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Opportunism or strategic opportunity seeking? Three approaches to emerging country sourcing
Journal of Purchasing & Supply Management 19 (2013) 49–57
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Opportunism or strategic opportunity seeking? Three approaches to emerging country sourcing Nojan Najafi, Anna Dubois, Kajsa Hulthe´n n Department of Technology Management and Economics, Chalmers University of Technology, SE-412 96 Gothenburg, Sweden
a r t i c l e i n f o
abstract
Article history: Received 9 July 2011 Received in revised form 28 November 2012 Accepted 13 December 2012 Available online 30 January 2013
The current interest in low-cost or emerging country sourcing (ECS) has inspired a multitude of empirical studies. These studies are based on varying methodological approaches and have come to somewhat different conclusions regarding the motivations for and outcomes of ECS. This paper argues that the overall approach to the new markets, especially the strategic network context surrounding each buyer-supplier relationship in the ECS setting, impacts on the prerequisites for success. The aim of the paper is to identify and discuss approaches to ECS. It begins with a review of recent empirical studies, scrutinising research interests and the approaches applied by the companies studied. It suggests and illustrates three broad categories of approaches: (1) the transactional approach focusing on individual sourcing in the emerging country, (2) the supply base approach focusing on establishing a set of supplier relationships in the emerging country, and (3) the network positioning approach in which both supplier and customer relationships are developed in the emerging country. The paper also discusses the three approaches as stages in an internationalisation process. The paper concludes that of the three strategic approaches the viability of two – the transactional approach and the supply base approach – can be questioned on several grounds, but that when seen as a process directed towards developing a network position in a new (emerging) market all three approaches make sense as different stages in a process moving towards achieving that goal. An explanation for the process of increasing commitment in emerging markets, relying on learning in interaction and on relational investments beginning with suppliers and continuing with customers, is also discussed. & 2013 Elsevier Ltd. All rights reserved.
Keywords: Low-cost country sourcing Global sourcing Emerging markets Supplier relationships Supply networks
1. Introduction In recent years, low-cost or emerging country sourcing (henceforth referred to as ECS) has gained attention in business and academic research. Western companies are increasingly replacing their local suppliers with suppliers in countries such as China and India as part of their overall globalization strategies (Byrne, 2005; Fang and Axelsson, 2005; Trent and Monczka, 2005; Hultman et al., 2012). For example, Vestring et al. (2005) report that more than 80% of the companies in their study state that shifting activities to low-cost countries is a high priority and about twothirds of the companies have off-shoring initiatives. ECS seems to be part of a larger trend in the business landscape, related to the wider outsourcing trend. Morgan (1999:90) defines outsourcing as ‘‘taking an operation or function traditionally performed in-house and jobbing it out to a contract
n
Corresponding author. Tel.: þ46 31 772 52 83. E-mail addresses: nojan.najafi@chalmers.se (N. Najafi), [email protected] (A. Dubois), [email protected] (K. Hulthe´n). 1478-4092/$ - see front matter & 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.pursup.2012.12.002
manufacturer or a third-party service provider’’. By specialising in some activities, companies are able to concentrate on and improve their core businesses (Quinn and Hilmer, 1994; Ellram and Billington, 2001). Since the suppliers perform similar activities for a number of customers they can gain from economies of scale and thereby increase the efficiency of their operations (Dubois, 1998). Simchi-Levi et al. (2003) suggest a number of advantages of outsourcing, including economies of scale, risk pooling, capital investment reduction, possibilities of focusing on core competencies, and increased flexibility. In an outsourcing strategy, the location of the contract manufacturers or the thirdparty service providers may be in either high-cost or low-cost countries. ECS can also relate to off-shoring in different ways. Lewin and Peeters (2006:221) define off-shoring as ‘‘locating activity to a wholly owned company or independent service provider in another country’’. Thus ECS can be seen as a special case of the general trend towards outsourcing and off-shoring. There are many driving forces for ECS initiatives. Economic incentives seem to be the most significant drivers for firms with a low-cost or emerging country sourcing strategy (e.g., Lynch, 2004; Lau and Zhang, 2006). Low labour costs in China, (Fang and
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Axelsson, 2005) and opportunities for capital investment reduction (Lau and Zhang, 2006) are major drivers for companies aiming at higher margins and cost-cutting opportunities. However, according to Araujo and Gadde (2009), efficiency seeking through specialisation and economies of scale are not the only drivers of outsourcing initiatives. The actual trend, acting as a ‘business recipe’, can be a driving force. This may lead to firms paying less attention to thorough, rigorous analysis of the consequences of such a decision, i.e., whether or not the initiative would pay off in terms of efficiency improvements in a long-term perspective. There seems to be a risk that the actual costs of lowcost country sourcing and off-shoring are neglected or underestimated by the managers who decide on these investments (Hogan, 2004; Smyrlis, 2006). The ECS trend has brought reports on problems related to these kinds of initiatives in its wake. Lack of capable service providers, loss of control, inefficient infrastructure for transportation and IT, local laws and regulations, inadequacy of cost/benefit analysis systems and the absence of overall post-outsourcing assessments are found in a study of Lau and Zhang (2006) to be the main drawbacks and impediments to low-cost country sourcing. Steinle and Schiele (2008) argue that it is important but difficult to become a ‘preferred customer’ when working from abroad. There have also been reports of companies that have begun to reconsider their investments in ECS, and who have consequently begun to ‘in-source’ and ‘back-shore’. In a study of 1663 German companies, Kinkel and Maloca (2009) found that every fourth to sixth off-shore activity of these companies had already been back-shored. Some explanation for these ‘failures’ might be found in ‘‘net˚ work effects’’ (Hakansson and Snehota, 1995; Gadde et al., 2010). If a firm wants to change from local to foreign suppliers, the network will have to be restructured. The buying firm will have to disconnect from its current suppliers and establish business relationships with the new suppliers, becoming part of their networks of other customers and suppliers. This may also involve other actors, such as logistics providers and other suppliers who also need to be connected to the new relationships. Hence, ECS is not unproblematic from a relational or a network perspective. This paper focuses on different approaches to ECS, taking account of individual purchases or transactions as part of buyersupplier relationships which are subject to specific connections to other relationships (see e.g., Gadde et al., 2010). Reviewing the ECS literature, it becomes clear that this perspective is not a typical one, although there are a few relevant contributions. For example, Andersen and Christensen (2005) focus on the role of suppliers as connective nodes in global supply networks and (Hultman et al., 2012) point out the importance of interaction aspects of global sourcing, studying the case of IKEA and one of their main suppliers. Haried and Ramamurthy (2009) also suggest that a relational perspective should be applied when evaluating global sourcing success. Considering relationship development as investments implies that the costs and benefits of such investments need to be considered in a long-term perspective, since they do not necessarily occur simultaneously. The focus on relationships and their contents therefore needs to be analysed in the context of wider networks of connected relationships and in a long-term perspective. In line with other studies of the consequences of this kind of decision, this paper therefore focuses on the content and contexts of relationships (e.g., Gadde and Jonsson, 2007; Gadde and Hulthe´n, 2009). The aim of the paper is to discuss approaches to ECS with a particular focus on relationship development and connections between relationships, i.e., on networks of interconnected relationships. We suggest that this may contribute both to ways firms strategize, and to further research on global sourcing. The contribution rests on the key
assumption that the embeddedness of business relationships in wider industrial networks entails both difficulties related to ‘getting into’ the networks and opportunities for developing further connections within the network. The paper also contributes by suggesting an explanation as to how one stage of commitment on a new market may evolve in the direction of more advanced stages. The absence of such explanations has been the subject of criticism regarding previous models of global sourcing processes (see Hultman et al., 2012). The paper is divided into four sections. In the second section we review the ECS literature, with a particular focus on how the sourcing may rely on different approaches to individual purchases or transactions, supplier relationships and network development. The third section discusses three identified approaches to ECS, relating them to descriptions of processes of global sourcing and internationalisation. The final section contains conclusions and implications for practice and further research.
2. Literature review This literature review is divided into three parts. It begins with review of recent empirical studies of ECS with a focus on the aims, methods and results of the studies. The second part identifies three broad approaches to ECS, and the third present different models of processes of global sourcing and internationalisation and discusses views of these models. 2.1. Empirical studies of emerging country sourcing (ECS) Recent empirical studies of ECS (sometimes referred to in the literature as low-cost country sourcing (LCCS), international sourcing or global sourcing) can be divided into a few broad categories (see Table 1). One category addresses the issue of why firms engage in ECS (see e.g., Nassimbeni, 2006; Salmi, 2006; Neureiter and Nunnenkamp, 2009; Kinkel and Maloca, 2009). In general, the most common motivation for engaging in ECS seems to be to reduce costs. Access to suppliers who can offer lower prices, access to less expensive resources, and less expensive labour are brought up as ways of reducing costs. Another driver is opportunities for developing new markets (Giunipero and Monczka, 1997; Kotabe and Murray, 1990; Nassimbeni, 2006). Nassimbeni (2006) states that presence on new markets includes ‘‘the possibilities of selling one’s own products on supplying markets’’ and ‘‘the possibility of developing a presence on foreign markets’’ (ibid:698). Another motivation is access to distinct resources, including technology and/or materials or components unavailable in the domestic market and which therefore have to be sourced from abroad (Birou and Fawcett, 1993; Neureiter and Nunnenkamp, 2009). Neureiter and Nunnenkamp (2009:419) state that the motivation for ECS is complex and that ‘‘in addition to cost factors, gaining access to new markets, superior knowledge and state-of-the-art technology’’ are also important determinants. An interesting perspective on these issues is found in Hultman et al. (2012) who argue, based on a study of IKEA’s global sourcing, that the motivation for a firm to source globally can be found outside the firm, for instance when a powerful customer requests the supplier to source from a (specific) low-cost country. In contrast to the discussion on why to engage in ECS, Steinle and Schiele (2008) discuss the limits of global sourcing and why firms should not source globally. They argue that sometimes it is better to develop the local supply base rather than replacing it with global sourcing. Another category is descriptions of how firms deal with ECS, i.e., the organisation and design of ECS initiatives. Zeng (2003),
Table 1 A review of empirical studies of low cost country sourcing. Author
Aim
Method
Result
Why firms engage in ECS Neureiter and International sourcing (IS) as determinant of firm competiveness. Nunnenkamp (2009) Nassimbeni (2006) To analyse the characteristics and determinants of IS of Italian firms.
