Is local sourcing out of fashion in the globalization era? Evidence from Italian mechanical industry

Industrial Marketing Management 40 (2011) 1012–1023

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Industrial Marketing Management

Is local sourcing out of fashion in the globalization era? Evidence from Italian mechanical industry Annalisa Tunisini ⁎, Roberta Bocconcelli 1, Alessandro Pagano 2 University of Urbino “Carlo Bo”, Department of Economics, Society, Politics, Via Saffi, 42-61029 Urbino (PU), Italy

a r t i c l e

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Article history: Received 30 November 2010 Received in revised form 29 March 2011 Accepted 11 June 2011 Available online 8 July 2011 Keywords: Supplier relationships Local/international sourcing Clusters Italian mechanical industry

a b s t r a c t The paper concerns a study on the changes affecting leading cluster companies' supplier relationships. In particular, the paper aims at investigating under which conditions and how industrial cluster companies rely on local suppliers in the current context of international competitive pressure and easier access to international supply sources. The research methodology is qualitative and based on a long-term longitudinal research of three case studies of Italian industrial cluster companies that are leading firms in specific niches of the mechanical industry. Two main questions are debated: under which conditions have industrial cluster companies relied on local suppliers? What has been the evolution of relationships between industrial cluster companies and their local suppliers? The empirical analysis shows that local suppliers have been playing strategic roles in different ways in distinct historical phases, contributing actively in terms of knowledge and competence development, production flexibility, delivery performance and cost efficiency. © 2011 Elsevier Inc. All rights reserved.

1. Introduction This paper is based on long-term longitudinal research on Italian industrial cluster companies that are international leaders in specific niches of the mechanical industry. The study concerns changes affecting these companies' supplier relationships as they have had to face fast global economic change. In particular, the paper investigates under which conditions and how industrial cluster companies have relied on local suppliers in the face of international competitive pressure and easier access to international supply sources. It is widely recognized that suppliers represent a strategic asset for the competitiveness of their customer firms (Christopher, 2005; Cox & Lamming, 1995; Womack, Jones, & Roos, 1990). Companies increasingly perceive suppliers as providers of various types of advantages and benefits, in the light of their contribution in terms of efficiency and valuable knowledge (Cox & Hines, 1997; Gattorna, 2009). Thus buyers are ready to develop long-term partnerships with selected suppliers based on interdependence, trust and intensive knowledge flows (Gadde, Håkansson, & Persson, 2010). This kind of supply relationship is common in industrial clusters, where geographical and social proximity enhances interaction among local firms (Becattini, 1990; Pyke, Becattini, & Sengerberger, 1990). Within this scenario fast growing industrial cluster

⁎ Corresponding author. Tel.: + 39 0722 305 527. E-mail addresses: [email protected] (A. Tunisini), [email protected] (R. Bocconcelli), [email protected] (A. Pagano). 1 Tel.: + 39 0722 305 520. 2 Tel.: + 39 0722 305 532. 0019-8501/$ – see front matter © 2011 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2011.06.011

firms have the opportunity to rely on valuable local suppliers while pursuing their expansion plans (Varaldo & Ferrucci, 1996). In recent years great attention has been paid to the globalization of markets and supply chains. In particular, a recent stream of management research highlights the growing adoption of international sourcing strategies, based on the search, selection and integrated management of supply networks on an international scale (Axelsson, Rozemeijer, & Wynstra, 2005; Hines, 1994; Quintens, Pauwels, & Mathyssens, 2006; Trent & Monczka, 2003). Companies engaged in such behavior pursue mainly cost and innovation advantages (Gadde & Håkansson, 2001) in gaining access to components, materials, knowledge and capabilities of globally-dispersed providers. Empirical studies are mainly concerned with the sourcing behavior by large-sized firms, which are able to deal with various supply sources in different markets worldwide and develop organizational capabilities to engage in such activities. Only a few studies detail the forces affecting industrial cluster companies and changes in their sourcing strategies (Camuffo, 2003; Furlan, Grandinetti, & Campagnolo, 2009). Within this stream of literature it has been observed that these companies are increasingly involved in supply relationships with foreign partners, in relation to the increasing pressure in mature manufacturing sectors (textile, clothing and footwear, mechanical) by emerging economies, such as China and India (Camuffo, Furlan, Romano, & Vinelli, 2006; Chiarvesio & Di Maria, 2009). However, it could be argued that pursuing an international sourcing strategy might not be the only option to organize production activities for mid-sized cluster companies. Most of the literature is concerned with analyzing the opening of international sourcing relationships and the connected advantages, and pays limited attention to the main features

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of the changing role of local suppliers that have been historically linked to these companies (Håkansson, Tunisini, & Waluszewski, 2006; Tunisini & Bocconcelli, 2009). In this respect we think that further research is needed and particular attention should be devoted to the renewed role of local supplier relationships when companies “open” their supply side to the international supply market. Thus the paper is concerned with assessing whether and how the “local” dimension of business supplier relationships is still a feasible and effective path for leading cluster companies. Specifically, this paper debates the following two research questions: i) under which conditions have industrial cluster companies relied on local suppliers? ii) What has been the evolution of relationships between industrial cluster companies and their local suppliers? Therefore the main goal of this paper is to investigate whether leading cluster companies might choose to remain closely integrated within the local supply network and which are the main conditions – both internal and external – influencing their approach. The research methodology is qualitative and based on a limited number of case-studies: the empirical investigation concerns three companies selected among the leading firms in specific sub-sectors of the mechanical industry in the light of their size and international profile. The empirical analysis shows that local suppliers have been playing strategic roles in different ways in distinct historical phases, contributing actively in terms of knowledge and competence development, production flexibility, delivery performance and cost efficiency. The three companies under examination have been pursuing a gradual and balanced approach toward international sourcing opportunities, which are exploited mainly for commercial parts and only to a limited extent for customized parts and components. The paper is structured as follows. In the next section a literature review on the role of supply networks and on the relevance of local suppliers for industrial cluster companies is presented. In the third section the aim and methodology of the study are described and the companies' profiles are traced. The fourth section is devoted to the longitudinal analysis of the three case studies in relation to the main research topic. In the fifth section the main results are discussed. A final section is dedicated to conclusive remarks, further research directions and managerial implications.

2. Theoretical background 2.1. Role of supply relationships in industrial companies Studies on strategic sourcing and supplier relationships are numerous and articulated. It is well known that companies refer to a complex set of various and interconnected supplier relationships to perform innovation and manufacturing activities (Christopher, 2005; Cox & Hines, 1997; Lamming, 1993; Womack et al., 1990). Suppliers play multiple roles for customer companies. The different roles may be connected to the fact that supplier relationships are sources both of costs and of value (Schiele, 2006). They are sources of costs because of the huge investments a customer manufacturing company makes in purchases and in handling its relations with suppliers (Ford, Håkansson, Gadde, & Snehota, 2003). They are sources of value as, by supplier relationships, the customer company gets access to new and complementary knowledge and capabilities (Gadde & Snehota, 2000; Moller & Torronen, 2003). As source of costs, suppliers can help the customer gain cost advantages, thanks to their investments in more efficient products and delivery processes. In this respect suppliers play a rationalization role. As source of value, they can support customers in enhancing the effectiveness of their products and processes. They can promote quality, innovation, speed of delivery and customization. In this respect, suppliers can have a developmental role (Gadde & Håkansson, 2001). As many studies have highlighted, suppliers play a key role in developing new product ideas and in supporting the innovation of the customers' products (Johnsen & Ford, 2007; Van der Valk & Wynstra, 2005).

