When Do MNEs Walk the Talk in GVC Relationships? Contract Termination With Irresponsible Suppliers

Global value chain (GVC) relationships produce economic gains for multinational enterprises (MNEs) but expose them to reputational risks. We study the role of media coverage of a lead supplier's corporate social irresponsibility (CSI) in the termination of GVC relationships. We suggest that the extensive media coverage of a lead supplier's CSI has a positive association with the likelihood of contract termination because reputational considerations prevail over economic gains. We also advance that the likelihood of termination is reduced in situations of higher dependence of the MNE on the supplier because the power asymmetries in favor of the supplier make the economic considerations more compelling. Finally, we argue that the relevance of the economic considerations associated with the supplier's power is less prominent when the supplier's CSI regards human rights violations because they increase the reputational risk for the MNE. Instead, it becomes less prominent in situations of higher GVC spatial complexity because GVC complexity gives the MNE an alibi for its failure to monitor the irresponsible supplier, thus reducing the reputational risk. We find support for our arguments on a sample of 21,631 unique buyer-supplier dyads among Forbes Global 2000 companies over the period 2014-2019. The study advances GVC research.