CSR requirements put pressure on Danish sub-suppliers

Being a sub-supplier is not easy when everything in the entire supply chain has to be under control - right from human rights to anti-corruption and the working hour maximum. Social responsibility is gaining ground, and companies demand that their sub-suppliers ensure that products are made under decent conditions in every stage of the supply chain. However, to the small and medium-sized enterprises (SMEs) with less than 250 employees it demands considerable resources to have every stage of the supply chain under control.

Danish SMEs are concerned. They do not know how to meet the increasing demands from the companies that they serve.  This is the result of new research from CBS' World Class Research Environment conducted by Jette Steen Knudsen, who currently is visiting professor at the Massachusetts Institute of Technology.

- The SMEs agree to live up to the requirements, but are concerned that they might not. And they are really concerned about the consequences in the long run if the requirements become even more demanding. But there is definitely a tendency, says Jette Steen Knudsen.

Not enough resources to meet the requirements
As part of her research, she interviewed ten Danish SMEs and two multi-national Danish retail companies. Most SMEs do not have the resources to live up to this very long list of requirements, says Jette Steen Knudsen and adds:

-As far as the supply chain goes, it seems that some large international companies are passing on their problems to their sub-suppliers in the name of CSR.

May harm competitiveness
In the long run, Jette Steen Knudsen is afraid that the Danish competitiveness is harmed. Danish SMEs are at risk of being left out of consideration because of their lacking ability to handle CSR requirements from their B2B customers.

- Instead, the orders may be directed at large foreign suppliers, who, by virtue of their size, can use plenty of resources to ensure that the entire supply chain lives up to the different CSR requirements, she says.

The study demonstrates an example in which an unnamed chief buyer of a large Danish retailer says: "Right now we can see that the SMEs cannot keep up. As buyers, we are very demanding when it comes to our sub-suppliers' meeting of the BSCI and preferably A 8000 - regardless of size."

Someone else says:  ‘‘That is how capitalism works. If they want us to buy their products, they have to live up to our demands."

Large companies must take responsibility for the sub-suppliers
According to Jette Steen Knudsen, the solution of the problem lies with the large companies. They have the muscle power to help their sub-suppliers, and the large buyers have to take responsibility. There should be a demand that the suppliers help their sub-suppliers getting their CSR under control. It is a myth that Danish companies are pioneers when it comes to CSR, she says.

- The Danish government has really been in the lead as far as reporting requirements of large companies are concerned, and smaller Danish companies are generally good at meeting environmental demands and supporting Danish association activities. However, SMEs in Denmark are NOT any more socially responsible when it comes to international engagements. That is a very resourceful job, and they are far from ready to assuming that responsibility now, she says.

For more information, please contact Jette Steen Knudsen, Professor at jsk@ifs.ku.dk, or mobile +45 21 20 92 95.