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A Dynamic Process of Building Global Supply Chain Competence by New Ventures: The Case of Uniqlo
A Dynamic Process of Building Global Supply Chain Competence by New Ventures: The Case of Uniqlo
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Tetsuya Usui
Professor of International Business and Marketing
College of Law
Nihon University
3-2-1 Misaki-cho, Chiyoda-ku, Tokyo 101-8301
Japan
Masaaki Kotabe*
The Washburn Chair Professor of International Business and Marketing
Temple University
The Fox School of Business
1801 Liacouras Walk
559 Alter Hall (006-14)
Philadelphia, PA 19462
U.S.A.
mkotabe@temple.edu
Janet Y. Murray
E. Desmond Lee Professor for Developing Women Leaders and
Entrepreneurs in International Business
Professor of Marketing
College of Business Administration
University of Missouri-St. Louis
St. Louis, MO 63211
U.S.A.
* Corresponding Author
Abstract
In today’s volatile global marketplace, firms should pursue flexible asset distribution and
performance with cross-sectional data; however, little guidance is available for how newly
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internationalizing ventures build a global supply chain network from scratch. To understand
this dynamic process, we examine Uniqlo’s successful supply chain development in China,
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using longitudinal contextual data. Our findings show that Uniqlo went through discrete
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dynamic stages in its supply chain development efforts. First, Uniqlo, being a small firm in
the initial stage, developed relational governance with its suppliers by exercising dynamic
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economic power concentration over time. Second, it began to provide technical support to
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help its suppliers’ competence building to gain their cooperative behaviors. Third, Uniqlo
not just having Uniqlo as the primary customer. This provides relational flexibility through
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both relational governance and partner flexibility for the principal firm in the global supply
chain development.
Keywords
In today’s hypercompetitive markets, many firms have to reduce costs and improve product
quality simultaneously when responding to global market uncertainty. Thus, how to develop a
new supply chain system that can achieve both high-quality production and low-cost
Today, supply chain management is considered a part of customer value creating process that
delivers the proposed value to customers in the global market (Hult 2011). Customer
perceived product quality and lower price as a part of operational performance in marketing
leads to organizational performance, as measured by sales revenue and profit, which then
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contributes to marketing resource building for a firm in the long run (Katsikeas et al. 2016).
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To achieve flexible operations by managing global supply chains, the first question
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that we need to ask is how a newly internationalizing firm builds its global supply chain from
variables and market performance with cross-sectional data (Jean, Sinkovics, and Kim 2010;
Murray 2001; Wowak et al. 2013). However, as few studies have examined the dynamic
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process of global supply chain development, little guidance is available as to how small firms
could develop global scale economies over time as they expand internationally. This issue is
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especially pressing in an early stage of internationalizing firms, as they lack not only the
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initial large-scale production capability but also the bargaining power to deal with established
In fact, a silent revolution has been taking place in global supply chain management
strategy used by newly internationalizing Japanese firms such as Daiso (a high-quality dollar
store chain), Muji (a household and consumer goods retailer), and Uniqlo (a casual apparel
designer, manufacturer and retailer) in the last two decades. Although these firms are not as
widely known as Toyota and Sony, they have fundamentally changed the way they manage
Page 3 of 47 Journal of International Marketing
investing in both their own and selected Japanese suppliers’ manufacturing facilities (known
technologies, often by using different market positioning strategies in the global marketplace
during the 1980s-1990s (Kotabe 1990; 1998). Although those Japanese firms had once
large investments in fixed assets incurred by maintaining tight keiretsu relationships turned
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out to be a major financial burden in a rapidly changing global market environment in the
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1990s-2000s.
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develop and maintain flexible relationships with local suppliers in emerging economies, but
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they still faced serious institutional gaps without having enough international experience or
economic power to exercise vis-à-vis their local suppliers. Previous research, using survey
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data and collected from foreign principal firms and local suppliers, has focused mainly on
technologies) through relational ties between partners (Zhou and Poppo 2010; Zhou and Xu
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2012). However, it has not explored how newly internationalizing firms, such as Daiso, Muji,
and Uniqlo, develop a flexible supply chain network while maintaining high relational
2007), we examine the successful history of Fast Retailing Co. Ltd., a Japanese apparel firm
that operates under the Uniqlo brand name (Uniqlo thereafter), with its new supply chain
network in China. Uniqlo was a small buyer in the 1980s when it started to deal with its first
Journal of International Marketing Page 4 of 47
supplier in China. In the last two decades, however, this venture has become one of the most
successful apparel firms in the world by building a world-class global supply chain network
in a relatively short period (CBS News June 3, 2010; Economist 2010). Our study promises to
THEORETICAL BACKGROUND
its selected suppliers to gain cooperative behavior from its partners. The theoretical
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foundation for relational governance is built on the classical debate between Williamson’s
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(1985) transaction cost analysis (TCA) and Barney’s (1999) resource-based view (RBV).
TCA and RBV have served as the standard theoretical lenses in explaining the extent of
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insourcing/outsourcing activities. In essence, TCA predicts that the higher the asset
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specificity (assets specifically committed to such relational activities with limited alternative
use), transaction frequency, and transaction uncertainty, the higher the ownership/hierarchical
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strategy (i.e., insourcing strategy) firms tend to employ. On the other hand, the RBV focuses
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on how firms build their competitive advantage through creating and acquiring their
From the RBV perspective, close relationships with partners and relationship-specific
investments are necessary conditions for developing the competence within interfirm
boundaries (Dwyer, Schurr, and Oh 1987; Heide and John 1992). A strong relational exchange
between firms builds more favorable conditions for joint competence and reduces transaction
costs. As a result, firms are likely to make relationship-specific investments in the long-term
to maintain a high level of relational governance within the supply chain network (Dyer
Page 5 of 47 Journal of International Marketing
equally applied, as social relationships have an important role when the principal firm and its
suppliers are from different legal and social environments. It is because lower legal
enforceability and higher global demand uncertainty cause difficulties for foreign firms’ local
business developments (Hilmersson and Jansson 2012). Zhou and Xu (2012) also suggest that
where legal institutions are weak, detailed contracts are ineffective in reducing partner
opportunism in contractually specified areas. These studies have provided evidence that,
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relational governance through social exchanges and norm sharing provides a proxy for legal
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through relational ties, the principal firm needs to maintain some degree of power over them.
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extensively in the 1970s-80s (Gaski 1984; Hunt and Nevin 1974; Lusch 1976). Gaski (1984)
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defined power as the ability to cause someone to do something he or she would not have done
otherwise. Power is also recognized as an important factor in supply chain development and
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its integration (Benton and Maloni 2005; Maloni and Benton 2000).
