Governance Mode of Foreign Suppliers in the Dutch Clothing Industry

(1)

Governance Mode of Foreign Suppliers

in the Dutch Clothing Industry

Master’s Thesis

Master of Business Administration,

Specialization Organizational & Management Control

Faculty of Economics and Business

University of Groningen

Okky Dellarossi Sustiyono

(s2007282)

email:

o.sustiyono@student.rug.nl

1

st

_{Supervisor : dr. Wesley Kaufmann}

2

nd

_{Supervisor : dr. Jan-Willem de Kort}

(2)

(3)

iii

Preface

This thesis is made as a completion of my master degree in Business Administration, specialization Organizational and Management Control in the University of Groningen. This thesis is focused on the topic of governance mode of foreign suppliers in the Dutch clothing industry, specifically on the formal and informal control of low-cost suppliers. The data was gathered from Dutch clothing companies, buying agents and suppliers. It was an incredible opportunity to meet the representatives of Dutch clothing companies in the headquarter who are managing the relationship with the suppliers. It was also a remarkable opportunity to talk to the buying agents and suppliers of Dutch clothing companies. The information gained from the interviews gave me new insights, deep knowledge and different perspective about clothing and apparel industry. Precisely, about the complexity of world-wide supply chain, as well as the importance of managing the relationship with the suppliers in a fast changing business environment.

Thus, I want to take this opportunity to thank all parties who participated, helped and contributed in the finishing process of my master’s thesis. First of all I would like to thank all interview participants who are willing to spare their time and open their office for interview session. Without their participations this thesis could not be completed. Second of all, I would like to thank dr. Wesley Kaufmann, my supervisor during the thesis writing. I would also like to thank dr. Jan-Willem de Kort, my second supervisor who will assess my thesis.

My tremendous gratitude goes to my parents, brother, and close friends for their support throughout the process. Last but not least, to Robert, for his unconditional support and motivation during tough situation.

(4)

iv

Informal governance mode with relational exchange is commonly viewed as substitutes for formal mechanism with complex contract in interorganizational relationship. In this thesis, manufacturing taxonomy and cultural differences between nations were investigated to explore the nature of these governance forms, substitutes or complements. From sixteen interviews that have been conducted in nine Dutch apparel companies, findings reveal that formal and informal governance modes are complementary to each other. It was seen that informal control balances the strict limit of contract by fostering continuance of the exchange relationship between both parties with mutually agreeable outcomes. This concludes that informal mechanism functions as complements in the governance mode of Dutch clothing companies.

1. Introduction

Clothes manufacturing is a labor-intensive industry, therefore, minimizing labor costs is extremely important. For a long period of time, European firms have implemented sourcing strategies utilizing supply markets to lower firms’ costs (Åkesson, Jonsson, & Edanius-Hällås, 2007; Taplin, 2006). Cost minimization pushed the high-wage countries to made investment decision (specifically job location) to reduce labor costs (Christerson & Appelbaum, 1995). Many such companies have shifted their manufacturing to foreign countries with more attractive labor costs such as Mexico, China, India, Bangladesh, Turkey, Thailand and Indonesia (Dicken & Hassler, 2000; Teng & Jaramillo, 2005; Tokatli, 2008; Åkesson et al., 2007). The shift of the manufacturing sites lead to industry globalization and broader competition.

Global competition pushes firms to build a strong presence in the market, as well as to develop transnational operations configuration. In the clothing industry, a global company is a reputation that companies gained in regard to its business model with cross-countries business practice (Tokatli, 2008). Tokatli (2007) distinguished two types of clothing companies; companies with own factories and companies without factories. Dutch clothing companies lie in the second setting, without own manufacturing facilities. These companies contract numerous external suppliers to manufacture their products, mostly in the Eastern Europe and the Far East [1][2][3][4][5]_{. Accordingly, these Dutch firms drive the globalization}

1_{http://theartofraw.g-star.com/#_makingofdenim-cotton}

(6)

2 in clothing industry by cross-countries operation and global sourcing (Gereffi, Humphrey, & Sturgeon, 2005).

Outsourcing companies’ production by contracting external parties raises a governance issue. The transaction cost approach by Williamson (1981) acknowledged that there are a variety of governance structure to facilitate the exchange of goods and services in interorganizational relationship. Wiliamson (1981) specified two types of contract governance; hard contracting and soft contracting. In recent literature, (Carson, Madhok, & Wu, 2006; Poppo & Zenger, 2002) translated these contract forms into formal and relational (informal) governance mode.

In formal governance mode the employers determine partners’ roles and responsibility in detail. There is a clear procedure for monitoring, as well as penalties for noncompliance (Poppo & Zenger, 2002). Formalization entails to strict written and/or prescribed rules between the employers and the suppliers, providing rigid control from the employers and leaves the suppliers with low autonomy (John, 1984). Most importantly, formal contract defines the outputs to be delivered (Carson et al., 2006). On the other hand, relational governance mode emphasizes the social processes in enforcing obligations and expectations (Carson et al., 2006). The informal mode highlights flexibility to adapt to unforeseeable events, bilateral approach and mutual adjustment to problem solving, as well as information exchange and sharing facilities (Poppo & Zenger, 2002). In informal mechanism the employers implement a loose control to their suppliers, in contrary to the formal control mechanism.

(7)

3 their clothing industry earlier in 1940s (Moore & Birtwistle, 2004; Taplin, 2006; Tokatli, 2007). Albeit Dutch companies started later in the clothing business, their presence is now well known in European fashion market with several high-street brands such as G-Star, Mexx, Scotch & Soda and WE. These brands have many stores not only across Europe, but also in international markets such as United States, Canada, China, Philippines and many more.

In this thesis, Dutch clothing products will be distinguished into two types; value-brand clothing and high-street product. Value-brand clothing are clothing products that are being sold in the supermarkets or superstores which sell a variety of products, including clothing, at a low price (Ross & Harradine, 2010; Terblanche & Boshoff, 2004). High-street clothing are clothing products that are being sold in own stores which are usually located in the city center or shopping streets of a city (Ferdows, Lewis, & Machuca, 2004; Ross & Harradine, 2010; Tokatli, 2007). In addition, products’ pricing also determined the product category. Value-brand retailers are selling discount products for fashion discounters who are looking for low price clothing. Conversely, high-street retailers are selling stylish and up-to-date clothing with a relatively high price, but still affordable.

