Samsung’s Unsustainable Procurement

Samsung’s Unsustainable Procurement

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Executive Summary

Samsung is currently procuring minerals from a single supplier through artisanal mining. This could damage Samsung’s brand value and goodwill. This report recommends that Samsung train its suppliers to source sustainably by implementing non-mediated power and alternative solutions to use market-based practices such as incorporating with NGOs to force suppliers and innovation in its future supply chain.  

Table of Contents

1. Theory Analysis3
2. Industry Analysis3
3. Theory Application to Samsung4
4. Recommendations4

References5

Plagiarism Statement

‘I declare that the material contained in this report is the result of my own work and that due acknowledgment has been given in the references to ALL sources, be they printed, electronic or personal.’

- Karthik Augustine

1. Theory Analysis

Different types of socially responsible procurement practices have been identified like process-based and market-based (Marshall et al., 2016). These can be highly affected by power asymmetries between buyer and supplier. When buyer power is more than suppliers’ non-mediate powers like referent power or expert power can be implemented for socially responsible procurement practices and it also has a positive impact (Marshall et al., 2016). When supplier power is more than buyer only mediate powers like coercive, legitimate and reward power can help in implementing socially responsible procurement practices. Specifically, expert power is used when buyers have professionally experienced staff and utilize their expertise by training their suppliers and referent power is used when they could be a good example leading to their suppliers to adopt the socially responsible procurement practices (Marshall et al., 2016). Also process-based practices like health, safety and ensuring compliance from suppliers is less effective, while market-based practices such as involving NGOs or community groups, innovation and transparent supply chains, where governance structures and data relating to ethical and social standards are communicated publicly (Mueller et al. 2009; Pedersen 2009).

On the other hand joint dependency encourages the use of collaboration, long-term contracts or permanent inter-organisational linkages in order to ensure stable flow of resources, higher level of trust, commitment which positively motivate them to adopt the socially responsible practices (Hoejmose et al., 2013). The benefit of joint dependency is that it helps to overcome problems related with the increase in geographical distance between buyer and supplier such as lack of communication and uncertainties (Hoejmose et al., 2013).

1. Industry Analysis

Within the mobile industry there are various examples of companies sourcing conflict minerals which is reported to be unsustainable. Apple, Sony, LG and Microsoft are a few of the mobile companies who source cobalt through artisanal mining (Spratt, 2016). Mobile industry alone uses 42% percentage of total cobalt mined in Congo (USGS data). All these companies mostly source from a single supplier Congo Dongfang Mining (CDM) (Spratt, 2016). Since the mineral is sourced to multiple companies, CDM has no joint dependency or collaboration with its buyers. For most of the companies lower cost is the primary reason for sourcing cobalt through artisanal mining from CDM. It is estimated that artisanal mining is far cheaper than industrially mined cobalt, as fixed salaries are not paid to the miners. However, this puts these companies at a disadvantage to its Dutch competitor in terms of sourcing minerals from conflict free validated mines by reducing damage to environment and communities involved in it. Fairphone manufactures phones using conflict free minerals such as tin, tungsten and tantalum and Fairtrade gold. Supporting communities, not conflict (Cahalane, 2015). This ensures goodwill and brand loyalty over a time from the customers, giving it an advantage over its competitors.

1. Theory Application

South Korean smartphone manufacturer Samsung sources 100% of its cobalt through artisanal mining from its sole supplier Congo Dongfang Mining (CDM) and its parent company Zhejiang Huayou Cobalt Company (ZHCC) (Frankel, 2016). Washington post reported that CDM and Huayou supply to multiple buyers. Hence they don’t have joint dependency and collaboration with Samsung. By sourcing cobalt from these two suppliers Samsung is indirectly affecting the environment and communities in Congo. Artisanal mining by CDM and Huayou lead to many problems such as: health and environment problems, for miners and residents exposed to metals at levels many times higher than what is considered safe. A study of soil samples around one of the mines in Lubumbashi concluded the area was “among the ten most polluted areas in the world” (Frankel, 2016). Safety of people, miners don’t have any safety gears or maps. Due to which deaths happen with regularity (Frankel, 2016). Child labour, UNICEF estimated that 40,000 boys and girls work as miners in the country’s mining industry (Amnesty International, 2016). Samsung’s reputation is harmed, and this may result in loss of trust and customers loyalty. If Samsung keeps purchasing cobalt from suppliers without supervising them and requiring them to provide a transparency certificate, they are likely to bear the responsibility for their suppliers.

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