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Sustainable
Sustainable strategic sourcing strategic
decisions sourcing
The logic of appropriateness applied
to the Brazilian market 89
Joachim Timlon
School of Business and Economics, Linneaus University, Calmar, Sweden

Abstract
Purpose – The purpose of this paper is to identify and analyze the factors that influence strategic
sourcing decisions to the Brazilian market based on societal and natural values.
Design/methodology/approach – A case study method is used because of its suitability for
exploring how a Scandinavian multinational corporation can respond to the social context in the
Brazilian market by matching, in competition with other firms, its own values, norms and beliefs to
those prevailing in the Brazilian market.
Findings – The response to the social context in the Brazilian market and the integration with the
group’s ethical standards comprise certain appropriate corporate social responsibility practices that
result in natural and social benefits for the stakeholders, which in turn creates social advantages.
Research limitations/implications – The study is focused on the Brazilian market and would
benefit from the availability of data in other emerging country markets that pose potential outsourcing
destinations, enabling a comprehensive analysis from an integrated economic and sustainability
perspective, including how societal advantages are transformed into competitive advantages.
Practical implications – Management scholars should apply a socio-economic perspective to
strategic sourcing decisions in emerging country markets in accordance with the logic of
appropriateness, which enables a broader and more holistic approach towards strategic sourcing
decisions, what influences them, how to sustain them, and deciding how to effectively match the
requirements of the external institutional setting of the specific emerging country market and how to
establish relationships between decision makers on global and regional levels.
Originality/value – In contrast to authors who have theorized about strategic sourcing decisions
from an economic market perspective, a socio-economic approach is taken in this paper to establish an
institutional base and a network foundation for analyzing the social context of the Brazilian market.
Keywords Sustainability, Corporate social responsibility, Sourcing, Emerging markets, Brazil
Paper type Case study

Introduction
The premise of this paper is to research the confluence of societal and natural values
(sustainability) and low-cost economic values, in the context of strategic sourcing
decisions to emerging country markets. Emerging country markets, such as those of
Brazil, Russia, India and China (the BRIC countries), have become increasingly

