Conference Documentation

Where is the Limit to Corporate Responsiblity?

Trade Relations and Supply Chain Responsibility of Multinational

Enterprises

Contacts: For further informationen about this topic and the organizations please refer to:

Evangelischer Entwicklungsdienst EEDFachstelle WirtschaftspolitikPaul HellAkademieweg 1173087 Bad Bollead.paul.hell@t-online.dewww.eed.de

GermanwatchKodexWatchCornelia HeydenreichVoßstr. 110117 Berlinheydenreich@germanwatch.orgwww.germanwatch.org

OECDBerlin CentreHeino von MeyerSchumannstr. 1010117 Berlinheino.vonmeyer@oecd.orgwww1.oecd.org/deutschland/

TUACRoland Schneider26, Avenue de La Grande Armée75017 Parisschneider@tuac.orgwww.tuac.org

ImprintEditors:Evangelischer EntwicklungsdienstGermanwatchOECD TUAC

Editorial Offi ce:Cornelia Heydenreich, Germanwatch

Translation: Jennyfer Deffl and

Layout:Heidrun Müller

Printed by:Moosdruck, Leverkusen

This brochure was sponsored by Misereor and the publications department of the Church Development Service (EED/ABP).

© Germanwatch, 2004

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Table of Contents

Introduction 3

Outsourcing & Co.- Restructuring of Supplier Relations within theAutomotive Industry

Prof. Dr. Ulrich Jürgens, Social Science Research Center Berlin,Working Group “Knowledge, Production Systems and Work”

4

The OECD Guidelines for Multinational EnterprisesHeino von Meyer, OECD Berlin Centre

16

Supply Chain Responsibility and the OECD Guidelines –Expectations and experiences from an NGO perspective

Cornelia Heydenreich, Germanwatch

21

How do Multinationals take Responsibility for their Suppliers?Case study: Adidas Salomon AG

Frank Henke, Adidas Salomon AG, Social & Environmental Aff

26

Sustainability in the Supply Chain, Experiences and PerspectivesCase Study: Volkswagen AG

Dr. Michael Mesterharm, Volkswagen AG;Julia Koplin, University Oldenburg

28

From Raw Material to the Customer: Responsibility in the SupplyChain. Case Study: BASF AG

Dr. Carolin Kranz, BASF AG, Sustainability Center

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Responsibility of Multinational Enterprises within the Supply ChainThe Theory of Business Management’s View of the ‘InvestmentNexus’ Concept

Dr. Michael Stephan, University of Hohenheim

34

Corporate Responsibility from the Legal ViewpointDr. Eva Kocher, Hamburg University for Economics and Politics

49

ConclusionsCornelia Heydenreich, Germanwatch

55

2

Programme

• Greeting and IntroductionPaul Hell, EED, Church Development ServiceCornelia Heydenreich, Germanwatch

• Outsourcing & Co. – Current Trends in Supply Chain ManagementProf. Dr. Ulrich Jürgens, Social Science Research Center Berlin,Working Group “Knowledge, Production Systems and Work”

• OECD Guidelines for Multinational EnterprisesHeino von Meyer, OECD Berlin Centre

• Supply Chain Responsibility and the OECD Guidelines – Expectations andexperiences from an NGO perspective

Cornelia Heydenreich, Germanwatch

• How do Multinationals take Responsibility for their Suppliers?- Case studiesFrank Henke, Adidas Salomon AG, Social & Environmental AffairsDr. Michael Mesterharm, Volkswagen AG, Sustainability-Strategy &Environmental CommunicationDr. Carolin Kranz, BASF AG, Sustainability Center

• Global production networks and supply chains: Profitable transactions at theexpense of social responsibility?- annotations from the trade union view

Roland Schneider, Trade Union Advisory Committee (TUAC)

Impulses from applied sciences and financial concerns

• Corporate Responsibility – a microeconomic viewDr. Michael Stephan, University of Hohenheim, Institute of BusinessAdministration

• Corporate Responsibility – a legislative viewDr. Eva Kocher, Hamburg University for Economics and Politics

• How do rating agencies estimate the behaviour of companies to the supplychain?

Claudia Mauritz, scoris

• Panel discussion: Corporate responsibility: Where does it start, where does itend?

Tillmann Rudolf Braun M.P.A., BMWA and National Contact Point for OECDGuidelinesDr. Gunter Schall, BDI, Department of Foreign EconomicsRoland Schneider, TUACPaul Hell, EED, Church Development Service

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Introduction

Increasingly stronger supplier relationsand longer value chains are characteristicsof our globalised economy. Globalproduction networks emerge, andrelocation and outsourcing are the order ofthe day. In some branches of business,such as the textile industry, thesepractices can be observed since long andto a greater extent, but they become moreand more relevant for other sectors, too.Especially civil society groups havedemanded since years that multinationalenterprises take on responsibility for theirsuppliers. The issue in discussion is: Towhat extent can enterprises be heldresponsible for social and ecologicalconcerns, where can and must they exertinfluence on actions of their suppliers,subcontractors and contract partners andwhere does their influence end? Theanswers to these questions differdepending on branch of business and alsodepending on the viewpoint of thestakeholders from government, businessand civil society who answer them.Different interpretations and assessmentsopened up in the debate aboutimplementation of the OECD Guidelinesand their scope of application in the caseof complaints. The decision whether acomplaint will be accepted is made on acase-by-case basis. Which criteria can beapplied to define the potential control ofcompanies? How can scientificdiscussions and practical experiencesfrom other spheres contribute to thisquestion? These questions werediscussed at a meeting organised by theDevelopment Department of theProtestant Church (EED), Germanwatch,OECD and TUAC in December 2003. Theagenda can be found in thisdocumentation.

This publication contains most of thelectures held during this meeting. Theconclusions contain the most importantresults, including those from the final paneldiscussion. The issues supplier relationsand corporate responsibility are stillfervently discussed. We hope thispublication will give special impetus basedon science and practical experience to thisdiscussion. In particular, this publication

contributes to clarify the term ‘investmentnexus’ in the discussion about the OECDGuidelines. This publication was translatedinto English to introduce the discussionsheld in Germany to the internationalcommunity.

Cornelia Heydenreich, Germanwatch

Paul Hell, Development Department of theProtestant Church (EvangelischerEntwicklungsdienst) EED

Heino von Meyer, OECD Centre Berlin

Roland Schneider, Trade Union AdvisoryCommittee TUAC

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Outsourcing & Co. –Restructuring of SupplierRelations within theAutomotive Industry

Prof. Dr. Ulrich Jürgens(Science Centre Berlin)

1. Introduction

Since the early 1990s, a worldwiderestructuring process of industrialproduction systems has taken place. Theglobalisation drive of the ‘90s was amotivating force of these changes and, atthe same time, its direction wassignificantly influenced by these changes.Often it is the automotive industry thatleads the way for this restructuring.Although the automotive industry has itsspecific characteristics, the trendsdescribed in this article can also beobserved in other industries and businesssectors. So the automotive industry istaken as an example in this study.Outsourcing is only one part of therestructuring process. In general, it’s aboutrestructuring the division of labour –division of labour within and betweenorganisations, sectors, and countries. Thisincludes processes of separation,fragmentation of present relation models inthe industrial sector and creation of newforms of linkage and coordination, and, asa result, of ‘governance’ of transformedstructures of the division of labour.‘Elimination of boundaries’ is the term thatis often used to describe this development.In fact, dividing lines between enterprisesand clearly defined competences becomeblurred within the new division of labourand cooperation structures. Within the newforms of governance, the hierarchiccoordination structures, until now‘controlled’ by original equipmentmanufacturers (OEMs), seem to dissolveinto relations based on networks.This study concentrates in particular onthese changes of governance. To whatextent can single enterprises, in particularmultinational original equipmentmanufacturers, be held responsible forlabour conditions and socially responsibleconduct at all levels of the resulting

process chains under the givenconditions?

The following study concentrates on therestructuring of supplier relations in theautomotive industry and development ofnew cooperation models. It starts with abrief description of the automotive industryand its central value chains. After that, itaddresses the trend towards restructuring,its motivating forces and concepts, suchas outsourcing, modularisation etc. Thisprovides the starting point for depicting thenew structures and actor constellationsemerging in production and productdevelopment. The next part describes newcoordination forms that emerge as a resultof these conditions. The last paragraphdeals with new models of industrygovernance and transformed relationsbetween industrial actors.

2. Structures and Input Linkages withinthe Automotive IndustryLet us take the German automotiveindustry as our example and have a lookat its situation: According to theAutomotive Industry Association (VDA),720,000 workers were directly employedby the German automotive industry in2001, plus 960,000 employees at theindustrial manufacturing level and 3.35million employees in the trade and servicesector (VDA 2002). From this data results(should perhaps think of a better word) thefact that the automotive industry, withregard to statistic differentiation, formsonly a small part of a much broader-basedautomotive sector that includes a variety ofbusiness models and spheres of activity inits value chains.The automotive sector consists of twocentral process chains. The first coversthe stages in the process that starts withsuppliers of raw materials, followed bydifferent processing stages ofcomponents, assembling of modules andsystems, goes on to original equipmentmanufacturers and from them via trade toconsumers, and ends with recycling ofused cars. The second process chaincovers different stations of the productdevelopment process, from design todevelopment, to construction of

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Illustration 1. The Automotive Industry System and Its ProcessChains

manufacturing plants and their use formass production, and ends also withshutdown and recycling. Both processchains include a variety of servicefunctions from logistics to services fordevelopment, planning, investments andmobility. Table 1 shows both processchains and how they overlap at the originalequipment manufacturer (OEM) level.

A characteristic of the restructuring inrecent years is the increasingdifferentiation and specialisation ofenterprises along both process chains thatis accompanied by a shift of importancefrom the centre, the OEMs, to upstreamand downstream tiers. These trends canbe observed at all major automotiveindustry locations all over the world,although there are differences regardingscale and speed of this differentiation.Let us go back to the structure of theGerman automotive industry and analysethe German automotive industry’s inputlinkages (i.e. the downstream processes

above and left of the OEMs in Table 1).For that purpose, the contributions ofbusiness sectors and imports to the totalproduction value are taken into account.The OEMs generate only less than onequarter of the total production value, 20 %are contributed by the suppliers of theautomotive industry with regard tostatistical differentiation (Input-OutputTable 2000, German Federal Departmentof Statistics 2002, own calculations). Thus,the automotive industry and its abovementioned 720,000 employees contributetogether only less than 45 % to the totalproduction value, the rest is generated bymanufacturers from other service sectorsand by imports from abroad.Compared to the input-output calculationsof 1980, significant changes can beobserved. At that time, the gross outputvalue of OEMs amounted to 40 % and theproduction value of their suppliers to 15 %.Thus, contributions of manufacturersoperating in other sectors, of the servicesector and especially those of imports,

styling

Development/Construction

Prototypeconstruction

R&DServices

Tool-making/Process-plantEngineering

OEM

ERP/EDVSupplier/Services

Mass ProductionPlants

FacilityManagement

Recycling

(Module/Systems)Suppliers

LogisticsServices

Subcontractors

FinancialServices

Trade/Repair

MobilityService Recycling

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increased. That their percentageincreased from 7 % in 1980 to 20 % in2000 is evidence that internationalconnections in this business sectorincreased significantly.And another fact became evident: Sincethe 1990s, the automotive industry hasgrown increasingly beyond the originalsphere of original equipmentmanufacturers and also beyond the actualsphere of the automotive industry,statistically spoken.This growth beyond traditional industryboundaries is accompanied by a stronggrowth of the industry across nationalborders. In fact, production abroadincreased between 1993 and 2001 by 72% in the private car sector and by 123 %in the commercial vehicle sector. A similardevelopment can be noticed aboutJapanese manufacturers.Large manufacturers are already locatedabroad with half of their production, andconsequently with their employeesworking in production. Due to nationalrequirements (for example for localcontent), suppliers located in foreigncountries usually had their own local(national / regional) supply sources. Thissituation changed because of the recentglobalisation drive so that originalequipment manufacturers are now seekingto be supplied by the same suppliers fortheir worldwide model programmes. Forsuppliers, this implied the necessity tosettle around the existing production sitesin foreign countries, either by building newproduction plants or by taking over, orcooperating with, local companies. Oneresult of this development was that thegroup of direct suppliers was moreaffected by the globalisation drive than theoriginal equipment manufacturersthemselves. Present and future capacityenlargements of German suppliers showthat this is still true (VDA 2002). Only lessthan 20 % of the related projects arerealised in Germany, and in medium-termscenarios production site plans for EastEurope and Asia play a much bigger rolethan related investments in Germany.

3. Restructuring of Supplier RelationsThe serious competition superiority ofJapanese enterprises, which was fairlypressing in the beginning, and the transfer

of Japanese organisation concepts playedan important role for the restructuring thattook place in the 1990s. Japanese

manufacturers had a significantly lowervertical range of manufacture (i.e. they gota higher share of value from suppliers)and at the same time a significantlysmaller number of direct suppliers;consequently, the complexity of supplierrelations was reduced for manufacturers ofend products, whereas the responsibility ofdirect suppliers for the organisation of theirsubcontractors increased (pyramidmodel)1.The necessity to catch up with theJapanese competition advantage, to bringan increasing model variety in increasinglyless time on the market, building of newproduction facilities abroad due toglobalisation and achieving theseobjectives with scarce resources – a factorthat has been effective since the ‘90s evermore – all that has resulted in a dramaticchange within the industrial structures.Its spectacular result is the decrease inindependent original equipmentmanufacturers. A consolidation processtook place resulting in only tenindependent original equipmentmanufacturer groups in 2001 and a furtherreduction to five or six is predicted for thefuture.But many supplier companies were alsonot prepared for the heavy burden ofrequirements – such as increasedrequirements for development andproduction competence, capital realisation,and competence as systems and modulesuppliers. Mergers and acquisitionstransformed the supplier sector, whichconsisted mostly of small and medium-sized companies in Germany, into aplaying field for multinational suppliercompanies within one decade. Mega-suppliers that operate ‘at eye level’ withlarge manufacturers concerning financialpower, employment and multinationalactivities emerged. This resulted in a‘decentralization’ of the sector in which themanufacturer of the end product had aquasi-hierarchic top position before.

1 The following text contains passages from Juergens2003, p.19ff.

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Three aspects of this development shallbe analysed closer in this article: (1)development of a pyramid structure, (2)importance of the concept of productionbased on of modules and (3) the valuechain’s trend towards specialisation.(1) The pyramid structureOutsourcing activities by OEMs in order toreduce vertical integration in productdevelopment and production was the mainmotivating force for restructuring in thissector. Management consultants predictthat this trend will continue in the futureand as a result the suppliers’ share in acar’s total value will increase from 60 to 70% in 2002 and from 70 to 80 % by 2010.The suppliers’ share in new productdevelopments is expected to increasefrom 33 % in 2002 up to 51 % by 2010(VDA 2000:52).The shift towards suppliers in production isaccompanied by the OEMs’ policy toreduce the number of direct suppliers andto establish a ranking order within thesupplier structure. This trend followsobviously the Japanese model of a‘pyramid’ with the OEM at its top, followedby a group of first-tier suppliers that issupplied by a group of second-tiersuppliers that receives components fromthird-tier suppliers etc. right down to thesuppliers of raw materials. Such a pyramidmodel reduces the complexity of thesupplier chain for OEMs. At the sametime, a significant cost saving factor wasrealised by systematic gradation of wagelevels and working conditions at thedifferent tiers.Obviously, the pyramid model servedOEMs as model for their restructuringmeasures. In the meantime, theydrastically reduced the number of theirdirect suppliers and developed a tierstructure where a small number of first-tiercompanies supply OEMs directly.Furthermore, the Table shows that thenumber of suppliers in all other categorieshas decreased significantly within the lastdecade. Additionally, a further drasticreduction of all types of suppliers,including the new group of globalsuppliers, is expected. The tier of suppliersproviding simpler components (such asinstrument clusters etc.) is predicted to beeliminated. Thus, the pyramid model, apyramid with OEMs at the top, seems to

Table 1: Development of the Worldwide Supplier Basis forOriginal Equipment ManufacturersSource: International Business Development Corp. (2002,p.8)

be confirmed. This represents the OEM’sposition as standard-setting enterprise, asenterprise that ‘controls’ the productarchitecture, i.e. defines the specificationsof product components and transfers themto the internal and external actors for massdevelopment and production. In fact, theOEM owns and maintains comprehensivemeta-competence for the entire vehicle.(2) Module-based productionDue to module-based production,structuring of the supplier industry indifferent tiers took a special direction.Europe has the highest concentrations of(module and systems) suppliers andconsequently the most substantialstructural change within the automotiveindustry took place in Europe. Accordingto Roth (2001), suppliers of modules andsystems amounted to 22.2 % of theEuropean automotive industry’s totalsuppliers in 1993, those of components to56.7 %, suppliers of standardisedcomponents and commodities to 12.8 %,and those supplying raw materials to 8.3%. In 2000, the share of modules andsystems raised to 42.8 %, while the shareof components fell to 42.2 %, the share ofstandardised components andcommodities to 8 %, and the share of rawmaterials to 7 % (ibid.).Apart from the requirements for capitalrealisation and management capacity, this

1988 1998 2002 2008GlobalSuppliers

0 50 25 16

SubsystemsIntegrators/DirectSuppliers(First Tier)Modules/IndirectSuppliers(Second Tier)

3,900

7,500

250

1,000

100

80

75

0

Material,Hardware,Tools,Appliances

6,000 600 450 250

Services 3,600 960 600 350Total 21,900 4,060 2,055 941

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trend towards modules and systemsencourages, especially in regard toglobalisation, the trend towards ‘mega-suppliers’. According to the GermanManagement Consultancy Roland Berger

& Partners, consolidation in this branch ofindustry led to an oligopoly of seven oreight top suppliers per module and systemin 2000 (see also Table 4). Until 2005, theconsultants expect a reduction of thesuppliers per module and system to five orsix, and until 2010 to three or five. At the

same time, the quantity of modules andsystems per vehicle is reduced byintegrating parts and functions into largermodules and systems. While a vehicleconsisted of 18 to 20 modules in 2002,Roland Berger expects a reduction to 14to 16 by 2005, and to approximately 10 by2010.Thus, the most outstanding fact of thetrend towards a pyramid model is the trendto reduce actors – at the OEM level aswell as at the level of first-tier suppliers ofmodules and systems.

