Value Chain Governance. Governance refers to the inter-firm relationships and institutional mechanisms through which non market co-ordination of activities in the chain is achieved. Value chain governance refers to relationship among the buyers, sellers, service providers and regulatory institutions that operate within or influence the range of activities required to bring a product or service from inception to its end use. The question of governance in a value chain arises when some firms in the chain work according to parameters set by others. When this happens, governance structures may be required to transmit information about parameters and enforce compliance. In a value chain non marketing activities are coordinated using various governance types (Xxxxxxxx and Xxxxxxx, 2004). According to Xxxxxxxxx and Xxxxxxx, (2004) the form of governance can change as an industry evolves and matures, and governance patterns within an industry can vary from one stage or level of the chain to another. The dynamic nature of governance can be largely accounted for with three variables: the complexity of information the production of a good or service entails (design and process); the ability to codify or systematize the transfer of knowledge along the chain; and the capabilities of existing suppliers to produce efficiently and reliably. If one of these three variables changes, then value chain governance patterns tend to shift in predictable ways. For example, if a new technology renders an established codification scheme obsolete, sub value chains are likely to become more relational and if competent suppliers cannot be found, vertical integration will become more prevalent. Conversely, rising supplier competence might result in captive networks moving towards the relational type, and better codification schemes set the stage. Governance is about power and the ability to exert control along the chain at any point in the chain. Within the chain, power is exercised by firms and workers within firms. Outside the chain, power comes from the state and other institutions created by the enabling environment and from consumers. Those in possession of industry power actively shape the distribution of profits and risk through their activities. Within the chain, power at the firm level can be exerted by big firms or suppliers. Powerful firms can be producers or buyers in the chain. Knowing if the powerful firm in a chain is a buyer or a producer can help to determine strategies to use when restructuri...