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Suppliers have become an extension of the factory of many manufacturing companies that have to cope with multiple sources with different managerial approaches: from transactional to procurement approaches, focalized on the search for technical and operational integration with the supplier, to co-makership approaches, involving technological and strategic integration with the partner company (Anderson & Narus, 1998; Cammish & Keough, 1991). The greater interaction and repeated exchanges with suppliers generate an increasing interdependence between buyer and supplier with high specific investments in the relation by both parties. This enhances the exchange of knowledge and information, reciprocal learning and trust in favor of a value creating relationship (Håkansson, Ford, Gadde, Snehota, & Waluszewski, 2009; Hallen, Johanson, & Seyed, 1991; Roseira, Brito, & Hennenberg, 2010). Moreover, many manufacturing companies have increasingly enlarged their perspectives to the search for best suppliers worldwide (Hines, 1994; Quintens et al., 2006). New manufacturing models, based on internationally dispersed sets of suppliers are variously experienced and increasingly developed by companies, especially large companies and MNCs (Ernst & Kim, 2002; Shi & Gregory, 1998). Advantages and disadvantages of international sourcing have been discussed by many streams of literature that have especially focused on the determinants that explain companies' search for international sourcing. One main advantage is the access to highly cost-competitive suppliers, which are increasingly located in low-cost emerging and developing countries and able to provide standard level production and organizational capabilities. Lower costs might also derive from establishing partnerships with global suppliers capable of achieving economies of scale on an international level. Another major advantage is the development of relationships with foreign suppliers having valuable technological capabilities and innovative products, thus providing leading edge solutions not available in the domestic market. Moreover, in terms of supply strategy, international sourcing allows switching between different supply sources. Lastly, well-performing and trusted foreign suppliers might represent valuable resources to collect final market information and establish relationships with new customers in the local market (Arnold, 1989, Trent & Monczka, 2003; Trent & Monczka, 2005). On the other side of the coin, international sourcing activities might be difficult and complex due to the need to deal with foreign cultures, thus leading to communication and language problems with foreign suppliers. Communication and knowledge exchanges might also be impaired by physical distance. Moreover, the predicted gains in production efficiency might be offset by quality problems, high transportation costs and supply chain uncertainty in terms of logistics and delivery performance (Axelsson et al., 2005; Birou & Fawcett, 1993; Trent & Monczka, 2005). Such difficulties might have highly negative consequences if companies are engaged in lean production and JIT approaches. Studies have mainly analyzed companies' processes of international sourcing with attention to large MNCs. Moreover, they have been mostly focused on the determinants and advantages of international sourcing. Fewer contributions have paid attention to the role and value of longterm co-localized set of suppliers, especially for companies that, in search for growth, increasingly internationalize. This is a key issue especially for leading cluster companies, born and developed by strong relationships with a set of local suppliers. 2.2. Leading cluster companies and local supply relationships Numerous studies on industrial clusters have highlighted the relevance of geographical proximity in supporting and enhancing social interaction and co-operation (Becattini, 1990; Iammarino & McCann, 2006; Maskell, 2001; Pyke et al., 1990). Since the mid-nineties, the Italian literature has pointed out that some cluster companies have rapidly grown and developed internationally, becoming leading actors in specific international market niches (Lazerson & Lorenzoni, 1999; Varaldo & Ferrucci, 1996). These companies, defined as “micromultinationals” (Dimitratos, Johnson, Slow, & Young, 2003; Mediobanca-Unioncamere,

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2010), are born and developed through business models based on a set of domestic suppliers' constellations participating in the production and innovation of their product (Lorenzoni & Ornati, 1988). They are midlarge-sized companies that are “big among small” and represent about the 25% of Italian added value. The interesting thing is that the added value increases to the 35% if we consider their extensive set of local suppliers and sub-suppliers (Mediobanca-Unioncamere, 2010). The sustainability and the growth of their international positioning make them sensitive to international rather than local sourcing because of the cost advantages and the easier access to internationally dispersed knowledge. This could become a serious threat to the sustainability of local sets of suppliers. Scholars highlight the strategic role of mid-sized leading companies in driving the development of the whole district (Varaldo & Ferrucci, 1996). In this respect, they agree that the local set of a company's suppliers has always been considered a strategic value resource for the leading companies. It has been recently observed that such entirely local and self-contained entrepreneurial mechanisms have been threatened by the “international fragmentation of production” (Arndt & Kierzkowsky, 2001; Feenstra, 1998; Gereffi, Humphrey, & Sturgeon, 2005). It is thus considered possible that leading firms' value chains will be disarticulated, and single phases will be relocated internationally, emphasizing cross-border linkages between firms in global production and distribution systems, rather than local linkages (Mariotti, Mutinelli, & Piscitello, 2008). In the face of the increasing advantages of international sourcing, the leading mid-sized companies could thus gradually dismantle the traditional set of local supplier relationships with considerable negative effects on the manufacturing set of long-term local competences. The question is relevant even if many scholars stress the numerous benefits connected to continuous local sourcing. In particular, it has been observed that local clusters of suppliers make it possible to access a safe source of qualified labor, so many companies will preserve local suppliers (Camuffo et al., 2006; Porter, 1990, 1998). Moreover, long term ties with local suppliers and the value of the social dimension of the business relationship make possible knowledge exchanges in the innovation process, thus making local suppliers valuable to preserve and enhance product quality and innovation (Breschi & Malerba, 2001; Maskell, 2001; Salazar & Holbrook, 2007). The value of social relationships is gradually lost as the distance increases. This is another reason that companies may want to preserve local suppliers (Sorenson & Baum, 2003). Some researchers add that when demand fluctuates, as in periods of crisis, it is better to have an agile local supply chain (Jin, 2004). From a competence point of view, the ability to combine international and local sourcing can be a means to support the development of local clusters of suppliers thanks to the learning process that stems from their interaction with international suppliers (Steinle & Schiele, 2008). Care for the local set of suppliers occurs at least as long as their competences make the real difference in the supply chain processes of value creation for customers. That explains why, for example, in the footwear sector the leather cutting and final product assembly are carried out by domestic suppliers (Camuffo et al., 2006). Likewise, in the mechanical sector very specific metal working processes are carried out by local suppliers (Håkansson et al., 2006). This paper enters into this debate and deepens the topic by adopting the perspective of three micro-multinationals. In particular the paper analyses why and how the local set of supplier relationships can play an important role for companies that pursue an international expansion strategy. 3. Research objectives and methodology This paper aims to explore the evolution of the role of local supplier relationships for companies increasingly facing growth in international markets, but also with a business history strongly based on long-term relationships with local suppliers. In other words, in the face of international competitive pressure and more international supply