(3) Segmentation and Specialisationwithin the Value ChainThe changes described above led to analtered role of the OEMs and to new rolesand specialisation models of the valuechain itself for the actors. The changes ofthe core competences of the OEMs areshown in Table 3.While the typical OEMs in Europe andNorth America had shown a vertical

integration of approximately 50-60 % andregarded production, research anddevelopment as well as final assembly astheir core competences in the mid-1980s,the vertical integration had already fallento 30-40 % until 1995. The OEMs hadalready grown into their new role of carassemblers with core competences inregard to design, development of coretechnologies and final assembly. In the

Illustration 3: Change of OEM Competence1985 1995 20??Original Equipment Manufacturers Car Assembler Integrators

VerticalIntegration

50-60 % 30-40 % < 20 %

CoreCompetences

Production Design Design

R & D Core Technologies MarketingAssembly Assembly Sales

Illustration 2: Tendency: 30-50 MegasuppliersSource: According to Roland Berger & Partners (2000, p.50

7-8 5-6 3-5 18-20 14-16 approx. 10

2000 2005 2010 2000 2005 2010

30-50Mega

suppliers

Number of Top suppliersper Module/System

Number ofModules/Systems per

vehicle

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future, the OEMs of the past will play therole of brand integrators with a verticaldesign, marketing and sales.Parallel to this development, asegmentation of the value chain has takenplace leading to specialisation in specificfunctions of companies. While the OEMsdirectly and indirectly dominated the‘pyramid’ from basic elements andtechnologies over components, systemsand modules to overall integration andassembly in the past, we have now madeout a group of companies that specialisedin special parts and technologies. Asecond group specialised in systems andmodules and a third group in overallintegration with the qualification tomanufacture and assemble cars more orless in the same way as OEMs. Bycapacity-building among their engineers,these companies are (more or less) alsocompetent to develop and manufacture

complete cars; thus, they provide thepotential opportunity for OEMs tooutsource their own production completely– according to the model applied in theelectronics industry. The process ofspecialisation is still running and alters theimportance of the different actorsdepending on the potential value they cangenerate. Due to these specialisationtrends, the ‘pyramid’ model seems to beever less adequate to describe the newconstellation of actors. Cost advantagesdue to systematic gradation of wages andworking conditions are replaced byadvantages due to specialisation andconsequently high innovation intensity.The OEMs will ever less be able todominate their relations in a(quasi-)hierarchic way, because they lackthe necessary competence to specify andcontrol their suppliers’ operations, whichthey used to have in the old system.

Illustration 4: Changes in the Supplier Pyramid

It is expected that the part in the ‘middle’of the pyramid will be vertically integratedand specialised by the described trendstowards mega-suppliers, systemssuppliers etc. in the near future. In thisfuture scenario, the OEMs will be part of anetwork of specialised and flexiblesuppliers and will have lost their functionas hierarchic top on ‘the day aftertomorrow’.

supplying of material handlingcomponents producers

producer of components(standardization &/or specialization)

components - & systemspecialists

3rd tier

supplying & innovations ofsystemspecialists

Assembling of components & JIT-delivery of system integrators and

suppliers of Modules

OEMsassembly of the

automobile

today

suppliers of systems (highlyspecialized, innovations)

mega suppliershighly standardized, smallmanufacturing penetration

OEMsassembly of the

automobile

tomorrow?

Network withoutsourced,specialized & flexiblesuppliers

Assembly of the automobileCooperation of OEMs & suppliers

1st tier

2nd tier

the day after tomorrow?

According to VDA annual report/ 2000, p.56

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In its ‘Future Supply Structure Scenario forthe Automotive Industry’ the VDA (AnnualVDA Report 2000) showed the pyramid asinterim model that precedes theestablishment of a network structure(Table 4).

4. Cooperation beyond EnterpriseBoundariesThe new structures of division of workrequire new forms of cooperation. Theproblem is to ensure cooperation of theactors in the value chain while taking thegrowing fragmentation and specialisationof these actors into account. Relatedapproaches will be analysed for threedifferent constellations.(1) Final Assembly CooperationIn the 1990s, new concepts of integratedproduction facilities were developed –motivated by ‘module-based production’and lack of capital. Most of them weredeveloped by European companies butwere realised as part of globalisationstrategies in the context of new factoriesplanned outside of Europe.There are different approaches to modularproduction facilities that integratesuppliers:- supplier Parks - Fiat Melfi, FordSaarlouis, Nissan Sunderland and manyothers;- OEM Supplier Condominia (OEM andsuppliers under the same roof) – Skodaetc.- consortium Approach - VolkswagenResende; Smart Hambach.The supplier park model is the mostprevalent model – even though it doesn’tshow the highest degree of supplierintegration. In order to take up themaximum of advantages of just-in-timedelivery for component supply, manyOEMs made arrangements with localauthorities to establish supplier parks thatborder directly on or are at least situatedright next to their production facilities.Often, these infrastructure investments aredirectly provided in the form of ‘public-private partnerships’ between OEMs,suppliers and local authorities.This allows optimisation of just-in-time andsequential supply as well as delivery andmaterial processing and minimisesinvestments in production assets at thesame time. And last but not least it

enables to avoid lock-in effects. In thefollowing, the key elements of the industrypark concept as it is mostly realised atGerman production sites are listed:- A foreign investor provides investmentsand planning;- building structures are designed for theneeds of suppliers;- suppliers lease buildings; the leasingcontract term matches the suppliercontract term;- supplier and OEM factory are connectedby a joint assembling line- pay-on-production procedure: OEMs paysuppliers on a piece-by-piece basis whenparts arrive at the assembly station.The ‘Condominium’ approach goes a littlebit further. In this case, suppliers operateunder the same factory roof as the OEMs.As a result of outsourcing and verticaldisintegration, OEMs don’t need the hugeareas of their former factories and offerparts of their factory buildings to suppliers.But against the background of the difficultyconcerning relations between employersand employees, the approach to keepemployees with different wages andrepresentation structures under the sameroof remained an exception.The Consortium approach goes anotherstep further. This approach was chosen insome cases where new factories had beenbuilt with investments of suppliers andwhere suppliers were partly responsiblefor their own operations, while they wereat the same time fully integrated into other‘system partners’ at the operational level.The Achilles’ heel of such an approach isthe suppliers’ production systems and theircontrol over quality and supply provided bytheir own suppliers and the actual situationof industrial relations.The smallest strike or conflict in onesupplier’s factory will immediately affectthe entire system.In summary, the concepts of integratedproduction facilities can be regarded as aresponse to Japanese supplier conceptswhose principles had already been takenon earlier. Using these new concepts,most of the elements of logical andoperational management originating fromJapan (just-in-time, sequential etc.) can beimplemented and, at the same time,economic risks resulting from lock-ineffects can be avoided. Together with new

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models of risk sharing, the necessarycloser cooperation in final assemblyprocesses leads to new cooperation formsthat go beyond enterprise boundaries.(2) Cooperation in Product DevelopmentThe ‘model offensive’ of the EuropeanOEMs in the ‘90s – with a multiplication ofniche vehicles predominantly in the high-price segment – had not been overcomeby the OEMs alone. Parallel to outsourcingof components / modules, and alsooutsourcing of associated developmentactivities to suppliers, developmentactivities were more and more transferredto specialised companies offeringengineering services.Enterprises like Daimler-Benz, BMW andAudi that claim technological leadershipwithin the automotive industry put constantpressure on these companies’

development capacities. As a result,companies like Edag, AVL, Bertrandt,Rücker, CADFORUM, MSX Engineeringetc. grew rather fast, and some of themacquired the competence to developcomplete cars from conception and stylingto prototypes. At the same time,companies offering engineering serviceswere of crucial importance for bufferingcompetence deficits of the suppliers,which had to cope with more responsibilityfor development now. Companies offeringengineering services also had a keyfunction in module development (see alsoRentmeister 1999).For this reason, companies offeringengineering services play a crucial rolewithin the car development network, asshown in Table 5.

Illustration 5: Car Development Network (Actors and their Relations)

Source: Rentmeister (2001)

Empirical studies of new productdevelopment processes draw a complexpicture of interactions between thedifferent actors in these networks. In ownstudies, three different situations ofnetwork development activities wereobserved:- joint development activities in the OEM’sown development department located in

its facilities together with engineeringteams whose functions interrelate;- joint development of modules andcomponents by two or more OEMsuppliers in one of the supplier companies’facilities, including – at least in somecases – participation of process equipmentmanufacturers and companies offeringengineering services.

Original EquipmentManufacturers

Development Department

DevelopmentOffice

(broad range ofservices)

system suppliers(for example car doormodules, front ends,

shock absorbers, plastictanks)

supliers of parts & components(for example plastic parts, panels, textiles,

glass, gaskets, pipes Smaller Engineering Offices(special suppliers such as construction,

calculation, rapid prototyping, simulation)

Consulting agencies(for example projectmanagement, simultaneousengeneering, TQM, Kalzen)

Companies offeringSoftware services

(for example CAD systems,data management

systems)

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One common problem of communicationand cooperation within new productdevelopment networks concernsprotection of know-how and developmentof own best competences by the actors.With respect to this, protecting own know-how by patents became a new trend. Thismight point toward increasing problems,i.e. that know-how flows that are in factnecessary for future efficientcommunication and cooperation among allpartners could be impeded by lawsuits.(3) Networking between Small andMedium-sized Enterprises (SME)As described above, the new requirementsregarding technical competence andfinancial effectiveness resulted in a surgeof mergers and acquisitions. It seemedthat small and medium-sized enterpriseshad only little chances to survive. This,however, is not necessarily inevitable.OEMs are aware of the disadvantages ofdealing with mega-suppliers only, as theyhave by far more bargaining power thantraditional supplier companies could everhave mobilised. And regional decision-makers are certainly interested inprotecting their basis of SME andbenefiting from new possibilities createdby vertical disintegration and outsourcingat the same time. And developments ininformation and communicationtechnologies opened up new ways tocommunicate and cooperate acrossnational borders.The concept of the network approach thatsome European regions pursue at presentis based on Michael Porters ‘Theory ofClusters’ (see also Porter 1998). TheEuropean Union supports such clusteractivities with several funds (StructureFunds, InnoRegio Programme etc.).Austria is especially active in developingcar clusters.The company Automobilcluster (AC) ofUpper Austria (in the region of Linz) is oneexample for such a car cluster: AC callsitself the biggest inter-industrial carnetwork in Austria. It aims at buildinginternational competition, innovation, andcooperation capacities in its associatedcompanies, particularly in small andmedium-sized enterprises. It is supportedby funds provided by the EU and Austria(see also www.automobil-cluster.at).

In its corporate presentation,Automobilcluster claim to have all-roundcompetence to manufacture a completecar (‘the virtual cluster car’). The majorityof supplier companies within the networkare small and medium-sized enterprises:71 % of the AC partners have less than250 employees. The biggest OEMcustomers (based on their sales volume)are Volkswagen, DC, BMW, GM, MAN,and Ford, the biggest supplier customersare MagnaGroup, Siemens, and Boschetc. In addition to their customers from theautomotive sector, the AC cluster has alsocustomers from other branches ofindustry.AC Upper Austria may be an especiallywell managed and successful cluster, butit can still be regarded as an example ofdifferent cluster activities in Europeanregions. Target of these activities is todevelop competences and systemsolutions and to maintain structures basedon small and medium-sized enterprises inorder to develop their competence inmanufacturing the ‘virtual cluster car’.

5. Outlines of the New IndustryGovernance – Conclusions and OutlookThis presentation showed the fundamentalchanges of structures and organisationforms within the automotive industry. Itmust be emphasised that these areemerging processes, searching processesof the actors that have not yet beencompleted and that can still change theirdirection. However, this article couldn’tanalyse differences related to specificcompanies and countries in detail.Nevertheless – the changes arefundamental. The changed role of theOEMs themselves makes that factabsolutely clear. OEMs seem to lose theirformer position as the ‘controlling top’ ofindustrial process chains. Under the givencircumstances, to what extent canpowerful multinational OEMs be heldresponsible for actions and processes atprocess chain levels that lay far beyondtheir scope of direct influence?But visions of eliminating the OEMs’dominance and building a network ofrelations between equal network partnersare (still) far away from reality. The OEMsare still the spider in the web of industrialcar manufacturing process chains; they

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still hold the central concepts, guidelines,and the power to define structures andprocesses with a firm hand. But this couldchange – the biggest threat to theirposition will be if new forms of large salescompanies appear upstream at theconnection point to the customer, put carsof different manufacturers ‘on theirshelves’ and commence to gain the powerto define product and process structures.In the industry sector, such businessmodels have been discussed morefrequently for several years.Although OEMs will keep their definitionpower, the form of enforcing their powerwill change against the background of thechange taking place in the centre of theirbusiness activity. As shown above, thisfocus is increasingly shifted todevelopment and marketing tasks due tooutsourcing and redefinition ofresponsibilities. Relationship withcustomers and brand management (resellvalue, brand loyalty) become more andmore important for OEMs – and thus alsotasks concerning advertisement and publicrelations. These changes are intensifiedand overlapped by capital-market-relatedrequirements in the field of investorrelations. As a result, sensitivity todemands for socially responsible actionincreases and – facing the accountabilityof the OEMs for the end product –processes and activities taking placesomewhere along the process chains, andthus outside their scope of direct influence,cannot be excluded from thataccountability.As shown above, OEMs transfer largeparts of their responsibilities to modulesand systems suppliers by outsourcing and,as a result, reduce the number of directsuppliers supplying their own factoriesextremely – from several thousand toseveral hundred companies. By doing so,they keep some control over their directsuppliers’ supplier relations – the scope ofcontrol varies depending on company.Some OEMs still select their suppliers andnegotiate terms of delivery themselves;others put these tasks on to their first-tiersuppliers. At the same time, requirementsfor suppliers concerning their processqualification were more and morestandardised. This standardisation surge,accompanied by audits and certifications,

is one of the most important concomitantsand a result as well as a precondition ofthe above described changes withinsupplier structures. While certification ofquality systems was in the foreground inthe beginning, certification refers now toentire production systems (cf. alsoJuergens 2003) and also to aspects ofecological and social responsibility (cf.other contributions in this book).By now, the basic structures ofreorganisation within supplier relations thatresulted from the relation between OEMand first-tier suppliers have more andmore been taken over and have beenapplied to their own supplier structuremanagement by the latter. In this case, areduction of direct suppliers is also takingplace. At the same time, requirementsconcerning process qualification andcertification are transferred. As a result,transparency and the scope of control overprocesses increase also at the upper endof the process chains, i.e. at small andmedium-sized enterprises.The situation of the commodities suppliers,however, may be different; this questionmust be clarified by further investigation.This is also the field where e-business andbidder competitions on purchasingplatforms like Covisint, Supply-on etc. playan important role. And for purchasedecisions of commodities, price aspectsare of great importance. How far questionsof internal process design and associatedcertifications are important for purchasedecisions of end product manufacturers orkey suppliers, respectively – and to whatextent this access includes alsosubcontractors of these companies – isunknown. In view that the – estimated! –ad valorem percentage of thesecommodities amounts to 15 to 20 %(accumulated through the value chain) theassociated employment percentage in thissector should still be significant, inparticular under third world conditions. Inany case, these suppliers of commoditiescan easily be replaced, if somethingnegative concerning their workingconditions and their social conductbecomes public.Despite of the described trends offragmentation of the group of actors andalso because of a shorter length of time tomaturity for models, a rather stable

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constellation of actors will result from associated vehicle projects in the long run. Althoughthey change their combination from the phases of concept development for the new vehicleand its development through the phase of mass production and, after completion of thisphase, to spare part and service functions, fluctuation remains limited over a period of six toeight years from decision to supplier structure and termination of mass production. Due torequirements concerning time-to-market reductions, quality assurance and other factors, thecoherence of this group of actors hasrather increased. This applies especially to the need of enlarged cooperation in respect ofinnovation processes.2 Consequently, questions concerning coordination of inter-organisational processes and cooperation by means of exchange gain importance. At thesame time, there are more uncertainties and risks within these action constellations that arecharacterised by a balancing act between cooperation requirements at the one hand andcompetition conditions at the other hand – by action constellations of co-opetition

2 The following text contains passages from Juergens 2003a, p.38ff.

Illustration 6:

Competitive Relation Cooperative relationPrice pressure(annual price reduction rounds; drasticreduction requirements for rescueoperation by OEMs; see also Ghosn atNissan)

Joint concept developmentInnovation transfer

Competitive tendering Simultaneous engineering; Co-designProtection of company-related know-how Improvement of communication and cooperation

beyond company limits

There is a variety of such actionconstellations in the relation between OEMand suppliers. One results from the maincontradiction to involve suppliers intoconcept development of new products andprocesses early in order to benefit fromtheir expertise on the one hand, and tosearch for the most competitive supplierfor mass production and competitivetendering on the other hand. Co-opetitionis triggered by the fact that suppliers andOEM, as well as suppliers themselves,often compete directly with each other forcompetence areas where ‘corecompetences’ seem to be clearly defined.This competition is increased bytechnological development of functionintegration. At the operating level, thisalways means also to secure the future ofthe own company and sphere of activitywith allowing as much simultaneousengineering as possible at the same time.In most cases, co-opetition is stillsignificantly characterised by thedominance of OEMs today. Suppliers arestill the first and most vulnerable victims

for reductions by the OEMs. OEMs can adhoc save money by renegotiation of pricesand terms of delivery and demonstrate aquick and plausible improvement of resultsto the capital market. One example forthat are the measures recently introducedat Chrysler – but they are also an examplethat such measures are only enforceableto a certain extent. The tools to involvesuppliers more in the risk associated withthe development of new vehicles andexpansion strategies, however, haveincreasingly been expanded in the courseof the recent development:- advance financing of development effortsin the run-up to the supplier selection;- takeover of just-in-time risks by buildingof satellite factories at production sitesworldwide;- takeover of financing and operating risksassociated with new factory concepts, asdescribed above.The regulation of the strained relationsbetween OEMs and spare partmanufacturers is still an unsolved problem.For the German VDA, this problem is one

15

of the most important concerns. Severaltimes, the VDA developed guidelines forfuture cooperation. In 2001, theAssociation formulated ‘Principles forPartnerships between OEMs and TheirSuppliers’. However, the problems havenot been solved by these principles.

16

The OECD Guidelines forMultinational Enterprises

Heino von Meyer,(OECD Berlin Centre)

The OECDCharacter and MembershipThe Organisation for Economic Co-operation and Development (OECD),bringing together 30 leading marketeconomies from Europe, North-Americaand the Pacific region, is a key institutionfor multilateral intergovernmental co-operation. It is a standing governmentconference where annually more than30 000 delegates meet in 150 thematiccommittees and working groups to discusscommon concerns, and to agree on policyconclusions and recommendation. Theirwork builds on the analytical foundationsand findings provided by the OECDSecretariate based in Paris. Stakeholdersfrom the business sector (BIAC), tradeunions (TUAC) and NGOs are involved inthe work of the OECD.

Importance and OutreachOECD Member countries represent twothirds of the global GDP, three quarters ofglobal trade and four fifths of officialdevelopment aid. The OECD is neitheruniversal as the UN, nor supranational asthe EU, nor does it have important fundsat its disposal. But it reaches a globalscope by its working relations and co-operation with more than 70 non-membercountries. Acting as a ‘soft helper’ theOECD also supports and complements thework of other international organisationslike WTO, IMF, ILO, WHO and FAO.