A number of researches have been done on European leading clothing firms originated from France, Germany, Italy, Spain, Sweden and United Kingdom. Most researches in clothing industry have studied Spanish fast fashion brand Zara, Swedish cost-conscious brand H&M, German tailor made suit Hugo Boss, British premium brand Burberry, or haute couture brands such as Italian Versace and French Dior (Ferdows et al., 2004; Fionda & Moore, 2009; Moore & Birtwistle, 2004; Tokatli, 2007, 2008). Some researchers discussed the evolve of clothing industry in Eastern Europe (Wysokińska, 2010; Završnik, 2007) and other studies compared the global operation of clothing firms from Western European countries (Bruce, Daly, & Towers, 2004; Christopher, Lowson, & Peck, 2004; Taplin, 2006). However, no previous research discussed the clothing industry in the Netherlands.

The purpose of this master’s thesis is to deeply investigate which governance mode; formal or informal, is applied by Dutch clothing firms to their foreign suppliers, to explain how these governance modes are related to the product classification, and to examine the nature of these governance modes; substitutes or complements. This thesis contributes to an understanding of formal and informal control in managing interorganizational relationship. Subsequently, the main question of this thesis is “to what extent does the clothing products’ classification determine the formal or informal governance mode applied by Dutch clothing firms to their low cost suppliers?”

(8)

4 comprehensive view of the operation of manufacturing firms and suggested that manufacturing firms should possess several competitive capabilities in their manufacturing activities. These competitive capabilities (manufacturing taxons) consist of low manufacturing costs, design flexibility, volume flexibility, performance and speed. In addition to the manufacturing taxonomy, cultural differences will be taken into account in discussing the exchange relationship of Dutch clothing companies and the foreign suppliers. In this regard, in order to support the main question, the following sub-questions are formulated:

a. Does supplier cost influence the application of formal or informal governance mode? b. Does design flexibility influence the application of formal or informal governance mode? c. Does volume fluctuation influence the application of formal or informal governance

mode?

d. Does quality standard (product performance) influence the application of formal or informal governance mode?

e. Does delivery speed influence the application of formal or informal governance mode? f. Do cultural differences influence the application of formal or informal governance

mode?

To answer these questions, three level of analysis is utilized in this thesis. The degree of formal and informal control will be investigated in the headquarter, agent and supplier level. Headquarter as the rule maker will be questioned in their application of governance mode. Agent, the clothing company’s representative located in the suppliers’ site, is the rule executor and communication facilitator between the headquarter and the suppliers. Suppliers, as the third subject of analysis, perceived the level of control implemented by the headquarter. The three level analysis was implemented by Dicken & Hassler (2000) in exploring the global commodity exchange between European and United States companies with Asian suppliers. Furthermore, Dicken & Hassler explained the role of representative office or individual agent who has physical presence close to the place of production which was seen as an effective means of product quality and delivery control. This three level of analysis will explain clearly the tightness (or looseness) of control during the exchange activities between the retailers and the suppliers.

(9)

5

2. Theoretical Background

2.1. Governance Mode

During the 1980s, South European countries such as Spain, Portugal and Italy were the outsourcing destination of high labor cost countries, mainly Western European countries (Åkesson et al., 2007). Asian countries at the same time were improving their production and manufacturing process in order to offer low cost products (Teng & Jaramillo, 2005). In the same period in another part of the globe, Maquiladoras in Mexico and Central America boomed, making Mexico busy with various industrial activities such as assembly, processing, or manufacturing, including clothing products (Teng & Jaramillo, 2005). Since then, Western European and North American clothing firms enjoyed the benefit of cheaper costs away from their home countries.

In the international buyer-suppliers relationships, existing literature has largely adopted transaction cost economics (TCE) as its universal groundwork in designing the most suitable governance structure (Dekker, 2004; Poppo & Zenger, 2002; Williamson, 1981; Zhang, Cavusgil, & Roath, 2003). TCE underlines that transactions, which differ in their elements, are parallel with governance structure (Williamson, 1991). However, TCE has been criticized by scholars that it is relatively too narrow to be the only factor accounted in how firms choose the formal or informal governance mode (Madhok, 2002; White & Lui, 2005). For this reason, this thesis will apply Miller & Roth's (1994) manufacturing taxonomy as contingency factors in manufacturing industries in order to explore the formal and informal governance structure of Dutch clothing companies and their low cost suppliers. The manufacturing taxonomy by Miller & Roth will be also linked to clothing firms’ classification; value-brand or high-street products. The subsequent sections will deliver the detail justification of the formal and informal governance mode and followed by manufacturing taxonomy theories.

2.1.1. Formal Governance Mode

(10)

6 specific outputs that should be achieved and proclaims a high level of centralization (Baliga & Jaeger, 1984).

High degree of formalization is described by Van Der Meer-Kooistra & Vosselman (2000) as a bureaucratic form of control, stresses the legitimate authority and legal form. The bureaucratic mode is highly associated with hierarchical/vertical decision making and allows the company to dictate suppliers’ behavior (Gençtürk & Aulakh, 2007). Moreover, formalization limits suppliers’ authority and requires a complex supplier selection process. The suppliers must accept an organization’s written and explicit rules and regulation and perform in accordance to the procedures (Baliga & Jaeger, 1984). Vertical decision control improves planning and scheduling, pushes cost reduction, as well as enhances market performance. To add, vertical controls offer suppliers’ behavior stability and enhance employer’s satisfaction (Gençtürk & Aulakh, 2007). Sharma (1997) explained that vertical decision controls serve transparency of desired behavior the employer presumes. It reduces the gap between the employer’s expectations and suppliers’ actual actions, thus improving employer’s satisfaction. Additionally, bureaucratic control facilitates employer in detecting noncompliance and matching rewards and sanctions in consistent with suppliers’ behavior (Van Der Meer-Kooistra & Vosselman, 2000)

However, such strict rules and regulations decrease suppliers’ motivation, leading to frustration and is subject to reluctant behavior (John, 1984). Van Der Meer-Kooistra & Vosselman (2000) stated that bureaucratic control does not fit many contemporary organizations. They argued that most hierarchies fail to oversee control accuracy from top to bottom. The reason is that bureaucratization and centralization diminish the quality of information in making critical decisions (Baliga & Jaeger, 1984). In accordance to this, high levels of uncertainty render the usefulness of formal contract. High uncertainty may discourage suppliers in making an additional investment in order to produce customized products (Poppo & Zenger, 2002). Van Der Meer-Kooistra & Vosselman (2000) suggested that formalization and strict bureaucratic controls are suitable for stable manufacturing industries. Organizations in service industries and fast growing technologies may not fit the design of bureaucratic control.

