The case of supplier relationships at Nokia

The case of supplier relationships at Nokia: 

On the basis of DiMaggio and Powell’s mechanisms that drive isomorphic institutional change, I will show how Nokia and its Chinese supplier strive for legitimacy in different ways.

This blog post is based upon the information extracted from the movie “A Decent Factory”, which explores the way Nokia conducts its audit of a Chinese supplier in regards to corporate social responsibility.

According to DiMaggio and Powell, organizations not only compete for resources, but more importantly institutional legitimacy. In this case, the way the two parties strive for this legitimacy is quite different.

Nokia should be categorized as using mimetic isomorphism. In the past decades, the perception of the role of the firm has changed in the eyes of the consumers and society as a whole. It appears as if Western societies have formed an overriding ideal of firms that is centered around ethical conduct and corporate social responsibility. The more morally sound a firm’s actions, the better.

Just as greyhounds chase after a lure, firms strive to go above and beyond in order to approach an ideal of a responsible firm. This pressure is not instilled by another tangible organization but rather by a trend in the marketplace that forces them to adapt in order to survive. Uncertainty is an important driver of this mimetic isomorphsism. In this case, however, the role model are not successful, but rather unsuccessful firms. Ultimately, Nokia needs to have a flawless corporate social responsibility in order to ensure that it is not scrutinized for shortcomings. A firm knows that any minor mistake can cause public outcries similar to the Nike incidents in 1998, which can have tremendous adverse effects.

For the Chinese supplier, however, the case is very different. Its legitimacy is dependent on coercive isomorphism. Nokia as well as the Chinese government instill demands and rules upon them, which are supposed to guide their behavior. Interestingly enough, it appears as if legal compliance in itself is only of marginal importance to them. The representatives do not acknowledge any coercive power of the Chinese government, by openly claiming legal disobedience. As it turns out, Nokia had strong coercive power, as the supplier actually changed their behavior, following the demands of Nokia. The driver of this coercive isomorphism was the dependence of the Chinese firm on Nokia. It can be assumed that Nokia was a big customer and that they received a lot of money from them. Losing them could possibly put them in a grave financial situation. Due to their dependence on Nokia, the Chinese supplier could be coerced into changing their habits according to what was desired.

In my opinion, Nokia’s approach to diffusing sustainability is quite effective. As an external organization, they will not be able to consistently monitor the business practices within the firm. Any information acquired through audits might be skewed due to the presence of the auditors. A few possibilities to improvement could be to initially involve the government in the search for suppliers. Maybe they can make recommendations to the performance of firms in terms of legal compliance. Furthermore, Nokia could negotiate for a representative to be present in order to consistently monitor the events in the firm.

Nokia could possibly change towards a self-governance coordination mechanism. Within this special category, Nokia could enforce standards, rules and a code of conduct that would be enforced by them. Any violation would swiftly lead to severe consequences such as contract termination. As long as these rules are communicated clearly to the supplier, Nokia could improve its coercive power. 

Source: 

 DiMaggio, P. and Powell, W. 1983. The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields, American Sociological Review, 48(2): 147-160.