Investigating the fair treatment of suppliers and its trust fostering role and performance benefits

Abstract

An increasing number of companies have begun to make efforts to treat their suppliers fairly as a part of wider corporate social responsibility (CSR) initiatives. Few studies, however, have investigated the performance implications of such efforts for buying firms. This paper uses both organisational climate theory and social exchange theory to investigate (1) if buying firms efforts-in the form of a code of conduct for its procurement practitioners pay off, and (2) its mechanisms from the perspectives of procurement practitioners. We use a multi method approach, combining analysis of survey data complemented by results from a behavioural experiment. First, survey data were gathered from 327 Korean manufacturing companies and analysed using structural equation modelling. Second, the findings were complemented by a behavioural experiment involving 120 subjects. The results support the positive performance implications of fair supplier treatment in the form of codes of conduct for procurement practitioners. The paper also offers insights into how such efforts benefit buying firms, which is due to the trust in the buyer-supplier relationship fostered by the resulting ethical behaviours of procurement practitioners.