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The Status of Global Sourcing as a Critical Tool of Strategic Planning:
The Status of Global Sourcing as a Critical Tool of Strategic Planning: Opportunistic Versus Strategic Dichotomy A. Coskun Samli UNIVERSITY OF NORTH FLORIDA
John M. Browning UNIVERSITY OF NORTH FLORIDA
Carolyn Busbia MOTOROLA CORPORATION
Global sourcing is a powerful factor in developing a global competitive advantage. However, U.S. firms typically use global sourcing casually; that is, as an opportunity presents itself, rather than as a key element in their overall corporate strategic plan. This article establishes a conceptual distinction between opportunistic and strategic sourcing. Our research is based on a large scale study of the international group of the National Association of Purchasing Management. The findings indicate that U.S. companies engaged in large-scale global sourcing show a tendency to place this activity at top management decision levels. They also attach an important role to global sourcing in the strategic plan. Finally, they carefully plan their global sourcing through long-term contacts and interorganizational systems, such as Just-In-Time (JIT). However, many respondents who have engaged in global sourcing on a smaller scale, do just the opposite. They seem to treat global sourcing from an opportunistic perspective. It is maintained here that by making global sourcing a more strategic activity, U.S. firms can improve their global performance. J BUSN RES 1998. 43.177–187. 1998 Elsevier Science Inc.
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umerous conceptual and empirical studies have suggested the importance and profitability of global sourcing (Swamidass, 1993; Kotabe, 1990, 1992; Kotabe and Okoroafo, 1990; Kotabe and Swan, 1994; Min and Galle, 1991; Monczka and Trent, 1991; Monczka and Guinipero, 1992). Swamidass (1993) suggested an evolutionary process in global sourcing consisting of three stages: cost minimization; competitive advantage; and a strategic asset. In all three stages, it was implied that global sourcing was carefully planned
Address correspondence to A. Coskun Samli, Department of Management, Marketing, and Logistics, University of North Florida, Jacksonville, Florida Journal of Business Research 43, 177–187 (1998) 1998 Elsevier Science Inc. 655 Avenue of the Americas, New York, NY 10010
and managed; however, there was not enough empirical evidence regarding the strategic management of global sourcing. Firms can enhance their competitive advantage as well as their comparative advantage by coordinating their sourcing activities globally. In such cases, they may set up production operations in various world markets. Alternatively they may buy, assemble components, parts, or semifinished products throughout the world (Murray, Kotabe, and Wildt, 1995). Although comparative advantage is resource-, size-, and location specific, competitive advantage is firm-specific and deals with its managerial capabilities leading to enhancing the firm’s market power (Fagan, 1991; Reimann, 1989; Porter 1990 a, b, c; Reimann and Porter, 1992; Davidson 1992; Kotabe and Okoroafo, 1990; Wills, Samli, and Jacobs, 1991). Companies worldwide have established international operations and now realize that global sourcing is advantageous and profitable (Monczka and Trent, 1991). More and more firms are purchasing materials, supplies, parts, and services from a worldwide arena (Fagan, 1991). As global competition increases, global sourcing of components, parts, raw materials, and finished products is likely to increase (Kotabe and Murray, 1990). A tool as powerful as global sourcing must be planned at the highest level of the corporate organizational structure and must be used accordingly in corporate competitive efforts (Monczka and Guinipero, 1984; Monczka and Trent, 1991; Monczka and Guinipero, 1992). If such a key strategic tool is not carefully planned, it may be of little benefit (Kotabe and Omura, 1989; Kotabe, 1992; Newman, 1989). This “strategizing” of global sourcing is critical. Despite the early theories regarding its organization, global sourcing has emerged as an opportunistic rather than a strategic activity (Samli, Busbia, Davidson, and Browning, 1993). Although some major U.S. ISSN 0148-2963/98/$–see front matter PII S0148-2963(98)00013-7
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firms have gone beyond the opportunistic stage, it seems that most still are treating global sourcing as a cost-cutting device whenever and wherever possible. They are not using global sourcing in a more practical manner as a major strategic weapon to maintain a competitive edge. Even if global sourcing is performed on the basis of a normative strategic model (a` la Kotabe, 1992 or Kotabe and Swan, 1994), this does not mean it is used by the firm as a key strategic tool within its overall corporate strategy. Rather, it might be used as a separate entity to be “stategized” within itself. It is important for U.S. firms to understand this difference and to use global sourcing for a proactive and sustainable international competitive advantage. In this article, we define strategic sourcing as an integral part of the overall corporate strategic plan. It is a key element in creating the aforementioned sustainable competitive advantage. It is approved and supported by top executive officers of the firm. Finally, it is developed and implemented over a span of time under the leadership of the chief purchasing officer (CPO). To the contrary, opportunistic sourcing is defined as a departmental or routine functional activity to fulfill the firm’s short-run purchasing needs. It is not directly linked to corporate or strategic business unit (e.g., SBU) competitive strategy. It is typically used on a contingency basis to handle discrepancies between a company’s purchasing requirements and supply market conditions, and it is commonly decided by middle- or lower-level purchasing decision makers. We propose that opportunistic sourcing is not likely to help optimize the firm’s overall performance. Such a sourcing function may simply emphasize short-run cost or profit benefits without considering the firm’s overall strategy to develop and sustain a long-run competitive advantage. In this article, we have three key objectives. First, we explore the evolution of global sourcing as a strategic tool for the company. Second, based on a large-scale survey database, we explore the use of global sourcing among a number of U.S. firms. Finally, we attempt to establish the parameters of strategic global sourcing and examine some of the key future research avenues regarding this very important topic.
A Review of the Global Sourcing Function Table 1 presents a review of key research in the sourcing activity. It illustrates the evolution of the early and rather simplistic purchasing function within the firm into the global sourcing activity as a key strategic tool. Five stages are identified in the figure. The first stage emphasized procurement as a corporate function and its importance for a company to maintain its competitive activity. This goes as far back as McGarry (1950), who identified procurement as one of the major marketing functions. Here Birou and Fawcett (1993) stated that global sourcing started simply to reduce cost, which implies that
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global sourcing is rather opportunistic or reactive. This orientation does not indicate the existence of a long-term sourcing plan, which, in this paper, is considered to be a part of the firm’s overall global strategy. The second stage in sourcing research emphasized a strategic versus a simply reactive (or opportunistic) way of sourcing. Here the analysis revolved around the company practices that are systematic in sourcing. Some suggested that developing a sourcing strategy can be more beneficial rather than doing it casually (Kotabe and Murray, 1990). The third stage expanded sourcing into global scales. Here, the emphasis was on better and more alternatives being available globally. However, there are proportionately greater problems in identifying the key sources, and elimination of these issues is not a simple task. Carter and Narasimhan (1990) stated that international sourcing emerged as a critical component of the overall corporate activity. Curtain (1987), Fagan (1991), and others explored how global sourcing should be performed and improved. The fourth stage emphasized the development of a global sourcing strategy. It explored the complexities and benefits of such strategies. Early on, Kotabe and Murray (1990) posited that there is an international sourcing strategy that requires a well-integrated and efficient global corporate system. This is how industrial customers minimize the total cost of purchases and influence not only the price of materials, but also the cost of acquisition, ownership, use, maintenance, repair, and replacement. Subsequently, Kotabe (1992) presented an international sourcing strategy that directly affects the product decisions of the firm. Although, in many ways, Kotabe’s concept comes close to the strategic sourcing idea that is used in this article, we believe that although a global sourcing strategy leading to improved products, costs, and the profit picture can be implemented, it may not be a major contributor to the competitive advantage of the firm. Finally, the fifth stage distinguishes global sourcing strategy from strategic sourcing globally. Here, the emphasis is on how global sourcing should be used as an integrated key strategic tool rather than just having a sourcing strategy, which may not be a part of the top strategic plan. Although some references alluded to this fact, none made this distinction point blank. In all of the articles cited, and in numerous others, sourcing is directly or indirectly pointed out as a key factor that could improve the firm’s competitive ability and its market position. Hence, this point is a given, and this article explores whether firms engaged in global sourcing are using this function as if it were a strategic tool or simply a convenience factor. One additional matter must be considered. Very few of the articles cited are data based. In fact, most recent publications have referred to the void in the literature regarding data-based sourcing articles (Ellram and Carr, 1994; Carter and Narasimhan, 1996). It is conceivable that by developing a global sourcing strategy as an entity in itself the firm may be suboptimizing its
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Table 1. A Review of Global Sourcing Research Topical Orientation
Authors
Major Thrust of Findings
Evolution of the purchasing function
McGarry (1950) Ammer (1974) Jain and Laric (1979) Sheth (1977) Deming (1982)
Procurement role is inherent in marketing. Firms compete in buying as well as selling. Organization buying function is important for the firm.
