Supply, Driven Commodity Chain Essay example

Supply, Driven Commodity Chain Essay example

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Gereffii, G. (1994) introduced the concept of “supply” or “producer” driven and “buyer” driven commodity chain in identifying the different structure or organization of the GVCs. In producer driven chain, because of the technical knowhow and technology there will be a large lead firm being the influential one. The return is mainly boosted by scale economies. Its product specifications are very sensitive and interest in the protection of the knowledge, trust and relationships are very key in this kind of GVCs. Most of the time this GVCs are vertically integrated and have high barrier to entry of new actors/firms. The business relationships built here are mostly long lasting. Best examples of producer driven VCs are semi-conductor or the pharmaceuticals industries.

Buyer driven GVCs on the other hand produce very much standardized products which are like mass consumption items which are not capital intensive. Here the lead firms are retailers and brand owners. There is easy entry and exit into this value chain and small and medium sized suppliers can participate. Relationships are more or less transactional or market based aimed at for the specified transaction may not last beyond that. GVCs like this are more spread out and have so many suppliers participating. Lead firm’s investment on suppliers is very minimal. Apparel, vehicle parts and electronics are some of the examples of buyer driven value chains. This type of value chains are preferred by developing countries to enter into and going up the ladder into high value products. (Humphrey, J., & Schmitz, H. 2000)

Further study in the production coordination, globally, has exposed the inefficiency of considering only these two types of commodity chain. Especially the studies in ...


... middle of paper ...


...ence between the buyers and the suppliers. The cost of breaking this relationship and start a new one is very high since building the trusted relationship can take a lengthy time and process. Therefore it is expected to have limited suppliers in this kind of value chains.
4. Captive value chains. In this network there are many small suppliers that are highly dependent on the buyers for production and marketing. It is very costly for the small supplier to change or stop the business relationships. The buyer has also much investment on the supplier to get its specified products and because of its investment it demands or in the business arrangement the lead firm maybe the sol-buyer of the product.
5. Hierarchy. This is the vertical type of GVCs where transaction takes place within a single firm which might be located in different operational sites or subsidiaries.

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