Global supply chain relationship, local market competition, and suppliers’ innovation in developing economies
Abstract
This article examines how suppliers’ innovation in developing countries is affected by the interaction of vertical global supply chain relationships and horizontal market competition structure. We devised a bidirectional dynamic game model consisting of competing suppliers in a developing economy and an overseas buyer in a developed economy for innovation decision process in a suppliers cluster. Our research shows that global supply chain relationship is the primary factor to influence local cluster innovation and profit. Total innovation of the cluster is proved to be greater in global supply relationship with a powerful buyer than a non-powerful buyer. However, suppliers in a powerful buyer chain are not able to capture the value they created from innovation. Local competition structure plays its secondary role on cluster innovation through interaction with vertical chain relationship. Based on prior innovation research on either vertical supply chain power dynamics or horizontal competition intenseness, our study contributes as the first to employ a theoretical suppliers’ innovation model for an integrative analysis encompassing both global and local power dynamics.
First published online 03 December 2021
Keyword : innovation, clustering, global supply chain, market competition, game theory
How to Cite
Ding, L., Atallah, G., & Sun, G. (2022). Global supply chain relationship, local market competition, and suppliers’ innovation in developing economies. Technological and Economic Development of Economy, 28(1), 49–75. https://doi.org/10.3846/tede.2021.15335
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Gereffi, G., & Korzeniewicz, M. (1994). Commodity chains and global capitalism. ABC-CLIO.
Giuliani, E., Pietrobelli, C., & Rabellotti, R. (2005). Upgrading in global value chains: lessons from Latin American clusters. World Development, 33(4), 549–573. https://doi.org/10.1016/j.worlddev.2005.01.002
Gorzelany-Dziadkowiec, M., Gorzelany, J., Stauskis, G., Hernik, J., Van Assche, K., & Noszczyk, T. (2019). The innovation process in local development – the material, institutional, and intellectual infrastructure shaping and shaped by innovation. Technological and Economic Devel-opment of Economy, 25(6), 1232–1258. https://doi.org/10.3846/tede.2019.11094
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Humphrey, J., & Schmitz, H. (2002). How does insertion in global value chains affect upgrading in industrial clusters? Regional Studies, 36(9), 1017–1027. https://doi.org/10.1080/0034340022000022198
International Labour Office. (2003). Employment and social policy in respect of export processing zones (EPZs) (GB. 286/ESP/3, 286th session). Geneva.
Jap, S. D. (1999). Pie-expansion efforts: Collaboration processes in buyer–supplier relationships. Journal of Marketing Research, 36(4), 461–475. https://doi.org/10.1177/002224379903600405
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Kadarusman, Y., & Nadvi, K. (2013). Competitiveness and technological upgrading in global value chains: Evidence from the indonesian electron-ics and garment sectors. European Planning Studies, 21(7), 1007–1028. https://doi.org/10.1080/09654313.2013.733850
Kaplinsky, R. (1993). Export processing zones in the Dominican Republic: Transforming manufactures into commodities. World Development, 21(11), 1851–1865. https://doi.org/10.1016/0305-750X(93)90087-P
Kaplinsky, R. (2000). Globalisation and unequalisation: What can be learned from value chain analysis? The Journal of Development Studies, 37(2), 117–146. https://doi.org/10.1080/713600071
Kim, Y., Choi, T. Y., & Skilton P. F. (2015). Buyer-supplier embeddedness and patterns of innovation. International Journal of Operations & Production Management, 35(3), 318–345. https://doi.org/10.1108/IJOPM-05-2013-0251
Kim, Y., & Choi, T. Y. (2015). Deep, sticky, transient, and gracious: An expanded buyer–supplier relationship typology. Journal of Supply Chain Management, 51(3), 61–86. https://doi.org/10.1111/jscm.12081
Knorringa, P. (1996). Economics of collaboration: Indian shoemakers between market and hierarchy. Sage Publications.
