Fragmented Rules, Standardized Systems: Supplier Responses to Regulatory Heterogeneity in Global Supply Chains

Abstract

How do firms organize internally when they must respond to heterogeneous regulatory requirements across markets? We examine this question in global supply chains, where exporters increasingly face multiple ESG disclosure regimes that pursue similar objectives but differ in substantive environmental priorities as well as reporting, documentation, and verification requirements. We argue that exposure to multiple regulatory regimes increases coordination demands across external interfaces and thereby raises the value of standardized internal management systems. Drawing on organizational design insights about coordination and standardized interfaces, we propose that firms can manage differentiated external requirements by establishing common internal routines for generating, documenting, monitoring, and verifying environmental information. We test this argument using the staggered adoption of mandatory ESG disclosure regulations across the export destinations of 1,309 Chinese listed firms from 2009 to 2016. We find that The onset of a second mandatory disclosure regime increases firms’ adoption of ISO 14001. This effect is stronger when the newly encountered regime differs more substantially from the regime to which the firm was previously exposed and when product complexity heightens internal coordination demands. Our findings suggest that external regulatory heterogeneity can foster internal standardization, highlighting how standardized organizational infrastructures help firms manage differentiated demands across regulatory environments.

Heli Wang
Singapore Management University
https://faculty.smu.edu.sg/profile/wang-heli-1596

Bio