Testing predictions on supplier governance from the global value chains literature[Using hostages to support exchange: dependence balancing and partial equity stakes in Japanese automotive supply relationships]

A vast empirical literature analyzes the determinants of the make-or-buy decision. How to organize supplier relationships when the buy option is chosen has received much less attention. The global value chains framework provides testable predictions on the nature of buyer–supplier collaboration. We use a unique transaction-level dataset of outsourced automotive components to study carmakers’ choices between four distinct types of supplier governance: market, captive, relational, or modular. The theory formulates predictions based on three characteristics: the complexity or contractibility of a transaction, the capabilities in the supply base, and how objectively codifiable performance requirements are. Our results illustrate that sourcing relationships vary systematically and that the effects of proxies for the three characteristics are in line with the theory.