Kinkel and Maloca (2009) Steinle and Schiele (2008) Hultman et al. (2012)
How firms engage in ECS Millington et al. (2006) Investigate the availability and performance of different ownership types of suppliers in China. Ruamsook et al. (2007) To compare IS and supply chain performance of LCC suppliers in three regions; Asia, Eastern Europe and Western Hemisphere and how do nations within these ¨ ¨ ¨ I Western Hemisphere?) regions compare. (aven osteuropa ligger val Jin and Farr (2010) Examine differences in supplier selection criteria and the perception of benefits and challenges. Schoenherr et al. Investigates a firm’s decision process and risk handling with regard to off-shoring. (2008) Giunipero and Investigates the purchasing organisation structure of firms involved in IS. Monczka (1997) Arnold (1999) To identify ideal organisational types for IS.
Survey of 75 firms with manufacturing facilities in China and 167 supplier relationships. Survey of 160 LCC suppliers in Asia, Eastern Europe and Western Hemisphere to US customers. 14 operational indicators were used. Survey of 88 US apparel firms. Single case study of a US manufacturing firm of commercial tools. Investigation of 24 US based firms and there IS.
Varying performance in the different ownership groups. Notable differences at both regional and national levels among LCC sources. No region outperforms the others on all 14 operational indicators. Firms with strong commitment from top management place more weight on sourcing country when selecting partner. A framework of risk factors to consider in IS.
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A framework for categorization of IS efforts. Trend towards decentralization. Case studies of nine firms. Three ideal types for IS: central purchasing, outsourcing, coordination model. Gelderman and Investigates how knowledge about the global supply base is transferred and shared Single case study of Akzo Nobel Coating. Shows how the purchasing portfolio tool can be used as a Semeijn (2006) in an MNC. means of knowledge transfer to local units. Zeng (2003) Investigates the design and management issues of an IS process. A case study of a US firm in the aviation industry. The global sourcing process can be managed on three levels; strategic, tactical and operational. Samli, et al. (1998) Global sourcing as a strategic tool. Survey of 190 US firms involved in IS. Firms with large-scale IS include it in their strategic plans. Firms with small-scale IS treat it opportunistically. Mol et al. (2004) Investigates the depth and scope of IS. Multiple regression analysis of 189 firms in the Technological uncertainty and degree of product innovation Netherlands. are positively related to a high scope-low depth of IS. Quintens et al. (2005) What drive firms to IS and how do they organise for IS. Multiple case study of 7 firms in the US (New York US firms rely more on intermediaries for their international State) and 5 firms in Belgium. sourcing activities than Belgium firms do. Hartmann et al. (2008) How do MNCs organise for efficient implementation of IS strategies and what Multiple case study of 8 comparable German firms Variation in the use of control mechanisms is explained by control mechanisms are used? representing various industries. the corporate organisational structure and distribution of purchasing expertise among subsidiaries. Agndal (2006) Which markets do SMEs enter over time, why are these markets entered, how is A multiple case study of 10 Swedish SMEs. The entry process seems to be reactive, with few indications the entry process characterised? of proactive behaviour. Where firms engage in ECS Carter et al. (2008) How do purchasing managers perceive low cost regions and their capabilities and Survey of 100 purchasing managers of 12 different Managers select regions based on specific measures and how are decisions taken and on what selection criteria? attributes. perceptions. They choose sourcing locations using multiple criteria and not only cost. Swoboda et al. (2009) Investigates how companies that do both sourcing and selling chose country. Survey of 93 German garment industry actors. International market selection is not an isolated decision.
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Salmi (2006)
European survey of 8300 companies engaged in IS. IS is more important for market access than for knowledge and technology. Survey of 78 Italian firms in various industries. Motivation for IS: less expensive resources, access to distinctive resources, and commercial presence on markets. Analyses Western purchasing in China with regard to motives for sourcing, specific A case study of seven Finnish firms. The motivation of the firms in the study was to lower their requirements, and supplier relationships. sourcing costs. Analyses the driving forces and antecedents of manufacturing off-shoring and Survey of 1663 German firms. Motivation for off-shoring: labour costs. Motivation for back-shoring. back-shoring: lack of flexibility and quality, delivery problems. Analyses the limits to global sourcing. Case study of two firms. Suppliers should be regarded as external resources. Important to be regarded as a preferred customer to the supplier in order to gain access to these resources. Investigates the role of interaction in global sourcing. Single case study of IKEA and one of their Motivation for global sourcing can be found outside the suppliers. sourcing firm, in for example a powerful customer.
Case study of five US clients and six vendor firms in India, 8 relationships in total. IT products and services. Platts and Song (2010) Study the true cost of sourcing from China and firms’ perceptions of the total cost Six cases and a mail survey of 201 UK of sourcing from China. manufacturers. Ruamsook et al. (2009) Investigate the issues pertinent to LCCS and to understand which issues are Correlation analysis of survey of 114 US-based associated most strongly with a firm’s logistics performance. manufacturing firms. 14 operational indicators. Weber et al. (2010) Measures and analyses costs of a LCCS initiative. Single case study of a medical device manufacturer, Siemens Healthcare. What are the key relationship dimensions that affect success of an off-shoring initiative?
Outcome of ECS Haried and Ramamurthy (2009)
Method Aim Author
Table 1 (continued )
Relationships need to be customized based on the requirements, goal sets and desires of the individual stakeholder of interest. Firms do not comprehensively measure the costs of global sourcing and underestimates the true costs incurred. Price and product remains attractive for purchasing of standard goods but efficient logistics are critical. LCCS had extensive impact on other entities than purchasing. Much of the cost accrues in the early phase of the project.
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Result
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studying the global sourcing process of firms, argues that it can be managed on three levels: strategic, tactical and operational. In a similar vein, Samli et al. (1998) discuss sourcing processes on different levels and find that (U.S.) firms with large-scale global sourcing engage on a top management level, including ECS in their strategic plans, while firms with small-scale global sourcing treat global sourcing more opportunistically. The overall conclusion is that ‘‘the prevailing inclination of U.S. firms is primarily toward opportunistic global sourcing’’ (ibid:185). The authors suggest that these firms can improve their global competitive advantage by raising ‘‘the current status of global sourcing from simply an occasional cost cutter or quality improver to a critical factor in developing global strategy’’. Gelderman and Semeijn (2006) explore the supply strategies of a large MNC with 80% of their volume sourced from international suppliers. This firm has an explicit approach in which prices and annual price reductions are in focus. The firm’s main conviction is that ‘‘dependence costs money’’. In a multiple case study of five Belgian and seven New York based firms, Quintens et al. (2005) found that most of the firms in their study were mainly reactive in relation to international sourcing, pursuing ECS only when there were no alternatives ‘at home’. As one of the firms puts it: ‘‘So only when a product or an exact specification is locally not available at a given price/quality ratio, they are sourced abroad.’’ (ibid:61). Agndal (2006:193) also reports on reactive behaviour in his study of 10 Swedish industrial SMEs: ‘‘the process may be described as reactive; with few indications found that managers proactively exploit foreign markets’’. Relating to this discussion, in their study Hultman et al. (2012) describe one buying firm that makes its suppliers source globally and even from specific sub-suppliers. This case shows how a buying firm can have a very proactive role with regard to global sourcing, while its sub-suppliers have limited autonomy with regard to how and from what suppliers to source in their turn. With regard to the selection of suppliers, there is also a focus on cost-cutting (Jin and Farr, 2010). However, in their study of sourcing behaviour in the apparel industry, lead times were found to be equally important. Millington et al. (2006) investigate how various ownership arrangements (for Chinese suppliers) correlate with supplier performance. They investigate supplier performance by analysing the performance of each supplier as well as their relationships with their suppliers and the investments made by buyers and suppliers. Ruamsook et al. (2007) make a comparative analysis of supplier performance in three regions (Asia, the Western hemisphere and Europe). They conclude that although there are differences in performance in the three regions, no region outperforms the others in all the dimensions investigated. Therefore, they suggest that specific regions should be analysed on a case-by-case basis to identify the most appropriate supply sources with regard to each firm’s strategic goals. A third category of studies is studies of where (in what regions/ countries) companies practice ECS. Carter et al. (2008) find that firms select regions to source from based on specific measures and perceptions of the regions, regardless of whether or not these perceptions are ‘accurate’. They also find that the decisions seem to be biased by cultural stereotypes. Swoboda et al. (2009) point out, in a study of the fashion industry, that international market selection is not an isolated decision but very context dependent with regard to the buying firm’s situation and plans. They argue that previous decisions concerning strategy, time to market, vertical integration, situational factors such as degree of foreign involvement and firm size, all influence decisions concerning what countries to source from. A fourth category of studies relates to the outcomes of ECS initiatives. Platts and Song (2010) highlight the costs of sourcing
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from China and conclude that most buying firms underestimate the true costs of ECS. In their study, total costs are divided into (1) set-up costs (for example cost for collecting information to search for suppliers, engineering time for transfer, quality audits, visits to suppliers, investments in suppliers’ IT, training of personnel), and (2) on-going costs (for example price, transportation, warehouse, travel expenditures, language and cultural issues, inspection, late deliveries). Firms estimated additional costs at 25% of the quoted price while in reality they turned out to account for 50% of the quoted price. Weber et al. (2010) investigate the cost of ECS and compare it with sourcing from ‘traditional procurement countries’. They conclude that only relying on purchase price is not a sufficient decision-making criterion for ECS, since the costs predominately occur in other areas than purchasing and supply management. They also find that the success of ECS initiatives is dependent on commitment from senior management and that it is important to regard these initiatives as a part of the overall strategic plan. The success of ECS efforts was also found to be associated with the firms’ intercultural and language skills. In order to succeed, the authors promote the establishment of long-term buyer-seller relationships. In line with this suggestion, Haried and Ramamurthy (2009) take a relational perspective on this issue by focusing on the key relationship dimensions that can be used when evaluating ‘relational sourcing success’. The key dimensions investigated are: information exchange, adaptations, legal bonds, mutual obligation, and intercultural competence. They conclude that it is important to consider the vendor’s perspective as well as the client’s perspective when evaluating relational sourcing success, which is in line with the arguments of Hultman et al. (2012), who promote an interaction approach to global sourcing. Most of the studies presented in Table 1 are based on surveys, although some case studies are included. The main focus is on firm-internal matters, either on the buying firm and its buying behaviour/organisation, or on the supplier’s performance or location. Several studies point out that the firm-internal focus is not sufficient to understand the outcomes of ECS but needs to be complemented by a relational perspective focusing on the buyer and supplier and on the relationship between them. However, only three articles had a relational perspective on ECS: Andersen and Christensen (2005), Haried and Ramamurthy (2009) and Hultman et al. (2012). Below, the empirical descriptions of how firms address ECS are used as a point of departure for identifying different approaches to ECS.
