

References 

1)    DiMaggio, P. and Powell, W. 1983. The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields, American Sociological Review, 48(2): 147-160

2) Prakash, A. 2001. Why do firms adopt beyond-compliance environmental policies? Business Strategy and the Environment 10(5): 286-299.