Aims and TopicsThe OECD promotes policies designed:– to achieve the highest sustainableeconomic growth and employment and arising standard of living in Membercountries, while maintaining financialstability, and thus to contribute to thedevelopment of the world economy;– to contribute to sound economicexpansion in Member as well as non-member countries in the process ofeconomic development; and

– to contribute to the expansion of worldtrade on a multilateral, non-discriminatorybasis in accordance with internationalobligations.(OECD Convention adopted in 1960)

The OECD Secretariate with its 2 000 staffmembers is divided into 15 directorates,dealing with economics, employment andsocial affairs, environment, trade, publicgovernance and territorial development,statistics, education, development,agriculture, financial, fiscal and enterpriseaffairs, science and technology, etc.Furthermore, it has semi-autonomousbodies such as the International EnergyAgency (IEA) or the Centre for Educationand Research Innovation (CERI).

The OECD Mode of Operation

Indicators and RecommendationsOECD data and indicators provide a solid,internationally comparable base forbenchmarking and policy formulation.Examples are: The Programme ofInternational Student Assessment (PISA)or the DAC Report on OfficialDevelopment Assistance (ODA).

OECD Outlooks with analyses andforecasts on economic, social andenvironmental conditions and trendsreveal challenges and opportunities.

OECD Conventions, Guidelines, andPrinciples are essential tools for getting togrips with globalisation. Examples are:

Data &Indicators

Analyses

Discussions /Negotiations

Recommendations/Decisions

Implementation

Peer reviews,Multilateral assessment

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The OECD Model Tax Convention(transfer prices, e-business); the list ofnon-cooperative tax havens; developmentpolicy guidelines (e.g. on combatingpoverty, public health care, prevention ofconflicts), access to environment-relatedinformation; corporate governance;combating bribery and corruption;multinational enterprises.

Peer ReviewsPeer reviews are systematic examinationsand assessments of a country’sperformance by other countries (‘peers’)aiming at helping the country• to comply with established standards

and principles;• to adopt best practice; and• to improve the efficiency of its policy.The reviews are based on a relationshipcharacterised by partnership, notopposition. They rely on mutual trustamong countries and in the process theyare involved in. The reciprocity of theexamination process creates aninternational system of mutualaccountability.

The OECD Guidelines for MultinationalEnterprisesContext and DevelopmentThe OECD Guidelines are part of theOECD Declaration on InternationalInvestment and Multinational Enterprises.They represent a detailed internationalcode of conduct – adopted in 1976 andfundamentally revised and significantlyamended in 2000.Presently, the Guidelines have beenadopted by all 30 OECD Membercountries and 7 Non-member countries.The Guidelines have no legally bindingforce, but they establish bodies andprocedures for implementation andmonitoring. Disputes are reported toNational Contact Points and shall besolved by standardised procedures.The language of the Guidelines is basedon important international referencesystems, such as:• Universal Declaration of Human

Rights;• ILO Declaration on Fundamental

Principles and Rights at Work;

• Rio Declaration on Environment andDevelopment and Agenda 21;

• Copenhagen Declaration for SocialDevelopment.

The language of the OECD Guidelines iscompatible and complementary with, but,at the same time, more comprehensiveand more detailed than the UN GlobalCompact.

Nature and ApproachThe Guidelines are recommendations oncorporate social responsibility addressedby co-operating governments tomultinational enterprises. They comple-ment and strengthen initiatives of thecountries to define and implementstandards for responsible businessconduct, concerning i.a.• corporate governance;• combating corruption;• environmental management.Their logic is not based on defensiveprotection (i.e. not only oriented towardscompliance with legally binding minimumrequirements), but on pro-activeencouragement of best practice. They arean invitation to voluntarily go beyondminimum standards and define newstandards of what can be regarded as bestpractice (e.g. including labelling).

Goals and Subjects of the GuidelinesThe general goal of the Guidelines is toencourage the positive contribution whichmultinational enterprises can make toeconomic, social and environmentalprogress, and consequently to sustainabledevelopment.

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They are divided into ten sections:

Section 1 Concepts and Principlesdescribes the basic principles of theGuidelines, such as:• voluntary participation;• global application;• no special treatment for MNE;• good practice for all enterprises;• international dispute settlement

mechanism;• National Contact Points;• review and consultation procedures.Section 2 General Policies provides firstspecific recommendations on• promotion of sustainable development;• respect for human rights;• encouragement of local capacity-

building;• encouragement of human capital

formation;• development of effective management

systems;• promotion of employee awareness of

company policies;• protection of employees who make

bona fide reports;• responsibility for the supply chain;• abstinence from political involvement.Section 3 Disclosure recommendsdisclosure of all crucial company-relatedinformation concerning operation andfinances, especially on:• structure and objectives of the

company;• major share ownership and

employment;• governance structures and policies.Additionally, it recommends disclosure ofinformation on the social, ethical andenvironmental policies for which nosimilarly detailed reporting procedureshave been developed until now.Section 4 Employment and IndustrialRelations covers all four core labourstandards of the ILO:• respecting the right of employees to

be represented by trade unions and tonegotiate collective agreements;

• elimination of all forms of forced orcompulsory labour;

• abolition of child labour;• non-discrimination against employees

(race, sex, religion);and additionally

• consultation and co-operation betweenemployers and employees;

• employment of local personnel;• meaningful negotiations.Section 5 Environment addressesespecially:• respect of national objectives and

international standards;• establishment of environmental

management systems (ISO, EMAS);• life cycle analysis;• precautionary principle;• environmental research and

development;• environmental education and training;• consumer information;• partnership and initiatives in regard to

environmental policy.Section 6 Combating Bribery demandsto refrain from directly or indirectly bribingpublic officials and other business partnersand requires in particular increasedtransparency, training programmes anddisciplinary procedures for employees,management control systems and torefrain from making illegal contributions topolitical parties.Section 7 Consumer Interests demandsthat enterprises should act in accordancewith fair marketing and advertisingpractices when dealing with consumers,respect consumer privacy and provideprotection for personal data, and ensurethat their goods or services meet requiredsafety and quality standards.Section 8 Science and Technologyaddresses promotion of the disseminationof research and development results ofmultinational enterprises in the countriesthey operate in order to support hostcountries in improving their innovationcapacity.Section 9 Competition emphasises theimportance of an open and competition-oriented corporate environment.Section 10 Taxation demands fromcompanies to act in accordance with boththe letter and the spirit of taxation lawsand regulations and to co-operate with taxauthorities.

ImplementationThe Guidelines are implemented by theestablishment of National Contact Pointsthat act as government agencies or as

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bodies under the joint supervision of allsocial partners.Their task is to• promote implementation and

disseminate information;• promote co-operation and offer a

discussion platform to the businesscommunity, employee organisations,and other non-governmentalorganisations;

• discuss and settle disputes;• provide annual reports;• participate in review and consultation

procedures; and• co-operate with the OECD Committee

on International Investment andMultinational Enterprises (CIME).

Supplier Relations – Problems andPerspective

Supply Chain ResponsibilityGeneral PoliciesThe General Policies section (Section 2)of the OECD Guidelines for MultinationalEnterprises states: ‘Enterprises shouldtake fully into account established policiesin the countries in which they operate, andconsider the views of other stakeholders.In this regard, enterprises should […] 10.Encourage, where practicable, businesspartners, including suppliers andsubcontractors, to apply principles ofcorporate conduct compatible with theGuidelines. […]’

CIME CommentariesIn regard to this section of the Guidelines,the commentaries worked out by theOECD Committee on InternationalInvestment and Multinational Enterprises(CIME) state that this section does notonly affirm the standards and policiesembodied in the Guidelines, butsimultaneously also their importance for• suppliers, contractors,• subcontractors, licensees,• and other entities.The added language ‘where practicable’implies that the ability of companies toinfluence the behaviour of their businesspartners is limited in practice. Wherethese limits are set in reality depends onspecific conditions and characteristics ofthe associated sectors, industries andcompanies, as well as on productionprocesses and products, such as• number of suppliers / business

partners;• structure and complexity of the supply

chain;• market position of the companies.

Complexity and ‘Complicity’Supplier relations reach from merepurchasing relations at ‘anonymous’markets or punctual procurement torelations based on highly complexcontractual relations. Only from anarrowly legalistic / technical view can thelatter be regarded as unconnectedautonomous enterprises.Depending on branch of industry andcompany type, they are very differentlystructured and thus often characterised byhigh complexity. But: Complexity must notbecome the excuse for ‘complicity’.

Investment and TradeIn the practice of National Contact Points,the “investment nexus” is emphasised asan important criterion for the interpretationof the Guidelines, in particular in order todetermine the scope of supplier relations.This nexus results from the context inwhich the Guidelines were established:The Declaration on InternationalInvestment and Multinational Enterprises.Often, however, it is difficult to differentiateclearly between trade and investmentrelations, especially in the case of long-lasting contractual relations established

ADHERING COUNTRIESNationalContactPoints CIME

Trade unions andother Employee

AssociationsTUAC Trade UnionAdvisory Commitee

BIAC Business &Industry Advisory

Commitee

MultinationalEnterprises &

National BusinessFederations

NGO

Implementing the GuidelinesNational level OECD level

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between enterprises and profoundlydepending business partners.

Scope and InterpretationThe Chair of the OECD Ministerial,Australian Finance Minister Costello,emphasised in his preliminary statementheld in June 2000:‘The Guidelines express the shared valuesof the governments of countries that arethe source of most of the world’s directinvestment flows and home to mostmultinational enterprises. They apply tobusiness operations all over the world.’There are some indications that theGuidelines will be interpretedasymmetrically according to the chosenperspective: With a defensive perspective(i.e. when assessing a violation of theGuidelines) the restrictive interpretationwith a limitation to investment relations willprevail; with a pro-active perspective(i.e. when assessing best practiceexamples), the scope will be defined andinterpreted more widely, not least by theenterprises themselves.

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Supply Chain Responsibilityand the OECD GuidelinesExpectations and Experiences from anNGO perspective

By Cornelia Heydenreich,Germanwatch

Consideration of supplier relations wasone of the main discussion points duringthe year 2000 revision of the OECDGuidelines for Multinational Enterprises,which were initially adopted in 1976. WhileNGOs that were involved in this revisionfor the first time after the failure of theMultilateral Agreement on Investments(MAI) supported the establishment ofcorporate responsibility for supplier chains,business representatives and some oftheir advocates from government fractionsare opposed to that approach. For NGOs,the finally achieved establishment ofresponsibility for supplier chains is one ofthe most important results of the OECDGuidelines Revision.

The Compromise of 2000The result of the extremely differentpositions is a compromise that NGOsregard as very fragile: Paragraph 10 inChapter II, General Principles, states:‘Encourage, where practicable, businesspartners, including suppliers andsubcontractors, to apply principles ofcorporate conduct compatible with theGuidelines.’3 NGOs proposed to use theterm ‘enable’ instead of ‘encourage’ and todelete ‘where practicable’.4 As theirreason, NGOs stated that from theirexperience, mere encouragements orrequirements are often not sufficient toachieve true compliance. Often enough,contracts between a multinationalenterprise and its suppliers are set at sucha low price level that the contract partner

3 Federal Ministry of Economic Affairs, OECD Guidelinesfor Multinational Enterprises, Revision 2000, p.194 ANPED and FoE EWNI, NGO commentary toImplementation document and draft integrated text of theOECD Guidelines for Multinational Enterprises,unpublished.

cannot implement stronger requirementssuch as environmental and socialstandards that are required of himadditionally to quality and supplyrequirements. ‘Enable’ would entail thatcompanies negotiate contract prices at alevel that enable suppliers to comply fullywith the OECD Guidelines.

For a more thorough interpretation of theGuidelines, explanations were developedwhen the OECD Guidelines had beenadopted.5 They highlight that multinationalenterprises must acknowledge that thesestandards and principles of the Guidelinesare also important for their suppliers,contract partners, subcontractors,licensing partners and other business unitswith which they have business relations.The explanatory notes highlight that theenterprises’ scope of influence has limitsthat differ in terms of characteristicsrelated to sector, enterprise and product.Such characteristics could be the numberof suppliers or other business partners,structure and complexity of the supplierchain or the market position of theenterprise in relation to its suppliers. Theexplanatory notes explain further that thescope of influence is not always the samefor all business partners within the supplierchain. Especially for established or directbusiness relations, the Guidelinesrecommend compliance with the principleslisted. But not all individual or punctualcontracts or transactions that are formedin the market or are based on client-to-client relations can make compliance withOECD Guidelines a condition.Often, however, social and environmentalstandards are not met within those directand long-term business relations and mustbe addressed within the context of theGuidelines. Especially the question ofmarket position seems to be an interestingaspect and is also addressed in theargumentation of NGOs.

5 Federal Ministry of Economic Affairs, OECD Guidelinesfor Multinational Enterprises, Revision 2000, Explanatorynotes p. 39ff, explicitly p. 40.

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Developments after the OECDGuidelines Revision in 2000While the reference to supplier relation inthe Guidelines is very vague and regardedas inefficiently formulated by NGOs, theexplanatory notes show an interpretationapproach that seems to come closer to theNGO approach. Since the establishmentof this subject within the context of theGuidelines stirred intense discussions, thefirst legal actions with reference tosuppliers showed how differently theGuidelines had been interpreted. Theselegal actions triggered an intense debateabout the scope of the OECD Guidelines.Supplier relations were discussed in detailduring the OECD Roundtable in June20026 that is held every year in theframework of the Annual Meeting ofNational Contact Points and focuses on akey issue. A Working Party of the OECDCommittee on Investment (CIME) dealtwith this issue and supplemented itsconsiderations by conducting a survey intothe interpretation of the supplier aspectand the scope of the OECD Guidelinesamong National Contact Points. At CIMElevel, the discussions resulted in theadoption of a declaration made in June2003 that introduced the term ‘investmentnexus’. Not only NGOs but also the tradeunion representative TUAC regards this asa restriction of the scope of the Guidelinesthat does not correspond withinterpretations and demands of allNational Contact Points.

Legal Actions Concerning SuppliersSeveral legal actions that refer to this partof the Guidelines have been filed since therevision of the Guidelines and theintegration of supplier relations.The first case was filed against Adidas andKubbinga, a Dutch trade company, by theIndia Committee of the Netherlands in2001 because of industrial law violationsconcerning soccer ball production in India.While the action against Adidas was 6 OECD, OECD Guidelines for Multinational Enterprises:Annual Report 2002. Focus on Responsible Supply ChainManagement.

accepted, the Dutch Contact Pointobjected to involve Kubbinga in this casesince only business relations exist.Though Adidas does not hold shares inthe company and has not invested moneyin India, a certain ‘intellectual investment’was assumed. Furthermore, Adidas setalso definite preconditions, such asdelivery times, prices, and work standards,and required its supplier to take measuresconcerning health care and workplacesafety. Furthermore, Adidas was one ofthis supplier’s biggest buyers.In Germany, Greenpeace filed legal actionagainst TotalFinaElf Germany forenvironmental pollution due to oilextraction in West Siberia. While theNational Contact Point in Germanyemphasised, even after consultations withCIME, that no more than trade relationsexist, Greenpeace used particularly theexplanatory notes to the Guidelines as itsargument for the existence of direct andestablished business relations resultingfrom purchase contracts that run for tenyears. Furthermore, these contracts aremore or less investment measures as localinvestments and oil extraction take placeonly as a consequence of guaranteedpurchases. Moreover, TotalFinaElf is amain buyer and holds a dominant marketposition that is not weakened in any wayby existing intermediate tradingcompanies, as the BMWA has claimed.After the term ‘investment nexus’ wasestablished, it was applied as reason fordismissing the legal action in the annualreport of the National Contact Point to theCIME. Until now, however, Greenpeacedidn’t receive a final dismissal of the actionin written form. The Campaign for CleanClothes filed another action against Adidasconcerning industrial law violations insupplier companies in Indonesia. In thiscase, there were no discussions at theGerman Contact Point concerning supplierrelations and the case was accepted aslegal action. Especially in the clothing andsports articles industries it seems to beundisputed that enterprises take onresponsibility for their suppliers, last but

23

not least because of the fact that theseindustries are strongly influenced bysupplier relations and have already comeunder public scrutiny as a consequence ofinvestigations of NGOs in the past.In one case, filed by the Swedish ContactPoint against operations of Sandvik andAtlas Copco, a missing investment relationwas criticized, despite the fact that thecase was being dealt with (is this what youmean.. the sentence I crossed out wasunclear) After examination, the NationalContact Point found that thecorresponding enterprises do not haveenough local influence since they onlyprovide services.Several other cases resulted from the UNPanel Report on Illegal ResourceExploitation in Congo7 that accusedenterprises of OECD Guidelines violations.On the basis of this report, Dutch NGOsfiled legal action against ChemiePharmacie Holland (CPH), which againraised discussions and resulted in thedismissal of the case by the Dutch ContactPoint due to the fact that no investmentnexus exists.Another legal action was also dismisseddue to the missing investment nexus. Theaction filed by Greenpeace against theWest LB involves loans for an oil pipelinein Ecuador where human rights andenvironmental standards have beenviolated during the construction work. Inthis case, banks, too, should askthemselves to what extent they areresponsible for ecological and socialimpacts of their investments and loans.The majority of cases submitted by NGOsinclude such supplier-related issues(unlike the cases submitted by tradeunions that hardly address supplier-relatedissues), which is surely not without cause,as many major problems of standardviolations occur in this sector. Therefore,the question of the Guidelines scope will

7 UN, Final Report of the Panel of Experts on the IllegalExploitation of Natural Resources and Other Forms ofWealth of the Democratic Republic of Congo. October2002.

definitely accompany us in future cases aswell.

Survey into the Scope of the Guidelinesamong National Contact PointsA survey into the scope of the Guidelinescommissioned by the CIME Working Partyon the Declaration from National ContactPoints8 shows a range of differentopinions.Several National Contact Points refer tothe fact that the OECD Guidelines are partof the OECD Declaration on InternationalInvestment and Multinational Enterprises.According to their interpretation, it clearlyfollows that the Guidelines aim toinvestment in contrast to the traderelations of the enterprises. This opinion isnot only shared by some National ContactPoints but also by BIAC, the economicagency at the OECD, and has alreadybeen expressed during the negotiationsconcerning the revision 2000.The Guidelines are regarded as part of adeveloping framework for corporateresponsibility. Thus, we can assume thatimportance and scope of such frameworkswill change if economic realities (such asincreasing supplier linkages) change.Moreover, it has been pointed out thatexplanatory notes to the OECD Guidelinesrefer to several other instruments ofcorporate responsibility. But the majority ofthese instruments do not differentiatebetween investments and other corporateactivities.Examples are the rules regarding combatof corruption set by the InternationalChamber of Commerce ICC that apply toinvestment and trade.Some National Contact Points emphasise,especially Chapter 10 of the explanatorynotes to the Guidelines, which directlyconcerns supplier relations. Therepresentatives emphasise potentialrealisation of ‘direct influence’ rather thanof investments. Though direct investments

8 OECD, OECD Guidelines for Multinational Enterprises:2003 Annual Meeting of the National Contact Points,Report by the Chair, Background Paper on the Scope ofthe Guidelines, p. 25ff.

