CAPÍTULO 5: "EJECUCIÓN DEL PROYECTO''
5.6 OPERACIÓN DEL SISTEMA
product. The only way to control this, would be through simplifying a product, which is not very realistic in
practice.
‐ Transaction Specific Investments: What are the costs involved in developing the item? The higher the costs,
the more parties will want to continue production and thus the relationship. In fashion, transaction specific
investments could entail the costs of developing patterns and producing various samples and other trial items
prior to actual bulk production. This aspect may relate to the complexity of the product and is often difficult to
control.
‐ Alternative exchange possibilities: How easy is it to find another partner? What are the costs involved of
switching partners? If finding another partner is easy and inexpensive, dependence is lower.
‐ Revenue and Profit: How much will the product sell and how much money will it make? The higher, the more
a partner will want to keep you as a paying customer. This aspect is difficult to control. The saturation level of
the market is of influence, as well as the design and quality of the product and whether this meets market
demand.
‐ Role performance: How well are parties behaving? If a partner is pleasant to do business with, the other party
will not feel the need to terminate the relationship and might even have the goodwill to stick with you through
difficult periods. Role performance can very well be influenced. This aspect has to do with how parties behave
in relation to each other, and how and which sources of power are utilized.
3.4 Power within the marketing channel
To optimize the outcome of the marketing channel as a whole, relationships and interdependence need to be
managed. Channel members do not usually coordinate their activities optimally themselves, because
something that is beneficial for one member, is not necessarily beneficial for the other. The way to manage
marketing channels and its members is through exerting power.
Power can be defined as the ability of making another do something it normally would not have done. Power
often evokes negative connotations, but when used correctly it can optimize the outcome of the marketing
channel, eventually having a positive effect on all members in the form of higher profits, as well as higher
customer satisfaction.
There are many different ways of explaining or conceptualizing power. One method is the ‘Five sources of
power’‐model. This model was developed by sociologists John R.P. French Jr. and Bertram Raven in 1959 and is
now recognized as one of the most important classic models in this field. Following is a brief description of the
different sources of power.
Reward Power: Source of power that rewards good behaviour. A reward is an advantage that an organization
gains for showing good behaviour. These rewards are often financial, but may also have other forms (assurance
of repeat orders etc.) An important factor for this source of power is that the party upon which power is
exerted, believes that the promised reward will eventually be paid.
Coercive Power: Source of power that punishes negative behaviour. This is the exact opposite of reward
power. Organizations are punished for not changing behaviour of not obeying to requests of the other party.
Coercive power is a source of power that is easily used, but is also least effective when the aim is to build a
lasting relationship. On the short term, organizations can be less sympathetic in the cooperation, in the end it
can lead to a situation where this party feels less devoted to the relationship.
Legitimate Power: Source of power that plays a role when an organization feels obligated to show certain
behaviour. As a result of contracts as well as working relations and values, the other party is inclined to confirm
to a request of the one exerting power.
Referent Power: Source of power that is applicable when an organization is/wants to be able to identify itself
with another organization. The targeted organization feels part of the identity of the other, or wants to feel as
if it is part of it.
Expert power: Source of power that is based on the fact that the one exerting power has special and valuable
knowledge that the other party does not have. The image of the source is very important in this source of
power. He or she must be trusted and his opinion and interpretations perceived as valuable. This source of
power is difficult to preserve, as it can be easily transferred, decreasing the position of power. The following
methods can be used to keep this to a minimum:
‐ By only providing small portions of information, always leaving enough to keep the other party dependent; ‐ By continuously investing in education, the organization will always have new, important information that can
be shared with other parties;
‐ By only giving specific information, making sure that it cannot be used for other goods or services.
Information Power: This source of power is part of expert power and was added in a later stage. The difference
between the two is small. An organization with information power is well informed of the current situation and
has the ability to convince others. The image of the provider is less important.
As the explanations above make clear, each source of power has a different effect on the receiver and on the
relationship between the receiver and the one exerting power. This is why it is important for organizations to
consider the type of relationship is most suitable and what types of power can best be used to obtain this
After discussing the theory above with a small group of Kuyichi employees, all agreed that reward power was
the best source of power. Indeed, suppliers are complimented when goods are delivered on time and in good
shape. More indirectly, suppliers are rewarded with the allocation of more styles and hopefully higher order
quantities during the following season.
