Violations of social responsibility by suppliers, whether through unethical, dangerous, or irresponsible behavior, attract considerable attention from the media and the public.

“When these violations occur, socially conscious consumers may boycott the guilty brands and switch to other brands,” say HKUST’s Albert Y. Ha and colleagues. Their study sheds new light on the dynamics of responsible sourcing in the context of audit information sharing.

As supply chain transparency increases, the researchers note, “consumers are increasingly making purchasing decisions based on ethical sourcing.” Likewise, global companies are attaching increasing importance to their suppliers’ social responsibility compliance. Numerous manufacturers now share the audit reports of their common suppliers, facilitating the sharing and management of data on responsible sourcing.

“What is the incentive for competing manufacturers to share audit information when they utilize such information to make sourcing decisions?” the researchers ask. How does such sharing affect manufacturers’ sourcing strategies, and how does this depend on the business environment? The researchers developed a game-theoretic model to answer these questions.

They discovered that manufacturers share audit information when the cost premium is low or high, but not when it has an intermediate value. Moreover, audit information sharing induces manufacturers to adopt sourcing strategies that are less responsible when the cost premium is low and more responsible when it is high. Although a common goal for setting up audit information sharing platforms is to improve responsible sourcing, their findings show that this goal is not always achieved.

The researchers also found that the sharing of audit information has two novel effects. First, more accurate information about the supplier enables manufacturers to make better sourcing decisions. Second, competition affects the differentiation of the manufacturers’ sourcing decisions, “which affects how demand spills over to a manufacturer when the rival has a supplier responsibility violation.”

These findings may inform the real-life management of audit information sharing. “Although our model does not fully represent how audit information sharing works in practice,” the researchers conclude, “it provides useful insights to managers and platform operators about how it should be managed.”