sources, we are interested in investigating whether and how industrial cluster companies have relied upon local supplier relationships over time. In particular, our study concerns three leading cluster companies of the mechanical sector in Italy. We aim at addressing the following two questions: – Under which conditions have industrial cluster companies relied on local suppliers? – What has been the evolution of relationships between industrial cluster companies and their local suppliers? The research methodology is based on qualitative research following the multiple case-study approach. This methodology is particularly suitable when dealing with research questions that try to identify some behavioral aspects of companies' actions (Eisenhardt, 1989; Yin, 1994), within a research project based on exploratory objectives. Thus three case studies of Italian companies have been developed. These firms have been selected according to the following criteria: – they are industrial cluster companies engaged in growth processes in terms of size and international profile since their foundation; – they belong to the mechanical sector, which is traditionally characterized by technological complexity and by a large base of local suppliers active in the production of systems, components and in design activities; – they are market leaders in their specific niche; this allows for examining firms continuously attempting to protect and improve their competitiveness; – they have a strong international profile, thus gaining an awareness of costs and benefits of strategic options in international markets. Thus the selected firms are three mid-sized Italian mechanical companies which are leaders in their market niches and over time have developed a significant international configuration of sales and production activities: ALPHA Group, BETA Group and GAMMA Group. The empirical analysis was developed adopting a longitudinal approach to case study development, allowing for an examination of the complex internationalization processes followed by firms (Melin, 1992) and to highlight change over time in specific variables and their effect (Pettigrew, 1997). This approach best addresses the main objective of the paper, that is to investigate the relations existing between companies and their local supply base. To collect data, we proceeded by performing interviews in the three companies, selecting managers with longstanding and deep knowledge of the evolution of sourcing policies and practices. In ALPHA Group we conducted in total seven interviews from 2005 to 2010 with the Head of Purchasing in ALPHA Finishing division and with the CEO of Delta, an ALPHA owned company. In BETA we conducted nine interviews from 2004 to 2010 with the Director of a specific BU and the Purchasing Manager (respectively Head of Minimax BU and Head of the Central Purchasing). In GAMMA we conducted in total seven interviews from 2005 to 2010 with the Chief Executive Officer (who is one of the owners of the company), the Purchasing Manager and Production Manager together (respectively Head of the Purchasing Central Department and Head of the Production Department), and the Purchasing Manager alone. Data collected through interviews was combined with official company documents, information provided by corporate web sites and secondary data from specialized press reports. Table 1 provides the list of the selected companies and the interviews performed in each of them. Appendix contains some basic information (turnover, employees, commercial subsidiaries, production sites/location) about ALPHA, BETA and GAMMA from 2004 until 2010. ALPHA Group was established in 1932 in a small town in the center of Italy. ALPHA reached a turnover level of 301 million Euro in 2009 (−22% with regard to 2008) and is currently active in four different sectors. Over time the firm has changed its organizational structure to adapt to its main markets, developing a divisional organization. ALPHA Finishing, established in 1960, is the division in charge of managing finishing-related

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Table 1 List of selected companies and interviews performed.

ALPHA Group BETA Group GAMMA Group

Sectors

Interviews from 2004 to 2010 (people interviewed)

Civil and industrial installations, retail outlets for the distribution sector, wood finishing and dental technologies Wood-working machineries, glass and stone working machineries for furniture producers Rebar processing machineries for large construction industry companies

7 (Head of Purchasing in ALPHA Finishing division, CEO of Delta — ALPHA owned company) 9 (Head of Minimax BU, Head of the Purchasing Central Department) 7 (CEO, Head of the Purchasing Central Department, Head of the Production Department)

activities and is currently the market leader (with a market share of about 28%) in wood-finishing complete production lines, reaching a turnover of 113 million Euro in 2008. In 2009 the division registered a −40% in turnover due to the economic and financial crisis. In addition to woodrelated applications, the company is also very active in the plastic and glass sectors for finishing activities. ALPHA Finishing products are sold worldwide and foreign markets represent 80% of its turnover (ALPHA Finishing supplies process technology to large and international customers such as the Swedish company Ikea and the US firm Masco). ALPHA Finishing over the years has implemented a strong international presence in terms of production facilities and commercial units and partners. It currently controls 7 sales subsidiaries and 7 production facilities in Italy, Germany, the United States and China, after recently closing a plant in Brazil established in 2002. BETA was established in 1965 in a geographical area that has an historical concentration of important Italian furniture companies. Over time the company has considerably changed its organizational structure due to rapid growth that has allowed it to reach a leading position in woodworking machinery production. BETA faces internationally just two competitors (one German and one Italian). The three companies account for the 60–70% of the total market segment. From mid 2008, BETA notably suffered the impact of the economic and financial crisis, as data in Appendix show. BETA's turnover was 390 million Euro in 2009 (−40% with regard to 2007). In 2010 it should have registered an increase in turnover. BETA employs about 1000 people (1500 until 2008) in its 15 production plants in Italy (18 until 2008) and maintains about 3150 employees worldwide. These last numbers show downsizing in BETA activities connected to a significant change in its organizational structure, mainly based on principles of centralization and on efficiency rationales. In this respect, in the last quarter of 2009 Beta shut down one important plant and moved all production activities to the central production site. BETA international commercial development has been constant during the 2000s and now the company accounts for 23 commercial subsidiaries abroad. GAMMA was founded in 1962 in a small town in the center of Italy and has developed due to experience gained through interaction with various similar companies active in the production of industrial equipment and with their suppliers. The company effectively combined and exploited these dispersed competences and resources to enter into a particular and very promising market niche. This opportunity emerged in the early 1980s, due to a reorganization of the construction sector characterized by the development of large multinational companies in iron and steel commercialization. These companies pursued a vertical downstream integration, offering finished products that previously were processed by hand with rudimentary machines by workers in the construction companies. GAMMA is a leader in the production of machineries for rebar processing used mainly by companies in the building sector. GAMMA has two main competitors, an Italian and a German/Danish firm. The company covers 25% of the market with an average sales growth of 30% from 2005 to 2007. As in the previous cases, after 2007 the company (see Appendix) faces the effects of the global economic and financial crisis. The company employs 360 people (with a reduction of about 40 units with regard to 2007) and presents a turnover of 102 million Euro in 2008 and of 60 million in 2009 (half compared to the 115 million Euro turnover of 2007). The trend for 2010 shows a slow

increase. The company accounts for 5 production sites (3 in Italy, one in Brazil and one in China), one software company in Spain, and 5 “service” companies working as small production logistics centers. The company has 11 commercial subsidiaries all over the world and about 30 agents and importers that are also responsible for assistance and post-sales services in the major international markets. GAMMA has always based its competitiveness on research and development and innovation activities (123 patents registered from 1987 in Europe and abroad) that customize service to a great variety of customers all over the world, who require particular features linked, for example, to different building safety standards or different construction technologies. 4. The empirical analysis This section develops a longitudinal analysis of the evolution of local sourcing policies and practices by each of the three selected companies. 4.1. The evolution of local supply relationships in ALPHA The current profile of ALPHA Finishing is the outcome of a growth process marked by acquisitions of complementary and technologically advanced companies. An important step in this phase was the acquisition of Delta by ALPHA Group, which took control of 60% of the company, after buying 20% of the shares in 1994 and 40% in 2006. Therefore in 2007 Delta formally became an internal unit of ALPHA Finishing Division. Since the end of the 1980s, ALPHA has set up a partnership with Delta, which controls a technology complementary to ALPHA Finishing's offering. Thus during the first decade of the 21st century, ALPHA pursued the exploitation of its knowledge base concerning finishing automation by developing and selling solutions suitable for different surfaces (wooden, plastic and glass). The contribution of sectors other than wood reached 15% of turnover in 2006. In 2007 a subsidiary was set up in China — ALPHA Finishing Equipment Suzhou, whose goal was to assemble production lines already designed in Italy for local customers engaged in exports of furniture to the United States and Europe. The network of production units in Italy and abroad allows ALPHA Finishing to exploit local advantages in terms of technological capabilities on one hand, and cost level on the other hand — as in its China operations. Foreign production sites also play a strategic role in maintaining closer relationships with their main customers, which are active in both advanced and emerging markets. In relation to the supply strategy in this first period, during the 1980s ALPHA Finishing products were mainly mechanical and to a large extent produced internally, while only commercial parts were bought from local small distributors. At the beginning of the 1990s the great success of the new automatic spraying machine boosted sales and ALPHA Finishing started to involve local suppliers for customized inputs, while commercial parts were supplied by large distributors and producers, including foreign suppliers. In this phase 70% of the value of production was generated by internal activities and the remaining 30% was split between 15% of customized parts from local suppliers and 15% of commercial parts. During the 1990s sales increased about 15% yearly and new large customers, such as Ikea and Masco, required strict compliance with