In contrast, Coercive Power is another used power source. For example, when suppliers deliver late, goods may
need to be shipped by air transport instead of by sea transport. When the delays are too long, the extra costs
that are incurred are recovered from the supplier. What the maximum term of delay is, is not determined in
advance. If goods are not delivered in good shape or show serious defects, Kuyichi will negotiate a discount or
penalty with the supplier in question.
In some occasions, Kuyichi also uses Expert Power. An example of this are the Track&Trace trainings that are
provided by Kuyichi and MADE‐BY to several Peruvian suppliers, and the support that Kuyichi, MADE‐BY and
Solidaridad are currently offering the key denim supplier in Tunis.
Conclusion
It is not easy to make a marketing channel or a specific member to behave in a certain way, or in Kuyichi’s case,
to make them implement specific standards, use certain materials and to even make them change or extend
the company’s philosophy so that it includes this Corporate Social Responsibility.
It is important to identify what the goal of a certain relationship is. Is it a party you plan to work with only once
or sporadically, or do you want to build a long lasting relationship? Do you want the partner to eventually
comply with your company’s vision and objectives?
The actions that need to be taken, the behaviour and attitude that needs to be shown, or which source of
power should be used in a certain relationship, is affected by the interdependency between the parties
involved. When the products provided by a partner are not very important to a company and there are
alternative exchange possibilities, dependency is low and there is no reason to build a long‐lasting, partnering
relationship. If the relationship is based on a one‐time cooperation, it is not necessary to use great forces of
reward power or expert power and exerting coercive power is not likely to cause (long term) problems.
Regardless of the nature or goal of the relationship, power should always be exerted with care.
Currently, Kuyichi is not using its power sources very consciously, or optimally. There are no set directions for
when which type of power is used. Suppliers, for example do not know when to expect coercive power to be
4. China
Kuyichi has not yet been able to reach its goals in China. But what are the actual problems that Kuyichi is
specifically facing in this country? And how can the previously described theory be applied to this situation?
The first paragraphs will describe the general situation in China and those subjects that are affecting Kuyichi.
The second section of this chapter will introduce the parties that Kuyichi is currently working with. The
relationship and dependency is analyzed and the theory will be applied to the specific situations.
The final part of this chapter will introduce possibly suitable parties that Kuyichi could work with in the future.
4.1 General
Protests and violations of human rights in Tibet, the highest number of executions in the world and people
being evicted to make place for the 2008 Olympics in Beijing. It is not strange that the public opinion of the
situation in China is negative. The following paragraph will provide some general information of the situation in
China and the factors influencing Kuyichi and its suppliers.
Politics
There are two political entities using the name China: The first is the People’s Republic of China (PRC),
commonly known as China, comprising of mainland China, Hong Kong and Macao. The second is the Republic
of China (ROC), commonly know as Taiwan, controlling Taiwan and several nearby islands. This chapter is based
on the People’s Republic of China, which will be referred to as China.
The People’s Republic of China was founded in 1949 by the Communist Party of China (CPC), which is still in
control of the state and provincial and local governments. In the early 1990s, Chinese government began its
reforms to turn China into a socialist market economy. This has resulted in an increase of economic institutes
that are not managed or influenced by the communist party. All capital activities are still strictly regulated by
the government.
Economy
Since the economic reforms of 1978, the Chinese economy has grown explosively. In an attempt to “awaken a
dormant economic giant” [19], Chinese government encouraged the foundation of rural enterprises and
private businesses, liberalized foreign trade and investments, relaxed control of some prices and invested in
industrial production and workers’ education. These measures were successful and the annual economic
Chinese government has in recent years taken measures to prevent the economy from overcharging itself, but
these have not been very effective, as growth numbers are still very high.
Wages
China’s income per capita has increased with 8% over the last decades. As this occurred, the differences in
wages between sectors, types of ownerships and regions increased as well. Wages were highest in share‐
holding, foreign owned or state owned companies and lowest in locally funded companies. The gap between
rural and urban wages increased, from urban wages being 2,57 times higher in 1978 to 3,27 in 2006. This gap
has caused a wave of migrant workers leaving the rural areas in search of a better life in the urban areas.
