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Successful global sourcing requires top management commitment and allocation of resources.

Global Procurement:
Motivations and Strategy
Shan Rajagopal and Kenneth N. Bernard

the article discusses empirical evidence which has been gathered as the result of a wide-ranging survey covering over 300 British-located companies, and which focused particularly on the motivational factors contributing to companies approaches to the globalization issue in respect of their procurement policies. Third, the article endeavours to link the empirical data with the extant literature, and to derive a framework for the application of a global approach to the procurement process. At the same time it offers a matrix of generic choices which might be considered by managers in the development of global sourcing strategies.

Global Procurement: An Intrinsic Part of Global Strategy

Global competition has become a central issue for many western multinationals. The emergence of European, Japanese and Third World multinationals has created a new competitive environment, calling for globalization of corporate strategy (Kotler et al ., 1985; Levitt, 1983; Ohmae, 1985; Porter, 1986). Numerous advantages are increasingly recognized in creating and integrating various business operations across national boundaries (Kogut, 1985; Porter, 1986; Prahaled and Doz, 1987). This has resulted in an increasing number of multinational firms engaged in sourcing of components and products on a global scale. Indeed, cross-national marketing transactions encompass both the buying (i.e. sourcing) and selling (i.e. market selection) aspects of the exchange process. Although marketing institutions are examined primarily in their roles as sellers rather than as buyers, the buying side of the exchange process should not be ignored (Kotler and Levy, 1973). As early as 1969, Fayerweather (1969) described a conceptual model of global sourcing planning involving the dynamic relationships among factories, markets, products, components, and their logistical flows. Little research ensued. Recently, however, procurement strategy has re-emerged as an important issue in response to global competition. Some conceptual justifications for integrated sourcing have been developed along the value chain concept (Kogut, 1985, Porter, 1986). Most of the recent research in sourcing strategy, however, has dealt with various managerial issues, ranging from structural complexity (Starr, 1984) and operational complexity of international sourcing (Mascarenhas, 1984) to reasons for international sourcing (Monczka and Giunipero, 1984) and to cost advantage/disadvantage arguments (Hahn et al., 1986), among others. To maintain competitive advantage, multinational firms need to look beyond their national boundaries for sourcing of components and/or finished products. The

Marketing Intelligence & Planning, Vol. 12 No. 9, 1994, pp. 4-17 MCB University Press Limited, 0263-4503

Introduction
As the progressive lowering of trade barriers eases however fitfully the flow of goods worldwide, business survival increasingly hinges on a companys ability to compete globally in external and/or internal markets. Competitors from overseas are targeting previously secure domestic markets, while domestic competitors are increasingly looking overseas not only for new markets, but also for new sources of supply. Their procurement objectives are many and varied, but high on the list of priorities are issues of cost reduction, product and service innovation, technology acquisition and risk spreading. Blind loyalty to existing markets and suppliers is no longer sufficient to ensure that a firm continues to make a comfortable living, let alone to achieve the growth and profitability it needs to remain competitive.

Objectives
The aims of this article are threefold. First it offers an overview of the existing literature on globalization as a concept and in practice, covering marketing and, in particular, procurement issues. It is contended that in conceptual and analytical terms, the literature lags behind industrial practice as it has evolved so far. Second,
The authors wish to acknowledge The Carnegie Trust for the Universities of Scotland for sponsoring research in this area.

GLOBAL PROCUREMENT: MOTIVATIONS AND STRATEGY

options open to those firms range from establishing a buyer/seller relationship across national boundaries, to entering into a joint venture agreement with an existing foreign company, to investing directly in overseas production facilities. In developing viable sourcing strategies on a global scale, the firms must consider not only manufacturing costs, the cost of various resources, and exchange rate fluctuations, but also availability of infrastructure (including transportation, communications and energy, industrial and cultural environments, the ease of working with foreign host governments, and so on (Caddick and Dale, 1986; Hefler, 1981). Hickman and Hickman (1992) identified political stability, a welldeveloped infrastructure and a well-educated, urban workforce as attributes of low-risk procurement success. Further, they postulated that countries offering new source opportunities in the future will emerge owing one or both of two major trends: the cascading of industrialization through investment and technology from the developed nations; and increasing attempts to achieve industrial success by emulating Japan.

