How buyers' expected benefits, perceived risks, and e-business readiness influence their e-marketplace usage

Industrial Marketing Management 36 (2007) 1035 – 1045

How buyers' expected benefits, perceived risks, and e-business readiness influence their e-marketplace usage S. Subba Rao a,1 , Dothang Truong b,2 , Sylvain Senecal c,⁎, Thuong T. Le d,3 a

Department of Information Operations and Technology Management, College of Business Administration, The University of Toledo, 2801 West Bancroft St., Toledo, OH 43606, United States b Department of Management, Fayetteville State University, 1200 Murchison Rd., Fayetteville, NC 28301, United States c Department of Marketing, HEC Montreal, 3000, Chemin de la Cote-Sainte-Catherine, Montréal (Québec), Canada H3T 2A7 d Department of Marketing and International Business, College of Business Administration, The University of Toledo, 2801 West Bancroft St., Toledo, OH 43606, United States Received 11 March 2005; received in revised form 9 August 2006; accepted 10 August 2006 Available online 25 September 2006

Abstract The main objective of this study was to investigate how buyers' usage of electronic marketplaces was influenced by their perceived risks and expected benefits associated with such markets. A large scale survey involving 359 professional buyers was performed. Results indicated that buyers' perceived risks and expected benefits had an influence on their usage extent of electronic marketplaces. In addition, buyers' e-business readiness moderated the relationship between expected benefits and usage of electronic marketplaces. Managerial and theoretical implications of these results are discussed. © 2006 Elsevier Inc. All rights reserved. Keywords: Electronic markets; Benefit; Risk; e-Readiness; Usage; Buyer behavior

1. Introduction In the late 1990s and early 2000 electronic marketplaces (EMs) were foreseen as intermediaries that would revolutionize how organizations do business. Optimistic figures forecasted that over half of future business-to-business trading volume would involve EM (Forrester Research, 2000). EM creations grew very rapidly in these years. By mid-2000, there were 1900 public EMs (Deloitte Research, 2001). Since their creation only a limited number of EMs had sufficient trading volume to sustain their activities. About 400 have closed and further consolidation is expected (mySupplyChain, 2001; Le, 2002). These facts clearly indicate that in many industries too many EMs were present and ⁎ Corresponding author. Tel.: +1 514 340 6980. E-mail addresses: [email protected] (S. Subba Rao), [email protected] (D. Truong), [email protected] (S. Senecal), [email protected] (T.T. Le). 1 Tel.: + 1 419 530 2421. 2 Tel.: +1 910 672 1020. 3 Tel.: +1 419 530 2987. 0019-8501/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2006.08.001

that many buyers and sellers did not jump on the EM bandwagon (Day, Fein, & Ruppersberger, 2003). On the one hand, it has been suggested that many suppliers do not use EMs because they perceive that the potential benefits do not overcome negative issues such as the ease of price comparison across suppliers and concerns about security and confidentiality (Day et al., 2003; Granot & Sošić, 2005). On the other hand, many buyers also do not use EMs because the potential disadvantages outweigh the potential benefits. Among the reasons proposed to explain why buyers do not use EMs are their reluctance to disrupt their current way of doing business, the strategic importance or the complexity of their purchasing, and also security and confidentiality concerns (Day et al., 2003; Skjøtt-Larsen, Kotzab, & Grieger, 2003). A recent survey conducted by the Institute of Supply Management (ISM) stated that in the first quarter of 2003, 88% of buyers bought indirect materials online and 75% bought direct materials online (ISM, 2003). However, only 33% used EMs to conduct their transactions (ISM, 2003). Similarly, a survey conducted by Line56 (2002) found that 39% of buyers that they would participate in EMs in the next 12 months.

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Despite the many advantages of EMs over traditional markets (Lucking-Reiley & Spulber, 2001), most buyers are still reluctant to use them when conducting online transactions. Thus, identifying determinants of EM usage is crucial in order to understand why buyers do not use EMs in greater numbers. The present study investigates two main constructs that should help explain buyers' usage extent of EMs, namely expected benefits from EMs, and perceived risks of EMs. Furthermore, this study examines the moderating role of e-business readiness in these relationships. 2. Background literature and hypotheses 2.1. Electronic markets Unlike the traditional market in which the meeting place is a physical location, an EM refers to a virtual space on an electronic network (Malone, Yates, & Benjamin, 1987), an interorganizational information system that allows the participating buyers and sellers to exchange information about prices and product offerings (Bakos, 1991; Brandtweiner & Scharl, 1999), “an e-application” (Hoque, 2000), or an internet-based ecommerce platform (Brooks & Cantrell, 2000) that matches multiple buyers and suppliers in transactions. EMs provide an electronic method to facilitate transactions between buyers and sellers that potentially provide support for all of the steps in the entire order fulfillment process. However, Skjøtt-Larsen et al. (2003) suggest that most EMs do not support all transaction phases (i.e., information, negotiation, settlement, and after sales). 2.2. Expected benefits When exchanging products and services, buyers and sellers face many costs associated with pre-transaction discoveries (in the form of time, effort, and money) such as identifying prospective trading partners, ascertaining product features and availability, and gathering quality and price information. These costs are also known as search costs (Strader & Shaw, 1997, 1999). In fragmented markets, the search is complex and costly, leading to information asymmetry and resulting in limited product choice and non-optimal prices for buyers. EMs reduce search costs in several ways: providing information on sellers and their product availability and prices, thus facilitating comparison (Bakos, 1991, 1997, 1998; Berthon et al., 2003; Evans & Wurster, 1999), expanding the supplier base, hence buyers' options (Mahadevan, 2000), allowing buyers to optimize their selection within the constraints of service availability through near-perfect market information, and providing real-time inventory listing (Gudmundsson & Walczuck, 1999). In addition, with low asset specificity and low coordination costs, EMs are suggested to enable lower transaction costs for buyers (Berthon et al., 2003; Bichler, 2001; Daniel & Klimis, 1999; Domowitz, 2002; Malone et al., 1987). This is the major factor making EMs preferable to electronic hierarchies (Malone et al., 1987). By joining an EM, buyers are able to reduce communication costs, significantly reduce paper work, thereby reducing transaction costs. Overall,