Strategic vs. reactive sourcing
Hahn, Kim, and Jong (1986) Watts, Kim, and Hahn (1992) Birou and Fawcett (1993) Frear, Metcalf, and Alguire (1992) Kotabe and Omura (1989) Kotabe, Masaaki, and Murray (1990) Samli, Busbia, Davidson, and Browning (1993) Ellram and Carr (1994)
Opportunistic reactive sourcing both international or domestic, is short-term oriented. Decisions are made at the middle or lower managements. Emphasis is on cost and opportunities. Little if any attention is paid to corporate goals and strategies.
From purchasing to global sourcing
Birou and Fawcett (1993) Cayer (1988 a,b) Curtin (1987) Fagan (1991) Franceschini (1987) Levy (1995) Monczka and Trent (1991) Presuitti (1992) Carter and Narasimhan (1990)
Reaching outside of national boundaries and making purchasing a broader and managerially functional activity is critical. Problems in creating broad-based sourcing function and the key barriers are considered.
Global-sourcing strategy
Kotabe (1992) Kotabe, Masaaki, and Okoroafo (1990) Min and Galle (1993) Monczka and Guinipero (1984) Swamidass and Kotabe (1993) DeRosa (1991) Swamidass (1993)
There must be a strategy to global sourcing. Such a strategy is bound to benefit the firm in general. It will enhance the firm’s competencies.
Global sourcing as a key strategic tool
Kotabe and Swan (1994) Murray, Kotabe, and Wildt (1995) Freeman and Cavinato (1990) Carter and Narasimhan (1996) Samli, Busbia, Davidson, and Browning (1993)
Global sourcing must be a major strategic tool. As such, it must be placed in the upper organizational level where strategic planning takes place.
overall competitive efforts. After all, if global sourcing is a managerial tool, it must be treated as a key component of the firm’s overall strategy rather than as a strategy all by itself. Unless global sourcing is seen as a critical and viable component of the firm’s overall strategy, a global sourcing strategy falls short of expected optimality in the firm’s global competitiveness. Thus, global sourcing must be placed within the context of the high-level strategic-planning process so it can take its proper place in the firm’s competitive advantage. If the firm is not using global sourcing as a strategic tool, it is simply using global sourcing mostly for short-term cost or profit benefits. We believe that there is a major distinction between strategic sourcing and opportunistic sourcing. First, this distinction is not examined fully in the literature. However, this distinction is extremely important in establishing and maintaining a competitive edge. Second, it is further maintained here that
a major portion of global sourcing is opportunistic, and the current thinking on this subject cannot possibly be considered as strategic. Thus, we posit that both Kotabe’s (1992) powerful normative model and, subsequently, Murray, Kotabe, and Wildt’s model (1995) are not widely practiced by a large number of professionals who are engaged in global sourcing, nor do these practitioners specifically make an attempt to place global sourcing in the firm’s overall strategic plan.
The Research Construct Strategy is the game plan of the firm. In Ohmae’s (1982) terminology, it encompasses all the actions that are “aimed directly at altering the strength of the enterprise relative to that of its competitors” (p. 37). These actions differ from those aimed at achieving operational improvements such as a more
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streamlined organization, more efficient management procedures, or improved training programs. Strategies are developed at the highest corporate levels and then are put into the form of strategic plans to be implemented. Global sourcing, almost by definition, can be one of the key tools to alter the strength of the firm directly. It can establish and maintain the corporate/quality image directly related to specific market needs. It is directly or indirectly related to quality, price, availability, delivery, convenience, customer satisfaction, and the like (DeRosa, 1991; Samli, Busbia, Davidson, and Browning, 1993; Franceschini, 1987; Curtin, 1987; Kotabe and Murray, 1990; Fagan, 1991; Monczka and Trent, 1991; Presutti, 1992; Levy, 1995). If global sourcing is used as a strategic tool, then it must be part of an overall strategy. Therefore, it must be based upon an overall sourcing plan, and it must have long-range dimensions. A powerful strategic tool such as global sourcing should not be used only occasionally in a whimsical manner by lower management. It must be a part of an overall strategy to enhance the firm’s overall competitive advantage (Porter, 1990 a,b,c; Ohmae, 1982). Although Min and Galle (1991, 1993) talk about most firms having a well-defined global purchasing strategy, they do not distinguish between opportunity versus strategy. Swamidass and Kotabe, (1993, p. 82) state that “sourcing decisions are used in integrating multinational operations for strategic advantage.” Although they do not make an effort to distinguish systematic strategic sourcing versus casual opportunistic sourcing, they imply that all global sourcing is strategic. An exploration of opportunistic versus strategic global sourcing can be undertaken by analyzing surrogate measures of a firm’s involvement in global sourcing. It is conjectured that four such factors can be used to explore the construct of global strategic sourcing. The overall research construct to explore global sourcing is presented in Figure 1, along with the four components used to develop and test the research hypotheses. To understand the role of global sourcing in the modern U.S. enterprise, we must explore the firm’s degree of involvement in this activity. If the firm is heavily involved in global sourcing, then the chances are that it may use this activity as a strategic tool. Thus, global-sourcing activity is used as an exploratory variable in Figure 1. If there are key differences among the firm’s treatment of global sourcing, then it may be possible to examine whether these differences relate to the strategic or opportunistic use of global sourcing. The general tendency is to engage in global sourcing on the basis of convenience and opportunities. Although sketchy, some existing research indicates this to be the case (Samli, Busbia, Davidson, and Browning, 1993; Presutti, 1992; Reimann, 1989; Kotabe and Omura, 1989). If the firms are involved in global sourcing in an irregular manner, and their orientation is merely to take advantage of whatever is currently available in the market, then global
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sourcing is not going to play an important role in their strategic decision-making process. Strategic plans typically are composed of carefully constructed subplans of strategic tools (Jain, 1997). This point is illustrated in Figure 1. Similarly, existing research implies this point (Samli, Busbia, Davidson, and Browning, 1993; Presutti, 1992). Based on Figure 1, the strategic/opportunistic construct can be evaluated by four outcomes that may be used as the bases of research hypotheses. First, only key executives in the organizational decisionmaking process have the power or authority to make strategic decisions; therefore, determining who in the organization makes global-sourcing decisions is one key factor. Second, it is important to know if global sourcing is playing a critical role in the strategic plan of the company. If affirmative, this definitely would indicate that global sourcing is strategic and is playing the role that it should in the well-being of the firm. Third, if it is strategic, then international sourcing itself is carefully planned. Again, if affirmative, global sourcing is playing a key role in developing a global competitive edge for the firm. Fourth, if global sourcing were to play a critical strategic role, it should reflect long-term relationships. Long-term strategic relationships between a buying firm and its suppliers can be shown by such factors as contractual agreements, or on the basis of some production arrangement such as JIT.
Research Hypotheses The basic premise of this project is that most of the prevailing global-sourcing activity is opportunistic in nature rather than strategic, which suggest that U.S. firms are depriving themselves of a very powerful strategic weapon. Thus, this extremely important function is not being performed to the extent that it will be the most beneficial to U.S. firms. Four hypotheses were developed to investigate this basic premise. As illustrated in Figure 1, if the global-sourcing activity is not considered important, then the sourcing decisions are unlikely to be made by the key officers of the company. Strategic-planning literature implies that developing a strategic plan is one the major tasks of central management (Ohmae, 1982; Porter, 1990 a, b, c; Newman, Logan, and Hegarty, 1985; Thompson and Strickland, 1995). H1: Global sourcing decisions are made at lower levels of the organization by officers who make functional decisions rather than key strategic decisions. Birou and Fawcett (1993) state that leading-edge firms are using global sourcing as a strategic tool. Frear, Metcalf, and Alguire, (1992) maintain that global sourcing must be part of corporate strategy. Kotabe and Murray (1990), Kotabe (1992), and Murray, Kotabe and Wildt (1995) believed that better managed firms were engaged in a global-sourcing strategy. This leads to a natural second hypothesis. H2: If U.S. firms are engaged in global sourcing strategically, they will assign a major role to this activity in their strategic plan.
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Figure 1. A construct to explore global strategic sourcing.
Almost by definition, if the firms are using global sourcing strategically, then they are likely to plan this activity. Indeed, Kotabe (1992) maintains that this is a strategic activity in itself in that firms do (or should) have a global-sourcing strategy. Here, the authors maintain that rather than having an globalsourcing strategy per se, making global sourcing a part of the overall strategy is more critical. With this approach, the whole process of strategy development and implementation can be optimized. The third hypothesis posits that: H3: Strategic sourcing in the firm’s global activity implies having and using plans for this activity. Strategic-planning literature (Jain, 1997; Ohmae, 1982; Newman, Logan, and Hegarty, 1985) indicates that strategic plans have time dimensions that are often manifested in longterm contractual arrangements and/or production process alignments (e.g., JIT) with international suppliers. This point is illustrated in Figure 1. Thus, the fourth hypothesis states: H4: If U.S. firms engage in global sourcing, they will have (1) long-term contracts, and/or (2) some performance arrangement (such as JIT) with their suppliers.