Thanks to Sven Kallin and Jan Ljungman at Electrolux Laundry Systems for contributing and Strategic Outsourcing: An
International Journal
sharing their experiences on sustainable sourcing decisions. Also, thanks to Leonardo Marques Vol. 4 No. 1, 2011
at Instituto COPPEAD de Administracao for valuable input about Brazilian institutions; and pp. 89-106
q Emerald Group Publishing Limited
Eva Chmiel, Katerina Kazak, Jacqueline Matschke and Heidi Pedersen, School of Business and 1753-8297
Economics, Linneaus University, for assistance in the data collection process about Brazil. DOI 10.1108/17538291111108444
SO important sourcing destinations for multinational corporations (MNCs) (Mainelli and
4,1 Willcocks, 2009). Sourcing has the potential to create enormous value for both the
companies and the global economy (Farrell, 2005). Furthermore, Mainelli and Willcocks
(2009) also report an increasing focus among sourcing clients on corporate social
responsibility (CSR) issues. This seems to be a consequence of being “globally
connected”, which gives rise to political and global risks due to, for instance, child labor,
90 indigenous peoples’ rights, forestry, intellectual property, conservation of biodiversity,
etc. As a consequence, according to Mainelli and Willcocks, sourcing companies are
subject to increasing scrutiny from different stakeholders regarding the implications of
sourcing decisions, in particular to emerging country markets. Looking forward,
management scholars may find themselves in dilemmas with regard to how to prioritize
low-cost economic and sustainability criteria.
More and more companies are realizing the value of committing to responsible
business practices. As a responsible corporation or corporate citizen, a strong reputation
with potential local employees, customers, and regulators can help global sourcing
companies build trust with local stakeholders, neutralizing their alien features by
strengthening community ties and establishing legitimacy – in other words a local
license to operate in a market based on performing appropriate activities for a particular
institutional environment (Brammer and Pavlin, 2006; Gardberg and Fombrun, 2006).
CSR can be more than a cost, a constraint, or a charitable deed. It can also be a potential
source of opportunity and innovation for achieving a competitive advantage and social
progress when a company applies its considerable resources, expertise and insights to
activities that benefit society (Porter, 1995; Porter and Kramer, 2002, 2006).
Although Brazil is considered to have huge potential as a sourcing destination
(which is reflected in the Global Opportunity Ranking – from position 15 in 2005 to an
estimated future rank of 4 in 2015, not far behind China, India, and the USA) (Minevich
and Richter, 2005), few researchers have studied sourcing to the Brazilian market. Most
studies have taken an industry focus such as on the automotive (Collins et al., 1997;
Pires, 1998; Camuffo, 2004) and IT sectors (Miozzo and Grimshaw, 2004).
This paper seeks to explore how a Scandinavian MNC can build legitimacy by
matching, in competition with other firms, its own internal values, norms, and beliefs to
those prevailing in the Brazilian market in order to analyze the factors that influence
sustainable strategic sourcing decisions. The strategic situation facing the company
regarding social issues is expressed in the same way as economic issues in the market.
It is a question of finding the right trade-off between local responsiveness and global
integration (Bartlett and Ghoshal, 1989). How can a company respond to the social
context in the Brazilian market by matching local ethical standards? And how can they
be integrated with the group’s ethical standards as a foundation for strategic sourcing
decisions?
With few exceptions (Brown, 2008), sustainability criteria are not yet reflected in the
literature on strategic sourcing decisions. The relevant literature refers to a situation that
is traditionally well known in theory and practice as a “make or buy” decision, resulting
in a governance structure that is either external or internal, or a hybrid thereof (Arnold,
2000). Traditionally, strategic sourcing decisions are based on a cost differential.
However, this cost-based approach is too narrow for strategic sourcing decisions. Welch
and Nayak (1992) recommend that management scholars augment the traditional cost
analysis by considering various dimensions of process technologies involved in the
sourcing decision. Their view on process technologies is broad, and they argue that it can Sustainable
be applied to different core processes such as product development. The sourcing strategic
decision logic then depends on the strategic importance of the process technology in
attaining and/or sustaining competitive advantage, and whether it will be detrimental to sourcing
the company’s competitive position to outsource research and development, design,
engineering, manufacturing, or assembly, both in the short and in the long term.
Traditionally, theoretical foundations of strategic sourcing decisions are found in a 91
combination of transaction cost economies and the core competence concept (Arnold,
2000). The transaction cost economies concept is rooted in information asymmetry,
bounded rationality and opportunism, which was first discussed by Coase (1937).
Transaction costs arise from activities that include evaluating suppliers, negotiation,
control function, etc. It also accounts for a company that must invent and run a system to
control the productivity of its workers. Consequently, transaction costs appear in
markets as well as in hierarchies (Arnold, 2000). A salient aspect of a transaction is
specificity: asset specificity as well as human capital specificity (Williamson, 1989).
Goods and services with high specificity require a great deal of information to be
exchanged before, during and after the exchange and can, therefore, not be used in other
transactions without huge additional costs. It then makes more sense to establish an
internal sourcing design for these transactions. On the contrary, objects with low
specificity require little information to be exchanged, which increases the possibilities
for the external sourcing partner to bundle demand and to exploit economies of scale,
subjecting them to external sourcing. The sourcing decision is further influenced by the
extent to which the transactions are of strategic importance for the sourcing firm. Arnold
(2000) turns to the core competence concept and claims that the concept of specificity is
closely related to the strategic importance of a transaction. According to Prahalad and
Hamel (1990), core competencies combine three elements: in the eyes of the customers
their characteristics differentiate the company from competitors; they can be protected
against imitation over time, which makes them sustainable; and they can be used for
multiple purposes. The decision logic for sourcing decisions, based on a combination of
transaction cost economies and the core competence concept, then stipulates that goods
and services with high specificity based on core competencies should be produced
internally, in other words an internal sourcing design (Arnold, 2000). In accordance with
March (1994), the praxis of decision making following this efficiency rationality can be
defined as the logic of consequentiality, which means that decision making is done
according to some formal rational logic based on economic values.

A socio-economic approach
However, such a narrow focus tends to obscure serious analysis of the socio-economic
issues involving strategic sourcing decisions. The business world has an ethical side
(Fisher, 2004), where institutionalized principles, norms and standards of conduct
govern individuals and groups; however, they are relative and vary between countries,
as well as within a country across different sectors (Brammer and Pavlin, 2006).
In contrast to authors who have theorized about strategic sourcing decisions from an
economic market perspective, this paper applies a socio-economic approach (Gardberg
and Fombrun, 2006; Peng et al., 2007; Jansson, 2007), wherein an institutional base and a
network foundation is established for analyzing factors in the external institutional
context of the company that determines a sustainable sourcing decision. A number of
SO issues motivate this choice. The term “institutional” is an expression of the international
4,1 dimension, which means that the different international contexts in which the MNC is
operating are seen to consist of institutions comprised of cognitive, normative and
regulative structures – such as cultures, values and attitudes – that give stability and
meaning to social behavior (Scott, 1995). This term is meant to imply differences in both
the external environments and the internal environments of the MNC described in terms
92 of institutional variation and explained by institutional factors. Therefore, it includes the
MNC itself as an institutional set up of different units around the world. The term
“network” is defined as a structure for coordinating organizational activity and
represents the relationship aspect, since a major issue in emerging country markets
concerns building and maintaining networks of relationships with major actors (Peng
and Luo, 2000). The external setup of the MNC encompasses a multitude of economic and
non-economic actors such as customers, suppliers and government authorities.

