Promissory contracting

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

http://dx.doi.org/10.1504/EJIM.2016.076292




Authors


1


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

mailto:[email protected]

http://www.manchester.ac.uk/research/noemi.sinkovics

mailto:[email protected]

http://www.manchester.ac.uk/research/rudolf.sinkovics


Study context, objectives and conceptual building blocks

6

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

Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292


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.


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).


Methodology and findings


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


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).


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.


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


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.


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).




Education

Promissory contracting