2.1.2. Informal Governance Mode

(11)

7 (2000) defined the informal mechanism as a relational governance mode. On the other hand, Aulakh & Sahay (1996), Gençtürk & Aulakh (2007) and Zhang et al. (2003) referred the informal mechanism to norms-base governance.

Norms-based governance refers to employers’ stewardship behavior and an informal (social) contract where both parties become committed to respect and uphold the relationship (Gençtürk & Aulakh, 2007). Informal control critically depends on commitment of both parties and reflects intended loyalty to build a long-term relationship (Aulakh & Sahay, 1996). Relational-based pattern lacks the explicit rules of bureaucracy, therefore, it relies on a deep level of mutual agreement between parties to construct proper behavior (Van Der Meer-Kooistra & Vosselman, 2000). Furthermore, the bilateral approach is frequently found in informal governance. It allows joint problem solving and participatory decision making (Poppo & Zenger, 2002). Relational form of control also drives mutual planning and transparency between partners (Dekker, 2004).

Macaulay (1963) argued that formal contract often holds an important role in interorganizational relationships, but other factors should be considered in using strict formal rules. When there is a high mutual dependency between employers and suppliers, relational governance can be expected (Gereffi et al., 2005). Dekker (2004) suggested that repeated interactions influenced the formal control to move towards informal control mode. High level of interactions and communications between partners improve the joint goal setting, risk taking and partner developing activities (Saxton, 1997).

Gietzmann (1996) discussed the incomplete contracting theory, that is when the future events cannot be foreseen or they are too expensive to contract upon. The unexpected future events are highly related to fast fashion industry, such as change of market demand or weather change that is related to the need of clothes. In this case it is needed to have a soft contract with self-enforcing mechanism. When some events occur which were not explicitly stated in the contract, there will be an alternative non-contractual resolution mechanism (Gietzmann, 1996). When flexibility is playing a big role, the non-contractual interfirm relationship become important (Macaulay, 1963). Additionally, in order to quickly understand the clothes concept, employers’ stewardship behavior is highly needed to assist the suppliers in fabricating the materials into clothes. As suggested by Gençtürk & Aulakh (2007) the need of stewardship behavior leads to informal governance mode.

2.2. Manufacturing Taxonomy

(12)

8 volume fluctuation, performance and speed. These instruments are the key strategies pursued by most of manufacturing firms in their manufacturing activities. This section will elaborate on Miller & Roth’s taxonomy. In this thesis, each of these manufacturing instruments acts as a contigency factor in how the clothing firms apply the formal or informal governance mode.

2.2.1. Low Manufacturing Cost

The first manufacturing strategy instrument is low costs production. Emphasizing on low cost production has been introduced in the business model since a long time. Porter’s (1980) generic strategies; cost leadership, differentiation and focus have become a prevailing paradigm in the business literature. According to Porter (1980), a firm must choose either one of the generic strategy in order to have a competitive advantage. Firms whose focus on cost leadership will stress on minimizing manufacturing cost. For clothing companies, ways to reduce cost could be by pushing labor costs and/or lowering the raw material costs, since these two aspects are intensively used in the clothes manufacturing. It was already explained that outsourcing the manufacturing sites to low cost countries, mainly in Asia, has been done since 1980s (Christerson & Appelbaum, 1995; Dicken & Hassler, 2000; Tokatli, 2007). Besides having low labor costs, these Asian countries have a direct access to raw materials, such as cotton, polyester and viscose fabric. For example, China and India are the world’s biggest producer of cotton [6]_{. In addition, China, ASEAN}

countries and India are accounted as world’s largest producer of polyester and viscose fiber [7][8]_{. As these countries are producing the raw material for textile industry, they have}

low procurement costs. In this sense they do not have to import the materials needed for textile manufacturing. As a result, Asian countries offer low labor cost and low material cost which attract Western European clothing firms to employ suppliers from these countries. This is in line with TCE (Williamson, 1991) make-or-buy theory. When it is cheaper to outsource the products than to build it in house, it is make sense that companies employ outside suppliers.

(13)

9 (2012) and Taplin (2006), a clear detailed contract in terms of product costs should be approved by both parties in the beginning of the ordering process. Fixed contracting can also restrict any external circumstances that will possibly increase the budgeted costs such as the increase of raw material price or currency volatility (Åkesson et al., 2007; Christerson & Appelbaum, 1995).

Proposition 1: Value-brand and high-street clothing companies apply formal supplier control in order to keep the product costs low.

2.2.2. Design Flexibility

The second instrument is the capability to make rapid design changes and/or introduce new products quickly. Since the late 1980s, the varieties of demand across market segments in the fashion business were vastly grown (Tokatli, 2007). As a fast changing industry with a high level of demand volatility, rapid design flexibility is important in clothing industry (Ferdows et al., 2004). In the research about supply chain in the fashion industry; Christopher, Lowson, & Peck (2004) mentioned that clothing is a short-lived product with short life-cycles. The business captures the market’s mood and sensitive to seasonal change, and is typically measured in months or even weeks. Clothing companies have to be alert of the trend demand change, therefore reactive design capabilities is required.

The customers of fast fashion are high impulse purchasers, their buying decisions are made at the point of purchase (Christopher et al., 2004). High-street clothing brands have to be extremely aware of customers’ taste and sudden demand change (Ferdows et al., 2004; Tokatli, 2008). Responding to customers’ demand could be done by broadening the product range and displaying new products every couple of weeks (Christopher et al., 2004; Ferdows et al., 2004; Tokatli, 2008). Innovative and flexible design in terms of style, color and fabric are the key to compete with other fast fashion brands (Ferdows et al., 2004). These companies provide assistance to suppliers in order to help them in providing products that fulfill the desired design. High frequency of informal communication and regular information exchange regarding the product design are common to be found between fast fashion clothing firms and their suppliers (Tokatli, 2008).

Proposition 2a: High-street clothing companies apply informal supplier control in order to attain flexible product design.

(14)

10 (Terblanche & Boshoff, 2004). They are looking for price bargain and treat clothes as disposable items (Attwood, 2007; Poulter, 2008). In addition, these customers do not require wide range of product design as much as high-street fashion shoppers do (Ross & Harradine, 2010). Therefore, as suggested by Terblanche & Boshoff (2004), it is not necessary for value fashion brands to have flexible design capability in their manufacturing.

