Abstract
Firms in developed economies have been purchasing from firms in emerging economies for years, but they typically purchase low value, low margin items. Opportunities have arisen for emerging economy manufacturers to supply higher value products and services to firms in developed economies. In today’s global, knowledge based economy, suppliers must have cutting edge knowledge, and they must constantly upgrade their knowledge to maintain a competitive advantage. When supplying high-value products, complex knowledge based interactions between the buyer and supplier are necessary. A conceptual model is developed in this chapter, proposing that if suppliers in emerging economies are committed to long term relationships with developed economy customers, they can increase the level of knowledge integration in the relationship, and in turn, improve performance. The primary contribution of this chapter is to show that firms in emerging economies can achieve sales growth by becoming critical links in today’s global, knowledge based supply chains.
TopLiterature Review
Competition among manufacturers has evolved in recent years to be supply chain vs. supply chain instead of firm vs. firm (Handfield & Bechtel, 2002). The Supply-Chain Council (2008) defines a supply chain as a network of firms that encompasses every effort involved in producing and delivering a final product from the supplier’s supplier to the customer’s customer. In the past, efficiency was often gained through vertical integration, with firms designing and manufacturing their complete products. The quintessential example of vertical integration is Ford’s River Rouge complex, in which raw materials were brought into one end of the plant and finished vehicles came out of the other end, and nearly every other step was performed in the plant, from steelmaking to electricity generation (Fine, 1998). This method worked well for standardized, mass produced products. Today, customers demand flexibility and responsiveness, which limits the ability of one firm to meet all possible customer needs. Manufacturers have responded to the call for flexibility and responsiveness in part by relying on supply chain management (Richardson, 1993). By performing only the functions for which they can add significant value to the end product and outsourcing the functions for which they are at a comparative disadvantage, manufacturers have become more flexible and innovative, while reducing costs. A supply chain focus enables the individual firms in the chain to become more specialized, thus making the chain as a whole more efficient (Prahalad & Hamel, 1990). Although the management of the manufacturing process is more complex due to the additional parties involved and their potentially conflicting goals, a firm’s supply chain can be a significant source of value and competitive advantage if managed successfully (Porter, 1985).