The Study The National Association of Purchasing Management (NAPM), based in Tempe, Arizona, has a membership of over 40,000 worldwide. The NAPM has an international group composed of foreign as well as U.S. purchasing professionals who work for companies that are involved in global sourcing. To restrict this study to U.S. sourcing practices, only those 790 members
who resided in the United States were included, and all of them were mailed a pretested questionnaire. Two hundred forty-seven (32.5%) were returned.
The Respondent Profile A large variety of industries were represented in the study. Those companies producing mechanical products, such as automotive parts, were represented most widely (17.5%). The second largest number of responses represented the services group (14.2%), followed closely by those producing transportation-related products (11.4%). In terms of total employment, the respondents varied from fewer than 99 (10.1%) to more than 5,000 (24.4%). Finally, the respondents’ total sales also varied from under $1 million (4.1%) to over $10 billion (8.9%).
Wave Analysis To establish whether the responses were representative of the universe, a random sample of 25 was taken from the nonresponding group. The authors successfully interviewed 21 of these respondents by means of a 35-minute telephone interview each. The analysis between the two waves illustrated no significant differences between the two sets of data, indicating that the overall response represents the universe well. The second wave was contrasted with the first wave in terms of the size, involvement in global sourcing, and in the company’s specific global-sourcing practices. The two waves were combined bringing the total response number to 268 or 33.0% of the total U.S. membership list.
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Of these 268 respondents, only 190 were involved in international sourcing. Of these 190, 23% reported less than 5% global sourcing, 23% reported between 5–10% global sourcing, 24% reported between 11–25% global sourcing, 17% between 26–50% global sourcing, 8% between 51–75% global sourcing, and 5% between 76–100% global sourcing. These data were used to test the four hypotheses, within the general constraints of opportunistic versus strategic sourcing, which the authors considered critical in global competition. In the interest of parsimony, the percentage of total purchasing dollars paid to global sources was collapsed into three categories (e.g., less than 5%, and 5–10% were merged to form a single category labeled 10% or less, etc.) and the data were reanalyzed. Using the p ⬍ .05 decision rule, no changes in the conclusions emerged. Therefore, the three-group scheme was used to report the findings and create the tables. Two different types of statistical analysis were used. First, the chi-square test was applied, and likelihood ratios and Mantel–Haenszel statistics were calculated. Second, because of unbalanced cell sizes, or unequal number of observations, and the nonmetric nature of many of the variables employed in this research, the general linear models–analysis of variance (GLM-ANOVA) procedure was used. An additional advantage of using GLM–ANOVA is that it is a robust research technique suitable for exploring situations such as those displayed in Figure 1.
Findings and Discussion More than 45% of the respondents did less than 10% of their sourcing globally. Additionally, 41% indicated that global sourcing accounted for between 11–50% of their total purchases. Thus, global sourcing emerged as an important, but not major, activity in the respondents’ total sourcing function. Most of the time, less than 50% of the firm’s overall sourcing was done globally. Only 13% reported having more than 51% of their purchases from global sources. These firms were more likely to have global-sourcing strategies. These results confirm Kotabe’s (1992) and Murray, Kotabe, and Wildt’s (1995) findings that some, although few, U.S. companies do have globalsourcing strategies. In an effort to test H1, Table 2 presents supportive data. As can be seen, a large proportion of the respondents (72.6%) were involved in less than 10% global sourcing, and these sourcing decisions were made by second- or third-tier managers. Relatively speaking, as the involvement in global sourcing increased, the proportion of those firms with top executives making the key global-sourcing decisions also increases. Considering, once again, that only a small group of respondents were involved in major global-sourcing activity, H1, that global-sourcing decisions are made by lower-level managers, is accepted. Table 3 presents data in support of H2. Considering the
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fact that a large majority of the respondents were involved in small-scale global sourcing, only 14% stated that global sourcing played a major role in the company’s strategic planning. An additional 38.4% stated the similar status in the category in which respondents do their sourcing globally anywhere between 11–50% of the time. As opposed to this pattern, a majority of those respondents who do serious global sourcing (over 50%) indicated that this activity is critical in their strategic plan, which, again, confirms Murray, Kotabe, and Wildt’s (1995) recent findings. Because this is a very small group of respondents, H2, which states that global sourcing is not considered a strategic tool, is accepted, because most firms involved in global sourcing are following an opportunistic mode rather than using global sourcing as a strategic tool. Table 4 indicates that global sourcing is primarily unplanned in those companies engaged in small-scale global sourcing. As seen in the table, those firms using international sourcing as 10% or less of their total purchases reported that 71.2% of the time the process was unplanned. Both tests revealed high levels of significance, and H3, which states that the companies involved in strategic global sourcing will have specific plans for this activity, was accepted. Only a small proportion of those who were minimally involved in global sourcing have plans for global sourcing. Thus, in general terms, global sourcing is an unplanned activity done by most of the responding U.S. companies on a small scale only, and global-sourcing decisions are mainly made at lower functional levels (as opposed to executive planning level). The acceptance of the first three hypotheses leads in the direction of opportunistic sourcing. United States firms can improve their global competitive edge by moving in the direction of strategic sourcing. Hypothesis four was tested in two different ways. First, the relationship between the percentage of global purchases to the presence of contractual agreements was examined; and second, production processes related to long-term arrangements were explored. The first relationship was investigated with the data presented in Table 5, which reveal that those firms involved in major global-sourcing activities (51% or more) were more apt to have long-term contractual agreements with suppliers than were those firms with smaller volumes of purchases. The significance ratings for the Mantel– Haenszel value was around p ⫽ .05, but the other statistics calculated were less significant (about p ⫽ .15). Although results were mixed, the general direction of the hypothesized relationship seems to be supported by the data. The second test for the hypothesis examined the presence of some type of interorganizational production process arrangement (e.g., JIT). The results of this examination are shown in Table 6 and demonstrate highly significant findings (p ⬍ .05) in all cases tested. This finding suggests that high-involvement firms (51% or more) commonly have some type of between-organi-
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Table 2. Summary of Who Is in Charge of Global Sourcing Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
27.4
40.9
47.6
72.6
59.1
52.4
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0095
PR ⬎ F 0.0095
Sourcing decisions made by top officer Sourcing decisions made by secondor third-tier officers Chi square; value 55.927, p ⫽ .001. Likelihood ratio; value 49.665, p ⫽ .007. Mantel–Haenszel; value 7.410, p ⫽ .006. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0095 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
zation policy and procedure vehicle involved. Overall, the results indicated that H4, should be accepted. It seems that if the firm is heavily involved in global sourcing, it is more inclined to treat global sourcing strategically. Perhaps, among these U.S. companies, there are those still not making global-sourcing decisions at the top in this allimportant activity (as indicated in Table 3), but most of them
are, at least, following certain plans as they source globally (Table 2). The study findings here also support Kotabe’s (1992) and, subsequently, Murray, Kotabe, and Wildt’s (1995) position that strategic sourcing is an important management tool. From the study findings, it is clear that, as firms become more heavily involved in global sourcing, the role and importance of this activity becomes more critical in the firm’s strate-
Table 3. Relative Role of Global Sourcing
Role of Global Sourcing(%)
Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
14.0
38.4
64.0
11.6
38.5
28.0
74.4
23.1
8.0
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0001
PR ⬎ F 0.0001
Plays a major role in strategic plan Plays some role in operations plan Plays a minor role in both Chi square; value 63.250, p ⫽ .000. Likelihood ratio; value 56.302, p ⫽ .000. Mantel–Haenszel; value 49.362, p ⫽ .000. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0001 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
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Table 4. Extent to Which Sourcing Function Is Planned Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
71.2 28.7
43.0 57.0
32.0 68.0
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0001
PR ⬎ F 0.0001
Unplanned sourcing Planned sourcing Chi square; value 19.146, p ⫽ .000. Likelihood ratio; value 19.583, p ⫽ .000. Mantel–Haenszel; value 17.885, p ⫽ .000. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0001 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
gic-planning area. However, study findings indicate that most firms are still treating global-sourcing activity as a short-run opportunistic activity. The data presented in this article significantly differentiated between those who are lightly involved in global sourcing and those who are heavily involved in global sourcing.
Limitations As with any data-based study, this one also has numerous limitations. Perhaps the most important study limitation is not having profit data that can be related to global sourcing.
