Effects of path dependence on capabilities in captive global value chains.
| Autor | de Vasconcellos, Silvio Luis |
| Cargo | Case study |
Introduction
Value chain manufacturing is far from being a recent phenomenon. However, the process has clearly accelerated over the last few decades. During the same period in which managers were realizing that fragmentation of production activities could produce higher returns, international production adopted the same logic to take advantage of the resources available in different parts of the globe. Over time, supply chains evolved not only because of lower transaction costs, but also as a result of economies of scale and reduced production costs enabled by changing industry standards. At the micro level, development of capabilities among suppliers contributes to this evolution (Gereffi, Humphrey, & Sturgeon, 2005). Furthermore, these capabilities are marked by the legacy of historic decisions that will continue to affect future decisions in a form of path-dependency (Arthur, 1989; Mahoney, 2000).
Gereffi, Humphrey and Sturgeon (2005) illustrated this dynamic phenomenon using the bicycle industry as one of his examples, as used by Galvin and Morkel previously (2001). Initially (in the 1890s), bicycle manufacturing was vertically integrated, but later the production process became fragmented globally. By 2000, manufacturing was distributed in several places, in several stages, and the products sold under well-known brands such as Shimano (Gereffi et al., 2005). The speed at which change in manufacturing happens is related to the characteristics of the industry, mainly according to the type of governance an industry tends to employ (Gereffi, 1994). As such, one aspect that is relevant to understanding configuration and coordination of supply chains is to identify the mode of governance and how it develops over time.
Although we can consider some isolated cases of vertical integration in the early 21st century, a radical shift gained intensity during the last quarter of the 20th century, mostly in horizontal production, by outsourcing and offshoring. Jarillo (1993) highlighted three types of organizational system: vertical integration, outsourcing networks and cooperation strategies. The vertical production model that had prevailed throughout the majority of the 20th century exhibited vulnerabilities in comparison to forms of production that are more efficient in terms of transaction costs (Williamson, 1975) and control over the whole process (Gereffi et al., 2005).
The impact of information technology, improved transport systems and innovation demanded fast responses from firms. As Jarillo (1993) mentioned, one alternative model that emerged before the collapse of the vertical system can be illustrated by the outsourcing methods of Ford and Nike. Over the last three decades, market integration and geographical dispersion of production have led to the emergence of global chains (Feenstra, 1998). Emerging countries play an important role in this process, both by performing some value chain activities and as expanding markets for consumer goods.
From a theoretical perspective, certain observations have been helpful for explaining how global chains work globally. Gereffi (1994) mentioned two main types of governance of global chains: producer-driven or buyer-driven. In the first case, producer-driven chains are coordinated by large companies, usually transnational, that control the production system both upstream and downstream. These types of chain are more commonly found in technology-intensive sectors, such as the automotive, computing, aerospace, and electronics industries. In the second case, buyer-driven chains exist in industries in which there are large retailers, brand owners and global trading companies. These chains take on a central role in outsourcing the production of commodities, usually in less developed countries. These markets include consumer goods such as garments, shoes, toys and household items, in which production is controlled by companies on the demand side, rather than by the suppliers (Bair, 2009; Gereffi, 1994).
However, while the concept of global chain, being both configuration producer-driven or buyer-driven, has advanced understanding of the governance of supply chains, recent increases in the complexity of transactions demanded further explanation. For instance, changes in institutional environments and economic growth in developing and emerging countries have provided a dynamic perspective on how supply chains are configured to add value (Claessens & Yurtoglu, 2013; Paiva & Vieira, 2011; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008). Gereffi et al. (2005) noted three main dimensions that play important roles in the GVC dynamic: the complexity of transactions, the ability to codify transactions, and the capabilities of the supply base. Based on this, Gereffi et al. (2005) postulated five types of global chain governance ranging from hierarchy, through captive, relational and modular to market.
Several factors, including history, institutions, social and geographical context, and path-dependence, influence explanations of how firms or groups of firms connect to each other globally (Gereffi et al., 2005). Indeed, while globalization has provided opportunities for companies to access international markets, it has also threatened the survival of some sectors and firms in certain countries (Paiva & Vieira, 2011).
In this paper, we explore one specific variable that plays a role in the supply chain dynamics: the capability in the supply-base and, consequently, this is an intra-firm analysis. More specifically, we describe a captive global value chain (as defined by Gereffi et al., 2005) from an organizational perspective and highlight path dependencies that influence strategic decisions. According to Gereffi et al. (2005), in some developing countries, growth of industrial capabilities is redefining the type of supply chain governance. Core capabilities, such as focus on innovation, product strategy, and marketing, are adding value for specific agents within a supply chain and, consequently, changing the power relations. The use of capabilities within a supply chain relates to many factors, including the history of the firm and the history of the supply chain itself, which may or may not be manifestations of path dependencies. Furthermore, the effects of path dependence vary, and can speed up, slow down or even halt the construction of capabilities that would better position the firm (Sydow, Schreyogg, & Koch, 2009).
In this paper, we aim to understand how path dependence influences the organizational capabilities of a firm that is part of a captive global chain during a period in which the firm is attempting to attain higher added value positions. We formulated the following research questions: How might path dependence influence the development of the capabilities of an organization within a supply chain? How might path dependence result in lock-in that would prevent movement to higher levels in the governance hierarchy of a captive value chain?
In order to attempt to answer this question, we conducted a case study of a shoe manufacturer in Brazil. We chose the footwear industry because it is part of a globalized supply chain and it is also an industry in which players are accustomed to migrate in search of resources (Costa & Passos, 2004; Rabellotti & Schmitz, 1999; Schmitz, 2006). Therefore, it provides examples of the types of dynamic changes that constantly challenge managers when developing strategies for adding value to their products or repositioning their firms within GVCs. Moreover, the Brazilian shoe industry has been changing its organizational strategies with the objective of becoming a global player (Paiva & Vieira, 2011). Although we carry out the GVC and supply chain as an embedded context that is related to events in the trajectory, the analysis of capabilities is at the organizational level (focal firm).
This paper is organized in six sections including this Introduction. The next section presents an overview of literature covering the development and evolution of theory on GVC and organizational capabilities. We have included a sub-section on path dependence in response to a recommendation made by Gereffi et al. (2005) that supply chain reconfiguration should be analyzed and also because of certain observations made during the case study interviews. In the section three we present the research methods employed and in the section four we discuss the case studied, describing both the Brazilian shoe industry as a whole and the specific case investigated. We then analyze the empirical data in the light of the theoretical framework and end by drawing our final conclusions.
Theoretical Overview
The theoretical framework that supports this paper is founded in three areas of knowledge. We begin by presenting the background to Supply Chain studies, starting with producer-driven versus buyer-driven configurations (Gereffi, 1994) and supplemented with the typology of GVC governance proposed by Gereffi et al. (2005) and further explored by Paiva and Vieira (2011). Gereffi et al. (2005) considered capabilities to be a specific dimension that can help to explain how supply chains and firms can improve their positions; we cover capabilities in two subsections, discussing organizational capabilities and supply chain capabilities separately. Finally, since history influences both resources and capabilities (Penrose, 1959), we review path-dependence studies, focusing on organizational path dependence and supply chain path dependence.
Global commodity chains
Global Commodity Chains (GCCs) are systems that establish and coordinate standards of international production and trade, linking firms' economic activities to inter-organizational networks that allow them to develop, to manufacture, and to distribute their products (Gereffi, 1994). Initially, Gereffi (1994) identified two distinct types of governance structures in commodity chains: producer-driven and the...
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