Inter-Firm Relations: Multinational Corporations and Local Entrepreneurship in Brazil

The most controversial element within studies of inter-firm relations concern the power relations governing the supply chain (Herrigel and Zeitlin,2010).  According to the traditional perspectives on Multinational companies (MNCs), they require low cost labor for standard manufacturing products, and they respond to low cost incentives and relocate standard manufacturing to the cheapest area. MNCs are able to standardize their requirements and formalize their contracting procedures, thus reducing switching costs, exercising strong influence on local firms by stipulating important characteristics of the products being sold. Under these conditions, the global dominance of MNCs in different sectors would shape the dynamics both globally and locally. This dominance is exerted by means of arbitrage strategies to spread production across global networks. The organization of the production process is segmented into a series of individual components allocated according to the comparative advantages of different locations. The skill-intensive tasks remain in the developed nations, while low-skill, labour-intensive activities are outsourced to less developed countries with lower labour costs (Kaplinsky and Morris 2001).

Herrigel and Zeitlin (2010) claim that this predicted international division of labour does not seem to be the dominant model for global production. In their view, manufacturing and design remain mutually dependent among producers in both high- and low-wage contexts. Differently to the arguments proposed by the global value chain supporters, a disintegrated production organization presents a recomposable hierarchy and collaboration.  Mutual exchange characterize the relationship between firms which differs from the previous conceptualization of disintegrated value chain where a strong hierarchical relationship dominates. In a disintegrated production organization, learning takes place over time among firms and have the effect of making less clear who the leaders of chains really are.

This article investigates the relationship between local firms and MNCs in Brazil. We analyze the recent changes in the Brazilian textile and garments industry. The present paper contributes to the recent literature on inter-firm relations, disintegrated production and MNCs. The paper shows that large MNCs manufacturers which are tightly linked by ownership to the retail chains are focusing on their core competences, allocating some of their previous tasks to external firms. The process of outsourcing results in learning across organizational and national borders and makes it possible for smaller firms to copy and reproduce new designs rapidly, as well as promoting the diffusion of knowledge and skills within the local network of firms. Local firms and MNCs are not fixed in a specific roles, and avoid been solely connected to one single customer. This process reduces the power of the large MNCs in setting prices and production standards across the supply chain.