Such an addition to the study instrument was not foreseen as important at the conceptualization stage of this study. In analyzing the data, the company size was not used as a variable. This will constitute another study. Similarly, there was no attempt to analyze global sourcing by industries. This, too, is a critical area of exploration and must be studied. It must be reiterated that the present study is based exclusively on U.S. data. A sequel to it by using, for example, European data will be a very significant contribution. Perhaps other data analysis techniques such as path analysis of LISREL may indicate a more informative decision-making process in global sourcing. This, too, is a critical future research avenue.
Table 5. Global Sourcing and Contractual Agreements with Suppliers
Have long-term contractual agreements Does not have longterm contractual agreements
Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
60.9
70.5
80.0
39.1
29.5
20.0
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0849
PR ⬎ F 0.0849
Chi square; value 3.811, p ⫽ .149. Likelihood ratio; value 3.933, p ⫽ .140. Mantel–Haenszel; value 3.991, p ⫽ .052. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0849 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
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Conclusions and Future Research Evidence suggests that the prevailing inclination of U.S. firms is primarily toward opportunistic global sourcing. If these firms were to raise the current status of global sourcing from simply an occasional costcutter or quality improver to a critical factor in developing global strategy, they will have a longrange strategic posture that will most likely improve their global competitive edge. According to some researchers, there is a sourcing strategy, but it is used only by a few successful firms in the global arena (Swamidass and Kotabe, 1993; Min and Galle, 1993). Furthermore, it is necessary to ascertain that a global-sourcing strategy (Kotabe, 1992) that is currently in place, is not causing a suboptimization in the overall competitiveness of the firm and that the firms are using international sourcing as a strategic tool but not as the goal of the strategy. In other words, global sourcing is not a goal but an important strategic tool. United States firms can receive greater benefit from globalsourcing activity by using it as a major long-term strategic tool. It is quite likely that global sourcing will gain further momentum among all U.S. firms and become a more critical competitive weapon in generating a global competitive advantage. There is every reason to believe that global sourcing has the potential and promise to be such a weapon. Study findings indicate that the degree of involvement in global sourcing is critical. As firms increase their global-sourcing activities, they will be more inclined to use it as strategic tool. Firms involved in global sourcing on larger scales increase its importance in their strategic plans. Assuming more longterm and more production management involvement, U.S. firms in global sourcing are likely to attach to it more of a strategic value to improve their market performance. It is expected that in time their involvement in global sourcing
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will increase. As this happens, global sourcing is likely to become a major part of the strategic plan, and the study of global sourcing will be decided upon at higher levels. It will also become a planned activity, and, finally, U.S. companies will be developing and maintaining long-term relationships with their international sources. As seen in Figure 1, all of these indicate that global sourcing may enhance U.S. firms’ competitive advantage. However, the study findings indicate that not all firms are engaged in large-scale global sourcing, and, hence, they are much more casual about this potentially powerful tool. In fact, even some of those who are heavily involved in global sourcing are not being as strategic as they might be in this process. We believe that global sourcing should be a strategic tool for all those who are engaged in it. In particular, the large group of U.S. firms involved in global sourcing somewhat heavily should not allow these decisions to be made at lower management levels. Furthermore, these companies should have strategic plans of which global sourcing is a critical factor. Thus, it seems that much work must be done. We believe that Kotabe’s (1992) global-sourcing strategy model is critical and must be adopted by all. However, at the same time, this model must fit into a broader model of the firm’s overall strategic plan. United States firms who are engaged in global sourcing nominally, also must take this activity as a critical strategic tool. This, almost by definition, will improve their ability to compete. This article brings forth a series of new and important research avenues. First, it is necessary to determine the extent to which strategic sourcing will show a significant impact on the profit picture. Second, it is very critical to determine if the variables we have examined have equal or unequal weights regarding the status of global sourcing in the corporate entity.
Table 6. The Extent to Which Global Suppliers Are Involved in JIT
Yes No
Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
33.3 66.7
46.5 53.5
83.3 16.7
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0010
PR ⬎ F 0.0010
Chi square; value 9.813, p ⫽ .007. Likelihood ratio; value 10.291, p ⫽ .006. Mantel–Haenszel; value 8.582, p ⫽ .003. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0010 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
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Finally, the unanswered question remains, “How should companies plan for global sourcing, and how should they incorporate this function into the overall strategic plan?” Furthermore, How far should they go in establishing global sourcing strategies? Establishing the organization level where global-sourcing decisions can be and, indeed, should be made more effectively is critical. Not only determining who should make these decisions, but also where and how these decisions can be made effectively, are critical research areas that must be explored in the near future. The authors gratefully acknowledge constructive comments they received from Dr. Adel El-Ansary of the University of North Florida, Dr. Joe Sirgy of Virginia Tech, and two anonymous reviewers of JBR on earlier drafts of this article. The research for this article was supported by a grant from the University of North Florida and National Association of Purchasing Management.
References Ammer, Dean S.: Is Your Purchasing Department a Good Buy. Harvard Business Review 52 (March–April 1974): 36–59. Birou, Laura M., and Fawcett, Stanley E.: International Purchasing: Benefits, Requirements, and Challenges. International Journal of Purchasing and Materials Management 29 (Spring 1993): 28–37. Carter, Joseph R., and Narasimhan, Ram: Purchasing and Supply Management: Future Directions and Trends. International Journal of Purchasing and Materials Management 32 (Fall 1996): 2–12. Carter, Joseph R., and Narasimhan, Ram: Purchasing in the International Marketplace. Journal of Purchasing and Materials Management 26 (Summer 1990): 2–11. Cayer, Shirley: Building a World-Class Supplier Base Is the NumberOne Priority. Purchasing 105 (April 14 1988a): 52–55. Cayer, Shirley: Offshore Sourcing Is Only One of the Changes at GBC. Purchasing 105 (September 15 1988b): 98–101. Curtin, Frank T.: Global Sourcing, Is It Right for Your Company? Management Review 76 (August 1987): 47–49. Davidson, William H.: Global Strategic Management, John Wiley and Sons, New York. 1992. Deming, W. Edwards: Quality, Productivity, and Competitive Position, MIT Press, Cambridge, MA. 1982. DeRosa, Louis J.: Meet Today’s Buying Influences with Value Selling. Industrial Marketing Management 20 (May 1991): 87–90. Ellram, Lisa M., and Carr, Amelia: Strategic Purchasing: A History and Review of the Literature. International Journal of Purchasing and Materials Management 30 (Spring 1994): 10–18. Fagan, Mark L.: A Guide to Global Sourcing. Journal of Business Strategy 12 (March/April 1991): 21–25. Frear, Carl, Metcalf, Lynne E., and Alguire, Mary S.: Offshore Sourcing: Its Nature and Scope. International Journal of Purchasing and Materials Management 28 (Summer 1992): 2–11. Freeman, Virginia T., and Cavinato, Joseph L.: Fitting Purchasing to the Strategic Firm: Frameworks, Processes and Values. Journal of Purchasing and Materials Management 26 (Winter 1990): 6–10. Franceschini, Robert D.: Cutting Tools: The Future Rides on New Materials. Purchasing 104 (May 7 1987): 72–75. Hahn, Chan K., Kim, Kyoo H., and Kim, Jong S.: Costs of Competition: Implications for Purchasing Strategy. Journal of Purchasing and Materials Management 22 (Fall 1986): 2–10.
