The current issue and full text archive of this journal is available at
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Received 15 October 2010
Revised 22 December 2010
3 May 2011
26 August 2011
23 December 2011
Accepted 12 January 2012
Differences in outsourcing
strategies between firms in
emerging and in developed
markets
Andreas Größler
Institute for Management Research, Radboud University Nijmegen,
Nijmegen, The Netherlands
Bjørge Timenes Laugen
Department of Business Administration, University of Stavanger,
Stavanger, Norway
Rebecca Arkader
The Coppead Graduate School of Business, Federal University of Rio de Janeiro,
Rio de Janeiro, Brazil, and
Afonso Fleury
Universidade de Sao Paulo, Sao Paulo, Brazil
Abstract
Purpose – The vast majority of literature relating to operations management originates from studies
in developed markets. Emerging markets are increasingly important in global business. With this in
mind, the purpose of this paper is to analyze differences in outsourcing strategies between
manufacturing firms from emerging markets and from developed markets.
Design/methodology/approach – The paper is based on statistical analyses of a large data set of
manufacturing firms obtained from the International Manufacturing Strategy Survey (IMSS).
Findings – The findings suggest that companies that outsource internationally focus on achieving
cost benefits, while companies that outsource domestically focus on achieving capacity flexibility. In
addition, the reasons to outsource were found to be independent of the location of firms in both
emerging and developed markets. However, within the group of firms from emerging markets,
strategies seem to differ according to whether firms are domestically owned or are subsidiaries of
companies from developed markets.
Practical implications – The decisions of firms to outsource do not differ much whether the firms are
located in developed- or in emerging-market economies. Firms outsource domestically when they want
to increase their capacity flexibility; they outsource internationally when looking for cost advantages.
Originality/value – The value of the paper is that it illuminates an important contemporary
phenomenon based on analyses on data from a large-scale international survey encompassing firms
both in developed and in emerging markets.
Keywords Operations strategy, Outsourcing, Globalization, Survey research, Emerging markets
Paper type Research paper
International Journal of Operations &
Production Management
Vol. 33 No. 3, 2013
pp. 296-321
q Emerald Group Publishing Limited
0144-3577
DOI 10.1108/01443571311300791
1. Introduction
In recent decades, production systems have become increasingly complex because of
profound changes in the structure of industry. Thus, firms have begun to fulfil
specialized and complementary roles in production networks. The specific aspect of this
change process that is particularly important in this paper relates to outsourcing
decisions. These are based on several objectives usually related to cost, capacity
flexibility, or capability and knowledge seeking (Hätonen and Eriksson, 2009). However,
it is unclear whether manufacturing firms from emerging markets differ from firms
in developed markets regarding from where they outsource and the objectives they
pursue in outsourcing. Manufacturing firms in developed and emerging markets are
embedded in different types of environment and position themselves differently; further,
it is reasonable to assume they operate with different levels of maturity.
There is growing interest in operations and supply chain management issues related
to practices in emerging-market economies. This is because, until recently, most
empirical studies in this literature have been based on surveys or case studies drawn
from companies in developed markets (Iyer et al., 2008). The term “emerging markets”
is now widely used to describe countries that have reached a minimum level of economic
development (usually measured in terms of GDP) and that are in the growth phases
of their economic cycles. The so-called BRIC countries (Brazil, Russia, India, and China)
are frequently considered the most significant emerging markets, due to their size
and assumed potential for market growth. However, the study of operations and
supply chain management in other emerging markets in Asia, Eastern Europe,
Latin America, and (to a lesser degree) Africa is increasingly relevant for companies
worldwide.
To date, much of the academic literature dealing with emerging markets originates
in the fields of international and strategic management or of general economics.
Main themes have been:
.
broader issues of globalization as such, primarily enabled by information and
communications technologies;
.
strategic moves in search of growth and new resources in alternative markets;
and
.
the perceived need to achieve lower costs, usually by means of offshoring
practices.
In contrast, most studies in the field of operations and supply chain management have
been of a qualitative, descriptive, or purely conceptual nature (Mefford and Bruun, 1998).
The purpose of this paper is to investigate differences between outsourcing
strategies of manufacturing firms from emerging markets and from developed markets.
We conceptualize outsourcing strategy as being composed of two sets of decisions:
the main objectives for outsourcing and the geographic region where it is allocated.
The study is based on analyses conducted on data drawn from a large-scale
global survey on manufacturing strategy and practices. More specifically, the study
addresses:
.
the differences between developed- and emerging-market firms in terms of their
objectives to outsource;
.
the differences between developed- and emerging-market firms in terms of the
decision to outsource within the firm’s country of operation, i.e. domestically,
or outside the firm’s country of operation, i.e. internationally;
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how this decision is moderated by the business strategy firms adopt and by other
contingencies; and
the influence of different ownership structures on the outsourcing strategy
pursued.
The paper is structured as follows. The next section reviews the literature on outsourcing
objectives of manufacturing firms, as well as the influence of specific economic
environments on outsourcing decisions. It also deals with the role of business strategy and
other contingencies in outsourcing decisions. Based on this literature, we put forth
propositions concerning the differences between firms in emerging and developed
markets in terms of their outsourcing strategy. In Section 3, we present the methods used
for data collection, the characteristics of the sample, and the operationalization of the
variables, as well as the statistical analyses conducted to test the propositions. Sections 4
and 5, respectively, present the results of the analyses and their discussion. The paper
concludes in Section 6 with an overview of the research and practical implications to be
drawn from the study and the proposition of issues for further research.
2. Conceptual background
Much literature exists on outsourcing (the organizational dimension) and related
decisions on global sourcing and offshoring (the geographical dimension); this includes
special issues in international business journals (Kotabe and Mudambi, 2009;
Contractor et al., 2010) and even a dedicated journal (Busi and McIvor, 2008). However,
little attention has been given to differences between outsourcing decisions made by
manufacturing firms in developed and emerging markets.
Outsourcing in developed economies
The practice of outsourcing is not new, but its importance has increased in recent
years. The Fordist model of production, in its original format, suggested complete
verticalization of production. That notion was largely adopted by developed-country
firms that, in their own countries and in their international operations, preferred to
internalize the activities needed for production. They would then become increasingly
larger, which embodied considerable drawbacks. Thus, through the 1990s a reverse
tendency could be observed: firms concentrated on their basic manufacturing
strategies and supporting services, with the focus on few specific manufacturing tasks
instead of many, frequently inconsistent, conflicting or implicit tasks.
