Podcast Summary: The Ins and Outs of Sustainable Supply Chains

Podcast: LSE: Public lectures and events
Host: London School of Economics and Political Science
Date: December 11, 2025
Speaker: Professor Rocco Machiavelli (LSE Economics Department)
Chair: Professor Oriana Bandiera

Overview:

This inaugural lecture by Professor Rocco Machiavelli explores the intricate dynamics of sustainable supply chains, with particular attention to the role of trust, relational contracts, and the balance between commercial efficiency and societal transformation. Professor Machiavelli draws from real-world examples—spanning the garment sectors of Bangladesh to coffee cooperatives in East Africa—to unpack how supply chain complexity, governance, and organization affect both poverty reduction and sustainable development goals.

Key Themes & Discussion Points

1. Role and Complexity of Global Supply Chains

• Rapid expansion in international trade has led to increasingly fragmented supply chains, especially due to the integration of low-income countries (15:55–18:00).
• Modern supply chains involve multi-country production: e.g., a $10 T-shirt from Bangladesh contains only $2.5 of local value-added, with the rest attributable to other countries (17:45).
• These complex chains create both opportunities for poverty reduction and significant governance challenges.

“There are enormous gains from participating in supply chains… but participation in global supply chains poses very important, very severe governance challenges.”
— Professor Machiavelli (09:30)

2. The Dual Stories: Bangladesh and South Sudan

• Bangladesh Garment Sector: Became the world’s second largest in under 40 years, transforming the economy and society (07:00). Yet, tragic events like the Rana Plaza collapse (2013) highlight vulnerabilities in governance and sustainability.
• South Sudan Coffee Revival: Nespresso and TechnoServe’s single-buyer approach revitalized the local coffee sector, but raised questions about monopsony, power, and long-term impact (10:40).

3. Trust as the Foundation of Sustainable Supply Chains

• Field story of “Joseph,” a Kenyan dairy farmer, illustrates how trust (or its absence) determines trading relationships and outcomes (12:40–16:00). Cooperatives, trusted by farmers, can pay less and later due to that trust.
• Trust operates as a scarce resource that drives or inhibits the realization of gains from trade.

“Trust is going to be key for the functioning of supply chains. Where there is no trust, huge gains from trade are left unrealized.”
— Professor Machiavelli (16:20)

4. Market Structures and Relational Contracts

• Supply chain transactions are rarely pure spot markets or strict hierarchies; most occur via long-term, trust-based business-to-business relationships (22:09–26:59).
• Relational contracts: Parties cooperate so long as the future value of the relationship outweighs current incentives to defect (24:55).
• Empirical research (e.g., Kenya’s flower exports, Rwandan coffee, Bangladesh garments) demonstrates how trust and relational contracts buffer supply shocks and facilitate better credit/pricing.

“Cooperation… can be sustained to the extent that the future value of the relationship is larger than the temptation to deviate.”
— Professor Machiavelli (25:31)

5. Supply Chain Organization and Sustainability

• Companies’ approaches to sourcing (“relational” vs. “spot”): Relational buyers (e.g., H&M) pay more and foster better outcomes for suppliers (29:30–32:57).
• These organizational choices influence the distribution of value and the potential for advancing sustainability goals.

Third-Party Certifications vs. Buyer-Driven Programs

• Early sustainability interventions focused on certifications (e.g., Fair Trade), which often failed due to lack of buyer commitment (33:00–35:40).
• Buyer-driven programs (e.g., Nespresso AAA in Colombia) leverage long-term relationships to drive real investment in quality and sustainability at the farm level (36:00).

“Solving sustainability challenges really requires building relationships not just at one stage, but at multiple stages along the entire chain.”
— Professor Machiavelli (36:30)

6. How to Build Trust in Supply Chains

• Trust entails both credibility (keeping promises) and clarity (mutual understanding).
• Highlighted a field experiment in Rwanda (with Sucafina/Rwacof): Providing clear, simple communication about dealings and expectations measurably increased trust, traceability, and adoption of sustainability interventions (40:00–41:30).
• In times of crisis, such as COVID-19 disruptions, relationships built on trust weather shocks better and foster deeper partnerships (55:59–57:00).

7. Policy, Regulation, and the State’s Role

• There is scope for regulation, especially where market forces under-provide sustainable practices (47:33–50:30). EU initiatives like EUDR and CS3D were cited.
• The state’s role is to scaffold an environment where trusting business relationships can flourish, not simply substitute for them (65:14–66:10).