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Jain, Subhash C.: Marketing Planning and Strategy, 5th ed., SouthWestern Publishing Co., Cincinnati, OH. 1997. Jain, Subhash C., and Laric, Machael: A Model for Purchasing Strategy. Journal of Purchasing and Materials Management 15 (Fall 1979): 2–7. Kotabe, Masaaki: Global Sourcing Strategy, Quorum Books, Westport, CT. 1992. Kotabe, Masaaki: Corporate Product Policy and Innovative Behavior of European and Japanese MNCs: An Empirical Investigation. Journal of Marketing 54 (April 1990): 19–33. Kotabe, Masaaki, and Murray, Janet Y.: Linking Product and Process Innovations and Modes of International Sourcing in Global Competition: A Case of Foreign Multinational Firms. Journal of International Business Studies 21 (November 1990) 383–408. Kotabe, Masaaki, and Okoroafo, Sam C.: A Comparative Study of European and Japanese Multinational Firms’ Marketing Strategies and Performance in the United States. Management International Review 30 (October 1990): 353–371. Kotabe, M., and Omura, G. S.: Sourcing Strategies of European and Japanese Multinationals: A Comparison. Journal of International Business Studies 20 (Spring 1989): 113–130. Kotabe, M., and Swan, K. S.: Offshore Sourcing: Reaction, Maturation, and Consolidation of U.S. Multinationals. Journal of International Business Studies 25 (First Quarter 1994): 115–140. Levy, David L.: International Sourcing and Supply Chain Stability. Journal of International Business Studies 26 (Second Quarter 1995): 343–360. McGarry, Edmund D.: Some Functions of Marketing Reconsidered, in Theory in Marketing, R. Cox and W. Alderson, eds., Richard D. Irwin, Burr Ridge, IL. 1950. pp. 265–72. Min, Hokey, and Galle, William P.: International Purchasing Strategies of Multinational U.S. Firms. International Journal of Purchasing and Materials Management 27 (Summer 1991): 9–18. Min, Hokey, and Galle, William P.: International Purchasing Strategies. International Journal of Purchasing and Materials Management 29 (Summer 1993): 41–50. Monczka, R. M., and Guinipero, L. C.: International Purchasing: Characteristics and Implementation. Journal of Purchasing and Materials Management 20 (Fall 1984): 2–9. Monczka, R. M., and Guinipero, L. C.: Worldwide Sourcing: Assessment and Execution. International Journal of Purchasing and Materials Management 28 (Fall 1992): 9–19. Monczka, R. M., and Trent, Robert J.: Global Sourcing: A Development Approach. International Journal of Purchasing and Materials Management 27 (Spring 1991): 2–8. Murray, Janet Y., Kotabe, M., and Wildt, Albert R.: Strategic and Financial Performance Implications of Global Sourcing Strategy: A Contingency Analysis. Journal of International Business Studies 26 (January 1995): 181–204. Newman, Richard G.: Single Sourcing: Short-Term Savings versus Long-Term Problems. Journal of Purchasing and Materials Management 25 (Summer 1989): 20–25. Newman, William H., Logan, James P., and Hegarty, W. Harvey: Strategic Policy and Central Management, South-Western Publishing Co., Cincinnati, OH. 1985. Ohmae, Kenichi: The Mind of the Strategist, Penguin Books, New York. 1982. Porter, Michael E.: New Global Strategies for Competitive Advantage. Planning Review 18 (May–June 1990a): 4–14.
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Porter, Michael E.: The Competitive Advantage of Nations, The Free Press, New York. 1990b. Porter, Michael E.: The Competitive Advantage of Nations. Harvard Business Review 68 (March/April 1990c): 73–93. Presutti, William D., Jr.: The Single Source Issue: U.S. and Japanese Sourcing Strategies. International Journal of Purchasing and Materials Management 28 (Winter 1992): 2–9. Reimann, Bernard C.: Strategies for Innovation Highlights of the 1989 Strategic Management Society Conference. Planning Review 17 (November/December 1989): 30–36. Reimann, Bernard C., and Porter, Michael: Acting versus Thinking: A Debate between Tom Peters and Michael Porter. Planning Review 20 (March/April 1992): 36–43. Samli, A. Coskun, Busbia, Carolyn, Davidson, Elizabeth, and Browning, John: Strategic versus Opportunistic Sourcing: An Exploration, in Proceedings of World Marketing Congress, vol. 6, M. J. Sirgy, K. D. Bahn, and T. Erem, eds., Academy of Marketing Science, Miami. 1993, pp. 55–59. Sheth, Jagsdish N: Recent Developments in Organizational Buying
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Behavior, in Consumer and Industrial Buying Behavior, A. Woodside, J. Sheth, and P. Bennett, eds., North-Holland, New York. 1977, pp. 17–34. Swamidass, Paul M.: Import Sourcing Dynamics: An Integrative Perspective. Journal of International Business Studies 24 (Fourth Quarter 1993): 672–690. Swamidass, Paul M., and Kotabe, Masaaki: Component Sourcing Strategies of Multinationals: An Empirical Study of European and Japanese Multinationals. Journal of International Business Studies 24 (Spring 1993): 81–99. Thompson, Arthur A., and Strickland, A. J.: Strategic Management, Richard D. Irwin, Chicago. 1995. Watts, Charles A., Kim, Kee Young, and Hahn, Chan K.: Linking Purchasing to Corporate Competitive Strategy. International Journal of Purchasing and Materials Management 31 (Fall 1992): 2–8. Wills, James R. Jr., Samli, A. Coskun, and Jacobs, Laurence: Developing Global Products and Marketing Strategies: A Construct and A Research Agenda. Journal of the Academy of Marketing Science 19 (Winter 1991): 1–10.
John M. Browning UNIVERSITY OF NORTH FLORIDA
Carolyn Busbia MOTOROLA CORPORATION
Global sourcing is a powerful factor in developing a global competitive advantage. However, U.S. firms typically use global sourcing casually; that is, as an opportunity presents itself, rather than as a key element in their overall corporate strategic plan. This article establishes a conceptual distinction between opportunistic and strategic sourcing. Our research is based on a large scale study of the international group of the National Association of Purchasing Management. The findings indicate that U.S. companies engaged in large-scale global sourcing show a tendency to place this activity at top management decision levels. They also attach an important role to global sourcing in the strategic plan. Finally, they carefully plan their global sourcing through long-term contacts and interorganizational systems, such as Just-In-Time (JIT). However, many respondents who have engaged in global sourcing on a smaller scale, do just the opposite. They seem to treat global sourcing from an opportunistic perspective. It is maintained here that by making global sourcing a more strategic activity, U.S. firms can improve their global performance. J BUSN RES 1998. 43.177–187. 1998 Elsevier Science Inc.
N
umerous conceptual and empirical studies have suggested the importance and profitability of global sourcing (Swamidass, 1993; Kotabe, 1990, 1992; Kotabe and Okoroafo, 1990; Kotabe and Swan, 1994; Min and Galle, 1991; Monczka and Trent, 1991; Monczka and Guinipero, 1992). Swamidass (1993) suggested an evolutionary process in global sourcing consisting of three stages: cost minimization; competitive advantage; and a strategic asset. In all three stages, it was implied that global sourcing was carefully planned
Address correspondence to A. Coskun Samli, Department of Management, Marketing, and Logistics, University of North Florida, Jacksonville, Florida Journal of Business Research 43, 177–187 (1998) 1998 Elsevier Science Inc. 655 Avenue of the Americas, New York, NY 10010
and managed; however, there was not enough empirical evidence regarding the strategic management of global sourcing. Firms can enhance their competitive advantage as well as their comparative advantage by coordinating their sourcing activities globally. In such cases, they may set up production operations in various world markets. Alternatively they may buy, assemble components, parts, or semifinished products throughout the world (Murray, Kotabe, and Wildt, 1995). Although comparative advantage is resource-, size-, and location specific, competitive advantage is firm-specific and deals with its managerial capabilities leading to enhancing the firm’s market power (Fagan, 1991; Reimann, 1989; Porter 1990 a, b, c; Reimann and Porter, 1992; Davidson 1992; Kotabe and Okoroafo, 1990; Wills, Samli, and Jacobs, 1991). Companies worldwide have established international operations and now realize that global sourcing is advantageous and profitable (Monczka and Trent, 1991). More and more firms are purchasing materials, supplies, parts, and services from a worldwide arena (Fagan, 1991). As global competition increases, global sourcing of components, parts, raw materials, and finished products is likely to increase (Kotabe and Murray, 1990). A tool as powerful as global sourcing must be planned at the highest level of the corporate organizational structure and must be used accordingly in corporate competitive efforts (Monczka and Guinipero, 1984; Monczka and Trent, 1991; Monczka and Guinipero, 1992). If such a key strategic tool is not carefully planned, it may be of little benefit (Kotabe and Omura, 1989; Kotabe, 1992; Newman, 1989). This “strategizing” of global sourcing is critical. Despite the early theories regarding its organization, global sourcing has emerged as an opportunistic rather than a strategic activity (Samli, Busbia, Davidson, and Browning, 1993). Although some major U.S. ISSN 0148-2963/98/$–see front matter PII S0148-2963(98)00013-7
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firms have gone beyond the opportunistic stage, it seems that most still are treating global sourcing as a cost-cutting device whenever and wherever possible. They are not using global sourcing in a more practical manner as a major strategic weapon to maintain a competitive edge. Even if global sourcing is performed on the basis of a normative strategic model (a` la Kotabe, 1992 or Kotabe and Swan, 1994), this does not mean it is used by the firm as a key strategic tool within its overall corporate strategy. Rather, it might be used as a separate entity to be “stategized” within itself. It is important for U.S. firms to understand this difference and to use global sourcing for a proactive and sustainable international competitive advantage. In this article, we define strategic sourcing as an integral part of the overall corporate strategic plan. It is a key element in creating the aforementioned sustainable competitive advantage. It is approved and supported by top executive officers of the firm. Finally, it is developed and implemented over a span of time under the leadership of the chief purchasing officer (CPO). To the contrary, opportunistic sourcing is defined as a departmental or routine functional activity to fulfill the firm’s short-run purchasing needs. It is not directly linked to corporate or strategic business unit (e.g., SBU) competitive strategy. It is typically used on a contingency basis to handle discrepancies between a company’s purchasing requirements and supply market conditions, and it is commonly decided by middle- or lower-level purchasing decision makers. We propose that opportunistic sourcing is not likely to help optimize the firm’s overall performance. Such a sourcing function may simply emphasize short-run cost or profit benefits without considering the firm’s overall strategy to develop and sustain a long-run competitive advantage. In this article, we have three key objectives. First, we explore the evolution of global sourcing as a strategic tool for the company. Second, based on a large-scale survey database, we explore the use of global sourcing among a number of U.S. firms. Finally, we attempt to establish the parameters of strategic global sourcing and examine some of the key future research avenues regarding this very important topic.
