How small suppliers learn and strategize when MNE buyers discourage their learning opportunities

What is it about?

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. The absence of legal contract seems to have discouraged the buyers to share their core knowledge. Therefore, the suppliers had to acquire technological and marketing knowledge from additional sources to compensate for their lack of access to buyers’ tacit knowledge. 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.

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Why is it important?

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.

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