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delivery schedules. Thus ALPHA was pushed to search for local suppliers able to match both the upsurge in production and the tight delivery requirements imposed by foreign customers. In the words of ALPHA's purchasing manager “in that period trucks had to be loaded anyway”. In this phase ALPHA implemented a flexible and to some extent “adversarial” approach to its local suppliers. These small companies had limited information about production planning and thus did not invest in new process technologies. Moreover, when ALPHA was not satisfied with their performance it often turned to new suppliers. This was possible also because development and design of machineries has become more accurate and based on standard methodologies, thus transferring technical know-how to new suppliers had become easier (see Table 2). ALPHA was very committed to controlling its suppliers, placing emphasis on their technical capabilities and thus attempting to monitor any significant change in their skilled workforce and fearing the exit of valuable technicians. In this period the Purchasing Department gained an autonomous position from the production department and began to implement more advanced planning techniques. At the beginning of 2000 competition in international markets increased and price became a relevant factor, thus the Purchasing Department was pushed to contribute in terms of efficiency by reducing costs of external supplies. ALPHA reconfigured its local supply base, placing more emphasis on more capital-intensive suppliers, becoming increasingly involved in the product innovation process, and pushing its “buy” share to 60%. Almost 40% were represented by customized parts provided by external companies (see Table 2). Another relevant shift was the development of close relationships with local design firms – in some cases established by former employees – for development activities. These were coordinated by an internal team of four engineers, who were responsible for the concept of new products. In the second half of 2000 the design unit set up in the new Chinese plant also became involved in more low-level development activities. During the 2000s ALPHA undertook new supply relationships with three plants located in Puglia in the South of Italy and three plants in Romania. These plants were owned by existing ALPHA suppliers that had created new production units in other areas to reduce costs thanks to government tax incentives in the South of Italy and to low cost workforce in Romania. These suppliers were active in the production of customized mechanical parts. One feature of the operational pattern was the willingness to keep the well-established interaction and communication flows. ALPHA Purchasing personnel continued addressing and solving problems by meeting its suppliers' sales managers in ALPHA offices or in their home plants in the Imola area. In the words of ALPHA's Purchasing Manager “even for foreign sources of supply we preferred to maintain local communication patterns based on already existing interpersonal networks”. The relationship between ALPHA and one Italian-invested supplier based in Romania became more structured. Over time, the plant in Romania took responsibility for supplying a whole system and both companies jointly engaged in searching for new suppliers and negotiating with them. In this phase ALPHA Finishing had 12 strategic suppliers, including four suppliers with production units in Puglia and Romania.

In the second half of the first decade of the 21st century, ALPHA Finishing began to have a more active approach towards international sourcing. In this period local suppliers in China had been continuously assessed and in some cases had been involved in supply relationships with ALPHA Finishing production units. Since mid 2008, the global economic crisis has been putting strong pressure on ALPHA Finishing Group and on its group of companies. Sales in the wood-finishing sector have decreased about 50% in the light of the sharp market fall in the furniture and building industry, both in US and in Europe. Only the Chinese market continues to increase thanks to the measures adopted by the Chinese government for the building sector. These tough market constraints pushed ALPHA Finishing to launch major changes and innovations in its division, in order to make it fit better with the market features which would emerge when the economy starts to recover. On one hand ALPHA Finishing is currently devoting resources to launch innovative products in line with emerging market needs, on the other it is implementing organizational measures aimed at improving efficiency levels. The crisis changed the whole scenario for local and international sourcing activities. The number of suppliers dropped from 601 in 2008 to 504 in 2009. ALPHA opted for vertical integration of various production activities previously sourced externally, bringing the buy share of customized inputs to only 30%. This was possible thanks to the decision to maintain internal production resources and technical competences during the first decade of the 21st century. In the words of ALPHA's Purchasing Manager “we did not follow our consultants advising for operating only assembly activities; thus now in this period of crisis we can celebrate having kept internal production resources”. At the same time ALPHA Finishing reduced the size of its production activities by 50%, but also invested in new laser equipment deemed as the main technological innovation for finishing activities instead of buying parts processed by external suppliers already using this technical solution. Moreover ALPHA adopted more selective criteria for involving suppliers, placing more emphasis on price, in combination with production/delivery requirements and product innovation competences. These choices had a deeply negative impact on local suppliers. Some companies did not manage to survive in the market, while other firms actively searched for new customers in related markets. The gradual increase in orders in 2010 pushed ALPHA to increasingly involve local suppliers, which were able to meet such strong requirements. The establishment in 2007 of ALPHA Trading Suzhou in China pushed the company at the beginning of 2009 to exploit local sourcing opportunities actively for all the divisions of ALPHA Group, including ALPHA Finishing. The company searched for lower costs and the development of specific purchasing capabilities for the Chinese market. The unit is responsible for searching local supply sources for both customized and standard inputs and for monitoring suppliers involved in sourcing activities. Components and parts sourced in China need to show specific features. Firstly, they should imply easy planning in terms of quantity and timing and concern large volume orders. Secondly, they should be labor intensive and highly competitive in terms of costs compared to production capabilities maintained by ALPHA or its current suppliers. Thirdly, they should not concern

Table 2 Evolution of local supply management approaches by ALPHA. Phase

Role of local suppliers

Local buyer–supplier relations

1990s (growth)

• Production flexibility/delivery performance

• Flexible multiple local sourcing relations

2000–2007 (“golden age”)

• Cost efficiency; • Knowledge and innovation development

• Segmentation of local suppliers (partnership and market-based relations)

2007–2010 (economic crisis)

• Production flexibility/delivery performance; • Cost efficiency; • Knowledge and innovation development

