International supply management systems -- the impact of price vs. non-price driven motives in the United States and Germany.
International sourcing can represent a significant amount of an organization's costs, particularly for manufacturing concerns. A study by Monczka and Trent (1995) showed that about 14 percent of U.S. manufacturing companies' purchasing volume is sourced internationally. These costs appear to be even greater for manufacturing firms in other developed countries. For example, the most recent study by the German sister organization of the Institute for Supply Management[TM] (ISM) (formerly the National Association of Purchasing Management (NAPM)) found this percentage to be 23 percent (BME 1998). Taking into account that the purchasing volume in some manufacturing industries accounts for more than 60 percent of the cost of goods sold, it seems likely that international supply management may act as an important lever on an organization's financial success (Dobler and Burt 1996; Leenders and Fearon 1997; Monczka et al. 1998). In addition, outsourcing may further increase the importance of international supply mana gement (Quinn 1999).
The results from the above studies suggest that international supply management may be relatively more important to German companies than it currently is to their U.S. counterparts, and indicate that a cross-national study may lead to important insights as to why this difference might exist. For example, cultural differences between the United States and Germany may lead to different management approaches (Hofstede 1984; Schwartz 1994). Practitioners can often learn valuable lessons by examining these differences and comparing the activities of managers in their country with those of another. Thus, the objective of this study is to compare the international supply management systems of U.S. organizations with those of their German counterparts, and examine the factors that drive and help to shape an organization's international supply management system.
Monczka and Trent (1992) distinguished between international purchasing and global sourcing. They suggested that international purchasing is simply buying from foreign suppliers. In contrast, global sourcing is a much more progressive strategy that requires purchasing to integrate and coordinate procurement requirements across worldwide business units by examining common items, processes, technologies, and suppliers. The research in this study acknowledges that international purchasing activities may be coordinated to different degrees in different companies, and that there is a complete spectrum of activities with loosely coordinated international purchasing activities at one end and highly integrated global sourcing processes at the other end. As the strategies, structures, systems, and skills used to enhance competitive sourcing advantages through international activities are investigated here, the term "international supply management system" (ISMS) seems appropriate as an umbrella term: If the level of an organization's ISMS is low, it is engaged in international purchasing in the sense of Monczka and Trent (19 92); if the level of the ISMS is high, the organization has reached the plateau of global sourcing.
In the next section of the article, the empirical literature in the international purchasing arena is reviewed. This review also includes literature from the field of strategic management, which is combined with the international purchasing literature to describe the components of an organization's ISMS. Afterward, the study's propositions are introduced. Propositions rather than hypotheses are stated because this area of international supply management has not been extensively researched, so the research here is exploratory in nature. Next, the methodology used to test the study's propositions is described, which includes the use of a large-scale mall survey sent to purchasing managers in Germany and the United States, and case studies conducted with firms in these countries. Then the analyses used to test the study's propositions are described and the results from the analyses are presented. Finally, the article discusses the implications of the findings, and concludes by suggesting additional research path s that might be undertaken in the area of international purchasing and global sourcing.
The motives for sourcing internationally have received considerable attention over the past decades (O'Connell and Benson 1963). The same applies to the related issue of country of origin stereotypes (Chiesl and Knight 1985; Crawford and Lamb 1981; Kaynak and Kuckkemiroglu 1992; Spekman 1991). Porter (1980) postulated that companies can pursue three potentially successful generic strategies (overall cost leadership, differentiation, and focus). Similarly, purchasing researchers have examined whether price driven motives or non-price driven motives are more important for companies in regard to international supply management. The findings of those studies have been mixed, however. Table I summarizes selected empirical studies from the United States and Europe that address the motives for international supply management.
In most of the studies, price was ranked as the most important reason for sourcing internationally (e.g., Monczka and Giunipero 1984; Birou and Fawcett 1993). However, other studies show non-price factors to be most important (Min and Galle 1991; Rajagopal and Bernard 1994). One explanation for these mixed findings is that the extant literature has often relied upon descriptive, as opposed to inferential, statistics to identify potential drivers of an ISMS. Further, the authors are unaware of any study that has yet been undertaken to examine what relationships exist between the different motives for sourcing internationally and the more detailed strategies, structures, systems, and skills employed for international sourcing.
This leads to the study's research question: How do price and non-price driven motives impact an organization's ISMS? Discussions with supply chain managers suggested that the constructs should cover the factors of cost, quality, service/flexibility, and time because these are the criteria according to which the final customer decides where to buy the final product or service. Therefore, price driven motives are defined as the importance of lower prices as a factor for choosing to source internationally, and non-price driven motives as the importance of better quality, more advanced technology, and faster product development cycles for purchased items as factors for choosing to source internationally.
The elements of the ISMS are derived from strategic management literature. For example, according to Collis and Montgomery (1997), strategy deals with:
1. Resources (the assets, skills, and capabilities of a firm)
2. Businesses (the industries in which a firm operates, and the competitive strategy it adopts)
3. Structure, systems, and processes These elements should be aligned in pursuit of a vision and motivated by appropriate goals and objectives. Similar concepts have been delineated by Hax and Majluf (1996) and Hahn (1991).
