The role of suppliers in global value chains

Interim Report

Edited by Mai Fujita

Published in March 2019

chapter 1
Global value chain (GVC) theory emerged as an attempt to understand the construction of new globally-dispersed patterns of production in the latter part of the 20th century. In highlighting the role of lead firms, both manufacturing and non-manufacturing companies, and their outsourcing strategies in creating new global linkages, it characterized suppliers as predominantly passive agents in the face of the oligopoly power of lead firms and their ability to shape industry architectures to their advantage. This period of globalization had specific characteristics which facilitated the subordination of suppliers in developing countries to global lead firms, but the rapid growth of developing and emerging markets, the growth of the domestic markets in these countries, and the acquisition of capabilities by suppliers in these markets has opened up new globalization dynamics. This paper considers the implications of these changes for upgrading, the role of suppliers in innovation and the potential for developing and emerging market businesses to capture more of the benefits from globalization.
chapter 2
The present study attempts to elucidate the role of developed country-based suppliers in global value chains (GVCs). Michael Porter emphasized the role of home-based suppliers in increasing global competitiveness of a country’s industrial sectors. However, globalization has marked the increasing importance of suppliers from developed countries. An in-depth case study of Japanese small suppliers in the Chinese market revealed that Japanese suppliers formulate various service strategies to attract customers to their high-quality but expensive products and to help customers create value, which can provide ample learning opportunities to local customers. The study also showed that suppliers can reduce communication costs and shorten cultural distance by training the local staff, shifting the power to a local branch, and accumulating marketing capabilities. The technological advantages and the ever-increasing Chinese market enabled these small companies to independently adopt the aforementioned strategies. The study of developed country-based suppliers helps in understanding the consequences of globalization on industrial development in developing countries. It also provides useful insights to consider supplier strategies in GVCs.
chapter 3

Supplying parts or products to leading transnational buyers or producers is widely regarded as an important initial step in the growth of small suppliers. However, improving their positions within value chains governed by dominant customers has posed major challenges to such suppliers. This study turns the focus to customer and market diversification, a strategy that has a range of potential benefits for suppliers yet has been largely neglected in the literature. This interim report brings together the two strands of theoretical and empirical literature on global value chains and strategic management to identify research gaps and a research agenda, and to elaborate key concepts and conceptual tools for analyzing supplier diversification. It is argued that integrating the two strands of literature is crucial for tailoring the conceptual tools such as dimensions and paths of diversification and relatedness specifically to the analysis of supplier diversification.