“What laws do is create an environment in which trust can be built. It’s almost like a scaffolding for relationships to thrive.”
— Professor Machiavelli (65:33)

8. Sectoral and Geopolitical Challenges

• The unique dynamics of sectors (like energy trading) and the rise of trade protectionism may reshape supply chain organization but will not fundamentally change the economics underpinning trust and relationships (74:12–76:10).
• Volatility and export diversification present challenges to trust-building in sectors like cocoa and energy (69:04–71:50).
• AI’s impact on supply chains: While AI can codify and automate some tacit knowledge, the fundamental need for relationship-based, trust-driven arrangements persists (71:54–73:52).

Selected Notable Quotes & Timestamps

• “Participation in global supply chains brings enormous gains but also severe governance challenges.”
  – Prof. Machiavelli (09:30)
• “If you have concern about all these things [quality, labor conditions], you’ll have to sit down and talk with your supplier… contracts are highly incomplete.”
  – Prof. Machiavelli (20:45)
• “Trust is the real scarce resource… generating more trust is really what needs to be done along the supply chain.”
  – Prof. Machiavelli (39:35)
• “Relationships somehow build trust over time. Presumably because parties get to know each other better.”
  – Prof. Machiavelli (56:10)
• “In places where the state functions better, we have relationships about more complex things. Where the state does badly, we need relationships even for the trivial.”
  – Prof. Machiavelli (65:35)

Audience Questions & Key Insights

1. Are buyer-driven programs the definitive solution? (45:47–50:00)

• Not universally; buyer commitment helps but is not always sufficient. Scope exists for judicious regulation and sector heterogeneity is large.

2. How is trust built and measured in practice? (53:38–56:10)

• Built over time via repeated interaction, sometimes stress-tested during crises (e.g., COVID in garment industry).
• Measurable via contract types, volume during high-stakes periods, and payment terms.

3. Handling shareholder expectations for long-term sustainability? (47:30–49:30)

• Often rooted in organizational culture; making a persuasive case for sustainability as vital to long-term success is key.

4. Clarity in communication across dispersed supply chains? (54:53–55:59)

• Examples include supplier clubs (e.g., Toyota), transparent training, and sometimes involvement of third-party standards.

5. Policy and the State’s Role (63:38–66:10)

• State establishes the environment for trust, enforces counterparty risk protections, but bilateral relationships are still needed for everyday transactions.

6. Recent Trade Protectionism (74:12–76:10)

• Anticipates restructuring, possibly less market-driven allocation, but core economic logic of supply chains remains.

Memorable Moments

• The Picasso analogy: Comparing how theory in economics reveals invisible relationships in supply chains to how cubism brings unseen perspectives to art (04:30–05:35).
• “If you are considering fieldwork, choose coffee over garments for the view!” (32:59)
• Q&A exchanges display the diversity and complexity of real-world supply chain dilemmas—from data collection and company culture to geopolitical shocks and AI.

Important Segment Timestamps

• [05:42] Rocco’s introduction and personal story
• [07:00] Bangladesh Garment Sector/Rana Plaza Story
• [09:30] Key learning: gains and governance in supply chains
• [12:40] The Kenyan dairy farmer “Joseph” story
• [15:55] Global fragmentation of supply chains
• [22:09] Market structure and the importance of relationships
• [29:30] Relational vs. spot market buyers in garments
• [32:59] Fieldwork: garments vs. coffee
• [36:00] Nespresso AAA program and sustainability in coffee
• [39:35] The challenge of building trust and clarity
• [40:40] Rwanda sustainability experiment
• [45:47+] Audience Q&A (policy, data, regulation, organizational culture, building trust)
• [53:38] Trust-building mechanisms
• [65:14] State’s scaffolding role
• [74:12] Protectionism and supply chain futures

Conclusion

Prof. Machiavelli wrapped up by emphasizing that the pathway to sustainable supply chains lies in fostering long-term, mutually beneficial relationships based on trust and clarity. Market forces, company practices, and regulatory frameworks must all take into account the complexity of these relationships—each reinforcing or undermining the other. While buyer-driven initiatives and government policies both have roles to play, there is no single silver bullet. Instead, real progress depends on collaborative, adaptive, and context-sensitive approaches across all levels of the chain.

“The key to sustainable supply chains is long-term relationships based on mutual trust. Sustainability is, in large part, about generating this trust.”
— Professor Rocco Machiavelli (42:00)

For those interested in further leadership and research in supply chains, Prof. Machiavelli announced a forthcoming executive course through LSE.