Supplier evolution in global value chains and the new brand game from an attention‐based view

• Date: 01 August 2020
• DOI: http://doi.org/10.1002/gsj.1381
• Author: Christian Lechner,Gaël Gueguen,Simone Guercini,Gianni Lorenzoni
• Published date: 01 August 2020

SPECIAL ISSUE ARTICLE

Supplier evolution in global value chains and

the new brand game from an attention-

based view

Christian Lechner

1

| Gianni Lorenzoni

2,3

| Simone Guercini

4

|

Gaël Gueguen

5

1

School of Economics and Management, Free University of Bolzano, Bolzano, Italy

2

Department of Management, University of Bologna, Bologna, Italy

3

Cass Business School, City University London, London, UK

4

Department of Economics and Management (DIESEI), University of Florence, Florence, Italy

5

Management Research Centre, Entrepreneurship and Strategy, Toulouse Business School, Toulouse Cedex 7, France

Correspondence

Christian Lechner, School of Economics

and Management, Free University of

Bolzano, Piazza Università 1, 39100

Bolzano, Italy.

Email: christian.lechner@unibz.it

Funding information

University of Bologna (Alma Idea

Funding); Open Access Publishing Fund

of the Free University of Bozen-Bolzano

Abstract

Research Summary: Suppliers from emerging econo-

mies have been particularly active in acquiring brands

from advanced economies. We analyze changes in the

global value chain (GVC) of the sports shoe industry

and show how hollowing out the asset bases of brand-

holding firms through increasing outsourcing has

enabled the emergence of rising power firms, as well as

a new brand game and a market for brands. These

developments in the GVC might be a future challenge

for traditional brand-holding lead firms. We show that

managers focused on branding and distribution issues

were myopic towards the strategic initiatives of suppliers.

Managers need to pay attention to the potential long-

term consequences of outsourcing and offshoring activi-

ties, as suppliers could become competitors or acquirers

of their order-giving firms, leading to the question: Are

we approaching a state of dual GVC leadership, or do

lead firms risk being kicked out by their suppliers?

Received: 15 February 2018 Revised: 28 February 2020 Accepted: 10 March 2020

DOI: 10.1002/gsj.1381

This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial‐NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non‐commercial and no modifications or

adaptations are made.

© 2020 The Authors. Global Strategy Journal published by John Wiley & Sons Ltd on behalf of Strategic Management Society

520 Global Strategy Journal. 2020;10:520–555.wileyonlinelibrary.com/journal/gsj

Managerial Summary: We explore the emergence of

rising power firms from the peripheries of GVCs. An

increasing number of major brand-holding companies

from traditionally industrial ized economies have been

acquired by suppliers from newl y industrialized econo-

mies due to some fundament al changes. First, the

emergence of a market for brands m akes brands more

volatile. Second, continuous outsourcing and hollowing-

out of the lead firm's asset base has reduced their ability

to control the GVC. Through a longitudinal case study

analysis, by adopting an attention-based view, we inves-

tigate the behavior of the traditional lead firms. Lead

firms were not only myopic to the activities of their sup-

pliers, but their focus on downstream activities created

increasing opportunity spaces upstream for rising power

firms while weakening the defense capacity of brands.

KEYWORDS

attention-based view, global value chains, lead firm, market for

brands, rising power suppliers, supplier evolution

1|INTRODUCTION

An increasing number of major brands from established industrialized economies have been

acquired by suppliers based in emerging economies. Those suppliers have been participating for

years in global value chains (GVCs). The GVC view concerns all activities necessary to bring a

specific product from conception to end use (Gereffi & Fernandez-Stark, 2011). GVCs are

orchestrated by a lead firm (Mudambi & Venzin, 2010), and the lead firm strategically directs

the activities of the value chain (Jarillo, 1993; Lorenzoni & Baden-Fuller, 1995). Two generic

GVCs derive from the typology of the lead firm: producer-driven and buyer-driven (Gereffi,

2001). In a producer-driven GVC, firms with a high degree of production activity are the lead

firms; in a buyer-driven GVC, production appears to be dispensable, and the lead firms are the

brand-holding firms (Pananond, 2013). We view a supplier acquiring the brand of a lead firm as

an extreme case of rising power firms from the periphery (Lee & Gereffi, 2015), illustrating posi-

tion shifts in GVCs through supplier upgrading (Pananond, 2013, 2016). The emergence of giant

suppliers is indeed surprising, considering the fact that the end of immense manufacturing

facilities has been declared for decades (Appelbaum, 2008). These rising power firms aim at

challenging the position of the lead firm (Yamin & Sinkovics, 2015). As the study of rising

power suppliers has been neglected (Appelbaum, 2008), these changes call for more attention to

global GVC management (Sako & Zylberberg, 2019).