using information technology and Internet technology, EMs have been shown to be able to reduce search costs, facilitate transactions, offer trust to prevent opportunistic behavior and “maverick” purchase, and broaden the supply and demand base so that buyers have more choices and suppliers have access to more buyers (Bailey & Bakos, 1997). Hence, economic theory suggests that the main benefit of EMs is market efficiency through market aggregation (Bakos, 1991, 1997, 1998; Malone et al., 1987). Market aggregation refers to usefulness of EM in overcoming market fragmentation, thus offering buyers more choices, more readily available information about product and suppliers, transparent prices, and lower transaction costs. More recently EMs have also been suggested to have another type of benefit: inter-firm collaboration (Bloch & Catfolis, 2001; Brunn, Jensen, & Skovgaard, 2002; Eng, 2004; Le, 2002). It can be defined as the extent to which all activities within an organization, and the activities of its suppliers, customers, and other supply chain members, are integrated together (Stock, Greis, & Kasarda, 1998; Narasimhan & Jayaram, 1998; Wood, 1997). Bloch and Catfolis (2001) suggest that EMs facilitate interfirm collaboration by automating transactions and increasing process transparency. For buyers, EMs improve the procurement process by making it Web-based (Barratt & Rosdahl, 2002). It involves electronic documents routing through order request, approval and replacement of costly manual processing (Subramaniam & Shaw, 2002). Properly constructed to support specific access hierarchies, information filtering criteria, business rule and workflow, EMs help buyers effectively manage their transactions, track their market activities, prevent unauthorized activities, and protect confidential information (Le, 2002). Beside automation, inter-firm collaboration is the driving force of effective supply chain with open and low-cost connectivity, very large, flexible, and multimedia data storage capabilities, systems and channel integration, and higher-level self service capabilities (Horvath, 2001). In addition, it is suggested that EMs create the most benefit when buyer–supplier relationships are well established and the supply chain is multi-tiered and complex (Bloch & Catfolis, 2001; Brunn et al., 2002; Dai & Kauffman, 2002; Le, 2002). As suggested by Morgan and Hunt (1994), trust and relationship commitment in established business relationships lead, among other things, to more cooperation and less uncertainty among partners. These outcomes may increase benefits associated with inter-firm collaboration (e.g., inventory management) and also decrease perceived risks (e.g., dealing with unknown suppliers) associated with joining EMs. By providing participants with collaborative tools such as demand forecasting, inventory management and production planning, EMs help provide increased visibility across several tiers of supply chain. Finally, EMs also provide value to buyers through collaborative commerce, i.e., the use of an online business-to-business exchange to facilitate the flow of business processes in addition to transactions (Raisch, 2001). Whereas market aggregation creates value for sellers and buyers by overcoming market inefficiencies associated with market fragmentation, inter-firm collaboration seeks improvements in business processes throughout the supply chain. Thus, it is suggested that buyers may expect two different types of

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benefits when using EMs: market efficiency and supply chain efficiency (Le, 2002). Aggregation overcomes market fragmentation, affording suppliers with market access, buyer with more choices, and both with price transparency. Participants can gain benefits from EMs through search cost efficiency and market liquidity. Collaboration enables market participants to build and deepen their business relationships for the purposes of improving individual business processes and overall supply chain performance (Table 1). 2.3. Perceived risks Although most studies on EMs emphasize their advantages, the fact that only a small number of firms currently use EMs for purchases suggests the importance of investigating perceived risks associated with EM usage. As suggested by Davila, Gupta, and Palmer (2003), it is crucial that those risks need to be addressed before EMs are widely adopted. Kheng and AlHawamdeh (2002) identify four major barriers for e-procurement. The most serious is the concern about the security of the Internet. Electronic payment systems for Internet-based commerce are relatively new and considered by many prospective users as being too risky for payment transactions. The second stumbling block is the significant investments in hardware, software, staffing and training required by e-procurement. To make extensive use of the Internet, some firms need more expensive telecommunications connection, workstations, or higher-speed computers than can handle transmission of complex graphics. Another issue is the laws and regulations

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governing e-commerce. At present, they are just being written. The fourth inhibiting factor is the inefficiencies in locating information. At present, most search engines are not sophisticated enough to help locate information in an efficient way. In another study about e-procurement usage, Davila et al. (2003) also address four perceived risks of e-procurement. Internal business risks refer to the requirement to invest in internal information infrastructure. External business risks are related to the communication with suppliers. Technology risks refer to the lack of a widely accepted standard and a clear understanding of which e-procurement technologies best suit the needs of each company. E-procurement process risks refer to the security and control of the e-procurement process itself. Finally, focusing on electronic transportation marketplaces, Goldsby and Eckert (2003) address some potential inhibitors to EM usage decision including information sensitivity and weak capabilities in verifying information about processes and partners. Taken together, these studies suggest that buyers may perceive two general types of risks when dealing with EMs: financial risks and trust barriers. Financial risks represent the initial development costs and recurring operating expenses associated with the usage of EMs. Moving B2B activities to EMs may require buyers to commit resources to deploy information technology applications and infrastructure that link their internal business processes and enterprise systems to EMs (Davila et al., 2003; Kheng & Al-Hawamdeh, 2002). Trust barriers refer to the constraints due to the uncertainties in safeguarding sensitive business information and in dealing with unknown suppliers. According to Bakos (1991, 1998),

Table 1 Determinants of EM extent of usage Construct and Dimensions

Definition

References

Expected benefits of EM Market aggregation Usefulness of EM that overcomes market fragmentation, affording buyer with more choices, information about product availability, price transparency, and lower transaction costs.

