Service, relational governance, and the role of suppliers in global value chains : a case study of Japanese small suppliers in the Chinese market

Although intermediate goods trade is an important part of global value chains (GVCs), the study to date of the transactions between more capable developed country suppliers and less capable developing country customers has been largely neglected in GVC literature. Case studies have suggested that, as a result of adopting a turnkey solution strategy, the governance pattern under this relationship is usually “market.” Information and knowledge flows are highly restricted. In contrast to this literature, we discovered in our study that a group of Japanese small suppliers formulated various service strategies (problem solving, technological advice, joint product development, etc.) to make themselves indispensable to their Chinese customers. They created a typical “relational” governance links with local customers and provided them with ample learning opportunities. Here, we make it clear that characteristics of industry and market are important to establishing this type of relational governance. With limited managerial resources, active marketing activities and localization have helped small suppliers to internationalize themselves so as to apply their strong capabilities to the Chinese market.