Why Local Sourcing Is The Best Way To Build Social License

The Beatles once sang that Money Can’t Buy Me Love, and this rule holds true for social license. As ChiefExecutive.net notes, “companies cannot award themselves social licenses; they must earn them by demonstrating consistent and trustworthy behavior.”

What is social license?

Social License to Operate refers to the acceptance, trust, and approval granted by the local community, stakeholders, and the broader public to an organization to operate in a specific manner. It is an intangible but essential aspect of a company's legitimacy, as it goes beyond legal requirements and formal permits. It reflects the perception that the company operates ethically, responsibly, and in alignment with the values and interests of the community it serves.

Maintaining a social license is crucial for businesses as it directly impacts your reputation, sustainability, and long-term success. Without a social license, your company may face opposition and reputational damage which can lead to financial losses, regulatory challenges, and difficulties in attracting investors or customers. A strong social license allows you to build positive relationships with local stakeholders, access resources, and foster a sustainable and mutually beneficial presence in the communities you operate in.

But it takes work. It involves active engagement, transparent communication, and a commitment to addressing concerns and contributing positively to social and environmental well-being. Clearly, social license isn’t something that should be ignored. Yes, it takes commitment, but the good news is that one of the most effective levers to pull in this pursuit is local sourcing.

What is local sourcing - and why does it matter?

Local sourcing refers to the practice of a company obtaining goods, materials, and services from suppliers within the same region or community where it operates. Building or repairing a social license involves gaining acceptance and approval from the local community, stakeholders, and the public to operate ethically and responsibly.

Here are some ways procurement professionals can make an impact and reasons why local sourcing is crucial for a company to build or repair its social license:

Economic benefits

When a company sources locally, it contributes to the economic development of the region. This, in turn, creates jobs, boosts incomes, and stimulates the local economy. By supporting the local community's prosperity, the company can enhance its reputation and gain goodwill.

Community empowerment

Local sourcing often involves engaging with small and medium-sized businesses in the area. Collaborating with local suppliers empowers these businesses and strengthens the community's economic resilience.

Environmental impact

Sourcing locally can reduce the company's carbon footprint by minimizing transportation distances and associated emissions. Local sourcing may also encourage the use of sustainable practices within the community (particularly if you build sustainability into your supplier selection criteria), leading to a more favorable perception of the company's environmental responsibility.

Cultural and social considerations

Local sourcing shows respect for the cultural values, traditions, and customs of the community. It demonstrates that the company is sensitive to local needs and preferences. This cultural alignment can improve the company's reputation and foster a stronger social license.

Transparent supply chain

Partnering with local suppliers often allows for better oversight and control over the supply chain. This transparency can help ensure that the company adheres to ethical business practices and responsible sourcing.

Mitigating negative perceptions

Companies operating in certain industries, such as mining, large-scale construction, or emerging areas of tension such as AI, often face skepticism or opposition from local communities due to perceived negative impacts. By sourcing locally, the company can signal its commitment to benefiting the community and addressing concerns.

Listening to the community

Engaging with local suppliers and stakeholders fosters open communication channels, allowing the company to listen to and address community concerns effectively. Dialogue and responsiveness are essential in building trust and maintaining a positive social license.

Resilience and risk mitigation

By sourcing locally, companies can reduce their dependency on global supply chains, which can be vulnerable to disruptions such as natural disasters, political instability, or trade conflicts. Local sourcing provides a more reliable and stable supply of goods and services, ensuring that the company can continue to meet its commitments to the community even during challenging times.

Building local capacity

As the company collaborates with the local community, it can offer training and capacity-building opportunities, enhancing the skills of the local workforce to build a talent pipeline. This investment in human capital demonstrates a commitment to empowering the community and can lead to stronger support for the company's operations.

Enhanced social impact

Local sourcing can enable the company to directly contribute to social development initiatives in the area. By supporting local suppliers and businesses, the company indirectly supports social programs, local charities, and community projects. This visible commitment to social impact can positively influence the company's reputation, solidify its social license, and foster a sense of shared responsibility between the company and the community.

There are several other ways an organization can build social license such as sponsorship of local charities, sports teams and events. But the impacts of these initiatives pale in comparison to the proven effectiveness of local sourcing. Start by ensuring your supplier discovery process is able to effectively identify local suppliers who may not have a strong online presence, and begin building your social license through local sourcing today.

Looking for more resources to help build out a comprehensive procurement strategy? In addition to local sourcing, partnering with a group purchasing organization can be a great way to fill in the gaps and ensure your procurement function is operating efficient.