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Based on this classical argument, Maloni and Benton (2000) classified power into two
broad categories: mediated and non-mediated power. Mediated power, in the forms of reward
and coercive power, represents the competitive and negative uses of power. In supplier
provided by the principal firm to its partners (e.g., increased business or shared benefits from
cost reductions) while coercive power is based on the principal firm’s legal, legitimate, and
punishment rights over partners (e.g., decreased business or dictated cost). While coercive
Journal of International Marketing Page 6 of 47
power tends to increase conflicts and reduce satisfaction of partners, reward power does the
opposite. With mediated power, in the forms of reward and coercive power, the principal firm
decides whether, when, and how to use its power to influence the supplier’s behavior.
Non-mediated power, in the form of expert, referent, and legitimate power, is more
relational and positive in orientation. Expert power exists when the principal firm holds
information or production expertise that is valued by partner firms. Referent power implies
that one firm desires identification with another for recognition by association (e.g., being the
both its inherent and legal forms, infers that the target believes in the right of the source to
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transactions and does not necessitate intention from the source, so the suppliers decide
whether and how much they will be influenced by the principal firm. In fact, the principal
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firm may not even be aware that non-mediated power exists (Benton and Maloni 2005).
Previous studies have revealed the relationship between mediated and non-mediated
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power and supplier chain performance (Benton and Maloni 2005; Maloni and Benton 2000).
However, in an early stage of internationalization, the principal firm does not have any
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non-mediated power to gain cooperative behavior from local suppliers and rewarding power
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imperative to examine the dynamic process of how the principal firm gradually accumulates
Partnering Flexibility
Over the past few decades, outsourcing strategy has become a widely used means for firms to
improve their market performance. Outsourcing helps lower a firm’s breakeven point and
improve its return on investment. As a result, many firms have increased their outsourcing
Page 7 of 47 Journal of International Marketing
activities. Although firms may be able to improve their market performance through
increased outsourcing, this is only true up to a point, beyond which market performance
could actually decrease (Kotabe and Mol 2009; Kotabe, Mol, and Ketkar 2008; Kotabe et al.
2012). On one hand, by pursuing low cost efficiency via outsourcing in supply chain
operations, a principal firm may lose its competence in the quality of manufacturing and
other capabilities (Kotabe, Mol, and Ketkar 2008) as well as facing serious opportunistic
behaviors from partners at upstream activities (Heide 1994; Williamson 1985). On the other
principal firm may alternatively choose to form long-term relationships with specific partners
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capabilities jointly with its partners (Dyer 1997; Krause, Handfield, and Tyler 2007; Takeishi
2001). Such a tightly knit collaborative strategy through relational governance may result in
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high customer perceived quality and value for the products that a firm offers (Katsikeas et al.
2016). However, the downside of this strategy is an inflexible relationship that may still raise
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governance positively affects buyer performance, it may reduce the buyer’s ability to be
objective in making effective decisions and increase the supplier’s opportunistic behavior
(Lin 2002). As a result, the principal firm needs to develop ways to bring partnering
flexibility into their supply chain network to maintain market efficiency in the system
achieving high flexibility in selecting and switching to the right partners interchangeably in
Journal of International Marketing Page 8 of 47
principal firm: 1) providing strategic alternatives for future decision making, 2) avoiding
Partnering with a single supplier may cause serious inflexibility between the principal firm
and its supplier in that it limits the possible future options for both firms.
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flexibility. Based on TCA, market governance provides the most partnering flexibility. Since
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a one-time spot transaction will not result in a repeatable and long-term relationship, it is
easier to avoid partners’ opportunistic behaviors. A firm that employs market governance
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takes advantage of the opportunities to deal with new contractors who may have innovative
technologies or better conditions for the principal firm, while the transaction costs (e.g.,
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costs) are relatively higher. This discrete exchange relationship provides the firm the
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flexibility to pursue transactions with several different partners concurrently and/or over time
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for a given component (Joshi and Stump 1999; Williamson 1985). In extending the TCA to
for relational governance (Dyer 1996; Williamson 1991). However, the principal firm needs
to develop ways to avoid its partners’ opportunistic behaviors that are caused by locked-in
relationships with a particular partner supplier. Thus, having multiple substitute suppliers
may help the principal firm avoid opportunistic behaviors by relying on a single supplier.
maintaining competitive tensions among suppliers in the network (Wu and Choi 2005).
Recent studies have focused not only on the benefits of cooperative relationships, but also on
competitive relationships between a principal firm and its suppliers. When the relationship
becomes too stable and too long, it may lead to inertia and lower supplier performance
(Poppo, Zhou, and Zenger 2008; Wilhelm 2011). Although the extant literature has discussed
these benefits conceptually and has stressed the importance of matching the flexibility of
buyers and suppliers on supply chain performance, no empirical studies have been conducted
on this topic (Avittathur and Swamidass 2007). Our study fills this void by examining
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Partnering Flexibility
Our literature review shows that a supply chain network in emerging economies is more
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efficient when the principal firm achieves the multiple goals of pursuing higher partnering
(Richardson 1993; Sanchez 1995; Wilhelm 2011). However, the extant literature does not
maintain partnering flexibility, a principal firm may discourage its suppliers to be cooperative
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since they may not be willing to invest in the joint relationship without guaranteed exclusive
and continuous transactions. These suppliers may even refuse to conduct social exchanges
with a newly internationalizing firm in the initial stage. Even when a newly internationalizing
firm generates the power to switch to substitute suppliers and threatens to use that power, its
suppliers would be aware of the its opportunistic behavior and would not be willing to
become its primary partners. Without having a chance to develop social ties with its suppliers,
the principal firm may face serious opportunistic behaviors from its suppliers from the
Journal of International Marketing Page 10 of 47
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beginning, and may be unable to develop interfirm competence over time. Which comes first,
maintaining both a high level of interfirm competence development and partnering flexibility
with its Chinese suppliers in the last two decades (e.g., CBS News June 3, 2010). We call this
practice relational flexibility. Relational flexibility is defined as the ideal condition in which
the principal firm maintains both a high level of interfirm competence development based on
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relational governance and partnering flexibility with its suppliers. With relational flexibility,
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partner suppliers are willing to invest in long-term relation-specific assets with the principal
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firm, and respond to changes (Johnson 1999), in that they are willing to renegotiate the
This relational flexibility-based supply chain network not only helps the principal
firm achieve higher flexibility in its transactions, but also helps maintain a market-based
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supply chain system that promotes more competition among multiple suppliers. In this
arrangement, the selected and potential suppliers are expected to compete against one another
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to achieve even higher performance for the supply chain network (Park et al. 2010; Wilhelm
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2011). However, a TCA-based logic still predicts that a dilemma may arise when the
principal firm simultaneously pursues both interfirm competence development and partnering
flexibility in the supply chain. RBV also predicts that interfirm competence development
governance has been maintained, and not with flexible partner switching. An appropriate
research question that needs to be asked is how a newly internationalizing firm dynamically
achieves those multiple goals simultaneously in its supply chain development over time. Thus,
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the purpose of this paper is to demonstrate the dynamic process of how newly
internationalizing firms can design and manage relational flexibility-based supply chain
network from scratch in emerging economies for global competitiveness over time.
