Legitimacy - the Nokia case

In italic are the comments that I added on December 30.

The 2006 documentary 'Een nette zaak' on the attempts of Nokia to change standard working conditions throughout its supply chain shows many of the difficulties the multinational faced and most likely is still facing today. In this blogpost I'll discuss how both Nokia and its supplier strive for legitimacy, whether Nokia's attempts are effective and in what other way they could act.

Nokia

The documentary is quite honest: incorporating the three P's (People - Planet - Profit) in your strategy is inevitable for a western multinational. Various stakeholders - shareholders as well as consumers - tend to ask more and more questions on the way Nokia produces its products. Whereas the multinational used to focus on its own processes, Nokia is now looking at the entire supply chain. In this documentary the emphasis is laid on the working conditions in the supply factories. 

Prakash ('01) investigates why companies would go beyond governmental environmental policies, even if this does not necessarily lead to profits that can easily be assessed. He states that people within these companies simply may feel the urge to do good and/or that they focus on long term benefits. In order to implement more ambitious policies, management can make decisions either based on power (use some sort of force) or on leadership (induce consensus). I will come back to this later.

Throughout the documentary, I got the feeling that the Nokia team that is followed to China is sincere about changing the supply chain. I feel that these individuals may be the forerunners within the organisation that, as Prakash explains, wish to do good. However, their attempts do not really seem to work. As a viewer, I got the feeling that the supplier was defensive rather the constructive and I did not get the feeling they would change their ways. Below, I will discuss how I think Nokia can make a larger impact.

Supplier

The Chinese supplier, with (at least) two Europeans in its higher management is visited by a team from Nokia that assesses the treatment of personnel in the supply factory. The supplier does not even oblige local legislation. We see that employees are forced to work overtime, in order to make the Chinese minimum wage. Another example: as a Nokia employee expresses her concerns about strong chemicals that are stored next to drinking water facilities, the supplier orders an employee to put the chemicals away for the moment. It is obvious that this is only done to please the guests.

Even though it may not directly seem the case, you can see the supplier striving for legitimacy as well, but the playing field is less balanced in a way. Where they state that the working conditions in their factory surpass the working conditions of their competition, they are not even meeting local legal standards yet. Their legitimacy dilemma is this: to remain a relevant party for their customers, they seek ways to keep their costs as low as possible, but at the same time this leads to more and more friction with their employees. 

I would like to add that the legitimacy is also strongly based on culture. China is still developing, so the working conditions may seem harsh to the Nokia team, but can still be attractive - or at least legitimate - to the Chinese employees. I view the documentary through this Western framework as well, so I do see the supplier as the bad guys. However, the situation is more complex than that.

Nokia vs Supplier

Where for me, as a westerner, it was easy to identify with the Nokia side of the story, I still found it striking how little effort Nokia put in trying to understand the underlying issue, which is a fundamental difference in view of 'good' working conditions. Prakash would describe the way in which Nokia is trying to influence its supply chain as power-based. The underlying disagreement is not assessed, but Nokia has the power to look for another supplier and is thereby forcing its supplier to meet Nokia's standards. DiMaggio and Powell ('83) describe the fact that industries tend to become more similar as they evolve. This can be caused by coercive, mimetic or normative mechanisms. Here, Nokia is actively pressuring its supplier, which I would consider to be a coercive mechanism.

Nokia and Supplier

If Nokia would seek to fundamentally change the supply chain, it would be useful to try to switch form a power-based influence to a more leadership-based influence on its suppliers. Nokia could even further increase its legitimacy, if they would try to assess the underlying differences between its vision and the playing field of the supplier. By actively trying to convince its partners, Nokia may achieve a snowball-effect, in which the 'better' working conditions spread through supplier companies through mimetic mechanisms of institutional isomorphism.

This may seem like an unrealistic or maybe moralistic approach, but I feel that it is the way to go for Nokia. Where the assessment team was a good first step (I had the feeling the Nokia management team honestly thought that at least local legislation would be enforced by their suppliers), I feel that the next steps should be based more on cooperation than on telling the supplier what to do. Changing this behaviour is not just a question of paying more, but also investing in a more equal relationship between suppliers and Nokia. 

I would suggest a 5-year plan. Nokia commits to the same supplier for 5 years, if the supplier actively improves its working conditions. This should be done in small, feasible steps that are part of the contract between the two companies. I feel that Nokia would show leadership and long term vision if they would intensify their cooperation with such a 5-year plan.