Furthermore, a number of studies of corporate success, like the popular one of Peters and Waterman (1982) and that of Krueger (1989), concentrate on components of strategic management such as strategy, structure, systems, and skills. Strategy; structure, information and communication systems, and skills are therefore operationalized for the context of international supply management in this study (Monczka and Trent 1992). Specifically, an organization's ISMS is operationalized as consisting of the following six components:
1. The extent of the international supply base
2. Value-adding services purchased from international suppliers
3. Organizational coordination
4. Information systems
6. Capabilities of purchasing personnel
As an initial step toward understanding and inferentially investigating the precursors to international sourcing, it is useful to learn how the emphasis on one or the other type of motive to source internationally affects the design of single elements that together form a company's international supply management system. An answer to the research question may help supply chain managers to prioritize the use of their resources. For example, if non-price driven motives are positively related to the extent of value-added services provided by international suppliers, supply chain managers in buying organizations may be well advised to consider purchasing full-service packages (e.g., high-quality modules with the latest technology incorporated that are developed in a concurrent fashion with the international supplier) not only on a domestic basis but also internationally. Another example may be the relationship between price-based motives and the use of electronic commerce. Should there be a positive relationship, then purchasing executives may want to prepare their organization for the full use of the e-applications that are available for purchasing internationally (e.g., electronic RFQs/RFPs, reverse auctions, etc.). Further, differences between the United States and Germany may be due not only to different cultures and different infrastructures but also to different levels of experience with international purchasing in the buying organizations. In this respect, the comparison of U.S. and German firms allows purchasing managers in each country to contrast and learn from the activities of managers in the other country. The exploratory models tested here are the following:
* The extent of the international supply base = f(price driven motives and non-price driven motives)
* Value-adding services purchased from international suppliers = f(price driven motives and non-price driven motives)
* Organizational coordination = f(price driven motives and non-price driven motives)
* Information systems = f(price driven motives and non-price driven motives)
* E-commerce = f(price driven motives and non-price driven motives)
* Capabilities of purchasing personnel = f(price driven motives and non-price driven motives)
All models are tested for both the U.S. and German samples.
Price Driven Motives
As purchase price becomes increasingly important, buyers should begin to search more extensively for suppliers. At some point, it is reasonable to assume that this search would extend beyond national borders to include international suppliers. While some studies report price savings ranging up to 60 percent (Frear et al. 1992), one rule of thumb suggests that an international material's purchase price must be at least 20 percent lower than the comparable domestic price to compensate for additional costs (Dobler and Burt 1996). Thus, as lower prices become an increasingly important supplier selection criteria, it is reasonable to assume that this will result in a higher percentage of bids from international suppliers and a larger nondomestic supply base. This leads to the following proposition:
[P.sub.1a]: Price driven motives for international purchasing have a positive impact on the extent of a company's international supply base.
Of course, in addition to the core product, firms often purchase value-adding services, such as supplier warehousing and quality assurance measures (Koppelmann 1998). These value-adding services tend to increase purchase price, so that a negative relationship can be expected here, which leads to the next proposition:
[P.sub.1b]: Price driven motives for international purchasing have a negative impact on the level of value-adding services provided by international suppliers.
Internal coordination is a prerequisite for the effective bundling of purchasing volumes within the company. The cross-functional and cross-locational coordination of supplier selection decisions can be achieved through mechanisms such as corporate sourcing committees and commodity teams (Arnold 1999; Hausmann and Kaufmann 1999). As companies become increasingly aware of the fact that about 80 percent of a product's life-cycle costs are determined during the development phase, they practice simultaneous engineering through cross-functional development teams (Handfleld 1993; Inman 1992; Murphy and Heberling 1996; O'Neal 1993). This makes it easier to standardize components across products and to achieve volume discounts from the suppliers that benefit from, for example, learning curve effects if they are awarded larger contract volumes. The platform concepts in the automotive industry are a prominent example in this context. This leads to Proposition 1c:
[P.sub.1c]: Price driven motives for international purchasing have a positive impact on the extent of organizational coordination.
Internal transparency regarding quantities, prices, supplier evaluations, shipping and packaging, and contracts is necessary for effectively negotiating with suppliers (Hausmann and Kaufmann 1999; Soellner and Mackrodt 1999). In the case of small and medium-sized companies, internal transparency is also a prerequisite for forming purchasing consortia (Essig 2000) with other companies for sourcing internationally (e.g., through joint international purchasing offices). Specifically, firms that are driven by price-based motives to purchase internationally will have to develop systems that provide reliable information and streamlined, seamless dataflows. This leads to the following proposition:
[P.sub.1d]: Price driven motives for international purchasing have a positive impact on information systems.
Electronic data interchange (EDI) is used to gain supply chain efficiency, particularly for buying organizations (Marcussen 1996). Similarly, price-sensitive buyers can use the World Wide Web to broaden the scope of their search with relatively little additional search costs. This can involve comparatively low investments, can allow buyers to conveniently search the Web for suppliers in other countries, and may lead to lower overall purchase prices (OECD 2000; Veldeman 2000). Thus, the following proposition:
[P.sub.1e]: Price driven motives for international purchasing have a positive impact on the use of electronic commerce.
