Does Lean Improve Labor Standards? Capability Building and Social Performance in the Nike Supply Chain

Social compliance programs employed by MNEs face significant challenges in enforcing labor standards across global supply chains. We study whether focal firms can improve supplier social performance through capability building that aligns business practices with social compliance goals. We analyze an intervention by Nike Inc. to promote lean manufacturing and high-performance management systems in apparel suppliers across eleven developing countries. Using difference-in-differences estimates from a panel covering over 300 factories from 2009 to 2013, we find that adoption of lean manufacturing produced a 15 percentage point reduction in serious labor violations on average. We also find variation by country; adoption of lean raised labor compliance in Southeast Asia but not in China. Finally, we find no discernible effect of the lean program on health, safety, and environmental compliance. Our results offer the first quantitative evidence for the efficacy of capability building in sustainability strategy.