Abstract
Until now the Global Value Chains (GVCs) literature has highlighted the role of lead firms in the greening of GVCs, leaving the role of supplier firms under-theorized. This chapter contributes to this gap in the literature by providing empirical evidence to support the role supplier firms play in environmental upgrading in the context of the apparel industry in Sri Lanka. The findings reveal that an understanding of the process of environmental upgrading remains incomplete if the capabilities and strategic intent of suppliers are not taken into consideration. The role of the lead firm and the capability of the supplier firm cannot collectively ensure upgrading. Capabilities in the supplier base determine the relationship between supplier and buyer (governance), whereas a suppliers' strategic intent allows firms to be more inventive in situations where there is a misfit between resources (knowledge) and ambition. Thus strategic intent, coupled with capabilities, can provide competitive advantage to firms and pave ways toward environmental upgrading.
TopIntroduction
Global value chains (GVCs) are “the internationalized structures of production, trade and consumption pertaining to specific products” (Palpacuer et al., 2005, p. 411). Participation in GVCs provides supplier firms with access to global markets as well as opportunities to potentially benefit from one or more forms of upgrading (Humphrey & Schmitz, 2002). Initial studies in GVCs focused principally on economic upgrading and competitiveness issues, while more recently social and environmental (or greening) upgrading initiatives have attracted research attention (Gereffi and Fernandez-Stark, 2011). Research into environmental upgrading, in particular, is still in its infancy when compared to economic and social upgrading. Furthermore, until now the GVC literature has been focused on the role of lead firms (large buying firms) in the greening of GVCs (De Marchi, Di Maria, & Micelli, 2013; De Marchi, Di Maria, & Ponte, 2013; Goger, 2013b; Jeppesen & Hansen, 2004; Khattak et al., 2015). Lead firms encourage suppliers to undertake environmental initiatives by implementing environmental requirements and standards, as well as by offering future contracts. As part of this process, lead firms transmit knowledge to suppliers regarding emerging environmental trends and policies in their home countries, as well as knowledge about certification standards. Importantly, lead firms play a key role in implementing and enforcing environmental strategies across GVCs, at least until formal institutions and regulations actively start setting and enforcing environmental standards.
However, the role of suppliers themselves in the greening of GVCs is under-theorized in the wider GVC conversation. We contend that a supplier’s capability for assimilating knowledge transfer, learning, developing competencies and ultimately undertaking eco-innovations are also critical in this process. Most of the suppliers face the threat or fear of being excluded from GVCs due to their inability to meet particular environmental standards set and enforced by lead firms. However, not all suppliers will respond to such threats or fear. The objective of this empirically-motivated chapter is to contribute to an under-studied dimension: namely, the role of suppliers in the greening of GVCs, and will seek to do so by providing in-depth empirical evidence using the context of the apparel industry in Sri Lanka.
Sri Lanka was the first country to undertake green manufacturing in the apparel sector. The world’s first green apparel factory was established there in 2008 (Wijayasiri & Dissanayake, 2008). Sri Lanka is one of the top 15 apparel-exporting countries globally (WTO, 2015). The United States (US) and the European Union (EU) are crucial markets for this Sri Lankan industry, as lead firms which dominate the apparel GVCs are located in these markets. The apparel industry here also provides an excellent case study to aid our understanding of how and why supplier firms engage in environmental upgrading initiatives. The chapter addresses an emergent gap in the literature as to the process of upgrading involving supplier firms. Such insights would allow us to arrive at a more systematic understanding of the greening processes in GVCs.
Key Terms in this Chapter
Social Upgrading: The improvement of rights and entitlements of workers as social actors within global value chains, as well as the improvement of the quality of their employment.
Environmental Upgrading: Occurs when a firm improves its environmental performance through reducing consumption of energy and water, and eliminating waste in production processes in order to reduce its overall environmental impact.
Lead Firms: Powerful economic actors in global value chains. Lead firms drive the chain in terms of value addition and distribution, often through externalising low value-added activities.
Supplier Capabilities: The ability of suppliers to meet the requirements of a lead firm or buying firm including specifications about quality, timely delivery and environmental and safety standards.
Strategic Intent: A firm’s desire to upgrade even though they may lack the knowledge, current capabilities and resources to do so. Through their strategic intent firms have attempted and succeeded in upgrading.
Global Value Chains: Globally dispersed networks of industrial structures pertaining to specific products or services which are orchestrated by lead firms.
Economic Upgrading: The process by which firms move from low-value to relatively high-value activities with the global value chain. Firms can achieve this through product, process, functional or inter-chain upgrading.