Augmenting Outsourced Value Chains Immersed in Turbulence

Abstract

ABSTRACT Purpose The “global factory” business model of some Asian economies provided many OEM opportunities for their growing firms, which led these firms on a reverse industrial development path that has been overlooked in the literature. These firms are now at a crossroad because this model is threatened by turbulent conditions. This study investigates whether and how these firms can take advantage of their unique development path and their focus on building collaborative relations to augment their value chain linkages with clients, and whether they benefit financially or socially from the relationship. Methodology/Approach This research quantitatively tests several hypotheses from both the manufacturer’s and the client’s perspectives using a paired survey method. The focus is on manufacturing firms based in Taiwan and Mainland China. Partial least squares structural equation modeling (PLS-SEM) is used to verify suitability of the proposed hypotheses. Extra analysis is also done to understand value chain configuration and contribution. Findings The empirical results show industry competition does not directly impact supplier’s management of the value chain relationship with the client. However, supplier industry competition positively influences supplier’s perceived environmental turbulence as well as client’s perceived environmental turbulence, which both then augment supplier-client value chain association. Augmented value-chain association contributes to annual revenue and client camaraderie. The client’s country of origin (emerging economy versus developed economy) also impacts value-chain association as well as configuration. When the client is from an emerging economy, a more comprehensive value chain is more likely. Keeping marketing and procurement (not R&D) functions in-house is more of a concern for clients from developed economies. After-sales services contribute the most to both revenue and camaraderie. Research Implications This research answers calls to take resource-dependency theory beyond the industry level of analysis and to explore additional relationship management instruments. It also expands RDT by considering the client’s perception of the supplier’s environment. The study is conducted in Chinese cultural context, which helps balance the existing emphasis on Western experiences in the literature. Practical Implications Asian manufacturers can use their unique industrial development path to benefit financially and socially from value-chain development. Suppliers should attempt to create more comprehensive value chains, especially when their clients are from emerging countries, and hone procurement and marketing skills. If suppliers hope to augment value-chain association with the client for revenue and camaraderie, suppliers should first attempt to capture after-sales services then procurement, with logistics being the least important. Originality/Value Firms in Asian emerging countries often establish a more functionally comprehensive value chain and have followed a different industrial development path compared to firms from advanced economies. Suppliers’ movement in reverse sequence along the value chain is highly relevant to present circumstances but research on this issue is insufficient. Additionally, relationships are often of greater importance and take different forms in Asian cultures compared to Western culture. This study helps extend current understanding of value chain configurations under environmental dynamism.