For organizations that experience pressure to reduce costs, senior management may very well have come to realize that purchasing is a potential source for competitive advantage and may accordingly have committed themselves to invest resources in the capabilities of purchasing personnel (Carr and Smeltzer 2000). During the 1990s, a majority of companies underwent cost reduction and reengineering programs. In the course of these programs, purchasing was generally analyzed as well, and volume pooling and supply base reductions have frequently been used to reduce material costs. Once these benefits were realized, buyers were forced to find new, creative ways to further lower purchase prices. One of the paths that buyers can follow toward this goal is to analyze all processes along the whole supply chain with a total cost of ownership perspective. In that sense, it takes highly skilled purchasing teams to implement low-price purchasing strategies. An international context is an even more demanding environment when it comes to finding and realizing cost savings in the supply chain. This leads to the next proposition:
[P.sub.1f]: Price driven motives for international purchasing have a positive impact on the capabilities of purchasing personnel.
Non-Price Driven Motives
Buyers also source internationally in order to obtain higher-quality inputs, and in cases where technologies might not be available domestically (Carter and Narasimhan 1990). The more diversified a company's range of purchase items is and the broader the set of supplier selection criteria becomes, the more intensely such a company will search worldwide for the best sources available in order to capitalize on the comparative locational advantages of many different countries (Kotabe 1999). One would expect that when firms seek higher-quality inputs, faster product development cycles for purchased inputs, and similar value-added services, these firms might have larger international supply bases. This leads to Proposition 2a:
[P.sub.2a]: Non-price driven motives for international purchasing have a positive impact on the extent of a company's international supply base.
Non-price motives should be positively related to the extent of value-added services provided by international suppliers. Companies that look for international suppliers that are competitive in quality, flexibility, and time are likely to be willing to incur the additional search costs of selecting global suppliers, in order to obtain value-added services such as Just-In-Time (JIT) delivery and supplier quality assurance. Thus, the following proposition:
[P.sub.2b]: Non-price driven motives for international purchasing have a positive impact on value-adding services provided by international suppliers.
Non-price driven motives translate into holistic supplier evaluations. Suppliers can be better evaluated and selected when international purchasing activities are cross-functionally coordinated because the nonfinancial selection criteria may be evaluated by functions like engineering and quality which are directly involved in the selection process. As international purchasing requires managing longer logistics chains, it seems appropriate to also involve the logistics department in the decision process. Thus, environmental noise effects that -- due to geographic distances and differences in language and culture -- are common in international trade can be reduced. This is especially important when supplier selection takes place during the development phase of the final product in order to jointly develop the purchase item or at least to coordinate the interfaces between the purchase part and the final product (Birou et al. 1997). This leads to the following proposition:
[P.sub.2c]: Non-price driven motives for international purchasing have a positive impact on organizational coordination.
In many organizations, the implementation of information systems is a companywide effort based on top management's commitment to plan, build, and run modern information technology (IT) systems, like Oracle or SAP. In these cases, purchasing is just one of many areas where those systems are introduced as part of general process optimizations or reengineering initiatives. Consequently, one expects these systems to exist independently from the importance of nonfinancial motives for international purchasing (van Weele and Rozemeijer 1999). This leads to Proposition 2d:
[P.sub.2d]: Non-price driven motives for international purchasing have no impact on information systems.
Firms with non-price driven motives such as higher quality and faster product development times may be more likely to use electronic commerce to find and coordinate activities with suppliers (Stump and Sriram 1997; Walton and Marucheck 1997; Porter 1998; Handfield and Nichols 1999). For example, the Boeing corporation was able to save an estimated $1 billion in product development costs by electronically transferring blueprints to suppliers (Yang 1991). Furthermore, the use of electronic commerce for the day-to-day activities in a relationship with an international supplier allows the buyer to use a higher percentage of his or her time for strategic activities like structuring and managing the relationship with this supplier in the form of a buyer-supplier development alliance. The same reasoning applies if this analysis is expanded from one relationship to the whole portfolio of supply relationships. For example, many companies make extensive use of electronic commerce for some types of relationships (e.g., with MRO suppliers), thus freeing resources to concentrate more on other strategic relationships (e.g., with their system suppliers). This leads to Proposition 2e:
[P.sub.2e]: Non-price driven motives for international purchasing have a positive impact on the use of electronic commerce.
Companies with a strong focus on nonfinancial goals are likely to employ buyers who are very knowledgeable not only commercially but also technically. They can interact with suppliers on a far more advanced level than the traditional buyer whose only focus is on the purchase price, as opposed to the total cost (Carr and Smeltzer 2000; Carter et al. 2000). Technically savvy buyers should also be able to negotiate more favorable technical terms with international suppliers. This leads to the study's final proposition:
[P.sub.2f]: Non-price driven motives for international purchasing have a positive impact on the capabilities of purchasing personnel.
Thus, it is proposed that overall, both a strong focus on price driven motives and a strong focus on non-price driven motives have a positive impact on the level of nearly all of the elements of an organization's international supply management system. This is in accordance with general systems theory, which proposes that an open system can take on the same status under different circumstances, or in other words, different situations can lead to the same result (Boulding 1956; Kast and Rosenzweig 1972).
METHODOLOGY AND RESULTS
To test the study's propositions, a large-scale mall survey was employed in both the United States and Germany. Afterward, case studies with four U.S. and four German organizations were conducted, to add richness to the survey findings and to validate the results across a second research method (McGrath 1982).