RESEARCH METHOD
Although the extant literature focused mainly on exploring the extent to which firms manage
a governance structure with their partners, little is known about how a principal firm
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dynamically designs and manages relational flexibility within its supply chain network that
contributes to its sustainable global competitive advantages (Skarmeas, Zeriti, and Baltas
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2016). While Dong, Tse, and Hung (2010) examined the moderating effect of relationship
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stages on the governance fit-channel outcome relationship, they measured relationship stages
(new vs. mature) as discrete using a dummy variable, without investigating how firms
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manage the relationship with their suppliers over a long period of time. Our study focuses on
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Uniqlo’s success by examining its dynamic supply chain network development using
For our in-depth case study, we chose a historical content analysis of news articles,
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internal documents, books, other published reports, and personal interviews with company
executives and industry analysts as primary data. It is a method probably best suited for
analyzing the dynamic supplier relationship developments that a survey research could not
address (Chandy and Tellis 2000; Golder and Tellis 1993). It focuses on the information when
the principal firm first conducted transactions with its partner suppliers, and on how they
maintained their relationships in each moment. The information is based on records written as
news articles, books and annual reports, which complement the interview-based information
(Yin 1984). The sources of the primary and secondary data collected for this study are
Journal of International Marketing Page 12 of 47
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For our study, the unit of analysis is the long-term dynamic relationships between the
principal firm and its multiple local suppliers (Wu and Choi 2005). We examine the history of
Uniqlo’s supply chain network development in China as a case, and how it selected its
partner suppliers and developed relationships with them to build strong relational competitive
advantages over time. There are two main reasons why we chose Uniqlo for our case study.
First, Uniqlo is known as one of the most successful apparel firms in the world in the last two
decades, so this is considered as an extreme case. Uniqlo’s rapid growth had started since its
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first store opening in Hiroshima, Japan in 1984. In November 2015, the number of Uniqlo
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stores located outside Japan (960) exceeded the number of its domestic stores (846) for the
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first time. According to the company’s website, in August 2016, having surpassed GAP in
annual sales, Fast Retailing Co. Ltd. that runs Uniqlo has grown to become the third largest
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apparel firm in the world, after Inditex’s ZARA and H&M, with annual global sales of $17.31
billion. Furthermore, mass media tout its successful outsourcing-based supply chain control
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Second, Uniqlo’s business model and operations are classified as SPA (Specialty
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Store Retailer of Private Label Apparel) because it sells all in-house designed items in its
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own stores. SPA originally meant that its activities are fully integrated from product design,
distribution, inventory management, to final sales. Despite this definition, Uniqlo is known as
one without owning manufacturing facilities in-house. Among consumers, Uniqlo has been
recognized as a higher quality manufacturer that offers the lowest price in the market (Shirai
2014), and its good marketing performance is attributed to its supply chain management
effectiveness and efficiency. Although all the items that it sells at its own stores are designed
Page 13 of 47 Journal of International Marketing
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in-house, all production activities are outsourced mainly to independent Chinese suppliers.
Uniqlo seems to enjoy higher flexibility without having fixed assets tied up in production
facilities and achieve high-quality and low-cost production simultaneously (CBS News June
3, 2010). The high performance of Uniqlo’s business model is interesting in and of itself, and
Data Collection
We used multiple sources of evidence in our study to examine the dynamic process of supply
chain development in a robust manner (Yin 1984, 2008). The most important advantage of
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2008). Therefore, we collected secondary data including news articles, books, a series of
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annual reports, and personal interviews not only from Uniqlo’s officials but also from its
competitors and suppliers. To collect and analyze data in a more systematic way, we applied
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the following four criteria in evaluating and accepting information (Chandy and Tellis 2000;
2. Confirmation: At least two sources (articles, books and interviews etc.) cite the same
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fact.
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4. Reliability: The sources are well respected or have a history of good reporting.
First, our secondary data consisted of published articles related to Uniqlo’s supply chain
development. Initially, we obtained 3,234 articles from twelve magazines and newspapers
from the Nikkei, Nikkei BP, Asahi, Yomiuri, and Mainichi News databases with the keywords
containing “Uniqlo, China, and production or manufacturing.” All collected articles were
published during the period January 1, 1990 - November 30, 2014. Once we had read through
Journal of International Marketing Page 14 of 47
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all the articles, we focused on 317 articles that were the most relevant to our study. We also
utilized the company’s annual reports from 2006 to 2015 published on its corporate website
and eight books on Uniqlo’s business success and problems, including three books written by
Uniqlo’s CEO, Tadashi Yanai. Second, we obtained primary data from interviews with five
senior managers in manufacturing of Japanese apparel firms that are considered as Uniqlo’s
competitors and two managers who have been involved in business transactions with one of
Uniqlo’s main suppliers in China. For triangulation purposes, we also interviewed eight
Uniqlo officials: one manager from the international division, five store managers in the
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Southeast Asia region (we consider this as one interview, as we conducted a group interview
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with these five managers simultaneously during their training program at the head office in
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Tokyo), and two store managers in Tokyo separately. Those store managers were asked to
speak about Uniqlo’s marketing practices in connection with Uniqlo’s supply chain
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management. In total, we had eleven interviews that lasted one to three hours each. We have
also conducted interviews with five store staff members in Tokyo, but we did not consider
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Case Data
Fast Retailing Co Ltd. was established in 1984 in Yamaguchi Prefecture in Japan by Tadashi
Yanai, the current CEO, who is well known for having started Japan’s No. 1 casual clothing
stores ‘Uniqlo’. At the beginning, Uniqlo started as an independent apparel retail store that
procured almost all items from various textile manufacturers and sold them in its own stores.
It gradually began to design its own products and contracted manufacturing to independent
suppliers in China. During late 1980s and early 1990s, Uniqlo asked Japanese general trading
firms, such as Marubeni, Mitsubishi Shoji, and Sojitsu, to find appropriate Chinese suppliers
Page 15 of 47 Journal of International Marketing
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and control manufacturing operations as intermediaries. Because Uniqlo needed to learn how
to procure apparel products from China at a relatively low cost, its first order was placed to
an intermediary to avoid transaction costs that might have arisen from direct transactions with
unknown suppliers. Mr. Yanai recollected that his first order to a Chinese supplier was about
1,500 units (Asahi Newspaper, November 28, 2006). The order size was so small that the
supplier refused to deal with Uniqlo. As most of the leading suppliers in China were already
supplying to major Western apparel firms, it was initially extremely difficult for Uniqlo to
deal with them on equal terms. In 1994, in its 10th year of establishment, Uniqlo’s sales
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reached ¥40 billion (approximately US$480 million) with 118 stores located throughout the
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western part of Japan, while in the same year, GAP, a U.S.-based casual clothing retailer,
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already had annual sales of US$3.7 billion with 1,260 stores around the world. Uniqlo was
still a much smaller client for suppliers in China (Li 1997, p. 143). At that time, Uniqlo, with
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trading companies as intermediaries, had transactions with over 100 suppliers in China.
