Supplier strategies and routines for capability development: implications for upgrading

This paper examines the strategies and routines adopted by small and medium-sized suppliers to develop capabilities that enable them to engage in upgrading, despite a precarious relational and institutional context. To this end, we investigate the strategic behaviour of two Bangladeshi garment manufacturers. Both started out as small suppliers for multinational enterprises (MNEs) and have eventually grown into micro-multinationals. The firms are involved in ‘tacit promissory contracting’ with their buyers, a specific form of international outsourcing relationship. The study adopts a multiple case study design that involves interviews with managers/owners of the firms. The analysis yields two key findings. Both firms have devised strategies and taken coherent routines involving actions to develop skills and motivation needed to perform appropriate functional activities (i.e. pre-production, production and post-production) as they embarked on different stages of upgrading. Furthermore, firms have designed routines to internalise the challenges originating from their relationships with their buyers and the institutional environment at the time that had the potential to affect their upgrading goals. The paper contributes to IB studies by highlighting how suppliers, even in a precarious context, can control their own strategies and routines, so as to develop capabilities that allow them to gradually redress the power imbalance between themselves and their buyers.