Relational contracts and value chain governance: exporter approaches to overcoming transaction costs in Rwanda's coffee sector

Abstract

Purpose In developing countries, local buyers often rely on relational contracting based on reciprocity and trust. This paper analyzes relational contracting and global value chain (GVC) governance by focusing on how domestic and foreign coffee exporters in Rwanda confront challenges.Design/methodology/approach Semi-structured interviews were conducted with 25 representatives of Rwandan private, Rwandan cooperative-owned and foreign exporters, and four coffee sector stakeholders.Findings Foreign firms export most Rwandan coffee, and local exporters express concerns about their ability to compete. Rwandan exporters face challenges accessing capital, competing with foreign firms and managing high transaction costs. They use relational contracts to reduce transaction costs, and they benefit from a monopsony zoning regulation that reduces competition. Foreign exporters face regulatory challenges: a government-set coffee price and the zoning regulation. They vertically integrate to reduce costs and lock in suppliers through prefinancing.Research limitations/implications Future research should analyze differences between local and foreign exporters in other contexts to advance understanding of the different challenges faced and contracting approaches used.Originality/value Few GVC governance studies address the role of relational contracts in contexts where enforcement is costly. Considering relational contracts within GVCs can improve value chain analysis, specifically in the developing countries where many GVCs start.

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