Buyers' sourcing strategies and suppliers' markups in Bangladeshi garments

Julia Cajal-Grossi, Rocco Macchiavello and Guillermo Noguera

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

JEL-codes: D23 L11 L14 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2023-11-01
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Citations: View citations in EconPapers (5)

Published in Quarterly Journal of Economics, 1, November, 2023, 138(4), pp. 2391-2450. ISSN: 0033-5533

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http://eprints.lse.ac.uk/120547/ Open access version. (application/pdf)

Related works:
Journal Article: Buyers’ Sourcing Strategies and Suppliers’ Markups in Bangladeshi Garments* (2023)
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