Assessing the Performance of Domestic Suppliers to FDI Companies: An Insight from Bangladesh

Abstract

This study addresses a critical gap in the literature on FDI-supplier linkages by systematically evaluating the performance of suppliers to foreign direct investment (FDI) companies in Bangladesh, a country lagging behind regional peers in domestic suppliers’ integration. Drawing on FDI Spillover Theory, Absorptive Capacity Theory, and Global Value Chain (GVC) Theory, Resource-Based View (RBV) and Institutional Theory, the study employs a mixed-methods approach across high-FDI sectors (e.g., textiles, electronics and light engineering) to assess how product quality, production capacity, and compliance with international standards affect domestic supplier performance. Quantitative statistical and econometric analyses confirms that all three factors significantly enhance performance, with compliance moderating the quality-performance relationship. Thematic analysis reveals structural constraints, resource scarcity, skill shortages, and infrastructure gaps, as major impediments to upgrading, while institutional support mechanisms (e.g., training, certification subsidies, technology upgrades, etc.) emerge as critical enablers. Compared to coordinated policy efforts in Vietnam and India, Bangladesh’s fragmented institutional landscape undermines its competitiveness in GVCs. The study contributes theoretically by integrating firm-level and institutional determinants of supplier upgrading, and empirically by providing rare micro-level evidence from a low-middle income economy. Policy recommendations include targeted capacity-building, compliance facilitation, and public-private coordination to unlock FDI spillovers and strengthen Bangladesh’s supplier base within global production networks.