Inter-firm collaboration

Barratt and Rosdahl (2002), Bloch and Catfolis (2001), Brunn et al0. (2002), Bakos (1991, 1997, 1998), Chircu and Kauffman (1999), Evans and Wurster (1999), Kauffman and Walden (2001), Le (2002), Mahadevan (2000), Malone et al. (1987), Strader and Shaw (1997, 1999) Usefulness of EM that enables market participants to build and deepen Barratt and Rosdahl (2002), Bloch and Catfolis (2001), Brunn et al. their business relationships for the purposes of improving individual (2002), Le (2002), Narasimhan and Jayaram (1998), Narasimhan business processes and overall supply chain performance and Kim (2001)

Perceived risks of EM Financial risks Risk associated with initial development investments and recurring operating expenses Trust barriers Constraints due to the uncertainties in safeguarding sensitive business information and in dealing with unknown suppliers E-business readiness Information technology usage for facilitating purchasing Internet usage for facilitating purchasing IS/IT usage for enhancing SCM

The extent to which an organization uses relevant information technologies to facilitate the purchasing process.

Brunn et al. (2002), Davila et al. (2003), Kheng and Al-Hawamdeh (2002), Purao and Campbell (1998), Walczuch et al. (2000) Abell and Limm (1996), Davila et al. (2003), Zhu (2002), Goldsby and Eckert (2003), Kheng and Al-Hawamdeh (2002)

The extent to which an organization uses the Internet to facilitate the purchasing process.

Akkermans et al. (2003), Grover and Malholtra (1997), Lee et al. (1999), Prekumar and Ramamurghy (1995), Sriram et al. (1997), Sanders and Premus (2002), Sanders and Premus (2002) Lancioni et al. (2000), Olson and Boyer (2003), Vadapalli and Ramamurthy (1998), Walczuch et al. (2000)

The extent to which an organization uses IS/IT in its systems to facilitate the supply chain management.

Bardi, Raghunatan, and Bagchi (1994), Bowersox and Daugherty (1995), Narasimhan and Kim (2001)

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information transparency is one major benefit of EMs. Buyers are able to access the supplier base, seek information about price and product availability. However, Zhu (2002) postulates that information transparency also has a negative side. The lack of internet security may lead to the leakage of sensitive business information to competitors. The information that buyers only wish to share with suppliers may not be kept confidential (Goldsby & Eckert, 2003; Zhu, 2002). In addition, this insecurity also affects the operation of electronic payment systems that need significant amount of sensitive information from both buyers and sellers (Kheng & Al-Hawamdeh, 2002). Trust barriers also come from working with unknown suppliers. In these situations, commitment to the relationship and trust between partners are initially low, this may lead to several uncertainties (Morgan & Hunt, 1994). First, it would be difficult for buyers to ensure that suppliers meet or exceed recognizable and industry enforced standards relating to supplier quality, service, and delivery capabilities (Davila et al., 2003; Goldsby & Eckert, 2003). Second, there are also uncertainties related to verification of the terms and conditions of the contract. Working with unknown suppliers limits the capability of suppliers to participate in the purchasing process and may cause the incompatibility between processes of suppliers and buyers. This could be very risky for buyers since it may lead to misunderstanding or ineffectiveness in their transactions. 2.4. E-business readiness EMs expand the connectivity of their trading partners via systems integration, implementation of technical standards, and IT outsourcing services (Dai & Kauffman, 2002). Thus, to attract companies Internet market makers provide solutions that integrate participants' back-end enterprise systems with the marketplaces they wish to trade in (Brunn et al., 2002; Dai & Kauffman, 2002). They also integrate third-party business service providers, such as financial institutions, which offer options to close on-line business transaction (Dai & Kauffman, 2002). EMs can also implement common business processes among trading partners (Brunn et al., 2002; Dai & Kauffman, 2002). Thus, in order to successfully utilize EMs buyers and sellers must have adequate information system infrastructures and resources to maximize their participation benefits. It is suggested that the extent by which a firm utilize information technologies, information systems, and the Internet in purchasing and in enhancing supply chain management has an impact on the system integration with EMs (Olson & Boyer, 2003; Walczuch, Braven, & Lundgren, 2000). On the buyer side, it is suggested that (1) the usage extent of IT in purchasing, (2) the usage extent of the Internet in purchasing activities, and (3) the usage extent for supply chain management activities indicate how ready a firm is to do e-business. Information technology usage for facilitating purchasing refers to the extent to which an organization uses relevant information technologies to facilitate the purchasing process (Sanders & Premus, 2002; Sriram, Stump, & Banerjee, 1997). Increasingly, the purchasing function is viewed as an integral part of closely coordinated cross-functional systems such as materials require-

