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Op-Ed: Sustainability in the Context of Global Sourcing: A Long-Term View

Rivet's 2020 Denim Circularity report takes a deep dive into how the global denim industry is plotting its circular future amidst a worldwide pandemic.

It is a popular belief that corporate sustainability and social responsibility practices are always associated with high added cost to business, thus less profit. In the field of global sourcing, where sustainability has increasingly emerged as a topic of conversation, I have noticed that when sustainability is mentioned, it is often met with comments like, “It will be expensive,” or “The customer isn’t willing to pay more.”

Investing in sustainability as a part of corporate social responsibility might add cost in the short-term, but such efforts will yield long-term financial benefits to companies – a theory supported by considerable empirical research of literature and surveys.

Financial performance

Research has shown a positive relationship between corporate social responsibility and a company’s financial performance. The study, “Corporate Social Responsibility and Financial Performance: A Meta-analysis, published by the University of New South Wales, University of Sydney and University of Iowa back in 2003, one of the most cited studies by prominent academic journals on the corporate social responsibility topic, is an extensive analysis conducted on 52 studies integrating 30 years of research, including a total sample size of 33,878 observations on this subject. The study concludes a positive relationship between corporate social responsibility and financial performance, especially in terms of accounting-based measures. It also notes that brand reputation, driven by social responsibility, appears to be the key mediator of the relationship.

A 2011 study, The Impact of Corporate Sustainability on Organizational Processes and Performance,” published by researchers from Harvard Business School and London Business School compares a matched sample of 180 companies, 90 classified as High Sustainability firms and 90 as Low Sustainability firms. Findings for an 18-year period show that High Sustainability firms dramatically outperformed the Low Sustainability companies in terms of both stock market and accounting measures. The key note in this finding is that outperformance occurs only in the long term.

A study published in 2014 also from those institutions, The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics,” shows a shift in from pessimistic to optimistic recommendations by investment analysts on firms with high ratings on corporate social responsibility, using a large sample of more than 2,000 publicly traded companies in the United States over a period of 15 years. The study also finds that analysts with more experience and those who are associated with higher-status brokerage houses are the first to shift the relation between corporate social responsibility ratings and investment recommendation optimism.

Customer attitude

The recently released 2015 Cone Communications and Ebiquity Global CRS Study reveals that global consumers have now officially embraced corporate social responsibility and clearly see their own power to make an impact in several ways: through the products they buy, the places they work and the sacrifices they are willing to make to address and support social and environmental issues.

The survey looked at 9,709 consumers in nine of the world’s largest markets by GDP, including the United States, Canada, Brazil, the United Kingdom, Germany, France, China, India and Japan. The survey describes corporate social responsibility to survey participants as, “companies changing their business practices and giving their support to help address the social and environmental issues the world faces today.” Below are the key figures from the survey’s results.

  • 91 percent of consumers expect companies to do more than make a profit.
  • 84 percent say they try to buy products or services that are socially or environmentally responsible whenever possible.
  • 90 percent would like to see more responsible products and services offered by companies.
  • Global consumers state they have a more positive image (93 percent), are more likely to trust (93 percent) and are more loyal (88 percent) to companies that support social and environmental issues.

Employee engagement

The Gallup 2013 State of the American Workplace report revealed that only 30 percent of employees are engaged at work based on data gathered from 350,000 respondents. With 70 percent of the workforce were reported as being disengaged, or worse, actively disengaged—Gallup estimates this costs the U.S between $450 billion to $550 billion every year in lost productivity. Just imagine a company of 100 people and 70 wish they weren’t there. This directly impacts the company’s bottom line. Gallup’s similar study conducted on a global scale in 142 countries revealed that, worldwide, only 13 percent of employees are engaged at work.

Companies with a strong mission and purpose, making meaningful impact and contribution to the society through commitment to social responsibility and sustainability, stand a better chance of earning not only customer’s trust and loyalty, but also their employees’. Employees are the first customers, and are brand ambassadors. Great brands and companies are built by people who are engaged by knowing they are part of something great and serving a larger purpose than just getting through their hours at work.

A Millennial’s view

A study on Millennials released late last year by MSL Group, under the communications giant Publicis Groupe, surveying 8,000 people born between 1984 and 1996 in 17 different countries, found that this generation, typically described as not trusting major institutions, actually looks to the corporate world to help address the world’s problems.

  • 78 percent of Millennials would recommend a company to their peers based on its involvement with society.
  • 82 percent believe businesses are capable of and can make the greatest impact in addressing societal issues.
  • 51 percent want to get personally involved in addressing global issues and 69 percent want businesses to make it easier for them to get involved.

The study concludes that, “although trust in business is still low, Millennials see business as the only solution for a better future. They’ve given up on government. They see big companies as our only hope.”

Millennials, at about 83 million strong in the U.S, are now officially the largest generation in the American workforce. This group is about 2.5 billion in population worldwide and is projected to make up 75 percent of the global workforce in the next 10 years. It is important that companies put in place strategies to engage this large majority of the workforce and motivate them to actively contribute to companies’ performance.

Since Millennials have voiced their interest and expectation for businesses to take active roles in addressing global issues, involving Millennials in social responsibility and sustainability initiatives is one way to keep them actively engaged at work.

Technology and automation

Technology and automation in manufacturing is one of the key drivers to sustainability. Both might be expensive up-front investments, but the returns in the long run can be tremendous. In comparison to the conventional and labor-intensive manufacturing approach, the technology and automation method leads to much higher efficiency and output, thus lower per unit cost, within economies of scale. The less obvious, but equally impactful, benefit of utilizing technology is optimizing the use of resources and minimizing waste, which also helps reduce per unit cost.

In denim processing, laser technology can replace many labor-intensive manual processes, some of which are proven to cause workers to have health issues. Ozone technology, on the other hand, can replace the traditional washing process and saves around 50 to 80 percent in water and energy.

It is my hope that after reading the above discussion and research findings, you will have a more optimistic and broader view on social responsibility and sustainability and continue the conversation on this topic. In the world of global sourcing, when we think of cost mitigation, the most likely immediate thought that comes to mind is, “Where is the next destination with cheaper labor cost?”

However, other cost mitigation opportunities might present themselves if we start asking different questions. As global wages continue to surge, what plan is there for technology and automation to help alleviate the rising production cost pressure? Do our factories have a strong system of worker welfare, social support, and sustainability that can keep employees happy, healthy and engaged to improve output and efficiency? Let’s keep the conversation going.

 

Mi Nguyen is a global sourcing manager at J.C.Penney, a major American apparel and home retailer. She has more than six years of experience in global sourcing and supply chain management. Mi has lived, worked, and studied in Vietnam, New Zealand, China and the U.S. With her diverse background, Mi’s passion is to bring a global perspective into helping develop the next generation of global sourcing and supply chain management talents.

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