Supplier strategies to compensate for knowledge asymmetries in buyer-supplier relationships: implications for economic upgrading

Abstract

This paper explores a special form of international outsourcing relationship in which suppliers make recurrent discrete transactions with the same buyers over a long period of time without the existence of any original legally binding written agreement. The study examines three research questions: (1) Can suppliers in such relationships access any of their buyers' tacit knowledge? (2) What implications does their access or the lack thereof have for their economic upgrading? (3) What strategies do suppliers adopt to compensate for existing knowledge asymmetries? The case analysis of three small Bangladeshi garment manufacturers reveals the following key findings. The studied firms only have access to their buyers' explicit/codified knowledge. Notwithstanding this, they have successfully developed relevant knowledge that has allowed them to engage in process upgrading.

Rana Plaza collapse aftermath: are CSR compliance and auditing pressures effective?

“…Second, their relationship with the MNE buyers falls in between the two main forms of relationships discussed by Labowitz and Baumann-Pauly (2014). This specific relational context, which Hoque et al (2016) call "tacit promissory contracting", offers a unique perspective from which to investigate the consequences of compliance and auditing pressures. Third, being small suppliers, these firms are resource constrained, which enables us to examine the strategies they use to simultaneously comply with auditing requirements and survive in this changing environment.…”

“…This investment has been necessary not only for the completion of their current transactions but also to ensure that the buyers' implicit promises to make repeat purchases are realised. This relationship is expressed as "tacit promissory contracting" in Hoque et al (2016), where it is defined as "a form of outsourcing relationship whereby supplier firms [have been] involved in recurrent discrete transactions with the same buyers since their inception, but without the existence of any original legally binding written agreement". All three factories, therefore, share the above similarities in terms of size, auditing, and accountability requirements, and type of relationship with their MNE buyers.…”

“…Moreover, small factory owners tend to suffer from power asymmetry vis-à-vis their multinational buyers (Hoque et al, 2016). As a consequence, while they can be regarded as more powerful than their workers and the connected wider communities, they are very often comparatively powerless as far as their corporate buyers are concerned.…”

“…Rather, the supplier-buyer relationships are based on the buyer's tacit promise to place future orders if the supplier fulfils the buyer's expectations in terms of quality, price, and corporate social responsibility (CSR) compliance. Hoque et al (2016) use the term "tacit promissory contracting" to describe this specific type of relationship.…”

Exploring the relationship between upgrading and capturing profits from GVC participation for disadvantaged suppliers in developing countries

“…For example, suppliers operating in precarious institutional environments such as those of Pakistan or Bangladesh generally find it more difficult to develop capabilities in high-value-added functions than do suppliers operating in more stable economies such as those of Taiwan or China (Hoque, Sinkovics, & Sinkovics, 2016;Khan, Lew, & Sinkovics, 2015;Yeung, 2007). However, even under generally challenging conditions some suppliers may be able to respond to and bypass barriers more effectively due to their existing greater firm-specific resources, larger size, significant industry position (Bair & Gereffi, 2003;Dolan & Humphrey, 2000, 2004Pickles, Smith, Bucek, Roukova, & Begg, 2006), and/or the more beneficial nature and extent of government support they receive (Xue & Chan, 2013).…”