Participation in GVCs is seen as a fundamental precondition for supplier upgrading because

GVCs are where learning happens through interaction with (initially) more advanced actors

(Gereffi, 2001). Mere participation does not automatically lead to upgrading (Humphrey &

LECHNER ET AL.521

Schmitz, 2001). On one hand, the degree of upgrading depends on the firm's position within the

GVC (first tier, second tier, etc.), which is essentially its proximity to the lead firm; on the other

hand, the governance structure of the GVC determines how and if a supplier will upgrade. The

literature on governance structures assumes that the lead firm controls authority and power

in the GVC. This kind of control would make supplier upgrading unlikely (Sako & Zylberberg,

2019). Indeed, studies have suggested that lead firms place limits on the suppliers' development

by governing relationships in the GVC, thus creating a glass ceiling for suppliers (McDermott &

Corredoira, 2010).

This view, however, might be a little short-sighted. For instance, in the mobile phone indus-

try, four of the top five firms in terms of sales are former suppliers, whereas Apple is the only

firm without a production base. Moreover, the operating profits of advanced suppliers have

been consistently higher, but brand control has been viewed as essential (Dedrick, Kraemer, &

Linden, 2011).

1

More fundamental changes over time might be underway. First, there is a new

“brand game”at play. Our analysis of the sports shoe industry suggests that outsourcing activi-

ties of brand-holding firms has, in the first place, created GVC and, in the second place, a mar-

ket for brands. Research suggests that, starting from the 1980s, there has been strong growth in

brand trading (Lechner, Lorenzoni, & Tundis, 2016): The argument brought forward is that a

market for brands can emerge if brands can be somehow disembodied from upstream activities,

such as manufacturing and design, as is typical in buyer-driven GVCs. Data collected specifi-

cally in the sports shoe industry shows that suppliers are highly active in this new brand trading

game (Lechner, Lorenzoni, & Tundis, 2018).

2

Over the decade between 2006 and 2015, suppliers

accounted for 24% of all brand acquisitions or more than 100 transactions; investors, who were

buying brands as tradable assets for future resale, for 23%, and distributors for 13%; however,

the top 10 brand holding firms (in terms of sales) only account for about 5% (Lechner

et al., 2018).

Overall, brands are increasingly being traded, and suppliers appear to be most active in

acquiring brands from original brand holders. The substantial market for brands and therefore

the frequent trading of brands, then makes defending the brand more difficult. Indeed, in the

sports shoe industry, spending in brands is relatively high, including advertising and sponsoring

activities, as brand-holding firms tend to have fewer types of differentiating strategic assets

(Merk, 2004). Besides the top two firms in this industry, where advertising spending has

increased proportionally with sales, most of the other firms saw their brand spending over-

proportionally increasing throughout the previous decade, as illustrated in Table 1. High brand

volatility through a vibrant market for brands and increasing brand spending means that a spe-

cific brand matters less.

Second, lead firms' control, and thus their power in the GVC, has been declining, lead-

ing to the emergence of rising power firms (Lee & Gereffi, 2015). To illustrate here, we

only would like to anticipate one example (supplier evolution will be discussed in more

detail in the section on the case setting as well as in the Appendix). Adidas, one of the

main footwear sports brands, announced that it would close down their Speed Factories in

Germany and the United States by the end of 2019, which had opened only in 2017. These

speed factories were small, highly automated factories that allowed for smaller batches of

specialized shoes to be produced very quickly. The speed factories will be handed over to

one of their first tier suppliers, since that is where institutional knowledge resides. Adidas

considered these factories to be a great learning experience, but the home reshoring

attempt was ultimately a failure (Toffel, McNeely, & Preble, 2019). Third, rising power sup-

pliers started to occupy lower segments that were “left over”by the lead firms in the end

522 LECHNER ET AL.