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with a clear focus on reducing the price, or the direct cost, of the purchase as compared with previous or alternative sources. A different approach is exemplified by four of Salmi’s (2006:205) cases. She concludes that ‘‘whilst low costs form a major motivation for sourcing, it was evident that the companies were not ‘playing the market’ by focusing solely on price. Instead, a long-term and market development viewpoint was taken’’. For example, one of the companies in this study spent a decade establishing and developing a set of 40 suppliers that now forms an extensive network of personal and organisational relationships. This is referred to here as the supply base approach. Kumar et al. (2010) also exemplify efforts to develop a supply base in emerging markets. In one of the cases, the company established an international purchasing office in India. Establishing a ‘market presence’ as described by Kumar et al. (2010), may be a first step towards developing a network position on the emerging market. The third approach identified, the network positioning approach, includes the development of both supplier and customer relationships. Hence, expectations of future (customer) market development potential may be part of the efforts to develop a supply base on the emerging market. In two of Salmi’s (2006) cases the firms established local production units in order to enter the Chinese market. The local sourcing efforts were introduced in relation to these production units. Hence, these firms entered China both to find suppliers and in order to reach the local market. Nassimbeni (2006:698) also refers to companies that perceive ECS as an opportunity for selling the companies’ own products on ‘‘supplying markets’’ by developing a presence on these new markets. Moreover, he suggests that ‘‘international sourcing (IS) is in a phase of transition evolving from a starting stage (IS motivated by contingent/economic factors) to more advanced stages where IS is part of a more extensive international strategy’’ (ibid:704). For example, Hultman et al. (2012:18) state that one of the main reasons IKEA developed their global sourcing efforts was to develop new customer markets. They show how ‘‘sourcing operations are closely linked to increasing sales’’ in a certain geographical market. In other words, the scope of the network positioning approach goes beyond the implications of the ECS concept, since it not only includes a supply perspective but also a customer/marketing perspective on emerging countries. The sourcing work, however, can be seen as instrumental in developing a presence on a certain emerging market through which the company can eventually establish customer relationships on that market.
2.2. Three approaches to ECS 2.3. Process models of global sourcing and internationalisation Although the aims of the studies reviewed differ, three different approaches to ECS can be identified: a transactional approach, a supply base approach and a network positioning approach. These approaches are described below and linked to the studies reviewed. Quintens et al. (2005) and Agndal (2006) present examples of a clearly price driven and primarily reactive approach to ECS: referred to here as the transactional approach. This approach is also exemplified in the study of Gelderman and Semeijn (2006), who describe a firm focusing on price reductions driven by a belief that ‘dependency costs money’. One of the three companies studied by Kumar et al. (2010:149) also illustrates a transactional approach, using ECS ‘‘as a way to introduce competition into the existing supply base’’. In this case there was also pressure from the customers to start sourcing from emerging or low cost countries as part of a continuous cost reduction programme. Also, in Salmi’s (2006) study of seven Finish companies, standard components were sourced at arm’s-length through a domestic agent. In all these examples the scope of the ECS is limited to individual purchases with little or no commitment involved and
Both international sourcing, implying ad hoc purchasing from foreign suppliers, and global sourcing, referring to situations where sourcing is considered a component of a wider international strategy, have been described as processes with a number of stages (Hultman et al., 2012). Nassimbeni (2006) suggests that firms go through stages evolving from a starting stage motivated by financial factors to more advanced stages where international sourcing is integrated into the company’s international strategy. Various authors have developed process models for global sourcing with a number of stages (e.g., Giunipero and Monczka, 1997; Rozemeijer et al., 2003; Trent and Monczka, 2005). Trent and Monczka (2005) identify a model with five levels, starting with domestic purchasing, followed by two stages of international purchasing and then ending with two stages of global sourcing, the last of which encompasses integrated global sourcing across worldwide locations and functional groups. These normative models have received considerable criticism as they ‘‘say little about how to reach another stage and assumes that the final stage is the ultimate goal of all companies’’ (Hultman et al.,
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2012:10). According to Hultman et al. (2012) there is potential for integrating this normative stream of research into the empiricallybased internationalisation process literature with its studies of how firms have ventured into foreign country markets. The early ‘Uppsala model’ of internationalisation processes (Johanson and Vahlne, 1977) describes how firms went through certain stages in their internationalisation efforts, starting with ad hoc exporting, followed by sales through intermediaries, then establishing a sales organisation and finally beginning to manufacture on the new market. This process received wide spread recognition and became known as ‘the establishment chain’. Johanson and Vahlne later suggested that firms reduce risks and uncertainty by choosing markets that are close to the domestic market in terms of psychic distance and then gradually moving to more distant countries. A great deal has changed since this model was developed, including economic and regulatory environments, company behaviour and research frontiers (Johanson and Vahlne, 2009). In their revised model, Johanson and Vahlne (2009) put more emphasis on internationalisation as a process of developing a network position, and on opportunity exploitation as a key element. They state that in relation to the network position that ‘‘outsidership, in relation to the relevant network, more than psychic distance, is the root of uncertainty’’ (ibid:1411) and that ‘‘a firm that does not have a position in a relevant network is an ‘outsider’’’ (ibid:1415). Opportunity exploitation, in turn, is related to the network position since: ‘‘opportunity recognition is likely to be an outcome of on-going business activities that add experience to the existing stock of knowledge’’. In summary; recent empirically-based studies describe different approaches to ECS. The literature review indicates that the transactional approach and the approach focusing on developing a supply base are either the dominant strategies or the ones that have attracted the most attention from researchers on global sourcing. However, some examples indicate that firms have ‘‘future plans’’ to position themselves more strongly on the emerging markets and that they intend to develop this position with a long-term perspective on both the supply and customer side. Nassimbeni (2006:704) describes this development as a transition from a start induced by economic factors to more strategic approaches to internationalisation. Below follows a discussion of the three identified approaches as different strategies for ECS and thereafter as three stages of a market development process.
3. Discussion The three approaches to ECS identified above can be related to different kinds of outcomes, and their ‘success’ can be seen as depending on the set-up defined in the respective approach. This section discusses how the three approaches differ in terms of five key characteristics: scope, time perspective, outcomes, involvement, and strategic focus. In Table 2, the three principal approaches and their characteristics are summarized. After a brief discussion of each approach there is a discussion of the three approaches as subsequent stages in a process of
internationalisation, or rather, of establishing a network position on an emerging market. 3.1. The transactional approach This approach is characterised by efforts to source, at arm’s length, products at low cost. It can be described as opportunity driven and requiring a low degree of complexity and interdependence in the exchange between the firms. For example, some firms have developed incentive schemes, e.g., bonuses, to foster active searching for opportunities to source standardised products at very low prices in low cost countries (c.f. Najafi, 2010; Najafi et al., 2010). This approach can be assumed to fit situations where the products are standardised and there are no perceived potential benefits in development of relationships with suppliers, or in promoting connections between suppliers. However, when such sourcing is carried out at a distance the costs of resolving problems, e.g., with quality or deliveries, tend to be high since problem solving entails travel and other expenses that arise owing to long geographical and psychic distances and because the companies do not know each other very well. Since the transactional approach focuses on achieving low prices for individual purchases, primarily thanks to low labour costs, the price reductions in comparison with alternative or previous sources are the main considered outcome. However, if the scope of this approach is limited to individual purchases, the ‘true costs’ of ECS may be concealed by the strict focus on reduced prices. And even if the indirect costs of making these purchases are included in the considered outcomes, the possibilities of making adjustments through interaction with suppliers are limited. Hence, problem solving may be a reason for increasing involvement with suppliers which may, in turn, result in development of supplier relationships with a broader scope than is permitted by a focus on individual purchases. 3.2. The supply base approach The supply base approach relies on efforts to develop a set of supplier relationships in the new market. This may entail investments, such as a sourcing office to facilitate the development of the supply base. Experience from interacting with the new suppliers may be developed and shared across supplier relationships. Also, by developing supplier relationships as parts of a supply base, resources and activities can be shared across the relationships, such as logistics and transport solutions, and quality assurance routines. Actual presence on the market facilitates interaction with the suppliers to resolve the various problems that may arise. Over time, the buying firm may see benefits in buying increasingly advanced products and, through adjustments of various kinds, increase the interdependencies between their own operations and their suppliers’. Greater knowledge and experience of the supply market can thus be considered a shared resource in itself, permitting the company to grow its work in terms of supply market development.