Matching the internal and external institutional settings of the Brazilian

market: an illustration
Electrolux Laundry Systems (ELS) is a group of companies that envisions itself as the
world leader in providing its customers the best total solutions for their laundry needs.
Its mission is to globally market a complete professional laundry and textile processing
system primarily using its own research and development and production resources.
The strategy has three points of focus: conceptual thinking and adding value; cost not
price; and a green approach. This means that it seeks to provide concepts that add value
to the customer’s business as well as knowledge about the laundry process, leading to
profitability for the customer. The focus is then to ensure that the solutions provided in
the long term (life-cycle cost) clearly show the lowest cost with the lowest possible
environmental impact. More specifically, ELS is sensitive to sustainability from design
to manufacturing and from usage to dismantling. For instance, all factories are ISO
14001 certified; products are designed for low energy, water and detergent consumption,
and for low emissions into the environment. All factories are also restriction of use of
hazardous substances compliant (i.e. they aim to restrict certain dangerous substances
commonly used in electronic and electronic equipment) using 95 percent recyclable
materials. Main customer segments are commercial laundries, hotels and public as well
as private institutions such as hospitals. As an attractive destination for tourists, Brazil
has many hotels. From 2006 to 2008, 132 new enterprises were projected in Brazil. Of this
figure, 41 were hotels, among which many were luxury hotels, 15 were apartment hotels
and 76 were resorts. This large investment was mainly financed by the tourist industry,
which has been growing rapidly. A social effect of the project was the creation of 15,000
new jobs (Ament, 2006). However, the market share of ELS in South America remains
less than 1 percent of its total sales worldwide.
The group has two production facilities in Europe and one in Asia. When
manufacturing professional laundry systems, the labor cost is equivalent to less than
10 percent of the total cost. Between 60 and 80 percent of the components have equivalent
global prices. However, costs for transportation are high due to physical size and weight,
which is why it is preferable that a manufacturing entity is located close to where the
products are sold. ELS provides the customers with tailored laundry solutions, driven by
the customers’ demand. A strong focus is on innovations and constant improvements of
the laundry solutions based on extensive customer insight in order to meet the real needs
of the customers. Consequently, if the company will exploit the growth potential on the Sustainable
Brazilian market, a local production facility seems a rational choice. It would then be strategic
essential to consider sustainability criteria.
sourcing
The external institutional setting
As emerging country markets such as the Brazilian market are largely characterized as
network or relationship societies, inter-organizational behavior occurs in relation to 93
outside parties. The direction, spread and substance of these relationships between
organizations are determined by institutional factors: cultural influences such as
country culture, family, religion, and business morale and institutional structures such
as systems of property rights and other legal rules and penal systems ( Jansson, 2007).
Thus, the norms, values, cognitive factors, and regulations inherent in such
institutional complexes have an impact on strategic sourcing decisions. An analysis of
the external institutional setting of the professional laundry industry case used reveals
a number of characteristics of the Brazilian environment, which is summarized in
Table I.

Labor market
According to the Brazilian legal system, employees should be treated equally and receive
the same wage for the same form of work. Although the Brazilian education system has
developed over the past decades, it is only ranked 79 out of 134 in the Global
Competitiveness Report 2008-2009 (Schwab and Porter, 2008). And although schools are
mandatory from ages 7 to 14, many children, especially those in rural areas, are expected
to work in order to help support their families. However, enforcement mechanisms are
insufficient. Consequently, a lower educated labor force raises concerns regarding work
performance and also increases the risk of child labor, because it might be difficult to find
exclusive skills among that particular work force. In-house education seems like a viable
solution for companies. The Brazilian tax system is complex and bureaucratic. It is
estimated that 40 percent of the Brazilian labor force works in the informal “black” sector
(Almeida, 2006; Almeida and Caneiro, 2007). According to Hofstede (2001), the Brazilian
culture is collectivistic in nature, which is characterized by the importance of family,
extended family or extended relationships. In the labor market, it is not unusual that
several family members work in the same company. An ultimate regard for tradition
leads to high long-term orientation on relationships. Another characteristic is the
relatively high power distance, which can be linked with an unequal society, associated
with unequal wages paid to women and men, and low work morale. Furthermore,
employees are expected to follow orders without questioning them. Yet another
important characteristic is the shame culture according to outer-directed values. This
means that Brazilians feel shame when they make mistakes, provided it is known by
others. Furthermore, a high power distance means few checks and balances against
power abuse, which may result in corruption. Moreover, Arruda (1997) reports that
many employers exploit the fact that Brazilian workers accept even the lowest paid
positions by not complying with minimum wage regulations: in March 2008, the
minimum wage was R$415 (US$248) per month (The World Bank, 2008). In contrast,
there is a tendency among the university-educated younger generation to resist
immorality and corruption in the country, which could have a positive impact on
business ethics in the long run. Brazil has very intense and diversified interest groups
SO Societal institutional
4,1 factors Sustainability consequences