A Review of the Global Sourcing Function Table 1 presents a review of key research in the sourcing activity. It illustrates the evolution of the early and rather simplistic purchasing function within the firm into the global sourcing activity as a key strategic tool. Five stages are identified in the figure. The first stage emphasized procurement as a corporate function and its importance for a company to maintain its competitive activity. This goes as far back as McGarry (1950), who identified procurement as one of the major marketing functions. Here Birou and Fawcett (1993) stated that global sourcing started simply to reduce cost, which implies that
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global sourcing is rather opportunistic or reactive. This orientation does not indicate the existence of a long-term sourcing plan, which, in this paper, is considered to be a part of the firm’s overall global strategy. The second stage in sourcing research emphasized a strategic versus a simply reactive (or opportunistic) way of sourcing. Here the analysis revolved around the company practices that are systematic in sourcing. Some suggested that developing a sourcing strategy can be more beneficial rather than doing it casually (Kotabe and Murray, 1990). The third stage expanded sourcing into global scales. Here, the emphasis was on better and more alternatives being available globally. However, there are proportionately greater problems in identifying the key sources, and elimination of these issues is not a simple task. Carter and Narasimhan (1990) stated that international sourcing emerged as a critical component of the overall corporate activity. Curtain (1987), Fagan (1991), and others explored how global sourcing should be performed and improved. The fourth stage emphasized the development of a global sourcing strategy. It explored the complexities and benefits of such strategies. Early on, Kotabe and Murray (1990) posited that there is an international sourcing strategy that requires a well-integrated and efficient global corporate system. This is how industrial customers minimize the total cost of purchases and influence not only the price of materials, but also the cost of acquisition, ownership, use, maintenance, repair, and replacement. Subsequently, Kotabe (1992) presented an international sourcing strategy that directly affects the product decisions of the firm. Although, in many ways, Kotabe’s concept comes close to the strategic sourcing idea that is used in this article, we believe that although a global sourcing strategy leading to improved products, costs, and the profit picture can be implemented, it may not be a major contributor to the competitive advantage of the firm. Finally, the fifth stage distinguishes global sourcing strategy from strategic sourcing globally. Here, the emphasis is on how global sourcing should be used as an integrated key strategic tool rather than just having a sourcing strategy, which may not be a part of the top strategic plan. Although some references alluded to this fact, none made this distinction point blank. In all of the articles cited, and in numerous others, sourcing is directly or indirectly pointed out as a key factor that could improve the firm’s competitive ability and its market position. Hence, this point is a given, and this article explores whether firms engaged in global sourcing are using this function as if it were a strategic tool or simply a convenience factor. One additional matter must be considered. Very few of the articles cited are data based. In fact, most recent publications have referred to the void in the literature regarding data-based sourcing articles (Ellram and Carr, 1994; Carter and Narasimhan, 1996). It is conceivable that by developing a global sourcing strategy as an entity in itself the firm may be suboptimizing its
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Table 1. A Review of Global Sourcing Research Topical Orientation
Authors
Major Thrust of Findings
Evolution of the purchasing function
McGarry (1950) Ammer (1974) Jain and Laric (1979) Sheth (1977) Deming (1982)
Procurement role is inherent in marketing. Firms compete in buying as well as selling. Organization buying function is important for the firm.
Strategic vs. reactive sourcing
Hahn, Kim, and Jong (1986) Watts, Kim, and Hahn (1992) Birou and Fawcett (1993) Frear, Metcalf, and Alguire (1992) Kotabe and Omura (1989) Kotabe, Masaaki, and Murray (1990) Samli, Busbia, Davidson, and Browning (1993) Ellram and Carr (1994)
Opportunistic reactive sourcing both international or domestic, is short-term oriented. Decisions are made at the middle or lower managements. Emphasis is on cost and opportunities. Little if any attention is paid to corporate goals and strategies.
From purchasing to global sourcing
Birou and Fawcett (1993) Cayer (1988 a,b) Curtin (1987) Fagan (1991) Franceschini (1987) Levy (1995) Monczka and Trent (1991) Presuitti (1992) Carter and Narasimhan (1990)
Reaching outside of national boundaries and making purchasing a broader and managerially functional activity is critical. Problems in creating broad-based sourcing function and the key barriers are considered.
Global-sourcing strategy
Kotabe (1992) Kotabe, Masaaki, and Okoroafo (1990) Min and Galle (1993) Monczka and Guinipero (1984) Swamidass and Kotabe (1993) DeRosa (1991) Swamidass (1993)
There must be a strategy to global sourcing. Such a strategy is bound to benefit the firm in general. It will enhance the firm’s competencies.
Global sourcing as a key strategic tool
Kotabe and Swan (1994) Murray, Kotabe, and Wildt (1995) Freeman and Cavinato (1990) Carter and Narasimhan (1996) Samli, Busbia, Davidson, and Browning (1993)
Global sourcing must be a major strategic tool. As such, it must be placed in the upper organizational level where strategic planning takes place.
overall competitive efforts. After all, if global sourcing is a managerial tool, it must be treated as a key component of the firm’s overall strategy rather than as a strategy all by itself. Unless global sourcing is seen as a critical and viable component of the firm’s overall strategy, a global sourcing strategy falls short of expected optimality in the firm’s global competitiveness. Thus, global sourcing must be placed within the context of the high-level strategic-planning process so it can take its proper place in the firm’s competitive advantage. If the firm is not using global sourcing as a strategic tool, it is simply using global sourcing mostly for short-term cost or profit benefits. We believe that there is a major distinction between strategic sourcing and opportunistic sourcing. First, this distinction is not examined fully in the literature. However, this distinction is extremely important in establishing and maintaining a competitive edge. Second, it is further maintained here that
a major portion of global sourcing is opportunistic, and the current thinking on this subject cannot possibly be considered as strategic. Thus, we posit that both Kotabe’s (1992) powerful normative model and, subsequently, Murray, Kotabe, and Wildt’s model (1995) are not widely practiced by a large number of professionals who are engaged in global sourcing, nor do these practitioners specifically make an attempt to place global sourcing in the firm’s overall strategic plan.
The Research Construct Strategy is the game plan of the firm. In Ohmae’s (1982) terminology, it encompasses all the actions that are “aimed directly at altering the strength of the enterprise relative to that of its competitors” (p. 37). These actions differ from those aimed at achieving operational improvements such as a more
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streamlined organization, more efficient management procedures, or improved training programs. Strategies are developed at the highest corporate levels and then are put into the form of strategic plans to be implemented. Global sourcing, almost by definition, can be one of the key tools to alter the strength of the firm directly. It can establish and maintain the corporate/quality image directly related to specific market needs. It is directly or indirectly related to quality, price, availability, delivery, convenience, customer satisfaction, and the like (DeRosa, 1991; Samli, Busbia, Davidson, and Browning, 1993; Franceschini, 1987; Curtin, 1987; Kotabe and Murray, 1990; Fagan, 1991; Monczka and Trent, 1991; Presutti, 1992; Levy, 1995). If global sourcing is used as a strategic tool, then it must be part of an overall strategy. Therefore, it must be based upon an overall sourcing plan, and it must have long-range dimensions. A powerful strategic tool such as global sourcing should not be used only occasionally in a whimsical manner by lower management. It must be a part of an overall strategy to enhance the firm’s overall competitive advantage (Porter, 1990 a,b,c; Ohmae, 1982). Although Min and Galle (1991, 1993) talk about most firms having a well-defined global purchasing strategy, they do not distinguish between opportunity versus strategy. Swamidass and Kotabe, (1993, p. 82) state that “sourcing decisions are used in integrating multinational operations for strategic advantage.” Although they do not make an effort to distinguish systematic strategic sourcing versus casual opportunistic sourcing, they imply that all global sourcing is strategic. An exploration of opportunistic versus strategic global sourcing can be undertaken by analyzing surrogate measures of a firm’s involvement in global sourcing. It is conjectured that four such factors can be used to explore the construct of global strategic sourcing. The overall research construct to explore global sourcing is presented in Figure 1, along with the four components used to develop and test the research hypotheses. To understand the role of global sourcing in the modern U.S. enterprise, we must explore the firm’s degree of involvement in this activity. If the firm is heavily involved in global sourcing, then the chances are that it may use this activity as a strategic tool. Thus, global-sourcing activity is used as an exploratory variable in Figure 1. If there are key differences among the firm’s treatment of global sourcing, then it may be possible to examine whether these differences relate to the strategic or opportunistic use of global sourcing. The general tendency is to engage in global sourcing on the basis of convenience and opportunities. Although sketchy, some existing research indicates this to be the case (Samli, Busbia, Davidson, and Browning, 1993; Presutti, 1992; Reimann, 1989; Kotabe and Omura, 1989). If the firms are involved in global sourcing in an irregular manner, and their orientation is merely to take advantage of whatever is currently available in the market, then global
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sourcing is not going to play an important role in their strategic decision-making process. Strategic plans typically are composed of carefully constructed subplans of strategic tools (Jain, 1997). This point is illustrated in Figure 1. Similarly, existing research implies this point (Samli, Busbia, Davidson, and Browning, 1993; Presutti, 1992). Based on Figure 1, the strategic/opportunistic construct can be evaluated by four outcomes that may be used as the bases of research hypotheses. First, only key executives in the organizational decisionmaking process have the power or authority to make strategic decisions; therefore, determining who in the organization makes global-sourcing decisions is one key factor. Second, it is important to know if global sourcing is playing a critical role in the strategic plan of the company. If affirmative, this definitely would indicate that global sourcing is strategic and is playing the role that it should in the well-being of the firm. Third, if it is strategic, then international sourcing itself is carefully planned. Again, if affirmative, global sourcing is playing a key role in developing a global competitive edge for the firm. Fourth, if global sourcing were to play a critical strategic role, it should reflect long-term relationships. Long-term strategic relationships between a buying firm and its suppliers can be shown by such factors as contractual agreements, or on the basis of some production arrangement such as JIT.
