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Abstract for:

International Buyers' Sourcing and Suppliers' Markups in Bangladeshi Garments

Julia Cajal-Grossi,  Rocco Macchiavello,  Guillermo Noguera,  January 2019
Paper No' CEPDP1598: Full paper (pdf)
Tags: markups; sourcing strategies; global buyers; buyer-driven value chains

Abstract:

Large international buyers play a key role in global value chains. We exploit detailed transaction-level data on the usage of material inputs to study how Bangladeshi garment suppliers' markups vary across international buyers. We find substantial dispersion in markups across export orders of a given seller for the same product. Buyer effects explain a significant share of this variation, while destination effects do not. Buyers adopting relational sourcing strategies pay higher markups than non-relational buyers. This pattern holds within seller-product-year combinations, is robust to controlling for the buyer's size, traded volumes, and quality, and, together with larger volumes, implies higher profits for suppliers dealing with relational buyers.