promissory contracting
TRANSCRIPT
Supplier Strategies to Compensate for Knowledge Asymmetries in Buyer-Supplier Relationships: Implications for Economic Upgrading• Hoque, Samia Ferdous, Noemi Sinkovics, and Rudolf R. Sinkovics (2016),
"Supplier strategies to compensate for knowledge asymmetries in buyer-supplier relationships: Implications for economic upgrading," European Journal of International Management, 10 (3), 254-283. (DOI: 10.1504/EJIM.2016.076292).
• http://dx.doi.org/10.1504/EJIM.2016.076292
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 1
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 2
Authors
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Authors — Hoque, Sinkovics, Sinkovics
• Dr Samia Ferdous Hoque» Research Associate in International & Responsible Business
The University of Manchester, Alliance Manchester Business [email protected]
• Dr Noemi Sinkovics » Lecturer in International Business and Management
The University of Manchester, Alliance Manchester Business [email protected] www.manchester.ac.uk/research/noemi.sinkovics
• Prof Rudolf R. Sinkovics» Professor of International Business
The University of Manchester, Manchester Business [email protected] www.manchester.ac.uk/research/rudolf.sinkovics
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Study context, objectives and conceptual building blocks
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The study context
Three Bangladeshi garment manufacturing firms involved in ‘tacit promissory contracting (TPC)’ relationship with buyers
• “A form of outsourcing relationship whereby supplier firms are involved in recurrent discrete transactions with the same buyers since their inception, but without the existence of any original legally binding written agreement” (Hoque, Sinkovics and Sinkovics 2016: 258)
•In this relationship – Each transaction is carried out discretely and undergoes a process of bargaining– The buyers are not legally bound to make a repeat purchase– Buyers make a promise (non-legally binding) in which they informally (primarily orally) consent
to make a repeat purchase if the suppliers perform at an expected level in the current transaction.
– Suppliers are expected to make relationship-specific investments, such as the purchase of customised raw materials, the specialisation of labour and the implementation of labour codes in order for the current transaction to happen and to attract repeat orders from the same buyer
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Objective
The objective of the paper is threefold:
• to explore the extent to which suppliers in such relationships can access any of their buyers’ tacit knowledge
• to examine the implications of the access or the lack thereof have for their economic upgrading
• to identify the strategies adopted by the suppliers to compensate for existing knowledge asymmetries.
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Literature review
Inter-organisational knowledge flow
MNEs as the vital source of knowledge
in international outsourcing
relationship (e.g. Bojica and Fuentes,
2012; Liu, 2012).
Intra-organisational knowledge flow Knowledge flows
between MNE headquarters and
their subsidiaries (e.g. Bjorkman et al., 2004; Lyles and Salk, 2007).
Upgrading and knowledge flow in GVC• The capabilities of suppliers are regarded as a
key determinant of knowledge flow• Lack of focus on suppliers’ strategies for
acquiring knowledge needed for upgrading
Knolwedge flow in TPC context •High level of uncertainty discourages buyers to share
core knowledge • Suppliers‘ access to buyers‘tacit knowlegde are likely
to be restrcited •High level of knowledge assymentry is likely
Knowledge flow in GVC
Knowledge dynamics are usually examined
in relation to the process of upgrading
Suppliers’ strategies for compensating the lack of access to buyers’ tacit knowledge? Other sources/means of knowledge acquisition to overcome the knowledge asymmetry? Implication on economic upgrading?
Intra-organisational knowledge flow contribution in extracting local knowledge and then feeding it into MNEs’ global networks (Buckley and
Carter, 2002; Mudambi, 2002)
Intra-organisational knowledge flow MNEs as the focal node of knowledge (e.g. Bjorkman
et al., 2004; Lyles and Salk, 2007).