Political system Fragmentation of political parties and federalism with strong local
autonomy and competition among federal authorities with constant tax
changes to attract investors
94 Educational/training Globally ranked No. 79/134 and although mandatory from seven to 14 years
system children are often expected to work to help supporting their families, which
gives rise to the risk of child labor
Labor market Low-educated labor force and difficulties to find special competencies (40
percent working in the informal “black” sector) and work performance
concerns
Legal system Stipulates that employees should be treated equally and receive the same
wage for the same kind of work
Insufficient enforcement mechanisms cause companies to not comply with
minimum wage regulations
Very slow, unpredictable and expensive contract enforcement (30 percent of
the debt)
Reforms hindered by corruption
Tax system Very complex because paid in each step of the value chain – a major
obstacle for doing business in Brazil – causes tax evasions and need for
lawyer support
On-going tax reform
Country culture Collectivistic with emphasis on the family why several family members can
be working in the same company
Particularistic why companies are treated individually by authorities
High power distance linked with inequalities in the society, low work moral
and workers expected to follow orders without questioning them
Business morals High power distance and few checks and balances cause power abuse and
corruption
High risk of losing business contracts due to bribes and strong ties with
authorities
Counter trend among high-educated young people to resist corruption and
immorality
Informal rules and relationships are important
“Manha” is an expression for postponing business issues for tomorrow
causes need for flexibility in business relationships
Interest associations Helps companies manage their business in a socially responsible way, such
as ETHOS, protect property rights, such as ABPI and force the government
to implement institutional changes in favor of improved business ethics
Financial market The most sophisticated and stable in the region
Relatively low levels of credits per capita why Brazil was less influenced by
Table I. the global crisis
Basic institutions High and indirect taxes result in costly loans
of the professional Owing to high uncertainty avoidance, banks tend to prefer lending money to
laundry industry the government rather to private investments and especially smaller
in Brazil unknown companies

(Hudson, 1997). One of them is ETHOS Institute of Business and Social Responsibility,
a leading CSR organization aiming to mobilize, encourage and help companies manage
their business in a socially responsible way by making them partners in building a
sustainable and fair society (Instituto Ethos, 2008).
Government Sustainable
The Lula administration is committed to goals of constitutional democracy and a socially strategic
responsible market economy. However, government bureaucracy, a fragmented system
of political parties, federalism – which allows considerable autonomy to individual states sourcing
and municipalities – a weak legal system, and corruption have hindered the
implementation of reform policies. Cultural traits such as particularism mean that
companies are treated individually, leading to a situation where good relationships with 95
authorities can be very lucrative for a company. Because not every company can afford
“being chosen”, the overall trust in the government is low. Claims are made that the entire
Brazilian economy is corrupt. A reason for the low level of business ethics could be that
the government has failed to be a role model of ethical behavior. Thus, informal rule and
personal relations are important. Interest associations, however, try to exercise impact on
the government. For instance, 400 companies have teamed up under the title Pact for
Integrity and Against Corruption to force the government to implement institutional
change in favor of improved business ethics. Another important interest association is
Associacao Brasileira da Propriedade Intelectual (ABPI), whose aim is to protect property
rights in the country. One major reason for the importance of interest groups and
associations in Brazil is the prevailing particularism in the country. Often, there is no
common rule that applies to everyone, and informal rules tend to be more important than
existing regulations, specifically in relationships with the government and other official
bodies. With relatively high uncertainty avoidance, many companies find membership in
these types of non-profit organizations as a way to reduce the risk of being exposed to
particularistic government decisions and informal regulations.

Product and service market

The legal system influences the product/service market with regard to contract
enforcement. On average, over a year is spent enforcing a contract between supplier and
buyer, estimated to cost 30 percent of the debt. With regard to contract enforcement the
legal system is slow, time consuming and unpredictable. Weak legal mechanisms result
in corruption and impunity, which, in turn, result in high risk of lost business contracts,
as firms receive contracts based on strong ties with the authorities, which are rooted in
bribes as a way of avoiding complex formal procedures connected with contracts.
Therefore, many supplier-buyer relationships become non-transparent. The Global
Competitiveness Report issued by the World Forum in 2007-2008 states that tax
regulations are a major obstacle for doing business in Brazil. According to the report,
it took an average company 2,600 hours annually to pay taxes, putting the country in last
pace among 177 surveyed. The major reasons are that taxes need to be paid in each step
of the supply chain. Furthermore, taxes are established by federal and municipal
authorities, who constantly change tax rates due to strong competition between states in
creating different company tax benefits to attract investors to a certain jurisdiction.
Faced with such complexity, many smaller companies simply cannot afford legal
support, and drift into “informality”, a term that is often used in Brazil as an euphemism
for tax evasion. Furthermore, Abramo (2004) and Söreide and Abramo (2008) report on
widespread corruption within the tax administration. Recently, however, the
government has prepared a tax reform to simplify the system by unifying three
existing taxes on revenues into one, creating a new value added tax levied by the states,
ultimately introducing a single taxation regime. The interest organization ETHOS seeks
SO to influence the product/service market with issued codes of conduct against corruption
4,1 and is in favor of more transparent laws. One important cultural aspect that influences
the product/service market is the notion of “manha”, which refers to postponing business
issues until “tomorrow”, stressing the importance of flexibility in supplier-buyer
relationships.

