Toward a theory of supply chain fields – understanding the institutional process of supply chain localization

AuthorZhaohui Wu,Fu Jia
Published date01 March 2018
Date01 March 2018
DOIhttp://doi.org/10.1016/j.jom.2018.03.002
Contents lists available at ScienceDirect
Journal of Operations Management
journal homepage: www.elsevier.com/locate/jom
Toward a theory of supply chain elds understanding the institutional
process of supply chain localization
Zhaohui Wu
a,
, Fu Jia
b
a
College of Business, Oregon State University, Corvallis, OR 97331-2603, United States
b
University of Bristol, School of Economics, Finance and Management, Bristol BS8 1TU, UK
ARTICLE INFO
Handling Editors: Robert D. Klassen and Brian
W. Jacobs
Keywords:
Supply chain eld
Localization
Supply chain
MNE
Emerging markets
Institutional theory
Case study
Sustainability
ABSTRACT
When western multinational enterprises (MNEs) build end-to-end supply chains (SCs) to produce and distribute a
product or deliver a service in emerging economies, the process is called supply chain localization. These
companies encounter institutional environments with regulative, normative and cognitive characteristics very
dierent from those in their home countries. SC localization uncovers and creates institutional voids; we argue
that SC localization is a process of institutional change, requiring the MNE to build new institutional infra-
structure. To the best of our knowledge, little is known about the institutional process of SC localization and its
eects. We carry out a longitudinal case study to investigate SC localization of four MNEs in China. These MNEs
are leaders of sustainable business practices in their industries, a distinction that highlights institutional voids in
their SC settings. Based on the idea of elds in institutional theory, we build a mid-range theory by introducing
the notion of the supply chain eld. Our study identies and contextualizes the key elements of an SC eld. It
recognizes MNEs, government and semi-government entities, and other participants as institutional actors who
serve as architects and builders of the new SCs. We nd that SC localization is an institutional process, taking
place at both actor and eld levels, where continuous ideation of new operations practices leads to structuring of
the both the SC and SC eld.
1. Introduction
When western multi-national enterprises (MNEs henceforth) create
end-to-end supply chains (SCs) to produce and distribute a product or
deliver a service in emerging economies, the process is considered SC
localization (Luo, 2007). Localizing an end-to-end SC includes estab-
lishing supply bases, production facilities, distribution networks, ser-
vice centers, and the like, through which products physically ow
(Carter et al., 2015). As the developing economies undergo economic
transformation, industry sectors shift their labor-intensive, export-or-
iented manufacturing operations to focus on rising markets and middle-
classes. MNEs have begun to develop, design and build sophisticated
SCs from raw material extraction to production and retailing within
host countriesborders. Luo (2007) pointed out that as MNEs evolve
from foreign investors to strategic insiders, their activities move from
production relocation and outsourcing to value chain creation. To meet
the demands in these countries, veteran MNEs have begun leveraging
strengths across business units to take advantage of the clustering eect
to enter and develop markets and SCs in regions with similar institu-
tional characteristics (Arregle et al., 2009;Cantwell, 2009;Miller and
Eden, 2006;Rugman and Verbeke, 2004).
When we delve into SC creation in an emerging economy, we often
see that SC localization occurs concomitantly with the industrialization
and economic reform of an industry sector in the host country, wherein
the governmentopens up traditionally state-owned and protectedsectors
(e.g., agriculture, real estate, banking) or under-developed regions to at-
tract foreign companies. Their objective is to reap the technology and
expertise of the MNEs as a stimulant to development. Against this back-
drop, one interesting phenomenon is that as the MNEs introduce new
products, production technologies, and management systems, they often
nd existing SCs and management systems incompatible. For instance,
the industry sector may have been dominated by state-ownedenterprises
with dilapidated production systems and minimal clean production
awareness, or the existing SC may be incompletelacking integral
functions, infrastructure or processes found in their home countries.
Lastly, the germane industry sector in the host country often has less-
developed market mechanisms as well as dierent institutional contents
along the cognitive, normative and regulative dimensions (Scott, 2014).
Therefore, establishing a physical SC in a host country is dierent
from the same task in an MNE's home country, involving institutional
https://doi.org/10.1016/j.jom.2018.03.002
Received 26 December 2016; Received in revised form 6 March 2018; Accepted 30 March 2018
Corresponding author.
E-mail addresses: wuz@bus.oregonstate.edu (Z. Wu), fu.jia@bristol.ac.uk (F. Jia).
Journal of Operations Management 58–59 (2018) 27–41
Available online 06 April 2018
0272-6963/ © 2018 Elsevier B.V. All rights reserved.
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