Table 2 Summary of key characteristics of the three principal approaches to ECS. Transactional approach
Supply base approach
Network positioning approach
Scope Time perspective Outcomes
Individual purchases Short term Low price
Involvement Strategic focus
Low Purchasing
Relationships with a set of suppliers Long term Low cost resulting from relational investments and cost sharing across relationships High Supply market development
Relationships with suppliers and customers Long term Establishment of a network position on a new market, involving both supplier and customer relationships High (Supply and customer) market development
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The primary outcome of the supply base approach can be seen as establishment of a viable supply base with cost reductions for specific purchases or purchase categories. High involvement in individual supplier relationships and a long-term approach suggest reliance on an investment logic implying that a great deal of effort may be needed before the relational investments ‘pay off’. Moreover, since the approach relies on the development of several supplier relationships and there might be costs that can be shared among them, the outcomes cannot be related to individual transactions or to individual supplier relationships but have to be considered in relation to the development of the entire supply base. 3.3. The network positioning approach This approach describes situations where the buying firm considers the emerging market on both the buying and selling sides of the company. Low cost sourcing as an initial stage may be a prerequisite for developing products in the right price range, and/or for making other kinds of adjustments for customers on the particular market. By developing relationships with suppliers on the emerging market the company may also gain access to knowledge concerning what kind of adjustments are needed in order to sell the company’s products on that market. From a supply chain perspective the connectedness between upstream and downstream supply chains is also apparent, owing to logistics and transport solutions. The outcomes of the network positioning approach need to be considered in relation to the ‘whole business’ on the emerging market, although the buying and selling may be more or less contained to the emerging market. Some of the products sourced on the market in question may be directed to supplying foreign production facilities and, correspondingly, products that are assembled or produced by the company on the emerging market may be sold on other markets. Like for the supply base approach, this approach requires high involvement and a long-term perspective since the development of a network position requires investments in supplier and customer relationships. Moreover, since the ‘entire business’ on a particular country market is not easy to define, the outcomes of the approach may be difficult to consider for the emerging market as a separate entity. This is further emphasised when individual supplier and customer relationships are developed to foster business exchange on the markets of more than one country. 3.4. Processes of global sourcing and internationalisation Johanson and Vahlne (2009) argue that their revised internationalisation model can be used to study both ‘resource-seeking’ and ‘market-seeking’ internationalisation. One notion that fits in very well with these authors’ ideas of developing network positions and exploiting opportunities is that, seen as a process beginning with low-cost country sourcing, the first stages in an internationalisation process can reduce the initial investments and risks involved in entering the emerging market. At the same time these stages enable the company to develop some of the key knowledge and experience in interaction with suppliers that may later support the development of customer relationships and hence networks on both the supply and marketing sides of the company. As the emerging market grows the prices rise, but this growth may, in turn, entail new opportunities for the sales and marketing side of the company. In addition to the growing market/increasing price factor, other factors may also connect the upstream and downstream activities involved in developing relationships with suppliers and customers. According to Johanson and Vahlne (2009), knowledge
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is assumed to be fundamental to a firm’s internationalisation. The knowledge that grows out of experience from current activities is considered particularly crucial to the learning process. Axelsson and Johanson (1992) state that foreign market entry should be studied as a ‘position-building process’ in a foreign market network. They highlight the concept of a ‘market-specific learning process’ which may allow the company to reduce the liabilities involved in being an outsider and become an insider instead. This kind of knowledge can be related to ‘general market knowledge’ and concerns the learning and experience gained in a particular country. Another kind of knowledge is ‘general relationship knowledge’, gained by learning from the variety among business relationships on a particular market. ‘Relationship-specific knowledge’ is also developed through interaction between two specific parties. Learning how to coordinate sets of relationships is of additional importance (Johanson and Vahlne, 1977; 2009). According to Johanson and Vahlne (2009), knowledge affects the ’perceived cost of internationalisation’. Therefore, entering emerging markets with low cost sourcing activities, with the intention of gradually developing a network position by first developing relationships on the supply side and then by developing relationships on the sales and marketing side may contribute to lowering both the actual costs and the perceived risks of market entry. Considering the three identified approaches to ECS as different strategic approaches, the viability of two of them: the transactional and the supply base approaches can be questioned as long-term strategies on several grounds. However, when seen as a process directed towards developing a network position in a new (emerging) market, all three approaches make sense as sequential stages in a process towards that goal. There are three strong reasons for applying such a sequential approach. First, entering the emerging market with sourcing activities when the labour costs are low enables the buying company to benefit from low prices while developing supplier relationships. When the market grows, both the prices and the sophistication of product and production technologies increase (also, and more specifically, owing to the suppliers learning from interaction with their customers). This may, in turn, entail opportunities for the company to develop customer relationships. Second, knowledge and experience of doing business on the new market have to be developed gradually and in interaction with specific counterparts, which can be facilitated by an initial sourcing focus. Developing content, commitment and trust in supplier relationships, i.e., developing ‘general relationship knowledge’ on the market may facilitate the development of customer relationships. Third, taking the final step, i.e., developing a network position including both suppliers and customers, enables the company to work on supply chain/network integration. Connecting what they source with what they sell on the emerging market may, for example, reduce the costs of logistics and transportation, and it may also enable the company to make the right kinds of adjustments to the emerging market in general and/or to particular customers on that market.
4. Conclusions and implications This paper presents a literature review of empirical studies of ECS. Four broad categories of studies are identified: studies focusing on why companies engage in ECS, how firms deal with ECS, how firms select markets for their ECS activities, and the outcomes of ECS. Most studies take a firm-centred approach to global sourcing. Three studies of relational and network based approaches are identified. In line with Hultman et al. (2012:10) it
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is argued that more research with a particular focus on the role of interaction and networks in the global sourcing process is needed. Based on the empirical studies of ECS, this paper identifies and discusses three principal approaches to emerging country sourcing: a transactional approach, a supply base approach and a network positioning approach. By relating these three approaches to the ideas of processes of global sourcing and internationalisation it is argued that the three approaches make sense as three stages in a process resulting in developing a network position on the emerging market. The development of a network position can be explained as an investment process, beginning with interaction with suppliers (sometimes spurred by the fact that a purely transactional approach has become problematic), developing into a set of supplier relationships across which resources can be shared and, at some point, also developing customer relationships on the market by drawing on the knowledge and experience developed in the relationships with suppliers. With regard to strategizing it is suggested that the process may either result from a plan of increasing commitment, or emerge from an opportunistic approach to low cost sourcing where problem solving and increasing involvement may lead to identifying opportunities after interaction with suppliers and eventually with customers on the new market. Either way, the investment logic inherent in relationship building may be a ‘driver’ of increasing commitment to a growing number of network partners. The suggested theoretical explanation of ECS approaches as a process of increasing commitment contributes to both the literature on global sourcing and the literature on internationalisation processes. As concerns global sourcing, it is suggested that the investment logic may explain why companies move to more advanced stages of commitment on emerging markets. The internationalisation literature, in contrast, is rooted in empirical studies of how Western firms started to sell their products on foreign markets several decades back and how they gradually increased their involvement through interaction and relationship building on these markets. ECS as a way of entering new markets can be seen, from that point of view, as an internationalisation process ‘in reverse’, i.e., starting with ‘opportunistic’ buying and evolving into developing a network position including relationships with both suppliers and customers. The managerial implications are that sourcing on emerging markets should be considered as a strategic and thus long-term strategy and that it should not be developed in isolation from the company’s overall and/or market strategy. Companies that maintain the view of ECS as a simple way to ‘buy cheap’ probably experience problems that eventually result in decisions to ‘insource’ and ‘back-shore’ (Kinkel and Maloca, 2009). Hence, opportunistic sourcing and strategic opportunity seeking are very different approaches to emerging market entry, although this paper finds that there are good reasons for the first of these to sometimes evolve into the second. In terms of further research, it is suggested that there is a need for studies that explore, with an extended scope of analysis in time and space, the various consequences of different approaches to global sourcing as a way of entering emerging markets. In particular, longitudinal case studies are needed to further develop an understanding of how investments in individual supplier relationships, in supply base development and in the development of the firm’s position in supply and customer networks are interlinked. This may not only contribute to further unveiling the logic and potentials of emerging country sourcing, but the cases themselves may be used as exemplars for other firms to learn from. This, in turn, requires frameworks that enable researchers to analyse the different dimensions involved in the investments, and the outcomes of these investments, in such market development.
