Can Bangladeshi suppliers progress and achieve economic upgrading when promised contracts, but never given?

By Samia Hoque, Noemi Sinkovics and Rudolf Sinkovics

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In a recent article published in the European Journal of International Management, the authors explore the effects of international outsourcing without legally binding contracts on knowledge transfer and upgrading of suppliers.

This paper is written in the context of a special form of international outsourcing relationship in which suppliers in the Bangladeshi garment industry make recurrent discrete transactions with the same buyers over a long period of time without the existence of any original legally binding written agreement. In this study, we find that 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 absence of legal contract seems to have discouraged the buyers to share their core knowledge and thus reduce unintended spill-overs to a minimum level.

Nevertheless, 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 and survive in the business. 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 technological knowledge, such as, attending training by trade associations, hiring external consultants, recruiting experienced workers and following competitors. Social networks, personal overseas visits, existing buyers’ references, web sources and trade association meeting had been the major sources of information on new buyers. Nevertheless, 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 paper highlights that the absence of a legally binding contract enhances the level of uncertainty in buyer-supplier relationship, which in turn limits the possibility of tacit knowledge transfer from buyers to their suppliers. This lack of access, thereof, restrains the likelihood of economic upgrading of higher level by the suppliers. This clearly reinforces the 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 in order to enhance the level of certainty in buyer-supplier relationship.

For the full paper, see:
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)

More details can be found on: Slideshare and Kudos