Buyers' sourcing strategies and suppliers' markups in Bangladeshi garments

Cajal-Grossi, Julia, MacChiavello, Rocco ORCID: 0009-0007-5465-3153 and Noguera, Guillermo (2023) Buyers' sourcing strategies and suppliers' markups in Bangladeshi garments. Quarterly Journal of Economics, 138 (4). pp. 2391-2450. ISSN 0033-5533

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Abstract

We study differences in markups earned by Bangladeshi garment exporters across buyers with different sourcing strategies and make three contributions. First, we distinguish buyers with a relational versus a spot sourcing strategy and show that a buyer's sourcing strategy is correlated across products and origins. Buyer fixed effects explain most of the variation in sourcing strategies, suggesting that these depend on organizational capabilities. Second, we use novel data that match quantities and prices of the two main variable inputs in the production of garments (fabric and labor on sewing lines) to specific export orders. We derive conditions under which these data allow measurement of within exporter-product-time differences in markups across orders produced for different buyers. Third, we show that exporters earn higher markups on otherwise identical orders produced for relational, as opposed to spot, buyers. A sourcing model with imperfect contract enforcement, idiosyncratic shocks to exporters, and buyers that adopt different sourcing strategies trading off higher prices and reliable supply rationalizes this and other observed facts in the industry. We discuss alternative explanations and policy implications.

Item Type:	Article
Additional Information:	© 2023 The Author(s)
Divisions:	Management
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HB Economic Theory
JEL classification:	L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships; Contracts and Reputation; Networks D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
Date Deposited:	26 Oct 2023 13:42
Last Modified:	25 Apr 2024 20:48
URI:	http://eprints.lse.ac.uk/id/eprint/120547

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