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may result in increased control and mayimply direct influence, direct influence canalso result from other circumstances: frommarket power or other corporate practicessuch as certification or systems that allowdetailed tracking of a product following thesupplier chain. As stated in theexplanatory notes to the Guidelines,market power over suppliers enableenterprises to influence their suppliers’behaviour, even if there is no directinvestment and therefore no formalcorporate control exists. There are alsoother corporate practices to exert controlover companies: This is the case, if thesupplier is made responsible for specificperformances such as compliance withquality standards. For example, theaviation industry uses purchasingpractices that enable producers to controlthe product quality of their suppliers.Often, this is achieved by qualitystandards and certification systems.Investment is made in these certificationsystems, but the supplier-buyer-relationdoes not contain any investment in thetraditional sense of foreign directinvestment. It is also pointed out that theOECD Declaration contains no precisedefinition of investment. The introductionof the Guidelines states: Internationalbusiness has experienced far-reachingstructural change and the Guidelinesthemselves have evolved to reflect thesechanges. [...]Multinational enterprises, liketheir domestic counterparts, have evolvedto encompass a broader range of businessarrangements and organisational forms.Strategic alliances and closer relationswith suppliers and contractors tend to blurthe boundaries of the enterprise.9 So someNational Contact Points make out theopportunity to define investment ratherwide and some flexibility is created inorder to evaluate the influence ofmultinational enterprises and the existenceof an investment nexus.

9 Federal Ministry of Economic Affairs, OECD Guidelinesfor Multinational Enterprises, Revision 2000, p. 15.

From practical experiences, which werediscussed during the roundtable meeting2002, derives the statement thatenterprises often have the possibility toinfluence their suppliers, but rarely use it.As a result, the recommendation onresponsibility for suppliers will not onlyapply if influence exists but also if it seemsto be possible to develop processes andstructures in the relation with suppliers sothat influence can be achieved.Besides these questions that relate tocompanies, one National Contact Pointwas also concerned about the work loadfor the National Contact Points that mightincrease enormously, if ‘mere traderelations’ were to be included.From the NGOs’ point of view, however,this last point would rather indicate that theNational Contact Points’ resources mustbe increased. Apart from that, the NationalContact Points’ different points of viewconfirm the NGOs’ experience that itmatters at which National Contact Point acase is filed since the Guidelines areinterpreted differently. In this case, eventhe often evoked so-called ‘PeerPressure’, which NGOs regard as not yetclearly defined, is of no help. With a jointCIME declaration on the scope of theGuidelines in June 2003 the CIME soughtto provide a general orientation for allNational Contact Points.

CIME Declaration from June 2003After long discussions of the CIMEWorking Party, a statement about thescope of the Guidelines10 was adopted atthe annual meeting of the National ContactPoints in June 2003. It emphasises in thefirst line that the Guidelines are part of theOECD Declaration on InternationalInvestment and Multinational Enterprises.This fact and the responsibility for theGuidelines carried by the InvestmentCommittee lead to the interpretation thatthe Guidelines refer to investments. At thesame time, the Guidelines represent one 10 OECD, OECD Guidelines for Multinational Enterprises:2003 Annual Meeting of the National Contact Points,Report by the Chair, Scope of the Guidelines, p. 12.

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of the most important instruments forcorporate responsibility and have alreadybeen related (and will be related in thefuture) to other contexts. According toCIME, the application of the Guidelines isbased on the existence of an ‘investmentnexus’, although this ‘investment nexus’hasn’t been defined precisely yet.Flexibility as reflected in the GuidelinesII.10 and the explanatory notes isdemanded for the application of theGuidelines by connecting the scope of theGuidelines to the practical ability ofenterprises to influence their businesspartners. Therefore, CIME recommends aso-called case-by-case approach thattakes all factors into account that definethe nature of the relation and the scope ofinfluence.While CIME intends to stay within theframework of the agreement achievedduring the revision 2000, by doing so,NGOs and more and more trade unionsinterpret this commitment to an‘investment nexus’ as restriction of theGuidelines’ scope, in particular becausemore than several cases had beendismissed using this argument.

The NGOs’ Point of View11

Non-governmental Organisations regardthe aspect of responsibility for suppliers asessential element of the OECDGuidelines. NGOs emphasised their pointof view about this subject in a letter to theCIME12 in the run-up to the consultationsof the Working Party in April 2003.NGOs regard the OECD Guidelines asrecommendations for responsiblebusiness management. In regard to this,they don’t differentiate betweeninvestments and trade relations or otherbusiness activities. Responsibility forsuppliers is an important element of the 11 These are positions of NGOs working within theframework of the OECD Guidelines. Many of them joinedforces by establishing the international NGO networkOECD Watch, such as SOMO, RAID, Germanwatch,Member organisations of Friends of the Earth,Transparency International, Amnesty International, ATTACand the Clean Clothes Campaign, detailed information isavailable at www.oecdwatch.org.12 OECD Watch, Letter to CIME, April 2003, unpublished.

OECD Guidelines. NGOs realise also thepractical limitations of the influence ofenterprises and don’t want to hold singleenterprises responsible for all activities ofall their suppliers. The influence ofenterprises is determined by market poweras well as by structure and complexity ofthe supplier chain and depends on sector-specific or product-specific factors, whichis also stated in the explanatory notes tothe Guidelines.If an enterprise, however, can ensure thata certain product quality is met, it shouldbe possible to use its influence to achievecompliance with specific ecological andsocial standards as well. It seems alsovery important that suppliers are enabledto act in a responsible manner. On the onehand, this includes appropriate pricedesign so that necessary investments, forexample in environmental measures orsocial standards, become possible. On theother hand, the buyer influences thesupplier’s ability to comply with specificstandards by his delivery conditions, suchas delivery times. If delivery times are settoo short, overtime is pre-programmed.

Prospects of the FutureThe present experiences with the OECDGuidelines showed to NGOs that theaspect of supplier relations and the scopeof the Guidelines represents a key issue inregard to implementation. The presentpractice couldn’t live up to NGOsexpectations regarding many issues.Future experience must prove if theGuidelines and their interpretation andimplementation by the National ContactPoints are broad-based enough to fulfil therequirements related to the supply chain. Ifthis poses a permanent problem, this pointof the Guidelines must either be revised orstronger instruments must be created. TheUN standards for enterprises couldrepresent an approach since the supplierrelation problems are more clearlyincluded and trade is not artificiallyexcluded.

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How do Multinationals takeResponsibility for theirSuppliers?Case Study: Adidas Salomon AG

By Dr. Frank Henke adidas-SalomonInc.

The activities of multinational enterpriseshave increasingly come under publicscrutiny, the result of which has been aparallel growth of concrete demands andexpectations placed upon thesecompanies by various social groups. Inaddition to contributing to economicgrowth, MNEs are also expected to takeon greater responsibility to comply withhuman rights statutes and to establishhigh social and environmental standards inthe poorer regions of our world.

The variety of implemented measuresshows that companies all over the worldacknowledge these demands and take onresponsibility for their activities.Companies do this on a voluntary basis asthey themselves are interested in afunctional community and in goodcooperation with local authorities. But thelevel of corporate commitment mustalways relate to the given economiccontext and take into account the culturesand traditions of the country. Thus, it isnecessary to find innovative solutions toaddress the regional or local nature ofparticular problems. In this regard, goodpractice examples have proven to be thebest solution. They function as modelsshowing that responsible entrepreneurialactivities result in competitive advantagesand motivate other companies to attemptto match these standards.

Regrettably, these voluntary corporatemeasures can not compensate forweaknesses in governmental policy. Ascompanies lack any semblance of controland legal authority or competency, theyare unable to enforce social and ecologicalminimum standards beyond their sphere of

activity. In this case, a concrete allocationof responsibilities is needed: Governmentsmust create a legal framework and carrythe responsibility to ensure compliancewith social statutes and environmentallaws, not only in their own territory but alsoin their relations with partners. To this end,international organisations usuallycommunicate their requests togovernments and expect them toimplement related measures. Theexecution of these measures bycompanies within their sphere of activitycan only be the second step.The development of company guidelinesconcerning social minimum standards,occupational safety, health care andenvironmental protection as well as themonitoring of compliance with theseguidelines in all factories of the adidas-Salomon Inc. and its business partners isa firmly established constituent of ourglobal company policy. In 1998, theadidas-Salomon Inc. committed itself to itsown code of conduct, the so-calledStandards of Engagement (SoE). A GlobalDirector for Social and EnvironmentalAffairs was specially appointed tocoordinate and monitor compliance withthese standards in all of our factories.The SoE are based on the InternationalLabour Organisation’s (ILO) conventionsand the model code of conduct of theWorld Federation of Sporting GoodsIndustries (WFSGI).The SoE help us to choose businesspartners that comply with our workplacestandards and business practices and toreject partners that have not committedthemselves to our values. Furthermore,the SoE assist us in identifying potentialproblems and in solving them incooperation with our business partners.Not satisfied to merely monitor and reviewcompliance with our standards, we haveundertaken efforts to pro-activelyimplement positive change in closecooperation with our suppliers.Our code of conduct contains more thanjust a set of rules only valid on paper. It isan integral part of supplier contracts

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between adidas-Salomon and its businesspartners. Implementation of andcompliance with our SoE is monitored by ateam consisting of 30 employees. As oursuppliers are situated in many differentcountries, the Social and EnvironmentalAffairs Team is organised into threeregional units covering Asia (China, HongKong, Indonesia, Singapore, Taiwan,Thailand, and Vietnam), Europe (Germanyand Turkey) and the Americas. Theserepresentatives are under the supervisionof the Global Director of Social &Environmental Affairs who reports to thecompany’s General Counsel.In 2002, there were 1,148 monitoring visitsby the SEA team at different levels of oursupply chain, i.e. at direct suppliers as wellas their subcontractors. To help ourbusiness partners understand how tomanage our SoE we developed individualguidance manuals on standards ofemployment, occupational safety, healthcare and environmental protection. Incooperation with our suppliers, theseguidance manuals are utilised to resolveproblems occurring in the workplace.In addition to the monitoring visits of ourSEA team we put strong emphasis onindependent audits by third parties. In1999, we joined the Fair LabourAssociation (FLA) in the USA. The FLAassists members in the monitoring andinterpretation of internal inspection resultsof companies so that we may effectivelyimplement these independent audits in ourbusiness partners’ factories. The FLA is anon-profit organisation workingcooperatively with companies, NGOs anduniversities to promote a workplace codeof conduct and guidelines for safety,health care and environmental protectionconditions in the workplace. The FairLabour Association appoints accreditedsupervisors in order to assess the level ofcompliance of associated companies withthese standards. The organisationpublishes an annual report that includes atransparent system analysis to facilitatethe evaluation of the results ofparticipating companies.

In 2002, 42 suppliers were audited withoutprior notification by independent FLAaccredited supervisors. Consequently, theFLA determined that all of its requirementshad been complied with in full.Rather than intending to continuallyscrutinize our suppliers’ every move, ourstrategy is based on the idea of motivatingthem to take the initiative to develop morelong-term responsibility for their activities.It is our opinion that a sustainable systemneeds to build structures that involve oursuppliers’ employees and management aswell as local labour organisations andNGOs. This is the only way to guaranteethat adequate working conditions becomea standard element of business activities.We believe training to be a much moreeffective tool than control, as it can enableus to play a long-term role that goes farbeyond the scope of mere authoritativemonitoring. Our SEA training programmesfor factory management assist oursuppliers in the general implementation ofour standards while also addressingindividual issues – such as fire safety,industrial law or the handling of chemicalsand internal environmental protection. Lastyear, the SOE team organised 255 trainingsessions for suppliers and local factories.In addition to the activities mentionedabove, we implement projects incooperation with governmental and non-governmental organisations aimed attransferring and improving industrial-law-specific knowledge in regard toemployment, occupational safety andhealth care protection. For instance, inIndonesia, Vietnam and Cambodia wecooperate with suppliers and local NGOsin implementing projects to improve healthcare protection for women working infactories.Our potential to directly influence theresults of our measures depends mainlyon the intensity of cooperation with ourbusiness partners and their willingness tocooperate in these issues. Incircumstances in which we represent themain purchaser, as in the case of sportshoes, we can use our market power to

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promote change. In regard to sportclothing, however, our contracts withsuppliers cover only 1% to 50% of theirtotal supply capacity. Under theseconditions our capability to bring aboutchange is reduced. Thus, in order topromote improvements in the factories wepurchase from, we have combined forceswith our competitors to initiate jointactions. In all industry sectors, thiscooperation within the sporting goodsindustries is exceptional. In regard to

compliance with industrial law as well asoccupational safety and health carestandards, we pursue the same goal: toimprove working and living conditions ofthe people manufacturing our products.

Further information on the Social andEnvironmental Programme of adidas-Salomon is available at www.adidas-Salomon.com/de/sustainability/.

Sustainability within theSupply Chain – Experiencesand PerspectivesCase Study: Volkswagen AG

Dr. Michael Mesterharm, Julia Koplin

Introduction

As globalisation is progressing, largeenterprises are facing growinginternational competition. This poses achallenge to the design of added valueprocesses and supply chains of acompany. In the wake of globalisation, thenumber of possible suppliers a companycan rely on in regard to procurement ofraw materials or primary products hasenlarged considerably during the last fewyears and has also significantly increasedthe complexity of procurement processes(1). Within the car industry, the addedvalue processes are also global. AtVolkswagen, this globalisation processbegan already in the 1950s with theestablishment of production sites in Braziland South Africa. The globalisation ofVolkswagen was continued by acquiringthe brands Seat and Skoda and byopening new markets such as China.Suppliers of Volkswagen followed thisdevelopment and built factories abroad –often close to production sites ofVolkswagen. At the same time, Volks-

wagen could win new local suppliers aspartners. The development at Volkswagenin regard to the added value processshows the following characteristics:

• Globalisation of the Original EquipmentManufacturer, OEM

• Globalisation of suppliers with headoffice in developed countries

• Construction of a local supplier systemin emerging countries

• Increasing amalgamation of supplierswhile production remains decentralised

To extend procurement to new marketsand regions, especially to emerging anddeveloping countries, holds newenvironmental and social challenges andtasks at global and national level (2).Particularly consumers and NGOs expectever more information on productionconditions of products and services – alsoon factories of suppliers – and blamecompanies’ offences againstenvironmental protection and workingconditions through the media as well as atthe political level. Sustainability is theanswer to this challenge and hasdeveloped into the model of a globalcompany policy that is socially moreresponsible and pursues long-term goals.

Sustainable Development as aChallenge to CompaniesThe first commonly agreed definition ofsustainability, which is still valid today, was

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given by the Brundlandt Commission inthe context of the World Commission forEnvironment and Development (WCED) in1987. It became a principle for ensuring anacceptable long-term development ofsociety and stipulates that needs of thepresent generation must be met withoutrisking that future generations will not bedeprived of the means to meet theirs (3).In addition to intergenerational justice thedefinition of sustainability contains thepromise to tackle not only economic, butalso ecological and social problems.

For Volkswagen, the principles ofsustainable development must be takeninto account from two angles: in thecontext of the ethical expectations societyplaces in companies and in regard tosecure and improve the globalcompetitiveness of the company. In theview of Volkswagen, sustainabledevelopment contains three centralelements (4): long-term balance of theeconomic, ecological and social systemand reconciling of diverging interests,responsibility for business activities as wellas transparent communication and faircooperation.

Expectations placed in companies in thecontext of globalisation and sustainabledevelopment aim predominantly atcontributing to reduce or to eliminatesocial and environmental shortcomingsresulting from corporate businessactivities. The most criticised issues are:inadequate environmental protection andlack of occupational safety, child labour,wages below legal minimum wages,oppression of trade union activities,discrimination, unreasonable workinghours, forced labour, etc. (5). Differentenvironmental protection standards indeveloping countries are a result fromdifferent national environmental protectionstandards, existing infrastructure (such aswastewater treatment plants) as well asfrom natural regional conditions (such asclimate and soil quality). Differencesbetween the associated working

conditions within national states resultfrom different legal frameworks or socialstandards. Very often, labour and sociallaws in emerging and developing countriesdo not meet the standards of industrialisedcountries in the West (6).

At international level, demands placed incompanies to comply with worldwideagreed minimum standards have alreadybeen included into several guidelines,codices and initiatives. Although these arevoluntary commitments they have in fact aquasi-binding character as they areindispensable to justify activities in front ofpublic authorities and NGOs as well as toremain competitive. In related literature,Global Compact, ILO core labourstandards, OECD Guidelines forMultinational Enterprises, ISO 14001,AccountAbility 1000 (AA 1000), GlobalReporting Initiative (GRI), Global SullivanPrinciples and Social Accountability 8000(SA 8000) are called ‘The Global Eight’and represent the most prevalent globalstandards (7). Until now, however,Volkswagen has only started to integratethe social standards AA 1000 and SA8000 into company practice. Volkswagensupports the Global Compact (ILO corelabour standards) and the ‘Charta onSustainable Development’ of theInternational Chamber of Trade, certifiesproduction plants according to thestandards EMAS and ISO 14001 and usesthe GRI Guidelines for its sustainabilitydocumentation. But sometimes generallyagreed standards are not sufficient, forexample if sector-related or company-related characteristics require specificregulations. Therefore, numerouscompanies have entered intocommitments designed to guide theirbusiness activities. Since 1995,Volkswagen has applied a Group-wideenvironmental policy in order to continuallyimprove sustainability in all areas.Additionally, together with the GroupGlobal Works Council of Volkswagen AGand the International Metalworkers’Federation, Volkswagen AG agreed on the

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‘Declaration of Social Rights’ of employees(8). It regulates freedom of association,free choice of employment, work hoursand wages as well as the prohibition ofdiscrimination and child labour.

Implementation of Sustainability withinthe Chain of SuppliersAs large corporations with globally well-known brands are especially exposed tothe public they have come under thoroughpublic scrutiny. They are expected to notonly take on responsibility for theirbusiness activities, but also for the entireadded value process along its chain ofsuppliers. This is a great challenge forcompanies with highly complex productsand an associated diverse and multistagevalue chain, as related firms mostly onlyknow their first-tier suppliers and to adegree also those suppliers’ contractors.Succeeding links of the chain are oftenunknown for the most part. The first-tiersuppliers of the series production of theVolkswagen Group consist of about 800companies and approximately 3,600locations worldwide. About 5,500companies are business partners ofVolkswagen. The automobile is one of themost complex products on the market andit needs an extremely complex suppliersystem. Therefore, in order to recognisepotential risks as early as possible,cooperation with first-tier suppliers on apartnership basis is crucial. The OEMrequires that environmentally and sociallysound business activities are practicedwithin all stages of the value chain.