Chinese Labour Law established the first minimum wage system in 1994. It states that the minimum wage “is
designed to ensure that the lowest wage earned by a worker is still sufficient to support their daily needs.”[20]
The law also specifies that the standard workweek is 40 hours and that overtime may not exceed 3 hours per
day or 26 hours per month. Overtime should be paid at a premium rate of at least 150% of the normal wage,
200% on Sundays, and 300% on national holidays. Wages should be paid on a monthly basis and handed over
to the employee personally. Deduction or delay in wages is not allowed. Wages should be paid as normally
during national holidays, marriage and funeral leave.
In spite of these rules and regulations, many employers often pay late. Overtime occurs on a regular basis and
is often not paid at a premium rate or sometimes not paid at all. Some factories do not pay the first month’s
salary as some sort of insurance that the worker will not quit. When they officially quit their jobs, this salary will
be paid. As official termination hardly occurs, this salary is often not paid at all. Disobedience is often punished
with harsh and unreasonable fines which are deducted from the salary.
Child Labour
In 1998, China ratified ILO convention 138, which concerns the minimum age of workers. Chinese government
then stated that the minimum age of employment is 16. Workers between 16 and 18 years of age (juvenile
workers) are protected by several different laws. In August 2002, China also ratified ILO convention 182 on the
worst forms of child labour. Even though China has ratified these convention and has drawn up laws
prohibiting it, an increasing number of children are currently working long hours.
Because of the insufficient investments in education (2.7% of BNP, instead of the minimum of 5% which the
United Nations advise), Chinese parents have to incur high costs for their children’s schooling. Most parents do
not have this money and pull their children out of school. Although official publications state that 2,5% of
children leave school, this percentage is actually much larger and in some poor regions even reaches 40%.
There are no official figures on the number of children working, but estimates say that of the 10 million
Trade Unions
The All China Federation of Trade Unions (ACFTU) is the single national trade union of China. It is the largest
trade union in the world with almost 170 million members, divided over 1,324 million trade union organization.
The unions work in accordance with the Trade Union Law and Constitution of Trade Unions. The major tasks of
the trade unions is to “organize workers and fight for labour rights.”[21] The ACFTU encourages the trade
unions to protect its member on their own initiative and act as a voice for the workers.
The ACFTU is under the control of the Chinese government and can therefore hardly be described as
independent. Attempts of starting up independent, national trade unions are oppressed and initiators are often
arrested. Many organizations therefore criticise China for its trade union policy.
Environment
One of the negative consequences of China’s rapid growth is the increased pollution and degradation of natural
resources. Solid waste is not properly disposed, water pollution causes illnesses across the country and air
pollution causes premature deaths.
China is ranked 133 out of 146 countries by Yale University and Columbia University’s environmental
sustainability index of 2005.
Corporate Social Responsibility
Chinese government is actively encouraging CSR and many different governmental bodies, research institutions
and organizations are publishing CSR research reports, case studies and guidelines. This theoretical knowledge
is not used in practice very much. Many companies are still learning and it seems as if too many independent
organizations are promoting the issue without any coordination.
The interest in international standards and certification systems is increasing and seminars or other types of
meetings are organized around the country. There are indications that Chinese government and some other
organizations are planning to establish China’s own set of standards and certification processes.
According to Mike Lam, Kuyichi’s account manager at production company Prime Asia, CSR is becoming more
important, especially amongst the ‘new generation’ managers, but that available standards and certifications
are still relatively unknown amongst them.
Cotton in China
24% of the world’s cotton comes from China, making it one of the most important cotton‐producing countries.
Cotton is the most important crop of the country, benefitting a large rural population.
There are three main areas in China housing the cotton fields. These are the Xinjiang Autonomous Region, the
Yangtze River Basin region (including Jiangsu and Hubei) and the Huang‐Huai region (Including Hebei, Henan
and Shandong). The region of Xinjiang is the region most suitable for the production of organic cotton. The
continental climate, light, soil and environment make the region very suitable for cotton production. 19% of