How much influence can a company really have over their outsourced suppliers?
Many of Europe's major corporations hardly warrant the title of 'European' any more. In essence, they have become middlemen, outsourcing to countries such as China and India. And I believe that those companies' power to influence these essential outsourced suppliers towards meeting western corporate social responsibility ideals is decreasingly rapidly. Let's face it, it is difficult to impose western environment, health and safety standards (EHS) in countries of different cultures, where the desire of some local companies to thrive is inevitably going to lead to merely 'lip service'.
Of course, reputable companies will require assurance that their overseas suppliers are not contravening their corporate guidelines. But asking those suppliers to comply can mean asking them also to invest in certain provisions and the request needs to be backed by a long-term capital commitment that some western companies may not be prepared to make.
Against this background, Europe itself continues to introduce ever more stringent regulations for manufacturers and service providers, accelerating the urge to outsource to countries with less demanding regimes.
Potentially, it is a recipe for disaster. An article in this issue refers to a European Commission paper which says that, in 2006, 48% of European non-food product recalls involved products made in China. That figure alone suggests the inability of European companies to exert real control over their offshore suppliers and outsourced businesses, even in terms of the products they source. Their control over the way those companies actually run their business in terms of EHS is likely to be a whole lot less.
The jewel in the crown for many major European corporates is their brand. I do not think it is possible to outsource and just assume that you are going to do well because of the strength of your brand. That strength relies on a whole load of things that are intrinsic to the manufacture and the way that your goods or services are produced and delivered. Some European companies are going to get their fingers very badly burnt.
Sue Copeman, Editor, StrategicRISK
