Short Communications: Inter-Firm Relationships and Governance Structures: A Study of the Ethiopian Leather and Leather Products Industry Value Chain

Abstract

Over the last two decades, the questions, who are the key actors in value chains? What types of relationships exist between the different actors in value chains? Who makes strategic decisions in the chains? What are the reasons for domestic firms not to enter the global value chain? and, what opportunities and constraints do domestic value chains experience in the manufacturing process? have been high on the agenda of value chain researchers. The current study has contributed to these debates by probing two important domains of chain research: governance structures and inter-firm relationships in the context of a domestic value chain. The study has drawn on several bodies of literature. In particular, it utilized mainstream global value chain research, the analytical framework of institutional economics, paying special attention to transaction cost theory, the network approach to interfirm dynamics and the literature on social capital and power influences. The inspiration for this study came from the observation that how social networks function within local but also global value chains is still inadequately understood. Up until now, global value chain research has been used to analyze the, often, international distribution of activities and value added in the production of a final good, and, thus, it lacks firm level data at the domestic level. Moreover, relatively little is known about the governance of inter-firm linkages in an African context and the ability of one firm in a chain to influence or determine the activities of other firms. Furthermore, most existing studies on value chain network structures overlook the evolution of inter-firm relationships and their possible impacts on present relations.