Week 41 - A decent factory?

NOKIA seeks to extend its sustainability strategy into its supply chain à Chinese suppliers have to fit with criteria established by NOKIA. How are the two key organizations in this case (Nokia and the supplier) striving for legitimacy?

In the movie “A Decent Factory”, Nokia sent its consultant and researcher to visit its supplier in Shenzen, China to investigate the company’s sustainability performance. The following paragraphs explain that both Nokia and its supplier took actions to gain legitimacy for recognition.

A Decent Factory is a documentary film 

directed by Thomas Balmès (2004). The film 

examines the ethics and profits of a multinational 

cellphone company through a visit to 

its supplier in China.

First, let's talk about Nokia.

The initiative that Nokia took to account for the sustainability performance of its supply chain member which provide components that contribute to its finished product could be seen as an effort to legitimize itself. Although not directly responsible for its supplier’s factory operation and compliance, Nokia worked it way to ensure that it is aware of the supply chain member’s operation practices as the first step. This gathered information could be further analyzed against current sustainability criteria and suggestions for improvements could be made for the stakeholders to decide if the company is striving to eliminate the risks of unsafe or unsustainable practices.

During the plant visit, the two consultants made suggestions and informed the factory management of their concerns. At the end of the visit, the consultants sat down with the high level managers to go over their observations and provided basic suggestions to ensure that the supplier is also aware of the potential use of information. Nokia tried to enhance the communication transparency with its supplier so there will be no surprises or misunderstanding, which is likely to happen in a different cultural environment. This transparency between the companies also strengthens the both company’s credibility and trust between two companies.

Not only does legitimacy matter externally, it also secures stability of cooperation relation within the supply chain. Both Nokia and its supplier could benefit from setting a sustainability goal that they can both expect to meet, as long as both sides know the criteria. In that way, both companies could rely on each other in the supply chain through this self-organization.

How about the factory?

Given that Nokia’s supplier failed to prove that it is a decent factory, it did demonstrate its sincerity for legitimacy by accepting the request of its downstream client for a plant visit. (ok, you can come!) The supplier gave Nokia access to see the dormitory, the restaurant, and the plant while many workers are performing their daily tasks. (ok, you can see!) During the plant visit, when the Nokia consultant expressed her concern because the water cups and chemicals are too close to each other. The manager immediately ordered workers to move the chemicals somewhere else. (ok, we can change!)

Finally, both Nokia and the supplier are showing their commitment for sustainability improvements by agreeing to let this documentary go public. This could be seen as their endeavour for legitimacy.

Is the approach taken by Nokia an effective way of diffusing sustainability criteria?
No, Nokia's approach to diffuse sustainability does not seem to be effective. Nokia attempted to harmonize its supplier's practice with Nokia's sustainability criteria. The effort of exerting pressure onto its supplier as a client could be seen as promoting an organizational change. This could be seen as coercive isomorphism by business ties between the two organizations. However, Nokia's actions to implement sustainability standards within the supply chain seem to be missing some elements. Here are some examples of why Nokia's approach might not be most effective in practice.

What? New rules? Never heard of them.

First, Nokia did not inform its supplier of the new policy of introducing the sustainability criteria into the supply chain. The consultants went to the factory without letting the management know what they intend to see. During the visit, the consultants had a checklist that they were making records of. However, it did not seem like the management of the plant have a copy of the checklist. One plant manager also reminded Nokia to let the supplier know what Nokia wants to see so it can better prepare. (Although Nokia made itself clear at the meeting at the end of the visit.) If a business is trying to promote a sustainable practice within an organization, it is probably a good idea to make sure the standards of sustainability are known by the individuals in the organization. It is unfair for the supplier to be ambushed because it does not know possible consequences of this investigation. Maybe Nokia would stop purchasing phone components from this supplier because it fails to meet one criteria that was not mentioned when putting the order. Maybe this is also why the supplier allow Nokia to see many units in the factory. It could be out of fear of losing business.

Could you tell me if you're illegal?

Second, it doesn't seem that Nokia has knowledge of the local regulations. Nokia consultants asked about the local minimum wage and the marital status of the factory employees as well as other questions during the visit. The fact that the consultants have no capability to verify if the supplier is in compliance weakens the legitimacy push. Most people would agree that normally the basic requirements for business to survive is to at least meet the regulations. However, in many cases Nokia consultant had to rely on the supplier's judgement to tell that the factory is not in compliance. It is reasonable for one to hesitate to believe Nokia's attempt to enhance sustainability since Nokia does not even know if it's relying on a supplier that violates multiple regulations intentionally.

Uncertainty

Third, it is uncertain if this sustainability criteria is mandatory. For the supplier to decide if it should accept the organizational change and implement the new rules, the decision makers would have to know if it's worth to invest on improvements. In order to make this decision, the CEO needs to know if this investment would help in securing relations with the client and facilitate future transactions. However, not only was the rules not provided. It does not seem like the rules are going to be enforced for sure. This casts uncertainty for the chances to achieve sustainability improvements. If Nokia were to honor its sustainability commitments, minimizing this uncertainty could increase the efficiency of policy dissemination.

Cultural differences

My country Taiwan shares a big part of cultural background with China so it was interesting to see it as an outsiders view and maybe understand the supplier's struggles a little more. I feel that the Nokia consultants experienced a lot of shocking moments during the visit. But they did not take a further step to address how things work in their headquarter Finland. They did express their concerns but it was never mentioned that the reason why they are concerned is because (a made-up example) in Finland, it would've violated the law by restricting the personal freedom of the employees in the dorm. If the supplier understands where all these strict rules are coming from, then there could be less resistance to accept the organizational change due to respect of the market and the value that the consumer's market promotes.

How could another coordination mechanism improve on this?

Overall, the coordination mechanism can be facilitated with communication before the visit to eliminate uncertainties and avoid unexpected surprises. This would include the supplier in the decision making early in the process to enhance the smoothness of cooperation. 

To improve the efficiency of the new sustainability criteria extension, Nokia's consultants can familiarize themselves with local regulation and request the supplier to proof that it is in compliance with all the labor and environmental regulations. This baseline of compliance could give the evaluation of the consultants a more solid reference when assessing the sustainability. On the other hand, Nokia can start with providing the sustainability criteria and suggest an expected timeline for full implementation to its suppliers. The suppliers needs to reply to Nokia regarding the feasibility of the timeline and possible challenges. The supplier will evaluate its current condition and decide if the suggested timeline is feasible. If not, then the supplier could propose another timeline for implementation. By doing this, both companies would have a clear idea of what to expect of each other. Once the implementation is in place or kicked off, Nokia can arrange a visit to go over the list of items that it expects to see. The supplier by then would be more prepared to explain to the consultants about what challenges it's facing and its plans to resolve the issues. Nokia could also provide trainings or workshops to explain to the supplier regarding the new policy and the background of the policy to gain mutual understanding.