Fostering Corporate Social Responsibility (CSR) in the Global Supply Chain: Capacity Building of Small and Medium-Sized Enterprises (SMEs) in APEC

The last decades have witnessed profound changes in the nature of production in the Asia-Pacific region as multinational corporations (MNCs) have pursued complex, cross-border production and distribution systems. This process has precipitated the integration of the APEC region through the emergence of global supply chains and global value chains. Increasingly connected global supply chains have created new opportunities for businesses, especially for small and medium-sized enterprises (SMEs) in developing economies of the region, as they become important suppliers for MNCs. However, the development of unprecedented levels of cross-border production sharing has also brought new challenges for both business managers and public policymakers. In particular, the rise of corporate social responsibility (CSR) standards has created a new set of challenges for SMEs linked to global supply chains. A complex, multi-layered set of CSR standards concerning socially and environmentally sustainable business practices have been developed at international, national and local levels. An increasingly large number of MNCs have also started to demand that suppliers comply with corporate codes of conduct. The proliferation of CSR standards, global buyers' requirements of supplier codes of conduct throughout their supply chains and various monitoring and audit mechanisms have created challenges for SMEs which tend to lack the capacity and resources to comply with new requirements. As the uptake of CSR has become a prerequisite to enter global supply chains in the region, SMEs which are unable to adopt CSR practices have been excluded from global supply chains. SMEs are drivers of sustained economic growth in APEC economies. Building CSR capacity of SMEs for their effective participation in global supply chains is thus an important challenge many APEC members face. The objective of this paper is to examine and propose the ways in which APEC can assist SMEs in the region to build the capacity to adopt CSR practices and to improve linkages with regional and global supply chains. CSR has emerged as an APEC agenda only recently and has not been given top priority so far. Furthermore, the initiatives of APEC so far have largely relied on CSR capacity building in a narrow sense. While capacity building of enterprises to adopt CSR is essential, its effectiveness can be limited without a supporting policy or regulatory environment.