Week 6 papers Flashcards
What propels firms in the direction of fair-living wages supply chain reforms?
Distelhorst & Shin (2023): Assessing the Social Impact of Corporations: Evidence from Management Control
Interventions in the Supply Chain to Increase Worker Wages
They want to avoid activism. They don’t want to submit but at the same time don’t want to be perceived as defensive.
What reason is there to expect an effect from WDP & WMS (why would supplier choose to do this)
Distelhorst & Shin (2023): Assessing the Social Impact of Corporations: Evidence from Management Control
Interventions in the Supply Chain to Increase Worker Wages
H&M is a large player in the market. They are a global player with a lot of power in the market, as a supplier you would be more inclined to go along with these systems
What are 2 reasons to expect no effect from WDP & WMS?
Distelhorst & Shin (2023): Assessing the Social Impact of Corporations: Evidence from Management Control
Interventions in the Supply Chain to Increase Worker Wages
- Suppliers can choose to work with another partner, that does focus on cost reduction. They don’t want to increase their salary expenses as these can’t be charged to H&M
- It is a quite indirect intervention, firms are not obliged to implement or use it.
What are the effects on the wage increases for better or lower rated suppliers (preferred suppliers) and labor unions?
Distelhorst & Shin (2023): Assessing the Social Impact of Corporations: Evidence from Management Control
Interventions in the Supply Chain to Increase Worker Wages
No effects
If firms implement the system, they can’t charge these costs to H&M (they are not a premium player), how can they solve this issue?
Distelhorst & Shin (2023): Assessing the Social Impact of Corporations: Evidence from Management Control
Interventions in the Supply Chain to Increase Worker Wages
They solve this issue with higher volumes. If suppliers implement the system they will be rewarded with higher volumes to H&M, so H&M gives them more of their business
What control problem exists with licensing?
Kim-Gina (2018): External Verifiability of Accounting Information and Intangible Asset Transactions
The licensee has an incentive to underreport, since he will pay less royalties. The problem comes from aggregated accounting numbers (which contain quite general information), since the licensor can’t know exactly what amounts the licensee has sold.
In 86% of audits there is evidence of underreporting, yet the system stays in place, why?
Kim-Gina (2018): External Verifiability of Accounting Information and Intangible Asset Transactions
The system is imperfect but also the only system available. As long as the problem doesn’t become too large, its better than the alternative, which is nothing. It is still in the best interest of all parties to continue using this system.
What are the 3 aspects that determine the size of the control problem?
Kim-Gina (2018): External Verifiability of Accounting Information and Intangible Asset Transactions
- Perceived accounting system weakness: weaker perceived system, larger chance of mistakes, higher chance of misreporting.
- Reporting flexibility: more deductibles, more opportunity to underreport
- Incentives to self-enforce: termination is ultimate punishment, if contract is more valuable, licensee will be more careful (long term license, exclusivity, world-wide license).
What are 2 potential solutions to the control problem?
Kim-Gina (2018): External Verifiability of Accounting Information and Intangible Asset Transactions
- Royalty audit, put in contract by licensor as provision (look back period, interval of audits)
- Penalties: if underreporting, licensee pays costs that would usually be paid by the licensor.
Why can’t error explain misreporting, and why are penalties not effective to prevent errors?
Kim-Gina (2018): External Verifiability of Accounting Information and Intangible Asset Transactions
Errors are mistakes, the randomness should average on 0, so you cannot have systematic deviations from errors.
Intention is required for misstatements to occur. Penalties are effective as a deterrent, but might not be effective to prevent errors.
What is the fundamental difference between intra-firm and inter-firm control?
Kim-Gina (2018): External Verifiability of Accounting Information and Intangible Asset Transactions
To what extent can A address issues to its supplier B? Problem is that not everything is contractually concluded.
A manager has subordinates. If you don’t perform to the standard, a manager can directly address this with the subordinate. You can exactly say what elements are not up to par. WIthin firms there is a hierarchy. Everything within the regular job description can be asked from employees.
What is the hold-up problem?
Schloetzer (2012): Process Integration and Information Sharing in Supply Chains
Situation where M asks D to do a relation specific investment. This investment has little value outside of the relationship. Problem is that if D does the investment they become somewhat locked into the relationship. This creates a possibility for opportunistic behavior because the other party knows that this party will be less inclined to leave the relationship.
What is information sharing and process integration?
Schloetzer (2012): Process Integration and Information Sharing in Supply Chains
Information sharing: D does adjustments in the information system so that M has direct access to their systems.
Process integration: D has a sales team trained by M about all aspects of products that M sells to D.
What 2 factors determine the potential for hold up?
Schloetzer (2012): Process Integration and Information Sharing in Supply Chains
- Asymmetry of interdependence: D sells all products of M, but no products from other manufactures, while M does sell to other distributors.
- Magnitude of interdependence: Amount of business between partners, does D have limited amounts or all products of M.
How does larger asymmetry between partners increase the potential for hold up?
Schloetzer (2012): Process Integration and Information Sharing in Supply Chains
It creates an imbalance in the power dynamic between the partners, meaning that M could exploit the investment made by D. The increased potential for hold up results in less process integration & information sharing