Proposition 2b: Value-brand clothing companies apply formal supplier control in the absence of flexible product design.

2.2.3. Volume Fluctuation

The third instrument is the ability to respond to the demand fluctuation and variation on production volume. It was previously mentioned that high-street clothing companies have a highly flexible product design in comparison with value-brand clothing companies. The flexible product design is significantly related to flexible production volume (Miller & Roth, 1994). Ferdows et al. (2004) discussed the fast fashion industry and mentioned that fast fashion brands are adjusting their production volume or change their orders up to 20% once the season has started. The store managers of fast fashion brands report to headquarter which products do not sell well and which products fit the consumers taste. Within this fast fashion environment setting, the suppliers have to be ready to modify production volume, to manufacture new clothes and to stop production of current products that do not sell in stores (Ferdows et al., 2004; Tokatli, 2008). These order changes and volume fluctuations do not often occur in value-brand clothing companies (Ross & Harradine, 2010; Terblanche & Boshoff, 2004).

Heide & John (1992) described flexibility as “a bilateral expectation of willingness to make adaptations as circumstances change” (p. 35). As volume flexibility is important for high-street clothing companies, flexible supplier relationship is needed to allow changing order. From the suppliers’ standpoint, it indicates that the company provides assurance to the relationship, which is subject to good-faith modification in the case of changing circumstances (Heide & John, 1992). Flexible supplier relationship requires less formal contract, little binding document and high negotiation opportunities (Das & Abdel-Malek, 2003). This type of relationship is costly, therefore, it is frequently formed between a clothing company with only several suppliers (Ferdows et al., 2004; Lee, 2004).

Proposition 3a: High-street clothing companies apply informal supplier control in order to allow product volume fluctuation.

(15)

11 flexible manufacturing is also expensive because it requires a high investment in flexible machineries. In an inflexible relationship, suppliers will only accept order change at a much higher unit price (Das & Abdel-Malek, 2003). By changing the order amount, the buyer (clothing firms) will face penalty costs which will directly affect the clothing firm’s costs. Terblanche & Boshoff (2004) stated that value-brand clothing companies order their products in a very large quantity with less product assortments. A request for small quantity of products with more product varieties will increase the price per unit, which is avoided by value-brand companies who are focused on low product cost (Das & Abdel-Malek, 2003; Terblanche & Boshoff, 2004).

Proposition 3b: Value-brand clothing companies apply formal supplier control in the absence of volume fluctuation.

2.2.4. Performance

The fourth instrument is the capability to provide high quality products. Landon & Smith (1998) mentioned that price of the products are corresponding to their quality. In addition, Attwood (2007) and Terblanche & Boshoff (2004) argued that brand image and customers previous experience in buying products in a particular store shaped the perceived quality. High-street fashion brands have to produce products with quality in order to retain their customers and to compete with other high-street brands (Tokatli, 2008). MacCarthy & Jayarathne (2012) discussed the quality assurance procedures by high-street clothing companies. These companies explicitly specify the product quality standard in the suppliers’ contract and apply strict quality control and monitoring in order to ensure clothes are produced according to the standard. In addition, high-street clothing companies also assist the suppliers to develop their competency in producing products in desired quality (Ferdows et al., 2004; MacCarthy & Jayarathne, 2012).

(16)

12 Proposition 4: High-street and value-brand clothing companies apply formal

and informal supplier control in order to ensure the quality standard and to assist suppliers’ competency development.

2.2.5. Speed

The fifth instrument is the capability to deliver the products on time. There is a small difference between value-brands’ suppliers and high-street brands’ suppliers’ characteristic. Suppliers of high-street brands require to have the market sensitivity and are expected to react fast to real time changes in demand of high-street consumers (Bruce et al., 2004). Volume volatility in value-brand clothing demand is relatively lower than the high-street clothing demand (Ross & Harradine, 2010). Therefore, suppliers of value-brand clothing face less challenge in responsive production process.

However, both type of clothing companies; value-brand and high-street brand, want to have the new products in store shelves as soon as they placed the order to the suppliers (Ferdows et al., 2004; Tokatli, 2008; Tryhorn, 2008). In their research focused on textile and clothing industry supply chain, Bruce et al., (2004) mentioned that fast delivery with short lead times is important in clothing industry in general. Clothing suppliers need the capability of rapid replenishment, order completeness and quick shipping to meet clothing companies’ delivery time requirement (Abernathy, Dunlop, Hammond, & Weil, 2000). It entails to strict control of shipment deadline by the clothing companies in order to ensure that the product will be displayed in store shelves in the beginning of new season.

Proposition 5: Value-brand and high-street clothing companies apply formal supplier control in order to have fast product replenishment.

2.3. External Factor: Cultural Differences

(17)

13 The context of this research is interorganizational relationship between Dutch clothing companies and low cost suppliers which are mainly located in the Far East and South Asia. Cultural differences between these countries should be to be taken into account since the presence of cultural differences and language barriers might affect the governance mode of the clothing firms. Degree of compliance, unwritten rules, and tendency to have long-term relationships are taken into account in the sourcing activity. Some researchers (Deshpandé, Farley, & Webster, 1993; Weber, 1996) mentioned that formal control is best applied when there are cultural differences in order to overcome the cultural clash. In contrast, other researchers (Dekker, 2004; Gençtürk & Aulakh, 2007; Zhang et al., 2003) believed that socialization (informal control) should be used in treating cultural differences.

Weber (1996) stated that big cultural differences between countries required companies to use a formal governance mode with a detailed contract in order to overcome misunderstandings. Formal control builds vertical integration and allows the employer to push suppliers’ cost by reducing suppliers’ autonomy and decision making capacity (Weber, 1996). When language barrier exists, a strict and detail contract will reduce communication problem between employers and suppliers, since all products requirements, quantities, deadlines etc. are mentioned in the contract (Deshpandé et al., 1993).

In contrary, Gençtürk & Aulakh (2007) mentioned that interorganizational relationship needs a cultural integration. Unfamiliarity of each other’s operating policies and procedures necessitate a conceptual agreement that should be achieved between partners. Dekker (2004) stated that cultural fit will facilitate joint governance design and help the parties to achieve the mutual goals. Socialization can be a suitable way to accommodate the convergence of partners’ attitudes, values and interest. In addition, Zhang et al. (2003) pointed out that incongruent cultural belief can be facilitated by relational governance. In this sense, relational governance enables the propensity of international partners to embrace relational values and thus underlining the importance of informal governance mode.