Research Hypotheses The basic premise of this project is that most of the prevailing global-sourcing activity is opportunistic in nature rather than strategic, which suggest that U.S. firms are depriving themselves of a very powerful strategic weapon. Thus, this extremely important function is not being performed to the extent that it will be the most beneficial to U.S. firms. Four hypotheses were developed to investigate this basic premise. As illustrated in Figure 1, if the global-sourcing activity is not considered important, then the sourcing decisions are unlikely to be made by the key officers of the company. Strategic-planning literature implies that developing a strategic plan is one the major tasks of central management (Ohmae, 1982; Porter, 1990 a, b, c; Newman, Logan, and Hegarty, 1985; Thompson and Strickland, 1995). H1: Global sourcing decisions are made at lower levels of the organization by officers who make functional decisions rather than key strategic decisions. Birou and Fawcett (1993) state that leading-edge firms are using global sourcing as a strategic tool. Frear, Metcalf, and Alguire, (1992) maintain that global sourcing must be part of corporate strategy. Kotabe and Murray (1990), Kotabe (1992), and Murray, Kotabe and Wildt (1995) believed that better managed firms were engaged in a global-sourcing strategy. This leads to a natural second hypothesis. H2: If U.S. firms are engaged in global sourcing strategically, they will assign a major role to this activity in their strategic plan.
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Figure 1. A construct to explore global strategic sourcing.
Almost by definition, if the firms are using global sourcing strategically, then they are likely to plan this activity. Indeed, Kotabe (1992) maintains that this is a strategic activity in itself in that firms do (or should) have a global-sourcing strategy. Here, the authors maintain that rather than having an globalsourcing strategy per se, making global sourcing a part of the overall strategy is more critical. With this approach, the whole process of strategy development and implementation can be optimized. The third hypothesis posits that: H3: Strategic sourcing in the firm’s global activity implies having and using plans for this activity. Strategic-planning literature (Jain, 1997; Ohmae, 1982; Newman, Logan, and Hegarty, 1985) indicates that strategic plans have time dimensions that are often manifested in longterm contractual arrangements and/or production process alignments (e.g., JIT) with international suppliers. This point is illustrated in Figure 1. Thus, the fourth hypothesis states: H4: If U.S. firms engage in global sourcing, they will have (1) long-term contracts, and/or (2) some performance arrangement (such as JIT) with their suppliers.
The Study The National Association of Purchasing Management (NAPM), based in Tempe, Arizona, has a membership of over 40,000 worldwide. The NAPM has an international group composed of foreign as well as U.S. purchasing professionals who work for companies that are involved in global sourcing. To restrict this study to U.S. sourcing practices, only those 790 members
who resided in the United States were included, and all of them were mailed a pretested questionnaire. Two hundred forty-seven (32.5%) were returned.
The Respondent Profile A large variety of industries were represented in the study. Those companies producing mechanical products, such as automotive parts, were represented most widely (17.5%). The second largest number of responses represented the services group (14.2%), followed closely by those producing transportation-related products (11.4%). In terms of total employment, the respondents varied from fewer than 99 (10.1%) to more than 5,000 (24.4%). Finally, the respondents’ total sales also varied from under $1 million (4.1%) to over $10 billion (8.9%).
Wave Analysis To establish whether the responses were representative of the universe, a random sample of 25 was taken from the nonresponding group. The authors successfully interviewed 21 of these respondents by means of a 35-minute telephone interview each. The analysis between the two waves illustrated no significant differences between the two sets of data, indicating that the overall response represents the universe well. The second wave was contrasted with the first wave in terms of the size, involvement in global sourcing, and in the company’s specific global-sourcing practices. The two waves were combined bringing the total response number to 268 or 33.0% of the total U.S. membership list.
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Of these 268 respondents, only 190 were involved in international sourcing. Of these 190, 23% reported less than 5% global sourcing, 23% reported between 5–10% global sourcing, 24% reported between 11–25% global sourcing, 17% between 26–50% global sourcing, 8% between 51–75% global sourcing, and 5% between 76–100% global sourcing. These data were used to test the four hypotheses, within the general constraints of opportunistic versus strategic sourcing, which the authors considered critical in global competition. In the interest of parsimony, the percentage of total purchasing dollars paid to global sources was collapsed into three categories (e.g., less than 5%, and 5–10% were merged to form a single category labeled 10% or less, etc.) and the data were reanalyzed. Using the p ⬍ .05 decision rule, no changes in the conclusions emerged. Therefore, the three-group scheme was used to report the findings and create the tables. Two different types of statistical analysis were used. First, the chi-square test was applied, and likelihood ratios and Mantel–Haenszel statistics were calculated. Second, because of unbalanced cell sizes, or unequal number of observations, and the nonmetric nature of many of the variables employed in this research, the general linear models–analysis of variance (GLM-ANOVA) procedure was used. An additional advantage of using GLM–ANOVA is that it is a robust research technique suitable for exploring situations such as those displayed in Figure 1.