The shift to a more focused production model was influenced by:
.
the rise of the Japanese Management Model, as portrayed in the best-selling book
The Machine That Changed the World (Womack et al., 1990);
.
the failure of large projects aimed to fully automate production (Sun, 2000); and
.
the emergence of the notion of core competencies as key assets for strategy
formulation (Prahalad and Hamel, 1990).
Therefore, developed-country firms changed their organizational models, focusing on
their core competencies – the ones through which they would be able to maximize their
value propositions and capture value. Simultaneously they started to build (horizontal)
alliances to complement their core competencies and to outsource (vertically) the
activities that were non-core and low-value-adding to such firms that were competent in
areas not relevant to the outsourcing firm.
The drivers of outsourcing decisions by manufacturing companies have been
studied over the past decades (Quinn and Hilmer, 1994; Razzaque and Sheng, 1998;
Kakabadse and Kakabadse, 2000, 2002). Mostly the discussion draws on the traditional
make or buy decision, with alternative explanations based on the transaction cost
approach (Williamson, 1975; McNally and Griffin, 2004), the resource-based view
approach (Madhok, 2002; Jacobides and Winter, 2005; McIvor, 2008), or a combination
of these and other theoretical approaches ( Javalgi et al., 2009).
International sourcing practices have been steadily investigated since the 1980s, and
there is a vast literature covering issues such as motivations, obstacles, problems, and
benefits (Babbar and Prasad, 1998; Quintens et al., 2006). Other terms for international
sourcing include international purchasing, worldwide sourcing, international
procurement, and global sourcing (Quintens et al., 2006). Global sourcing is generally
considered to go beyond international sourcing by implying a globally coordinated
perspective on the supply of production goods and services (Monczka and Trent, 1991;
Murray, 2001; Trent and Monczka, 2003; Kotabe and Murray, 2004; Monczka et al., 2005).
Handfield (1994) indicated that the move from international purchasing (a transactional
approach) to global sourcing would evolve along different phases.
Quoting Quintens et al. (2005, p. 58), we may conclude that the subject has been
relatively well covered in the literature and that “frequently mentioned reasons
[to adopt international sourcing] are price, quality and availability of goods and
services”. In fact, price appears in the literature as the single most important motive to
buy internationally (Giunipero and Monczka, 1990; Birou and Fawcett, 1993;
Bozarth et al., 1998). In addition, the need for superior quality (Carter and Narasimhan,
1990; Min and Galle, 1991; Bozarth et al., 1998), for otherwise unavailable goods and
services (Fagan, 1991; Birou and Fawcett, 1993), or for technology (Frear et al., 1992;
Bozarth et al., 1998) can be seen as drivers for sourcing from foreign third parties. In
general, over time, firms have moved from solely exploiting cost differences into
considering international sourcing as an integral part of their strategy (Nassimbeni,
2006). A countervailing factor is the risk associated to the various external factors,
which might influence the normal flows within the supply chain (Holweg et al., 2011).
A few studies have been conducted that compare sourcing practices in different parts
of the developed world (Kotabe and Omura, 1989; Kotabe, 1998; Ettlie and Sethuraman,
2002; Kakabadse and Kakabadse, 2002; Kaufmann and Carter, 2002; Ogden et al., 2007).
These papers show that there is not a unique pattern in relation to outsourcing practices.
In a study comparing the US and Europe, it was observed that “US companies are
identified as pursuing more value adding sourcing strategies while European companies
are more focused on gaining economies of scope through outsourcing” (Kakabadse and
Kakabadse, 2002, p. 189). Japanese firms are even more conservative:
[. . .] the shift to a global economy based on modularization and supply chains and
market-based transactions plays to the American strengths. In contrast, Japanese firms
which operate in a world of tight, long-term human relationships do especially well when
close day-to-day cooperation is needed (Berger, 2005, p. 53).
Therefore, according to the literature, the main drivers in sourcing decisions are cost
reduction, flexibility, and competence seeking (Hätonen and Eriksson, 2009). Cost
reduction is recognized by far as the main driver for outsourcing (Carter and
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Narasimhan, 1990; Birou and Fawcett, 1993; Razzaque and Sheng, 1998; Kakabadse and
Kakabadse, 2000; Trent and Monczka, 2003; Harland et al., 2005; Lao and Zhang, 2006;
Nassimbeni, 2006; Contractor et al., 2010). In addition, a fast changing environment
requires firms to seek flexibility (Hätonen and Eriksson, 2009; Contractor et al., 2010);
one of the ways to achieve this is by acquiring “capacity” from other producers
(Sink and Langley, 1997; Kakabadse and Kakabadse, 2000; Quélin and Duhamel, 2003;
Harland et al., 2005; Lao and Zhang, 2006; Hätonen and Eriksson, 2009). Finally, firms
seek third party suppliers when they need to acquire “competencies” and skills they lack
in their manufacturing or logistics processes (Razzaque and Sheng, 1998; Kakabadse
and Kakabadse, 2002; Quélin and Duhamel, 2003; Baines et al., 2005; Harland et al.,
2005; Hätonen and Eriksson, 2009). In fact, Contractor et al. (2010, p. 1418) observe that:
[. . .] with growing complexity of products and services, even the largest companies no longer
have all the diverse components of knowledge within their own organization, or personnel, to
be competitive in research, production, and marketing.
Outsourcing in emerging economies: local firms
The literature on international business used to characterize emerging economy firms as:
.
mature and integrated firms that grew in protected or uncompetitive markets
(Bartlett and Ghoshal, 2000; Ramamurti, 2009);
.
firms based on natural resources and that use cheap labour;
.
firms lacking technological capabilities (Dunning, 1993);
.
laggard firms in terms of managerial capabilities (Bartlett and Ghoshal, 2000);
and
.
firms accustomed to striving in turbulent environments (Khanna and
Palepu, 1999).
However, that picture has changed in the recent years. In 2005, for the first time, the
Fortune 500 ranking included corporations from emerging countries. If only those firms
from the BRIC countries are counted, there were 27 in 2005, 35 in 2006, 39 in 2007, 46 in
2008, and 58 in 2009. China accounted for the largest share; Brazil had three firms in 2005
and six in 2009. Since 2005, the Boston Consulting Group (2005-2010) produces a report
about the “100 New Global Challengers”. In 2009, this included 36 enterprises from
China, 20 from India, 14 from Brazil, seven from Mexico and six from Russia, the
remaining 17 coming from nine other countries. Those numbers provide the initial
insights to the argument that companies that were initially considered laggards working
in less developed contexts, began to challenge the leaders.