96 The internal institutional setting

A common foundation for the description of the external institutional setting is the
underlying rules system. More specifically, it is a combination of some basic rules
constituting the common denominator of institutions. The formal and informal rules of the
external and internal environment of a multinational company can be condensed into four
basic rules: norms, values, and enforcement mechanisms (Scott, 1995; Jansson, 2007).
ELS considers it essential that for a multinational company to be successful, it is
vital to perform business in such a way that it is perceived and acknowledged as
economically, socially, and ethically responsible. Core values are respect and diversity,
ethics and integrity, as well as security and sustainability. The implications thereof are
summarized in Table II.
Based on the core values, ELS has developed a set of codes of conduct – general as
well as specific rules that should guide corporate behavior (Table III).
With regard to enforcement mechanisms, such as monitoring and compliance,
management is responsible for implementing and informing employees of their rights,

Core values

Respect and diversity We show respect and treat all people in a decent and fair way.
We are open for new ways of working with people from different disciplines,
functions, cultures, and organizations.
We swiftly deal with all conflicts or situations which involves a patronizing
behavior.
Ethics and integrity We show integrity and act according to ELS business ethics stipulating that:
Bribes are forbidden, and consequently, that all forms of compensation to
agents, suppliers and partners shall refer only to justified products or
services
Gifts and other favours as elements of expected hospitality must not
exceed local customers and be in line with local law
All employees must avoid any conflict of interest between private
economic issues and the company’s business; any case of uncertainty should
be brought to the country management for judgment
All business transactions made on behalf of our company must clearly
appear in the company’s accounting, conducted according to the group’s rules
We are open, honest and fair in all internal and external relationships
We challenge behavior and values among others and take actions when they
are not acting according our business ethics
Security and We understand that socially and environmentally responsibility favors our
sustainability company and is thus crucial for sustainable profitability
We search and encourage actions that contribute to a safe and sustainable
environment
Table II. We are willing to set aside short-term results in the own unit for long-term
Core values of ELS results in the group
Topic
Sustainable
strategic
General rules of conduct
Law and regulations All ELS units, suppliers and subcontractors shall operate in
sourcing
full compliance with relevant laws and regulations
applicable to their operations and employment in the
country in which they operate
Suppliers and subcontractors Suppliers shall agree with the special rules of conduct and
97
if using sub-suppliers for the production of ELS products it
is their responsibility to ensure the compliance with such
rules
Specific rules of conduct
Child labor Child labor is not tolerated in any form and aligned with the
International Labor Organization Convention No. 138, no
person is younger than the age for completing mandatory
education shall be employed
Forced labor Forced or involuntary labor, such as prison, indentured and
bonded labor, and other forms of working against one’s
own will or choice is not tolerated
Health and safety All employees shall be provided with a safe and healthy
working environment and, when applicable, safe and
healthy residential facilities, with applicable local law as a
minimum. The employer should take appropriate action to
prevent workplace accidents or illnesses
Non-discrimination ELS recognizes and respects cultural differences and all
employees shall be treated strictly according to his or her
abilities and qualifications in any employment decisions,
including but not limited to hiring, advancement,
compensation, benefits, training, layoffs, and termination
Harassment and abuse No employee shall be subject to corporal punishment or to
physical sexual, psychological or verbal harassment or
abuse
Working hours ELS recognizes the need for a healthy balance between
work and free time for all employees. Unless requested by
national regulations and extraordinary business
circumstances, employees shall not be requested to work a
standard work week of more than 48 and 60 hours
including overtime. All workers shall be entitled to at least
one day off in every seven-day period
Compensation Wages, including overtime and benefits, shall equal or
exceed the level required by applicable law
Freedom of association and right to All employees are free to exercise their legal right to form,
collective bargaining join, or refrain from joining organizations representing
their interest as employees. No employee should be subject
to intimidation or harassment in his or her peaceful exercise
of these rights. The employer shall ELSo respect the
employees’ right to collectively bargain
Environmental compliance ELS applies a Policy and Position Statement. Suppliers and
their subcontractors are expected to comply with the
requirements in this statement “Restricted MateriELS List”
in addition to local law and are encouraged to follow the
policy Table III.
(continued) Codes of conduct at ELS
SO Topic
4,1
Environmental protection The group strives to ensure that its products, services and
production contribute to sustainable development. To this
end, product design aims to reduce adverse environmental
impact throughout the product life cycle, while resource
and energy consumption, waste and pollution are regularly
98 monitored for improvement. The group takes a proactive
approach regarding environmental legislation and
encourages supplier to adopt the same environmental
principles as those pursued by ELS
Relations with business partners and ELS shall exercise fairness in all dealings with its business
customers partners, not offering any representatives of such entities
any rewards or benefits in violation of either applicable
laws or reasonable and generally accepted business
practice
Accounting and financial reporting All financial transactions by the ELS must be reported in
accordance with generally accepted accounting practices as
set forth in applicable accounting policies as provided in
local laws and regulations. The group has a policy of full,
fair, and accurate disclosure to ensure transparency in the
financial reporting and that the market receives timely,
comprehensive and understandable information on an
impartial basis
Conflict of interest For the group to operate in a fair and open manner, it is
important that every employee avoid any situation or
interest which might interfere with his or her judgment
regarding his or her responsibility to the group, other
employees, customers, suppliers and other partners.
A conflict of interest can arise, for example, where an
employee or member of his or her family has a financial
interest that could affect such employee’s judgment or gain
personal enrichment through access to confidential
information or misuse his or her position in the Group in a
way which results in personal gain
Political involvement The group observes neutrality with regard to political
Table III. parties and candidates

