7. Conclusions
Corporate social responsibility (CSR) has become an increasingly vital issue for multinational enterprises. In particular, within the supply chain, a firm’s sales and reputation can be deeply damaged by the misconduct of its suppliers.
In this paper, we investigate how a firm should use supply chain contracts to avoid or mitigate a supplier’s possible misconduct, focusing on a CSR supply chain consisting of an OEM and an overseas supplier, and introducing a decision model for the CSR supply chain. Our model incorporates these two facts: (i) the possibility of the market disruption can be reduced through a higher CSR investment, and (ii) the society has a minimum requirement for the supplier’s CSR. The supplier has to determine its wholesale price and CSR cost, while the OEM has to decide its order quantity and retail price.
A dilemma of the CSR supply chain appears from its equilibrium solutions – the supplier always utilises the minimum CSR cost, which eventually leads to a low supply chain efficiency. This paper considers two contracts, the flexible quantity contract and the wholesale price incentive contract, to solve this problem. Our results show that while both types of contract can improve the supply chain performance, neither contract always dominates the other. A contract dominating in some conditions will be dominated in other conditions. Besides the above dilemma, our results can also explain why, in most cases, the OEM prefers to select a supplier whose host country has a relatively low CSR requirement.