Based on findings from an examination of the existing literature in the areas of international purchasing and international business, the study's survey questionnaire was generated and pretested. Language barriers can be particularly challenging when a survey methodology is used in cross-national research. This potential barrier was overcome by having the English version of the survey translated by a purchasing scholar in Germany who is fluent in both languages. The translated, U.S. survey was then independently back-translated by another purchasing academic fluent in both languages, in order to ensure an accurate translation.
In the United States, the survey was sent to the purchasing organizations of 1,234 firms in manufacturing industries (SIC codes 20-39). This U.S. sample consisted of purchasing executives at the director level or higher who were members of ISM (formerly NAPM). In Germany, the survey was sent to the purchasing organizations of 800 German firms in manufacturing industries. The German sample consisted of companies that were members of the Bundesverband Materialwirtschaft, Einkauf und Logistik (BME), ISM's sister organization in Germany. Membership in BME is held by purchasing executives at the director level or higher.
The purchasing executives were asked to complete the survey or assign the survey to a buyer or purchasing manager in their organization who had "knowledge of and experience in purchasing from a foreign supplier." The portion of the survey used to test this study's propositions dealt broadly with the organization's international supply management strategies, structures, systems, and skills.
Dillman's (2000) Tailored Design Method was followed. Potential respondents were sent a total of three complete mailings, along with a reminder postcard. A total of 200 usable surveys were received from U.S. organizations. Another 67 surveys were returned and were not applicable because the respondent was no longer with the company, no longer employed in the purchasing function, or not employed by a firm that sourced directly from international suppliers. This resulted in an effective response rate of 17.1 percent for the U.S. sample. In Germany, 250 usable surveys were received. Another 48 surveys were returned and were not applicable because the respondent was no longer with the company, no longer employed in the purchasing function, or because the firm did not source directly from foreign suppliers, resulting in an effective response rate of 33.2 percent for the German sample.
Respondents from U.S. organizations include such wide-ranging industries as aerospace, automotive, foodstuffs, consumer products, electronics, pharmaceuticals, and textiles. Other diverse manufacturing industries represent a broad spectrum of SIC codes from 20 to 39. Median annual sales and total purchases are $200 million and $100 million, respectively, and suggest that U.S. respondents represent medium- to large-sized firms.
German respondents come from such diverse industries as machinery, metals fabrication, chemicals, automotive, electronics, foodstuffs, and pharmaceuticals. The median annual sales and purchase volume are $170 million and $68 million (U.S.), respectively, and suggest that German respondents also represent medium to large size organizations.
For U.S. purchasing organizations, the mean percentage of bids from international suppliers is 18.17 percent, while the mean number of international suppliers is 128, with a range from 1 to 7,750. Figure 1 shows that on average, the largest portion of the international supply base of U.S. survey respondents is located in Asia (32.2 percent), followed closely by Western Europe (25.8 percent) and NAFTA countries (Mexico and Canada) (20.5 percent). The mean number of foreign suppliers for the German firms is 93, while the mean percentage of bids coming from foreign suppliers is 26.47 percent. For German firms, the majority of the supply base is located in Western Europe (56.2 percent), with a much smaller percentage in Central and Eastern Europe (17.6 percent) and Asia (11.3 percent).
Non-Response Bias. Non-response bias occurs when the opinions and perceptions of the survey respondents do not accurately represent the overall sample to whom the survey was sent. One test for non-response bias is to compare the answers of early versus late respondents to the survey (Lambert and Harrington 1990). The idea is that late respondents are more likely to answer the questionnaire like non-respondents than are early respondents (Armstrong and Overton 1977).
A multivariate T-test was computed using the key study variables, in order to determine whether significant differences exist between early and late respondents. The results suggest that early respondents do not display statistically significant differences from late respondents in either the U.S. (p=0.7734) or German (p=0.2745) samples.
As an additional test for non-response bias, 20 non-respondents were randomly chosen from the U.S. sample and another 20 non-respondents were randomly chosen from the German sample (Lohr 1999). These non-respondents were sent an abbreviated form of the questionnaire via priority mail, and follow-up phone calls were made to ensure that all 20 of the selected non-respondents to the original questionnaire completed and returned the abbreviated survey. A second multivariate T-test was computed, comparing the responses to the full-length questionnaire to those of the abbreviated questionnaire. No significant differences were found between respondents and non-respondents in either the U.S. (p=0.7281) or German samples (p=0.9471).
Key Informant Issue. Two explicit measures were taken to ensure that the survey respondents were in fact knowledgeable and appropriate (key) informants. First, the survey was sent to a senior purchasing executive who was at the director level or higher in each firm. A modified "snowballing" technique was then employed, where this initial informant was asked to either complete the questionnaire or pass along the questionnaire to a manager who has "knowledge of and experience in purchasing from a foreign supplier."
Second, the survey instrument included questions assessing the informant's involvement in international purchasing. Here, broad, global measures of an informant's competency were used, specifically, the length of time the informant was involved with international procurement and the self-rated involvement in international procurement (Phillips 1981; Phillips 1982). Informants who indicated they were only "somewhat involved" in international purchasing for one year or less were eliminated from further analyses. In the U.S. sample, only one informant fell into this category. In the German sample, no informants fell into this category.
