Rethinking the “necessary” trade-offs of distributing value to suppliers: An analysis of the profit-sharing model

Authors: Elizabeth A. Bennet & Janina Grabs

Far too often, global supply chains distribute value in ways that contribute to income inequality and the uneven accumulation of wealth. Despite a surge of innovations to address this problem—such as fair trade, corporate social responsibility, and creating shared value—the issue of value distribution persists as a pressing priority for the international development and business communities. This article puts forth a first attempt at theorizing profit sharing as a potential mechanism for more equitable value distribution in global value chains. Drawing on two in-depth, multi-method case studies of companies that share profits in the coffee sector, we develop eight theoretical propositions about the applicability and efficacy of profit sharing as a tool for redistribution. Our research suggests that profit sharing can distribute value without requiring suppliers to compromise price stability, profit maximization, value creation, or alternative economic opportunities. This conclusion challenges extant theory which asserts (based on studies of fair trade certification, direct trade, and solidarity trade) that these tradeoffs are typically necessary or inevitable. We also extend the literature on profit sharing. Extant literature examines firm-level attempts to maximize productivity and minimize dissent. We contribute by theorizing profit sharing’s fitness for redistributive objectives in the context of value chains. The implication of our findings is that, in some contexts, companies may be able to increase prices and improve income stability without requiring suppliers to compromise other economic priorities.