In 1994, Uniqlo launched two major long-term strategic initiatives: accelerating the
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opening of more domestic stores and developing direct transactions with independent
Chinese suppliers by reducing the assistance from Japanese trading companies. By expanding
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its outlets in the eastern region of Japan, Uniqlo decided to open at least 50 stores every year,
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and this initial expansion plan was achieved in the following 10 years (with 655 stores by
2004). To supply high-quality and low-cost items to the growing number of stores, supply
chain reforms became a strategic imperative for Uniqlo by increasing the volume of direct
transactions with Chinese suppliers. In 1998, the firm established two production
management offices in China, one in Shanghai and the other in Shenzhen, and attempted to
select only 40 primary partners out of its 120 suppliers to develop closer relationships with
the smaller number of partners (Nikkei Business, December 21-28, 1998). Uniqlo found it
Journal of International Marketing Page 16 of 47
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necessary to place a large amount of orders to the selected suppliers to receive favorable
terms from them. Yoshihiro Kunii, chief operating officer of the production division,
officially announced that the company would order some tens of thousands to hundreds of
thousands of units for each stockkeeping unit (SKU) to one supplier to gain its cooperation
because Uniqlo was still a smaller-sized client than many Western apparel firms, such as
GAP and H&M. By 2012 the average order size per SKU per factory reached 8.75 million
units with a sales volume in billions of yen on an annual basis. To make even larger orders for
every SKU, Uniqlo minimized the number of variations for each SKU sold in its stores.
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According to Mr. Kunii, although the number of SKUs increased from 200 in late 1990s to
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400 in 2012, it was only about 10 to 30% of the number of SKUs usually carried by its
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competitors, such as GAP and H&M (Kawashima 2008, p. 66; Tsukiizumi 2012, p. 78).
In June 1998, Uniqlo installed an advanced information system in its supply chain
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network, which connected factories, stores and head office online to achieve even more
efficient inventory control and accurate production planning. In addition, the company started
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sending technical engineers from Japan to its suppliers’ manufacturing sites every week to
help improve their operational capabilities. From 1998 to 2000, Uniqlo’s sales more than
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doubled, exceeding ¥220 billion (approximately US$2.4 billion). When the sales volume
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doubled and the number of suppliers was reduced by about 70% from 120 to 40, the total
transaction volume for each supplier increased dramatically during this period. By exercising
this economic reward power, Uniqlo was able to maintain favorable relationships with its
selected suppliers over time. By year 2000, its 40 selected suppliers had developed and
(Nikkei Business January 17, 2000). They had made a series of relationship-specific
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effective only with Uniqlo. In our interview, one executive from Uniqlo’s competitor
mentioned the following, which was also confirmed in other sources (Nikkei Sangyo October
Some of these primary suppliers discarded weaving machines that they had installed,
and replaced almost all of them with machines to meet Uniqlo’s specific requirements.
Afterwards, some of them were able to respond to flexible manufacturing operations
that required carrying semi-finished goods to postpone final production based on
demand changes.
From 2000 to 2001, Uniqlo’s sales almost doubled again, reaching ¥400 billion
(US$4.8 billion) with 433 stores. To meet with this rapid expansion, Uniqlo selected another
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25 suppliers as new partners in China in 2001, with the total number of partner suppliers
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reaching 65 firms with 80 factory locations (Nikkei Newspaper, February 22, 2001). By
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providing even more effective technical support to these suppliers, Uniqlo organized a new
professional engineering team, called Takumi (which means “artisan” in Japanese), in April,
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2000. According to the company’s 2011 annual report, the Takumi team, made up of mostly
retired veteran personnel with over 30 years’ experience in areas such as cutting, sewing,
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dyeing, and IT-based production process management in Japan's textile industry, played a
central role in providing technical support to partner factories. These Takumi professionals
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had a diverse range of backgrounds and skills, with each playing a major role in supporting
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Uniqlo’s product quality. One industry official pointed out the following, which was also
Uniqlo’s Takumi professionals visited their suppliers two to three times a week to
provide on-site technical support. On the other hand, technical support staffs from
Western apparel firms, such as GAP, Nike, and H&M, usually visited sites only once a
month, and in some cases just once or twice a year.
In the case of GAP, although the company sent over 200 staff members to its suppliers’
factories in over 40 countries, they were only quality inspectors (Li 1997) who were not
assigned to help suppliers’ capabilities building. In the case of H&M, the company has
Journal of International Marketing Page 18 of 47
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transactions with more than 10 times as many suppliers in many different parts of the world
as Uniqlo, with 70 partners mainly in China. According to H&M’s website, it states that
H&M does not own any factories; instead, clothes and other products are commissioned from
operation management development. As the manufacturing skills that Takumi needed to teach
Chinese workers involved tacit knowledge, frequent site visits and joint problem solving
were necessary in order to transfer all the skills to local workers effectively. For example, in
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the dyeing process, it was very difficult to keep the exact same color by using different
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caldrons, because the temperature and humidity of each site significantly affected the color of
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the finished products. Therefore, by learning from Takumi’s tacit knowledge of dyeing, which
was complex and uncodifiable, these suppliers had improved their skills in achieving the
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same finished colors that satisfied Uniqlo’s quality standards (Matsushita 2010, p. 130).
Takumi also helped improve the whole production process from procurement of raw
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materials (e.g., original yarn) to final inspection. To achieve total production performance
including higher quality, lower cost, and quick responses simultaneously, the pursuit of the
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higher operational efficiency at each manufacturing process within the total production
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system was needed, but the improvement of each process alone did not offer a critical
solution. The Takumi team made continual efforts to improve each production process and
In 2000, Uniqlo produced a total of 300 million units with 200 SKUs (with an average
production per SKU being 1.5 million units), and 90% of these items were manufactured in
China (Nikkei Business August 1, 2005). With Takumi’s support, its suppliers have
Page 19 of 47 Journal of International Marketing
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continuously improved their operational capabilities to build their own business scale and
resource base faster. An industry executive in our interviews testified the following, which
was reconfirmed by two other executives in our interviews and in other sources (Asahi
Uniqlo’s suppliers whom we dealt with had drastically improved their level of
production efficiency and quality of finished goods with the Takumi support program.
These improvements provided suppliers opportunities to expand their production
capacities and better reputation in the industry, so that they could easily find new
clients from developed countries and in China.
In 2002, Uniqlo’s sales failed to increase as much as the company had expected. In
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fact, its annual sales volume remained at the same level as in the previous year; therefore, the
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company decided to reduce the number of partner suppliers from 65 to 40 (Nikkei Marketing
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Journal August 29, 2002). Because Uniqlo did not have ownership-based control over its
suppliers, this temporary restructuring was relatively easy to execute in a short time period.