Lee, C.-Y. (2005). A new perspective on industry R&D and market structure. The Journal of Industrial Economics, 53(1), 101–122. https://doi.org/10.1111/j.0022-1821.2005.00247.x
Lundvall, B. A., Johnson, B., Andersen, E. S., & Dalum, B. (2002). National systems of production, innovation and competence building. Re-search Policy, 31(2), 213–231. https://doi.org/10.1016/S0048-7333(01)00137-8
Markusen, A. (1996). Sticky places in slippery space: a typology of industrial districts. Economic Geography, 72(3), 293–313. https://doi.org/10.2307/144402
Odei, S. A., & Stejskal, J. (2020). Firms pursuit of innovations through internationalization: A treatment effect estimation. Technological and Eco-nomic Development of Economy, 26(4), 837–866. https://doi.org/10.3846/tede.2020.12484
Pahl, S., & Timmer, M. P. (2020). Do global value chains enhance economic upgrading? A long view. The Journal of Development Studies, 56(9), 1683–1705. https://doi.org/10.1080/00220388.2019.1702159
Porter, M. E. (1990). The competitive advantage of nations. Macmillan Press. https://doi.org/10.1007/978-1-349-11336-1
Raj-Reichert, G. (2020). Global value chains, contract manufacturers, and the middle-income trap: The electronics industry in Malaysia. The Jour-nal of Development Studies, 56(4), 698–716. https://doi.org/10.1080/00220388.2019.1595599
Revilla, E., & Villena, V. H. (2012). Knowledge integration taxonomy in buyer–supplier relationships: Trade-offs between efficiency and innova-tion. International Journal of Production Economics, 140(2), 854–864. https://doi.org/10.1016/j.ijpe.2012.07.002
Sabel, C. (1989). Flexible specialization and the re-emergence of regional economies. In P. Hirst, & J. Zeitlin (Eds.), Reversing industrial decline. Berg Publishers Ltd.
Sako, M., & Zylberberg, E. (2017). Supplier strategy in global value chains: Shaping governance and profiting from upgrading. Socio-Economic Review, 17(3), 687–707. https://doi.org/10.1093/ser/mwx049
Schmitz, H. (1992). Industrial districts: Model and reality in Baden-Württemberg, Germany. In Industrial districts and local economic regeneration (pp. 87–121). International Labour Organisation.
Schrank, A. (2004). Ready-to-wear development? Foreign investment, technology transfer, and learning by watching in the apparel trade. Social Forces, 83(1), 123–156. https://doi.org/10.1353/sof.2004.0126
Shapiro, C. (2011). Competition and innovation: did arrow hit the Bull’s eye? In The rate and direction of inventive activity revisited (pp. 361–404). University of Chicago Press. https://doi.org/10.7208/chicago/9780226473062.003.0011
Sting, F. J., Stevens, M., & Tarakci, M. (2019). Temporary deembedding buyer – supplier relationships: A complexity perspective. Journal of Operations Management, 65(2), 114–135. https://doi.org/10.1002/joom.1008
Swink, M., & Zsidisin, G. (2006). On the benefits and risks of focused commitment to suppliers. International Journal of Production Research, 44(20), 4223–4240. https://doi.org/10.1080/00207540600575761
Tewari, M. (2008). Varieties of global integration: Navigating institutional legacies and global networks in India’s garment industry. Competition & Change, 12(1), 49–67. https://doi.org/10.1179/102452907X264520
Tokatli, N. (2013). Toward a better understanding of the apparel industry: A critique of the upgrading literature. Journal of Economic Geography, 13(6), 993–1011. https://doi.org/10.1093/jeg/lbs043
Villena, V. H., Choi, T. Y., & Revilla, E. (2020). Mitigating mechanisms for the dark side of collaborative buyer–supplier relationships: A mixed-method study. Journal of Supply Chain Management, 1–31. https://doi.org/10.1111/jscm.12239
Wilson, D. T. (1995). An integrated model of buyer-seller relationships. Journal of the Academy of Marketing Science, 23(4), 335–345. https://doi.org/10.1177/009207039502300414