Proposition 6a: High-street clothing companies mediate cultural differences with informal supplier control.

Proposition 6b: Value-brand clothing companies mediate cultural differences with formal supplier control.

(18)

14 complements in high-street clothing companies, whereas formal and informal control functions as substitutes in value-brand clothing companies.

3. Methodology

This thesis executes a theory development method in order to find the relation of the product categories and the supplier governance mode applied by Dutch clothing firms to their low cost suppliers. The development of this theory explores the tie of previous literature, common sense and actual data that permits the development of a relevant, valid theory (Eisenhardt, 1989). The objectives of this study were realized using semi-structured interviews that facilitate supplementary questions. The interview protocol is attached in Appendix A. Follow-up questions were asked according to participants’ answers in delving deeper into the relationship between suppliers and employers. This method enables a clearer understanding of the variables and the organizational context (Abernethy & Lillis, 1995).

3.1. Operational Details

The companies and respondents taking part in this study is comprised of a non-random sample, selected on the basis of location, accessibility and expected willingness to participate in this research. A total of sixteen interviews were conducted in nine Dutch clothing firms. Five of these companies were classified as high-street categories and four of were classified under value-brand categories. Companies’ mission statement and number participants are described in Table 1.

(19)

15

Table 1. Description of Clothing Firms

Company Mission statement _{classification}Product Participant: _HQ Participant: _Agent Participant: _Supplier Total 1 Innovating and working with the _{unlimited possibilities of raw denim} High-street 1 2 3

2 Does not just offer contemporary fashion but also diverse lifestyle

products High-street 1 1 2

3 Rich in detail and high quality clothing, inspired by the best tried

classic and vintage style High-street 2 1 3

4 Making it easy for anyone to create a _{personal style as a self-expression} High-street 1 1 2

5 An international and functional sportswear brand with a DNA that is

soaked in nautical passion High-street 1 1

6 Combination of the best items for everyday life, keep prices low and

quality high Value-brand 1 1 2

7 A combination of low prices and _{attractive and surprising selection} Value-brand 1 1

8 A low price store offering textile and _{clothing products} Value-brand 1 1

9 Specialty in good and cheap fashion _{and home textiles} Value-brand 1 1

(20)

16 Five interviews were conducted face-to-face and three interviews were conducted by phone with the representative in the headquarter. Moreover, the agents participated in this research are located in Hong Kong, Bangladesh and two are located in India. Two of these interviews were conducted by phone and two interviews were conducted via Skype®_.

These agents are involved in suppliers’ daily production and quality check. Additionally, three Indonesian suppliers and one Indian supplier have been interviewed. These suppliers have been supplying the products for high-street Dutch clothing companies in the last four years. The four interviews with the suppliers were conducted by phone.

Thirteen of the interviews were conducted in English and three of the interviews, with suppliers located in Indonesia, were conducted in Indonesian. When possible and permitted, the interview was recorded. Interview transcripts were made from the recorded interviews. During all interviews, detail notes were taken during and after the interview to capture all given information. The interview transcripts and notes were read and re-read in order to remain close to the data. Individual interview summary reports have been sent to each of the participant to verify the interview content. Interview transcripts and interview summaries are attached in Appendix B.

4. Research Findings

The findings are presented in seven sections; low manufacturing cost, design flexibility, volume fluctuation, performance, speed, cultural differences, and enclosed with the governance mode typology of Dutch clothing companies. In quoting respondents’ statement, a numbering system is used in order to protect confidentiality. The first number represents the disguised company reference (1-9). It is important to recall that number 1-6 are high-street brands and number 7-9 are value-brand companies. Following the number, a lettering system is used to indicate quotes from headquarter representative (H), agent (A) or supplier (S). If a second H, A or S was interviewed in the same organization, a numbering system is used to distinguish them.

4.1. Low Manufacturing Cost

(21)

17 We put the orders based on our forecast. Sometimes from the report we see that some type of products sold less than the others, so we have to reduce the production number of this product in the next season. […] We have to deal with suppliers’ minimum order quantity and there is a lot of negotiation going on.

[2-H] When an order is placed at a supplier the costs are known and fixed at that time. We buy a ready-made product from the supplier, so we fixed the price includes all fabric, trimming and workmanship costs. When prices are discussed, all costs are known, including upcharges for low order quantity.

[5-H] The price is controlled from the Netherlands office. They make the negotiation with the suppliers. After they had a deal then they put the purchase order.

[3-A1] We prefer to make one design with really huge amount, because then the variable costs are lower. But of course we are working on many designs and colors, as ordered by the retailers. We defined how much is the cost per unit and most of the time it’s the lowest we can be.

[2-S] The company always orders in big numbers. We are willing to give them our best price because the relationship with this company is good for our future.

[1-S1] In order to keep the production cost low, both high-street and value-brand clothing companies are using formal control. Formal control is executed by placing purchase order contract with fixed order quantity and total price of finished goods that will be delivered. Once the purchase order is placed, all costs, comprising the raw materials, trimming, labor costs, packaging and shipping cost are fixed. It implies that any increase in production costs associated with suppliers’ production inefficiencies and product defects, such as imprecise cutting, inaccurate sizing, mistakes in coloring or errors in printing are on suppliers’ expense and will not increase the initial agreed price in the contract.

(22)

18 hour. When the suppliers cannot reach the daily production target, overtime working hour is needed in order to catch the production quantity. Overtime work means extra cost to the suppliers since it creates additional labor expenses. The need of overtime working hour shows the suppliers’ production inefficiency, however, the suppliers are responsible of paying the overtime wage and it should not affect the buyers’ costs. Thus, strict production control by the headquarters and/or agents enables the supplier to maintain the efficiency in its production process. In accordance with Gençtürk & Aulakh (2007), vertical control improves planning and scheduling, pushes cost reduction, as well as manages suppliers’ behavior stability and enhances employer’s satisfaction. To this extent, proposition 1 is supported, that both type of retailers apply formal supplier control in order to keep the product costs low.

4.2. Design Flexibility

Flexible design capability was found to be considerably important in high-street clothing companies. In order to follow customers’ demand, trend and season, numerous clothes designs are prepared by the companies. Company 1 and 2 have their own design center and design all of their products in-house. The design center allows the designers to collaborate and create wide range of product designs.

Not all designs are accepted in every country. Denim designs that are being sold in European market might not be bought by Asian customers. Also some of the designs we made for American market are differ from the designs we made for European market. That is the function of our design center, to look at the result of market research and to provide the design that fit customers’ taste in different market.