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However, the suppliers who had lost their business with Uniqlo complained against Uniqlo’s
decision. At that point, Uniqlo realized that its suppliers’ excessive dependency on itself
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could lead to higher risks in the industry when it terminated its relationship-specific
transactions with particular suppliers. In fact, this sudden cutoff could be considered as
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Uniqlo’s opportunistic behavior over its partner suppliers. Uniqlo came to realize the need to
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maintain high partnering flexibility not only for itself, but also for its partner suppliers to
avoid serious conflicts between them. In response, Uniqlo required the 40 remaining partner
professionals, now having increased to over 40 members by 2012, visited as many factory
p. 85; Nikkei Newspaper February 22, 2001). Uniqlo also upgraded its supply chain
Journal of International Marketing Page 20 of 47
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information system to enable itself to manage all operational stages from material
procurement to sales data in its stores more efficiently and more accurately.
The major challenge for apparel retailers and manufacturers in recent years has been
on how they can respond accurately to the vagaries of demand conditions. The lead time for
apparel products is usually relatively long because there are many manufacturing processes
from material procurement to final inspections. Although most firms must rely largely on
their demand forecast to plan for an appropriate amount of production and meet with
unexpected demand changes, Uniqlo has developed flexible manufacturing operations that
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are able to postpone part of the manufacturing process until more accurate demand and actual
r
sales data have been collected from its own stores. The development of just-in-time
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operations at Uniqlo is largely attributed to revamping its total supply chain information
system with its partner suppliers. For example, in 2002, Uniqlo’s annual sales dropped 6.8%
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from the previous year because of a serious decline in demand for fleece products that had
been one of the company’s best-selling products. Although Uniqlo had anticipated the
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demand decline in advance, it still resulted in a large amount of inventory mainly because the
sales databases in its stores and headquarters and the production database at its suppliers’
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production sites were not connected online (Nikkei Information Strategy March, 2002, p. 128).
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Since internal strategic information is both sensitive and proprietary to the firm, high
environmental uncertainty inhibits the sharing of such internal strategic information due to a
information sharing (Frazier et al. 2009). Due to the existence of a balanced interdependence
between Uniqlo and its partner suppliers and transaction-specific investments, in 2002 Uniqlo
Page 21 of 47 Journal of International Marketing
21
and its partner suppliers decided to install the advanced enterprise resource planning (ERP)
system supported by Accenture and NEC to share real time data on both the demand and
supply sides by July 2003 (Nikkei Computer Nov. 4, 2002, p. 11). As a result, by mid-2000s
the manufacturing capabilities, including cutting, sewing, dyeing, and inspection, of Chinese
partner suppliers had improved dramatically. Uniqlo had been supporting its partner suppliers’
dynamic growth by offering a large amount of orders and technical assistance and had
succeeded in strengthening the transactions with them in China. These excellent suppliers
considered Uniqlo as their main customer to cooperate with for the long haul.
Fo
Escaping from a two-year doldrums, the anticipated sales growth came back on track,
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and Uniqlo had achieved approximately a 20% yearly sales growth rate from 2004 to 2010.
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Based on our interviews with Uniqlo’s officials in international operations and store
managers, the company has refined and reconstructed strategies in three major areas of its
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business model during this period. The first area was customer communication. Owing to its
mass selling of fleece in 1998, Uniqlo gained a somewhat negative brand reputation as a
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company that sold cheap products. Consequently, the company embarked on a large-scale
promotion to dispel this negative brand image. Uniqlo allocated 5% of its total sales for
vi
stars, such as Orlando Bloom and Charlize Theron, in order to change the company’s brand
store development, Uniqlo has closed some stores and integrated some existing stores to
create large “flagship stores” since 2004. These flagship stores were located conveniently in
metropolitan areas, and their interiors were conceived by artists with radical designs. Uniqlo
believed that renovating its stores would help improve its brand image by providing
22
focused on developing and procuring high functional materials as well as achieving one of
the lowest market prices simultaneously. For instance, in 2004, Uniqlo sold cashmere
sweaters made of white cashmere from Inner Mongolia, which was priced low for regular
cashmere products but of high quality. Sales of these sweaters reached 10 million units,
accounting for approximately 30 percent of all cashmere products sold in Japan during the
period from 2004 to 2005. In the same year, Uniqlo launched its HEATTECH line, which
features highly functional and comfortable inner wear. Uniqlo developed HEATTECH in
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collaboration with Toray Industries, a leading chemical and fiber manufacturer in Japan. The
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HEATTECH fabric is a light-weight fabric that is able to generate and sustain heat, making it
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ideal for colder temperatures. The HEATTECH line has generated significant sales since its
launch in 2004. The HEATTECH items, sold at about ¥1,500 (about $14) a piece, are some of
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the company’s most popular high-quality, low-priced items. During the 2011 Fall/Winter
season, 100 million HEATTECH items (including socks, inner wear, and jeans) were sold
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worldwide. Some of the new materials or products Uniqlo has developed include “skinny
jeans” made of elastic material, “ultra-light down” made of light weight and heat-retaining
vi
down feather, and “AIRism,” a line of inner wear made of ultra-fine fabric that quickly wicks
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away perspiration. These new materials and products were developed in partnership with
Japanese chemical and fiber manufacturing companies such as Toray and Asahi-Kasei.
low-priced products to one that also develops innovative, high-functioning materials. These
innovative products with newly developed functioning materials have placed Uniqlo in a
became much more complex, the company needed to achieve and maintain even higher
Page 23 of 47 Journal of International Marketing
23
standards of production technologies and skills at its partners’ production sites in China
(Tsukiizumi 2012, p.82). A Uniqlo manager in international operations recalled the following
in our interview:
During this growth period, Uniqlo pursued to maximize benefits from global
Fo
economies of scale in production and marketing. The partners who had benefitted from these
opportunities became the most efficient producers on a large scale in a competitive Chinese
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market. Some of Uniqlo’s partner suppliers produced more than 2 million T-shirts monthly at
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one site with 3,500 employees. To respond to Uniqlo’s large-scale mass production orders,
the partner suppliers needed to maintain a large-scale employment. However, it was not easy
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for its Chinese partners to do so, due to the increasing average salary rates for their workers
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in the textile manufacturing industry and employees’ career preference for other
manufacturing industries, such as electronics and automobiles. For example, in 2010 the
vi
compared to $40 in Bangladesh (Nikkei Business July 5, 2010). To maintain low-cost and
high-quality production for Uniqlo, it became necessary for the partner suppliers to expand
their production capacity by opening up new facilities in rural areas in inland China or in
other Southeast Asian countries where the average wage rates were lower than those in
China’s coastal regions. For example, one major supplier opened its own production facility
in Bangladesh in order to respond to Uniqlo’s large volume orders with even lower
24
Our literature review and longitudinal content analysis provide the background for the
development, we found that the newly internationalizing firm has gone through three
dynamic stages of supply chain development over time to become one of the largest apparel
The First Stage: Dynamic Reward Power Concentration. The first stage of the supply chain
previous studies on power, we expect that the more economic power the principal firm
Fo
exercises by rewarding partners with large volume orders, the more cooperative its partners
r
will become in their behavior toward the principal firm. However, a newly internationalizing
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firm, such as Uniqlo, tends to have limited capability to place large-scale orders and could
not offer any non-mediated power (i.e., expert and referent power), to its partner because of
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its relatively small size in terms of total sales volume and financial assets. In fact, in an
earlier stage in 1990s, Uniqlo did not have enough economic rewarding power to exercise,
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when compared to much larger Western competitors. It is important to note that Uniqlo has
gradually increased the order size to each partner by reducing both the number of suppliers
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and the number of variations of SKUs sold in its stores. We call this practice dynamic reward
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power concentration. When the suppliers responded to Uniqlo’s orders and requirements
appropriately, they gained a reward that promised higher transaction volumes in the next
order cycle. When world-class Western apparel companies, such as Nike, Adidas, and GAP,
outsource their manufacturing activities to independent firms in China, Uniqlo also needs to
order a high volume to gain cooperative behavior from its Chinese suppliers in pursuing
quality control and cost minimization. These independent suppliers tend to put more effort
into large volume orders because they can expect continual and worldwide sales volumes
Page 25 of 47 Journal of International Marketing
25
only from world-class apparel companies, not from relatively smaller-sized and extremely
quality-oriented Japanese apparel firms such as Uniqlo. This expectation on economic reward
or a large transaction volume, promised by the principal firm, would serve as a source of
When it is a relatively small-sized buyer among other clients, local suppliers hardly
expect that the principal firm will soon gain an ability to generate and exercise power (such
as reward, expert, and referent power) that will attract enough interests. Therefore, a newly
internationalizing firm needs to provide economic reward that promises higher transaction
Fo
volumes in the next order cycle by bestowing economic power concentration onto a limited
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number of specific potential partners in order for it to enjoy their cooperative behaviors.