Study Methodology
This study replicates important aspects of previous research, using a stratified random sample survey to provide a longitudinal perspective. The study utilizes a large sample size to gain a better understanding of the breadth of international sourcing implementation among firms of varying size and ownership, across a number of selected industries. A mail survey was used as the data collection method. The sample population of 350 companies was obtained from the list of British Manufacturers Association compiled by Jordan and Sons. A total of 76 usable responses were received, making a response rate of 21.7 per cent. The first section of the survey sought descriptive data regarding the firm, its motivations and its international procurement activities. The second section focused on the identification of relationships between the age of the company, the type of ownership of the firm and the motivational factors involved in the determining of international procurement activities. All the survey data obtained from the sample were coded and analysed using the statistical package for Social Scientists (SPSS).

Companies approaches to globalization have not been explored

The complex nature of sourcing strategy on a global scale spawns many barriers to its successful execution. Monczka and Giunipero (1984) report that logistics/ inventory/distance, nationalism, and lack of working knowledge about foreign business practices, among others, are major problems identified by both US and foreign multinationals who are engaged extensively in international sourcing. They further argue that sourcing development programmes should be arranged within organizations to foster development of a positive attitude regarding international purchases. Thus, the implementation of such a sourcing strategy calls for a well-integrated and efficient global corporate system and outlook (Fayerweather, 1981; Porter, 1986). The literature to date, however, has inadequately explored the factors motivating companies to source from abroad and their approaches to globalization. The study discussed in this article provides an update on the motivational factors for global procurement strategy development among British-located companies and it focuses on the emerging issues in the development of worldwide sourcing strategy which have been neglected by previous studies.

Findings and Discussion

Background The sample population was stratified across a variety of manufacturing environments: multiple usable responses were obtained from seven manufacturing industries. Table I shows the distribution of industry classifications. The respondent groups were also classified by type of ownership and size of business. The type of ownership categories for the usable respondent firms were American, British, European, Japanese and others. The authors felt that the type of ownership could be a significant factor in the motivation and internationalization of the procurement process. With respect to the respondents size of business, it was categorized into

Table I. Industry Classification

Industry Electrical/electric Chemical/plastic Computer/electronics Heavy/equipment Automotive Food processing Light engineering Others Percentage of firms 10.5 17.1 15.8 14.5 14.5 7.9 14.5 5.2

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Table II. Ownership of Firms

Type of ownership American British European Japanese Others Percentage of firms 23.7 48.7 18.4 6.6 2.6

Table V. Years of Experience with International Purchasing

Years of experience Less than 2 years 2 to 5 6 to 10 11 to 15 16 to 20 Above 20 Percentage of firms 2.6 5.3 11.8 17.1 19.7 43.4

Table III. Size of Firms (Employees)

Number of employees Under 50 51 to 200 201 to 500 501 to 1000 1001 to 5000 More than 5000 Percentage of firms 2.6 31.6 31.6 17.1 17.1

financial year was less than 40 per cent, while 39.2 per cent of the firms had a total purchase to sales turnover ratio of more than 40 per cent. It was also interesting to note that 52.6 per cent of the respondents made more than 25 per cent of their total purchases from overseas. Generally, a high level of global sourcing experience was reported among the respondent firms. Table V shows that 92 per cent of the respondents have more than five years experience in international purchasing. It is also very interesting to observe that out of this, 43.4 per cent have more than 20 years international sourcing experience. With the majority of the firms having more than ten years of international purchasing experience, the respondent firms have a solid experiential base from which to derive insight into the key elements required for successful global procurement. Organization and Policy The majority of the firms (52.6 per cent) have a combination of centralized and decentralized approaches in organizing the purchasing function. On average, seven professional employees work in the purchasing unit. Of the respondent firms, 85.5 per cent indicated that their international purchasing unit is part of their purchasing function. Only 6.6 per cent indicated that they are either an independent function or an independent unit at corporate level. The proposition that senior management makes the plan to purchase internationally at corporate level is supported by 55.3 per cent of the firms. The result is shown in Figure 1. Analytical and Motivational Dimensions In analysing the importance of factors which decided the firm to purchase from an international source, a 5-point scale was used. The main factors considered important in deciding to purchase from overseas are on-time delivery, better quality, lower prices, items not available locally and willingness to solve problems. Table VI shows the mean score rating.

