CSR jako źródło konkurencyjności kanałów dystrybucji CSR as a source of competitiveness of distribution channels - PDF

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9 (58) 2013 Magdalena Stefańska, Poznan University of Economics Grażyna Śmigielska, Cracow University of Economics CSR jako źródło konkurencyjności kanałów dystrybucji CSR as a source of competitiveness

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9 (58) 2013 Magdalena Stefańska, Poznan University of Economics Grażyna Śmigielska, Cracow University of Economics CSR jako źródło konkurencyjności kanałów dystrybucji CSR as a source of competitiveness of distribution channels Work funded by the NCN grant based on the decision number DEC-2011/03/B/HS4/03576 Celem artykułu jest wskazanie na udział CSR w budowaniu przewagi konkurencyjnej kanału dystrybucji. Autorki problem ten rozpatrują dla uwarunkowań współczesnej gospodarki, w której nie konkurują między sobą pojedyncze przedsiębiorstwa ale łańcuchy dostaw; również w Polsce daje się obecnie zauważyć postępujący proces przekształcania kanałów dystrybucji w łańcuchy dostaw. Łańcuchy ulegają również skróceniu - coraz częściej hurtownicy są w nich pomijani. W artykule sformułowano tezę, iż uczestnicy kanałów dystrybucji opartych na idei CSR dostarczają wyższą wartość dla finalnego nabywcy. Wartość tworzona w kanale dystrybucji rozumiana jest zgodnie z ujęciem M. Portera, jako wartość ekonomiczno-społeczna. Przedmiotem szczególnej uwagi są nowoczesne kanały dystrybucji na rynku FMCG w Polsce, w których silne kapitałowo przedsiębiorstwa handlowe mają znaczący wpływ na dostawców (producentów) towarów. Artykuł ma charakter teoretyczny, aczkolwiek przytoczono w nim przykłady z praktyki. Rezultatem jest wyjaśnienie mechanizmów zwiększających wartość kanałów dystrybucji działających w oparciu o ideę CSR. Oczekiwany rezultat praktyczny to identyfikacja obszarów, które zachęcałyby detalistów do zacieśniania współpracy w kanałach dystrybucji z dostawcami w oparciu o ideę CSR oraz wskazanie na rozwiązania, jakie można w tym zakresie podejmować. Introduction The ongoing trend to introduce the corporate social responsibility standards is observed also in retail sector. It brings up question about the benefits from such activities. The authors examine the problem with regard to the modern economy where the competition is not among the individual enterprises but among the supply channels. The article contains a thesis that the distribution channels based on the idea of CSR are more competitive because they provide a greater value for the end buyer. The M. Porter approach to the role of CSR in the supply chain is used to show how particular action of retailers could improve the competitiveness of the chain. The role of retailers in improving the distribution channels competitiveness Competitiveness can be defined as a system comprised of four elements: competitive potential, competitive advantage, competitive tools and competitive position 1. Competitive position is the result of effective competition and a confirmation 1 M. J. Stankiewicz: Istota i sposoby oceny konkurencyjności przedsiębiorstwa. Gospodarka Narodowa, 7-8/ 2000, p of the enterprise's ability to make use of the potential and balance of market forces. It constitutes an important starting point for achieving the competitive advantage in the future. Competitiveness can therefore be understood as an ability to achieve and strengthen the competitive advantage. A definition of sustained competitive advantage was first formulated by J.B. Barney claiming that firm is said to have sustained competitive advantage if it is implementing the value creating strategy not simultaneously being implemented by any current or potential competitor and when these other firms are unable to duplicate the benefits of this strategy 2. In Polish literature definition of competitive advantage we can find in publications of L. Żabiński or M. Stankiewicz 3. More practical definition of competitiveness is provided by the US President s Commission on Industrial Competitiveness: A firm is competitive if it can produce products or services of superior quality or lower costs than its domestic and international competitors. Competitiveness is then synonymous with a firm s long-run profit performance and its ability to compensate its employees and provide superior returns to its owners 4. In the narrow sense, measures of competitiveness at the firm level therefore comprise indicators of financial performance, such as the development of sales, profits, and costs, as well as stock performance.. Nowadays competitiveness of an individual enterprise is largely dependent on competitiveness of the supply chain that the enterprise is a part of. Supply chains, understood as series of activities related to planning, coordinating and controlling the flow of materials, parts and final products from suppliers to end buyers, began its rapid development in the 1980s 5. They were a reaction to increasing competition and consumer demands, and progressive globalisation