You, W., & Virtanen, Y. (2020). Economic and social upgrading in an industrial cluster in GVCs. Academy of Management Proceedings, 2020(1), 16639. https://doi.org/10.5465/AMBPP.2020.16639abstract
Yu, M. C., Lu, Y. J., Li, C., Lin, H., & Shapira, P. (2019). More is less? The curvilinear effects of political ties on corporate innovation perfor-mance. Technological and Economic Development of Economy, 25(6), 1309–1335. https://doi.org/10.3846/tede.2019.10718
Zaheer, A., McEvily, B., & Perrone, V. (1998). The strategic value of buyer-supplier relationships. International Journal of Purchasing and Mate-rials Management, 34(2), 20–26. https://doi.org/10.1111/j.1745-493X.1998.tb00292.x
Zhu, S., & He, C. (2018). Upgrading in China’s apparel industry: international trade, local clusters and institutional contexts. Post-Communist Economies, 30(2), 193–215. https://doi.org/10.1080/14631377.2017.1362099
Bellandi, M. (1996). Innovation and change in the Marshallian industrial district. European Planning Studies, 4(3), 357–368. https://doi.org/10.1080/09654319608720351
Coe, N. M., & Yeung, H. W.-C. (2015). Global production networks: Theorizing economic development in an interconnected world. Oxford Uni-versity Press. https://doi.org/10.1093/acprof:oso/9780198703907.001.0001
Dallas, M. P., Ponte, S., & Sturgeon, T. J. (2019). Power in global value chains. Review of International Political Economy, 26(4), 666–694. https://doi.org/10.1080/09692290.2019.1608284
De Elejalde, R., Ponce, C., & Roldán, F. (2019). Innovation and competition, and incentives: Evidence from Uruguayan firms (ILADES-UAH Working Papers inv328). Universidad Alberto Hurtado/School of Economics and Business.
De Propris, L., & Lazzeretti, L. (2009). Measuring the decline of a Marshallian industrial district: The Birmingham jewellery quarter. Regional Studies, 43(9), 1135–1154. https://doi.org/10.1080/00343400802070894
Dias, A. T., Rossi, F. S. M., Silva, J. T. M., de Camargos, M. A., & de-Carvalho, J. P. (2020). The effects of competitive environment and strate-gic factors on US firm performance before and after the global financial crisis. Latin American Business Review, 21(1), 37–59. https://doi.org/10.1080/10978526.2019.1676648
Dong, S., & Sun, Y. (2020). Upgrading path and value chain upgrading strategy of China’s marine equipment manufacturing industry. Journal of Coastal Research, 107, 157–160. https://doi.org/10.2112/JCR-SI107-040.1
Ellram, L. M., & Cooper, M. C. (1990). Supply chain management, partnership, and the shipper - third party relationship. The International Jour-nal of Logistics Management, 1(2), 1–10. https://doi.org/10.1108/95740939080001276
Gereffi, G. (2019). Economic upgrading in global value chains. In Handbook on global value chains. Edward Elgar Publishing. https://doi.org/10.4337/9781788113779.00022
Gereffi, G., & Kaplinsky, R. (2001). The value of value chains: spreading the gains from globalisation. Institute of Development Studies.
Gereffi, G., & Korzeniewicz, M. (1994). Commodity chains and global capitalism. ABC-CLIO.
Giuliani, E., Pietrobelli, C., & Rabellotti, R. (2005). Upgrading in global value chains: lessons from Latin American clusters. World Development, 33(4), 549–573. https://doi.org/10.1016/j.worlddev.2005.01.002
Gorzelany-Dziadkowiec, M., Gorzelany, J., Stauskis, G., Hernik, J., Van Assche, K., & Noszczyk, T. (2019). The innovation process in local development – the material, institutional, and intellectual infrastructure shaping and shaped by innovation. Technological and Economic Devel-opment of Economy, 25(6), 1232–1258. https://doi.org/10.3846/tede.2019.11094
Hoegl, M., & Wagner, S. M. (2005). Buyer-Supplier collaboration in product development projects. Journal of Management, 31(4), 530–548. https://doi.org/10.1177/0149206304272291
Humphrey, J., & Schmitz, H. (2000). Governance and upgrading: linking industrial cluster and global value chain research (Vol. 120). Institute of Development Studies Brighton.