The large majority of these firms can be categorized as operating in the
natural-resources-based industry (for instance, oil and gas, mining) or low-value-added
manufacturing. In this regard, what is most known are the exceptions, or those
firms from the emerging countries that are striving through the high-value-added
segments such as Embraer (Brazil), Lenovo and Haier (China), or Tata (India). However,
it seems fair to admit that, so far, emerging countries are still lagging behind developed
countries in regard to technology and managerial knowledge. On the other hand, the
labour force is highly skilled and is earning relatively low wages.
The competitiveness that emerging-country multinationals show in regional and
international markets is justified mainly by distinctive competencies that they have
developed in manufacturing. Ramamurti (2009, p. 407) admits that “for multinationals
from emerging countries the competences of greater strategic value are those related to
Production and Operational Excellence”. The meaning of that statement is that
emerging-country multinationals, in their home countries, produce cheaply and flexibly,
complying with global quality standards. To a certain extent, their international
competitors are unable or unwilling to do the same.
Therefore, emerging-country firms built competitive advantages in regard to levels
of productivity, quality, and cost. The corporate competence that constitutes the
cornerstone of their strategy is production; that is where their competitive differential
resides in the international markets (Kumar and Chadda, 2009; Ramamurti, 2009).
Consequently, in regard to outsourcing, the picture is rather different from the firms
operating in developed countries. One would expect emerging-country firms to outsource
the activities that are really low skilled and performed on a routine basis. In the footwear
and textile-apparel industries, it is well known that larger firms in both Brazil and China
subcontract either from regions that are poorer or from neighbouring countries (Gereffi
and Memedovic, 2003). The same happens in parts production and routine types of
assembling in the metal-mechanics industry (Humphrey and Memedovic, 2003).
However, emerging-country firms lack other competencies that allow them to
compete with developed-country firms; those are competencies that are usually
developed in local knowledge systems (Rugman and Verbeke, 2001), thus enabling
them to become embedded in those localities (Meyer et al., 2011). Therefore, we would
predict that, in order to obtain access to complementary competencies and increase
capacity, firms in emerging markets outsource internationally.
Outsourcing in emerging economies: subsidiaries of foreign multinationals
To a certain extent, subsidiaries might be considered a sort of “outsource” from the
standpoint of their headquarters. In the 1960s, Vernon (1966) identified the trend of
American firms to establish subsidiaries in developing countries. The aim was to
transfer to them the routine and standardized tasks, keeping in the US the activities
that were related to innovation.
However, the relative importance and the role of subsidiaries changed over time.
Ferdows (1997), addressing developed-country multinationals, argued that they should
restructure to grasp the most of their subsidiaries. He identified six types of strategic
roles, depending on two dimensions: location and competencies. “Location” is
associated to access to low-cost production input factors, proximity to market, and use
of local technological resources. The “competencies” dimension is described as the
extent to which technical activities are performed at the site.
The research of Mol et al. (2005), drawing on previous studies that indicated that foreign
subsidiaries applied more international sourcing than purely domestic firms and had a
preference for suppliers from their home country, confirmed this hypothesis. Therefore,
we might consider that foreign subsidiaries outsource to expand capacity and use
resources that are internal to the multinational when different competencies are required.
Cross-country studies on outsourcing
Discussing the related issues of offshoring and outsourcing, Contractor et al. (2010,
p. 1421) indicated that sometimes domestic outsourcing in developed countries,
despite the higher costs, may be better than outsourcing to an emerging country
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“when flexibility and speed to market are more important than saving every penny”.
Building on both the transaction cost approach and the resource-based view approach,
Ettlie and Sethuraman (2002) investigated global sourcing patterns in a multi-country
sample of firms including both developed and emerging markets. They found that
firms source globally to enhance their technical capabilities and use local sources to
decrease transaction costs. However, they did not distinguish between developed and
emerging markets in their analysis.
Complementarily, Quintens et al. (2005) pointed out the existence of few comparative
studies of international purchasing practices in different countries. These few
studies compared the international or global sourcing phenomenon in developed-market
contexts (Kotabe and Omura, 1989; Frear et al., 1992; Kotabe, 1998; Kaufmann and
Carter, 2002; Quintens et al., 2005). An exception can be found in the study by Motwani
and Ahuja (2000), in which the US and Indian international purchasing trade
relationships were compared, indicating the existence of significant differences.
More recently, outsourcing in developing-country contexts has been studied, even
though those studies focused mostly on the outsourcing of logistics activities
(Bhatnagar et al., 1999; Arroyo et al., 2006; Lao and Zhang, 2006; Sahay and Mohan,
2006; Sohail et al., 2006; Wanke et al., 2008). However, it has been claimed that “more
research in purchasing and supply management in emerging economies such as China,
Brazil and India is needed” (Zheng et al., 2007, p. 77).
Scope and research question
At this point, we can draw from the literature the conceptual background that
constitutes the scope of our research. Considering the characteristics of local firms in
emerging countries and the global dynamics in the manufacturing sector, it is to be
expected that firms in emerging markets have different outsourcing strategies than
firms in developed markets. From the literature review, we could assume that firms in
developed countries, especially large firms, would be positioned in the later stages of
international sourcing practices, because they have greater experience in international
transactions. Seeking to buy leverage, their main driver to outsource beyond domestic
borders would be to cut costs. On the other hand, firms in emerging markets lack
experience in international transactions, and would be prone to engage in international
sourcing when looking for resources that they miss. For pragmatic reasons, firms from
both types of markets would source domestically to gain capacity flexibility.
We identified two gaps in the literature on outsourcing strategies that need to be
addressed. First, there is an absence of empirical evidence on how firms in emerging
countries manage their outsourcing activities. Second, there are few comparative
studies investigating differences and similarities in the management of outsourcing
activities in firms from emerging and developed markets. Therefore, the following
research question is formulated:
RQ1. How do outsourcing strategies pursued by firms in developed markets differ
from outsourcing strategies pursued by firms in emerging markets?
In this study, outsourcing strategy is defined by two components. The first relates to
the objectives behind the outsourcing decision. With the focus on competencies, cost,
and capacity flexibility, we do not dismiss the potential importance of other factors
when it comes to outsourcing decisions. However, we choose to investigate those
factors highlighted as the most relevant in the existing literature. The second
component relates to the geographical scope of outsourcing, whether it is domestic or
across borders. Nevertheless, it is acknowledged that other factors might also define an
outsourcing strategy (such as type of contracts used or number of outsourcing
partners). Based on the literature review, and in order to address the research question,
three propositions are formulated in order to guide the analyses, as follows:
P1.
To obtain access to complementary competencies, firms in developed markets
tend to outsource from within their country, while firms in emerging markets
tend to outsource internationally.