processes. In such conditions, channels of product distribution where the participants appear as independent links and compete for a margin share while pursuing their own goals are not sufficient for effective competitiveness on an increasingly demanding market. Therefore, they were replaced by supply chains the management of which was targeted at synchronising the flow of materials from suppliers with consumers' demands in order to achieve a balance between aims often regarded as contradictory, i.e. high customer service, low expenditure on supplies and low unit costs. The replacement process encountered obstacles due to the fact that co-operation was to be between former competitors. The supply chain can be managed by any of its links. In chains where trading enterprises held a strong position (above all on FMCG and clothing markets) it was them that became the integrating force. The position was a result of changes occurring in the second half of the 20th century, most importantly: gaining by trading enterprises bargaining power in the distribution channel, concentration processes in trade, growing significance of own brand products, rising inventory carrying costs, necessity to meet buyers' demands regarding the supply volume and deadlines, or trading enterprises' 2 J. B Barney:, Firm resources and sustained competitive advantage. Journal of Management, 17/1991, p M. J. Stankiewicz: Konkurencyjność przedsiębiorstwa. Budowanie konkurencyjności przedsiębiorstwa w warunkach globalizacji, Dom Organizatora, Toruń A. Francis: The Concept of Competitiveness [in :] Francis, A. and P. Tharakan (eds.), The Competitiveness of European Industry, London. Routledge G. C. Stevens: Integrating the Supply Chain. International Journal of Physical Distribution and Materials Management, 19(8)/1989, pp introducing information technology solutions to effectively co-ordinate activities of partners. In FMCG retailing one can distinguish four stages of the supply chain evolution: 6 characteristic of a decentralised market where there is no co-operation between the links of the supply chain, characteristic of the end of the industrial phase, when massive production and increased power of retailers led to noticing the importance of co-operation and first attempts at it, the beginning of post-industrial phase with EDI (electronic data interchange) bringing together the chain elements and making it possible to adapt freely to changes in demand, the present, in which segments of customers have particular needs to which links of the supply chain must respond by providing value. Buyer needs change continuously over time and organisations are involved simultaneously in a series of value clusters which allows for the so-called mass customization. This frequently quoted development of the supply chain presented by R.H. Lowson should be complemented with another stage, where not only information technologies unite its elements but also social responsibility which in the present conditions has a significant effect on raising competitiveness. This is because ethics and ethical character of purchased products are becoming more and more important for buyers. They are interested not only in the basic features of a product, such as its brand and quality, but also want to know if the production did not involve child labour, destruction of the natural environment or violation of human rights and employment rights. They are interested in the product's country of origin and the conditions in which it was produced. Moreover, they want to participate in social initiatives. Corporate social responsibility of an enterprise managing a supply chain is not limited only to activities related strictly to the exchange processes, but goes far beyond it to responsibility for production processes and recycling of waste products, particularly when it comes to own brand products, as well as the collection and recycling of worn out or dysfunctional goods which can be a threat to the environment. Equally important seems to be retailers' encouraging both suppliers and customers to become involved in activities ensuring a sustained growth and an improved quality of life. Retailers must therefore redefine their role in distribution channels. The concept of corporate social responsibility (CSR) in distribution channels In the literature it is commonly assumed that corporate social responsibility is a concept according to which enterprises voluntarily take on economic, legal and ethical responsibility and get involved in charity activities for the benefit of stakeholders and the natural environment 7. Economic and legal responsibilities are obligatory, whereas the others - voluntary. Areas of responsibility are indicated in A. Carroll's pyramid model, 6 R. H. Lowson: Retail operational strategies in complex supply chain. International Journal of Logistics Management, 12/ 2001, pp A. Carroll: The pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders. Business Horizons, 34/ 1991, pp while groups towards which enterprises should act in a