ments planning (MRP) and just-in-time logistics (JIT) whose effectiveness can be enhanced by information technologies that serve to develop a shared internal information infrastructure (Sriram et al., 1997). Information technologies are also increasingly being used to automate ordering system processes and purchasing vendor evaluation, performance monitoring activities, and payment activities. Another arena where information technologies are used to support the purchasing function is the communication linkage with vendors, where traditional telephone messaging and transaction paper flows are being supplanted by electronic data interchange (EDI) (Lee, Clark, & Tam, 1999; Prekumar & Ramamurghy, 1995). Finally, information technologies enable companies to integrate many kinds of information processing abilities and place data into a single database through the utilization of Enterprise Resource Planning (ERP) (Akkermans, Bogerd, Yücesan, & Wassenhove, 2003). An ERP system could potentially enhance transparency across the supply chain by eliminating information distortion and increase information velocity by reducing information delays (Akkermans et al., 2003). The extent to which an organization uses the Internet to facilitate the purchasing process may also indicate their e-business readiness. The greatest potential of the Internet is being realized by speeding up communication between customers and their suppliers, improving service levels, and reducing logistics costs (Lancioni, Smith, & Oliva, 2000). Accordingly, the Internet is utilized in a variety of procurement applications including the communication with suppliers, checking supplier price quotes, placing orders from suppliers' catalogs, and tracking order and payment information (Lancioni et al., 2000; Olson & Boyer, 2003; Vadapalli & Ramamurthy, 1998; Walczuch et al., 2000). The usage of the Internet increases purchasing efficiency. For instance, General Electric has reduced its purchasing staff by more than 50% and permits on-line purchasing from supplier catalogs by each department. The paperwork flows have been reduced, and order-cycle times – the time from when the order is purchased to the time it is delivered to the company – has decreased by 40% (Lancioni et al., 2000). Supply chain management (SCM) deals with the control of material and information flows, the structural and infrastructural processes relating to the transformation of materials into value added products, and the delivery of the finished products through appropriate channels to customers and markets so as to maximize customer value and satisfaction (Narasimhan & Kim, 2001). The benefit of supply chain management can be attained through the electronic linkage among various supply chain activities utilizing information technologies and the construction of integrated supply chain information systems (Bowersox & Daugherty, 1995). Through utilization of information systems, companies are able to integrate similar functions spread over different areas as well as curtail unnecessary activities, thus enhancing their capability to cope with sophisticated needs of customers and meet product quality standards (Bardi et al., 1994). Rutner, Gibson, and Williams (2003) indicate that companies that have successfully implemented logistics information systems are significantly more likely to have also implemented some form of e-commerce than those who have not. Similarly, in order to operate successfully in EMs, firms need to experience

S. Subba Rao et al. / Industrial Marketing Management 36 (2007) 1035–1045

Fig. 1. Framework.

technologies and Web site applications, construct a sufficient IS infrastructure, and have employees with a high level of e-business knowledge (Strader & Shaw, 1999). On the one hand, this readiness can enable a firm to exploit potential benefits provided by EMs and, on the other hand, to minimize possible risks of adopting EMs. E-business readiness has not yet been investigated in existing studies of EM adoption. It is suggested that e-business readiness moderates the firm's expected benefits or perceived risks and its usage of EMs. 2.5. Hypotheses

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“@” were deleted.). Finally, email message that returned error messages (e.g., “invalid email address, recipient could not be reached”) were subtracted from the final sample size calculation. Hence, 3026 emails were sent to buyers. Participants had three options to complete and return the questionnaire: (1) to complete and submit it online, (3) print it and submit it by mail, (4) request a paper copy and submit it by mail. A total of 370 questionnaires were returned. Of this total 11 contained many unanswered questions and thus were deleted. The final number of completed and usable questionnaire was 359, representing a satisfactory response rate of 11.9% (359/3026). Of these questionnaires 196 were from the survey's first wave (no reminder sent) and 163 from the second wave for which a reminder was sent 3 weeks after the first email. No significant differences were found between questionnaires from the fist wave and those of the second wave relative to respondents' profile. Buyers' had similar job titles and seniority (X2(3) = 3.64; X2(3) = 2.068 respectively; p N 0.1). Organizations come from similar industries (X2(7) = 5.67, p N 0.1), had similar sizes (X2(5) = 1.67, p N 0.1), had similar annual sales (X2(5) = 3.18, p N 0.1), and procurement budgets (X2(4) = 6.29, p N 0.1). No differences existed between respondents who

Based on the literature review, four hypotheses are posited (see Fig. 1). Hypothesis 1. There is a positive relationship between buyers' expected benefits from electronic marketplaces and their usage extent of these marketplaces. Hypothesis 2. There is a negative relationship between buyers' perceived risks of electronic marketplaces and their usage extent of these marketplaces. Hypothesis 3. E-business readiness moderates the relationship between buyers' expected benefits from electronic marketplaces and their usage extent of these marketplaces. H4. E-business readiness moderates the relationship between buyers' perceived risks of electronic marketplaces and their usage extent of these marketplaces. 3. Method 3.1. Sample and procedure A large scale survey was performed to collect the necessary data. A questionnaire with a cover letter indicating the purpose of the study was emailed to professional buyers. A mailing list from the Institute of Supply Management (ISM) constituted this study sampling frame. A random sample of 8000 names was extracted from the ISM list. This list was then refined according to the following criteria: (1) buyers located in the USA only, (2) buyers with an email address, (3) only one buyer per organization (the name with the most relevant job title was kept), (4) duplicates were deleted. The refined list contained 4095 names. An additional step was taken to generate the final mailing list. It was filtered by a server program in order to eliminate email addresses that were not valid (e.g., email addresses not containing