Humphrey, J., & Schmitz, H. (2002). How does insertion in global value chains affect upgrading in industrial clusters? Regional Studies, 36(9), 1017–1027. https://doi.org/10.1080/0034340022000022198
International Labour Office. (2003). Employment and social policy in respect of export processing zones (EPZs) (GB. 286/ESP/3, 286th session). Geneva.
Jap, S. D. (1999). Pie-expansion efforts: Collaboration processes in buyer–supplier relationships. Journal of Marketing Research, 36(4), 461–475. https://doi.org/10.1177/002224379903600405
Jensen, M. B., Johnson, B., Lorenz, E., & Lundvall, B. A. (2007). Forms of knowledge and modes of innovation. Research Policy, 36(5), 680–693. https://doi.org/10.1016/j.respol.2007.01.006
Jurowetzki, R., Lema, R., & Lundvall, B. A. (2018). Combining innovation systems and global value chains for development: Towards a research agenda. European Journal of Development Research, 30(3), 364–388. https://doi.org/10.1057/s41287-018-0137-4
Kadarusman, Y., & Nadvi, K. (2013). Competitiveness and technological upgrading in global value chains: Evidence from the indonesian electron-ics and garment sectors. European Planning Studies, 21(7), 1007–1028. https://doi.org/10.1080/09654313.2013.733850
Kaplinsky, R. (1993). Export processing zones in the Dominican Republic: Transforming manufactures into commodities. World Development, 21(11), 1851–1865. https://doi.org/10.1016/0305-750X(93)90087-P
Kaplinsky, R. (2000). Globalisation and unequalisation: What can be learned from value chain analysis? The Journal of Development Studies, 37(2), 117–146. https://doi.org/10.1080/713600071
Kim, Y., Choi, T. Y., & Skilton P. F. (2015). Buyer-supplier embeddedness and patterns of innovation. International Journal of Operations & Production Management, 35(3), 318–345. https://doi.org/10.1108/IJOPM-05-2013-0251
Kim, Y., & Choi, T. Y. (2015). Deep, sticky, transient, and gracious: An expanded buyer–supplier relationship typology. Journal of Supply Chain Management, 51(3), 61–86. https://doi.org/10.1111/jscm.12081
Knorringa, P. (1996). Economics of collaboration: Indian shoemakers between market and hierarchy. Sage Publications.
Lee, C.-Y. (2005). A new perspective on industry R&D and market structure. The Journal of Industrial Economics, 53(1), 101–122. https://doi.org/10.1111/j.0022-1821.2005.00247.x
Lundvall, B. A., Johnson, B., Andersen, E. S., & Dalum, B. (2002). National systems of production, innovation and competence building. Re-search Policy, 31(2), 213–231. https://doi.org/10.1016/S0048-7333(01)00137-8
Markusen, A. (1996). Sticky places in slippery space: a typology of industrial districts. Economic Geography, 72(3), 293–313. https://doi.org/10.2307/144402
Odei, S. A., & Stejskal, J. (2020). Firms pursuit of innovations through internationalization: A treatment effect estimation. Technological and Eco-nomic Development of Economy, 26(4), 837–866. https://doi.org/10.3846/tede.2020.12484
Pahl, S., & Timmer, M. P. (2020). Do global value chains enhance economic upgrading? A long view. The Journal of Development Studies, 56(9), 1683–1705. https://doi.org/10.1080/00220388.2019.1702159
Porter, M. E. (1990). The competitive advantage of nations. Macmillan Press. https://doi.org/10.1007/978-1-349-11336-1
Raj-Reichert, G. (2020). Global value chains, contract manufacturers, and the middle-income trap: The electronics industry in Malaysia. The Jour-nal of Development Studies, 56(4), 698–716. https://doi.org/10.1080/00220388.2019.1595599
Revilla, E., & Villena, V. H. (2012). Knowledge integration taxonomy in buyer–supplier relationships: Trade-offs between efficiency and innova-tion. International Journal of Production Economics, 140(2), 854–864. https://doi.org/10.1016/j.ijpe.2012.07.002
Sabel, C. (1989). Flexible specialization and the re-emergence of regional economies. In P. Hirst, & J. Zeitlin (Eds.), Reversing industrial decline. Berg Publishers Ltd.