socially responsible way are determined based on Freeman's stakeholder theory. According to Freeman, enterprises' managers must combine the needs of numerous stakeholder groups which can have an effect on the enterprise, and taking into consideration only the interests of owners or shareholders is insufficient and disadvantageous to the organisation 8. Conflicting aims of the particular stakeholder groups' employees, communities, social movements, suppliers, customers or the media, force enterprises to conduct an assessment of impact of the business environment and determine how significant its influence is on the strategies, and therefore, to what extent the given group should be involved in establishing strategic aims and ways of their implementation. In the opinion of J. Filek, corporate social responsibility is treated as a holistic management concept based on strategic and long-term approach leading to achieving a sustained profit and, at the same time, based on a social dialogue and seeking solutions beneficial to all the parties 9. In recent years attempts have been made to sort out the issues involved in CSR. Consequently, ISO norm was developed, in which one of the areas of enterprise assessment with respect to corporate social responsibility are relations with suppliers included in the category of business practices. Besides co-operation with suppliers, it includes counteracting corruption, responsible political involvement, fair competition, promotion of CSR in the chain of values and respecting property rights. Social responsibility defined in such a way has a vital effect on the enterprise's competitiveness. The issue the authors have decided to focus on is the role of CSR in building competitiveness of distribution channels and their participants from the perspective of retailers. This is because the key elements that determine their strategy are both customers and suppliers, specifically, building relations with customers and suppliers which allow for gaining a competitive advantage 10. In the field of trade the concept of CSR is of particular interest due to the industry's characteristics. Above all: trade reflects globalisation and internationalisation processes, goods offered by commercial networks come from all over the world, yet the standards of their production vary and are not always compliant with fair trade guidelines and fair play, the dominant role of commercial networks in distribution channels is responsible for their possible major influence on suppliers' strategies, while enterprises' performing the role of a gate keeper makes them have control over consumption. Moreover, one can observe a growing sensitivity of retailers towards pressure from consumer organisations on their conducting business activity based on ethical rules. Among characteristics determining the present nature of relations between suppliers and retail enterprises there is a lack of balance between the parties. Most often it is the financially strong commercial enterprises that become the integrators of distribution channels, which allows them to: 8 R.E. Freeman: Strategic Management: a Stakeholder Perspective. Engelwood Cliffs, NJ, Prentice Hall, J. Filek: Między wolnością gospodarczą a odpowiedzialnością społeczną biznesu. w: Etyka i ekonomia, pod red. B. Klimczak, A. Lewickiej-Strzałeckiej, PWE, Warszawa 2007, p Compare K. H. Wathe, J. B. Heide: Relationship Governance in a Supply Chain Network. Journal of Marketing, 68/ 2004, pp , also: K. De Wulf, G. Odekeren-Schroeder, D. Iacobucci: Investments in Consumer Relationships: A Cross-Country and Cross-Industry Exploration. Journal of Marketing, 65/2001, pp acquire goods omitting the level of wholesaling, as commercial networks take on wholesaling functions performed by distribution centres (own or external, as part of outsourcing), acquire goods in quantities that provide them with transaction privileges, including lower prices by virtue of the size of operation, discounts, receiving better payment conditions, negotiating insurance, logistics or promotional costs, lowering the costs of servicing suppliers, intercepting suppliers or gaining control over them by commissioning production for the network's needs. The goods are then offered under a brand controlled by the enterprise, exclusively in their stores. As a result of changes which have occurred in trade, the industry has qualities typical of monopolist competition where few subjects determine the functioning of the remaining market players 11. A high share in turnover of a small number of stores makes them of interest to producers who seek channels of distribution of high capacity. Recipients such as large-format networks are in the group of key customers for the producers, and so are large commercial networks consisting of relatively small size stores. On the other hand, retailers who are not part of organised structures do not usually buy goods directly from producers, but take advantage of wholesalers, thus they do not have direct contact with producers (Picture 1). Consequently, the