After the survey data were analyzed to test the propositions, case study visits were conducted to add richness and details to the findings (Eisenhardt 1989; Ellram 1996; McCutcheon and Meredith 1993). The firms that participated in the case studies consisted of a purposeful sample, which was chosen to represent a breadth of manufacturing firms and company sizes similar to those of respondents to the mall survey (Kuzel 1992). The case study visits included a semistructured interview guide, and all participants received a copy of the interview questions prior to the visits. The results from the case studies are integrated into the Conclusions section of the article.
The study's constructs were measured using the scale items appearing in the Appendix. These scale items were submitted to a confirmatory factor analysis (CFA) for each of the national samples, using the CALlS procedure in SAS. A correlation matrix of the scale items appearing in the Appendix is available from the first author upon request.
All standardized factor loadings displayed in the Appendix are highly significant (p<0.0001), suggesting convergent validity (Gerbing and Anderson 1988). Discriminant validity was examined through [chi square] difference tests, and was found to be present (Bagozzi and Phillips 1982; Anderson and Gerbing 1988). Finally, reliability was assessed through Cronbach's (1951) coefficient alpha. As shown in the Appendix, all constructs have coefficient alpha values in excess of or near 0.60 with the exception of capabilities of purchasing personnel for the German sample, suggesting that overall the scale items provide reliable measures of the study's constructs given the exploratory nature of the research (Nunnally 1978).
The results from the CFAs that are used to assess model fit are presented in Table II. While the [chi square] values are significant for both samples, this is often the case with real-world data (James et al. 1982). As a result, researchers will examine a number of goodness-of-fit indices in assessing model fit. The values of the goodness-of-fit (GFI), Bender's (1989) GFI, and Bentler and Bonett's (1980) NNFI are all in excess of the 0.90 recommended minimums for both samples, indicating an acceptable fit of the measurement model to the data (Bender 1989). Further, the RMSEA is less than 0.05, providing additional indication of acceptable fit (Bollen and Long 1993). Together, these results suggest that an excellent fit exists between the measurement model and the data in the case of both the U.S. and German samples.
Multiple regression analysis was employed to test the study's propositions because the propositions involve simple linear relationships without mediation, and because of the exploratory nature of the propositions. Price-driven motives was operationalized by the scale item appearing in the Appendix, while the other independent variable, non-price driven motives, was operationalized as a composite, weighted by factor scores, of its indicator variables displayed in the Appendix. Each of the dependent variables represents a composite, weighted by factor scores, of the associated items displayed in the Appendix.
The assumptions for multiple regression analysis are homoscedasticity, a normal distribution of errors, and an independence of error terms. Plots of residuals versus independent variables and residuals versus predicted values of the dependent variables indicate constant variance. Normal probability plots do not indicate severe departure from normality. Finally, the data were collected from independent sources (separate firms) at the same time. Thus, the assumptions for regression analysis appear to hold. Further, multicolilnearity was examined and was not found to be problematic, as indicated by low variance inflation factors.
The results from the regression analyses are presented in Table III. The results lend support for four of the 12 propositions in the case of U.S. firms and seven of the 12 propositions in the case of German firms participating in the study. For the U.S. sample, non-price driven motives are significantly and positively related to the extent of the international supply base and value-added services, while price driven motives are significantly and positively related to the capabilities of purchasing personnel. No relationship exists between non-price driven motives and information systems, as was posited.
In Germany, non-price driven motives are significantly and positively related to all of the dependent variables with the exception of information systems. Thus, all propositions about the effects of non-price driven motives on the elements of global supply management systems in Germany are supported. As is the case with U.S. firms, price-driven motives are only related to the capabilities of purchasing personnel for German respondents.
First, those results from the analyses that are similar between the U.S. and German samples are discussed. These results include the relationship of price driven motives to all of the components of the ISMS, and the relationship of non-price driven motives to the following components of the ISMS: extent of the international supply base, value-added services, and information systems. Afterward, those results that differ between the U.S. and German purchasing managers included in the study are considered -- the relationships between non-price driven motives and organizational coordination, e-commerce, and capabilities of purchasing personnel.
Similarities between the United States and Germany
Price Driven Motives. In both countries, price driven motives were related to the capabilities of purchasing personnel, lending support to Proposition if. This finding may indeed be due to the fact that management is aware of the need to have knowledgeable and creative international buyers in order to find and contract with low-cost suppliers. Price-driven motives are not, however, related to any of the other components of an organization's ISMS. The case study findings help to shed some light here.
Regarding the extent of the international supply base, informants suggested that low price was necessary but not sufficient, and was in this sense often a secondary or even tertiary consideration in sourcing internationally. Instead, issues such as quality and availability of technology were frequently more important. Further, managers suggested that the purchase price differential generally has to be fairly dramatic to make international purchasing worthwhile, due to longer leadtimes that result in increased inventory and greater transaction costs. As was stated by one purchasing manager, "'Low price,' in the end, isn't always 'low price.'"
