they were able to control the activities undertaken by the distributors. However, as argued in sub-section 5.4, the producer is unable to undertake such controlling activities. Both vertical integration and supplier control are costly when the investments in marketing are unverifiable.
One feasible strategy to increase profit is to invest in modern technology (phenomenon 4 may exist), and those firms which have done so are generally achieving a higher price for their products (see sub-section 5.3). I have argued that in the garment case such investments may lead to increased profit through product differentiation. However, these investments hardly suffice to establish the basis for a new brand. First, the investments may easily be undertaken by their competitors as well; second, phenomenon 1 is important in this market and it is a cost by controlling the use of the distributor' s brand name; third, phenomenon 2 does not exist.
\ The second strategy is to produce a product which few others are producing.
Muslin silk which is produced exclusively in Bangladesh, could serve as an example. Muslin silk should be considered as a potential branding product in Bangladesh just as Thailand has created a brand name of Thai silk and Indonesia and the Philippines have created a brand name of their famous batik. Furthermore, research is undertaken in Bangladesh to mix jute and cotton and hereby create a new type of fabric. Ifthere is a demand for such new fabric, the prerequisites for branding are fulfilled as long as the competitors are unable to duplicate the production of this type of fabric. However, the activities of the producers should be coordinated. Another strategy to make oneself less substitutable is to create a
~~_.~tyl~ - for example through mixing European taste with local features. But, to the extent that phenomenon 1 is important in such a market, the activities by the distributor is favouring the particular group of producers (phenomenon 3 exists as well) since they are the only ones to produce it. However, a problem may arise by such a strategy. The distributor may possibly integrate backwards (or impose a vertical control regime based on buyer control) to reduce the possibilities for hold ups.
The third strategy is to make investments so that a particular buyer earns more by continuing the relationship than he would by terminating it and finding a new supplier (see the special case of relational quasi rent discussed in section 5.1). By establishing long-term arrangements with particular buyers in accordance with the N ash bargaining solution assumed in this paper, profits are increased as long as the buyer also makes money out of such a relationship. In fact, subcontractors of Levi's say they earn thirty per cent more on the products delivered to Levi's than
on corresponding products delivered to other
suppliers."
Delivery on time,I
fulfilment of quality specifications and a good communication network between
I
the supplier and the distributor seem to be necessary conditions for making oneself • valuable to a particular buyer. The Benetton case illustrates the value of a network system. The production units are linked to the stores through a database system disclosing sales data on different categories. Through a flexible production system, daily sales data combined with high inventories of undyed clothing, colours and destination of output are decided and implemented immediately (Mil grom and Roberts, 1990b). Hereby, the production units invest in flexible technology which increases the distributor's sales and thereby strengthens the bargaining position of the seller. However, even though such investments increase the supplier's capabilities and thereby his attractiveness, I doubt that these investments are sufficient to create any brand names. But they are necessary to increase temporary profit (Keesing and Lall, 1992).
My general conclusion concerning branding strategies in the clothing market is as follows: For the producers to successfully create a new consumer label would be impossible without also creating a distribution channel for marketing the product.
However, as argued above, producers in Bangladesh are unable to control the activities of such distributors. What is attainable in the short run is to make investments to reduce costs and to invest so as to increase one's value to particular buyers. Whether such investments increase long-term profits is another matter.
References
Alchian, A.A. and H. Demsetz. 1972. "Production, information cost and economic organization", in American Economic Review, vol. 62, pp. 777-795.
Allen, F. 1984. "Reputation and product quality", in Rand Journal of Economics, vol. 15, no. 3, pp. 311-327.
Aoki, M. 1988. Information, incentives, and bargaining in the Japanese economy.
Cambridge University Press
Asanuma, B. 1989. "Manufacturer-supplier relationships in Japan and the concept of relation-specific skill", inJournal of Japanese and International Economics, vol. 3, pp. 1-30.
Asanuma, B. and T. Kikutani. 1992. "Risk absorption in Japanese subcontracting:
A microeconometric study of the automobile industry", in Journal of Japanese and International Economics, vol. 6, pp. 1-29.
39 In a situation with oversupply in the product market, the higher price could also be understood as a disciplining device.