• Flexible local sourcing relations

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technologies deemed strategic in terms of development and design or protected under patents. Lastly, in any case sourcing in China should be planned within a double supply source approach. Currently, ALPHA Finishing has slowed sourcing from China, in light of the low volumes of input purchases and the need to pursue flexibility in delivery to match existing orders — which only small local suppliers in Italy are able to fulfill. Some signs of recovery in 2010 pushed ALPHA Finishing to involve external suppliers located closely to its main plant in Italy again, in a buyer–supplier interaction pattern which resembles the relationship developed during the 1980s. 4.2. The evolution of local supply relationships in BETA Originating around the great intuition and capacity of the owners, BETA grew considerably in the 1980s thanks to the demand expressed by local customers. Growth in these years was addressed by an intensive merger and acquisition strategy, mainly directed at controlling all the technologies involved in the production processes of their customers: wood, stone, glass and metal working technologies for furniture producers. BETA began the acquisition process in the early 1980s with five companies in the woodworking machinery industry. In the 1990s this process continued with the acquisition of four other firms respectively specialized in the production of stone, glass, metal and plastic processing machineries. In the 1990s the company faced increasing presence in international markets, mainly through an expansion of its commercial structure abroad to effectively serve different customers' needs in different markets. BETA currently counts 23 commercial subsidiaries all over the world. In the early part of the first decade of the 21st century, BETA becomes a group based on a series of production units/companies in the local industrial cluster and throughout Italy. In its process of growth, BETA chose to keep all production activities in Italy. This was considered a basic strategy with respect to the demand expressed by emerging markets, even those presenting very different features from the traditional ones. In fact, the idea behind the production choice was that it was necessary to maintain the “made in Italy” image all over the world, even with respect to new customers in the emerging markets. Since its origins BETA has relied on a large number of co-localized suppliers for customized components that have over time developed specific competences in relation to their main customer. This is particularly relevant if we consider that the production structure in BETA has always been based on a relatively low degree of vertical integration. In terms of value of single machinery, 35–45% is represented by internally produced customized components and assembly activities (assembly accounts for 10%), while the remaining 55–65% is represented by components bought on the external market (around 45% are customized components). After a rationalization of the supply base, mainly consequent to the period of growth, BETA has continuously promoted and implemented strict connections with local suppliers (see Table 3). BETA considered the local relationships as the primary resource in which to invest

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and decided to preserve and valorize them. In the words of BETA Purchasing Manager “the Italian network of suppliers has been always considered one of the most important leverage factors of the ‘made in Italy’ image and quality in foreign countries for our company”. This choice has been accompanied by the rigorous monitoring of supplier performance. For customized components, local suppliers were also privileged for logistical reasons. For more standardized components, international alternatives were evaluated only if some Italian actors decreased their own performance. BETA has maintained this general approach to the management of its local supply base during this period. In the last 3 years, BETA has started to adopt a new perspective in the organization of its activities, characterized by opening up to international markets also from a production perspective. This process has been accelerated by the economic crisis that has strongly impacted on the company's performance and on the sector in general. In particular, in 2009 BETA established a commercial/production subsidiary in Brazil to assemble machinery for the Brazilian market. This choice, even if mainly to avoid the enormous entrance duties for foreign products, constitutes a very important step for BETA. That is accompanied by a parallel reconsideration of the whole organizational structure. BETA had traditionally encouraged the rigorous autonomy of its production units/plants in Italy, who were responsible for their own production performances and for the management and control of their suppliers' network. In 2009, BETA implemented a significant change in its organizational structure, mainly based on principles of centralization and on efficiency rationales. To this end, BETA shutdown one plant and moved all production activities to the central production site. BETA's traditional competitive strategy has always been based on the capacity to offer a complete range of solutions for its customers that need to process complex and variable production phases in a customized way and to a strong proximity to different markets. Coherently to this strategy, BETA has recently been organized internally into five main Business Units (BUs) each responsible for different product ranges: BU Components (mechanical components), BU Minimax (small and more standardized machines for artisans), BU BETA (high-end woodworking machineries), BU Furniture (low-end woodworking machinery), BU Housing (machineries for house frame production and working). In an organizational matrix, the five BUs cross four Technological Units (TUs), each of them specialized in different technological components, materials, processes and solutions. The latter changes in the company's configuration have been reflected in the company's supply strategy (see Table 3). In particular, in the words of the Manager in Chief of BU Minimax “we have accompanied our supply strategy with a parallel and 'new attitude' to international sourcing”. The crisis caused a drastic rationalization of the whole supplier portfolio. From 2009 to 2010 120 suppliers were cut (from 1470 to 1350). This reduction mainly interested local suppliers, cut from 550 in 2009 to 450 in 2010. This situation is due in part to the effects of economic crisis that caused the failure of a series of smaller local suppliers. Through the reorganization of the Purchasing Department, BETA began stricter supplier evaluation and selection process that also involves the internal BU Components. This is now not just considered

Table 3 Evolution of local supply management approaches by BETA. Phase

Role of local suppliers

Local buyer–supplier relations

1990s (growth)

• Production flexibility; • Cost efficiency;

• Flexible multiple local sourcing relations

2000–2007 (“golden age”)

• Production flexibility/delivery performance; • Knowledge and innovation development

• Segmentation of local suppliers (partnership and market-based relations)

2007–2010 (economic crisis)

• Production flexibility/delivery performance; • Cost efficiency; • Knowledge and innovation development

• Flexible local sourcing relations

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as an internal production site, but a company division with its own market objectives and thus in competition with external suppliers. These processes converge with greater consideration of the opportunities stemming from international sourcing markets. BETA constantly monitors some foreign markets, in particular the Chinese market (mainly through the commercial subsidiary in China). Over the past year BETA has established an International Sourcing Committee, and is evaluating the opportunity to place a Purchasing Manager in the Chinese commercial subsidiary to evaluate emerging opportunities in the Chinese market. The International Sourcing Committee should act as a supervisory body for the evaluation of emerging opportunities. Currently, BETA is using these actions mainly as a leverage to involve, promote and stimulate local suppliers in a competitive logic (see Table 3). In fact, local suppliers remain the main point of reference for BETA productions.

4.3. The evolution of local supply relationships in GAMMA The 1980s were characterized by the consistent and rapid growth of GAMMA. As in the previous cases, this growth was accompanied by an acquisition strategy designed to control all the complex technologies involved in the production processes of their customers: automatic processing and assembling for large rebar processing companies. In the late 1980s, GAMMA began a progressive process of acquisitions of diverse “complementary” companies in which the company held majority stakes. After 1995, GAMMA achieved complete control over 4 of them. In the 1990s (1995/1997) GAMMA acquired other two companies specialized in different mechanical working processes. The 1990s and the first decade of the 21st century were characterized by an increasing commercial internationalization of the company that over time established 11 commercial and 5 post-sales subsidiaries in the main markets abroad. In the same years the company proceeded to reorganize its activities and in the early 2000s it became a group based on a series of production units/companies in the local industrial cluster and throughout Italy. In 2000, GAMMA opened a new production activity in Brazil developing the same products as those produced in Italy but for the South and Central American market. In 2005 GAMMA started up a new production venture in China. “GAMMA China” was established to pursue the same objective as the Brazilian sister company. In fact, after a first attempt to open a new commercial subsidiary there in 2002, the internationalization process in the Chinese market rapidly turned from a commercial to a production strategy. In fact, the first decision rapidly revealed its weaknesses because of the market power of small local producers, which offer similar equipment at very competitive prices. Moreover, the correspondent closure of Chinese customers to foreign products played an important role. The Chinese market was impossible to penetrate with a simple commercial unit. Small local Chinese producers control most of the market, which is very closed to foreign production.

