Learning by Supplying

by Juan Alcácer & Joanne Oxley

Overview — Offshore outsourcing of manufacturing and related activities to China and other emerging economies is changing the competitive landscape in many industries. Some predict that lessons learned by emerging market firms in their role as suppliers to major branded producers will allow them to develop the capabilities necessary to become viable world-class competitors, possibly at the expense of current market leaders. In this paper Juan Alcacer and Joanne Oxley subject this "learning by supplying" hypothesis to the test, analyzing data on evolving technological and marketing capabilities of suppliers in the mobile handset industry. Contrary to some of the more alarmist commentary in the popular press, the researchers' observations suggest that the progression from trusted supplier to threatening competitor among electronics manufacturing firms is far from inevitable. Findings also point to the existence of quite distinct pathways to technological and market learning for suppliers. The divergent learning outcomes for suppliers serving operators and branded producers reinforce the idea that, while operators involve suppliers in all aspects of production, branded producers strictly limit access to customer-facing activities, thus reducing suppliers' opportunities for learning in this domain. Key concepts include:

This paper provides the first systematic firm-level evidence of learning by supplying. It also contributes to developing understanding of firm boundaries and capabilities, particularly in emerging industries.
Counter to received wisdom, the accumulation of technological capabilities is not a necessary or sufficient condition for successful introduction of own-brand products.
There are significant switching costs and inertia in customer-supplier matches.
Suppliers' choices of branded producers and operators may have a strong influence on suppliers' long-term capability development and strategic alternatives.
Both the means and the motives for knowledge sharing are important in inter-firm arrangements. Suppliers working with leading branded producers may find themselves effectively locked into a subordinate role, thwarting ambitions to move up the value chain and develop as viable independent participants in the industry.

Author Abstract

Learning processes lie at the heart of our understanding of how firms build capabilities to generate and sustain competitive advantage: learning by doing, learning by exporting, learning from competitors, users, and alliance partners. In this paper we focus attention on another locus of learning that has received less attention from academics despite popular interest: learning by supplying. Using a detailed panel dataset on supply relationships in the mobile telecommunications industry, we address the following questions: What factors contribute to a firm's ability to learn by supplying and build technological and market capabilities? Does it matter to whom the firm supplies? Is involvement in product design important, or is manufacturing the key locus of learning? How does a supplier's initial resource endowment play into the dynamic? Our empirical analysis yields interesting findings that have implications for theory and practice, and that suggest new directions for future research.