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suppliers has a positive effect on gaining its suppliers’ cooperative behavior between
the principal firm and its suppliers.
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The Second Stage: Suppliers’ Competence Development. The second stage of the dynamic
suppliers without ownership-based control, the principal firm exerts expert and referent
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power by providing special knowledge and expertise to help its partner suppliers with their
own competence development and continuous growth (Gaski 1984, 1986; Gaski and Nevin
1985; Krause, Handfield, and Tyler 2007). Such an action could further increase the trust and
respect received from its suppliers (Gaski 1986; Krause, Handfield, and Tyler 2007).
Improvements in primary suppliers’ competence result in higher product quality with lower
cost operations in order to gain global competitiveness for the principal firm.
Sending experts from the principal firm to partner suppliers, such as Takumi
Journal of International Marketing Page 26 of 47
26
professionals from Uniqlo, is critical in gaining non-mediated power and helps develop
partner suppliers’ technical competence (Frazier 1983; Frazier and Summers 1984).
Technological support is a source of power based on the identification of the principal firm
with its suppliers where identification means a feeling of oneness or a desire for such an
identity (Hunt and Nevin 1974, p. 187). The non-coercive power, such as the power to
provide economic rewards or special skills to suppliers, reduces conflicts and gains partners’
satisfaction (Maloni and Benton 2000). The principal firm can have (non-mediated) power
without using it (Frazier 1983), but the reward should be granted continuously and
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perceivably to ensure that the partner suppliers’ cooperative behavior would stay positive
r
The technological support provides not only expert power but also connections with
economic reward power that we discussed earlier. We found from our data that exercised
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economic power also contributes largely to suppliers’ competence generation because they
have more opportunities to learn and improve both their manufacturing skills and total
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operational efficiency by fulfilling repeated orders in large quantities from the principal firm.
A manager of a trading company who was in charge of the transactions between Uniqlo and
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one of its major partner suppliers pointed out and was confirmed by other sources (Nikkei
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Business Jane 1, 2009; Nikkei Marketing Journal January 16, 2009) that:
Being Uniqlo’s partner provided Chinese suppliers with a high level of reputation in the
industry. These recognized suppliers could easily find and start transactions with new
clients from advanced nations and at home because without any doubt, these clients
would consider these suppliers as one of the best skilled factories in China.
relational governance in supply chain network (Chua, Morris, and Ingram 2009). In the case
of Uniqlo’s supply chain network developments, Uniqlo has continued to provide larger
Page 27 of 47 Journal of International Marketing
27
transaction volumes when its partners effectively respond to Uniqlo’s requirements. Its
suppliers have understood well that the increase in transaction volumes from the principal
firm has contributed significantly to their own business growth over time. Based on the above
Proposition 2a: In the second stage, a dynamic reward power concentration initially
exercised by the principal firm has a positive effect on its suppliers’ competence
development.
relational governance enhancement between the principal firm and its suppliers.
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The Third Stage: Relational Flexibility Development. In the third stage of global supply chain
development, the principal firm builds an ideal condition to gain benefits from high levels of
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level of partnering flexibility, Uniqlo required its partner suppliers not to exceed 50% of their
total sales derived solely from Uniqlo by enforcing compulsory non-exclusivity arrangements
vi
with its suppliers. The suppliers had to generate more than 50% of their sales from other
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clients, so that Uniqlo could find it relatively easier to switch its transactions from one
partner to another or to other new suppliers interchangeably, without having its suppliers
overly dependent on itself. For partner suppliers, to comply with Uniqlo’s compulsory
non-exclusivity arrangements and to hedge against the risks of over reliance on Uniqlo, it is
imperative to possess high flexibility in their customer selection so that they can grow
The skills and investments made by primary suppliers with Uniqlo are generally
characterized as being so highly transaction-specific that it would not worry about losing its
Journal of International Marketing Page 28 of 47
28
competitive advantages over manufacturing technologies, even if they were leaked to its
competitors by its primary suppliers. Two executives from different Uniqlo’s competitors in
our interviews and other sources (Nikki Business August 1, 2005; Nikkei Business June 1,
The manufacturing skills and technologies that Uniqlo and its suppliers had jointly
developed were so highly integrated across almost all major manufacturing steps,
from dyeing and cutting to sewing and final product packaging that the technologies
tended to become relationship-specific. The transfer of a whole set of integrated
production process to a supplier represented Uniqlo’s transaction policy with partner
suppliers. Western apparel firms usually transfer to their suppliers only some part of
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the manufacturing process such as cutting and sewing. One supplier who newly
joined Uniqlo’s supply chain replaced all spinning machines that it had just renewed
a few years ago to meet with Uniqlo’s specific requirements. Uniqlo’s distinctive
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manufacturing technologies had produced one of the highest quality products in the
industry. Its suppliers’ own technologies had been maintained to function only under
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its manufacturing operations. As a result, its technologies were not easy to transfer to
other competitors as a perfect piece.