Volkswagen accepts the challenge ofsustainable development within the chainof suppliers and we know that this is not aone-time, but a long-time and permanenttask. For Volkswagen, this involves earlydetection of problems as well as findingeffective and efficient solutions, which canbe applied Group-wide and worldwide, butalso developing competitive advantagesby means of business relations withsuppliers on a partnership basis. Togetherwith the University of Oldenburg,

Volkswagen initiated a research projectembracing all areas of responsibility, inwhich the actual situation of VW-specificrequirements for suppliers are analysed,as well as a concept to integrateenvironmental and social standards intoprocurement.

In the sustainability model of Volkswagen,published on the occasion of the WorldSummit for Sustainable Development inSouth Africa in 2002, the jointresponsibility of the Group and itssuppliers for environmental and socialstandards within the chain of supplierswas pointed out. Furthermore,Volkswagen’s environmental policy of1995 has already emphasised cooperationwith suppliers in the field of environmentalprotection. The Group’s ‘Declaration onSocial Rights’ contains explicitencouragement and support of all tradingpartners to embody the guidelines ofsocial standards set up by Volkswagen.Additionally, studies showed that in regardto environmental protection broad-basedrequirements to Volkswagen’s suppliershave already been in place focussingmainly on the environmental quality ofsupplied products. Suppliers have to meetboth the high quality and environmentalrequirements that Volkswagen hasspecified for its products. Usually, this isonly possible by means of state-of-the-artproduction technology. The differentproduct-related environmentalrequirements are part of the terms of theprocurement tender. Furthermore, allsuppliers are supposed to regularlyexchange information and experiences onenvironmental issues. Until now, nocertificate enquiries in order to establishenvironmental management systems asISO 14001 have been required. However,a first poll among first-tier suppliersshowed that a great number of suppliershas already certified environmentalmanagement systems in place and hasalso specified explicit environmentalrequirements their suppliers must meet.Until now, requirements for workplace

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conditions in suppliers’ factories havebeen included in the framework of qualityassurance that also refers to the design ofthe production process. Within theframework of the research project, it hasbeen discussed to apply the rules ofVolkswagen’s ‘Declaration on SocialRights’ to the entire supplier network, aswell as to introduce an obligation forsuppliers to disclose information on theirsocial standards.

ConclusionVolkswagen takes its responsibility forecological and social issues seriously andstrives to achieve a model function withinthe automotive industry. Even if the core ofVolkswagen’s business activities willalways be the value process, it isimportant for Volkswagen to work in asustainable manner within its own sphereof activities – this means also in regard tobusiness relations with suppliers – in orderto guarantee Volkswagen’s long-termbusiness success.

Literature

(1) Cf. Arnold, U. (1997): Beschaffungsmanagement; 2.bearbeitete und erweiterte Auflage; Stuttgart, 1997; S.111-116 und Piontek, J. (1997): Global Sourcing, 1.Auflage, München.

(2) Cf. Kommission der Europäischen Gemeinschaften(2002): Mitteilung der Kommission betreffend die sozialeVerantwortung der Unternehmen: einUnternehmensbeitrag zur nachhaltigen Entwicklung; KOM(2002) 347 endgültig; Brüssel, 2002; p. 5.

(3) Hauff, V. (1987): Unsere gemeinsame Zukunft. DerBericht der Weltkommission für Umwelt und Entwicklung(Brundtland-Bericht); Greven, 1987; Vorwort.

(4) Cf. Volkswagen AG (2002): Global Compact. Set Off.Future. Responsibility; Wolfsburg, 2002; p.14.

(5) Cf. Spiegel (1998): Tief verstrickt. DeutscheTextilfirmen lassen zu menschenunwürdigen Bedingungenin China und der dritten Welt produzieren; in: Der Spiegel52/1998; p. 98-100; Spiegel (2001): Wir sind bloßSklaven?; in: Der Spiegel 16/2001; p. 144-147 undWashington Post (1996): Bot Camp at the Shoe Factory.Where Taiwanese Bosses Drill Chinese Workers to MakeSneakers for American Joggers; by A. Chan; in:Washington Post; Nov. 3; 1996; p. C01.

(6) Cf. Scherer, A.G./ Blicke, K.-H./ Dietzfelbinger, D./Hütter G. (2002): Globalisierung und Sozialstandards:Problemtatbestände, Positionen und Lösungsansätze; p.11; in Scherer, A.G./ Blicke, K.-H./ Dietzfelbinger, D./Hütter G. (HG.): Globalisierung und Sozialstandards,München/ Mering, 2002; p. 11-21.

(7) Cf. McIntosh, M. et al. (2003): International Standardsfor Corporate Responsibility; in: Ethical CorporationMagazine; Year (2003); No. 13; p. 22-29.

(8) CF. Volkswagen AG (2002) Global Compact. Set Off.Future. Responsibility, Wolfsburg, p.66-67.

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From Raw Material to theCustomer: Responsibility inthe Supply ChainCase Study: BASF AG

Dr. Carolin Kranz (BASF AG)

Responsible conduct within the supplychain has long been an important issue forus. As the world’s foremost chemicalcompany with customers around theglobe, our activities are based upon themodel of sustainable development that isembodied in our fundamental values andguidelines. Furthermore, sustainabledevelopment is one pillar of our strategy2015.

We produce and sell more than 8,000products worldwide. These includechemicals, plastics, refined products,products for plant protection and foods, aswell as oil and gas. In order to reduce theeffects on humans and the environment ofproduction, storage, transportation,distribution, use and disposal of ourproducts, we established globally validstandards in conjunction with our efficientenvironmental management system.Moreover, these standards are not limitedto our company alone, but include thecomplete supply chain – from the rawmaterial to the customer.Our standards are based on the principlesof Responsible Care, a worldwideoperating voluntary initiative of the globalchemical industry. Its goal is progressiveimprovement in regard to environmentalprotection, product accountability,occupational safety, health careprotection, factory safety and securityagainst hazards, safety duringtransportation and dialogue. Incooperation with our business partners weinvolve the entire supply chain to achievethe goals of Responsible Care.

Our Responsibility Starts with RawMaterialsBASF purchases more than 10,000 rawmaterials from about 5,000 differentsuppliers located everywhere in the world.The share of raw materials from non-OECD countries has increased, mostlydue to strong economic growth in Asia. Inthese strategic growth markets it isparticularly important to build efficientbusiness relationships with local suppliersnear our new industrial locations. Oneinstrument that supports our endeavour isour so-called safety matrix. Specifically,this means that: products are rated prior topurchasing according to their chemicalcharacteristics in the risk classes A, B andC and the suppliers are categorised ineither class 1 (OECD countries), class 2(upgraded or downgraded countries) orclass 3 (until now all non-OECDcountries). For products rated as risk classC3 there is a potentially higher risk that willbe examined meticulously andcomprehensibly. This means for examplethat an employee of the BASF rawmaterials purchasing department will visitthe factory of a supplier and in the contextof an environmental and safetyassessment, he/she will examine whetherthis supplier operates a wastewatertreatment plant in order to minimisepollutants as well as determining whetherthe plant complies with safety standards inaccordance with Responsible Careguidelines.

Illustration 1: Safety matrix for purchases of raw materials

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In regard to our cooperation with suppliers,we put emphasis on fairness and long-term business relationships. If aprospective supplier has not implementedsuch standards, he will at first be excludedfrom potential orders, but subsequently wewill support his initiative to rectify thesituation through co-development of anaction plan with the supplier. In thiscontext, adjustments in productionprocesses from open to closed systems,purchasing of adequate safety equipmentfor employees or development andestablishment of emergency plans arepossible examples of measures that couldbe required. If the owner of the factoryimplements these measures, he/she willbe accepted as new supplier.

Safe Delivery to our CustomersCompliance with our high producttransportation safety standards is ourutmost priority. Our target for 2012 is toreduce 2003’s transport accident rate by70%. Our globally valid standards and ourefficient organisation will be instrumentalin the reaching of this goal.The ‘BASF Transportation and DistributionSafety Guide’ represents the core and thebasis of our measures. It contains ourstandardised universal guidelines thatmust be met before, during and aftertransportation of our products. Theseguidelines cover for example questionsconcerning packaging, labelling ofdangerous freights, training anddocumentation.Additionally, we have a group-widenetwork of agents responsible foroverseeing the handling of hazardousgoods. Although it was not a statutoryrequirement outside of Europe, we haveimplemented this monitoring functionwithin the entire BASF group. Theseagents ensure that national andinternational requirements are met duringthe entire transportation process. If anaccident occurs despite these precautions,the agents in charge of hazardous goodscollect all information, initiate measures forimprovement and prepare reports for the

management.In the most cases, our products aretransported by independent carriers. Whencooperating with our logistics partners, weuse the Safety and Quality AssessmentSystem, or SQAS. This system has beendeveloped in a joint effort by chemicalcompanies in order to let independent thirdparties assess service providers accordingto standardised criteria. By means of aSQAS report, we can obtain dataconcerning management systems, internaltrainings, reaction times in cases ofemergency, vehicle equipment and theexistence of safety plans.Furthermore, we have introduced thesetried and tested instruments progressivelyin our growing markets in Asia: Forexample, we translated our Group-wide‘Transportation and Distribution SafetyGuideline’ into Chinese and Korean,defined regional control targets andappointed and trained agents in charge ofhazardous goods. In China, safety auditsand training sessions were held forcarriers in accordance with SQASstandards.

Sustainable Value for BASFWhat are our motives for such activities?First of all, we are motivated by our owncompany tradition and corporate culture.As one of our fundamental values we havecommitted ourselves to sustainableeconomic success in the sense ofsustainable development. This also meansthat we act conscientiously in terms ofResponsible Care in that economicconcerns do not have priority over safety,health and environmental protection.Responsible Care is an example howsuccessfully a sector-wide commitmentcan improve upon and effectively surpassgovernmental guidelines. Secondly, theinstruments mentioned above are part ofour extensive risk management policy.With an effective raw material supply andreliable delivery of our products to ourcustomers, we create competitiveadvantages and therefore contribute to theprofitable growth of the BASF group.

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Responsibility of MultinationalEnterprises within the SupplyChainThe Theory of Business Management’sView of the ‘Investment Nexus’ Concept

By Dr. Michael Stephan(University Hohenheim)

1. IntroductionMost industrial and consumer goods areproduced on the basis of division oflabour. Several – at least legally –independent companies are involved inthe value chain. To what extent arecompanies in manufacturing chains basedon division of labour socially andecologically responsible for their supplyand marketing chains? Companies can beforced to take on responsibility if inter-dependencies exist among actors involvedin the production system. Within thiscontext, legal independency is nomeaningful criterion. Economicdependencies can exist as well betweenlegally independent companies and result,for example, from financial investments.Enterprises operating at multinational levelare by no means monolithic entities butpart of a complex network based upondirect and indirect majority or minorityinterests. At least among the group ofconsolidated companies, i.e. among thegroup of financially dependent companieslinked by financial investments, it ispossible to force companies to take onresponsibility. But by which minimumamount of financial investment is financialdependency determined? And canfinancial inter-dependencies of actors alsobe created without the presence offinancial investments?In its discussion on the scope of corporateresponsibility within the supply chain, theWorking Group on the subject ‘supplychain’ of the OECD ‘Committee onInternational Investment and MultinationalEnterprises (CIME)’ defined the terms‘investment nexus’ and ‘investment-likerelationship’:

„…the Guidelines have been developed inthe specific context of internationalinvestment by multinational enterprisesand their application rests on the presenceof an investment nexus. When consideringthe application of the Guidelines, flexibilityis required. This is reflected inRecommendation II.10 and itscommentary that deal with relationsamong suppliers and other businesspartners. These texts link the issue ofscope to the practical ability of enterprisesto influence the conduct of their businesspartners with whom they have aninvestment like relationship…“13

The CIME Working Group, however, didnot define these two terms more closely.The concepts of ‘investment nexus’ and‘investment like relationship’ remain vagueand not clearly defined. This study’s keyconcern is to provide a stricter definition ofboth these terms using the theory ofbusiness management concept of financialdependency. The following paragraphexplains different aspects of supply chainmanagement from the theory of businessmanagement’s viewpoint. The concept offinancial dependency is introduced inparagraph 3 in order to define the scope ofresponsibility. Paragraph 4 providesconclusions.

2. Supply Chain Management from theTheory of Business Management’sViewpoint2.1 Definitions of Supply Chain and ValueChainIn the theory of business management,design and management of supplier andbusiness relations in companies, and thusresponsibility within the supplier chain, aretraditionally discussed within the context of‘supply chain management’. In Anglo-Saxon specialist literature, the terms‘commodity chain’ and ‘manufacturingchain’ are synonyms used for the term‘supply chain’.14 Parallel to these English

13 OECD (2003), p.12.14 The OECD (2000, p.2) defines ‘Supply Chain’ as “...network of facilities and distribution channels thatencompasses the procurement of materials, production

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concepts, the term (cross-company) ‘valuechain’ became commonly accepted in theterminology of German theory of businessmanagement. A value chain describes across-actor chain of several functionallyintegrated entrepreneurial activities, i.e.value adding operations intended tomanufacture a product.Supply chains or value chains involveseveral business actors that areindependent, at least legally. While theterm ‘supply chain’ primarily explains thechain of suppliers from the viewpoint of aninvolved company, i.e. from theperspective of an actor and its supplierand business relations, the term ‘valuechain’ suggests a point of view that doesnot refer to companies. The value chainextends from raw material suppliers toend-users. End-users can be privateconsumers as well as industrial users of aproduct. Basically, the term ‘chain’suggests that the value chain or the supplychain is a line of actors in a sequentialprocess based on division of labour. Butthis is an oversimplification. Value chainsare complex networks based on division oflabour that often involve many actors thatare legally, and in part also financially,independent.The theory of business management dealswith value chains from two differentangles: The strategic angle refers todesign of value chains, while the operativeangle refers to management of existingsupply and business chains from theactor’s point of view.(1) The strategic angle of the theory ofbusiness management refers to valuechain design. Economists analyse thevalue chain and investigate the questionwhich roles the involved actors should playfrom the strategic perspective. Questionsconcerning outsourcing or make-or-buy,i.e. considerations about optimisation of

and assembly, and delivery of product or service to thecustomer.” On the term commodity chain cf. Gereffi (1994,1999). Gereffi et al. (1994, p.2) defines global commoditychains as “sets of interorganisational networks clusteredaround one commodity or product, linking households,enterprises, and states to one another within the worldeconomy.”

the vertical range of value added activitiesof the single companies involved, are thekey elements of this view. During the lastyears, terms like ‘concentration on corecompetences’, ‘optimisation of the verticalrange of manufacture’ and ‘leanproduction’ were used to illustrate thisview. In recent years, fundamentalapproaches, referred to as ‘deconstruction’and ‘dynamic reconfiguration’ of valuechains, have been used.15 Companiesfocus on selected parts of one or morevalue chains and bring their ‘corecompetences’ into play. In recent years,network approaches to design value chainsystems have also become popular.16

(2) The operative angle refers tomanagement of the existing supply chain.From this viewpoint, supply chainmanagement targets integrated planning,control and monitoring of company-wideand cross-company flows of products,materials, information and capital alongthe value chain.17 Its aim is theoptimisation of contacts with businesspartners in order to guarantee a smoothflow of products and information.18

According to Scheer et al. (2003), thevalue added network consisting ofmanufacturing companies and serviceproviders should be designed effectively toachieve the objectives, and the valueadded processes should be controlled andcarried out as efficiently as possible.19

Supply chain management also includesglobally oriented procurement and suppliermanagement. This includes supplierevaluation, supplier selection, supplierimprovement, and supplier relationshipmanagement. Supplier and procurementmanagement also includes exertion ofinfluence in order to achieve socially andecologically responsible businessoperations of external suppliers andcontract partners, as well.

15 Cf. Gerybadze (2000).16 Cf. Fichter, Sydow (2002) and Sydow, Windeler (1999).17 Cf. Scheer et al. (2003), p.375f.18 Cf. Arnold, Essig (2003), p.667.19 Scheer et al. (2001), p.47.

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2.2 Supplier Evaluation and SupplierImprovementAs it is part of operative supply chainmanagement, procurement or suppliermanagement is an important foundation toexert influence on external suppliers andcontract partners. How such influence,which can also include social andenvironment-related aspects, is exertedcan be outlined using two elements ofsupplier relationship management –supplier evaluation and supplierimprovement.In most German companies’, detailedsupplier evaluation is a central pillar ofsupply chain management. Supplierevaluation is the basis of procurementpolicies and selection. Supplier evaluationincludes a set of factors such as cost,technology, quality, logistics and othersand aims at saving costs. These costs,however, do not only take into account theprices of materials and primary products tobe procured, but the entire process chain.Apart from the criteria mentioned above,supplier evaluation in Germany alsoincludes more and more ecologicalcriteria.20 Using the catchphrase ‘ecology-oriented procurement management’,companies start to control environmentalcompatibility of their products prior toplanning and development processesinstead of employing technicalenvironment protection at high costsafterwards. In this process, the ecologicalcompetence of suppliers has become acrucial competition factor and valuationprovision: In the evaluation process, it iscontrolled whether suppliers operate in anenvironmentally-friendly way and whetherassociated primary products or servicesare produced or delivered in anenvironmentally-friendly way. In idealcircumstances, suppliers are not onlyevaluated when they are selected for thefirst time, but established suppliers arealso evaluated on a regular basis. Eachsupplier relationship must be linked toconsequences. This concerns

20 Cf. Hartmann (1996), p.54ff

improvement of supplier relations as wellas consequently eliminating suppliers iftheir performance was repeatedlyevaluated as not sufficient. Supplierrelation improvement takes place withinthe framework of the so-called supplierimprovement process. Supplierimprovement programmes include suppliercounselling, agreement and commitmentof the suppliers to implement and complywith specific improvement measures, aswell as training programmes for externalpartners. Aim of supplier improvementprogrammes is that suppliers committhemselves to act in accordance with andto improve their environmental protectionefforts persistently.