Outsourcing internationally is in this paper defined as giving away part of the
production process to plants outside the country in which the firm is located;
outsourcing within the country means to buy part of the production from the same
country as the firm is located in. We define the competencies of firms as being
complementary when what one firm can perform well supports and enhances what
another firm can perform well. An example of competencies being complementary is
that one firm is good at manufacturing high-quality products and another is good at
providing first-class customer service; the two firms team up to achieve the synergies
embedded in those two competencies:
P2.
To reduce cost, firms in developed markets tend to outsource internationally,
while firms in emerging markets tend to outsource from within their country.
In this paper, “costs” combine all sorts of costs related to making a product, whether
fixed or variable. Thus, elements of costs are, for example, labour costs or overhead
costs:
P3.
To obtain access to excess capacity, firms in both developed and emerging
markets tend to outsource from within their country.
Under “excess capacity”, we understand the flexibility of having additional production
capacity that the firm wants to have in order to fulfil demand that exceeds its normal
capacity level. Therefore, accessing outsourced excess capacity is a way to balance
external market demand with the internal capacity requirements of a firm.
In addition, the study explores the influence of various contingencies, such as
ownership, competitive strategy, and position in the supply chain, on the different
outsourcing strategies, in terms of the main objectives and the geographical scope of
sourcing activities.
3. Methodology
The IMSS project
To address the research question, the study uses data from the International
Manufacturing Strategy Survey (IMSS) IV database, collected in 2005 (Taylor and
Webster, 2006). Due to changes in the questionnaire format and sample composition, the
results of a subsequent iteration of the IMSS research could not be combined with the
analysis in this paper. IMSS is a co-operative research network of business schools,
which aims at developing, maintaining, and analyzing a global database for the study of
manufacturing strategies, practices, and performances, using a variety of perspectives
and research questions. As the name – IMSS IV – implies, the survey had been
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conducted three times before, starting in 1992 (Lindberg et al., 1998). The IMSS survey
addresses issues of manufacturing strategy in the broad sense, and as such is well suited
to research questions about sourcing strategies. Since it is international by definition,
it can be used to compare sourcing strategies in different types of countries, for instance
between emerging and developed markets as in the case of this paper.
The survey was administered in each country by local research coordinators. Three
of the authors of this paper (AG, BTL, RA) were involved directly and actively in the
design of the survey, sampling, contacting and following up of companies, and data
collection in their respective countries. When the partner in each participating country
had collected the questionnaires and entered the responses into a spreadsheet, the
coordinating institution consolidated the data from each country into a global database
of all responses, and released the complete database to the research network.
The data collection resulted in 711 complete and usable questionnaires from
companies in the manufacturing and assembly industries (ISIC 28-35) from 23 countries
worldwide. The selection of industries is derived from traditional manufacturing and
assembly industries, such as metal manufacturing, automotive, semiconductor,
machinery, and equipment. This selection is deliberately chosen in order to capture a
large proportion of manufacturing industries in most countries; at the same time, the
variance is reduced by not including an excessively broad set of industries (for instance,
companies in process industries, where practices are significantly different from
assembly-based industries). Thus, the findings are expected to be more consistent than if
a wider set of industries were included in the database. At the same time, the possibility
of generalizing findings is limited to the surveyed manufacturing segments.
15 manufacturing managers and eight academics (not including the authors of this
study) reviewed the pre-questionnaire in order to improve clarity, and identify and
resolve any unfamiliar or unclear wording. Subsequently, data were collected by
means of self-administered questionnaires filled out by manufacturing managers
invited to participate in the survey by e-mail or phone, via a combination of e-mail and
postal-based survey methods. The organization and administration of the survey
followed the method proposed by Dillman (1978, 2000).
Follow-up phone calls, letters, and e-mails helped us to achieve a response rate of
17 per cent. Of the 23 countries, 14 checked for non-response bias, and did not find
significant differences in company size between responding and non-responding firms.
Further information about the administration of the IMSS survey can be found in Voss
and Blackmon (1998) and Frohlich and Westbrook (2001).
Database and data filtering
The sample of 711 companies was split into two groups, one of “emerging” market firms
and another of “developed” market firms, by using the Morgan Stanley (MS) Index
Coverage (www.msci.com/coverage/index.html). This resulted in 237 companies
representing emerging markets and 453 companies representing developed markets
(Table I). Venezuela and Estonia are not represented in the MS Index. Venezuela was
included in the emerging markets firms since the country has many of the same
characteristics as other countries in South America, which are included in the emerging
markets group. Estonia is not classified and is not considered in the analyses.
Companies with fewer than 50 employees and two firms with more than 10,000
employees were excluded. Earlier studies have shown that size is an important
Market
Countries
Emerging markets (n ¼ 237)
Argentina
Brazil
China
Hungary
Israel
Turkey
Venezuela
Australia
Belgium
Canada
Denmark
Germany
Greece
Ireland
Italy
The Netherlands
New Zealand
Norway
Portugal
Sweden
UK
USA
Estonia
Developed markets (n ¼ 453)
Not classified
Number of respondents
Average company size
44
16
38
54
20
35
30
14
32
25
36
18
13
15
45
63
30
17
10
82
17
36
21
711
300
2,704
2,520
519
89
838
446
60
561
289
425
995
510
586
535
376
110
119
205
488
137
663
250
596
contingency for management and organization. In many cases, micro firms and very
large firms have significantly different practices and priorities than medium-sized and
large firms (Cagliano et al., 2001). Taking into account this procedure, 654 respondents
in total remained for the analyses.
Further, the companies were classified based on ownership and on whether the
respondent firm was a single plant or a subsidiary in a larger corporate group. Of the 216
responding firms from emerging markets, 58 were owned by a company from a developed
market. The remaining 158 were either single plants or firms in emerging markets owned
by a company located in the same or another emerging market. Of the 352 responding
firms from developed markets, only one was owned by a company located in an
emerging market. Hence, this company was excluded from the analysis. The remaining
351 respondents were either single plants or plants owned by a company located in the
same or another developed market. 86 companies could not be classified due to missing
information regarding ownership and, therefore, were excluded from the analyses,
reducing the actual sample size to 567 firms out of the total database of 711 firms.
Operationalization and statistical methods used
In this study, outsourcing strategy was operationalized partly as the respondents’
motives to outsource and partly as the geographical spread of sourcing activities.
Further, the study investigated the influence of contingencies on the geographical
spread of sourcing activities. The Appendix presents a more thorough description of
how the variables used in the analyses were operationalized.
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Table I.