duties and responsibilities concerning the rules of conduct, as well as for maintaining
adequate documentation to demonstrate its and its suppliers’ compliance. In order to
do business with ELS, suppliers must authorize ELS to perform audits, including
confidential employee interviews. The group also applies abuse reporting in the form
of a “hotline” system that enables managers and employees to anonymously report
non-compliance of the codes of conduct.

The stakeholder network and CSR matrix

The central task of the stakeholder approach is to manage and integrate the relationships
and interests of different stakeholders in business, as well as in non-business actors that
have a stake in the business, so that long-term success is ensured (Freeman and McVea,
2001). The stakeholders involved in ELS are identified through the analysis of the
external institutional environment (the Brazilian market). The key constituents are:
 (A) the Electrolux Laundry Systems; Sustainable
(B) worldwide shareholders; strategic
(C) stock analysts with a direct influence over investors in the Aquaclean group and sourcing
trustees handling pension funds that own the group;
(D) employees;
(E) customers and distributors; 99
(F) suppliers;
(G) competitors;
(H) governmental authorities;
(I) local professional and interest organizations;
(J) the local community; and
(K) the media and the general public.

A CSR matrix is an important strategic tool as a conceptual framework to assist

managerial decisions by integrating CSR components with organizational stakeholders
(Carroll, 1991). It can also be used to relate to the external and internal institutional
settings of a multinational company (Jansson, 2007). The CSR matrix of ELS in Brazil
is shown in Figure 1.
The different shading in the cells shows the importance of each issue for each
constituent. The solid black boxes are the most important ones to focus on for the case
company. The key stakeholders in the case of ELS in Brazil are related to the key issues
of CSR through the CSR matrix. The interests of constituents are considered especially
important: the Electrolux Laundry Systems (A), government authorities (H);
customers (E); and local professional and interest organizations (I).

A B C D E F G H I J K Key stakeholders
(A) Group and division
1 (B) Shareholders
(C) Stock analysts
2 (D) Employees
(E) Customers and distributors
3 (F) Suppliers
(G) Competitors
4 (H) Government authorities
(I) Professional and interest organizations
5 (J) Local community
(K) Media and general public
6
Key issues
7 (1) Environmental care
(2) Creation of employment opportunities
8 (3) Employee's family benefits
(4) Education, training and personal development
9 (5) Working conditions
(6) Auditing and reporting
10 (7) Community interaction Figure 1.
(8) Customer development The CSR matrix
(9) Supplier development of ELS in Brazil
Weak Medium Strong
(10) Technology transfer and market development
SO (1) Environmental care
4,1 ELS is concerned about the environment. All production plants are accredited with the
ISO 14001 certificate to produce environmentally friendly products. The same quality
standards should be applied all around the world. This shows that ELS is aware of the
importance of having a sustainable business in Brazil, which is achieved by creating
natural values. Furthermore, the government (H) has not formulated any explicit rules
100 regarding restrictions on water consumptions. ELS could, therefore, use the water
efficiency of the laundry systems as a basis for a proactive strategy to influence and
further develop these rules, ultimately seeking to gain legitimacy from the government
regarding this issue.
However, such rules are aligned with the overall interests and demands of interest
groups (I) such as ETHOS, who could benefit from the concept of water-saving laundry
systems. This would enforce them to justify these operations, creating legitimacy
through the natural and social values created at the stakeholder level. When it comes to
the customers (E), there are no clear signs of interest for low water consumption.

(2) Creation of employee opportunities

In Brazil, governmental authorities (H) have a strong interest in increasing the
employment rate. Consequently, it is important for ELS to comply with these rules.
Although a production unit in Brazil would initially require a number of expatriates, it
would offer employment opportunities.

(3) Employee benefits

The Brazilian authorities (H) have legally regulated different types of employee benefits
such as appropriate salaries, medical care, pensions, etc. Therefore, it is expected that
ELS complies with the laws regarding, for instance, employee pensions and health care
insurances. This is also in ETHOS’s interest (I), which is concerned with social issues
such as poverty reduction. Although ELS is above average with regard to salaries
(economic benefits), there could still be room for improvements, including increased
transfers to pension funds (social benefits). Summer employment for the employees’
children and the yearly family day, which is the norm at the European production units,
would possibly have a positive impact on the local community in Brazil, further adding
to the creation of social value and enhancing the chances of gaining legitimacy from
these stakeholders. Thus, the expectations of the different governmental authorities (H)
concerning employee benefits must be balanced.