GAMMA's competitive strategy has been traditionally customeroriented and based on a dominant “commercial soul”. This is why since the beginning the company has demonstrated a very low degree of vertical integration. GAMMA internally performed only the assembly and testing of machinery. This accounted for 15% of the total value. Local suppliers contribute significantly to the value of the product, counting for 60% of the total value. In this perspective it becomes apparent that supplier relationships have always been considered critical in relation to the company's objectives and performance. In particular, local suppliers for customized products and components constitute a very important source of value for GAMMA, since they accumulate specific competences in relation to their main customer. In the first decade of the 21st century, GAMMA began to reorganize its network of suppliers mainly to address efficiency and rationalization (see Table 4). The company selected local suppliers and tried to reduce their number as well as develop tight relationships with the ones selected. This was mainly obtained through the elimination of multiple sourcing, the high specialization of the single supplier (one type of component/process for one supplier), the purchase of some pre-assembled systems instead of single components by selected firsttier suppliers. Despite this process, since 2004 there has been an increase in the number of the suppliers in portfolio — from about 280 to about 450 in 2008. The number of local suppliers increased from 70 to 100 in the same period. This is due to the pressure of the market, which underwent huge rates of growth in those years. In the words of GAMMA Purchasing Manager “our company was forced to ensure a rapid and flexible response to the increasing demand of our customers and we had to look for some new local suppliers that guarantee extra production capacity” (see Table 4). This period also witnessed the outsourcing of some additional activities to locals (the make/buy ratio moved from 15% to 12%). During the same years international sourcing strategies have been also taken into account, but only in terms of some standardized components for large volumes purchased. At GAMMA the recent economic and financial crisis accelerated some processes of change and, in some cases, changed drastically some paths that initiated in relation to local supplier relationships. This is particularly evident if we take into account GAMMA's new venture in the Chinese market. The process of internationalization in the Chinese market followed a very different pattern of development with respect to the Brazilian one and impacted differently on GAMMA's sourcing strategy especially in relation to local suppliers as described in the following paragraphs. The production site in Brazil relies on a few selected suppliers for some components and systems (20 at the moment, mainly involved in the production of some standardized components and in some surfacing treatments). GAMMA promotes a strict complementary coordination between the local supply base in Brazil and the local supply base in Italy. That has been possible because of the long-lasting relationships with some suppliers

Table 4 Evolution of local supply management approaches by GAMMA. Phase

Role of local suppliers

Local buyer–supplier relations

1990s (growth)

• Delivery performance; • Cost efficiency;

• Multiple local sourcing relations

2000–2007 (“golden age”)

• Production flexibility/delivery performance;

• Segmentation of local suppliers (partnership and market-based relations) • Additional flexible multiple local sourcing relations

• Knowledge development 2007–2010 (economic crisis)

• Production flexibility/delivery performance; • Cost efficiency; • Knowledge and innovation development

• Flexible local sourcing relations

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in Italy for strategic components and systems (motor gears, control panels, screens). These are mainly suppliers that have jointly invested with GAMMA in research and innovation for a long time. Over 20– 25 years, they have developed high problem solving capabilities regarding activities carried out by GAMMA that can now be exploited by the company for some specific issues related to the Brazilian production. The suppliers cooperate with the Italian engineers and directly with the production manager in Brazil. GAMMA sends the socalled “assembling-kits” weekly from Italy to the Brazilian site. These are then “assembled” from the different components made by the Italian suppliers. In this respect GAMMA used local and international suppliers in a synergistic manner. China has been considered a great opportunity from a commercial point of view. A first step toward internationalization was the establishment of a commercial subsidiary (see previous section). In 2005 GAMMA decided to invest directly in a production site in China for some basic and standardized products for the Chinese market leveraging on supposed lower production costs mainly related to the use of local suppliers. Very few Italian suppliers have been maintained for a couple of strategic components and systems (motor gears and electronics). Since the beginning, however, “things have become much more complicated than what we had planned” (GAMMA's Production Manager). Difficulties emerged with the very low productivity of the Chinese plant. The crisis of the 2008 accelerated the need to increase the productivity of the Chinese subsidiary. This has been addressed mainly by assigning an important task to management: to invest hugely into the search, evaluation and selection of Chinese suppliers. An actual sourcing strategy is now proceeding in the Chinese market and this effort will not only be finalized with the Chinese production but also with the domestic one. This is one of the most important effects of the internationalization process that GAMMA started some years ago. The impact of this evolving situation on the Italian network of suppliers is not easy to predict. In general, there is a consistent reduction in the number of total suppliers, falling from 450 in 2008 to 350 in 2010. The number of local suppliers decreased slightly in the same two-year period from about 100 to 80. With respect to these last data, the high pressure on costs expressed by the company to local suppliers (see Table 4), the decision of the company to internalize some minor activities previously performed by local suppliers (the make/buy ratio increased from 12% to 13% in 1 year), the failure of some local suppliers contributes significantly to the numerical reduction. Despite this, the company still considers local suppliers to be the most important source of value in relation to product and process innovation especially in relation to customized products and components. Currently the top management is not planning to change this scenario, but at the same time the company does not exclude that in future some considerations could be made also in relation to these kinds of suppliers.

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5. Discussion of results The empirical analysis develops a picture of the evolution of supply management approaches of three micro-multinational companies active in the mechanical sector and localized in industrial clusters in Italy. Three main phases could be highlighted: the 90s, the early years of the first decade of the 21st century and the recent period 2007–2010. While the first two phases were characterized by increases in demand in both national and foreign markets, the most recent phase has been heavily shaped by the negative effects of the global economic and financial crisis. In order to discuss the results of the empirical analysis in greater detail, we address the two research questions outlined in the paper. The first research question is the following: under which conditions have industrial cluster companies relied on local suppliers? This question assesses whether and how local suppliers have provided strategic advantages for industrial cluster leading firms engaged in international markets. On the basis of our analysis there are three main elements on which local suppliers could represent a source of advantages to the leading firm: knowledge and innovation development, flexibility of production and delivery performance, and cost efficiency (see Table 5). Knowledge and innovation development refers to the fact that local suppliers own product and production knowledge and capabilities that improve the quality and the level of innovation of the customer companies' offerings. Flexibility of production and delivery refer to the great support that local suppliers are able to give to the companies' ability to change volumes and characteristics of the offerings and to accelerate and rapidly modify delivery schedules. Cost efficiency refers to the ability of local suppliers to reduce costs of production and of other processes, thus contributing to a final reduction of total costs and a price cut for their customers. During the 1990s, fast growth in the final market pushed the three companies to involve a wider network of local suppliers to match the increasing number of orders. Production capacity and delivery performance were among the main criteria by which to select and assess suppliers, followed by the ability to undertake technical upgrading processes. Thus local supplier firms could gain a competitive advantage in light of their physical proximity. In the following decade (2000–2007), shaped by the sharp upsurge of market demand, competition increased in light of globalization processes and entry of new competitors. Such challenge was mostly faced by high investments in technology, innovation and customization. Products became more technologically advanced and sophisticated and thus some local suppliers – perceived as strategic suppliers – were actively involved in innovation processes. Thanks to the social dimension of the business relationship, local suppliers are considered valuable sources to preserve and enhance product quality and innovation (Breschi & Malerba, 2001; Maskell, 2001; Salazar & Holbrook, 2007). Production flexibility and delivery performance by suppliers is still perceived as highly relevant by two industrial cluster companies, while cost efficiency is not seen a crucial factor in the assessment of local suppliers. During this phase the three companies

Table 5 Evolution of the role of local suppliers. ALPHA

BETA

GAMMA

1990s (growth)

