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ABSTRACT
Foreign direct investments (FDIs) are noted as an important cross-border channel for knowledge. Thus, expanding companies can contribute to local supplying companies’ capability development, an important precondition for upgrading processes. Several transnational grocery retailers have expanded globally and introduced modern supply chain management practices to markets of emerging and developing countries. However, agri-food industries are under-researched regarding FDI-induced knowledge transfer and supplier upgrading. Based on qualitative interviews with both retailers and suppliers in the emerging market of Turkey, this article discusses the upgrading processes of fresh food suppliers driven by the FDI of grocery retailers. This article shows how the foreign retailers’ fresh fruit and vegetable supply structures have evolved towards the preferences of suppliers that vertically integrate value chain functions. Within this dynamic, transnational retailers proactively shape their suppliers and promote (functional) upgrading. The findings imply that (1) local regulatory environments should foster local sourcing and (2) the way for suppliers to work towards a solid value chain positioning is to fully integrate supply chain functions including agricultural primary production. This article argues that integrating low value-adding functions can be a type of functional upgrading that has not yet been acknowledged.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1. It must be noted that FDI potentially increases knowledge flow both to and from the investing firms – they are bidirectional and reflexive (Branstetter, Citation2006; Burt, Johansson, & Dawson, Citation2015).
2. The majority of the studies show a negative impact on small suppliers in developing markets through exclusion (Dolan & Humphrey, Citation2000; Weatherspoon & Reardon, Citation2003). However, Humphrey (Citation2007) argues that many studies overestimate the negative impact for producers and predicts a varied future landscape of food retailing.
3. A company’s long-term planning usually relates to a time horizon of more than 5 years (Gabler Wirtschaftslexikon, Citation2018).
4. The term “supermarketization” describes the transformation of the food retail sector, embodied in the rapid spread of supermarkets, in East and Southeast Asia and Latin America – the emerging markets of the Pacific Rim. It includes the sectors’ adoption of technological, organizational and institutional changes of procurement systems (Reardon et al., Citation2004).
5. At one end of the typology, there are classic market relationships characterized by weak lead firm governance. At the other end of the typology are hierarchical value chains in which governance is so strong that downstream functions are executed by the lead firm itself. Modular, relational and captive value chains can be positioned between these types. A high level of governance and coordination is typically found in value chains in which (a) a low degree of complexity of information and knowledge is necessary to maintain the transactions between buyer and supplier, (b) the transactions are easy to codify and (c) the capabilities of the suppliers are comparatively low (Gereffi et al., Citation2005, p. 82–88).
6. A fourth type is inter-sectoral upgrading, which describes that firms move into new productive activities (Humphrey & Schmitz, Citation2002, p. 1020).