importance of wholesalers and producers in developing strategies based on the idea of CSR is growing. Each distribution channel has a clear structure bound by relations which to a larger or lesser extent are sanctioned legally, administratively or with regard to ownership. Within the distribution channel its participants strive to fulfil the commercial function while pursuing their own aims. Their diversity (or the earlier mentioned contradiction) leads the participants to seek new ways of strengthening their position). Producers most often invest in their own strong brands, search for innovative solutions, and production-wise - take advantage of economies of scale or experience curve, etc. Retailers, in turn, introduce technological innovations which enhance the sales process, increase the scope of provided services, but above all, develop network structures allowing for market penetration. Competition between producers and retailers for the position in the distribution channel may, however, weaken its ability to compete with other channels, and result in participants leaving the channel - producers will then seek new channels of distribution, and retailers must find new sources of obtaining equally good brands. Due to high transaction costs of changing partners, competition for margin in the distribution channel is more and more often replaced with cooperation which enables members of the given channel to achieve better results (satisfying profits) owing to its high competitiveness. The partnership of members of channels of distributions, is described sometimes as marketing of supply, as K. Bilińska-Reformat writes, is becoming nowadays crucial G. Śmigielska: Kreowanie przewagi konkurencyjnej w handlu detalicznym. Wyd. AE Kraków, 2007, pp K. Bilińska-Reformat: Marketing zakupu jako źródło przewagi konkurencyjnej sieciowych organizacji handlu detalicznego w Polsce, w: Orientacja rynkowa we współczesnym handlu detalicznym, pod red. B. Borusiak, Wydawnictwo UE Poznań, s Picture 1. Sample structure of FMCG producer s channels of distribution Source: own work TChD- traditional channels of distribution MChD- modern channels of distribution The presented outline of phenomena in retailing constitutes the basis for focusing on two elements: distribution of bargaining power among participants of distribution channels and identification of the role corporate social responsibility plays in shaping relations in the distribution channel. Retailers CSR activities in value chain The need for integration of the distribution channel is explained in Michael Porter's value chain, in which on different levels and across different functions both economic and social values are developed 13. The concept of socio-economic value focuses on creating an economic value in a way which at the same time creates 13 The concept's authors claim there is a difference between corporate social responsibility and developing socio-economic value, pointing towards citizenship attitude, sustained development and philanthropy, as well as detachment from profit maximization as the foundations for the idea of CSR, whereas in the case of socioeconomic value the aim is to create a value of the company together with the local community while striving for profit maximization. One must add, however, that the idea of CSR is evolving in various directions, including the concept of socio-economic value. It is hard to talk of such clear-cut differentiation of interpretations as the authors indicate. More about it in: M.E. Porter, M. R. Kramer: Tworzenie wartości dla biznesu i społeczeństwa. Harvard Business Review, May 2011, pp a social value through its reaching out to society's needs and problems 14. Among various ways of the value creation, the authors indicate besides re-framing products and markets, creating conditions for local clusters, also redefining productivity regarding the supply chain. The chain of value must therefore be looked at from two perspectives internal of the organisation, and external of the whole supply chain. The chain of value is comprised of processes within the enterprise, but is also cocreated by all participants of the distribution channel (supply chain). In a classic chain of creating value by a trading enterprise one can distinguish primary and support functions performed in the enterprise. The primary functions include: inbound and outbound logistics, marketing and sales, and service activities, the support ones embrace: managing finances, managing human resources, procurement and technology development. Unique abilities in the field of managing resources and also competences and unique skills, make it possible to make a retailer's commercial offer so distinct that the risk of competitors copycatting the solutions is minimised. What is more, in such a presented chain of value, each sphere offers a possibility to implement solutions characteristic of CSR. Table 1 shows CSR initiatives undertaken within the particular functions of the enterpr
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