Improving a supplier's social responsibility: the effect of competition and incomplete visibility

Firms face increasing pressure from consumers, governments, and non-governmental organisations (NGOs) to implement better social responsibility (SR) practices in their supply chains. However, a lack of visibility into suppliers' operations and competition can hinder a firm's efforts to improve SR in its supply chain. In this study, we consider two competing supply chains, each consisting of a single firm and a single supplier, and explore the case where the firms can invest in their suppliers' SR capabilities. We assume the firms do not have full visibility into the suppliers' SR practices. Moreover, the suppliers are under scrutiny from a third party that may disclose the suppliers' compliance levels to consumers. Our results show that increasing the intensity of price competition leads firms to invest more in their suppliers and improves suppliers' SR. We further show that a firm benefits from having full visibility into its supplier's SR practices only when the suppliers' unit investment costs are low. We extend our results to consider the case where consumers respond to the supplier's actual compliance level (rather than just the news of their noncompliance) and demonstrate the robustness of our findings.