The Advent of Global Mega Suppliers: Implications for Domestic Suppliers and the State


Student thesis: Doctoral Thesis

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Awarding Institution
Award date22 Jan 2021


A main driver of global economic integration has been the globalization and consolidation of the supply base. A key element of this process has been the emergence of a small number of what I call global mega suppliers, which possess advanced technological competencies and global organizational reach. These global actors have “thickened” and diversified their linkages to lead firms in a wide range of industries. Because of their integral role in global production networks (GPNs), some of these global mega suppliers now earn revenues that may even exceed that of their customers.

The expanding influence of global mega suppliers raises questions on what the implications are for the respective sector in terms of power and industrial development. How do global mega suppliers affect the development of domestic suppliers? How is the state’s power and leverage in production networks affected by the rise of such large global first-tier suppliers? These are the dissertation’s central research questions, for which the electronics and automotive industries are examined as case studies. The study sheds light on how the growing influence of increasingly consolidated and powerful global first-tier suppliers in these two industries plays a role in some of its relationships with domestic suppliers and the host state. More specifically, this thesis examines how the growing role of global mega suppliers affects the development possibilities of local firms as well as the role of the state and its leverage to promote upgrading and development of these local firms in electronics and automotive GPNs.

This thesis argues that the rise of global mega suppliers presents a mixture of challenges and opportunities for domestic firms. In general, global mega suppliers create important and positive spaces for the development and upgrading of opportunities for local suppliers. Due to their unique and expansive manufacturing and technological capabilities, as well as their role as strategic partners to the lead firms, global first-tier suppliers are key experts for local firms in the manufacturing production. They create important development possibilities for local suppliers in the lower and middle segments of the global value chains (GVCs), as they can tap into these global giants’ know-how. However, as global mega suppliers have consolidated their power in GPNs, this has “thickened” the ceiling for local firms moving up in the upper reaches of the value chains, as well as for firms seeking to enter ii these supply chains. They have become entry barriers for local firms at the higher segments of the value chains, and by its very high standards to some extent also for firms entering global supply chains. Yet, the fierce competition induced by global mega suppliers is a double-edged sword. It can also be considered a necessary, albeit painful, push for upgrading local suppliers and build a competitive supply-base.

In conclusion, the consolidation of the supply base and the growing role of global mega suppliers have a positive impact for development possibilities of domestic suppliers in the lower and middle segments of the value chains. In the higher segments of the value chains the increasingly dominant global first-tier suppliers constrain domestic suppliers to enter high-technology markets and elevate into first-tier levels. It is therefore argued that these changes in the global economy helps spur upgrading of a local supply base to a certain level, while constraining it at more advanced levels. These patterns are seemingly stronger in the automotive industry than in the electronics industry, given auto mega suppliers’ relatively more advanced technological level compared to EMS companies.

The thesis examines two industries – the electronics industry and the automotive industry – while using China, Malaysia, and Thailand as case studies. Global mega suppliers in the automotive industry refer to large transnational first-tier suppliers acting as system integrators, for example Robert Bosch and Delphi, often termed as Mega Suppliers (MS). In the electronics industry, global mega suppliers refer to global contract manufacturers such as Foxconn and Jabil, sometimes called Electronics Manufacturing Services (EMS) companies. By conducting semi-structured interviews with a variety of industry-relevant actors, the study bases its arguments on empirical results from fieldwork. A total of 71 interviews have been carried out across different locations in China, Malaysia, and Thailand, as well as in Hong Kong. Interviewed actors have included a wide-range of industry-relevant representatives, such as state-agencies, state-affiliated research institutions, representatives from industrial and development zones, industry consultants, foreign diplomats, global mega suppliers, domestic suppliers, and foreign firms active in the particular industry.

The study also show indications that the advent of global mega suppliers may undermine the power of the state to influence the scope of multinational corporations (MNCs) in manufacturing production. As increasingly independent actors in GPNs, global mega suppliers have exacerbated the consolidated power among MNCs in global supply iii chains. This seems to have limited the leverage of the state to steer and “extract” what they want from MNCs operating in their country to promote their local firms in GPNs, such as technology and know-how.

The contribution of this thesis is two-fold. First, looking at the impact of global mega suppliers on domestic suppliers, sheds light on the relationship between global and local suppliers. The study helps identify and bring into light both positive and negative implications for local suppliers. We can therefore gain a better understanding of how the development possibilities of domestic suppliers – and hence also the domestic supply-base – have been affected by changes in the global economy and global supply chains; that is, the development of increasingly consolidated and powerful global first-tier suppliers. Secondly, the results of this research also provides indications of what these changes in global supply chains mean for the role of the state. As global first-tier suppliers have evolved into large MNCs in their own right, this study contributes to the understanding of how the power and the role of the state is affected in an ever-changing global context. To this end, the findings of this thesis taps into the large and complex dynamics of bargaining power between the state and large MNCs.

The results contribute to three separate but related bodies of the contemporary international political economy (IPE) scholarship: 1.) theorizing debates on the bargaining power relationship between MNCs and the state; 2.) recent scholarships of the developmental state theory; and 3.) the GPN-GVC framework. By examining the impact of the consolidation and rising capabilities of global mega suppliers as MNCs in their own right on the bargaining power of the state vis-à-vis MNCs, these three IPE scholarships are enriched in terms of how the role of the state is affected by these changes in the contemporary global economy. In addition, looking into global mega suppliers’ impact on local suppliers, the findings also make a contribution to the upgrading-literature within the GPN-GVC framework.