In terms of purchasing value-added services, informants cited the need to consider total cost of ownership as reasons why price driven motives do not explain the extent to which these are purchased. Informants suggested that purchasing managers should increase coordination in cases where price driven motives exist, but are simply not taking advantage of this opportunity, as was succinctly stated by one case study participant: "As a profession, we probably don't capitalize on this to the extent that we should. Your proposition is what we should expect."
Similarly, case study participants indicated that opportunities exist to expand the use of information systems and e-commerce. Purchasing managers may not be taking advantage of e-commerce based solely on price driven motives, due to the newness and perceived risk. One manager stated, "We have not found a real benefit with e-auctions, although conceptually think that there is. We've tried them and arrived at about the same purchase price or in some cases even higher (prices)." A purchasing executive at another firm indicated, "There is uncertainty in terms of the transaction, and uncertainty regarding the use of a new technology, that makes using e-commerce in international transactions probably not worth the while based solely on price."
Overall, the results indicate that price driven motives do not significantly impact the various components of a firm's ISMS. Rather, the non-price driven motives, which are discussed next, appear to have a greater impact on international purchasing in the United States and particularly in Germany. The results also suggest, however, that opportunities exist in both countries to increase, for example, the use of information systems and e-commerce, when purchasing managers are strongly driven by price-based motives to source internationally.
Non-Price Driven Motives. Non-price driven motives are related to the extent of the international supply base in the case of both U.S. and German purchasing organizations, providing support for Proposition 2a. Thus, firms that are strongly driven to procure inputs of high quality, advanced technology, and fast product development cycles are more likely to search and often select international suppliers worldwide. A large, worldwide supply base allows purchasing managers to leverage quality-, technology-, and price-based competitive advantages (Porter 1990) of suppliers in many different countries across the globe, in response to non-price based drivers.
Managers in organizations that are driven by non-price motives are also more likely to pay additional fees for value-added services, including supplier warehousing and quality assurance measures (Proposition 2b). As posited, no relationship was found between non-price driven motives and information systems (Proposition 2d). This finding lends support to the idea that modern IT systems are often driven by top management mandates and are thus implemented in a companywide manner in which the purchasing function is only one of many functional areas where those systems are introduced.
Differences between the United States and Germany
While the results of the analyses of the influence of price driven motives on organizations' ISMS are similar across countries, this is not the case with all non-price driven motives. In particular, it was found that non-price driven motives are significantly related to organizational coordination (Proposition 2c), e-commerce (Proposition 2e), and the capabilities of purchasing personnel (Proposition 2f) in German purchasing organizations, but not in U.S. firms. Again, case study participants help to provide insights as to why these differences occur between the two countries.
The finding that non-price driven motives are significantly related to organizational coordination in German but not U.S. firms may be due to the fact that in German companies that pursue non-price driven strategies, the knowledge and the power to implement cross-functional coordination is more advanced. In particular, German companies tend to be more centrally coordinated, where business units tend to have less autonomy than in U.S. firms. Further, case study participants suggested that German purchasing managers often have a more technical background than do their U.S. counterparts. This technical background facilitates coordination with other functions such as manufacturing and engineering when non-price driven motives such as quality and technology require such coordination.
One possible explanation offered by case study participants regarding the relationship between non-price driven motives and e-commerce is that U.S. companies are more advanced in their use of e-commerce as compared to their German counterparts. Thus, the relatively high use of e-commerce in the United States may not be significantly affected by non-price driven motives to source internationally, while German organizations that are pursuing non-price driven international purchasing strategies may be more willing to experiment with and implement e-commerce. Further examination of the survey data supports this explanation, as U.S. purchasing managers are using e-commerce to a significantly greater extent than are German purchasing managers (p<0.001).
Finally, the results indicate that firms in Germany that have strong non-price driven goals are more likely to employ and invest in purchasing personnel with extensive product, commodity, and price knowledge than are U.S. organizations. Further, it is likely that German purchasing managers have a stronger technical background overall as compared to the U.S. managers who participated in the study. For example, purchasing managers in German firms often have a graduate degree in an area such as engineering. In addition, an increasing number of purchasing managers in German manufacturing firms have a combined engineering-business graduate degree. Thus, for firms with strong non-price driven motives, there is a larger base of technically advanced purchasing managers from which to hire in Germany.
The differences that exist here between the two countries suggest that U.S. purchasing managers may well want to look more closely at their German counterparts for ways to improve their organizations' ISMS. In particular, for U.S. organizations with strong, non-price based motives to source internationally, greater coordination may be necessary. This might be facilitated through increased centralization in regard to international sourcing, as well as increasing the technical abilities of purchasing managers.
Limitations and Suggestions for Future Research
Propositions rather than hypotheses were stated due to the relative immaturity of this area of international supply management. Specifically, much of the extant literature has relied on descriptive as opposed to inferential statistics in examining price versus non-price driven motives. Further, there is a relative lack of theoretical frameworks in international supply management. As such, these findings should be considered tentative and in need of replication in the United States and Germany. Additionally, research is also necessary in order to examine the ISMS of purchasing organizations in other nations.
The results may stimulate further work in at least two directions:
1. It was found that a focus on non-price driven motives is significantly related to the level of an organization's international supply management system, while this is by and large not the case for price driven motives. This and the discussions with purchasing managers in the United States and in Germany suggest that the role of price as a motive for international supply management activities is vastly overstated. Companies hardly differ in their emphasis on lower supply chain costs. Future research may add more insight into this first general conclusion from this work.