[1-H] The product of (company) 1 is different. They are using raw jeans, unwashed and untreated. We have to carefully select the fabric and they are different from denim fabric for other usual retailers. […] They also have many kinds of shape, for example regular fit, straight leg, slim fit and low rise. These styles have different cutting and some of them are new to us. So we have to learn fast to fulfill the variety of demand.

(23)

19 We ask the suppliers to propose some simple products, like t-shirt or blouse. We specify what kind of fabric and color tone we want. We ask them to make the design and proposed the unit cost. […] We ask several suppliers to do this. We will choose several designs, the most interesting design with the lowest unit cost. […] It is possible that we choose five designs from one supplier and not choose the designs from other suppliers. We can also choose one design from first supplier, one design from second supplier and one design from third supplier. It is all based on the design attractiveness and the price.

[4-H] Sometimes it is cheaper to ask to suppliers to make the design for us, than to ask our designers to make the design. So if suppliers are capable, why not.

[5-H] It was surprising to find that the clothes design of company 3 entirely comes from the suppliers. None of their products are designed in-house. This company has designers, but they are not making clothes design that will be realized and sold in stores. The designers’ responsibilities are to evaluate and choose the designs that are made by the suppliers.

Here in India we make the designs and send the sample to Netherlands. […] We make sixty designs in one cycle, we have four cycles in a year. When the samples arrive, the designers in the Netherlands will choose which designs they will take. The suppliers here will have to make other designs to replace the designs that are not chosen by Dutch designers.

[3-A1] It is often happens that some of our designs are not accepted. We have to be ready for contingency plan and prepare other designs quickly.

[3-S]

Our suppliers are also working for other clothing companies. They are designing and making clothes for many clothing brands. […] They are used to many types of fabrics and they know what kind of color European market likes.

(24)

20 Now we have six cycles. We are utilizing these cycles to anticipate the four seasons that they usually have a year. […] Like now, you are supposed to wear hot pants but you have to wear winter clothes because it is so cold.

[2-H] Sometimes we make designs in the middle of the season, it depends on the product. […] But for example now, especially with Dutch weather, we made many t-shirt designs, but the weather is still a little bit cold, so we make thin sweaters that were not planned before. It is to attract people to come in to our stores.

[4-H] Some high-street companies have their own design center, some are collaborating with the suppliers, and some companies are not designing their products at all. The companies who do not design their own products have a high level of dependency to the suppliers. Information exchanges regarding the weather uncertainty, the need of additional designs and knowledge transfer to assist the suppliers to manufacture unusual designs are often taking place. High street clothing companies are trend-conscious and reactive production strategy is needed.

Companies’ local agents are in charge of suppliers’ production and daily activities. These agents facilitate the information and knowledge transfer from headquarters to the suppliers. Suppliers who receive designs from companies have to manufacture these designs exactly as how the companies want them. These suppliers also have to learn how to manufacture unique designs. Suppliers who make the designs for companies have to be able to make a high variety of designs and make new designs in case of rejection. Flexible design capability is essential to both high-street clothing companies and high-street clothing suppliers. To this extent, proposition 2a is supported, that high-street clothing companies apply informal supplier control in order to attain flexible product design.

On the contrary, value-brand clothing companies do not have a flexible product design. High-street clothing companies have four to six seasons in one year, whereas value brand clothing companies only have two seasons. These seasons refer to selling seasons, the business timing in which clothing companies develop the product concepts.

We have approximately five thousand designs in one year. […] Depending on the market situation, we order the products to the supplier five to six times a year,

(25)

21 […] We are offering home-wear product such as basic t-shirt that you can wear anytime. But sometimes we want to offer some special products for Christmas holiday

[7-H] Queen’s day is a big celebration especially here in the Netherlands. […] Neon and bright orange t-shirt or accessories are the best seller products for the whole April. We usually get higher revenue for this kind of event.

[8-H] All value-brand companies do not have design flexibility. These companies do have design competencies, however design flexibility with reactive design according to trend or weather change are not their domain. The focus on low cost products limits design flexibility, since all designs have been made in the earlier season and order have been placed to the suppliers. Changing the design means changing the orders to the suppliers and it is costly to the value-brand companies. In some special occasions such as Christmas and Queen’s day, these value-brand companies do offer special products. However, these special products are not part of design flexibility because these products have been designed months before the event took place. In addition, customers of value-brand companies do not expect high variety of product designs since they are looking for price bargains (Attwood, 2007; Ross & Harradine, 2010). Thus, design flexibility competency is not required for value fashion brands in their manufacturing (Terblanche & Boshoff, 2004). Based on this information, proposition 2b is supported that value-brand clothing companies apply formal supplier control in the absence of flexible product design.

4.3. Volume Fluctuation

(26)

22 However, an interesting finding was found in Dutch clothing companies’ order volume. It was found that both high-street and value-brand clothing companies in Dutch apparel industry do not apply order volume adjustment. This finding is contradicted to Ferdows et al. (2004) and Tokatli (2008) regarding the quantity fluctuation in high-street companies. Corresponding statements captured during the interviews are described below.

[…] It is violating the purchase order. When we order the items, let say one hundred thousand clothes, the supplier will deliver the whole one hundred thousand. […] It depends on the products, sometimes it is one time delivery, sometimes it is several times delivery […] When we say we want one hundred thousand, the suppliers directly process this order so we cannot change them, these clothes are already being made. […] Also if we order it from the agent, the agent is already passing this order to the supplier, so it is hard to change.

[2-H] Our sales managers gather the data from all stores to know how are the sales of each product lines. They make the forecast on how many product items should we put in each store. So we put the order for next season based on the forecast. […] So we do not change it (order volume).

[1-H] I receive the orders from the Netherlands office, and then I go to the suppliers. I know which supplier is good in making what. […] The purchase order is the buying contract, so everything is stated, the order amount, unit price, color, size, fabric, etc. The production is based on this purchase order.

[3-A2] There is almost no change quantity. If there is any, the Netherlands office sends us an additional note right away. We received the note before we started the production.

[5-A] We have specific amount of minimum order quantity. For example for printed t-shirt, we put one design in one printing machine. So machine A cannot print design B. If the buyer wants to reduce the t-shirt they want to buy, the unit cost will get more expensive. If they want to increase the t-shirt amount, they have to double the order to get the same unit cost. […] If they only want to add several hundred, the unit cost of these several hundred is higher. So usually instead of adding several hundred t-shirts, the company orders another design and we will make the same minimum order quantity of other t-shirts.

