Producer and Buyer-driven Value Chains

Producer and Buyer driven Value Chains

Source: adapted from G. Gereffi (2001) “Shifting Governance Structures in Global Commodity Chains, With Special Reference to the Internet”, American Behavioral Scientist, Vol. 44 No. 10, pp. 1616-1637.

Global value chains (GVC) come in two major categories depending on which actor has the most significant influence. This can be either the producer (manufacturer) or the buyer:

  • Producer-driven GVCs tend to have high entry barriers since many supply chains require capital and technology-intensive production supported by economies of scale, such as in the automobile and aeronautical industries. Under such circumstances, the value chain is mostly coordinated by the producers and the capacity of the distributors to deliver parts provided by subcontractors and finished goods to the market.
  • Buyer-driven GVCs tend to have low barriers to entry. Producers are bound to the decisions of buyers through the functions of design and marketing, notably when retailing and brand names are concerned. The most significant sectors concern agriculture, garments, footwear, and toys. Large traders and wholesalers are coordinating the orders of retailers and distributors. For instance, the “fast fashion” industry is a buyer-driven paradigm relying on supply chains adapting to constant changes in fashion trends and volatile consumer demands. A product can arrive on the market in less than a month after its design and order, while it can take more than six months for standard goods.