Overview of countries,
respondents, and markets
in IMSS IV
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Three groups of firms were investigated in the paper and were operationalized as
follows:
(1) firms located in emerging markets owned by a firm located in a developed
market (abbreviated as ED in the rest of the paper);
(2) firms located in emerging markets owned by a firm located in an emerging
market or a single plant in an emerging market (abbreviated as EE); and
(3) firms located in developed markets – either single plants or a plant owned by a
firm located in a developed market (abbreviated as D).
ANOVA and multiple regression analyses were used in order to investigate the
relationships between outsourcing motives and the geographical spread of sourcing
activities and between contingencies and the geographical spread of sourcing
activities. SPSS 15 was used to perform the analyses.
4. Findings
Table II presents an ANOVA analysis of the differences found in the variables. EEs
source significantly more domestically, 68.1 per cent of their sourcing activity, than
both EDs (47.5 per cent) and Ds (54.5 per cent). There are no significant differences in
the amount of domestic sourcing between EDs and Ds.
The highest amount of international sourcing is found among EDs (35.5 per cent),
significantly more than EEs (17.8 per cent) and Ds (16 per cent). No significant
differences were found in international sourcing between EEs and Ds. The findings do
not indicate significant differences in the motives (competencies, capacity, or cost) for
outsourcing of firms in the three different markets.
The EDs and EEs in the IMSS IV sample are significantly larger than the Ds in the
sample. A reason for this might be that production in developing countries often is
Emerging
markets
owned by
developed
market ED
(n ¼ 58)
Mean
SD
Table II.
ANOVA showing the
differences in mean
values and standard
deviation in the three
investigated groups
Sourcing strategies and contingencies
National sourcing
47.5
32.1
International sourcing
35.5
30.7
Competencies
2.6
1.2
Capacity
2.9
1.3
Cost
3.2
1.4
Size
964
1,640
Market dynamics
3.6
0.7
Quality strategy
4.4
0.6
Delivery strategy
4.2
0.8
Innovation strategy
3.6
1.0
Position in supply chain
57.3
42.9
Emerging
markets
owned by
emerging
market EE
(n ¼ 158)
Mean
SD
Developed
markets D
(n ¼ 351)
Mean
SD
68.1
17.8
3.0
3.1
3.2
793
3.5
4.2
4.0
3.4
61.9
54.5
16.0
2.7
3.0
3.3
453
3.4
4.2
3.8
3.4
55.8
28.6
22.7
1.3
1.2
1.4
1,514
0.8
0.7
0.7
0.9
38.4
Note: Significant at: *p , 0.1, * *p , 0.05 and * * *p , 0.01
31.0
20.6
1.3
1.3
1.3
762
0.8
0.7
0.7
0.9
41.4
Significantly different
pairs
ED-EE * * *, EE-D * * *
ED-EE * * *, ED-D * * *
ED-D * * *, EE-D * * *
ED-D * *
ED-EE *, ED-D * * *,
ED-D * * *, EE-D * * *
ED-D * *
more labour intensive; it might also indicate that such companies manufacture
products that are not as sophisticated as those manufactured in developed countries.
However, the absence of significant differences between EDs and EEs indicates that
size does not contribute to explain the difference in domestic/international outsourcing
in the two groups of firms in emerging markets.
EDs seem to operate in more rapidly changing markets than firms in developed
markets. There are two potential interpretations for this between which it is impossible
to decide right now: it indicates either that emerging-country markets are more dynamic
(turbulent) than developed-country markets (and then it would be the same for EEs) or
that EDs are linked to more dynamic (global) value chains than both EEs and Ds.
Regarding strategy, EDs seem to have a significantly higher focus on quality in
their business strategy than companies in developed markets. In addition, both EDs
and EEs place higher emphasis on delivery in their strategy than Ds. Finally, EDs focus
more on innovation in their strategy than do Ds. However, it is important to observe
that all these differences, although significant, are relatively small.
No significant differences were found in the position of firms in the supply chain in
the three groups of firms. This finding indicates that firms in all three groups are
similarly positioned in relation to end-users; firms participate in different value chains,
but their role is similar.
The discussion in the remainder of this paper refers to Table III, which presents the
statistical results and summarizes our findings in relation to the propositions
Differences in
outsourcing
strategies
307
Dependent variable: difference between national and international sourcing
(0 ¼ 100 per cent domestic sourcing, 1 ¼ 100 per cent international sourcing)
Mean: 0.45
Mean: 0.24
Firms in emerging
Firms in emerging
Mean: 0.31
markets owned by
markets owned by
Firms in developed
firms in emerging
firms in developed
markets D (n ¼ 351)
market EE (n ¼ 158)
market ED (n ¼ 58)
b
T
b
T
b
T
Sourcing strategies and contingencies
(Constant)
0.850
Competencies
0.305 *
1.803
Capacity
20.064
2 0.362
Cost
20.286 *
2 1.704
Company size
20.012
2 0.070
Market dynamics
20.094
2 0.562
Quality strategy
20.129
2 0.815
Delivery strategy
0.198
1.313
Innovation
0.258 *
1.644
strategy
Position in
20.192
2 1.294
supply chain
0.0391
Adjusted R 2
F
1.218
Sig.
0.311
2 0.0460
2 0.265 * * *
0.169 *
2 0.026
0.058
0.177 * *
2 0.159 *
2 0.058
0.051
1.613
20.520
22.845
1.868
20.294
0.648
1.945
21.712
20.593
0.580
0.049
1.810
0.072
20.037
20.193 * * *
0.237 * * *
0.098 *
0.0854
0.008
20.061
0.153 * * *
1.320
2 0.653
2 3.328
4.055
1.780
1.472
0.128
2 1.071
2.655
20.054
2 0.963
0.097
4.629
0.000
Notes: Significant at: *p , 0.1, * *p , 0.05 and * * *p , 0.01; positive b-values indicate an inclination
towards international sourcing; negative b-values indicate an inclination towards domestic sourcing
Table III.
Regression analysis of
different categories of
firms, geographical
spread of sourcing
activities, outsourcing
motives and
contingencies
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33,3
308
formulated above. In this table, we operationalize the level of internationalization in
sourcing using a continuous variable based on the difference between percentage
sourced internationally and percentage sourced domestically (see Appendix for full
details). Positive b-coefficients mean that high scores for the independent and control
variables indicate a high amount of international sourcing in the responding
companies; negative b-coefficients mean that high scores for the independent and
control variables go together with a high degree of domestic sourcing. For instance,
firms in developed markets that indicate cost reasons for their outsourcing activities
have a high extent of international sourcing (b ¼ 0.237, p , 0.01). In the same market,
firms source largely domestically when they outsource for capacity reasons
(b ¼ 2 0.193, p , 0.01). Note that some of the results presented in Table III are only
weakly significant ( p , 0.1). In particular for the findings for ED companies, the most
probable reason is the lower number of respondents in this group (n ¼ 58) relative to
those in the two other groups (EE: n ¼ 158, D: n ¼ 351). This should be borne in mind
when conclusions are drawn from the analyses involving ED firms. However, the
“statistical” significance should in this case be considered in parallel with the
“scientific” significance of the findings (see, for example, Ginsberg and Venkatraman
(1985) for a discussion of the importance of statistical and scientific significance in
strategic management research).