2. It was found that the degree to which a firm pursues non-price driven motives strongly affects the elements of its international supply management system. However, significant differences between the United States and Germany were also found in this respect. German companies tend to better coordinate their international supply management acitivities, make more use of electronic commerce, and employ purchasing personnel with greater capabilitities in order to reach non-price driven goals. What was not analyzed was whether this will also lead to a higher degree of success. Future research may therefore include moderated regression analyses to find out whether higher levels of organizational coordination, electronic commerce, and the capabilities of purchasing personnel lead to different levels of success when the focus of the company on non-price driven motives varies.
In order to develop a generalizable set of findings and solicit a sufficient number of responses, the survey sampling frame was not limited to a particular industry. Because of the large number of industries represented by respondents, it was not possible to control for variances that may exist across industries. Future research in this area should attempt to control for these differences. Finally, while authors often advise conducting longitudinal studies, here it is advocated that such research could provide valuable insights in terms of in-depth case studies that examine how organizations develop and expand their ISMS. This type of research could include an examination of the cross-functional interactions that occur and the implementation barriers that inevitably result due to such organizational change.
Appendix SCALE ITEMS (a) Reliability U.S. Germany Extent of International Supply Base/International Purchasing Program 0.59 0.61 On average, for each bid what % comes from international suppliers? (0.49, 0.55) (b) What is the total number of your Company's international suppliers" (0.82, 0.83) (b) The number of regions of the world where 5% or more of suppliers are located (0.46, 0.46) Value-Adding Services 0.74 0.65 The what extent are these services provided by international suppliers? (c) ... JIT delivery (0.74, 0.61) ... Supplier warehousing (0.75, 0.56) ... Quality assurance measures (e.g., providing SPC charts) (0.63, 0.64) Organizational Coordination 0.69 0.69 The following concepts are implemented in our organization as indicated: (d) ... Cross-functional product development teams (0.54, 0.49) ... Cross-functional and cross-locational coordination or supplier selection decisions (e.g., through Corporate Sourcing Committees) (0.63, 0.70) ... Centrally coordinated cross-functional and cross-locational commodity teams (0.71, 0.75) Information Systems 0.66 0.61 Please indicate the level of information and communication system capabilities in your company: (e) ... We have a common worldwide part and supplier coding system (0.56, 0.77) ... A worldwide database (quantities, prices, supplier evaluations, shipping/packaging, contracts) is accessible from all international sites (0.88, 0.61) E-Commerce 0.68 0.73 Please indicate the level of information and communication system capabilities in your company: (e) ... Purchasing intranet is available and accessible from all international subsidiaries (0.71, 0.65) ... We have a purchasing web site/homepage (0.61, 0.65) ... We make use of the WWW for international supply market research (0.40, 0.58) ... Electronic data interchange with international suppliers is used on a daily basis (0.58, 0.67) Capabilities of Purchasing Personnel 0.65 0.53 The following questions examine buyer capabilities in your organization: (e) ... Buyers have extensive product and commodity knowledge (0.85, 0.55) ... Buyers have extensive cost knowledge (0.80, 0.63) Price-Driven Motives n/a n/a Please rate the importance of the following factors for choosing to source internationally: (c) ... Lower prices Non Price-Driven Motives 0.69 0.67 Please rate the importance of the following factors for choosing to source internationally: (c) ... Better quality (0.64, 0.53) ... More advanced technology (0.78, 0.79) ... Faster product development cycles for purchased inputs (0.56, 0.58) (a)Standardized factor loadings in parentheses (U.S. sample, German sample). (b)A logarithmic transformation of these scale items was made. (c)These items were measured on a 5-point Likert scale where 1=not important at all and 5=extremely important. (d)These items were measured on a 5-point Likert scale where 1=neither implemented nor planned, 3=practiced in selected cases, and 5=company-wide, fully implemented. (e)These items were measured on a 5-point Likert scale where 1=strongly disagree and 5=strongly agree.