(4) Education, training and personal development

The government authorities (H) expect local companies to develop the labor market
through their own education, training and personal development. Furthermore, they
value education and personal development highly, as many in the work force are rather
uneducated and dependent on the large companies. These issues could be a main reason
for employees to choose ELS as an employer. In the Electrolux Laundry Systems (A),
education, training and personal development is deeply valued and, due to previous
experience of outsourcing a production unit to Asia, there is a high awareness of the need
to provide education since there were no people available with the right skills initially.
Therefore, a Brazilian production unit would need to comply with policies for education,
training and development of personnel to create social value and gain legitimacy.
(5) Work conditions Sustainable
Having a long tradition of operating production plants, providing good working strategic
conditions is a natural part of ELS. It is in the interest of the group (I) to comply with
social issues when providing good working conditions. If ELS applies a pro-active sourcing
strategy to work conditions in a production unit through the zero-accident program, it
could be seen as rather innovative, resulting in positive working conditions. However, no
claim for CSR is made here, which means that no social value has been created. This 101
might result in the legitimacy being gained with these constituents as a result of other
means being reduced or even lost, which could negate the social advantages coming from
these stakeholders.

(6) Auditing and reporting

To analyze the triple-bottom line of economic, social and natural values, transparency is
a critical CSR issue. It is strongly advocated by ETHOS (I) and is also in the interest of
government authorities (H). Moreover, ELS is a high-profile company, and it is the policy
of the group (A) to audit and report its economic performance and social responsibilities
to constituents and other groups. In the case of auditing and reporting, Electrolux can be
considered a forerunner and may, therefore, influence the local policy on this issue. Thus,
auditing and reporting can be used as a legitimacy-creating factor and may be the reason
why the potential for this issue in gaining legitimacy has very high potential.

(7) Community interaction

Community development is extremely important for the local community (J), the
government authorities (H), who want to develop local areas, and, of course, for potential
employees from the local area (D). Furthermore, it is important for the group (A) to have
smooth local community interaction not only in Brazil but also in other small
communities around the world. Thus, this issue is of critical importance for obtaining
societal advantages by gaining legitimacy through the social values created.

(8) Customer development

The norm within the group (A) is to value customer focus and to develop customers, as
well as distributors, through systematic and continuous training activities, which may
influence the local market. For instance, if customers know how to handle the products,
fewer breakdowns will occur and their satisfaction will be positively affected.
Customer development is also aligned with the interest of the government (H). Raising
the quality level through customer development increases its legitimacy with that
constituency. Thus, customer development can be used as a legitimacy-creating factor,
which is why the potential for this issue in gaining legitimacy has very high potential.

(9) Supplier development

ELS encourages its suppliers to adhere to similar codes of conduct and their performance
in this respect has a significant impact on the company’s selection process.
Consequently, a supplier who does not meet these standards runs an increased risk of
being excluded from the supply chain. Such norms are aligned with ETHOS (I). Since
these norms are stronger than those formulated by local government authorities (H), ELS
can be considered a forerunner and may influence the local policy on this issue.
SO Therefore, supplier development can be used as a legitimacy-creating factor and is why
4,1 the potential for this issue in gaining legitimacy has very high potential.

(10) Technology transfer and market development

Electrolux’s technology is based on unique knowledge and capabilities that may influence
the quality norms of the customers and distributors (E) and competitors (G). With a strong
102 global network of R&D centers and laboratories, as well as established collaborations
with several major universities and research institutes, ELS is committed to technology
development and can be considered to comply with local norms. Furthermore, as a
technological leader in the professional laundry industry, it is expected to have an impact
on the Brazilian market. Thus, technology transfer and market development could be used
as a legitimacy creating factor and is why the potential for this issue in gaining legitimacy
has very high potential.