2.3 Outsourcing of Responsibilitywithin the Value Chain? TheContribution of the Theory of BusinessManagementTraditionally, German economists have apositive – operative and strategic – view ofcross-company division of labour in(globally distributed) value chains. Indiscussions about division of labour withexternal partners along the value chain,beneficial consideration such aseffectiveness criteria (concentration oncore competences, improvement ofinnovation and learning capabilities etc.)and efficiency aspects (cost reductionsthrough scale effects, increase in flexibilityetc.) are always placed in the foreground.In theory and practice of businessmanagement, there are only criticalstudies on certain aspects, such as thethreat to procurement security, ifconsidered from the operative angle, andthe danger of an undesired flow of know-how abroad as well as lock-in effects ordependencies by involvement of externalsuppliers, if considered from the strategicangle. 21

In the theory of business management orglobal supply chain management, negativeaspects of social and environment-relatedresponsibility have only recently come into

21 Cf. Uzzi (1997).

37

view of scientific contemplations.22 Inrecent years, the danger of anundermining of the institutional co-determination got some attention inGerman-speaking countries, as well asecological criteria for supplierevaluations.23 Regarding the lastmentioned aspects, it must be consideredthat taking account of ecological aspectswithin the supply chain managementremained limited to the national orEuropean level for the most part. Thereare no traditional economic reasons thatcould cause companies to take on moreresponsibility than required by national orEuropean environmental protectionprovisions and the objectives determinedby them, unless sectors are concernedthat provide a definite potential for savingsat global level.Characteristically, the critical discussionabout ecological and social responsibilitywithin the supply chain management wasnot initiated within the theory of businessmanagement itself, but was introducedinto this field of science by neighbouringsciences, such as theory of politics andtheory of social sciences, economics(theory of foreign trade and investment,theory of development and others) andenvironment-related sciences. Thus, theknowledge about this subject in the theoryof business management is rather scarceand can contribute hardly any constructiveanswers to clarify the question of how farcorporate responsibility for social andecological concerns should extend orwhere and how companies can or evenexert influence on operations of theirsuppliers and business partners involvedin the value chain.Nevertheless, the theory of businessmanagement can make a crucialcontribution to clarify this question: Thestrategic point of view of the theory ofbusiness management deals with designof value chains and in particular withquestions concerning internal and external

22 Cf. Fichter, Sydow (2001) and Teubner (2000).23 Cf. Sydow (1999); Fichter, Sydow (2001).

sources of supply. The gist of thisdiscussion about the design of value chainstructures aims always at the (theoretical)question of a company’s boundaries:Traditionally, a company’s boundarieswere defined by cross-shareholding.Facing intensified division of labour andfinancial dependencies among legallyindependent business partners involved inthe supply chain, other factors can also beused for defining company boundaries.Especially the analysis of structures andrelationships within the value chain showsdependencies existing independent ofcross-shareholding and traditionalhierarchies. From the strategic point ofview, the theory of business managementcan provide valuable guidance in order todefine the terms ‘investment nexus’ and‘investment like relationship’ more closely.The following thesis is the basis of furtherdiscussions in the next paragraphs:

Financial Dependencies CreatePossibilities to Exert InfluenceIf financial dependencies exist amonglegally independent companies involved ina value chain, the company holding thedominant position can exert influence onthe dependent partners in this value chain.

In the next paragraph, central aspects ofthe strategic discussion on the subject‘supply chain’ in the theory of businessmanagement are addressed and differentforms of financial dependency within thevalue chain are classified. The analysis offinancial dependency within the context ofeconomic law, especially balance sheetlaw, complements the discussion onfinancial dependency within the frameworkof the theory of business management.

3. Financial Dependency within theValue Chain3.1 Characteristics of Value AddedNetworks that Influence Management ofSocial and Ecological ResponsibilityFrom the theory of businessmanagement’s perspective there are twobasic alternatives concerning the

38

coordination of adding value bymanufacturing complex products: On theone hand, a single company can take overall production steps itself and canconsequently coordinate all necessarytransactions itself. In theory, this is calledan internalisation solution (in-housesolution) and coordination of transactionsis ensured through formal, hierarchicstructures by virtue of order. In the case ofa complete internalisation solution, theproblem of organisation of responsibilitywithin the value chain does not occur, asresponsibility can be enforced by virtue oforder. On the other hand, the value addedprocess of manufacturing a (complex)product can also be coordinated by avariety of independent business partners(external solution). The individual actorsinvolved in the manufacturing chain takeover only minor value added processesand buy their primary products andmaterials from external and independentsuppliers. Actual prices provide incentivesfor an efficient and effective coordinationof the transactions necessary in the valueadded process. Strictly speaking, if pricesare totally disconnected from the market,actors cannot be forced to take onresponsibility within the supply or valuechain. None of the fully independent actorscan exert influence on the othercompanies.Now, the crucial point concerningconsiderations about organisation of valueadded processes is that in practice thereare often coordination forms which rangebetween the two extreme formsrepresented by market and hierarchy. Acompany will hardly carry out allnecessary operations within the valueadded process itself, and there will be onlyrare cases where individual actors of thevalue chain have just market relations.The resulting structures of relationshipsand dependencies among the legallyindependent actors involved in the valuechain show characteristics of bothhierarchy and detachment from themarket. So it is very likely that arelationship based upon trust will result

from a longstanding supplier relationship.In this case, the nature of the coordinationform is cooperation. The discussion aboutcross-company cooperation or valueadded networks the theory of businessmanagement deals with such ‘hybrid’organisation forms between market andhierarchy.24

If such value added networks consisting oflegally independent companies areanalysed, several characteristics can beidentified that influence organisation ofresponsibility within this network or thisvalue chain. According to Fichter, Sydow(2001), three characteristics can bedistinguished25:• Number of actors: Organisation of

responsibility can especially be expectedif the value chain does not involve toomany actors and if a central company isin direct contact with the most importantpartners involved in the value chain. If avalue chain involves many actors,however, it will be difficult to implementorganisation of responsibility. Since themore ‘remote’ the position of the actorsalong the value chain is, the less theinteraction intensity will be.

• Quality of network relationship: Thecloser the relationship among actors ofthe value chain, the easier it is toorganise responsibility.

• Structure of coordination forms: Finally,the possibility to organise social andecological responsibility within a valueadded network is influenced by thestructure of coordination forms within thevalue added system based on division oflabour. Depending of the rate ofcentralisation of the coordination form,value chains with polycentric andhierarchic patterns must bedistinguished26:

24 German representatives are for example Sydow (1992)and Zentes et al. (2003).25 Cf. Fichter, Sydow (2001), p.22f.26 On the concept of centrality or centralisation in networkscf. Jansen (2003), p.127ff. Concepts based on centrality ofactors in value chain networks assume that the actor whoparticipates in many relationships within the network is theprominent actor of the network.

39

1) Polycentric value chains are entirelydecentralised value added networkswithout dominant actors. In polycentricvalue chains, responsibility can mainlybe enforced by means of closerelationships based upon trust. Apartfrom the number of actors involved, inpolycentric value added networks thepossibility to organise responsibility isfirst and foremost defined by the qualityof the relationships within the network.2) Value chains based on hierarchicstructures are highly centralised systemsbased on division of labour managed byone or more ‘focal’, i.e. central, companyor companies. Jarillo (1988) and Sydow(1992) defined value added networksmanaged by one or more focal companyor companies as ‘strategic networks’.27

The actor who holds the top position inthe value added network is also calledsystem leader.28

Organisation of responsibility within thevalue chain is easier to realise in strongercentralised networks with one or a fewdominating or prominent actors than inpolycentric operation networks without topactors.Mere presence of a focal structure in thevalue chain is not sufficient to force actorsto take on responsibility. To the aspect ofcentralised coordination described byFichter and Sydow (2001) the aspect ofpower or influence must be added.Additional to its focal position within thevalue added system, the focal companymust also (be able to) exert influence onthe other actors involved, i.e. it must havean unrestricted scope of authority. Firstly,within the hierarchy of a company or withinthe consolidation circle scopes of authorityexist due to investments. Scopes ofauthority, however, can also emergeamong independent companies that do nothave investment relationships with eachother. If companies involved in the valuechain are in a position where they dependfinancially on one actor, this actor can as

27 Cf. Jarillo (1988), p.32; Sydow (1992), p.80f.28 Cf. Burr, Stephan (2004).

well force the legally independentcompanies involved in the productionprocess to take on social and ecologicalresponsibility. In the following, thissituation of financial dependency isreferred to as quasi-hierarchy.29

In this context, one important realisation isthat controlling positions and quasi-hierarchies in the sense of financialdependencies within the productionnetwork can also emerge among legallyindependent and companies that are notconnected by capital interlinking or cross-shareholding. This consideration is basedupon the assumption that such focalactors with their scopes of authority haveaccess to vital network resources, controlpossibilities, information or the like.

‘Investment Nexus’ (Hierarchy) and‘Investment like Relationship’ (Quasi-Hierarchy)Financial dependencies in value chainscan result from financial investments(hierarchy) on the one hand and can alsoexist in the absence of financialinvestments (quasi-hierarchy) on the otherhand. In any case, financial dependenciesfacilitate organisation of social andecological responsibility: the focal actorshave their scopes of authority and canexert influence on the other actorsinvolved.

In order to clarify the question how far thescope of authority of prominent actorsinvolved in the value chain extends, twoaspects must be clarified: a) Whereexactly are the boundaries of the(multinational) enterprise, i.e. where dodependencies qua capital interlinking orcross-shareholding (investment nexus)exist and b) where do quasi-hierarchies inthe absence of capital interlinking or cross-shareholding (investment like relationship)exist. In the following, approaches basedupon economic law (3.2) and the theory of

29 Cf. also Humphrey, Schmitz (2000) on hierarchy andquasi-hierarchy in supply chains.

40

business management (3.3) will be usedto answer both these questions.

3.2. Dependencies Based uponInvestment Relations – Economic LawApproaches to Define the Term‘Investment Nexus’

Where are the exact boundaries of a(multinational) enterprise, that is, where dofinancial dependencies by virtue of capitalinterlinking or cross-shareholding exist?Only at first glance, the answer to thisquestion seems to be clear. Enterprisesoperating at multinational level are by nomeans homogeneous monolithic entitiesbut build a complex network withsubsidiary companies through (mutual)capital interlinking or cross-shareholding.

Especially in the case of minority interestsand indirect investments, companyboundaries (investment nexus), andconsequently the definition of thehierarchic scope of authority, are by nomeans clearly defined.The German foreign trade and paymentsact and balance sheet law provideapproaches to determine formal companyboundaries and to define financialdependencies resulting from investmentrelationships. The German foreign tradeand payments act provides a definition offinancial dependencies or relationshipsamong companies and dependenciesbased upon investments in the case offoreign direct investments (FDI). InParagraph 26 Art. 2, the foreign trade andpayments act provides provisions on

disclosure requirements for foreign directinvestments or capital investments withinthe context of foreign trade. The provisionsof the foreign trade and payments act aresupposed to ensure a reliable informationbasis for preparing the balance ofpayments and to guarantee the politicalforeign trade and payments interests ofthe Federal Republic of Germany. Theexact definition of financial dependencyand linkage in connection with FDI isprovided by Paragraph 56a of the foreigntrade and payments order30 (assets ofresidents in foreign economic areas)deriving from the foreign trade andpayments act or Paragraph 58a (assets ofnon-residents in the economic area). Theconcept of linkage through directinvestment relationships in the foreigntrade and payments order is to a largeextent the same as the OECD benchmarkdefinition of foreign direct investmentsfollowing the guidelines of the IWF.31

According to that, German (foreign)companies must notify their direct capitalinvestments in foreign (domestic)

30 Regulation on the Execution of the Foreign Trade andPayments Act adopted on December 18, 1986 (FederalLaw Gazette I S. 2671), last modified by the 60th AmendingProvision adopted on August 21, 2003 (Federal GazetteNo. 158, August 26, 2003).31 Cf. Stephan, Pfaffmann (2001); Deutsche Bundesbank(2003), p.9.

companies if the resident (non-resident)holds at least ten percent of the capitalinvested in or the voting shares of thecompany.32 Indirect investments must benotified if a dependent investment objecthas at least ten per cent of the capitalshares or voting shares in anothercompany. A direct investment object isregarded as ‘dependent’ if the investor hasmore than 50 per cent of the capitalshares or voting shares. If a ‘dependent’company has 100 per cent of the capitalshares in another company, this companyas well as all other investment objects with100 per cent of the capital shares are alsoregarded as ‘dependent’.33 Table 1illustrates the concept provided in theforeign trade and payments act.

32 The disclosure requirement applies to minority interests,i.e. investments of less than 50 per cent with a balancesheet total of 5 million Euros. Majority interests,subsidiaries and permanent production facilities abroadmust be notified starting with a balance sheet total of500,000 Euros.33 Cf. Deutsche Bundesbank (2003), p.7.

41

But the concept of linkages through directinvestment relationships provided by theforeign trade and payments order isinappropriate in order to define the formalboundaries of a multinational enterprise,as economic dependency by virtue ofcapital interlocking can even then exist ifthe directly invested capital amounts toless than ten per cent. For example, if aninvestor has only nine per cent of thecapital shares but is the biggestshareholder because all other shares arewidely spread, he could have thepossibility to exert dominant influence onthe business and financial policy of theassociate company. Furthermore, theregulations concerning indirect investmentrelationships provided by the foreign tradeand payments order are absolutelyinsufficient. For example, indirectinvestments in companies at the third tierand below are only then taken intoaccount, if 100 per cent of the dependentcompany are owned by the parentcompany.

Contrary to the foreign trade andpayments act, the German balance sheetlaw (GCC) distinguishes different stages ofeconomic dependency resulting frominvestment relationships. The differentstages reflect a precise and subtle view oninfluence and economic dependencywithin investment relationships orcorporate structures.34 Based upon theincreasing scope of influence exerted bythe parent company, i.e. upon theincreasing extent of economic dependencyof the associate company the GCCdifferentiates between• ‘simple’ associate companies (§271

GCC);• associated companies (§311 GCC);

34 The explanatory notes to the GCC address the ‘centrallevel idea of group accounts’ on which the duty of groupaccounting is based. The concept postulates a gradualassets and earnings statement integration of associatecompanies in the group account. The GCC distinguishesassociate companies included in the group account basedon the method of full consolidation, joint ventures to whichthe quota consolidation or equity method applies, andassociated companies validated in the group accountingusing the equity method. Cf. Busse von Colbe, Ordelheide(2001), p.46; Ebeling (2002), p.3; Hachmeister (2002), p.3.

German Investor(FDI abroad)

YESDirect

InvestmentObject

Direc tInvestment

Object

DirectInvestment

Object

NO NO YES

YES YES YES

NO YES NO

9% 10% 50% 51%

51%

100%

99,9%10%10%

100% 100%

Table 1: Provisions concerning dependencies provided by theGerman Foreign Trade & Payments Act- DisclosureRequirement concerning cross-shareholding abroad

Limit of the Economic sector

Mediate DirectInvestments

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• joint ventures (§310 GCC); and• subsidiary companies (§290 GCC).According to §271 GCC, the Germanbalance sheet law classifies ‘simpleshareholdings’ in other companies as theweakest form of economic dependencydue to investment relationships or capitalinterlocking. §271 GCC definesshareholdings as shares in a companymeant for building a lasting relationshipwith the company in question.35 Accordingto the GCC, the intention to acquire sharesis crucial. The intention to acquire sharesincludes two aspects that must be fulfilledcumulatively: a) the relationship must beintended to be ‘lasting’, i.e. to last long andb) the intended purpose of this relationshipmust be to assist the own businessoperation. Especially the second aspect of§271 GCC concerning ‘beneficial’relationship needs further clarification.According to actual interpretation, in thecase of ‘shareholding’ as defined by §271GCC, the intention to acquire shares laysbetween the mere intention to make along-term investment and the intention toexert influence on a company’s businesspolicy.36 Thus, the intention effective in thecase of an investment includes alsoweaker forms of relationships than thosepermitting to exert direct influence on acompany’s business policy. A weaker formof relationship between companies couldfor instance exist in form of linkages inregard to personnel or long-term supplierrelations. These relationships betweencompanies based upon such or similarcharacteristics in combination with thecapital share can be useful for thecompany although it cannot intervene inthe business operation of the othercompany. In which case a relationship isregarded as beneficial, however, remainsunclear. In order to clarify the amount ofshares, the GCC (§271 Art. 1.3) quantifies:

35 With §271 Art.1 GCC, the legislative seeks to define theterm of shareholding. In §271 Art.2, the term ‘associatedcompany’ is specified. §271 GCC aims to use both termsin the same way in all annual and group accountsprepared according to the provisions of the GermanCommercial Code. Cf. von Keitz (2002).36 Cf. von Keitz (2002), p.9f.

If in doubt, shareholding is represented byshares of joint-stock companies thatexceed one fifth, i.e. 20 per cent, of thenominal capital of the company inquestion.37 The calculation of the amountof holding must not only take direct sharesinto account. Apart from the sharesdirectly held by a company, shares held byanother dependent company (subsidiarycompany) are also relevant.38

The concept of an ‘associated company’as provided by §311 Art.1 GCC goesfurther than the concept of ‘shareholding’in balance sheet law. The definition of‘associated company’ is linked to thepresence of shareholding as defined by§271 GCC. But according to §311 Art.1GCC, controlling influence on the businessand financial policy of the associatecompany must also be exerted.39 The term‘business and financial policy’ refers to thecrucial decisions made by a company. Thevague law term ‘significant influence’ issupposed to express that the possibilityexists to exert direct influence onmanagement decisions of othercompanies. A significant influence needsnot to be assessed with regard to singleoperative decisions, participation infundamental decisions on business andfinancial policy alone is sufficient, forinstance the establishment of a corporatestrategy for sustainable ecological andsocial business operation. Economicautonomy of the shareholding is basicallyrecognised although the authority isrestricted.40 According to actualinterpretation, significant influence isindicated if

• the parent company is representedin an administration organ or a

37 Of course, shares of less than 20 per cent can alsoresult in ‘shareholding’, if these shares result in a lastingrelationship that is to the shareholder’s benefit. Cf.Hachmeister (2002), p.5.38 Cf. Hachmeister (2002), p.5.39 In §311 Art.1 GCC the legislative provides thatshareholdings in associated companies must beseparately disclosed in a company’s group account andmust be shown in the balance sheet.40 This is also a clear demarcation of shareholdings thatare not based on limitation of the economic authority butrequire the shareholder’s pro-active promotion of his ownbusiness operation. Cf. Hachmeister (2002), p.7.

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similar executive committee of theassociate company;

• managers are exchanged betweenassociate company and parentcompany; or

• crucial technological know-how isprovided.