Table 2 Sample characteristics Characteristics

Distribution

Job title

74% 13% 6% 7% 4% 36% 26% 33% 29% 14% 12% 12% 9% 8% 7% 9% 11% 12% 16% 13% 28% 20% 5% 2% 5% 21% 31% 37% 5% 12% 17% 23% 43%

Purchasing Manager Director of Procurement VP of Materials Other Seniority of respondent Less than 2 years 2–5 years 6–10 years More than 10 years Industry (based on Electronic and Other Equipment SIC Codes) Food and Kindred Products Fabricated Metal Products Communication Paper and Allied Products Printing and Publishing Rubber and Misc. Plastic Products Other Number of employees Less than 100 100–250 251–500 501–1000 1001–1000 More than 10 000 Annual Sales (USD) Less than 5 million 5–10 million 11–25 million 26–100 million 100 million–1 billion More than 1 billion Procurement Budget (USD) Less than 1 million 1–10 million 11–25 million 26–100 million More than 100 million Note: Totals may not add to 100% due to rounding.

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submitted their questionnaires online relative and those who used more traditional means such as fax or regular mail. Buyers' had similar job titles and seniority (X2(3) = 2.04; X2(3) = 1.18; p N 0.1). Organizations come from similar industries (X2(7) = 1.32, p N 0.1), had similar sizes (X2(5) = 0.74, p N 0.1), had similar annual sales (X2(5) = 2.84, p N 0.1), and procurement budgets (X2(4) = 3.66, p N 0.1). Thus, these results suggested that non-respondents of the first wave did not differ from those of the first wave and that the questionnaire submission mean did not create any response bias (Table 2). The majority of buyers who participated in the study were purchasing managers (74%) and were with their organization for a period ranging from 6 to 10 years (59.6%). These buyers were working in firms trading in various industries (SIC codes): Electronic and Other Equipment (29.3%), Food and Kindred Products (14.5%), Fabricated Metal Products (12.3%), Communication Industry (12.3%), paper and Allied Products (9.2%), Transportation Equipment (8.4), Printing and Publishing (7.5%), and finally Rubber and Miscellaneous Plastic Products (6.7%). The majority of firms had more than 500 employees (61.4%), had annual sales of 100 millions or more (68.0%), and had procurement budgets of 25 millions or more (65.9%). 3.2. Dependent variable In order to assess buyers' current usage of EMs, they were asked to indicate their “Extent of current usage of EMs for purchasing in their organization.” A five-point Likert-type scale was used to measure their extent of EM usage ranging form “Not at all” to “To a great extent.” In order to test the validity of this single item measure, it was correlated with other EM usage variables such as the length of time the firm has been using EMs, the percentage of procurement spending the firm currently conducts through EMs, and the number of EMs the firm currently uses. All these usage related variables were positively correlated with the dependent variable (correlation coefficients ranging from 0.661 to 0.898, p b 0.01). Thus, the single item measure was deemed valid. 3.3. Independent variables In order to measures expected benefits, perceived risks and e-business readiness, measurement scales were developed. As

suggested by Churchill (1979) a series of steps were performed in order to generate valid and reliable measures. First, for each dimension of each construct under study, a pool of items was generated based on the literature review (see Table 1). Second, four academicians and four practitioners reviewed the items for clarity and construct validity. Third, the Q-sort method was then used to improve the proposed scales. Three Q-sort rounds were performed. For each round two purchasing managers acted as judges. Following Cohen (1960), Cohen's Kappa was used to assess inter-judge reliability. In the first round, two judges were requested to sort items according to the different construct or dimension definitions, based on which the interjudge agreement was measured (Cohen's Kappa = 0.89). Items that were identified as being too ambiguous were then reworded or deleted, in an effort to improve the agreement between the judges. The process was carried out for two more rounds (Cohen's Kappa = 0.89 and 0.91, respectively). According to Landis and Koch's (1977) guidelines, Kappa values above 0.76 are considered as excellent indicators of inter-judge agreement. Following the first two rounds, one item was deleted and two items were reworded. The proposed measurement scales were then used in the large scale survey instrument. For each multi-dimensional construct under study (perceived risks, expected benefits, and e-business readiness) two second order confirmatory factor analyses (CFA) were performed. A first CFA was performed using a test sample (n = 180). If necessary, items were deleted to improve the model fit. A second CFA using a holdout sample (n = 170) was performed to validate the measurement scales (see Appendix for measurement scales). As illustrated in Table 3, the chi-square statistics indicated that there were significant differences between the actual and predicted matrices. However, since this test is sensitive to sample size, additional goodness-of-fit measures were used to assess the overall fit of the model (Hair et al., 1998). All additional absolute fit measures and incremental fit measures used were above the 0.90 threshold and thus indicated a satisfactory fit of the models. The goodness-of-fit indexes (GFI), the adjusted goodness of fit indexes, the normed fit indexes (NFI), and the comparative fir indexes (CFI) were above 0.90. Finally, a parsimonious fit measure was computed. The normed chi-squares (χ2/df ) also indicated good model fit. Overall, the various goodness-of-fit measures indicated good model fit. Measurement and structural

Table 3 Confirmatory factor analysis results (holdout sample)

Expected Benefits: Market Aggregation (MA) Expected Benefits: Inter-firm Collaboration (IC) Perceived Risks: Financial Risks (FR) Perceived Risks: Trust Barriers (TB) E-business Readiness: IT usage (ITUSE) E-Business Readiness: Internet usage (INTUSE) E-Business Readiness: IS/IT usage to enhance SCM (ISSCM) a

p b 0.01.

