relationship between performance and the share of production sold to high fashion
companies. Indeed, according to the economic theory of rent15, the extent of
subcontracting shoes is derived from the demand of luxury shoes and given that final
consumers are prepared to pay a high price then top brand companies are also willing to
pay a relatively high price to their high quality subcontractors, sharing with them (a
small) proportion of their rent. In other words, we argue that top brand companies are
exploiting final consumers’ willingness to pay very high prices for luxury goods,
earning a rent or a super-normal profit above production costs. This rent, it seems, is to
some extent shared within the chain in order to guarantee high and consistent quality
and respect of delivery conditions.
The high rents earned in the top brand value chain explain also why Brenta
enterprises are increasingly using their internal production capacity to make shoes as
subcontractors to high fashion companies and outsourcing abroad the lower value added
stages of their production. Decentralisation to Romania and other Eastern European
countries is a necessity for reducing costs, given that price competition is severe even in
high quality markets. As we discussed in Section 2, outsourcing is a strategy of
functional upgrading of Brenta firms: moving low value added activities abroad and
focusing on production for the rent-rich luxury market at home.
Once more with respect to upgrading, there is evidence of a positive and statistically
significant relationship between the amount of production made for high fashion
companies and the degree of product upgrading. The role played by top brand
companies in product innovation is confirmed by the fact that 60 per cent of sample
firms stress the importance of their assistance in this field.
Sample firms identified a number of advantages coming from their activity as
subcontractors. The most important are: the size of orders (all firms except one); their
regularity (all firms except two); and, for 70 per cent of them the prestige of working for
a world known top brand. A further advantage, very much emphasised by the
interviewed firms, is the reduction of costs because they no longer have to produce a
sample set. Among the disadvantages, imposition of delivery conditions and timing,
lack of direct market access and the loss of independence were stressed by 75 per cent
of sample firms.
15A summary of rent theory in the history of economic thought, with a particular focus on land, is
presented in Camagni (1992).
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