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Methodology and findings
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Methodology
• 3 OEM/CMT suppliers 6 interviews• Organisational documents
Data collection
Responding firms
• Template analysisData analysis
• Four Bangladeshi garment manufacturing companies• Establishment year: 2008-2010• Size: Small; 500 -600 employees and 5-6 production lines• Products produced: low-value added, basic garments• Buyers: European clothing retailers• Form of relationship with MNE buyer: non-equity, non-
contractual and captive• Structure of local value chain: Lead contractor having own
network of suppliers in Bangladesh
Unit of Analysis: Garment suppliers involved in non-equity, non-contractual relationship with MNE buyers
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Concepts in the template for data analysis
Economic upgrading
Sources of knowledge
Technological and marketing knowledge (Bojica and Fuentes 2012; Fletcher and Harris 2012).
Tacit/implicit and codified/explicit knowledge (Ernst and Kim 2002)
Contents of knowledge
Internal and external sources of knowledge (Fletcher and Harris 2012)
Tacit knowledge: direct experience and explicit knowledge: codified instruction and published documents (Nonaka 1994).
A process of improving the ability of a firm to move to a more profitable and/or technologically sophisticated capital and skill-intensive economic niche’ (Gereffi, 1999).
Economic upgrading has two dimensions: capital and labour (Barrientos, Gereffi, and Rossi 2011).
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Findings
• The suppliers firms only had access to buyers’ explicit knowledge that they needed to smoothly perform the production function such as, design instructions and published quality and labour standards.
• The supplier firms had to develop relevant technological and marketing knowledge to maintain economic and other performance-oriented dimensions, which was a precursor to continue the relationship with the buyers.
• The suppliers had acquired a part of this knowledge from their firm-level experiences of managing buyers’ repetitive purchases. They had also used a range of external sources to acquire these knowledge.
• With their limited resources, the suppliers could only access information-oriented or publicly available explicit knowledge, which only enabled them to improve technocratic or output-oriented dimensions of process upgrading rather than in labour/skill-oriented ones.
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The link between upgrading and content /sources of knowledgeCategories FindingsUpgrading pursued
Capital OEM; processs upgradingAutomated machine purchaseCAD machine purchaseCapacity increase
Labour Productivity increaseDefect rate reduceLimited skill development
Relevant technological knowledge acquired
Garment production processKnowledge on handling machinesEarly defect detection to reduce wastageProductivity increase mechanism
Source of technological knowledge Experience of investorsRecruitment of local and foreign experienced employeesExternal trainingLearning from benchmark practices and Following competitors
Relevant marketing knowledge acquired Contact information of buyersCommunicating and maintaining liaison with buyersCoordinating suppliers and subcontractorsPromoting the new upgraded machines and capacity increase to buyers through website and brochureInformation on competitors upgrading initiatives
Source of marketing knowledge Previous work experience Web sourcesBuying housesReference from previous buyersoverseas visits for buyer searchBGMEA meetingPersonal relationship
Knowledge transferred from buyers Codified design and material instructions; quality standards; labour standardsReason for upgrading To maintain profit by increasing capacity and efficiency while being compliant
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Conclusion
Conceptual implication Contribution to IB
• Focuses on suppliers’ strategies that have received little attention previously in international
business literature• Integrates the concept of upgrading from GVC analysis and links it with the notion of knowledge
transfer in a largely unexplored type of inter-firm relational context.
Contribution to GVC• Opens up the black box of suppliers’ upgrading strategy
• Highlights the role of legal contracts in different forms of governance.
Practical implication While making idiosyncratic investments are necessary for maintaining the relationship
with buyers, such investments are rarely sufficient to overcome existing knowledge
asymmetries in a meaningful way.
There is a need for legal commitment from buyers’ end in order to stimulate supplier
upgrading. The government of Bangladesh can play an important role in pressurising buyers to
make legally enforceable contract and also in providing necessary economic and
social support Further research direction
A comparative analysis - Whether firms of different sizes have different strategies for
the acquisition of knowledge and different outcomes in terms of economic upgrading.
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Reference
Hoque, Samia Ferdous, Noemi Sinkovics, and Rudolf
R. Sinkovics (2016), "Supplier strategies to
compensate for knowledge asymmetries in buyer-
supplier relationships: Implications for economic
upgrading," European Journal of International
Management, 10 (3), 254-283. (DOI:
10.1504/EJIM.2016.076292).
http://dx.doi.org/10.1504/EJIM.2016.076292