Sustainable competitiveness in global value chains - how do small Danish firms behave?

Small and medium-sized enterprises (SMEs) have increasingly become integrated into global value chains, where they face social and environmental requirements from multinational buyers. This paper examines the role of SMEs with respect to sustainable supply chain management in global value chains. Drawing from a survey of sustainable supply chain management practices among 300 Danish SMEs, the paper discusses the concept of governance in global value chains.

The paper addresses two questions: First, to what extent are SMEs affected by social and environmental requirements from buyers? Second, to what extent do SMEs apply such requirements to their own suppliers? After briefly presenting the concepts of rule making and rule keeping in global supply chains, the authors use these concepts to analyze sustainable supply chain management among Danish SMEs, discussing the implications for SME competitiveness and capacity building.

The paper concludes that SMEs are less likely than larger companies to act as change agents for sustainable production in global value chains. Therefore the increased presence of small companies in global supply chains is likely to have a negative effect on the pervasiveness of sustainability requirements in the value chain. This may have implications for both businesses and policy for two reasons:

• If SMEs fail to pass on social and environmental requirements to sub-suppliers in low wage countries, lead firms may in turn face increasing risks of supplier failure in the subordinate tiers of the value chain
  
• from a policy perspective, SMEs are important as change agents in global value chains in order to ensure the pervasiveness of sustainability standards. It is important that SMEs are able to perform governance functions associated with sustainable production in global value chains.

The policy recommendations arising from this paper include: 

• large buyers need to enhance the ability of small suppliers to act as change agents by providing resources to SMEs and backing up their bargaining power vis-à-vis second tier suppliers
  
• solutions need to be developed for rule-keeping partnerships between large buyers and small suppliers in order to ensure the pervasiveness of sustainability standards in global value chains. This should involve the role of large buyers as well as industry organizations, NGOs and government agencies
  
• this study only deals with the exposure of Danish SMEs to sustainable supply chain management practices. It is important to gain a similar understanding of the impact that these practices have on developing country SMEs that are entering global value chains.