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Title: Testing predictions on supplier governance from the global value chains literature

Author(s): Alexander Schmitt and Johannes Van Biesebroeck

Publication Date: April 2020

Keyword(s): GVC, Outsourcing, PRT, TCE and Theory of the firm

Programme Area(s): Industrial Organization

Abstract: A vast empirical literature analyzes the determinants of the make-or-buy decision, but firms also need to decide how to organize their supplier relationships when they choose to buy. The global value chains framework provides predictions on the nature of buyer-supplier collaboration. We use a unique transaction-level dataset of outsourced automotive components to study carmakers' choice between four distinct types of supplier governance: market, captive, relational, or modular. The theory formulates predictions based on three characteristics: the complexity or contractibility of a transaction, the capabilities of suppliers, and how objectively codifiable performance requirements are. The results illustrate that sourcing relationships differ systematically and that proxies for the three characteristics have effects in line with the theory.

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Bibliographic Reference

Schmitt, A and Van Biesebroeck, J. 2020. 'Testing predictions on supplier governance from the global value chains literature'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14549