• Production flexibility/delivery performance

• Production flexibility; • Cost efficiency

• Delivery performance; • Cost efficiency

2000–2007 (“golden age”)

• Cost efficiency; • Knowledge and innovation development

• Production flexibility/delivery performance; • Knowledge and innovation development

• Production flexibility/delivery performance; • Knowledge development

2007–2010 (economic crisis)

• Production flexibility and performance; • Cost efficiency; • Knowledge and innovation development

• Production flexibility/delivery performance; • Cost efficiency; • Knowledge and innovation development

• Production flexibility/delivery performance; • Cost efficiency; • Knowledge and innovation development

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started to pursue international sourcing opportunities through the set up of organizational units in emerging markets active in purchasing activities and the development of supply relationships with foreignbased suppliers, mainly for commercial and standardized parts. In 2008–2010 the global economic and financial crisis changed the market dramatically and represented a point of strong discontinuity for all the three micro-multinationals under examination. Great decrease in national and international demand combined with strong market unpredictability forced the three companies to place strong emphasis obviously on cost efficiency and again on production flexibility and delivery performance of their suppliers. Thus those local suppliers perceived as “strategic” have been required to pursue high performance actively in the areas of knowledge and innovation development, production flexibility/delivery performance and cost efficiency. This scenario placed them under a new and unexpected type of competitive pressure. Local suppliers were forced to reduce costs and in various cases were not able to match the new market conditions. Companies searched for alternative suppliers in their local clusters or in Italy and also local suppliers showed some efforts in attempting to diversify their customers' portfolio. In some cases the three companies dealt with higher uncertainty in both final and supply markets through major efforts to restructure their operations and to internalize some of the strategic production processes previously performed by local suppliers. In the meantime, international sourcing projects have been slowed down because of limited volumes and low efficiency in logistics. It could be argued that the international crisis, the reduction of the demand and the new market scenario made any chance of immediate replacement of local suppliers with international ones very difficult. In the “golden age”, the limited attention to efficiency by their suppliers was considered acceptable by the leading companies as these suppliers were able to guarantee valuable competences and knowledge. Limited attention to efficiency became no longer acceptable in the following period when demand rapidly shrunk. Leading companies' investments have been mainly directed to the extensive and direct coverage of the market, while up-stream attention has been rapidly directed to contextually gain cost efficiency, fast delivery and innovation. In other words, local suppliers are contemporarily asked to play both a rationalization and a developmental role (Gadde & Håkansson, 2001). These types of expectations have been accompanied by changes in the managerial approach toward local suppliers, as explained below while addressing the second research question: what has been the evolution of the relationships between industrial cluster companies and their local suppliers? During the 1990s the three companies focused on compliance with production scheduling and thus searched for exchange conditions allowing for easy supplier switching decisions, allowed by multiple sourcing policies. Thus flexibility was a major feature of their approach while managing relationships with suppliers (see Table 6). Up to 2007 and especially from 2004 to 2007 (the so-called “golden age”) leading cluster companies were used to evaluating and supporting their local suppliers primarily according to their knowledge and competences with respect to innovation. While multiple sourcing strategies were adopted in case of standardized components, for customized or specific parts companies adopted a selective approach

towards supply management approaches (Anderson & Narus, 1998). The developmental role recognized and sought out in local suppliers pushed towards the creation of local first tier suppliers with “problemsolving” abilities (Ford et al., 2003). Thus supplier segmentation's efforts emerged in the light of the strengthening of relationships with a selected group of strategic local suppliers providing customized parts mainly in terms of technological cooperation. In some cases, as the ALPHA example shows, this extended also to design and development outputs. In the case of GAMMA, the propensity toward segmentation has been combined with the flexible involvement of additional suppliers to match increasing production orders. The economic crisis and the following fall of market demand undermined this approach to buyer–supplier relations. Both customers and suppliers undertook steps to survive, thus pushing relationships towards patterns based on production and delivery flexibility resembling the approaches emerging during the early 1990s. Industrial cluster companies in some cases put in practice vertical integration options and showed a preference for maintaining alternative supply sources, also monitoring and taking into account international suppliers. This approach is in line with studies that suggest that when demand is uncertain companies should promote an agile local supply chain (Jin, 2004). In the light of this analysis on the empirical results, it could be argued that local suppliers have been experiencing substantial shifts in their role and in the way their customer firms behaved and perceived their relationship with them. The most relevant change occurred during the economic and financial crisis and the subsequent sharp fall in market demand for all companies. Within this new scenario, the empirical analysis shows that all three industrial cluster buyer companies have been aware that local suppliers represent a value to be protected especially when they hold sophisticated and long-term competences on the product and on the production process, thus representing a real source of differential advantage in the eye of the customer. The survival of the local supply network, detaining distinctive competences, has been a major component of industrial cluster companies sourcing policies. There is evidence of their interest in preserving relationships with those local suppliers able to match new target costs and unpredictable terms and quantities of delivery. We may say that companies recognized the strength of long-term ties with local suppliers capable of enhancing rapid reactions to market needs and guaranteeing the search for cost reductions as well as preservation of quality and innovation processes (Gadde & Snehota, 2000; Håkansson et al., 2009). Geographical proximity supports social interaction and cooperation, as a part of literature on industrial cluster companies underlines (Becattini, 1990; Iammarino & McCann, 2006; Pyke et al., 1990). At the same time industrial cluster companies have been forced by the new market conditions to pursue rationalization processes taking into account both local and international supply sources. Under cost pressures, however some local suppliers did not manage to survive financially and then failed, thus creating serious problems to their customers which were forced to rapidly find new suppliers and subsuppliers capable of adapting to their business needs. The analysis thus shows that within this new scenario the micromultinational companies under examination use a pro-active approach in carrying out their sourcing strategies. They have gradually

Table 6 Evolution of local supply buyer–supplier relations. ALPHA

BETA

GAMMA

1990s (growth)

• Flexible multiple local sourcing relations

• Flexible multiple local sourcing relations

• Multiple local sourcing relations

2000–2007 (“golden age”)

• Segmentation of local suppliers (partnership and market-based relations)

• Segmentation of local suppliers (partnership and market-based relations)

• Segmentation of local suppliers (partnership and market-based relations) • Additional Flexible multiple local sourcing relations

2007–2010 (economic crisis)