5. Discussion
This section summarizes and discusses the findings from the statistical analyses.
It starts with an overview of results in relation to the propositions. This is followed by
a discussion of major differences resulting from the intra- and intergroup analyses of
outsourcing objectives, geographical scope of sourcing, and contingencies.
Findings in relation to propositions
When looking for differences in the outsourcing strategies of firms from emerging
versus developed markets, firm ownership patterns stand out as a crucial issue. It is
important to note that only one firm was found in a developed market that was owned
by a firm in an emerging market (0.2 per cent of the sample size). The other way around
appears more often: 58 firms in emerging markets (or roughly 10 per cent of the sample
size) are owned by firms in developed markets. The decision to separate this group of
“hybrid” firms from genuinely emerging-market firms seems appropriate when the
differences in statistical results between them and the “pure” firms are considered.
Differences between the “pure” firms (i.e. firms in emerging markets owned by
emerging-market firms or firms in developed markets owned by developed-market
firms; EE versus D) are addressed first; then the case of the “hybrid” group (i.e. firms in
emerging markets owned by developed-market firms; ED) is discussed.
The analysis of the IMSS data only partially corroborates the propositions
concerning the outsourcing strategies of manufacturing firms in emerging and
developed markets. P1 is not supported by the analyses. Neither firms in developed
markets nor firms in emerging markets focus on either domestic or international
sourcing activities in order to acquire competencies. The acquisition of competencies is
seemingly not linked to the geographical scope of sourcing.
P2 is only partially supported by results. The proposition holds for firms from
developed countries, which source internationally in order to reduce costs. For firms
from emerging countries, however, the same is true: they also source internationally –
and not domestically, as the proposition would suggest – in order to achieve a better
cost position.
In contrast, full support was found for P3. Both groups of firms (from emerging as
well as from developed markets) look for access to production capacity when sourcing
domestically.
Differences in
outsourcing
strategies
309
Comparison between the two groups of “pure” firms
The statistical analyses show that the major differences between the outsourcing
strategies of firms do not depend on whether they are in an emerging- or a
developed-market economy. When firms in emerging markets decide to follow a
domestic sourcing strategy, they do so for the same reason as firms in developed
markets: to become more flexible concerning production capacity. Likewise, when firms
in emerging markets opt for an international sourcing strategy, the objective is the same
that firms in developed markets have when following this strategy: to achieve cost
reductions. Thus, substantial differences in outsourcing objectives exist, depending on
what region a company addresses as a source (domestic or international). However,
outsourcing objectives do not depend on whether the company is located within an
emerging or a developed market. Firms in both types of markets can therefore be treated
equally when it comes to the motivation for their outsourcing decisions.
Firms in both types of markets want to achieve a more flexible position concerning
the production capacity to which they have access, when they primarily source
domestically. Two possible reasons can be advanced to explain this. First, firms within
the same country are easier to reach in a geographical sense. As pointed out by
Contractor et al. (2010), this facilitates speed to market. Thus, components can be easily
transported to the outsourcer (for example, no tax or customs regulations have to be
taken into account); this finding supports Ettlie and Sethuraman (2002) in the
argument that local sourcing reduces transaction costs. Second, in general it should
be simpler to deal with firms in the same country when it comes to finding ad hoc
solutions, for instance when additional capacity is needed that was not foreseen.
Contracting is less difficult within one legal system and “out-of-the-contract” deals
might seem more feasible within the same country (because, for example, language
barriers do not exist).
When they want to achieve an improved cost position, firms from both market types
source internationally. In this case, more favourable cost structures in other parts of the
world (in particular, labour costs) seem to outweigh the potential disadvantages of
sourcing from abroad as well as the cultural, legal, or language-related barriers that come
with it. It is important to emphasize again that firms in emerging markets (which are often
perceived as having a favourable cost structure per se) also source outside their countries
and regions for this same reason. One may speculate that this finding also represents the
phenomenon of countries in traditional low-cost regions evolving over time into emerging
or developed markets. Furthermore, there seems to be a wide variety in what is generalized
under the term “emerging market”. For instance, an extensive range of different labour
costs may be expected within these countries (Reiner et al., 2008).
An unexpected result of the study is that competencies do not play a differentiating
role as a motivation for either sourcing domestically or internationally. This finding
holds for firms from both emerging and developed markets; however, one could have
IJOPM
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310
expected that at least firms from emerging markets would try to acquire competencies
by outsourcing internationally. While this does not disqualify competence access as a
reason for outsourcing, it shows the motivation is no different whether firms source
from within their country or from another region, in either developed or in emerging
markets.
The contingencies that might affect the findings show no consistent behaviour.
In developed markets, the motivation to source internationally is significantly related
to whether a firm follows an innovation strategy or not. Firms following an innovation
strategy prefer to source internationally. It may be assumed that this result is related to
the pursuit of new ideas for innovation in foreign places, rather than “around the
corner”. It could also be a way to handle risks involved with this strategy: when there is
uncertainty in regard to the potential success of innovations, small volumes, and high
capital requirements, firms might wish to mitigate risk by sourcing internationally.
In emerging markets, there is a tendency to source internationally if firms follow a
quality strategy. However, for the same group of firms there is a tendency to source
domestically if firms follow a delivery strategy. We assume that if quality is in the
centre of strategic intent, firms do not pay too much attention where they obtain their
supplies from – they just want to secure high quality, irrespective of where they have
to source from. However, if firms follow a delivery strategy, easy and fast access to
supplies seems to be more important, favouring domestic sourcing.
Comparison between “hybrid” and “pure” firms
Emerging-market firms owned by developed-market companies (“hybrids”) seem to
source internationally to access competencies, in contrast to the “pure” firms, for which
no such significant relationship was found. This finding could indicate that these
companies use and benefit from the parent company or maybe the network of companies
in the concern, establishing a global value chain effect. If so, these findings are consistent
with Hitt et al.’s (2000) study on partner selection in different contexts: they found that
firms in emerging markets emphasized technical capabilities, intangible assets, and
willingness to share expertise in the selection of partners to a higher extent than
companies in developed markets do. Firms in developed markets, on the contrary, might
access these competencies domestically or internationally, which leads to a statistically
insignificant result. Thus, firms’ choices are determined by whether their ownership is in
emerging or developed markets.
