Management control for effective inter-firm (buyer-supplier) relationships : evidence from the Bangladesh ready-made garment industry

Abstract

Inter-firm (buyer-supplier) relationships (IFRs) are increasingly complex due to structural changes in the business environment. Buyer-supplier relationships will achieve their objectives when relevant attributes are present to sustain the relationships. Absence of relevant attributes will undermine the effective buyer-supplier relationships in achieving firms’ competitive advantages. Moreover, the management control literature recognizes that relevant controls should be in place to support outsourcing relationships. However, the literature did not specify the traits of successful relationships for specific industries in developed and developing countries. This study extends the literature by examining inter-firm relationships in the ready-made garments (RMG) industry in Bangladesh and its relevant management controls. Buyer-supplier relationships in the RMG industry need special attention due to the intense competition among RMG supplier’s countries including Indonesia, Vietnam, China and Bangladesh. The RMG industry in Bangladesh is highly dependent on international buyers and its contribution to the Bangladesh economy is significant. Effective IFRs refer to successful relationships that could ensure mutual benefit and competitive advantages for both buyers and suppliers. Thus, this study aims to explore the characteristics of effective IFRs between buyers and suppliers in the RMG industry. The second purpose of this study is to examine the relevant management control models to support effective buyer-supplier relationships in the RMG industry. To answer the research questions, this study has collected data from 108 senior managers from 47 RMG supplier firms in Dhaka city. The results show that there are nine characteristics – frequent repetition of purchase, long-term relationships, mutual goals, trust, financial commitment, performance satisfaction, bargaining power balance, operational commitment and high level of cooperation – that define effective inter-firm (buyer-supplier) relationships in the RMG industry. This study also points towards the importance of the market-based control model and trust-based control models in supporting effective IFRs in Bangladesh’s RMG industry. Therefore, this study contributes to understanding inter-firm relationships and management control literature with a specific focus on the RMG industry.