Number of items

Cronbach alpha

Construct reliability

Variance extracted

X2

X2/ df

6 5 3 5 4 4 4

0.83 0.91 0.91 0.93 0.75 0.82 0.91

0.890 0.902 0.904 0.879 0.773 0.735 0.815

0.575 0.649 0.759 0.593 0.460 0.410 0.531

130a 3.0

0.92 0.90

0.92 0.93

55a 3.0

0.93 0.90

0.93 0.96

164a 3.0

0.92 0.90

0.91 0.93

GFI AGFI NFI CFI

S. Subba Rao et al. / Industrial Marketing Management 36 (2007) 1035–1045 Table 4 Standardized paths estimates for the expected benefits construct (Holdout sample) Paths

Standardized Estimates

Measurement Model Market Aggregation → MA 1 Market Aggregation → MA 2 Market Aggregation → MA 3 Market Aggregation → MA 4 Market Aggregation → MA 5 Market Aggregation → MA 6 Inter-firm Collaboration → IC 1 Inter-firm Collaboration → IC 2 Inter-firm Collaboration → IC 3 Inter-firm Collaboration → IC 4 Inter-firm Collaboration → IC 5

0.68 0.75 0.71 0.82 0.78 0.79 0.69 0.87 0.88 0.76 0.81

Structural Model Expected Benefits → Market Aggregation Expected Benefits → Inter-firm Collaboration

0.87 0.89

models for each CFA are presented in Tables 4–6. All path coefficients from these models were significant (p b 0.01). These results confirmed that market aggregation and interfirm collaboration were underlying dimensions of the expected benefits construct. They also suggested that the perceived risks construct was composed of financial risks and trust barriers as proposed in the literature. Finally, results confirmed that ebusiness readiness was composed of three dimensions: IT usage, Internet usage, and IS/IT usage to enhance SCM. As presented in Table 7, dimensions underlying a same latent construct were more correlated among themselves than correlated with dimensions of other latent constructs. These correlation coefficients provided evidence of convergent validity (significant correlations between dimensions of a same latent construct) and discriminant validity (nonsignificant or low correlations between dimensions underlying different latent constructs). Except for the IT usage measurement scale which generated a Cronbach's alpha of 0.75, the reliability coefficients for all measurement scales were above 0.80 (see Table 3). As presented in Table 3, all reliability coefficients were above the commonly suggested threshold of 0.70 (Hair et al., 1998), which suggested that each latent construct under study are unidimensional. This table also shows that the extracted variance values ranged from 0.410 to 0.759 (Table 3), suggesting that the indicators used were representative of the latent constructs they assessed. In light of these results and in order to test the posited hypotheses, an index for each latent construct under study, i.e., expected benefits, perceived risks, and e-business readiness, was computed using average scale scores of all their underlying dimensions. As expected, correlations between these three indexes were low. The correlation between the expected benefits index and the perceived risks index was 0.034 (p N 0.05), the correlation between the expected benefits index and the e-business readiness index was 0.223 (p b 0.01), and finally the correlation between the perceived risks index and the e-business readiness index was − 0.194 (p b 0.01). These low correlation coefficients provided evidence of discriminant validity between the

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Table 5 Standardized paths estimates for the perceived risks construct (Holdout sample) Paths

Standardized Estimates

Measurement Model Financial Risks → FR 1 Financial Risks → FR 2 Financial Risks → FR 3 Trust Barriers → TB 1 Trust Barriers → TB 2 Trust Barriers → TB 3 Trust Barriers → TB 4 Trust Barriers → TB 5

0.85 0.87 0.89 0.77 0.76 0.72 0.81 0.79

Structural Model Perceived Risks → Financial Risks Perceived Risks → Trust Barriers

0.90 0.65

constructs and also evidence of the absence of potential collinearity problems for the following regression analysis. 4. Results In order to test the hypotheses, a stepwise multiple regression was performed. Current EM usage was entered in the regression model as the dependent variable. The following variables were entered as independent variables: Expected benefits (EB), Perceived risks (PR), and e-business readiness (ER). In addition, two interaction terms were also introduced in the model, i.e., EB × ER and ER × PR in order to test the moderating effects of ER. Following the stepwise regression procedure, only two variables and one interaction term remained in the model: PR (Std. coefficient = − 0.251, p b 0.01), EB (Std. coefficient = 0.274, p b 0.01, and ER × EB (Std. coefficient = 0.447, p b 0.01). The coefficient of determination of the regression model was 0.383, indicating that 38.3% of the variance of EM Table 6 Standardized paths estimates for the e-business readiness construct (Holdout sample) Paths

Standardized Estimates

Measurement Model IT Usage → ITUSE 1 IT Usage → ITUSE 2 IT Usage → ITUSE 3 IT Usage → ITUSE 4 Internet Usage → INTUSE 1 Internet Usage → INTUSE 2 Internet Usage → INTUSE 3 Internet Usage → INTUSE 4 IS/IT Usage to Enhance SCM →ISSCM 1 IS/IT Usage to Enhance SCM →ISSCM 2 IS/IT Usage to Enhance SCM →ISSCM 3 IS/IT Usage to Enhance SCM →ISSCM 4

0.60 0.63 0.58 0.69 0.59 0.53 0.59 0.55 0.54 0.74 0.82 0.64

Structural Model E-business Readiness → IT usage E-Business Readiness → InternetUsage E-Business Readiness → IS/IT Usage to Enhance SCM

0.86 0.97 0.98

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Table 7 Correlation coefficients between construct dimensions

