Emerging Forms of Industrial Governance: Promoting Cooperation between Small and Large Firms in Brazil

Abstract

This article analyzes the emergence and diffusion of industrial governance arrangements in Brazil that promote cooperation among small and large firms that previously had conflictive relations. The core of the arrangements were quadripartite: Large firms implicitly promised small suppliers rewards for increased productivity; small firms, working in groups, collectively set goals and discussed their experiences to spur on each other; consulting firms devised restructuring programs and played the role of facilitator in the groups; the quasi-government agency subsidized the costs of consultants. Contrary to the assumptions of producer-driven commodity chains literature (Gereffi), the principal actors were local and not in the headquarters of multinational corporations. Unlike the predictions of the transactions-cost literature (Williamson), opportunism was mitigated even though there were no new contractual safeguards. Despite instability in macroeconomic indicators, policy making, and production, which meant that the payoffs from cooperation were uncertain (game theory), firms and other institutions managed to devise new governance arrangements. Although the concept of bootstrapping (Sable) captures the dynamics of groups of small firms, it needs to be amended to take into account the variety and flexibility of mediators. The success of these arrangements has important implications for the future of Brazil's corporatist groups and its economic survival.