Emerging-market firms owned by developed-market firms source domestically
(i.e. in emerging markets) for cost advantages, therefore deliberately trying to benefit
from the location in a low-cost country (as compared to the developed market). One
could assume that a developed-market company has established a plant in an emerging
market in order to serve the local market based on a low-cost strategy. Hence,
outsourcing is conducted using local low-cost manufacturers. This outsourcing
strategy reflects the fact that subsidiaries usually are in charge of developing local
supply chains in order to benefit from the location in a low-cost country. They might
outsource internationally in exceptional cases only, subject to headquarters’ approval.
“Hybrid” firms do not source domestically to obtain access to excess capacity, unlike
those in the other two groups. One interpretation for this could be that the subsidiaries in
emerging markets are located there due to a specific purpose and do not need to
outsource because they have all the necessary capacity in-house. Another explanation
could be that the sourcing is done both locally and internationally (e.g. through the
established channels of the subsidiary), with capacity management being done at the
corporate level, looking at the installed capacities of the network of subsidiaries.
Therefore, access to excess capacity for a hybrid depends on the available capacity at the
headquarters as well as other subsidiaries. If so, the combination of sourcing regions
blurs the statistical relationships. For “pure” firms, the pattern is much clearer: both
groups source domestically and not internationally for excess capacity.
International sourcing for cost reduction is an expected finding for firms in
developed markets. It is also expected that firms in emerging markets owned by firms
in developed markets source domestically (i.e. within an emerging market) for cost
issues. However, it is more surprising that this is not visible for firms located in and
owned by firms in emerging markets. An explanation for this is that they source in
other emerging markets in order to achieve further cost advantages. It may be
concluded that the set of emerging markets is rather heterogeneous.
6. Implications and research agenda
Research implications and limitations
In summary, the initial propositions were only partly supported by the statistical
analyses. Supposedly, the reason for this is that – being based on the literature review –
the propositions place too much focus on differences between firms in emerging and
developed markets; however, there seem to be much stronger differences between firms
within these two types of markets, depending on the primary objectives of outsourcing
and the ownership pattern. This study uses a global database of manufacturing firms,
places the perspective on assumed differences between developed- and
emerging-market firms, and applies a widely used classification to differentiate
emerging from developed countries.
However, despite their advantages, these aspects also carry some limitations. First,
while, in principle, the data collection procedure was the same for all countries in the
IMSS project, the sample is not completely homogeneous among countries concerning
some characteristics, even within the same type of market (emerging versus developed).
By excluding small companies from the data set and using only data that were collected
in 2005, it may be assumed that this potential risk has been mitigated. Second, IMSS is a
single-respondent survey, which might suffer from key-informant bias. Since
performance measures were not extensively used in the analyses, it may be assumed
that this bias is not highly relevant in the case of this study. Third, although the MS
index is widely used, differences between countries in the same group might be hidden
due to the superficial split into emerging or developed markets. Anyhow, this limitation
could be seen as one of the results of this study in itself.
The adjusted R 2 of the regression analyses is relatively low, indicating that the
explanatory power of the analyses is limited. One explanation for this could be the issues
regarding the sampling, as mentioned above. Another is that there are factors explaining
firm outsourcing decisions other than those included in this study. There are many other
factors influencing the objectives and nature of both international and local sourcing,
such as the stage of local production in emerging markets (whether the market is mature
or at an incipient stage), the competence of the local supplier base, and the local
content requirements in the host country. In this study, we selected a set of contingencies
and variables that were suggested as important in the determination of
Differences in
outsourcing
strategies
311
IJOPM
33,3
outsourcing decisions. However, further studies are strongly encouraged to look
more carefully into factors excluded from the analyses, in order to develop a more
complete understanding of outsourcing strategies in both emerging and developed
markets (see, for example, Pagell et al. (2005), who analyzed the influence of national
culture on some operations management decisions).
312
Managerial implications
Three managerial implications can be drawn from this study. First, operations
managers in both types of markets can concentrate their outsourcing decision on the
primary motivations for outsourcing – the context, in terms of the market type, is less
important. This is also relevant, of course, for managers of firms that, as third parties,
provide outsourced activities for other firms: the objectives of their customers can be
assumed the same, no matter in what type of market their customers are located.
Second, transportation and legal issues seem to ask for domestic outsourcing when
capacity flexibility is needed; looking for cost advantages seems to imply international
outsourcing. It should be noted that, when following these orientations, firms behave
as the majority of other firms (i.e. as most of their competitors). Strategic leverage,
however, might lie in the reasonable violation of such “general” behaviour, for instance
when advantageous ways can be found of combining high flexibility in terms of
capacity utilization with beneficial cost structures by means of international
outsourcing. The overall goal of securing product availability, of course, remains
crucial, no matter what the strategic intentions for outsourcing are.
Third, treating all countries summarized as “emerging markets” the same might be
too superficial, since differences exist – for instance in the cost structures of these
countries – that have an influence on outsourcing strategies.
Suggestions for future research
Given the dynamic nature of internationalization, a repetition of data gathering and
analysis seems useful. In addition, focus group and other qualitative studies with
practitioners may be helpful in further exploring implications and providing
triangulation support to our statistical results. A fine-grained analysis of different
cost types (materials, manufacturing, distribution, or capital costs) might be feasible in
a future study. Furthermore, considering the absence of studies on the differences
between emerging and developed countries, and given the exploratory nature of this
paper, we suggest several areas for further investigation.
A closer look should be given to the differences among countries summarized as
emerging markets. Based on the analyses in this study, it is expected that these
countries differ substantially concerning cost structures. In addition, it may be
assumed that increasing labour costs have an effect in most emerging markets.
In this paper, the MS Index was used to classify the countries. Although this is an
established and recognized classification index, there are reasons to believe that there
are differences among the countries within the “emerging” and “developed” categories
that are not adequately captured. The findings shed light on important aspects of the
differences in the management of manufacturing in emerging and developed markets;
nevertheless, a more detailed classification based on within-market differences may
improve the understanding of the phenomenon (Prasad and Babbar, 2000).
Additionally, longitudinal analyses based on the previous and subsequent IMSS
rounds might be appropriate to investigate this issue, as well as case studies of
companies from different emerging markets; these methods could provide insights
into developments within the groups of countries.