According to the concept of stagesprovided by §310 GCC, the joint venturerepresents the next stage of influenceexerted by the parent company. In order toqualify a company as joint venture, it iscrucial that the company in question ismanaged in cooperation with another(independent) company. Jointmanagement is given if the company is infact managed in cooperation andimportant management decision can onlybe made unanimously. Thus, it is notenough to make a financial investment orexercise voting rights such as share votingrights in the general meeting ofshareholders or associates only. Inprinciple, it is possible to split themanaging director competence among theassociates of a joint venture (for instancetechnical and commercial businessmanagement).41

In the classical joint venture, each of thetwo partner companies holds 50 per centof the capital share. In principal, jointmanagement is also possible if theinvolved partners do not hold the sameamounts of shares of the joint venture.42

According to the concept of stages asprovided by the GCC, the strongest formof influence is shareholding based on aparent-subsidiary-relation according to§290 Art.1 GCC. According to §290 Art.1GCC, a parent- subsidiary-relation exists ifa parent company holds shares in anothercompany and the subsidiary company isunder the joint management of the parentcompany. Joint management is given if thebusiness policies of parent and subsidiarycompany and other fundamental 41 Cf. Ebeling (2002), p. 6.42 In the literature on this subject, shareholding of 20 percent is regarded as minimum limit because according to§311 Art.1.2 GCC no significant influence is assumed if

management decisions are coordinated.The parent company must take overoriginal operation tasks of the subsidiarycompany, such as setting businessobjectives or determining the principles ofthe subsidiary company’s financial,investment, production and personnelpolicies.43 According to the concept ofintegrated management, §290 Art.2 GCCplaces shareholding at the same level as aparent-subsidiary-relationship if the parentcompany can exert controlling influence onthe subsidiary company because it holdsthe majority of voting rights or the like.44

Voting right majority coincides often withthe majority of shares. But, in principal,voting right majority does not depend onmajority of shares. So a company can holdthe majority of shares without having thevoting right majority, if it holds for instanceonly non-voting preference shares. On theother hand, it is possible that a companythat does not hold the majority of sharescan have the voting right majority, if itholds for instance multiple voting shares.Thus, the decisive factor is that a companyhas the voting right majority at the generalmeeting of shareholders or associates andconsequently in all important decisions.These criteria combined under the conceptof ‘control’ establish also a parent-subsidiary-relationship, alternatively to theconcept of joint management.45

In order to evaluate the usefulness ofthese approaches to define economicdependencies resulting from investmentrelationships, both of the described legalfields must be assessed differently: Theapproach to define economic dependencyaccording to the foreign trade and shareholding remains below this minimum limit. Cf. Ebeling(2002), p.8.43 According to Ebeling (2002), integrated managementmust relate to important sectors of the associate companyin which the individual interests of the associate companyare subordinated to the group interest.44 Alternative to a voting right majority, significant influenceaccording to § 290 Art.2 GCC is also present if the parentcompany holds the majority to elect organs/ or has acontrol possibility based on a contract providing control ora provision of the articles of association.45 Contrary to the concept of integrated management,which aims at real control, the obligation to draw up a

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payments act serves in principle differentpurposes, namely to define the disclosurelimits within the context of economicinterests in the first line and is, as alreadymentioned above, absolutely inadequatefor the purpose in question. In order to geta differentiated view on exertion ofinfluence and economic dependency inregard to investment relationships, theconcept of stages as provided by thebalance sheet law is principally adequate:

Economic Dependency by Virtue ofCapital Interest: ‘Investment Nexus’If the parent company exerts at least asignificant influence on the business policyof the associate company according to theconcept of stages as provided by theGCC, i.e. if the dependent company is atleast an associated company, then theparent company is able to enforce sociallyand ecologically responsible businessoperation.

Although economic autonomy of theassociated company is principallyacknowledged in the case ofshareholdings, their authority is restricted.Socially and ecological responsiblebusiness operation can also be requiredfrom joint ventures and subsidiaries. In thecase of simple associate companies itcannot principally be assumed that thereexists so far-reaching influence on thebusiness policy that social and ecologicalresponsibility could be enforced.Regulations comparable to the Germanbalance sheet law and its concept ofstages can also be found in InternationalAccounting Standards (IAS), for examplein IAS 27 and IAS 28.

3.3 Dependencies without CapitalInvestments: Approaches to Define‘Investment like Relationship’ from theViewpoint of Law and Theory

balance sheet according to the control concept dependsonly from the legal possibility to exert control.

Do economic dependencies also existwithout capital investments? Economictheory and balance sheet law both provideanswers to this question. Although theGerman balance sheet law does notdistinguish concepts designed to regulateeconomic dependency outside the contextof laws relating to associated companiesand capital investment, §264 Art.2.1 GCCprovides an approach that can be used todefine economic dependency detachedfrom investment relationships.46 Accordingto §264 Art.2.1, information on economicdependency detached from investmentrelationships must be included in the notesto the annual accounts statement ifotherwise, due to specific circumstances,the assets and the financial and profitsituation of the company would not berepresented correctly.47 According toactual interpretation and the explanatorynotes to the balance sheet law, suchcircumstances are given in particular ifjoint-stock companies realise theirturnovers with one or a small number ofcustomers only.48 As a result, economicdependencies emerge if turnovers areconsiderably concentrated on one or onlya few customers. More concreteregulations on dependencies resultingfrom concentration of turnovers areprovided by the International Rules onAccounting. Based on SFAS No. 131, theUS-American accounting addressesrelationships based on dependencydetached from investment relationshipsand requires companies to include relatedinformation in their accounting statementsif they earn at least ten per cent of theirturnovers with a single customer. 46 According to §264 GCC, the representatives of a stockcompany (public company, limited company, public limitedpartnership/KGaA) are obliged to draw up an extendedannual accounts statement and a annual financial report –only small joint-stock companies are exempted from thisobligation.47 According to §264 Art.2.1 GCC the annual accountsstatement of a stock company must reflect the realsituation of the stock company’s assets, finances andprofits and comply with the principles of correctaccounting.48 The resulting influences on asset and profit situationassessment are not recognisable without verbal

45

Strictly speaking, the concept of nationaland international accounting regulationson economic dependency and risksresulting from single dominant customersshould also include relationships based ona company’s dependency from itssuppliers. Economic dependencies on thesupplier side result if a company reliesonly on a few suppliers when acquiringmaterials and primary products. The scopeof a supplier’s dominance can beassessed by quantifying the inputconcentration, analogous to turnover oroutput concentration. For this purpose, thevalue of advance consumptionconcessions acquired by a supplier isrelated to the turnover of the company.From the viewpoint of the theory ofeconomic transaction costs, the economylaw’s explanations that economicdependency results from customerdominance and similar argumentssupporting supplier dominance are notsufficient. A customer’s dominance basedon turnover or a supplier’s dominancedoes not necessarily force a company intoeconomic dependency. In principal, thecompany could replace the dominantsupplier or customer or at least threaten todo so in order to protect itself againstexcessive influence of external actors.Only if the dominant position of thecustomer or supplier is supported byshortcomings of the consumer or primaryproduct market structure, the theory ofeconomic transaction costs will assumeeconomic dependency. In other words,there must be a restriction of alternativepurchase or sales channels, i.e. thecompany has no possibility to replace itssuppliers or its customers as it likes.49 Thisis for example the case if the supplier orthe customer of the company holds amonopoly position.

explanations and must be shown in the notes to thefinancial statements. Cf. Ballwieser (2002), p.15.49 The power of customers was investigated usingmarketing chains as example. Cf. OECD (1999).

‘Investment like Relationship’:Dependencies Based on Customer orSupplier DominanceEconomic dependencies within the valuechain not based on investmentrelationships result also from dominantpositions of single suppliers or customers.If this dominant position is supported bylimited alternative purchase or saleschannels, the dominant actor can enforcesocially and ecologically responsiblebusiness operations within the valuechain.

According to the theory of transactioncosts, economic dependencies within thevalue chain result also from the actors’investments in specific assets. Within thetheory of business management context,specifity means in general that assets aretied to a specific operational use.Investments in specific assets areirreversible, i.e. the assets cannot or onlywith high losses be resold at the market.Co-specialised investments or assets arethe terms used in the theory of transactioncosts for assets that can most effectivelybe used in operational combination withassets of other actors. The use of theseassets is linked to the existence of aspecific transaction relationship. Co-specialised assets lose the greater part oftheir value if they are used independentlyfrom each other. The following forms ofco-specifity can be distinguished:• Site specifity – Investments by the

transaction partners in stationaryfacilities (premises, buildings etc.): Asupplier builds a production facility indirect neighbourhood of the factoryowned by the original equipmentmanufacturer (OEM).

• Physical asset specifity – Investmentsof the actors in assets adapted to therequirements of all partners (specificmachines, technologies etc.): Thesupplier buys blanking presses andpunching machines adapted to carbodies of the OEM.

• Human asset specifity – Investmentsof the actors in qualifications of their

46

personnel according to requirementsof the partner: Employees of thesupplier are trained in operating theseblanking presses and punchingmachines.

• Dedicated assets – Investments innon-specified equipment that was onlybought for the planned transaction andthat will result in over-capacities if notused afterwards: The supplier buysadditional machines to offset hisproduction bottlenecks due to theunexpectedly successful first salesfigures of the new car.

Co-specialised assets in complementaryassets create economic dependenciesamong the actors. An actor who madelarge co-specialised investments is in aweak position compared with the dominantactor within the value chain. Similar to thecase of limited supplier and customermarkets, the actor bound by investmentcannot terminate his relationship with thesupplier or customer just as he likes.Investments in co-specialised assets willcreate market exit barriers and cause‘sunk’ or irreversible costs if thetransaction relationship is terminated.Thus, sunk costs are costs caused bymarket exit. The amount of sunk costsrelates to the expected liquidation losswhen assets are sold before theirremaining useful life has expired. Marketexit barriers cause lock-in problems forestablished actors involved in the valuechain. In these cases, the actors are called‘captive’ actors:

“A particular form of buyer powerarises when sunk costs, switchingcosts, transactions costs and otherfriction’s create a ‘captive supplier’.50

Economic dependency enables thedominant actor to use opportunisticbehaviour in order to benefit from thenegotiating range provided by the contract(‘hold-up’).51 At the same time, the

50 OECD (1999), p.20.51 In this predicament, the dependent actors can be forcedto sell their products at prices that are higher than average

dominant actors can also use thesenegotiating ranges to enforce socially andecologically responsible businessoperation within the value chain.

‘Investment like Relationship’:Dependencies by Co-SpecialisedInvestmentsEconomic dependencies within the valuechain result also from investments in co-specialised assets that can be used mostefficiently in operational combination withassets of other actors. Due to the lock-insituation of the partners involved in thevalue chain, the dominant actor canenforce socially und ecologicallyresponsible business operation.

5. Summary and OutlookIf economic dependencies between theactors involved in the production systemexist, it will always be possible to enforceecological and social responsibility withinthe value chain. This article investigatedthe concept of economic dependencies inan intensive and differentiated way andspecified in particular the unclear andvague terms ‘investment nexus’ and‘investment like relationship’.The concept of economic dependency hasbeen defined from the perspective ofeconomy law or balance sheet law as wellas from the perspective of the theory ofbusiness management. In the frameworkof balance sheet law, the concept ofeconomic dependency aims primarily ateconomic dependencies based onfinancial investments. In this article, thiswas equated with the term ‘investmentnexus’. The analysis of legal provisions, inparticular the concept of stages asprovided by the GCC, came to the resultthat economic dependency based onfinancial investments is always present ifthe parent company exerts at leastsignificant influence on the business policyof the associate company. Thus, the

variable costs but still below average total costs in theworst case.

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associate must at least be an associatedcompany.Economic dependency not based onfinancial investments has been clarifiedfrom the perspective of the theory ofbusiness management. Economicdependency not based on financialinvestments has been equated with theterm ‘investment like relationship’. In thissense, on the one hand, economicdependencies within the value chain resultfrom the dominant position of individualsuppliers and customers, in particular ifthis dominant position is supported bylimited alternative supply sources ormarkets. On the other hand, economicdependencies result from investments inco-specialised assets that can mosteffectively be used in operationalcombination with assets of other actors.The concepts to define economicdependency by virtue of financialinvestment, as provided by the balancesheet law, have been worked out in detailand can be applied to existent cases. Theamount of shares or the mentionedalternative evidences are always concreteindicators of limited authority. The sameapplies to economic dependency as aresult of dominance of individualcustomers or suppliers. In these cases,the dominating influence of external actorscan be easily defined by quantifying theturnover or input concentration. Theconcept of economic dependency by virtueof co-specialised investments, however,seems to be rather undefined. Regardingthat, more concrete indicators to definepositions based on economicdependencies must be found in the future.

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industriellen Beschaffung, in: Zentes, J. et al. (Hrsg.),Kooperationen, Allianzen und Netzwerke,Wiesbaden.

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Apparel Industry, in: Global Networks, Vol. 3, Nr. 2,S. 143-169.

Burr, W., Stephan, M. (2004), Arbeits- undKompetenzverteilung in systemisch geprägtenIndustrien, in: Hinterhuber, H. et al. (2004),Strategisches Kompetenzmanagement, Wiesbaden.

Busse von Colbe, W., Ordelheide, D. (2001),Konzernabschlüsse, Wiesbaden.

Deutsche Bundesbank (2003), MikrodatenbankDirektinvestitionsbestände – Handbuch,Diskussionspapier, VolkswirtschaftlichesForschungszentrum der Deutschen Bundesbank, 6.August 2003, Frankfurt.

Ebeling, R. M. (2002), Kommentierung des §310HGB, in: Baetge, J. et al. (Hrsg.), Bilanzrecht -Handelsrecht mit Steuerrecht und den Regelungendes IASB, Bonn.

Fichter, M., Sydow, J. (2002), Using NetworksTowards Global Labor Standards? Organizing SocialResponsibility in Global Production Chains, in:Industrielle Beziehungen, 9. Jg., Heft 4, S. 357-380.

Fichter, M., Sydow, J. (2001), Soziale Verantwortungin globalen Produktionsnetzwerken: Erkenntnisse ausder Bekleidungsindustrie, Abschlußbericht zu demStudienprojekt „Global Manufacturing andResponsible Business Practices“, Freie UniversitätBerlin, Dezember, Berlin.

Gereffi, G. (1999), International Trade and IndustrialUpgrading in the Apparel Commodity Chain, in:Journal of International Economics Nr. 48, S. 37-40.

Gereffi, G. (1994), The Organization of buyer-drivenglobal commodity chains: How U. S. retailers shapeoverseas production networks, in: Gereffi, G.,Korzeniewicz, M. (Hrsg.): Commodity chains andglobal capitalism, Westport (CT).

Gereffi, G., Korzeniewicz, M., Korzeniewicz, R. P.(1994), Introduction: Global commodity chains, in:Gereffi, G., Korzeniewicz, M. (Hrsg.): Commoditychains and global capitalism, Westport (CT).

Gerybadze, A. (2000), Evolution, Dekonstruktion unddynamische Rekonfigurierung im StrategischenManagement, in: Foschiani, S. et al. (Hrsg.),Strategisches Management im Zeichen von Umbruchund Wandel, Stuttgart.

Gourevitch P., Bohn, R., McKendrick, D. (2000),Globalization of Production: Insights from the HardDisk Drive Industry, in: World Development Vol. 28,Nr. 2, S. 301-17.

Gwynne R. N. (1999), Globalisation, CommodityChains and Fruit Exporting Regions in Chile, in:Tijdschrift voor Economische en Sociale Geografie,Vol. 90, Nr. 2, S. 211-225.

Hachmeister, D. (2002), Kommentierung des §311HGB, in: Baetge, J. et al. (Hrsg.), Bilanzrecht -Handelsrecht mit Steuerrecht und den Regelungendes IASB, Bonn.

Hartmann, H. (1996), UmweltorientiertesEinkaufsmanagement - Kriterien für die ökologischeLieferantenbewertung, in: Beschaffung Aktuell, Heft5, S. 54-56.

Henderson, J., Dicken, P., Hess, M., Coe, N., Yeung,H. (2002), Global Production Networks and theAnalysis of Economic Development, in: Review ofInternational Political Economy, Jg. 9, Nr. 3, S. 436-464.

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Humphrey, J., Schmitz, H. (2000), Governance andUpgrading: Linking Industrial Cluster and GlobalValue Chain, IDS Working Paper 120, Institute ofDevelopment Studies, Brighton.

Jansen, D. (2003), Einführung in dieNetzwerkanalyse, Opladen.

Jarillo, J. (1988), On Strategic Networks, in: StrategicManagement Journal, 9. Jg., Nr. 1, S. 31-41.

von Keitz, I. (2002), Kommentierung des § 271 HGB,in: Baetge, J. et al. (Hrsg.), Bilanzrecht -Handelsrecht mit Steuerrecht und den Regelungendes IASB, Bonn.

Kaplinsky, R. (1998), Globalisation, industrialization,and sustainable growth: The pursuit of the nth rent,Discussion Paper 365, Institute for DevelopmentStudies, University of Sussex.

Organization for Economic Co-operation andDevelopment (OECD, 2003), OECD Guidelines forMultinational Enterprises: 2003 Annual Meeting of theNational Contact Points, Report by the Chair, 23.-24.Juni 2003, Paris.

Organization for Economic Co-operation andDevelopment (OECD, 2002), Supply Chains and theOECD Guidelines for Multinational Enterprises,OECD Roundtable on Corporate Responsibility,Business and Industry Advisory Committee to theOECD, Discussion Paper, 19. Juni 2002, Paris.

Organization for Economic Co-operation andDevelopment (OECD, 1999), Buying Power ofMultiproduct Retailers, Directorate for Financial,Fiscal and Enterprise Affairs, Committee onCompetition, Law and Policy, 16. Juli 1999, Paris.

Scheer, A.-W., Angeli, R., Herrmann, K. (2001),Informations- und Kommunikationstechnologie alsTreiber der Logistik, in: Pfohl, H.-C. (Hrsg.),Jahrhundert der Logistik – Wertsteigerung desUnternehmens, Wiesbaden.

Stephan, M., Pfaffmann, E. (2001), Detecting thePitfalls of Foreign Direct Investment: Scope andLimits of FDI Data, in: Management InternationalReview, Jg. 41, Nr. 2, S. 189-218.

Sydow, J. (1992), Strategische Netzwerke,Wiesbaden.

Sydow, J. (1999), Mitbestimmung inUnternehmungsnetzwerken – Einebetriebswirtschaftliche Analyse, in: Frick, B. et. al.(Hrsg.): Die wirtschaftlichen Folgen derMitbestimmung. Expertenberichte für die KommissionMitbestimmung Bertelsmann Stiftung, Hans-Böckler-Stiftung. Frankfurt und New York.

Sydow, J., Windeler, A. (1999), Steuerung vonNetzwerken, Wiesbaden.

Teubner, G. (2000): Netzwerke – Binnenstruktur undExternalitäten, in: Schreyögg, G. (Hrsg.),Funktionswandel im Management: Wege jenseits derOrdnung. Berlin.

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Zentes, J., Swoboda, B., Morschett, D. (2003),Kooperation, Allianzen und Netzwerk – Grundlagen,„Metaanalyse“ und Kurzabriss, in: Zentes, J. et al.(Hrsg.), Kooperationen, Allianzen und Netzwerke,Wiesbaden.