(27)

23 When (Company 2) orders let say 50 000 pieces of a design, we buy the fabric, and all the details needed, coloring material, button, zip for 50 000 pieces. If company 2 reduce the order after we buy the supplies, we don’t know what we can do with the excess supplies so we want to keep it clear that order of 50 000 will be delivered 50 000.

[2-S] We already calculate the cost per item for a specific design, so the changes in order amount will affect the unit cost. Especially because every jeans design have different fabric, and sometimes there is a limited supply of specific fabric. So, changes in the amount are not possible.

[1-S1] From the interviews it was found that there is no change in order volume in high-street clothing products. The orders for next season are based on the sales forecast that has been made by the sales teams. In the ordering process, purchase order forms are the prescribed rules, completed with product specifications, unit cost, and product amount with various sizes. It is approved and signed by both parties as the basis of an order. A change in order volume is considered as a contract violation.

Changing the order amount will also affect the unit cost and might decrease the profit margin. Therefore, instead of increasing or decreasing the order amount, Dutch clothing companies add additional design(s). It indicates that design flexibility is required, however, not the volume fluctuation. From the suppliers’ point of view, the changes of product volume are related to the machine capacity, printing costs and fabric supplies. Consequently, based on the information that has been gathered, proposition 3a which indicated high-street clothing companies apply informal supplier control in order to allow product volume fluctuation is not supported. There is no significant volume fluctuation in product orders of high-street clothing companies. All of the orders are fixed and written in the buying contract. In this sense, proposition 3a is rejected since high-street clothing companies apply formal method in the order and production amount.

Furthermore, value-brand clothing companies do not have order volume fluctuations. The companies order a fixed amount of clothing and accessories in each cycle with less product assortments in comparison with high-street clothing products.

We use our realistic forecast, which is the mix of historical figures and healthy ambition regarding our sales. All of the products have to be sold out, so we put our order at the amount that we know we will sell everything.

(28)

24 Changing the order is expensive. If we change the orders, the suppliers might increase the price and it means it will increase our cost. We can’t afford to increase our cost because we are selling it at really low price. So we always try to stick with our agreement.

[8-H] Once we put an order, for example like you said, 10 000 pieces, then it will be 10 000. Usually we put an order based on pessimistic forecast. If our optimistic forecast we think that we can sell 10.000 of one pajama design, we will only order 7.000. In that way we expect that all of the products will be sold out and we don’t have to keep them as stocks because it takes quite a lot of space.

[7-H] As a result, in general, purchase orders act as the formal rule in the product price and order quantity. One value-brand company uses realistic forecast in ordering, another company uses pessimistic forecast. Principally, their focus is to ensure that all of the products will be sold, therefore they do not have to keep unsold products in stock. If change in order quantity occurs, the retailers have to pay for it, in terms of the increase of product costs. Therefore, proposition 3b is supported that value-brand clothing companies apply formal supplier control in the absence of volume fluctuation. This finding is aligned with Das & Abdel-Malek (2003) argument that by changing order amount, the buyer will face penalty cost which will directly affect the cost of goods sold, for both high-street and value-brand companies

4.4. Performance

High-street clothing products put a high emphasis on products’ quality. Not only observing the quality of the sample, ongoing quality assurance during each production stage is also conducted by the agents. Buyers in headquarters have daily contact with the agents to monitor the production process. These regular contacts are taking place between the buyers in headquarters with their agents in all high-street clothing companies.

Our quality controllers are responsible for all of the products in the production. It is really expensive if we receive fault products in our warehouse, because it’s all defect products. […] We monitor the production, so there will be no significant mistake in the products we receive in our warehouse.

(29)

25 (Company 2) is a really big client. We are supplying for their stores in Asia, Europe and North America. Almost forty percent of our production is for them. So we have to be able to fulfill their quality standard, otherwise we will be kicked from their supply chain.

[2-S] We have never been worked with any company such as (company 1). They are one of the biggest seller and retailer of denim and they are well known everywhere. We are making sure that all of our products have the standard quality.

[1-S2] Moreover, quality assistance is given by the clothing companies, not only by giving quality assurance manuals, but also by providing solutions to upcoming problems. Although particular quality standard of each product lines are specified in the purchase order, production difficulties might lead to imperfect products. The buyers frequently observe the production via agents in order to give immediate support in how to solve a certain problem.

Our buyers call the people in the production process everyday. There is nothing perfect, so any small problem sometimes occur. If some problems happen, we give directions what to do.

[2-H] I work with suppliers everyday. I am (company 3’s) eyes and ears in India. I am there from the ‘invention’ of the products until they are ready for shipment. I take care of the fabric quality, coloring, printing, tailoring, washing, everything. So when we have any problem for example in coloring, we tackle the problem right away. The usual case is normally happens in coloring. For example we produce red t-shirt. After we washed it in any particular degree, the color turns to light red or pink. It is quite a big problem because it is supposed to be red. […] If this kind of case happens, I consult to the Netherlands’ office, if we should start over the production or just continue. […] They will never say ‘solve it by yourself.’

(30)

26 of it. Maybe they should do this here or there or so. We would like another this. Maybe we would like to add this. So that’s how we communicate and get the article right and done.

[6-H] From the Chinese suppliers, when we checked the product that arrived in our warehouse, our people saw that the fabric of the t-shirt is so thin. We did not order that kind of fabric and it was quite a big problem for us. […] It was a big order. We were really mad about it. We asked them for 50% lower price because we cannot sell it at our initial price. We cannot sell really bad quality t-shirt because it affects company’s reputation… and because we cannot sell it at slightly higher price, the margin was also so low. […] We decided not to use them anymore

[7-H] As a result, proposition 4 is supported that high-street and value-brand clothing companies apply formal and informal supplier control in order to ensure quality standard and to assist suppliers’ competency development. Formal control is implied in written standard quality in the buying contract and quality assurance guidebook. This standard has to be fulfilled by the supplier in order to pass the quality control. If the quality criteria are not met, the suppliers might have to start the production from the beginning. In an extreme case where the product is under quality, a fine or penalty is given to the suppliers, in accordance to non-compliance. The informal control in product quality refer to the assistance given by the supervisors in headquarter. They provide the directions and solutions in solving problems in a detailed manner. Besides giving solutions, the clothing companies are also facilitating suppliers’ competency development, by introducing new design, style, cutting, and quality assurance method. The companies invest specific knowledge to the suppliers in order to develop the suppliers’ competencies. By this method the suppliers will be able to handle the orders from the client in the following season.