The different combinations of ownership/location seem to have a substantial effect on
the outsourcing strategies applied. Therefore, more fine-grained analyses of the
ownership structures and of different roles of firms within a manufacturing network
seem to be crucial (Kreipl and Pinedo, 2004; Maritan et al., 2004; Ülkü et al., 2005; Srai and
Gregory, 2008). In particular, how outsourcing strategies evolve over time and the
changing roles of firms within a manufacturing network should be investigated
(Vereecke and van Dierdonck, 2002; Vereecke et al., 2006; Camuffo et al., 2007).
Longitudinal and/or model-based analyses of this topic seem appropriate, which would
allow investigating dynamic aspects of strategy making.
There is a growing interest in general contingency research in operations
management (Sousa and Voss, 2008). Thus, it might be worth analyzing contingencies
other than those explored in this paper, for example supply chain coordination
(Arshinder and Deshmukh, 2008), the existence of clusters (Chiarvesio and Di Maria,
2009), product variety (Scavarda et al., 2010), stage of local production in an emerging
market (whether it is mature or not), competence of the local supplier base, plant
characteristics (dominated by finishing operations or component production), or
local content requirements in host countries. While this paper investigated market
dynamics, competitive strategy, size, and position in the supply chain, the contingencies
identified above could be considered in future research, along with interaction effects
among them.
More generally, it seems relevant to pose the question of whether the organizational
context shapes the outsourcing strategies of firms or vice versa. In particular,
complexity and dynamism are considered key contextual factors that shape and are
shaped by organizations (Child, 1972; Dess and Beard, 1984; Größler et al., 2006). With
this, we address the general issue about the existence and importance of the strategic
dimension of outsourcing and offshoring (Contractor et al., 2010; Mudambi and Venzin,
2010). Qualitative, causal analyses and dynamic modelling may be adequate means to
clarify this issue.
The suggestions for further research can be summarized as: the development of
outsourcing strategies over time, the interaction with the market and organizational
context/network of firms, and questions of cause and effect. We advocate that these
issues ask for a multi-methodology approach (Boyer and Swink, 2008), combining
“classic” methods in operations management research (surveys and case-based
studies) with more uncommon forms such as longitudinal analyses and model-based
research.
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Appendix. Operationalization of variables
The numbers indicate the item numbers in the original IMSS IV questionnaire.
Dependent variable
Sourcing domestically versus internationally. To obtain an understanding of the
geographical spread of the respondents’ sourcing activities respondents were asked the
amount of sourcing that was done domestically, within the continent or outside the continent in
which they operate.
In the ANOVA analyses, the two measures are used: “domestic” and “international” sourcing.
The indication of “outside your continent” is considered in this paper as being international sourcing.
In the regression analyses, we developed a new variable based on the difference between
international (“outside your continent”) and domestic sourcing. This was then transformed into a
continuous 0-1 scale, which we used as dependent variable, with 0 indicating 100 per cent
domestic sourcing, and 1 indicating 100 per cent international sourcing.
SC3. Regarding location of your sourcing activity, indicate the “approximate” split of
purchasing according to the following (your answers should add up to 100 per cent):
Sourcing activity
This country
_____ %
Within your continent
_____ %
Outside your continent
_____ %
100 %
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Independent variable
Sourcing objectives. Respondents were asked about their reasons for outsourcing activities.
SC1. For what reasons have you outsourced some production activities?
320
Access to complementary competencies
Access to production capacity
Reduce costs
Level of Importance
None
1
2
3
1
2
3
1
2
3
High
4
4
4
5
5
5
Contextual factors
In the regression analyses, we checked for the direct influence from four contextual factors; firm
size, market dynamics, business strategy and the firm’s position in the supply chain.
Firm size. The study controlled for the effect of firm size on domestic versus international
sourcing. Size can affect the company’s market power (Hitt et al., 2000) and access to resources,
both important elements to consider for sourcing decisions. Company size was measured as the
number of employees in the plant.
A1b. What are the name, origin and size of the corporation of which your business unit is a
part?
Size (# of employees): Local plant _____
Market dynamics. From the contingency theory of organizations, it is known that market
dynamism is an important determinant for companies’ structural and infrastructural choices
(Daft, 2007). However, the influence of environmental change on sourcing decisions is not clear.
To measure market dynamics, the respondents were asked to describe it by scoring on a
five-point Likert-scale ranging from “rapidly decreasing” to “rapidly increasing”. From this a
three-point scale was developed, where “1” indicates “stability”, “2” indicates “slight
deterioration/increase” (2 and 4 on the 1-5 scale), and “3” indicates “declining/growing
rapidly” (1 and 5 on the 1-5 scale).
A4. How would you describe the external environment?
Market dynamics Declining rapidly 1 2 3 4 5 Growing rapidly
Business strategy. Outsourcing decisions can be influenced by the firm’s strategic competitive
priorities (Swoboda et al., 2008; Kathuria et al., 2010). To assess the respondents’ competitive
strategy respondents were asked to indicate their firm’s current order winners (A5). Respondents
were asked to indicate the importance of 11 order-winners, measured on a five-point Likert-scale,
where 1 indicates “not important” and 5 indicates “very important”. An exploratory factor
analysis was performed, returning three factors; quality, delivery and innovation strategy, as
shown in Table AI.
Position in the supply chain. Kwok and Reeb (2000) find that risk in internationalization is
related to whether companies move upstream or downstream. Developed-market companies
moving downstream into emerging markets are most likely to face increased risk, while emerging
markets companies moving upstream are likely to face reduced risk (Kwok and Reeb, 2000). To
measure the position in supply chain, respondents were asked about the percentage of sales to
different categories of customers (see question below). In order to obtain an approximation of how
close to the end customers the respondents are, a new variable was developed to indicate the sum of
“sales to wholesalers/distributors”, and “sales to end-user”.
SC9. Indicate the percentage of sales in the following categories of customers (your answers
should add up to 100 per cent):
Factor
Action programmes
Quality
Superior product design and
quality
Superior conformance quality
Delivery
More dependable deliveries
Faster deliveries
Greater order size flexibility
Innovation Offer more innovative products
Offer new products more
frequently
Wider product range
Variable
average
Differences in
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Loading
Factor
average
Cronbach’s
a
4.18
0.766
4.20
0.557
4.21
4.23
3.97
3.51
3.35
3.21
0.661
0.722
0.706
0.633
0.862
0.802
3.90
0.567
321
3.38
0.787
3.59
0.774
Table AI.
Factor analysis of the
respondents’ competitive
priorities
Customers
System integrators
_____ %
Finished products manufacturers
_____ %
Wholesalers/distributors
_____ %
End users
_____ %
100 %
Corresponding author
Andreas Größler can be contacted at: [email protected]
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