[FIGURE 1 OMITTED]
Table 1 Geographic Industry Sample Year Author(s) Focus Focus Size 1979 White USA cross-industry 213 1982 Hallen Sweden cross-industry 5 1984, Monckza/ USA cross-industry 26 (24) 1990 Giunipero 1990 Fieten Germany cross-industry 204 1990 Sauer Germany automotive 7 OEMS plus 10 suppliers 1991 Ellram USA cross-industry 10 interviews in 6 companies 1991 Min and Galle USA cross-industry 141 1991 Saghafi et al. USA cross-industry 304 1992 Frear et al., USA cross-industry 135 1994 Alguire et al. 1993 Birou and USA cross-industry 149 Fawcett 1993 Gruschwitz Germany cross-industry 10 1994 Rajagopal and UK cross-industry 76 Bernard 1998 Bozarth et al. USA cross-industry 55 1998 BME Germany cross-industry 135 Response Rate Sampling Year (Effective) Technique Key Findings 1979 44% questionnaire Stereotypes of U.S. buyers toward European suppliers determine international purchasing activities. This implies that even technically identical purchase items are not really identical as long as they are produced in different countries. 1982 n.a. interviews Companies that are faced with a lack of alternative domestic suppliers are more deemed to source internationally than others. 1984, n.a. questionnaire Lower purchase prices are the 1990 most important motive for sourcing internationally. The next most important criteria are reliability, product quality, technology, and availability. 1990 30% questionnaire Two-thirds of the respondents plan to increase their international purchases after the implementation of a common European market. This holds even more for commodities and standardized parts. Major barriers for purchasing internationally are long leadtimes, different norms, less transparent markets, and lower quality levels. 1990 n.a questionnaire The most important motive for and international sourcing is interviews lower price. The second most important one is to increase competition among suppliers, and the third most important one is to get access to new technologies. 1991 n.a. interviews Interaction patterns are the most critical success factor for international vertical alliances. Among these are timely information about design changes, contractual obligations, and flexibility. 1991 17% questionnaire Product quality is more important than price as a motive for sourcing internationally. Country of origin stereotypes exist. 1991 26% questionnaire The lack of export success for Latin-American companies in the U.S. is largely due to country of origin stereotypes. 1992 28% questionnaire Agreement with the statement, 1994 "Our company purchases goods from foreign suppliers in order to improve our competitive position," was highest (77% of the respondents agreed or strongly agreed), followed closely by the statement, "Our company has a global attitude and has global operations" (71% agreed or strongly agreed). Sixty- three percent of the respondents either agreed or strongly agreed with the statement, "The products we purchase are available from foreign suppliers at lower prices." 1993 15% questionnaire The decision to source internationally for the first time is primarily price driven; ongoing supplier selections, on the other hand, are primarily based on the criteria of products quality and availability of products. 1993 n.a. interviews Price driven motives rank highest, followed by technological reasons. 1994 22% questionnaire The ranking of the motives for interna-sourcing is: reliability, product quality, purchase price, and lack of domestic sources. 1998 19% questionnaire The main criteria for interna- tional sourcing decisions are product quality, followed by purchase price and trust toward the supplier. 1998 4% questionnaire Western Europe is the most import- tant sourcing region (65% of international purchasing volume). A country of origin study by region showed that Eastern European suppliers are regarded as being more cost-competitive than their Western competitors. Asia is a difficult market because of a lack of transparency and long information channels. Table II MEASUREMENT MODEL FIT STATISTICS U.S. Germany [chi square] 189 (df=149, p=0.0l) 183 (df=149, p=0.03) GFI 0.91 0.92 Bentler's CFI 0.95 0.96 Bentler and Bonett's NNFI 0.93 0.95 RMSEA 0.04 0.03 Table III REGRESSION ANALYSES Beta (Level of Significance) U.S. Adjusted INDEPENDENT VARIABLES: Price Non-Price [R.sup.2] DEPENDENT VARIABLES: Extent of international Supply Base ([P.sub.1a], [P.sub.2a]) 0.0604 (0.4269) 0.2277 (0.0031) 0.0432 Value-Added Services ([P.sub.1b], [P.sub.2b]) 0.0814 (0.2344) 0.2907 (0.0001) 0.0803 Organizational Coordination [P.sub.1c]) [P.sub.2c]) 0.1193 (0.0938) 0.0792 (0.2654) 0.0116 Information Systems ([P.sub.1d], [P.sub.2d]) 0.1294 (0.0698) 0.0321 (0.6516) 0.0077 E-Commerce ([P.sub.1e], [P.sub.2e]) 0.1116 (0.1173) 0.0748 (0.2929) 0.0079 Capabilities of Purchasing Personnel ([P.sub.1f], [P.sub.2f]) 0.2383 (0.0007) 0.0981 (0.1580) 0.0663 Germany Adjusted INDEPENDENT VARIABLES: Price Non-Price [R.sup.2] DEPENDENT VARIABLES: Extent of international Supply Base ([P.sub.1a], [P.sub.2a]) 0.0507 (0.4518) 0.3010 (0.0001) 0.0807 Value-Added Services ([P.sub.1b], [P.sub.2b]) 0.0089 (0.8820) 0.3736 (0.0001) 0.1319 Organizational Coordination [P.sub.1c]) [P.sub.2c]) 0.0886 (0.1601) 0.2180 (0.0006) 0.0446 Information Systems ([P.sub.1d], [P.sub.2d]) 0.0457 (0.4792) 0.0524 (0.4175) 0.0008 E-Commerce ([P.sub.1e], [P.sub.2e]) 0.0307 (0.6308) 0.1975 (0.0022) 0.0308 Capabilities of Purchasing Personnel ([P.sub.1f], [P.sub.2f]) 0.2676 (0.0001) 0.2302 (0.0002) 0.1080 Note: Underlined beta values indicate significance at p<0.05.
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Lutz Kaufmann is professor and Herbert Quandt Chair in International Management in the Otto Beisheim Graduate School of Management at Wissenschaftliche Hochschule fur Unternehmensfuhrung (WHTJ) in Vallendar, Germany.
Craig R. Carter is assistant professor of international supply chain management in the Robert H. Smith School of Business at the University of Maryland in College Park, Maryland.
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|Author:||Kaufmann, Lutz; Carter, Craig R.|
|Publication:||Journal of Supply Chain Management|
|Article Type:||Statistical Data Included|
|Date:||Jun 22, 2002|
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