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How production factors alter the intensity of competition-increasing global sourcing effects : a competitive dynamics perspective

Schulze Horn, Ines (2015) How production factors alter the intensity of competition-increasing global sourcing effects : a competitive dynamics perspective.

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Abstract:Purpose – Research on indirect global sourcing effects revealed that intensified competition in the supply base induced through competition from low-cost country (LCC) suppliers leads to an increased price pressure perceived by industrialised country (IC) suppliers. Based on the theory of comparative advantage, the question arises if production factors alter this relationship. Therefore, this research aims at investigating whether the competitive pressure perceived by IC suppliers is higher when sourcing labour-intensive respectively lower when sourcing capital-intensive items. Design/methodology/approach – Sourcing data of a leading multinational automotive OEM are analysed. The analysis covers 233 sourcing projects realised between 2012 and 2013. Correlation coefficients are calculated to test the relationship between production factors and price dispersion. Findings – The data reveal that there is a statistically significant positive relationship between labour-intensity and competitive pressure while a statistically significant negative relationship exists between capital-intensity and competitive pressure. Practical implications – Since matching the type of buyer-supplier relationship with the competitive environment can improve firm performance, it is recommended to deliberately increase the competitive pressure in the supply base by asking LCC suppliers to submit quotations when sourcing labour-intensive items to decrease price levels. This sourcing tactic fits a transactional relationship approach. However, suppliers of capital-intensive items are less receptive to the competitive threat of LCC suppliers so that a strategic partnership approach is argued to be more beneficial to achieve cost reductions. Theoretical implications – The study contributes to the growing body of literature concerning indirect global sourcing effects by highlighting that the previously established relationship between LCC supplier participation in sourcing projects and the competitive pressure perceived by IC suppliers is moderated by production factors. Originality/value – The research highlights that purchasers can deliberately increase the competitive pressure in the supply base to reduce price levels, thereby enhancing the purchasing performance. The implications of this study can further help buying organisations to develop an effective portfolio of buyer-supplier relationships.
Item Type:Essay (Bachelor)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:83 economics, 85 business administration, organizational science
Programme:International Business Administration BSc (50952)
Link to this item:http://purl.utwente.nl/essays/67482
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