In supply chain transactions, Uniqlo has always attempted to rely on two or three
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suppliers, although they are highly competitive and capable in the market. In 2012 the total
number of partner suppliers was about 70, and around 10 to 20% of its partners had been
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replaced in the last 5 to 10 years (Tsukiizumi 2012, p. 83). Uniqlo forced the current
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(primary) and potential partner suppliers to compete against one another to encourage them to
build their own competence rapidly. The larger volume orders these suppliers received from
Uniqlo, the more opportunities they could have to learn advanced production technologies
from Uniqlo and improve their operational activities together. And only the suppliers that had
gained these learning opportunities were continuously promised to become leading suppliers
and had the largest production capacities in the industry. As mentioned earlier, these
recognized suppliers could easily find and start business transactions with other new clients
from advanced nations and at home. Even for the suppliers who had lost their business with
Page 29 of 47 Journal of International Marketing
29
Uniqlo found it easy to seek new business opportunities because their status as current or
former Uniqlo’s suppliers guaranteed the highest reputation in the industry. One executive
Because Uniqlo’s quality and cost qualifications for partner suppliers were much
higher than the industry standard, the certification as Uniqlo’s qualified suppliers
had brought the brand name effect in the industry. Global apparel firms gave high
marks to past business experience with Uniqlo when they tried to find new skillful
suppliers on a global basis.
Along with Uniqlo’s supply chain development activities, its 70 Chinese suppliers
have come to understand that partnering with Uniqlo is one of the best ways for them to build
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their own business rapidly with relatively low-risk involvements. With Uniqlo’s compulsory
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non-exclusivity arrangements with its suppliers, these partner suppliers can reduce their
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reliance on Uniqlo, which subsequently minimizes their own financial risks caused by
Uniqlo’s unexpected sluggish sales. Relying on a single source of business always brings
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partner suppliers, Uniqlo has been perceived as the most reliable and dependable client to
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deal with, based on the relational governance structure it has developed in the second stage of
supply chain network development. Our case data subsequently show that when the principal
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firm demands compulsory non-exclusivity arrangements with its partner suppliers, it is able
ew
to build an ideal condition to gain benefits from relational flexibility-based supply chain
network. Based on the above arguments, we suggest the following research proposition.
Proposition 3a: In the third stage, relational governance that the principal firm
developed in the second stage has a positive effect on partnering flexibility in its
supply chain network.
Proposition 3b: In the third stage, the principal firm’s compulsory non-exclusivity
arrangements with its suppliers have a positive effect on partnering flexibility in its
supply chain network
30
_______________________
By using longitudinal contextual data analysis on Uniqlo, our study aims to reveal the
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dynamic mechanism on how a newly internationalizing firm designs and manages relational
governance forms with partnering flexibility in its new supply chain networks in emerging
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investment in fixed assets, even globally integrated firms have to deal with uncontrollable
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In the case of Uniqlo and other Japanese firms, they have faced environmental
changes that included a global financial crisis in 2008, a major earthquake and nuclear
vi
accident in eastern Japan in 2011, and serious political conflicts between China and Japan in
2012, among others. During this period, the demand for Japanese products as a whole has
ew
decreased dramatically. When a recent global recession resulted in lower sales, such high
in recent years, competitors from emerging economies have begun to challenge MNEs from
advanced nations by producing and distributing lower-priced products with affordable quality
to the global market. While it is critical to pursue future global scale of production for newly
marketplace. In response, new Japanese firms have begun to transform their tight supply
Page 31 of 47 Journal of International Marketing
31
chain network into a more flexible and lower-cost operating system by outsourcing their
exclusive relational governance form may not achieve enough flexibility, such that the
company can respond efficiently and effectively to uncertain demand changes and
the principal firm needs to maintain its suppliers’ cooperative behavior and bring partnering
Fo
flexibility into the relationships. In order to pursue these multiple goals, the principal firm
r
needs to develop strategy for designing and managing the appropriate level of relational
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flexibility in their global supply chain network. By combining our literature review and
longitudinal case data, we proposed a dynamic stage model for global supply chain
er
development.
In the first stage (i.e., an early stage of an initial entry), because the principal firm is
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unable to exercise enough power toward local suppliers, dynamic reward power
concentration onto a limited number of selected suppliers can be a key leading to its suppliers’
vi
cooperative behavior. A newly internationalizing firm with no reputation in the local market
ew
needs to compete against large established competitors to build close relationships with
the significance of a principal firm’s power over its suppliers, our findings reveal how a small
firm without initial power comes to generate its own power over time by introducing the
governance with its partners through cognitive and affective trust building. In this stage, the
Journal of International Marketing Page 32 of 47
32
principal firm needs to maintain its suppliers’ positive cooperative attitude and to pursue
Uniqlo was an apparel manufacturer without owning in-house production facilities, so it has
technological reward or expert power, the newly formed Takumi team, made up of veteran
personnel trained and seasoned in Japan's textile industry, played a central role in providing
technical support to partner suppliers’ factories. Mediated power, including such rewards, is
better for avoiding conflicts and generating satisfaction with partners. By receiving both
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economic and technological rewards continuously, the partners’ attitude toward the principal
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firm would stay positive and cooperative. It is important to note that in Uniqlo’s case,
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by the principal firm in the initial stage, has a positive effect on suppliers’ competence
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development with the principal firm. With Takumi’s support, Uniqlo’s suppliers have
continuously improved their operational capabilities and gained high reputation in the
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strongly supported by the principal firm’s continuous effort in offering both economic and
vi
In the third stage, the principal firm is able to build a relational flexibility-based
supply chain network. In our study, we found that developing partnering flexibility and
supply chain management. Uniqlo attempts to avoid excessive dependency on any particular
suppliers to maintain flexibility in transactions. The competition among current and potential
33
suppliers, these suppliers serve Uniqlo as the primary customer and other secondary
customers concurrently, thus helping them grow their own business volume independently
while minimizing their risks of relying on a lion’s share of business coming from Uniqlo.
