The last decades have witnessed profound changes in the nature of production in the Asia-Pacific region as multinational corporations (MNCs) have pursued complex, cross-border production and distribution systems. This process has precipitated the integration of the APEC region through the emergence of global supply chains and global value chains. Increasingly connected global supply chains have created new opportunities for businesses, especially for small and medium-sized enterprises (SMEs) in developing economies of the region, as they become important suppliers for MNCs. However, the development of unprecedented levels of cross-border production sharing has also brought new challenges for both business managers and public policymakers.

In particular, the rise of corporate social responsibility (CSR) standards has created a new set of challenges for SMEs linked to global supply chains. A complex, multi-layered set of CSR standards concerning socially and environmentally sustainable business practices have been developed at international, national and local levels. An increasingly large number of MNCs have also started to demand that suppliers comply with corporate codes of conduct. The proliferation of CSR standards, global buyers’ requirements of supplier codes of conduct throughout their supply chains and various monitoring and audit mechanisms have created challenges for SMEs which tend to lack the capacity and resources to comply with new requirements. As the uptake of CSR has become a prerequisite to enter global supply chains in the region, SMEs which are unable to adopt CSR practices have been excluded from global supply chains.

SMEs are drivers of sustained economic growth in APEC economies. Building CSR capacity of SMEs for their effective participation in global supply chains is thus an important challenge many APEC members face. The objective of this paper is to examine and propose the ways in which APEC can assist SMEs in the region to build the capacity to adopt CSR practices and to improve linkages with regional and global supply chains. CSR has emerged as an APEC agenda only recently and has not been given top priority so far. Furthermore, the initiatives of APEC so far have largely relied on CSR capacity building in a narrow sense. While capacity building of enterprises to adopt CSR is essential, its effectiveness can be limited without a supporting policy or regulatory environment.

The paper reviews three strands of CSR policies and approaches – regulatory approach, capacity building approach, and integrated approach – with a view to drawing lessons and implications for a new framework for CSR initiatives in APEC. The regulatory approach highlights the importance of the legal and regulatory framework, which comprises of: 1) CSR guidelines and standards as ‘soft law’ instruments, and 2) binding, mandatory ‘hard law’ instruments such as national laws and regulations concerning human rights, labor standards and environment. The capacity building approaches focuses on assisting SMEs to implement CSR-based practices through various training and other capacity building programs and projects. There has been a more innovative approach to foster sustained improvement in CSR for enhanced competitiveness of a sector or region by integrating these two approaches. By addressing both the capacity of actors as well as the enabling environment in which they operate, the integrated approach has the potential to bring about a substantial change at a large scale.

Drawing on the lessons learned from previous initiatives, the paper proposes a comprehensive, multi-sector capacity building initiative for SMEs to be implemented across the APEC region. The initiative highlights the need to reconnect CSR and the public policy framework by adopting the integrated approach. The national policy framework with appropriate regulatory measures is needed to ensure that enterprises integrate CSR into their operations and core strategy. A key characteristic of this initiative is that it is based on the principle of shared responsibility of public and private sectors through public-private Partnership (PPP) which combines complementary capabilities and resources of both sectors. It should also be in line with international principles or norms concerning development assistance and partnerships, including the OECD DAC guidelines on strengthening trade capacity for development.

The joint integrated CSR initiative in APEC would consist of three parts: 1) legal and regulatory frameworks and national policies, 2) capacity building of managers, government officials and other stakeholders, and 3) promote innovation in CSR through partnerships. CSR is a relatively new agenda within APEC and thus a great deal of learning, innovation and creativity is necessary to generate new ideas, strategies and policies which will bring about genuine development outcomes for SMEs and other stakeholders. Therefore, it is important to provide incentives for innovative practices through multi-stakeholder partnerships.