The impact of retail internationalization on make-or-buy decisions and buyer-supplier relationships

The aim of the paper is to examine the impact of retail internationalization on the choice of in-house operations versus outsourced activities, and effects on buyer-supplier relationships in the context of the Italian fashion industry. In recent years, many fashion manufacturers are pursuing downstream integration through directly operated stores, concentrating their efforts on the downstream side of the supply chain more than on the upstream one, in order to increase their control over the sales network and get in direct contact with final customers. The opening of stores is also part of the international expansion of these firms, in the form of directly operated stores (DOS) or third-parties operated store (TPOS), namely with business partners in foreign markets. Specific aim of the paper is to investigate to which extent the international expansion of retail operations by manufacturing firms impact on make or buy decisions and buyer-supplier relationships, specifically relationships with suppliers of fabrics and manufacturing services. Make or buy decisions concern the choice of performing internally some strategic activities previously outsourced, in order to cope with the demands of retail outlets in domestic and foreign markets, with consequences on the business network in which the firm is embedded. The topic is addressed using the methodology of case analysis. We propose three cases of vertically integrated firms in the fashion supply chain, that produce and sell total-look women/men clothing in their own mono-brand stores both in Italy and abroad. The analysis points out the main changes in the network of relationships of the firms and the critical decision of in-house development of activities in response to retail internationalization.