Therefore, even when Uniqlo terminated a transaction with a partner supplier, it could easily
find new clients from developed countries and in China. In this final stage, Uniqlo is able to
enjoy an ideal condition by gaining benefits from relational flexibility, which is based on high
relational governance and partnering flexibility simultaneously. It is important to note that the
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principal firm can avoid opportunistic behavior from its suppliers by offering partnering
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flexibility only when it has initially developed and maintained high relational governance
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with its primary suppliers in advance. This efficient global supply chain network allows a
principal firm to reduce costs and achieve high product quality with quick responses to global
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Theoretical Implications
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Our research offers theoretical implications on global supply chain network development and
management of newly internationalizing firms. First, while previous studies mainly provide
vi
guidance to established firms, our study demonstrates the sequence of steps to global supply
ew
chain network development by a newly internationalizing firm. Based on our case data, we
propose a dynamic process of global supply chain network development built on power
generation, relational ties enhancing, and partnering flexibility. Although previous studies
have provided guidance on the factors (e.g., relational governance, interfirm competence, and
partner switching with suppliers) that affect market performance, they have not examined
such factors in a dynamic process. In the first stage, our findings reveal how a small firm
without initial power generates its own power over time by exercising dynamic reward power
Journal of International Marketing Page 34 of 47
34
concentration. We also found that suppliers’ cooperative behavior gained from the principal
firm’s dynamic reward power concentration in the initial stage has a positive effect on
suppliers’ competence development with the principal firm in the second stage, and it leads to
relational governance maintenance. In the third stage, a principal firm can maintain
partnering flexibility without having serious opportunistic behaviors from its suppliers
because it has already developed a high level of relational governance with its primary
suppliers in advance, and this sequence of strategic steps help develop a relational
flexibility-based supply chain network. Unlike previous studies, our study provides the
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The second theoretical implication is that while the extant literature on relational
between the principal firm and its suppliers to achieve high-quality operations (e.g., Dyer
1997; Takeishi 2001), our study inductively reveals that relational flexibility between the
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principal firm and its partners may contribute to both high-quality operational standard and
modified TCA prediction to reflect the relational governance strategy with partnering
ew
flexibility. The traditional TCA argument suggests that in interfirm transactions, high asset
specificity increases transaction costs because of the opportunistic behavior of partners (Dyer
1997; Williamson 1985, 1991). While the RBV focuses on how firms enhance and sustain
their competitive advantage through creating their resources within interfirm relationships
(i.e., relational governance), TCA views specialized investments as putting firms at greater
where serious institutional differences exist. However, our study highlights the mechanism by
Page 35 of 47 Journal of International Marketing
35
which a principal firm can avoid or reduce suppliers’ opportunistic behaviors and to develop
partnering flexibility with multiple suppliers, so that it can enjoy an ideal condition by
technological expert power in the first and second stages of the dynamic process, the
principal firm may maintain better conditions for both interfirm and suppliers’ competence
development, and lower the risk of partners’ opportunistic behavior with relatively high
opportunistic behavior because too much competitive pressure on them may still result in
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coercive power exercised by the principal firm, causing serious conflicts between the two
parties. The degree of pressure on partner suppliers has to be perceived as fair, as Samaha,
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Palmatier, and Dant (2011) found that perceived unfairness strengthens the negative effects of
channel member conflict and opportunism on channel member cooperation and flexibility.
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Our study found that with relational flexibility, the principal firm could avoid these negative
which help these suppliers minimize their risks by serving both primary and secondary
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Uniqlo that the manufacturing technologies may not be effectively applicable to its
competitors, it could encourage its partner suppliers to find new clients to reduce their risk
from relying too much on their business with Uniqlo. When suppliers can reduce the risk
arising from relying on one major client by adding new different clients, they can pursue their
own growth paths based on the high reputation in the industry by being one of Uniqlo’s
primary suppliers. This achieves both high levels of partnering flexibility and relational
Journal of International Marketing Page 36 of 47
36
governance development conditions for the principal firm in the supply chain network, to
Managerial Implications
For international marketing and supply chain managers, our propositions aim to help them
improve the efficiency of their daily operations and the effectiveness of their long-term
expansion path would help less experienced managers from small firms in many ways. We
r
First, the main objective for newly internationalizing firms in the first stage is to
obtain and maintain a certain level of suppliers’ cooperative behaviors. The practice of
er
dynamic reward power concentration provides newly internationalizing firms with a good
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starting point for further expansion without having to incur a large amount of investment in
advance. Uniqlo’s first strategic decision was to gradually increase the order size to each
vi
partner by reducing both the number of suppliers and the variations of SKUs sold in its stores
ew
to gain reward power. The selected suppliers could gain reward by being promised higher
transaction volumes in the next order cycle from Uniqlo if they qualified as its cooperative
partner suppliers. To gain cooperative behavior from suppliers, managers from newly
promise them that economic rewards would continue as long as suppliers can meet the
principal firm’s expectation in its ongoing transactions. In the initial stage, our findings show
that the economic reward provided to potential partner suppliers is a key for success.
37
technological skills on how to build technological reward and referent power that they can
partner suppliers, managers from newly internationalizing firms can maintain its advanced
developments without making large investments. In early years, Uniqlo was a principal firm
the newly formed Takumi team played a central role in providing technical support to partner
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suppliers’ factories. This practice largely contributes to both interfirm and suppliers’
r
competence developments, and further creates better conditions for relational governance
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development for relatively small principal firms. By having shared goals and joint learning or
suppliers tend to form a feeling of oneness with their principal firm. It is important to note
that because most Takumi professionals were retired veterans who were re-hired by Uniqlo
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with performance-based salary, the principal firm does not need to make a large investment in
the second stage of global supply chain development to accumulate in-house technological
vi
skills.
ew
Third, our findings provide managers with clear long-term guidelines on how to
design relational flexibility-based supply chain network that can be achieved by developing
and maintaining interfirm competence through relational ties and partnering flexibility
between a principal firm and its multiple suppliers over time. Our dynamic model
demonstrates a sequence of steps that highlight the development of an effective global supply
chain network in emerging economies for managers. Our findings strongly suggest to
managers that relational governance must be developed before offering a partner flexibility
Journal of International Marketing Page 38 of 47
38
arrangement to partner suppliers. Although partner flexibility provides the principal firm
more flexible asset distributions to respond to uncertain global market conditions effectively,
it may still face serious opportunistic behaviors from its partner suppliers, unless it retains
high-level relational governance in its supply chain network. Managers need to understand
that, once the principal firm has developed strong relational ties with its partner suppliers and
suppliers’ competence by exercising both economic reward and expert powers, enforcing
opportunistic behaviors from its partner suppliers. Therefore, it is imperative for partner
Fo
suppliers to possess a high level of flexibility in their customer selection, so that they can
r
grow independently while minimizing their own risk of becoming too dependent on the
Pe
principal firm. In Uniqlo’s case, partner suppliers are allowed to pursue their own growth
paths based on their good reputation in the industry by being one of Uniqlo’s primary
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suppliers. By following these dynamic steps, managers from newly internationalizing firms
are able to develop a relational flexibility-based global supply chain network in the long term.
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Global supply chain systems need to achieve both high-quality production standards and
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global competitiveness. Thus, global supply chain network development and management
continue to receive much attention from international marketing research and practice. As our
study aims to develop initial propositions on the dynamic process of global supply chain
Because our study is based on an in-depth analysis of a single case, our research
findings may not be generalizable. First, it is necessary to continue this line of research with
multiple longitudinal case studies and a survey with a much larger sample to further confirm
Page 39 of 47 Journal of International Marketing
39
our research propositions. In addition, as we only examined the textile industry in our study,
further research should be conducted to see whether the findings can be applicable to more
complex and high-tech industries, such as the consumer electronics and computer industry
where many factoryless manufacturers thrive, including Apple, Dyson, Qualcomm, and AMD.
industries, we may find some industry- and product-specific contingency factors that could
either require modification of, or enhance the robustness of, our core research propositions.
Second, once our propositions have been confirmed by multiple longitudinal case
Fo
studies in different industries, the next step would be to conduct quantitative research to test
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the developed hypotheses with large-size data to confirm the generalizability of our research
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findings (Eisenhardt and Graebner 2007). As our study examined a long-term phenomenon
within inter-organizational settings, paired sampling method should be applied for data
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collection in a survey research. For example, data should be collected from different
informants, including current and former officials from the principal firm and officials from
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different partner suppliers to ascertain the inter-rater reliability of the data set. The
40
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2. Secondary data
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