2. A REVIEW OF THE GLOBALIZATION LITERATURE
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and exist principally to limit the legal liability of the buyers. Furthermore, auditors internal to the multinational corporation may not have an interest in identifying code violations. A proliferation of codes, one for each customer, may also be confusing and inefficient for monitored factories. Complaints, in particular of monitoring fatigue, are common. To determine the impact of corporate codes on working conditions, Locke, Qin, and Brause (2006) analyze a rich data set that includes compliance performance for 468 factories supplying Nike with footwear, apparel, and sporting equipment. Their findings are discussed below. Factories in countries with a high rule of law index have better code compliance. Variation in the rule of law index explains 9 percent of the variation in code compliance in the absence of regional fixed effects. When regional fixed effects are introduced, rule of law loses some of its explanatory power but remains statistically significant. Furthermore, larger factories have poorer code compliance performance than smaller factories. Locke, Qin, and Brause (2006) suggest that smaller factories may be easier to control and monitor than larger factories. However, there are two other possible explanations. First, factories presumably become large because they are more profitable. Thus, the finding that larger factories have poorer code compliance than smaller factories suggests that poor working conditions jointly produce more profitable factories and poorer compliance performance. That is, good working conditions may not be good for business. Second, very large factories may be engaged in mass production of relatively simple items whereas smaller factories are more likely to be producing higher quality, more complex products. To the extent that a more sophisticated workforce is necessary to produce higher quality products, these high-end, smaller factories may have found it profit-maximizing to employ more sophisticated labor management practices. In addition, the frequency and nature of the contact between Nike and the factories also has a significant relationship with compliance performance. Frequent factory visits by Nike personnel, from both compliance and production units, are positively correlated with compliance performance; factories that have achieved the rank of strategic partner within the Nike supply chain have better compliance performance. Locke, Qin, and Brause (2006) suggest that Nike’s sourcing and production teams encourage their main suppliers to use more sophisticated management practices such as Lean and Total Quality Management. These production systems emphasize product quality and communication within the factory. As a consequence, there may be some spillover from the management of the production process to the management of labor. However, compliance performance is poorer for factories that have a longer relationship with Nike or that dedicate a large fraction of their production capacity to Nike. The longer relationship results are consistent with the possibility that the Nike sourcing unit has recently been developing new relationships with factories that have stronger compliance performance. Indeed, Locke, Qin, and Brause (2006) report that 43 percent of prospective factories fail Nike’s initial prescreening approval process. The result that Nike-dedicated factories have poorer compliance records is surprising, however. One would expect that the more dependent a factory is on a single buyer, the greater the leverage the buyer would have in the relationship. However, Locke, Qin, and Brause (2006) consider the possibility that multiple buyers demanding compliance performance increases the pressure a factory feels to comply with buyer demands relating