4.5. Speed

(31)

27 Yes of course production speed is important. In the purchase order it is stated that how long the suppliers have time the make the clothes. We want those items arrive in our warehouse in the given time period, because we still have to check if the quantity is correct, the sizes are complete, then we can put the tags before we send the clothes to our stores.

[4-H] I’m also making sure that suppliers here (in India) are working efficiently, reach the daily target so that they can finish all of the orders on time. The buyers in the Netherlands update our daily production and I give them the progress everyday by phone.

[3-A1] In clothing industry, basically every season is a high season. However, spring and summer is the most busy production period for us. There are so many designs, various colors in different fabrics. We have to always deliver the products that the retailers want. There is no space for mistake […] If the retailers say we have to finish the production in 6 weeks, it means for us we have to finish it in 4-5 weeks, because the last 1-2 weeks is the delivery time.

[3-S] We have five to six weeks to finish the production of these hundreds of thousands of clothes. We have to ship them on time because we already agreed that we are able to finish everything in six weeks. If we deliver the product late, we will get penalty. […] It’s tough working with this (Dutch) company. They control everything. They want quality products, fast shipping, appropriate working condition and we have to pay at least minimum wage standard to the workers. It’s tough, it’s really tough.

[2-S] Moreover, the statement of participants from the headquarter of value-brand companies are in line with the statement of the participant from high-street clothing companies.

Our clothing product is one of the most important products in our product range. We are trying to give the customers many selections of clothes. We give something new in our display every 1-2 weeks. […] The delivery time of the suppliers is really affecting our store display so they must deliver the orders as expected.

(32)

28 We give them (the supplier) penalty […] in terms of fine if they cannot finish the production on time. We wanted the product to arrive in our warehouse in a specific week, and they have to fulfill it.

[7-H] In order to keep the vibrant atmosphere of clothing stores’ displays, products on shelves are updated on a weekly basis. The clothing companies want to offer different products every time the customers visits the stores. By doing fast product replenishment, customers can find dissimilar products from the last time they bought the apparels. Since all products are being manufactured by the suppliers, suppliers’ delivery time affect the stores’ replenishment. The clothing retailers put a high level of control on the production process, efficiency and speed with the purpose of keeping on time delivery. The delivery time relies on the buying contract which the suppliers have to comply. In some cases, in which suppliers cannot complete the production in the given time frame, a penalty in terms of fines will be applied. This strict rule entails to formal supplier control. To this extent, propositions 5 is supported, which stated that value-brand and high-street clothing companies apply formal supplier control in order to have fast product replenishment. For both high-street and value-brand suppliers, capability of rapid replenishment, order completeness and quick shipping to meet delivery deadline is important, as suggested by Abernathy et al. (2000).

4.6. Cultural differences

Opinions regarding cultural differences are quoted below.

Germany and Netherlands are more… communicate in the same way. Maybe French, or French spoken countries, are sometimes harder to communicate. All nations have their own way in communication, in doing business. And Dutch people, they find it very transparent or easy to have figures right, time, lead time, […] With some French spoken countries, it’s not about the figures. It’s about if you actually know the nephew of your suppliers, you have a better chance to do business […] (Asian suppliers) are more used to doing business with European companies. It’s also from my one person opinion, in Asia they know what the market wants. They can solve the discussion, they know what we are looking for and they react quickly. […] China is not difficult because we are already doing so much business in some factories in China, they are used to the work […] also in Bangladesh they know how we work, and then we are an interesting party for them. In Hong Kong office they only work with Dutch people. So it is also easier to work with them, easier to have the right question.

(33)

29 Well there is a big difference in communication between Turkey, versus India, versus China. I would say China (is easy in doing business with), because they don’t ask any questions. But Turkey will ask them. But if you’re looking at flexibility versus pricing versus complicated product, India. […] China is easy to deal with if you’re looking at the perspective of you know exactly what you want and it needs to be done, that China is easy. But if you want input and you don’t know exactly what you want, then India is easy. That’s very depending on the way you look at it. […] (Chinese) are more obliged, comply to your request. They are more like workers. But in terms of negotiation they can be very tough. […] I like to work with Indians because it’s personal, because of the flexibility. They are really willing to work and they are really friendly people, whereas Chinese are very distant.

[1-H] (Problem often comes) mainly from the Chinese suppliers. When we checked the product that arrived in our warehouse, our people saw that the fabric of the t-shirt is so thin. We did not order that kind of fabric and it was quite a big problem for us. […] The Chinese supplier I mentioned before, they tried to breach the quality standard that was clearly stated in contract. We never had this kind of problem with Indian or Thai suppliers. […] It’s easier to negotiate the price with Indian or Bangladesh suppliers. Because I think they want a long partnership.. and it is just.. easier to make agreement with these people, compare to the Chinese.. I don’t know why.

[7-H] From my experience Bangladesh and Pakistan are difficult by culture. I’m not sure, well they are Islamic countries and not well developed, maybe it’s affecting their business culture. […] We also have suppliers in the South China and majority of them are Hindu but it is fine. So I’m not sure if it’s economy or cultural, but they can produce beautiful quality, no doubt about it.

[9-H] Dutch people are very friendly people. […] We have really good communication, they are always helping if we have some problem. […] I have daily phone calls with them. Yes I think they’re quite strict in controlling the production and stuffs, but I think it’s good because they always get an update of what’s going on […] Well I think they have a good way of managing the production.

(34)

30 I have been working with many European and American companies. Of course they are different, but in general I would say they are really strict especially in code of conduct […] We must not use any suppliers that use child labor and we also have to make sure that suppliers provide appropriate working condition. […] It is strict, yes, but everything is clear and transparent.

[4-A] Before we can have business with this company, they came to our manufacturing site and check every centimeter of our factory. They asked some of our employees about the working condition. Well I’m not sure if they get some information from the workers because they don’t speak English […] But well, now we have been working with them for I think almost five years, and so far everything is doing good.

[1-S2] It’s quite a pressure working with Western companies in general, especially with deadline. With local buyers they are not too strict with deadline. […] Well we do have shipping deadline with the locals, but up to two weeks deviation is still fine. The shipping is time consuming because we send the items by ship. […] We always have the quality pressure because they really have high quality standard. […] Well actually they are nice people, but when it comes to the products everything has to fulfill the requirement.

Governance Mode of Foreign Suppliers in the Dutch Clothing Industry