Abstract
The Rana Plaza collapse in 2013 exposed the limitations of conventional models of private regulation of social compliance in global supply chains, which rely on multinational corporations to implement supplier codes of conduct and periodic audits. The growing complexity of globally dispersed multi-tier supply chains limits the ability of multinational enterprises to effectively monitor and influence all upstream suppliers, particularly those beyond direct suppliers, where the most severe human rights violations often take place. To mitigate reputational and financial risks, lead firms delegate the responsibility of monitoring sub-suppliers to direct suppliers, who face conflicting demands to minimize costs while ensuring social compliance. This study explores how first-tier suppliers’ perceptions of fairness and reciprocity influence their efforts to ensure social compliance within their own operations and among their sub-suppliers. We implement a novel online experiment with approximately 400 participants in South Africa, simulating a multi-tier supply chain involving a lead firm (Alpha), a first-tier supplier (Beta), and a second-tier supplier (Gamma). Participants assigned to Beta are randomly assigned to one of three treatment conditions that vary the framing of Alpha’s social compliance demands and the type of incentives for suppliers to comply. We test whether Beta allocates more effort to monitoring Gamma and whether Beta’s compliance improve when Alpha’s demands are framed in a more collaborative and procedurally fair manner, and when such framing is combined with monetary incentives.