Buyer-supplier bargaining power
What determines value capture by apparel suppliers?
Changes in the global economy around the mid-2000s, after the deregulation of trade in apparel and China's entry into the WTO, led to two somewhat contradictory dynamics. Trade liberalization combined with a significant increase in number of apparel supplier firms in the Global South resulted in global capacity expansion that decreased the bargaining power of supplier firms. At the same time, consolidation occurred among apparel suppliers in East Asian countries, leading to the rise of 'mega-suppliers' that had large subsidiary factories in many countries and could produce large orders across many product ranges as well as provide apparel-related services in product development, logistics and forecasting.
The first question is whether the large size and complex capabilities of transnational first tier suppliers resulted in more bargaining power with their buyers, and thus greater value capture. Our analysis employs case studies of the largest supplier firms from Sri Lanka, South Korea and Hong Kong.
The second question is whether variations in these transnational supplier firms' relationships with their buyers affect how they operate their subsidiary factories in Ethiopia and Kenya. Our research allows for the possibility that transnational supplier firms operate differently across countries where they have subsidiary factories. We are analysing transnational first tier suppliers in terms of understanding their business strategies as designed and implemented at the headquarter level and its implications for factories in their global portfolio, comparing their Ethiopia and/or Kenya subsidiaries to their factories in other countries. In particular, we examine what factors determine functions and thus value capture at their factories in Ethiopia and Kenya.
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Not all the apparel firms in Kenya and Ethiopia are transnational first tier suppliers. Some are single plant foreign firms, where the investors and owners have a particular reason for investing in the country. Others are locally owned firms. We examine their business strategies, struggles and successes in capturing value in apparel global supply chains, and the factors explaining them.
The paper by Felix Maile and Cornelia Staritz in this report discusses three new factors shaping apparel buyers’ sourcing strategies: online sales/speed model, environmental sustainability, and geopolitics/de-risking from China. The Covid-19 pandemic and related supply chain distortions and cost hikes for transportation have spurred debates about nearshoring. The main driver of the nearshoring of apparel assembly is speed to market, linked to online sales, to reduce inventory. Thus, the co-location of textile production and apparel assembly in the same country is becoming equally as important as labor costs.
Felix Maile and Lindsay Whitfield presented the paper 'Reconceptualizing the supplier squeeze in apparel global value chains'