MA IC FR TB ITUSE INTUSE ISSCM

MA

IC

FR

TB

ITUSE

INTUSE

ISSCM

1.000

0.698 ** 1.000

0.182 * 0.242 ** 1.000

− 0.199 * 0.010 0.432 ** 1.000

0.186 * 0.082 − 0.086 − 0.162 * 1.000

0.212 ** 0.199 ** −0.085 −0.126 0.528 ** 1.000

0.240 ** 0.104 − 0.120 − 0.214 ** 0.634 ** 0.491 ** 1.000

* p b 0.05. ** p b 0.01.

usage was explained by the model. Finally, the regression model was significant (F = 58.05, p b 0.01). Hypothesis 1 suggested that there is a positive relationship between buyers' expected benefits from EMs and their usage extent of EMs. Since EB was retained following the stepwise procedure and had a significant regression coefficient, this hypothesis was supported. Results of the regression model also supported Hypothesis 2, which posited a negative relationship between buyers' perceived risks of EMs and their usage extent of EMs. Hypothesis 3, which suggested that e-business readiness moderates the relationship between buyers' expected benefits from EMs and their usage extent of EMS was also supported since the interaction term ER × EB was significant (Barron & Kenny, 1986). Finally, Hypothesis 4 was not supported. The second interaction term ER × PR did not generated a significant regression coefficient and thus was not entered in the regression model (Std. coefficient = −0.048, p N 0.1).

to inter-firm collaboration aspects. In fact, they should try to find out what are the needs of the buyer and then maybe focus their selling efforts on one or both of these aspects in order to convince the buyer to join them. Results of this study also show that benefits are not the only determinants of EM usage, perceived risks also play an important role in buyers' decision to use EMs. Thus, EM promoters should not only focus their “selling” efforts on benefits for firms but also work on minimizing firms' risks or at least their perception of risks. Again, these perceived risks can be divided in two categories: financial risks and trust barriers. EM promoters should try to identify if one or both risk categories are at play when they are trying to attract a particular buyer to their EM in order to better address their concerns. Finally, since e-business readiness moderates the relationship between EM usage and expected benefits, EM promoters should primarily allocate their resources toward firms that are more e-business ready than others, since these buyers perceive greater benefits in EM usage than those that are not as advanced in electronic business usage.

5. Discussion 5.2. Research avenues and limitations The purpose of this study was to investigate certain determinants of EMs usage by firms. Results suggested that EM usage is influenced by firms' perceived risks in joining EMs and expected benefits of participating in such markets. In addition, results suggested that the firm's e-business readiness moderates the relationship between expected benefits from EM and the firm' EM usage. But, results also suggested that the firm's e-business readiness did not moderate the relationship between perceived risks relative to EMs and the firm's usage of EMs. 5.1. Managerial and theoretical implications These results have major theoretical and managerial implications. First, this study empirically confirmed that, in the context of EMs, perceived risks, expected benefits, and e-business readiness are multi-dimensional constructs. Thus, each dimension should be taken into consideration and measured when investigating these constructs. Results suggested that market aggregation is not the only dimension underlying expected benefits from EMs, interfirm collaboration is also a major part of this construct. Thus, EM promoters, in order to expand their membership base and trading volume, should not solely focus their “selling” efforts on benefits related to market aggregation aspects but also on benefits related

Following this study, some research avenues would be worth considering. One avenue would be to continue identifying determinants of EM usage from the buyer side. Results of this study explained 38.3% of buyers' usage of EMs. Thus, variables are still missing in explaining firms' usage of EMs. Another interesting research avenue would be to investigate how suppliers perceive EMs in order to explain their usage of these marketplaces. As with all studies, this study has some limitations that should be noted. First, the sampling frame used (ISM member list), although encompassing a large number of buyers, does not guaranty that the sample obtained is representative of US buyers. Second, although responses were collected from a qualified purchasing professional within each firm, his/her views may not represent those of their group of colleagues. Thus, additional studies using different samples would help ensure the generalizability of the results obtained. 6. Conclusion Electronic marketplaces (EMs) are not as popular as originally anticipated. Both buyers and sellers are not using EMs in important numbers for the moment. Thus, it becomes

S. Subba Rao et al. / Industrial Marketing Management 36 (2007) 1035–1045

vital for EM promoters to investigate the determinants of EM usage in order to understand and identify what elements may influence buyers' and sellers' decision to use or not EMs. In order to better understand EMs usage, this study was performed and identified three constructs that influence buyers' usage EMs. It is a step in the right direction and we hope that it will engender additional studies in order to achieve a better understanding of this important phenomenon.

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TB3: Incompatible inter-firm business processes inhibit our organization from procuring materials/products through EM TB4: Uncertainties related to verification of the terms and conditions of the contract inhibit our organization from procuring materials/products through EM TB5: Uncertainties related to supplier's fulfillment capability inhibit our organization from procuring materials/products through EM

Appendix A. Measurement scales Expected benefits of EMs Market aggregation MA1: The EM is useful for reaching a larger number of suppliers MA2: The EM is useful for increasing price transparency MA3: The EM is useful for seeking information about product availability MA4: The EM is useful for seeking lower materials/products cost MA5: The EM is useful for seeking lower transactional commission and related fees MA6: The EM is useful for paying at true market price.

