An increasing number of consumer goods are being produced in industries which may be characterised as “buyer‐driven” commodity chains, where the various stages of production are undertaken by different firms (often in different countries) and where the lead role(s), both in establishing and coordinating, the chain, are taken by large retailers and/or brand‐name merchandisers in the countries of the final markets. Often these lead firms do not own any production facilities, but simply manage all the elements of their production and trade networks. The purpose of this paper is to explain the conditions under which the retailers/merchandisers are able to outsource, or externalise, production activities in this way whilst still retaining control over the activities within the commodity chain.
The approach is theoretical, and the evidence provided is purely anecdotal.
The main argument is that it is the retailers/merchandisers' possession of “brand name capital” or privileged access to customers that enables them to externalise production to independent suppliers whilst leveraging their control to obtain lower costs and higher profits.
The implications of this process of externalisation are far‐reaching, and include new opportunities for local firms in developing countries to engage in world markets, changes to the international division of labour, and new patterns of trade.
The paper adopts a different perspective on the phenomenon of outsourcing, with important implications for policy‐makers in both home and host economies.