Discussion and conclusions

How can a company respond to the social context in the Brazilian market by matching
local ethical standards, and how can they be integrated into the group’s ethical
standards as a foundation for strategic sourcing decisions? A Scandinavian MNC was
examined in a case study, wherein it built legitimacy by matching, in competition with
other firms, internal values, norms and beliefs to those prevailing in the Brazilian market
in order to analyze the factors that influence sustainable strategic sourcing decision.
The case revealed a set of activities directed at specific constituents, stipulating that
those for the case company are appropriate for sustainable strategic sourcing decisions
to the Brazilian market based on societal and natural values. These activities, captured
in the CSR matrix, aim to gain legitimacy with each stakeholder by creating benefits
based on social and natural values. Benefits for the stakeholders may then improve the
reputation of the company as a responsible corporate citizen. This means that the CSR
matrix in this case can be viewed as an appropriate corporate citizenship profile for
outsourcing activities to the Brazilian market. Through these values, the constituents
will benefit from the situation. This means that the creation of these values has the
potential to render a societal advantage in the Brazilian market. It also means that the
sustainability of an outsourced business in Brazil is contingent on the continuous
creation of social and natural values for the stakeholders.
The identified activities, appropriate for sustainable strategic sourcing decisions to the
Brazilian market, further captures potential for a competitive advantage if the reputation
for being a socially responsible corporate citizen leads to a differentiation advantage.
For instance, trained employees (see under “(4) Education, training and personal
development”) result in the production of more quality products and/or a cost advantage,
including more efficient production due to higher motivation (see under “(5) Work
conditions”). A competitive advantage of this type in Brazil should then be manifested in
profitable operations, which is the basic requirement for a competitive advantage
(Grant, 2008). Since future profitability is also in the interest of the governmental
authorities, the case company could then possibly benefit from competition between
various local authorities when creating different company tax benefits to attract investors
to a certain jurisdiction.
The institutional perspective highlights the crucial importance of recognizing the
environment of emerging country markets in order to understand and analyze for and
execute business operations in this international context. For example, this would include Sustainable
how much a strategic sourcing decision should be adapted to the Brazilian environment. strategic
By understanding the logic of the institutional setting in Brazil and the institutional setting
internal to ELS, management can decide how to effectively match the requirements of the sourcing
external institutional setting of the specific emerging country market. The approach
emphasizes the instrumental importance of effective networking by means of establishing
relationships between decision takers in ELS on a global and regional level, and those 103
active in the country who are exponents of the specific network setting in that country’s
emerging market. As a consequence of the influence of institutions, decisions are also
defined by various rule systems of the prevailing institutional environment in the
emerging country market and in the MNC. These rule systems can exist in a purely
economic nature and in a non-economic nature, depending on what specific decision taker
and what determined rule system are of pertinent importance to ELS in order to arrive at
effective and profitable operations in the particular country market. So, rather than
following the logic of consequentiality, strategic decisions in these environments follow
the logic of appropriateness, which means that they are based on:
[. . .] rule, codes and principles of conduct to justify and prescribe actions because they are
seen as natural, rightful, expected and legitimate, seeking to fulfill the obligations
encapsulated in a role, an identify, and the ethos, practices and expectations of its institutions
[. . .]. To act appropriately is (therefore) to proceed according to the institutionalized practices
of a collectivity based on mutual and often tacit understanding of what is true, reasonable,
natural, right, and good that carries a connotation of appropriate attitudes, behaviors,
feelings, or preferences without which one cannot claim to be a proper citizen (March, 1994).
Companies may legitimize their operations by adapting to the prevailing social values,
norms and beliefs in emerging country markets. Since these institutional elements are
housed in different societal sectors and constituents, a vital part of the strategic
sourcing analysis is to identify and analyze these institutional factors. This sets the
backdrop for how to match such social characteristics. By matching, the company aims
to add value to society so that societal advantages are achieved. This occurs when the
business of the company is sustainable for society, in other words when its business
performs so that the possibility for future generations to enjoy similar standards of
living to those of the present generation are not compromised (Brundtland, 1987).
Sustainable strategic sourcing then concerns the way economic values relate to social
and natural values. Therefore, the company achieves sustainable sourcing decisions by
creating economic, social and natural values.
Hence, a systematic framework for examining sourcing decisions to emerging markets
based on economic, as well as sustainability criteria, would facilitate the analysis of
whether certain activities should be sourced in terms of how well they will fit within the
institutional environment of a specific emerging market. This paper argues that if the
major strategic orientation in a market environment revolves around being efficient and
competitive with regard to strategic sourcing decisions, then in a social context this
orientation is about adhering to a number of rules, regulations, values, and norms in order
to gain, or maintain, environmental support, in other words to be a legitimate actor in the
society. The decision rule should then follow the logic of appropriateness and seek to
evaluate the ability to appropriate value for the non-economic stakeholders that have an
interest in the business so that long-term success is ensured. More specifically, it should
evaluate to what extent goods and services with a specificity based on transaction costs
SO and core competencies are required to fit within the institutional environment of a specific
4,1 country’s market, and match the requirements of that setting to accomplish legitimacy.
Thus, a major conclusion is that the traditional strategic sourcing model, with a
combination of transaction cost economies and core competence concept, needs to be
augmented with an institutional approach that enables the analysis of socio-economic
issues. Such an analysis can reveal how to effectively match the requirements of a specific
104 external institutional setting to accomplish legitimacy and potential societal advantages,
and, thus, more sustainable sourcing to emerging country markets.

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About the author

Joachim Timlon is an Assistant Professor in the School of Business and Economics, at the
Linneaus University, Calmar, Sweden, where he teaches and researches in the field of strategic
management in emerging country markets, foremost BRIC. Prior to rejoining the academy,
he worked for 11 years as a Management Consultant for Arthur D. Little and Ernst & Young,
as well as on independent basis with the practices. His interests are: strategy and organization,
change management and supply chain management. Joachim Timlon can be contacted at:
Joachim.Timlon@Lnu.se

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