• Flexible local sourcing relations

• Flexible local sourcing relations

• Flexible local sourcing relations

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balanced the local and global dimension of sourcing in a planned and coherent strategy. Local sourcing is thus a planned strategy that responds to a careful assessment over benefits and costs connected to the loss of such kinds of interactions and interdependences. Moreover, their strategy of local sourcing responds to a view of international sourcing as a deliberate choice, not as a must. Local sourcing, however, is not unconditionally accepted. It can be reviewed and replaced by alternatives (international suppliers and/or re-internalization of manufacturing processes) if it does not satisfy precise needs. The empirical analysis points out that the three companies under examination perceived the economic crisis as an “accelerator” of some evolutionary patterns in local supply management whose signals were almost latent previously. Notably, companies further pursued their rationalization goals with respect to local supply networks in order to strengthen their competitiveness. Within such process the three companies have been even forced to implement flexible relations with historical partner suppliers. It seems apparent, however, that the heavy impact of the economic and financial crisis modified timing and strategies of international sourcing activities, whose implementation have become more difficult in the light of the increasing market uncertainties. It could be argued that with stable growth in market demand as in the middle of the first decade of the 21st century, international sourcing would have been tested and implemented in a more systematic way for commercial components and partially also for some customized inputs. Given the careful and cautious approach both to local and to international sourcing by the companies examined and the importance of the single micro-multinational company in guiding the development of local suppliers, we agree with those studies on industrial clusters that emphasize the role of the single company as a strategic center in encouraging and leading the development of local sources (Lorenzoni & Ornati, 1988; Varaldo & Ferrucci, 1996). Referring to literature on industrial clusters, we interpret the choice of local sourcing as connected to perceived advantages from the long-term innovation and product capabilities developed by suppliers thanks to continuous interaction with the users (Camuffo et al., 2006). As well as the need for accessing valuable resources, we add that local sourcing is privileged when rapid and flexible response is requested to suppliers in a logic of agile supply chain. The combination between product capabilities and volume and mix flexibility is the key attractor of local suppliers, especially when the volumes of purchases do not justify long-distance supply chains. 6. Conclusions This paper aims to uncover the changes affecting local supply relationships by Italian micro-multinational companies active in the mechanical sector and open to international sourcing opportunities. Notably, the empirical analysis concerns the behavior of three midsized companies based in Italian industrial clusters located in the Centre-North of Italy. Firstly, local suppliers have played “strategic” roles in different ways in distinct historical phases. In the early 1990s they were providers of production capacity, under the technical guidance of the companies analyzed. In some cases local suppliers were able to become strategic partners during the first decade of the 21st century because of their product and production competences. After the break-out of the effects of the economic crisis in 2008, local suppliers have been increasingly required to guarantee higher price efficiency, strict compliance with production/delivery standards and stronger innovation capabilities. Secondly, the three companies have shown a capacity to adapt their supply management approach to changing market conditions. The search for capable suppliers in terms of production and delivery skills during the 1990s has been possible thanks to a flexible approach, combining partnership-based and transaction-oriented behaviors. Higher technological requirements in products during the first decade of the 21st century have been met by the three companies

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by actively involving selected local suppliers in their innovation processes according to a supply management approach. The dramatic change in market conditions at the end of current decade has been faced through a substantial reconfiguration of make or buy policies and a renewal of flexible approaches to supply management. At the same time, these companies have attempted to enlarge the supply base on a national and international basis on the one hand and to protect the local set of competences detained by suppliers on the other. Primary local suppliers are required to pursue excellence on the three elements which play a parallel importance in the eyes of their customers: efficiency, production/delivery performance and knowledge/innovation capabilities. Thus the performance of local sourcing is characterized by an apparent paradox: the successful combination of partnership-based selection criteria with flexible supply management approaches, which include the option of vertically integrating specific production processes. Local suppliers have been always perceived as a valuable resource, even though the leading companies have chosen different supply management approaches over time due to changing market conditions. The three companies under examination show a gradual and balanced approach toward international sourcing opportunities, whose benefits have been carefully balanced according to final market and supply market conditions. Notwithstanding the empirical results achieved, the research behind this paper has some relevant limitations. First of all, the paper deals mainly with relationships with local suppliers. International supply relationships have not been empirically researched in similar detail. Thus the “international dimension” of supply relationship has been treated more as a contextual variable in explaining local sourcing patterns. Secondly, the analysis of local sourcing is based on data and material concerning the selected customer companies. It would have been more appropriate to integrate this empirical base with insights from leading local suppliers, thus achieving a more exhaustive analysis of the evolution of local supply relationships. This paper might offer stimulating insights for possible avenues of future research. More research could be developed with regard to the evolution of “local supply relationships” in the context of economic globalization. This effort could be focused on pointing out phases, patterns and relevant variables allowing for conceptually develop a sort of “cycle of the local supply relationship”. Moreover, the empirical analysis highlights the increasing propensity of industrial cluster companies to set up appropriate organizational mechanisms to match new supply market conditions, both locally and internationally. It could be useful and stimulating to examine in more detail whether and how emerging mid-size multinational companies have been pursuing organizational upgrading in the area of purchasing. The analysis of the main local sourcing patterns by the three industrial cluster companies under investigation is also relevant from a managerial point of view. First of all these case-studies provide a picture of the ability of micro-multinational companies to react to highly turbulent market changes. These firms have gained an appropriate size to operate internationally, but are capable of pursuing a balanced combination of local and global sources of value. It is apparent, therefore, that local supply partners should be monitored and assessed, taking into account all the relevant dimensions of the relationship, including benefits from long term social and physical proximity. Another relevant managerial insight concerns the emerging pattern in buyer–supplier relations among industrial cluster companies and their leading local partners. They increasingly pursue multidimensional cooperation (production/delivery, innovation and cost efficiency) along a flexible relationship. One main implication of such patterns is that even in a “partnership” both the customer and the supplier should increase their capacity to adapt their main corporate strategies in the short term in the light of changes in the relationship or in the business/market context.

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Appendix Companies' profiles. Years

2004

2007

2008

2009

Trend 2010

Turnover (millions in Euro) ALPHA group BETA group GAMMA group

264 500 51

374 650 115

384 630 102

301 390 60

– 480 70

Number of employees ALPHA group BETA group GAMMA group

– 3000 224

1373 3600 400

1735 3650 380

1624 3100 380

– 3150 360

7 20 9

7 22 10

7 22 11

7 23 11

9 (4 in Italy — 1 in USA, 2 in Germany, 1 in Brazil, 1 in China) 15 (all located in Italy) 5 (3 in Italy — 1 in Brazil — 1 in China)

7 (3 in Italy — 1 in USA, 2 in Germany, 1 in China)

Number of commercial subsidiaries ALPHA Group (Finishing Division) 8 BETA group 15 GAMMA group 7

Number of production sites/location ALPHA group 3 (2 in Italy — 1 in USA) 9 (4 in Italy — 2 in USA, 10 (4 in Italy — 2 in USA, (finishing division) 2 in Germany, 1 in Brazil) 2 in Germany, 1 in Brazil, 1 in China) BETA group 12 (all located in Italy) 18 (all located in Italy) 18 (all located in Italy) GAMMA group 4 (3 in Italy — 4 (3 in Italy — 1 in Brazil) 5 (3 in Italy — 1 in Brazil — 1 in Brazil) 1 in China)

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Annalisa Tunisini, Ph.D., is Professor of Business-to-Business Marketing in the Department of Economics, Society, Politics, at the University of Urbino “Carlo Bo”, Italy. She is Editor-in-Chief of the Journal of the Italian Marketing Association Mercati & Competitività. Her research interests concern the structure and dynamics of industrial networks, supply chain management and business marketing. She has coauthored many articles in Industrial Marketing Management, R&D Management, Journal of Customer Behaviour and The IMP Journal. Roberta Bocconcelli is Assistant Professor of Service Marketing and Supply Chain Management in the Department of Economics, Society, Politics, at the University of Urbino “Carlo Bo”, Italy. Her research interests include business marketing, industrial networks and supply chain management. She published in international journals such as Industrial Marketing Management, Management Decision and The IMP Journal. Alessandro Pagano is Assistant Professor of Management in the Department of Economics, Society, Politics at the University of Urbino “Carlo Bo”, Italy. His research interests concern international business and supply chain management. He published in international journals such as International Journal of Automotive Technology and Management and Industrial Marketing Management.