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Contents lists available at SciVerse ScienceDirect
Journal of Purchasing & Supply Management journal homepage: www.elsevier.com/locate/pursup
Opportunism or strategic opportunity seeking? Three approaches to emerging country sourcing Nojan Najafi, Anna Dubois, Kajsa Hulthe´n n Department of Technology Management and Economics, Chalmers University of Technology, SE-412 96 Gothenburg, Sweden
a r t i c l e i n f o
abstract
Article history: Received 9 July 2011 Received in revised form 28 November 2012 Accepted 13 December 2012 Available online 30 January 2013
The current interest in low-cost or emerging country sourcing (ECS) has inspired a multitude of empirical studies. These studies are based on varying methodological approaches and have come to somewhat different conclusions regarding the motivations for and outcomes of ECS. This paper argues that the overall approach to the new markets, especially the strategic network context surrounding each buyer-supplier relationship in the ECS setting, impacts on the prerequisites for success. The aim of the paper is to identify and discuss approaches to ECS. It begins with a review of recent empirical studies, scrutinising research interests and the approaches applied by the companies studied. It suggests and illustrates three broad categories of approaches: (1) the transactional approach focusing on individual sourcing in the emerging country, (2) the supply base approach focusing on establishing a set of supplier relationships in the emerging country, and (3) the network positioning approach in which both supplier and customer relationships are developed in the emerging country. The paper also discusses the three approaches as stages in an internationalisation process. The paper concludes that of the three strategic approaches the viability of two – the transactional approach and the supply base approach – can be questioned on several grounds, but that when seen as a process directed towards developing a network position in a new (emerging) market all three approaches make sense as different stages in a process moving towards achieving that goal. An explanation for the process of increasing commitment in emerging markets, relying on learning in interaction and on relational investments beginning with suppliers and continuing with customers, is also discussed. & 2013 Elsevier Ltd. All rights reserved.
Keywords: Low-cost country sourcing Global sourcing Emerging markets Supplier relationships Supply networks
1. Introduction In recent years, low-cost or emerging country sourcing (henceforth referred to as ECS) has gained attention in business and academic research. Western companies are increasingly replacing their local suppliers with suppliers in countries such as China and India as part of their overall globalization strategies (Byrne, 2005; Fang and Axelsson, 2005; Trent and Monczka, 2005; Hultman et al., 2012). For example, Vestring et al. (2005) report that more than 80% of the companies in their study state that shifting activities to low-cost countries is a high priority and about twothirds of the companies have off-shoring initiatives. ECS seems to be part of a larger trend in the business landscape, related to the wider outsourcing trend. Morgan (1999:90) defines outsourcing as ‘‘taking an operation or function traditionally performed in-house and jobbing it out to a contract
n
Corresponding author. Tel.: þ46 31 772 52 83. E-mail addresses: nojan.najafi@chalmers.se (N. Najafi), [email protected] (A. Dubois), [email protected] (K. Hulthe´n). 1478-4092/$ - see front matter & 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.pursup.2012.12.002
manufacturer or a third-party service provider’’. By specialising in some activities, companies are able to concentrate on and improve their core businesses (Quinn and Hilmer, 1994; Ellram and Billington, 2001). Since the suppliers perform similar activities for a number of customers they can gain from economies of scale and thereby increase the efficiency of their operations (Dubois, 1998). Simchi-Levi et al. (2003) suggest a number of advantages of outsourcing, including economies of scale, risk pooling, capital investment reduction, possibilities of focusing on core competencies, and increased flexibility. In an outsourcing strategy, the location of the contract manufacturers or the thirdparty service providers may be in either high-cost or low-cost countries. ECS can also relate to off-shoring in different ways. Lewin and Peeters (2006:221) define off-shoring as ‘‘locating activity to a wholly owned company or independent service provider in another country’’. Thus ECS can be seen as a special case of the general trend towards outsourcing and off-shoring. There are many driving forces for ECS initiatives. Economic incentives seem to be the most significant drivers for firms with a low-cost or emerging country sourcing strategy (e.g., Lynch, 2004; Lau and Zhang, 2006). Low labour costs in China, (Fang and
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Axelsson, 2005) and opportunities for capital investment reduction (Lau and Zhang, 2006) are major drivers for companies aiming at higher margins and cost-cutting opportunities. However, according to Araujo and Gadde (2009), efficiency seeking through specialisation and economies of scale are not the only drivers of outsourcing initiatives. The actual trend, acting as a ‘business recipe’, can be a driving force. This may lead to firms paying less attention to thorough, rigorous analysis of the consequences of such a decision, i.e., whether or not the initiative would pay off in terms of efficiency improvements in a long-term perspective. There seems to be a risk that the actual costs of lowcost country sourcing and off-shoring are neglected or underestimated by the managers who decide on these investments (Hogan, 2004; Smyrlis, 2006). The ECS trend has brought reports on problems related to these kinds of initiatives in its wake. Lack of capable service providers, loss of control, inefficient infrastructure for transportation and IT, local laws and regulations, inadequacy of cost/benefit analysis systems and the absence of overall post-outsourcing assessments are found in a study of Lau and Zhang (2006) to be the main drawbacks and impediments to low-cost country sourcing. Steinle and Schiele (2008) argue that it is important but difficult to become a ‘preferred customer’ when working from abroad. There have also been reports of companies that have begun to reconsider their investments in ECS, and who have consequently begun to ‘in-source’ and ‘back-shore’. In a study of 1663 German companies, Kinkel and Maloca (2009) found that every fourth to sixth off-shore activity of these companies had already been back-shored. Some explanation for these ‘failures’ might be found in ‘‘net˚ work effects’’ (Hakansson and Snehota, 1995; Gadde et al., 2010). If a firm wants to change from local to foreign suppliers, the network will have to be restructured. The buying firm will have to disconnect from its current suppliers and establish business relationships with the new suppliers, becoming part of their networks of other customers and suppliers. This may also involve other actors, such as logistics providers and other suppliers who also need to be connected to the new relationships. Hence, ECS is not unproblematic from a relational or a network perspective. This paper focuses on different approaches to ECS, taking account of individual purchases or transactions as part of buyersupplier relationships which are subject to specific connections to other relationships (see e.g., Gadde et al., 2010). Reviewing the ECS literature, it becomes clear that this perspective is not a typical one, although there are a few relevant contributions. For example, Andersen and Christensen (2005) focus on the role of suppliers as connective nodes in global supply networks and (Hultman et al., 2012) point out the importance of interaction aspects of global sourcing, studying the case of IKEA and one of their main suppliers. Haried and Ramamurthy (2009) also suggest that a relational perspective should be applied when evaluating global sourcing success. Considering relationship development as investments implies that the costs and benefits of such investments need to be considered in a long-term perspective, since they do not necessarily occur simultaneously. The focus on relationships and their contents therefore needs to be analysed in the context of wider networks of connected relationships and in a long-term perspective. In line with other studies of the consequences of this kind of decision, this paper therefore focuses on the content and contexts of relationships (e.g., Gadde and Jonsson, 2007; Gadde and Hulthe´n, 2009). The aim of the paper is to discuss approaches to ECS with a particular focus on relationship development and connections between relationships, i.e., on networks of interconnected relationships. We suggest that this may contribute both to ways firms strategize, and to further research on global sourcing. The contribution rests on the key
assumption that the embeddedness of business relationships in wider industrial networks entails both difficulties related to ‘getting into’ the networks and opportunities for developing further connections within the network. The paper also contributes by suggesting an explanation as to how one stage of commitment on a new market may evolve in the direction of more advanced stages. The absence of such explanations has been the subject of criticism regarding previous models of global sourcing processes (see Hultman et al., 2012). The paper is divided into four sections. In the second section we review the ECS literature, with a particular focus on how the sourcing may rely on different approaches to individual purchases or transactions, supplier relationships and network development. The third section discusses three identified approaches to ECS, relating them to descriptions of processes of global sourcing and internationalisation. The final section contains conclusions and implications for practice and further research.
2. Literature review This literature review is divided into three parts. It begins with review of recent empirical studies of ECS with a focus on the aims, methods and results of the studies. The second part identifies three broad approaches to ECS, and the third present different models of processes of global sourcing and internationalisation and discusses views of these models. 2.1. Empirical studies of emerging country sourcing (ECS) Recent empirical studies of ECS (sometimes referred to in the literature as low-cost country sourcing (LCCS), international sourcing or global sourcing) can be divided into a few broad categories (see Table 1). One category addresses the issue of why firms engage in ECS (see e.g., Nassimbeni, 2006; Salmi, 2006; Neureiter and Nunnenkamp, 2009; Kinkel and Maloca, 2009). In general, the most common motivation for engaging in ECS seems to be to reduce costs. Access to suppliers who can offer lower prices, access to less expensive resources, and less expensive labour are brought up as ways of reducing costs. Another driver is opportunities for developing new markets (Giunipero and Monczka, 1997; Kotabe and Murray, 1990; Nassimbeni, 2006). Nassimbeni (2006) states that presence on new markets includes ‘‘the possibilities of selling one’s own products on supplying markets’’ and ‘‘the possibility of developing a presence on foreign markets’’ (ibid:698). Another motivation is access to distinct resources, including technology and/or materials or components unavailable in the domestic market and which therefore have to be sourced from abroad (Birou and Fawcett, 1993; Neureiter and Nunnenkamp, 2009). Neureiter and Nunnenkamp (2009:419) state that the motivation for ECS is complex and that ‘‘in addition to cost factors, gaining access to new markets, superior knowledge and state-of-the-art technology’’ are also important determinants. An interesting perspective on these issues is found in Hultman et al. (2012) who argue, based on a study of IKEA’s global sourcing, that the motivation for a firm to source globally can be found outside the firm, for instance when a powerful customer requests the supplier to source from a (specific) low-cost country. In contrast to the discussion on why to engage in ECS, Steinle and Schiele (2008) discuss the limits of global sourcing and why firms should not source globally. They argue that sometimes it is better to develop the local supply base rather than replacing it with global sourcing. Another category is descriptions of how firms deal with ECS, i.e., the organisation and design of ECS initiatives. Zeng (2003),
Table 1 A review of empirical studies of low cost country sourcing. Author
Aim
Method
Result
Why firms engage in ECS Neureiter and International sourcing (IS) as determinant of firm competiveness. Nunnenkamp (2009) Nassimbeni (2006) To analyse the characteristics and determinants of IS of Italian firms.