Findings and Discussion More than 45% of the respondents did less than 10% of their sourcing globally. Additionally, 41% indicated that global sourcing accounted for between 11–50% of their total purchases. Thus, global sourcing emerged as an important, but not major, activity in the respondents’ total sourcing function. Most of the time, less than 50% of the firm’s overall sourcing was done globally. Only 13% reported having more than 51% of their purchases from global sources. These firms were more likely to have global-sourcing strategies. These results confirm Kotabe’s (1992) and Murray, Kotabe, and Wildt’s (1995) findings that some, although few, U.S. companies do have globalsourcing strategies. In an effort to test H1, Table 2 presents supportive data. As can be seen, a large proportion of the respondents (72.6%) were involved in less than 10% global sourcing, and these sourcing decisions were made by second- or third-tier managers. Relatively speaking, as the involvement in global sourcing increased, the proportion of those firms with top executives making the key global-sourcing decisions also increases. Considering, once again, that only a small group of respondents were involved in major global-sourcing activity, H1, that global-sourcing decisions are made by lower-level managers, is accepted. Table 3 presents data in support of H2. Considering the
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fact that a large majority of the respondents were involved in small-scale global sourcing, only 14% stated that global sourcing played a major role in the company’s strategic planning. An additional 38.4% stated the similar status in the category in which respondents do their sourcing globally anywhere between 11–50% of the time. As opposed to this pattern, a majority of those respondents who do serious global sourcing (over 50%) indicated that this activity is critical in their strategic plan, which, again, confirms Murray, Kotabe, and Wildt’s (1995) recent findings. Because this is a very small group of respondents, H2, which states that global sourcing is not considered a strategic tool, is accepted, because most firms involved in global sourcing are following an opportunistic mode rather than using global sourcing as a strategic tool. Table 4 indicates that global sourcing is primarily unplanned in those companies engaged in small-scale global sourcing. As seen in the table, those firms using international sourcing as 10% or less of their total purchases reported that 71.2% of the time the process was unplanned. Both tests revealed high levels of significance, and H3, which states that the companies involved in strategic global sourcing will have specific plans for this activity, was accepted. Only a small proportion of those who were minimally involved in global sourcing have plans for global sourcing. Thus, in general terms, global sourcing is an unplanned activity done by most of the responding U.S. companies on a small scale only, and global-sourcing decisions are mainly made at lower functional levels (as opposed to executive planning level). The acceptance of the first three hypotheses leads in the direction of opportunistic sourcing. United States firms can improve their global competitive edge by moving in the direction of strategic sourcing. Hypothesis four was tested in two different ways. First, the relationship between the percentage of global purchases to the presence of contractual agreements was examined; and second, production processes related to long-term arrangements were explored. The first relationship was investigated with the data presented in Table 5, which reveal that those firms involved in major global-sourcing activities (51% or more) were more apt to have long-term contractual agreements with suppliers than were those firms with smaller volumes of purchases. The significance ratings for the Mantel– Haenszel value was around p ⫽ .05, but the other statistics calculated were less significant (about p ⫽ .15). Although results were mixed, the general direction of the hypothesized relationship seems to be supported by the data. The second test for the hypothesis examined the presence of some type of interorganizational production process arrangement (e.g., JIT). The results of this examination are shown in Table 6 and demonstrate highly significant findings (p ⬍ .05) in all cases tested. This finding suggests that high-involvement firms (51% or more) commonly have some type of between-organi-
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Table 2. Summary of Who Is in Charge of Global Sourcing Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
27.4
40.9
47.6
72.6
59.1
52.4
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0095
PR ⬎ F 0.0095
Sourcing decisions made by top officer Sourcing decisions made by secondor third-tier officers Chi square; value 55.927, p ⫽ .001. Likelihood ratio; value 49.665, p ⫽ .007. Mantel–Haenszel; value 7.410, p ⫽ .006. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0095 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
zation policy and procedure vehicle involved. Overall, the results indicated that H4, should be accepted. It seems that if the firm is heavily involved in global sourcing, it is more inclined to treat global sourcing strategically. Perhaps, among these U.S. companies, there are those still not making global-sourcing decisions at the top in this allimportant activity (as indicated in Table 3), but most of them
are, at least, following certain plans as they source globally (Table 2). The study findings here also support Kotabe’s (1992) and, subsequently, Murray, Kotabe, and Wildt’s (1995) position that strategic sourcing is an important management tool. From the study findings, it is clear that, as firms become more heavily involved in global sourcing, the role and importance of this activity becomes more critical in the firm’s strate-
Table 3. Relative Role of Global Sourcing
Role of Global Sourcing(%)
Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
14.0
38.4
64.0
11.6
38.5
28.0
74.4
23.1
8.0
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0001
PR ⬎ F 0.0001
Plays a major role in strategic plan Plays some role in operations plan Plays a minor role in both Chi square; value 63.250, p ⫽ .000. Likelihood ratio; value 56.302, p ⫽ .000. Mantel–Haenszel; value 49.362, p ⫽ .000. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0001 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
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Table 4. Extent to Which Sourcing Function Is Planned Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
71.2 28.7
43.0 57.0
32.0 68.0
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0001
PR ⬎ F 0.0001
Unplanned sourcing Planned sourcing Chi square; value 19.146, p ⫽ .000. Likelihood ratio; value 19.583, p ⫽ .000. Mantel–Haenszel; value 17.885, p ⫽ .000. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0001 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
gic-planning area. However, study findings indicate that most firms are still treating global-sourcing activity as a short-run opportunistic activity. The data presented in this article significantly differentiated between those who are lightly involved in global sourcing and those who are heavily involved in global sourcing.
Limitations As with any data-based study, this one also has numerous limitations. Perhaps the most important study limitation is not having profit data that can be related to global sourcing.
Such an addition to the study instrument was not foreseen as important at the conceptualization stage of this study. In analyzing the data, the company size was not used as a variable. This will constitute another study. Similarly, there was no attempt to analyze global sourcing by industries. This, too, is a critical area of exploration and must be studied. It must be reiterated that the present study is based exclusively on U.S. data. A sequel to it by using, for example, European data will be a very significant contribution. Perhaps other data analysis techniques such as path analysis of LISREL may indicate a more informative decision-making process in global sourcing. This, too, is a critical future research avenue.
Table 5. Global Sourcing and Contractual Agreements with Suppliers
Have long-term contractual agreements Does not have longterm contractual agreements
Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
60.9
70.5
80.0
39.1
29.5
20.0
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0849
PR ⬎ F 0.0849
Chi square; value 3.811, p ⫽ .149. Likelihood ratio; value 3.933, p ⫽ .140. Mantel–Haenszel; value 3.991, p ⫽ .052. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0849 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
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Conclusions and Future Research Evidence suggests that the prevailing inclination of U.S. firms is primarily toward opportunistic global sourcing. If these firms were to raise the current status of global sourcing from simply an occasional costcutter or quality improver to a critical factor in developing global strategy, they will have a longrange strategic posture that will most likely improve their global competitive edge. According to some researchers, there is a sourcing strategy, but it is used only by a few successful firms in the global arena (Swamidass and Kotabe, 1993; Min and Galle, 1993). Furthermore, it is necessary to ascertain that a global-sourcing strategy (Kotabe, 1992) that is currently in place, is not causing a suboptimization in the overall competitiveness of the firm and that the firms are using international sourcing as a strategic tool but not as the goal of the strategy. In other words, global sourcing is not a goal but an important strategic tool. United States firms can receive greater benefit from globalsourcing activity by using it as a major long-term strategic tool. It is quite likely that global sourcing will gain further momentum among all U.S. firms and become a more critical competitive weapon in generating a global competitive advantage. There is every reason to believe that global sourcing has the potential and promise to be such a weapon. Study findings indicate that the degree of involvement in global sourcing is critical. As firms increase their global-sourcing activities, they will be more inclined to use it as strategic tool. Firms involved in global sourcing on larger scales increase its importance in their strategic plans. Assuming more longterm and more production management involvement, U.S. firms in global sourcing are likely to attach to it more of a strategic value to improve their market performance. It is expected that in time their involvement in global sourcing
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will increase. As this happens, global sourcing is likely to become a major part of the strategic plan, and the study of global sourcing will be decided upon at higher levels. It will also become a planned activity, and, finally, U.S. companies will be developing and maintaining long-term relationships with their international sources. As seen in Figure 1, all of these indicate that global sourcing may enhance U.S. firms’ competitive advantage. However, the study findings indicate that not all firms are engaged in large-scale global sourcing, and, hence, they are much more casual about this potentially powerful tool. In fact, even some of those who are heavily involved in global sourcing are not being as strategic as they might be in this process. We believe that global sourcing should be a strategic tool for all those who are engaged in it. In particular, the large group of U.S. firms involved in global sourcing somewhat heavily should not allow these decisions to be made at lower management levels. Furthermore, these companies should have strategic plans of which global sourcing is a critical factor. Thus, it seems that much work must be done. We believe that Kotabe’s (1992) global-sourcing strategy model is critical and must be adopted by all. However, at the same time, this model must fit into a broader model of the firm’s overall strategic plan. United States firms who are engaged in global sourcing nominally, also must take this activity as a critical strategic tool. This, almost by definition, will improve their ability to compete. This article brings forth a series of new and important research avenues. First, it is necessary to determine the extent to which strategic sourcing will show a significant impact on the profit picture. Second, it is very critical to determine if the variables we have examined have equal or unequal weights regarding the status of global sourcing in the corporate entity.
Table 6. The Extent to Which Global Suppliers Are Involved in JIT
Yes No
Respondents Who Do 10% or Less Global Sourcinga (%)
Respondents Who Do 11–50% Global Sourcing (%)
Respondents Who Do 51–100% Global Sourcing (%)
33.3 66.7
46.5 53.5
83.3 16.7
11–50% Sourcing Group
51–100% Sourcing Group
PR ⬎ F 0.0010
PR ⬎ F 0.0010
Chi square; value 9.813, p ⫽ .007. Likelihood ratio; value 10.291, p ⫽ .006. Mantel–Haenszel; value 8.582, p ⫽ .003. GLM–ANOVA results 10% or Less Sourcing Group PR ⬎ F 0.0010 a
10% international sourcing means that 10% of the value of all procured materials come from abroad.
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Finally, the unanswered question remains, “How should companies plan for global sourcing, and how should they incorporate this function into the overall strategic plan?” Furthermore, How far should they go in establishing global sourcing strategies? Establishing the organization level where global-sourcing decisions can be and, indeed, should be made more effectively is critical. Not only determining who should make these decisions, but also where and how these decisions can be made effectively, are critical research areas that must be explored in the near future. The authors gratefully acknowledge constructive comments they received from Dr. Adel El-Ansary of the University of North Florida, Dr. Joe Sirgy of Virginia Tech, and two anonymous reviewers of JBR on earlier drafts of this article. The research for this article was supported by a grant from the University of North Florida and National Association of Purchasing Management.
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