Promissory contracting in buyer-supplier relationships. The promise of contracts without ever getting a contract. Are there any chances to improve the economic position?

1. 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

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, objectives and
conceptual building blocks
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 5

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 6

7. 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.
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 7

8. Literature review
8
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).
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292

9. Methodology and findings
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 9

10. Methodology
10
• 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
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292

11. Concepts in the template 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 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.
Hoque et al. (2016) - http://dx.doi.org/10.1504/EJIM.2016.076292 12

13. 13
The link between upgrading 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