Kinkel and Maloca (2009) Steinle and Schiele (2008) Hultman et al. (2012)
How firms engage in ECS Millington et al. (2006) Investigate the availability and performance of different ownership types of suppliers in China. Ruamsook et al. (2007) To compare IS and supply chain performance of LCC suppliers in three regions; Asia, Eastern Europe and Western Hemisphere and how do nations within these ¨ ¨ ¨ I Western Hemisphere?) regions compare. (aven osteuropa ligger val Jin and Farr (2010) Examine differences in supplier selection criteria and the perception of benefits and challenges. Schoenherr et al. Investigates a firm’s decision process and risk handling with regard to off-shoring. (2008) Giunipero and Investigates the purchasing organisation structure of firms involved in IS. Monczka (1997) Arnold (1999) To identify ideal organisational types for IS.
Survey of 75 firms with manufacturing facilities in China and 167 supplier relationships. Survey of 160 LCC suppliers in Asia, Eastern Europe and Western Hemisphere to US customers. 14 operational indicators were used. Survey of 88 US apparel firms. Single case study of a US manufacturing firm of commercial tools. Investigation of 24 US based firms and there IS.
Varying performance in the different ownership groups. Notable differences at both regional and national levels among LCC sources. No region outperforms the others on all 14 operational indicators. Firms with strong commitment from top management place more weight on sourcing country when selecting partner. A framework of risk factors to consider in IS.
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A framework for categorization of IS efforts. Trend towards decentralization. Case studies of nine firms. Three ideal types for IS: central purchasing, outsourcing, coordination model. Gelderman and Investigates how knowledge about the global supply base is transferred and shared Single case study of Akzo Nobel Coating. Shows how the purchasing portfolio tool can be used as a Semeijn (2006) in an MNC. means of knowledge transfer to local units. Zeng (2003) Investigates the design and management issues of an IS process. A case study of a US firm in the aviation industry. The global sourcing process can be managed on three levels; strategic, tactical and operational. Samli, et al. (1998) Global sourcing as a strategic tool. Survey of 190 US firms involved in IS. Firms with large-scale IS include it in their strategic plans. Firms with small-scale IS treat it opportunistically. Mol et al. (2004) Investigates the depth and scope of IS. Multiple regression analysis of 189 firms in the Technological uncertainty and degree of product innovation Netherlands. are positively related to a high scope-low depth of IS. Quintens et al. (2005) What drive firms to IS and how do they organise for IS. Multiple case study of 7 firms in the US (New York US firms rely more on intermediaries for their international State) and 5 firms in Belgium. sourcing activities than Belgium firms do. Hartmann et al. (2008) How do MNCs organise for efficient implementation of IS strategies and what Multiple case study of 8 comparable German firms Variation in the use of control mechanisms is explained by control mechanisms are used? representing various industries. the corporate organisational structure and distribution of purchasing expertise among subsidiaries. Agndal (2006) Which markets do SMEs enter over time, why are these markets entered, how is A multiple case study of 10 Swedish SMEs. The entry process seems to be reactive, with few indications the entry process characterised? of proactive behaviour. Where firms engage in ECS Carter et al. (2008) How do purchasing managers perceive low cost regions and their capabilities and Survey of 100 purchasing managers of 12 different Managers select regions based on specific measures and how are decisions taken and on what selection criteria? attributes. perceptions. They choose sourcing locations using multiple criteria and not only cost. Swoboda et al. (2009) Investigates how companies that do both sourcing and selling chose country. Survey of 93 German garment industry actors. International market selection is not an isolated decision.
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Salmi (2006)
European survey of 8300 companies engaged in IS. IS is more important for market access than for knowledge and technology. Survey of 78 Italian firms in various industries. Motivation for IS: less expensive resources, access to distinctive resources, and commercial presence on markets. Analyses Western purchasing in China with regard to motives for sourcing, specific A case study of seven Finnish firms. The motivation of the firms in the study was to lower their requirements, and supplier relationships. sourcing costs. Analyses the driving forces and antecedents of manufacturing off-shoring and Survey of 1663 German firms. Motivation for off-shoring: labour costs. Motivation for back-shoring. back-shoring: lack of flexibility and quality, delivery problems. Analyses the limits to global sourcing. Case study of two firms. Suppliers should be regarded as external resources. Important to be regarded as a preferred customer to the supplier in order to gain access to these resources. Investigates the role of interaction in global sourcing. Single case study of IKEA and one of their Motivation for global sourcing can be found outside the suppliers. sourcing firm, in for example a powerful customer.
Case study of five US clients and six vendor firms in India, 8 relationships in total. IT products and services. Platts and Song (2010) Study the true cost of sourcing from China and firms’ perceptions of the total cost Six cases and a mail survey of 201 UK of sourcing from China. manufacturers. Ruamsook et al. (2009) Investigate the issues pertinent to LCCS and to understand which issues are Correlation analysis of survey of 114 US-based associated most strongly with a firm’s logistics performance. manufacturing firms. 14 operational indicators. Weber et al. (2010) Measures and analyses costs of a LCCS initiative. Single case study of a medical device manufacturer, Siemens Healthcare. What are the key relationship dimensions that affect success of an off-shoring initiative?
Outcome of ECS Haried and Ramamurthy (2009)
Method Aim Author
Table 1 (continued )
Relationships need to be customized based on the requirements, goal sets and desires of the individual stakeholder of interest. Firms do not comprehensively measure the costs of global sourcing and underestimates the true costs incurred. Price and product remains attractive for purchasing of standard goods but efficient logistics are critical. LCCS had extensive impact on other entities than purchasing. Much of the cost accrues in the early phase of the project.
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Result
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studying the global sourcing process of firms, argues that it can be managed on three levels: strategic, tactical and operational. In a similar vein, Samli et al. (1998) discuss sourcing processes on different levels and find that (U.S.) firms with large-scale global sourcing engage on a top management level, including ECS in their strategic plans, while firms with small-scale global sourcing treat global sourcing more opportunistically. The overall conclusion is that ‘‘the prevailing inclination of U.S. firms is primarily toward opportunistic global sourcing’’ (ibid:185). The authors suggest that these firms can improve their global competitive advantage by raising ‘‘the current status of global sourcing from simply an occasional cost cutter or quality improver to a critical factor in developing global strategy’’. Gelderman and Semeijn (2006) explore the supply strategies of a large MNC with 80% of their volume sourced from international suppliers. This firm has an explicit approach in which prices and annual price reductions are in focus. The firm’s main conviction is that ‘‘dependence costs money’’. In a multiple case study of five Belgian and seven New York based firms, Quintens et al. (2005) found that most of the firms in their study were mainly reactive in relation to international sourcing, pursuing ECS only when there were no alternatives ‘at home’. As one of the firms puts it: ‘‘So only when a product or an exact specification is locally not available at a given price/quality ratio, they are sourced abroad.’’ (ibid:61). Agndal (2006:193) also reports on reactive behaviour in his study of 10 Swedish industrial SMEs: ‘‘the process may be described as reactive; with few indications found that managers proactively exploit foreign markets’’. Relating to this discussion, in their study Hultman et al. (2012) describe one buying firm that makes its suppliers source globally and even from specific sub-suppliers. This case shows how a buying firm can have a very proactive role with regard to global sourcing, while its sub-suppliers have limited autonomy with regard to how and from what suppliers to source in their turn. With regard to the selection of suppliers, there is also a focus on cost-cutting (Jin and Farr, 2010). However, in their study of sourcing behaviour in the apparel industry, lead times were found to be equally important. Millington et al. (2006) investigate how various ownership arrangements (for Chinese suppliers) correlate with supplier performance. They investigate supplier performance by analysing the performance of each supplier as well as their relationships with their suppliers and the investments made by buyers and suppliers. Ruamsook et al. (2007) make a comparative analysis of supplier performance in three regions (Asia, the Western hemisphere and Europe). They conclude that although there are differences in performance in the three regions, no region outperforms the others in all the dimensions investigated. Therefore, they suggest that specific regions should be analysed on a case-by-case basis to identify the most appropriate supply sources with regard to each firm’s strategic goals. A third category of studies is studies of where (in what regions/ countries) companies practice ECS. Carter et al. (2008) find that firms select regions to source from based on specific measures and perceptions of the regions, regardless of whether or not these perceptions are ‘accurate’. They also find that the decisions seem to be biased by cultural stereotypes. Swoboda et al. (2009) point out, in a study of the fashion industry, that international market selection is not an isolated decision but very context dependent with regard to the buying firm’s situation and plans. They argue that previous decisions concerning strategy, time to market, vertical integration, situational factors such as degree of foreign involvement and firm size, all influence decisions concerning what countries to source from. A fourth category of studies relates to the outcomes of ECS initiatives. Platts and Song (2010) highlight the costs of sourcing
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from China and conclude that most buying firms underestimate the true costs of ECS. In their study, total costs are divided into (1) set-up costs (for example cost for collecting information to search for suppliers, engineering time for transfer, quality audits, visits to suppliers, investments in suppliers’ IT, training of personnel), and (2) on-going costs (for example price, transportation, warehouse, travel expenditures, language and cultural issues, inspection, late deliveries). Firms estimated additional costs at 25% of the quoted price while in reality they turned out to account for 50% of the quoted price. Weber et al. (2010) investigate the cost of ECS and compare it with sourcing from ‘traditional procurement countries’. They conclude that only relying on purchase price is not a sufficient decision-making criterion for ECS, since the costs predominately occur in other areas than purchasing and supply management. They also find that the success of ECS initiatives is dependent on commitment from senior management and that it is important to regard these initiatives as a part of the overall strategic plan. The success of ECS efforts was also found to be associated with the firms’ intercultural and language skills. In order to succeed, the authors promote the establishment of long-term buyer-seller relationships. In line with this suggestion, Haried and Ramamurthy (2009) take a relational perspective on this issue by focusing on the key relationship dimensions that can be used when evaluating ‘relational sourcing success’. The key dimensions investigated are: information exchange, adaptations, legal bonds, mutual obligation, and intercultural competence. They conclude that it is important to consider the vendor’s perspective as well as the client’s perspective when evaluating relational sourcing success, which is in line with the arguments of Hultman et al. (2012), who promote an interaction approach to global sourcing. Most of the studies presented in Table 1 are based on surveys, although some case studies are included. The main focus is on firm-internal matters, either on the buying firm and its buying behaviour/organisation, or on the supplier’s performance or location. Several studies point out that the firm-internal focus is not sufficient to understand the outcomes of ECS but needs to be complemented by a relational perspective focusing on the buyer and supplier and on the relationship between them. However, only three articles had a relational perspective on ECS: Andersen and Christensen (2005), Haried and Ramamurthy (2009) and Hultman et al. (2012). Below, the empirical descriptions of how firms address ECS are used as a point of departure for identifying different approaches to ECS.