E-Business Readiness Information Technology Usage for Facilitating Purchasing ITUSE1: To facilitate the purchasing process our organization uses EDI (Electronic Data Interchange) ITUSE2: To facilitate the purchasing process our organization uses ERP (Enterprise Resource Planning) ITUSE3: To facilitate the purchasing process our organization uses Electronic Request for Quotes (RFQ)/Request for Proposal (RFP) ITUSE4: To facilitate the purchasing process our organization uses Electronic Funds Transfer (EFT) and/or Electronic Payment. Internet Usage for Facilitating Purchasing

Inter-Firm Collaboration IC1: The EM is useful for increasing supply chain-wide inventory visibility IC2: The EM is useful for shortening order-to-delivery lead time IC3: The EM is useful for improving logistics management IC4: The EM is useful for collaborating with suppliers on product design and development IC5: The EM is useful for collaborating with suppliers on the process of procurement. Perceived Risks of EMs Financial Risks

INTUSE1: To facilitate the purchasing process our organization uses the Internet for announcing purchasing requirements INTUSE2: To facilitate the purchasing process our organization uses the Internet for placing orders on supplier's website INTUSE3: To facilitate the purchasing process our organization uses the Internet for tracking payment information INTUSE4: To facilitate the purchasing process our organization uses the Internet for sharing design information with our suppliers. IS/IT Usage for Enhancing SCM

FR1: High cost of EM platform development inhibits our organization from procuring materials/products through EM FR2: High business process coordination cost inhibits our organization from procuring materials/products through EM FR3: High cost for IS integration inhibits our organization from procuring materials/products through EM

ISSCM1: To facilitate supply chain management our organization uses IS/IT in production control systems ISSCM2: To facilitate supply chain management our organization uses IS/IT in automatic ordering systems ISSCM3: To facilitate supply chain management our organization uses IS/IT in resource management systems ISSCM4: To facilitate supply chain management our organization uses IS/IT in transportation management systems

Trust Barriers TB1: Uncertainties related to the settlement of disputes inhibit our organization from procuring materials/products through EM TB2: Uncertainties related to the identity of the suppliers inhibit our organization from procuring materials/products through EM

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S. Subba Rao et al. / Industrial Marketing Management 36 (2007) 1035–1045 Skjøtt-Larsen, T., Kotzab, H., & Grieger, M. (2003). Electronic Marketplaces and Supply Chain Relationships. Industrial Marketing Manegement, 32(3), 199−210. Sriram, V., Stump, R. L., & Banerjee, S. (1997). Information Technology Investments in Purchasing: An Empirical Study of Dimensions and Antecedents. Information and Management, 33(2), 59−72. Stock, G. N., Greis, N. P., & Kasarda, J. D. (1998). Logistics, Strategy and Structure. International Journal of Operations and Production Management, 18(1), 37−52. Strader, T. J., & Shaw, M. J. (1997). Characteristics of Electronic Markets. Decision Support Systems, 21(3), 185−198. Strader, T. J., & Shaw, M. J. (1999). Consumer Cost Differences for Traditional and Internet markets. Internet Research: Electronic Networking Applications and Policy, 9(2), 82−92. Subramaniam, C., & Shaw, M. J. (2002). A Study of the Value and Impact of B2B e-Commerce: The Case of Web-Based Procurement. International Journal of Electronic Commerce, 6(4), 19−40. Vadapalli, A., & Ramamurthy, K. (1998). Business Use of the Internet: An Analytical Framework and Exploratory Case Study. International Journal of Electronic Commerce, 2(2), 71−94. Walczuch, R., Braven, G. V., & Lundgren, H. (2000). Internet Adoption Barriers for Small Firms in the Netherlands. European Management Journal, 8(5), 561−572. Wood, A. (1997). Extending the Supply Chain: Strengthening Links with IT. Chemical Week, 159(25), 25−26. Zhu, K. (2002). Information Transparency in Electronic Marketplaces: Why Data Transparency May Hinder the Adoption of B2B Exchanges. Electronic Markets, 12(2), 92−100. S. Subba Rao is Professor of Operations and Supply Chain Management at the University of Toledo. His teaching and research focus on manufacturing management, operations research modeling, management science, quality management, global supply chain management, and B2B electronic commerce. His work has appeared in journals such as Operations Research, Naval Research Logistics Quarterly, Journal of Optimization Theory and Applica-

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tions, IEEE Transaction, Journal of Applied Probability, OPSEARCH, Total Quality Management, Journal of Quality Management, OMEGA, European Journal of Operations Research, International Journal of Quality and Reliability, Industrial Management and Data Systems, Business Process Management Journal, Electronic Markets, and Journal of Intelligent Manufacturing.

Dothang Truong is Assistant Professor of Operations Management at Fayetteville State University. His teaching and research focus on operations management, quantitative methods for business, supply chain management, and B2B electronic commerce. His research has appeared in Electronic Markets, International Journal of Enterprise Information Systems, and Behavior and Information Technology Journal.

Sylvain Senecal is Associate Professor of Marketing at HEC Montreal. His teaching and research interests include online buyer behavior and online intermediaries. His research has appeared in Industrial Marketing Management, International Journal of Electronic Commerce, Journal of Business Research, Journal of Marketing Channels, and Journal of Retailing.

Thuong T. Le is Professor of e-Business, Marketing and Supply Chain Management at the University of Toledo. His teaching and research focus on B2B electronic commerce, Internet marketing, supply chain management, global business, and transport policy and management. His research has appeared in journals such as Electronic Commerce Research, Electronic Markets, International Journal of Service Technology and Management, Transportation Journal, Journal of Purchasing and Materials Management, Maritime Management and Policy, Transportation Quarterly, International Journal of Transport Economics, International Trade Law and Practices, and Journal of Maritime Law and Commerce.