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Promissory contracting
The paper by Hoque et al. explores the strategies of Bangladeshi garment suppliers in establishing non-contractual relationships with buyers to mitigate knowledge asymmetries, focusing on tacit knowledge access and its implications for economic upgrading. It reveals that suppliers primarily accessed explicit knowledge necessary for production and developed technological and marketing knowledge through external sources and firm-level experiences. The findings indicate that despite the limited resources, these suppliers improved process capabilities, though primarily in technocratic aspects rather than in labor and skill development.
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Promissory contracting
- 1. Supplier Strategies toCompensate 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
- 2. Hoque et al.(2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 2
- 3. Authors Hoque et al.(2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 3 1
- 4. Authors — Hoque,Sinkovics, Sinkovics • Dr Samia Ferdous Hoque » Research Associate in International & Responsible Business The University of Manchester, Alliance Manchester Business School Samia.Hoque@manchester.ac.uk • Dr Noemi Sinkovics » Lecturer in International Business and Management The University of Manchester, Alliance Manchester Business School Noemi.Sinkovics@manchester.ac.uk www.manchester.ac.uk/research/noemi.sinkovics • Prof Rudolf R. Sinkovics » Professor of International Business The University of Manchester, Manchester Business School Rudolf.Sinkovics@manchester.ac.uk www.manchester.ac.uk/research/rudolf.sinkovics Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 4
- 5. Study context, objectivesand conceptual building blocks Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 5
- 6. The study context ThreeBangladeshi 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 6
- 7. Objective The objective ofthe 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. Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 7
- 8. Literature review 8 Inter-organisational knowledge flow MNEsas 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). Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292
- 9. Methodology and findings Hoqueet al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 9
- 10. Methodology 10 • 3 OEM/CMTsuppliers 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 Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292
- 11. Concepts in thetemplate for data analysis 11Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 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).
- 12. Findings • The suppliersfirms 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. Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 12
- 13. 13 The link betweenupgrading and content /sources of knowledge Categories Findings Upgrading pursued Capital OEM; processs upgrading Automated machine purchase CAD machine purchase Capacity increase Labour Productivity increase Defect rate reduce Limited skill development Relevant technological knowledge acquired Garment production process Knowledge on handling machines Early defect detection to reduce wastage Productivity increase mechanism Source of technological knowledge Experience of investors Recruitment of local and foreign experienced employees External training Learning from benchmark practices and Following competitors Relevant marketing knowledge acquired Contact information of buyers Communicating and maintaining liaison with buyers Coordinating suppliers and subcontractors Promoting the new upgraded machines and capacity increase to buyers through website and brochure Information on competitors upgrading initiatives Source of marketing knowledge Previous work experience Web sources Buying houses Reference from previous buyers overseas visits for buyer search BGMEA meeting Personal relationship Knowledge transferred from buyers Codified design and material instructions; quality standards; labour standards Reason for upgrading To maintain profit by increasing capacity and efficiency while being compliant Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292
- 14. Conclusion Hoque et al.(2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 14
- 15. Reference Hoque et al.(2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 15
Editor's Notes
- #2 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. 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. http://dx.doi.org/10.1504/EJIM.2016.076292
- #3 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. 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. http://dx.doi.org/10.1504/EJIM.2016.076292
- #5 NVivo eSeminar
- #7 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. 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. http://dx.doi.org/10.1504/EJIM.2016.076292
- #11 Ruey-Jer Bryan Jean & Rudolf Sinkovics
- #16 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. 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. http://dx.doi.org/10.1504/EJIM.2016.076292