Sako, M., & Zylberberg, E. (2017). Supplier strategy in global value chains: Shaping governance and profiting from upgrading. Socio-Economic Review, 17(3), 687–707. https://doi.org/10.1093/ser/mwx049
Schmitz, H. (1992). Industrial districts: Model and reality in Baden-Württemberg, Germany. In Industrial districts and local economic regeneration (pp. 87–121). International Labour Organisation.
Schrank, A. (2004). Ready-to-wear development? Foreign investment, technology transfer, and learning by watching in the apparel trade. Social Forces, 83(1), 123–156. https://doi.org/10.1353/sof.2004.0126
Shapiro, C. (2011). Competition and innovation: did arrow hit the Bull’s eye? In The rate and direction of inventive activity revisited (pp. 361–404). University of Chicago Press. https://doi.org/10.7208/chicago/9780226473062.003.0011
Sting, F. J., Stevens, M., & Tarakci, M. (2019). Temporary deembedding buyer – supplier relationships: A complexity perspective. Journal of Operations Management, 65(2), 114–135. https://doi.org/10.1002/joom.1008
Swink, M., & Zsidisin, G. (2006). On the benefits and risks of focused commitment to suppliers. International Journal of Production Research, 44(20), 4223–4240. https://doi.org/10.1080/00207540600575761
Tewari, M. (2008). Varieties of global integration: Navigating institutional legacies and global networks in India’s garment industry. Competition & Change, 12(1), 49–67. https://doi.org/10.1179/102452907X264520
Tokatli, N. (2013). Toward a better understanding of the apparel industry: A critique of the upgrading literature. Journal of Economic Geography, 13(6), 993–1011. https://doi.org/10.1093/jeg/lbs043
Villena, V. H., Choi, T. Y., & Revilla, E. (2020). Mitigating mechanisms for the dark side of collaborative buyer–supplier relationships: A mixed-method study. Journal of Supply Chain Management, 1–31. https://doi.org/10.1111/jscm.12239
Wilson, D. T. (1995). An integrated model of buyer-seller relationships. Journal of the Academy of Marketing Science, 23(4), 335–345. https://doi.org/10.1177/009207039502300414
You, W., & Virtanen, Y. (2020). Economic and social upgrading in an industrial cluster in GVCs. Academy of Management Proceedings, 2020(1), 16639. https://doi.org/10.5465/AMBPP.2020.16639abstract
Yu, M. C., Lu, Y. J., Li, C., Lin, H., & Shapira, P. (2019). More is less? The curvilinear effects of political ties on corporate innovation perfor-mance. Technological and Economic Development of Economy, 25(6), 1309–1335. https://doi.org/10.3846/tede.2019.10718
Zaheer, A., McEvily, B., & Perrone, V. (1998). The strategic value of buyer-supplier relationships. International Journal of Purchasing and Mate-rials Management, 34(2), 20–26. https://doi.org/10.1111/j.1745-493X.1998.tb00292.x
Zhu, S., & He, C. (2018). Upgrading in China’s apparel industry: international trade, local clusters and institutional contexts. Post-Communist Economies, 30(2), 193–215. https://doi.org/10.1080/14631377.2017.1362099