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Corporate Responsibility fromthe Legal Viewpoint

By Dr. Eva Kocher(University of Hamburg)

I. Why a legal viewpoint?

Within the framework of international law,the OECD guidelines are a classical caseof ‘soft law’, i.e. rules without direct legalforce – because companies have not yetbeen addressees and subjects ofinternational law and thus have notexplicitly been ‘responsible’ underinternational law. Therefore, the OECDguidelines were explicitly formulated asself-commitments of governments. Theycommit themselves to advise multinationalenterprises based on or operating fromtheir territory to comply with theseguidelines.Why can the legal viewpoint provideinformation on which companies andinstitutions are ‘responsible’ for what kindof entrepreneurial conduct in regard toOECD guidelines? This is simply becauseof the fact that soft law is still a form oflaw. Soft law relies on normativestandards and commitments, and tointerpret the scope of these regulations,interpretation methods are needed, andlegal methods are ideal for that purpose.The actual question is whether and towhat extent corporate enterprises can beheld ‘liable’ if their suppliers or otherbusiness partners violate OECD standardsor – in legal terms:• whether companies have to ‘assume

liability’ at the OECD for violations ofOECD standards of their businesspartners; or

• another legal term for responsibility –namely under which conditionsmultinational enterprises can have‘penal responsibility’ for theirbusiness partners’ violations ofstandards. In order to better clarifycommon structures I will not alwaysuse legal terminology.

If one is asking what legal standards couldbe used in this case, the problem occursthat guidelines do not represent legalstandards in a strict sense. In thefollowing, I will explain several legalconcepts that could provide orientation inregard to this issue.

II. Legal Background of Responsibility

Within the framework of law, responsibilitydiffers depending on the actual situation.Depending on legal basis, differentprinciples apply – sometimes responsibilitymeans to be held liable for conduct ofothers, sometimes it is about assumingliability for complying with own obligations.Hopefully, the differences will be clearafter the following explanations.

1. Responsibility under Penal LawThe basis of responsibility under penal lawis individual recrimination. Therefore, italways depends on guilt. It deals withresponsibility of specific individuals forspecific actions, but not with responsibilityof companies.

2. Corporate Accountability forControlled CompaniesHowever, the accountability of onecompany for another under corporate lawis a totally different situation. In the firstline, it shall prevent that a company can beexempted from assuming liability just onthe basis of its legal business form (limitedcompany – GmbH, or public company –AG, etc.). Central terms are controlledand controlling companies in theframework of corporate law. According toParagraph 17 AktG (Companies Act),‘controlled companies are legallyindependent companies that can beinfluenced indirectly or directly by anothercompany (controlling company) in adominating manner.’ If a controllingcompany and one or more controlledcompanies are combined under the singlemanagement of the controlling company,they form a group of companies.’ The

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central issue are dependencies on thebasis of corporate linkages through equityholding.

Within the OECD guidelines, a parallel canbe drawn between the definition of groupand the definition of ‘company’. There, theterm company is defined by the degree ofconduct coordination between differentunits.

But what responsibilities must a controllingcompany take on because of its existing orpotential control? One subject matter isthe protection of the controlledcompany. The controlling company musttake account of the controlled company’sinterests. More interesting in our context isthe second consequence resulting fromcontrol namely protection of creditors,i.e. protection of all those who are legallyinvolved in the controlled company, butalso want to take hold of the company’sassets. This is called piercing thecorporate veil. This assumes that due tothe control the interests of the controlledcompany had been ignored, especially infinancial regard.As the subject is responsibility within agroup of companies and – according toOECD Guidelines terminology – acompany, these principles are notappropriate for external supplier relationsof groups of companies.

3. Responsibility of Employers inRegard to Industrial LawHowever, this form of creditors’ protectionwill also play a role within multinationallabour relations, if employees ask who isactually liable for fulfilment of employerobligations to them, i.e. who is liable toprovide payments or compensation in thecase of violations of occupational safetyprovisions. In this case, usually thealready mentioned company-law rules aremore or less applied.Additionally, the German law contains theconcept of indirect employment. In otherlegal systems this term is not necessarybecause there the concept of the employer

(employeur/datore di lavoro/empleador) iseven less based on a legal entityrepresenting the employing party of theemployment contract than in the Germanlaw; thus, in other legal systems the‘employer’ is rather the person really incharge for the company’s operations andissuing directions.

As example for the questions this article isabout, I will explain a case from the Anglo-American legal sphere about liability withinthe supplier chain in regard to industriallaw. In Canada, home workers filed aclass action against all related buyers thatbought the products the workersmanufactured for providing overduepayments. The liability obligation wasbased on the ground that the retailers,though they had not bought the productsdirectly, were ‘the controlling mind’ of theproduction chain of clothing because oftheir power and their potential control overthe production process.

4. General Liability for CausedDamages under Civil LawThe so-called tort liability or liability basedon fault is based on the concept that otherindividuals must respect valuable rights,such as the right to life, health andproperty, and must behave according tothis respect. Therefore, the subject matteris violation of heteronymous, but not ofautonomous standards as in the case ofliability under company or industrial law.Thus, liability based on fault is based onsimilar concepts as penal liability: Itssubject matter aims at controlling conductand therefore it is usually designed in theway that liability is based on fault. Thisshows that the fundamental question inthis case deals also with the causality ofconcrete actions and failures.However, these civil law principles – incontrast to penal law, but as under civillaw in general – deal with market relationsbetween ‘persons’ – and a person canalso be a person under public law, i.e. acompany. Unlike penal law, it is not onlyabout individual faults, but also about

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liability obligations of legal entities andcompanies. According to Paragraph 31 ofthe German Civil Code, corporaterepresentatives act in behalf ofcompanies.Moreover, civil law principles deal onlywith liability for own actions. For thirdparties, who are called vicarious agentswithin the German law, a person wouldonly then be held liable based on fault, ifthis person contributed to the fact thatunsuited persons could interfere with legalassets of other persons, especially if alack of due diligence in selecting businesspartners can be assumed (Paragraph 831of the German Civil Code). This case isalso not about holding a company liablefor actions of another company, but aboutthe fact that a company can be liable forconditions in other companies because itis in control – for instance, because theviolations resulted causally from businessdecisions concerning this company.In this case, the practical problem ismainly to prove the causality between aspecific conduct and a specific damage –especially if many different companies hadbeen involved in the occurrence of thedamage.

5. Liability based on fault forSubstandard ProductsThe basis for liability based on fault is aconcept that has become more and morecommon: The party who caused the riskcan be held liable for the consequencesderiving from this risk. This means, thesociety represented by the national legalsystem started to assign liability for risksregardless of fault. Thus, more and moreso-called offences of liability regardless offault emerged, such as product liabilityunder the German product liability law,which, however, derived from the ECGuideline for product liability of July 25,1985. In this regard, the Europeancountries’ laws have already beenharmonised.

The purpose of this law is similar to that ofthe German law as it seeks to locate the

company that caused the risk byproducing the substandard product inquestion, i.e. the ‘producer’ or in otherwords: the first supplier selling thisproduct. The fact of introducing thisproduct to the market is taken into accountfor the risk-entailing activity.According to Paragraph 4 of the GermanProduct Liability Law, producer is anyperson producing the final product, a basicmaterial or a part of a product (Article 1),as well as any person who introduces orsells a product in the European market(Importer, Article 2). ‘Any personappearing as producer by labelling aproduct with his or her name, brand or anyother distinctive characteristic is regardedas producer of this product.’ (Paragraph 4,Article 1, Clause 2 of the German ProductLiability Law). The producer is liable forthe damage caused by the flaw of aproduct sold or supplied by him or her.Actually, this is only a special case ofliability based on fault for own behaviour –though the interpretation is rather wide asobligations in regard to quality are implied.And in contrast to common liability basedon fault, the basis here is liabilityregardless of fault.

6. Contractual Liability for Products andSuppliesBasically, the law of contract regulates thatevery contracting party must only assumeliability for own faults and own obligations,not for faults of another party (except he orshe involves other parties explicitly anddirectly – Paragraph 278, German CivilCode).But there are some specific exceptions ormodifications to this rule: One example isincluded in the new warranty of qualityaccording to the German Civil Code basedon the Consumer Goods PurchasingGuidelines of the European Union (i.e. inother EU Member States similar rules arein force). According to this rule, the vendoris liable for product characteristics theproducer promised the product has – thismeans, the vendor must take onresponsibility for characteristics about

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which he or she did not express his or heropinion and probably even has no opinionat all.

Paragraph 434, Article 1, Clause 3: ‘Thequality [of a product…] includes alsocharacteristics that the purchaser canexpect on the basis of public statementsmade by the vendor, the producer or avicarious agent, especially in the contextof advertisements and labelling in regardto specific characteristics of the product inquestion, unless the vendor had noknowledge of the statement and was notobliged to have such knowledge, or thestatement had been corrected in anadequate manner at the time the purchasecontract was completed, or the statementcould not influence the customer’sdecision to buy the product.’In this context, publicly notified codes ofconduct could also get a legal function inthe future, as they define specific minimumrequirements that must be met if theproduct is to be regarded as a ‘flawless’product according to the agreed provisionsof the sales contract between vendor andconsumer. Again, there exists a referenceto the definition of producer according toParagraph 4, Articles I and II of theGerman Product Liability Law.

Actually, this rule is only an explicitdetermination of a natural thing alwaysvalid in contracts: If a person signs acontract, this person is liable for theconsequences resulting from this contract.The reason is that contracting partiesthemselves can define the content of acontract and the subject matter ofcontractual provisions according to theprinciples of contractual freedom andpersonal autonomy. In the case of massconsumption, however, communicationtakes place via the market; thus, thecontent of the contract must be exploredby paying attention to public comments ofconsumers on the market, not only tocomments of individual vendors. If aretailer is thus held liable for faults ofproducers or suppliers, this liability will

result from violation of personal obligationsaccording to contracts the retailer agreedto on a voluntary basis.

7. Responsibility for Public Statementsunder Competition LawDue to its relevance for the market, thisform of accountability to consumers isclosely connected with accountabilityaccording to competition law.

Accountability according to competitionlaw was the subject matter in the thirdSaipan case. Retailers had been sued forunfair trading practices and misleadingadvertise in which they emphasised thatthey sold goods ‘Made in America’ – whichsuggested deceptively that these goodshad not been produced under sweatshopconditions. The reason was, and thisapplies also according to German law: If acompany makes public statements, it willbe liable for the truth of these statements.This means, if a company makes publicstatements about the conditions underwhich the products they sell are produced,it can be hold liable for the truth of thesestatements under competition law. Again,in this case the company is not liable forconduct of another party, but only for itsown conduct – i.e. keeping givenpromises.

8. ConclusionsFinally, I want to mention that this is only avery rough summary; and as I am anexpert in the fields of industrial andprocedural law I had not too manychances to explore the questions arising inthis context more intensely. There arecertainly many more examples from othercontexts. Another point is that I based thisarticle mainly on German substantial law,but actually it would be necessary tocompare different legal systems andexamine definitions of responsibility indifferent legal systems.But in my opinion, the following applies ingeneral (in regard to industrial law Ialready did some legally comparativework): The categories resulting from this

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brief article can probably be used toidentify points of view to structure thesubject of corporate responsibility bytaking different legal spheres and legalsystems into account. In that regard, theoutcome is really very interesting for ourpurpose. Central principles ofresponsibility are dependency, controland potential control.

Thus, it can be concluded: apart fromexceptional cases (CorporateAccountability Paragraphs 278 and 31 ofthe German Civil Code dealing with closeinternal relations) it has never been thecase that a company had been held liablefor faults of another individual or company.It is mostly about the fact that a companyviolated own duties (duty of due diligenceor duty of supervision) or produced risks.As a result, these rules are not dealingwith liability for behaviour of another party,but with the question for whichconsequences of its own behaviour or itsown failures a company can be held liable.

To decide this question the twoalternatives of liability based on fault andliability regardless of fault can be used.Under modern market conditions,objective risk assignments on the basis ofliability regardless of fault, based on theconsideration that somebody had or hasactually the possibility to control a risk,gain growing acceptance in regard toliability under civil law. Nevertheless,assignment of individual guilt remains tobe based on liability based on fault,particularly under penal law.

In regard to responsibility for ownbehaviour the reason for liability and thusthe type of violated duties must bedefined: Is the case dealing with liability forviolation of heteronymous standards orwith liability for voluntarily agreed(contractual) obligations, i.e. autonomousstandards? The scope of legal duties isdetermined by law and order. The scopeof contractual or voluntarily agreedobligations is determined by

interpretation of existing agreements. Inregard to mass business, publicstatements in the related market must betaken into account.

In order to solve the question whether ownduties (either legal or contractual duties)were violated or not, the factual controlover the events in question is important. Inthis context, factual, socio-economiccategories get legal force. Potential factualcontrol plays a role where the subject isliability for omissions, i.e. violation of theduty of action. This requires that acompany took on duties on a voluntarybasis or that the existing law assignedduties to the company for definite reasons.

III. Consequences for the Interpretationof the OECD GuidelinesIf we examine the OECD Guidelines, wemay firstly ask what form of duties andresponsibility is addressed – the legal form(heteronymous standards) or thecontractual form (autonomous standards)?

Guidelines are obligations thatgovernments took over on behalf of theirnations.They are political expectations addressedby governments to companies. Thus, theguidelines expect companies to take overresponsibilities on a voluntary basis.Therefore, it seems there is every reasonto understand the Guidelines asregulations for competition and consumercontracts.

This is supported by the language ofArticle II.2 according to which the subjectis not that companies are to be held liablefor behaviour of third parties, such as theirbusiness partners. The subject is ratherthat companies themselves shouldconduct a specific behaviour.

The description of the behaviour required,however, is rather abstract: It is dealingwith exerting ‘control’. The explanations(reflecting the opinion of the CIME) statethat the benchmark for this obligation is

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the extent to which companies have the‘capability’ to ‘exert control over theconduct of their business partners’.Actually, this is a rather natural thing, asresponsibility or desirable action can onlyextend as far as the company is capableto act in the required manner at all.Therefore, the scope of actions dependson the potential factual control thataccording to the explanations depend oncharacteristics related to sector, companyand product, number of suppliers or otherbusiness partners, structure andcomplexity of the supplier chain as well asmarket position of the company in relationto its suppliers and other businesspartners.

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Conclusions

By Cornelia Heydenreich(Germanwatch)

The meeting jointly organised by theDevelopment Department of theProtestant Church (EED), Germanwatch,OECD and TUAC investigated thequestion to what extent multinationalenterprises can be held responsible fortheir supplier relations. Special emphasiswas placed on questions concerningecological and social standards that wereespecially discussed within the context ofthe instrument represented by the OECDGuidelines. This conclusion presents themost important items of the lectures anddiscussions and draws conclusions for thefuture debate. In his introducing lecture,Prof. Dr. Ulrich Jürgens from the ScienceCentre Berlin took the automotive industryas example to explain the actualdevelopments and trends of the globalisedeconomy. Many observations can betransferred to other sectors as well. Duringthe last years, the percentage ofinternational suppliers has significantlyincreased, in the automotive industry thistrend has been observed since the 1990s.The fact that the influence of multinationalenterprises on quality, technology andlogistics reaches quite far so that it can beassumed that they could influenceecological and social standards can alsobe transferred to other sectors. Heino vonMeyer from the OECD Berlin Centreexplained origin and contents of the OECDGuidelines, which are an importantinstrument for regulating corporateresponsibility. Since their review in 2000they also apply to supplier relations.Cornelia Heydenreich from Germanwatchreported about practical experiences withthe Guidelines within the context ofsupplier relations and criticised inparticular the introduction of the so-called’investment nexus’ that, from the viewpointof NGOs, causes a limitation of theGuidelines’ scope. The corporaterepresentatives from Adidas, Volkswagen

and BASF explained how their enterpriseshandle their supplier relations. It becameobvious that sectors such as the textileindustry, which has been characterised byoutsourcing processes since decades andgenerates 99% of its profits externally,employ the most activities concerningsupplier relations. Other sectors such asthe chemical industry came under publicscrutiny due to other problems, such asworkplace safety, and have started toconsider supplier-related aspects onlyrecently. All three examples showed that itis not relevant for enterprises whetherinvestment or other business relationsexists if the reputation of their brand nameis negatively affected. In practice, it israther important how strong the influenceon individual business partners can be. Inthe textile industry, there are successfulefforts to join forces to enforce compliancewith specific standards, if one enterprise’sshare in the production of a supplier aloneis not important enough to achieve suchcompliance. Awareness of supplierrelations, however, was hardly ever raisedby internal processes within enterprises,but mostly by public pressure. RolandSchneider introduced the problemsconcerning supplier relations in his lecture,highlighting the social consequencesderiving for employees in developingcountries. Discussions on corporateresponsibility for social and ecologicalissues are relatively new in the science ofbusiness management and wereintroduced through other sciences. Dr.Michael Stephan explained that, inbusiness management, responsibility isdefined by dependencies. Suchdependencies derive from investmentrelations on the one hand, i.e. the share ofinvestments, but on the other hand theycan also derive from ‘investment-likerelationships’. This can be realised bymarket power, i.e. by dominance overcustomers or suppliers, or by so-called co-specific investments that can be mosteffectively used in combined operationwith a specific company. Concerning thelegal viewpoint, Eva Kocher from the

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University of Hamburg explained thatresponsibility derives from accountabilityand liability structures. For this purpose,especially laws on industrial law, productliability and competition laws can be used.Within the context of globalisationprocesses, the question to what extentlaws can be enforced across nationalborders is especially interesting.Sustainability rating agencies, whichemerged more and more during the lastyears, include also supplier-relatedquestions into their considerations.Claudia Mauritz from scoris introduced hermethods and experiences. Until today,supplier-related questions have not been aspecifically important element; on average,their contribution to the evaluationamounts to about 10%, which can be seenespecially clearly in the textile industry; atAdidas, for instance, they contribute 14%.Critical evaluation is mainly based oninformation of NGOs, and this fact showsclearly that companies that are not underpublic scrutiny are evaluated differently. Inthe final panel discussion, representativesof the Federal Ministry of EconomicAffairs, BDI, TUAC and EED discussedthe instrument represented by the OECDGuidelines. In this discussion, differentpositions became evident: the Ministry ofEconomic Affairs appreciated the presentimplementation of the OECD Guidelinesand the BDI supported the use ofvoluntary instruments like the OECDGuidelines. TUAC and NGOs, however,demanded a less restrictive interpretationof this instrument and emphasised that theGuidelines must take the actualdevelopments within the context ofglobalisation into account. The lecturesand discussions showed that theperception concerning the scope ofcorporate responsibility changed.Corporate influence does not derive frominvestments alone, but also frominvestment-like relationships. In order todefine to what extent companies can beheld responsible in a specific situation,investment relations are not relevant or atleast not the only decisive factor, neither in

science theories nor in the practice ofcompanies. These questions are notrelevant for sustainability ratings either.Important is how the multinationalenterprise can exert influence, but itsinfluence can also derive from marketpower or so-called co-specificinvestments. Thus, the present OECDpractice to link corporate influence to aninvestment nexus and to exclude businessrelationships per se seems to miss thetruth. This documentation shall thereforecontribute to stimulate the discussions atOECD level. Moreover, the explanationson ‘investment nexus’ and ‘investment-likerelationship’ from the viewpoint ofbusiness management provide interestinginspirations for the future debate.

www.germanwatch.org