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with a clear focus on reducing the price, or the direct cost, of the purchase as compared with previous or alternative sources. A different approach is exemplified by four of Salmi’s (2006:205) cases. She concludes that ‘‘whilst low costs form a major motivation for sourcing, it was evident that the companies were not ‘playing the market’ by focusing solely on price. Instead, a long-term and market development viewpoint was taken’’. For example, one of the companies in this study spent a decade establishing and developing a set of 40 suppliers that now forms an extensive network of personal and organisational relationships. This is referred to here as the supply base approach. Kumar et al. (2010) also exemplify efforts to develop a supply base in emerging markets. In one of the cases, the company established an international purchasing office in India. Establishing a ‘market presence’ as described by Kumar et al. (2010), may be a first step towards developing a network position on the emerging market. The third approach identified, the network positioning approach, includes the development of both supplier and customer relationships. Hence, expectations of future (customer) market development potential may be part of the efforts to develop a supply base on the emerging market. In two of Salmi’s (2006) cases the firms established local production units in order to enter the Chinese market. The local sourcing efforts were introduced in relation to these production units. Hence, these firms entered China both to find suppliers and in order to reach the local market. Nassimbeni (2006:698) also refers to companies that perceive ECS as an opportunity for selling the companies’ own products on ‘‘supplying markets’’ by developing a presence on these new markets. Moreover, he suggests that ‘‘international sourcing (IS) is in a phase of transition evolving from a starting stage (IS motivated by contingent/economic factors) to more advanced stages where IS is part of a more extensive international strategy’’ (ibid:704). For example, Hultman et al. (2012:18) state that one of the main reasons IKEA developed their global sourcing efforts was to develop new customer markets. They show how ‘‘sourcing operations are closely linked to increasing sales’’ in a certain geographical market. In other words, the scope of the network positioning approach goes beyond the implications of the ECS concept, since it not only includes a supply perspective but also a customer/marketing perspective on emerging countries. The sourcing work, however, can be seen as instrumental in developing a presence on a certain emerging market through which the company can eventually establish customer relationships on that market.
2.2. Three approaches to ECS 2.3. Process models of global sourcing and internationalisation Although the aims of the studies reviewed differ, three different approaches to ECS can be identified: a transactional approach, a supply base approach and a network positioning approach. These approaches are described below and linked to the studies reviewed. Quintens et al. (2005) and Agndal (2006) present examples of a clearly price driven and primarily reactive approach to ECS: referred to here as the transactional approach. This approach is also exemplified in the study of Gelderman and Semeijn (2006), who describe a firm focusing on price reductions driven by a belief that ‘dependency costs money’. One of the three companies studied by Kumar et al. (2010:149) also illustrates a transactional approach, using ECS ‘‘as a way to introduce competition into the existing supply base’’. In this case there was also pressure from the customers to start sourcing from emerging or low cost countries as part of a continuous cost reduction programme. Also, in Salmi’s (2006) study of seven Finish companies, standard components were sourced at arm’s-length through a domestic agent. In all these examples the scope of the ECS is limited to individual purchases with little or no commitment involved and
Both international sourcing, implying ad hoc purchasing from foreign suppliers, and global sourcing, referring to situations where sourcing is considered a component of a wider international strategy, have been described as processes with a number of stages (Hultman et al., 2012). Nassimbeni (2006) suggests that firms go through stages evolving from a starting stage motivated by financial factors to more advanced stages where international sourcing is integrated into the company’s international strategy. Various authors have developed process models for global sourcing with a number of stages (e.g., Giunipero and Monczka, 1997; Rozemeijer et al., 2003; Trent and Monczka, 2005). Trent and Monczka (2005) identify a model with five levels, starting with domestic purchasing, followed by two stages of international purchasing and then ending with two stages of global sourcing, the last of which encompasses integrated global sourcing across worldwide locations and functional groups. These normative models have received considerable criticism as they ‘‘say little about how to reach another stage and assumes that the final stage is the ultimate goal of all companies’’ (Hultman et al.,
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2012:10). According to Hultman et al. (2012) there is potential for integrating this normative stream of research into the empiricallybased internationalisation process literature with its studies of how firms have ventured into foreign country markets. The early ‘Uppsala model’ of internationalisation processes (Johanson and Vahlne, 1977) describes how firms went through certain stages in their internationalisation efforts, starting with ad hoc exporting, followed by sales through intermediaries, then establishing a sales organisation and finally beginning to manufacture on the new market. This process received wide spread recognition and became known as ‘the establishment chain’. Johanson and Vahlne later suggested that firms reduce risks and uncertainty by choosing markets that are close to the domestic market in terms of psychic distance and then gradually moving to more distant countries. A great deal has changed since this model was developed, including economic and regulatory environments, company behaviour and research frontiers (Johanson and Vahlne, 2009). In their revised model, Johanson and Vahlne (2009) put more emphasis on internationalisation as a process of developing a network position, and on opportunity exploitation as a key element. They state that in relation to the network position that ‘‘outsidership, in relation to the relevant network, more than psychic distance, is the root of uncertainty’’ (ibid:1411) and that ‘‘a firm that does not have a position in a relevant network is an ‘outsider’’’ (ibid:1415). Opportunity exploitation, in turn, is related to the network position since: ‘‘opportunity recognition is likely to be an outcome of on-going business activities that add experience to the existing stock of knowledge’’. In summary; recent empirically-based studies describe different approaches to ECS. The literature review indicates that the transactional approach and the approach focusing on developing a supply base are either the dominant strategies or the ones that have attracted the most attention from researchers on global sourcing. However, some examples indicate that firms have ‘‘future plans’’ to position themselves more strongly on the emerging markets and that they intend to develop this position with a long-term perspective on both the supply and customer side. Nassimbeni (2006:704) describes this development as a transition from a start induced by economic factors to more strategic approaches to internationalisation. Below follows a discussion of the three identified approaches as different strategies for ECS and thereafter as three stages of a market development process.
3. Discussion The three approaches to ECS identified above can be related to different kinds of outcomes, and their ‘success’ can be seen as depending on the set-up defined in the respective approach. This section discusses how the three approaches differ in terms of five key characteristics: scope, time perspective, outcomes, involvement, and strategic focus. In Table 2, the three principal approaches and their characteristics are summarized. After a brief discussion of each approach there is a discussion of the three approaches as subsequent stages in a process of
internationalisation, or rather, of establishing a network position on an emerging market. 3.1. The transactional approach This approach is characterised by efforts to source, at arm’s length, products at low cost. It can be described as opportunity driven and requiring a low degree of complexity and interdependence in the exchange between the firms. For example, some firms have developed incentive schemes, e.g., bonuses, to foster active searching for opportunities to source standardised products at very low prices in low cost countries (c.f. Najafi, 2010; Najafi et al., 2010). This approach can be assumed to fit situations where the products are standardised and there are no perceived potential benefits in development of relationships with suppliers, or in promoting connections between suppliers. However, when such sourcing is carried out at a distance the costs of resolving problems, e.g., with quality or deliveries, tend to be high since problem solving entails travel and other expenses that arise owing to long geographical and psychic distances and because the companies do not know each other very well. Since the transactional approach focuses on achieving low prices for individual purchases, primarily thanks to low labour costs, the price reductions in comparison with alternative or previous sources are the main considered outcome. However, if the scope of this approach is limited to individual purchases, the ‘true costs’ of ECS may be concealed by the strict focus on reduced prices. And even if the indirect costs of making these purchases are included in the considered outcomes, the possibilities of making adjustments through interaction with suppliers are limited. Hence, problem solving may be a reason for increasing involvement with suppliers which may, in turn, result in development of supplier relationships with a broader scope than is permitted by a focus on individual purchases. 3.2. The supply base approach The supply base approach relies on efforts to develop a set of supplier relationships in the new market. This may entail investments, such as a sourcing office to facilitate the development of the supply base. Experience from interacting with the new suppliers may be developed and shared across supplier relationships. Also, by developing supplier relationships as parts of a supply base, resources and activities can be shared across the relationships, such as logistics and transport solutions, and quality assurance routines. Actual presence on the market facilitates interaction with the suppliers to resolve the various problems that may arise. Over time, the buying firm may see benefits in buying increasingly advanced products and, through adjustments of various kinds, increase the interdependencies between their own operations and their suppliers’. Greater knowledge and experience of the supply market can thus be considered a shared resource in itself, permitting the company to grow its work in terms of supply market development.
