This paper `The influence of value‐chain governance on innovation performance: A study of Italian suppliers Emanuele Brancati, Carlo Pietrobelli and Caio Torres Mazzi' explores how value-chain governance affects the innovation performance of suppliers of intermediate products.
When the complexity of the relationship becomes too high, GVC linkages tend to depart from arms-length market transactions and firms have to rely on coordination mechanisms other than the mere setting of prices and quantities traditionally studied in economics. In ‘relational’ value chains, for example, complex transactions are managed through a high level of explicit coordination between buyers and suppliers, which tends to involve more enduring relationships and important exchanges of tacit knowledge across firms. On the other hand, companies in ‘modular’ value chains rely on technical standards and codification to exchange complex information, which provides them with higher flexibility and reduces switching costs, as well as the level of explicit coordination needed between buyers and suppliers.
They conclude that supplying intermediates is associated more strongly with innovativeness when the governance of the value chain is similar to a modular governance.
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