Global Purchasing as Labor Regulation: The Missing Middle

Do purchasing practices support or undermine the regulation of labor standards in global supply chains? This study offers the first analysis of the full range of supply chain regulatory efforts, integrating records of factory labor audits with purchase order microdata. Studying an apparel and equipment retailer with a strong reputation for addressing labor conditions in its suppliers, the authors show that the retailer persuaded factories to improve and terminated factories with poor labor compliance. However, the authors also find that purchase orders did not increase when labor standards improved. If anything, factories whose standards worsened tended to see their orders increase. Contrary to the conventional wisdom, this “missing middle” in incentives for compliance appears unrelated to any cost advantage of noncompliant factories. Instead, lack of flexibility in supplier relationships created obstacles to reallocating orders in response to compliance findings.