Table 2 Summary of key characteristics of the three principal approaches to ECS. Transactional approach
Supply base approach
Network positioning approach
Scope Time perspective Outcomes
Individual purchases Short term Low price
Involvement Strategic focus
Low Purchasing
Relationships with a set of suppliers Long term Low cost resulting from relational investments and cost sharing across relationships High Supply market development
Relationships with suppliers and customers Long term Establishment of a network position on a new market, involving both supplier and customer relationships High (Supply and customer) market development
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The primary outcome of the supply base approach can be seen as establishment of a viable supply base with cost reductions for specific purchases or purchase categories. High involvement in individual supplier relationships and a long-term approach suggest reliance on an investment logic implying that a great deal of effort may be needed before the relational investments ‘pay off’. Moreover, since the approach relies on the development of several supplier relationships and there might be costs that can be shared among them, the outcomes cannot be related to individual transactions or to individual supplier relationships but have to be considered in relation to the development of the entire supply base. 3.3. The network positioning approach This approach describes situations where the buying firm considers the emerging market on both the buying and selling sides of the company. Low cost sourcing as an initial stage may be a prerequisite for developing products in the right price range, and/or for making other kinds of adjustments for customers on the particular market. By developing relationships with suppliers on the emerging market the company may also gain access to knowledge concerning what kind of adjustments are needed in order to sell the company’s products on that market. From a supply chain perspective the connectedness between upstream and downstream supply chains is also apparent, owing to logistics and transport solutions. The outcomes of the network positioning approach need to be considered in relation to the ‘whole business’ on the emerging market, although the buying and selling may be more or less contained to the emerging market. Some of the products sourced on the market in question may be directed to supplying foreign production facilities and, correspondingly, products that are assembled or produced by the company on the emerging market may be sold on other markets. Like for the supply base approach, this approach requires high involvement and a long-term perspective since the development of a network position requires investments in supplier and customer relationships. Moreover, since the ‘entire business’ on a particular country market is not easy to define, the outcomes of the approach may be difficult to consider for the emerging market as a separate entity. This is further emphasised when individual supplier and customer relationships are developed to foster business exchange on the markets of more than one country. 3.4. Processes of global sourcing and internationalisation Johanson and Vahlne (2009) argue that their revised internationalisation model can be used to study both ‘resource-seeking’ and ‘market-seeking’ internationalisation. One notion that fits in very well with these authors’ ideas of developing network positions and exploiting opportunities is that, seen as a process beginning with low-cost country sourcing, the first stages in an internationalisation process can reduce the initial investments and risks involved in entering the emerging market. At the same time these stages enable the company to develop some of the key knowledge and experience in interaction with suppliers that may later support the development of customer relationships and hence networks on both the supply and marketing sides of the company. As the emerging market grows the prices rise, but this growth may, in turn, entail new opportunities for the sales and marketing side of the company. In addition to the growing market/increasing price factor, other factors may also connect the upstream and downstream activities involved in developing relationships with suppliers and customers. According to Johanson and Vahlne (2009), knowledge
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is assumed to be fundamental to a firm’s internationalisation. The knowledge that grows out of experience from current activities is considered particularly crucial to the learning process. Axelsson and Johanson (1992) state that foreign market entry should be studied as a ‘position-building process’ in a foreign market network. They highlight the concept of a ‘market-specific learning process’ which may allow the company to reduce the liabilities involved in being an outsider and become an insider instead. This kind of knowledge can be related to ‘general market knowledge’ and concerns the learning and experience gained in a particular country. Another kind of knowledge is ‘general relationship knowledge’, gained by learning from the variety among business relationships on a particular market. ‘Relationship-specific knowledge’ is also developed through interaction between two specific parties. Learning how to coordinate sets of relationships is of additional importance (Johanson and Vahlne, 1977; 2009). According to Johanson and Vahlne (2009), knowledge affects the ’perceived cost of internationalisation’. Therefore, entering emerging markets with low cost sourcing activities, with the intention of gradually developing a network position by first developing relationships on the supply side and then by developing relationships on the sales and marketing side may contribute to lowering both the actual costs and the perceived risks of market entry. Considering the three identified approaches to ECS as different strategic approaches, the viability of two of them: the transactional and the supply base approaches can be questioned as long-term strategies on several grounds. However, when seen as a process directed towards developing a network position in a new (emerging) market, all three approaches make sense as sequential stages in a process towards that goal. There are three strong reasons for applying such a sequential approach. First, entering the emerging market with sourcing activities when the labour costs are low enables the buying company to benefit from low prices while developing supplier relationships. When the market grows, both the prices and the sophistication of product and production technologies increase (also, and more specifically, owing to the suppliers learning from interaction with their customers). This may, in turn, entail opportunities for the company to develop customer relationships. Second, knowledge and experience of doing business on the new market have to be developed gradually and in interaction with specific counterparts, which can be facilitated by an initial sourcing focus. Developing content, commitment and trust in supplier relationships, i.e., developing ‘general relationship knowledge’ on the market may facilitate the development of customer relationships. Third, taking the final step, i.e., developing a network position including both suppliers and customers, enables the company to work on supply chain/network integration. Connecting what they source with what they sell on the emerging market may, for example, reduce the costs of logistics and transportation, and it may also enable the company to make the right kinds of adjustments to the emerging market in general and/or to particular customers on that market.
4. Conclusions and implications This paper presents a literature review of empirical studies of ECS. Four broad categories of studies are identified: studies focusing on why companies engage in ECS, how firms deal with ECS, how firms select markets for their ECS activities, and the outcomes of ECS. Most studies take a firm-centred approach to global sourcing. Three studies of relational and network based approaches are identified. In line with Hultman et al. (2012:10) it
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is argued that more research with a particular focus on the role of interaction and networks in the global sourcing process is needed. Based on the empirical studies of ECS, this paper identifies and discusses three principal approaches to emerging country sourcing: a transactional approach, a supply base approach and a network positioning approach. By relating these three approaches to the ideas of processes of global sourcing and internationalisation it is argued that the three approaches make sense as three stages in a process resulting in developing a network position on the emerging market. The development of a network position can be explained as an investment process, beginning with interaction with suppliers (sometimes spurred by the fact that a purely transactional approach has become problematic), developing into a set of supplier relationships across which resources can be shared and, at some point, also developing customer relationships on the market by drawing on the knowledge and experience developed in the relationships with suppliers. With regard to strategizing it is suggested that the process may either result from a plan of increasing commitment, or emerge from an opportunistic approach to low cost sourcing where problem solving and increasing involvement may lead to identifying opportunities after interaction with suppliers and eventually with customers on the new market. Either way, the investment logic inherent in relationship building may be a ‘driver’ of increasing commitment to a growing number of network partners. The suggested theoretical explanation of ECS approaches as a process of increasing commitment contributes to both the literature on global sourcing and the literature on internationalisation processes. As concerns global sourcing, it is suggested that the investment logic may explain why companies move to more advanced stages of commitment on emerging markets. The internationalisation literature, in contrast, is rooted in empirical studies of how Western firms started to sell their products on foreign markets several decades back and how they gradually increased their involvement through interaction and relationship building on these markets. ECS as a way of entering new markets can be seen, from that point of view, as an internationalisation process ‘in reverse’, i.e., starting with ‘opportunistic’ buying and evolving into developing a network position including relationships with both suppliers and customers. The managerial implications are that sourcing on emerging markets should be considered as a strategic and thus long-term strategy and that it should not be developed in isolation from the company’s overall and/or market strategy. Companies that maintain the view of ECS as a simple way to ‘buy cheap’ probably experience problems that eventually result in decisions to ‘insource’ and ‘back-shore’ (Kinkel and Maloca, 2009). Hence, opportunistic sourcing and strategic opportunity seeking are very different approaches to emerging market entry, although this paper finds that there are good reasons for the first of these to sometimes evolve into the second. In terms of further research, it is suggested that there is a need for studies that explore, with an extended scope of analysis in time and space, the various consequences of different approaches to global sourcing as a way of entering emerging markets. In particular, longitudinal case studies are needed to further develop an understanding of how investments in individual supplier relationships, in supply base development and in the development of the firm’s position in supply and customer networks are interlinked. This may not only contribute to further unveiling the logic and potentials of emerging country sourcing, but the cases themselves may be used as exemplars for other firms to learn from. This, in turn, requires frameworks that enable researchers to analyse the different dimensions involved in the investments, and the outcomes of these investments, in such market development.
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