Global sourcing: performance and competition: How to benefit from an international scope

Abstract

The thesis “Global sourcing: performance and competition” is concerned with the effects of global sourcing on the purchasing performance of buying organisations. As a first step, it is demonstrated that the integration and accumulation of social capital with external suppliers can significantly increase the success of global sourcing projects. However, as the establishment of long-term cooperative buyer-supplier relationships is usually time-consuming and costly, a company’s capacities to engage in these intimate relationships are limited. Put in another way, it might not be possible (neither advisable) to engage in close relationships with all suppliers. It is argued that in supply markets with healthy competitive forces, also a more transactional nature of buyer-supplier relationships can result in satisfying outcomes. As a consequence, a simple and feasible method to evaluate the intensity of competition in the supply market is derived conceptually. To do so, insights from the field of economics on homogeneous product price dispersion are applied and framed for an application in the field of purchasing and supply management. Being able to assess the intensity of competition in the supply market, it is investigated whether the intensity of competition between suppliers is related to lower price levels. The data indicate a statistically significant positive relationship between the increase of competitive pressure during the negotiation process and the achieved price reductions. Having shown that competitive pressure can improve the purchasing performance, it is explored whether global sourcing activities can be used as a means to increase competition in the domestic supply market. It is argued that the consideration of suppliers from low-cost countries provokes competitive reactions of domestic suppliers. This phenomenon is classified as an indirect global sourcing effect. Knowing that global sourcing can enhance competition between domestic suppliers, it is explored whether this effect is persistent over time. It was expected that, with growing experience, domestic suppliers find a way to limit price competition with low-cost country suppliers. Surprisingly, the data indicate that the indirect competition-increasing effect of global sourcing is not a one-time novelty effect. The effect is somewhat persistent over time.