Table IV. Size of Firms (Annual Turnover)

Annual turnover Under 10 million 10-25 million 26-50 million 51-100 million 101-500 million Above 500 million Percentage of firms 2.6 7.9 25.0 28.9 18.4 17.1

employee numbers and annual turnover. Tables II-IV depict these results. From Tables II and IV it can be observed that the majority of the respondent firms are large organizations. Only 34.2 per cent have fewer than 500 employees and 35.5 per cent have less than 50 million annual turnover. Thus, a notable feature in this study is the skew towards larger firms. This tends to support findings by Min and Galle (1991) that this characterization is partially due to the fact that high quality and perhaps less expensive manufacturing components and parts are often available from foreign sources, and that global procurement requires the long-term commitment of large resources that only large firms can afford. As a result, the sample characteristic may reflect the typical practice in large manufacturing firms. On average, for 40.8 per cent of the respondent firms the total purchase to sales turnover ratio for the

GLOBAL PROCUREMENT: MOTIVATIONS AND STRATEGY

Figure 1. Level of Planning for International Purchase

Others 10% Missing 2%

Figure 2. Ownership of Firm and the Importance of Factor

to Purchase from International Source
Level of importance Extremely important 1 q On time delivery q ! Better quality ! q Lower prices Items unavailable locally Willingness to solve problems Key: q ! q ! American British European Japanese q ! ! Not at all important 5

Middle management 33%

Top 5 factors

1 = Extremely important 5 = Not at all important

Corporate level 17%

Senior management 38%

When analysing the mean score of the top five factors ownership of firms provides an insight into the characteristics and culture of the firm and their perception of the important factors. A comparison between the four ownership types shows that Europeans consider on-time delivery and lower prices as being more important than the other three factors, while American firms considered items unavailable locally and willingness to solve problems as being more important stimuli to purchase from international sources. Figure 2 shows the relationship between ownership of firms and the degree of importance placed on the factors for international purchase. As soon as the rating of the factors is known, it is then very interesting to find out what motivated the firms to begin international purchasing. Table VII depicts these results.

The primary motivation for firms to begin international purchasing is the absence of a suitable domestic supplier. The initial reasons for the firms to source from abroad were due to their being reactive. The majority, 90.4 per cent, believed in seeking strategic advantage and 84 per cent wanted immediate performance improvement, so they purchased internationally. These two motivations are allied to firms seeking cost and quality advantages. In considering the motivation to begin sourcing internationally, the American firms primary motivator was the absence of a suitable domestic supplier. The Europeans acted on the need to seek strategic advantage,

Table VII. Ranking Motivations to Begin International

Purchasing Mean source on degree of importance

Motivational factors

Rank

Table VI. Mean Rating of Factors Considered Important in

Deciding to Purchase from International Source Mean score on degree of importance 1.618 1.684 1.724 1.855 2.066

Factors

Rank 1 2 3 4 5

On time delivery Better quality Lower prices Item unavailable domestically Willingness to solve problems 1 = Extremely important 5 = Not at all important

The absence of a suitable domestic supplier exists To seek strategic (competitive) advantage To provide immediate performance improvement A declining domestic supply base Competitors in domestic market gaining advantage due to foreign sourcing 1 = Extremely important 5 = Not at all important

1.662 1.932 2.486 2.589

1 2 3 4

2.781

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Figure 3. Ownership of Firm and the Motivations to Begin

International Sourcing

Figure 4. Ownership of Firm and the Reason to Continue International Purchasing

Level of importance

Level of importance Top 5 factors The absence of a suitable domestic supplier 1 2 3 4 5 Top 5 factors Lower price To seek strategic advantage ! To seek strategic advantage To provide immediate performance improvement A declining domestic supply base Competitors in domestic market gaining advantage due to foreign sourcing Key: q ! q ! American British European Japanese ! q q Better quality q On-time delivery q Long-term supplier relationship Key: ! q q ! q ! American British European Japanese 1 = Extremely important 5 = Not at all important 1 2 ! q ! q q

! ! ! q

1 = Extremely important 5 = Not at all important

and the pressure of competition offering products of better quality and lower price. The British were conscious of a declining domestic supply base and the Japanese wanted to have immediate performance improvement. Figure 3 shows these results. Once firms begin international sourcing, it becomes important to find out the reasons which lead them to continue to purchase internationally. In this respect, the respondent firms ranked five reasons as being important. These are: lower prices; to seek strategic advantage; achieving better quality; obtaining on-time delivery; and the need to establish long-term supplier relationships. Table VIII shows these results. By comparing the type of ownership and the reasons to continue to purchase from abroad, some interesting

observations can be noted. The Europeans cited the need for lower price and to seek strategic advantage as being the main reasons to continue international purchasing, while the Japanese emphasized better quality and establishment of long-term supplier relationships as their primary reasons. Figure 4 shows these results. The identification of problem areas in international purchasing will help in dealing with them. The major barrier to purchasing internationally is foreign exchange fluctuations. As Britain, among others, has been experiencing uncertainties in currency markets, this has clearly complicated matters for many firms in their negotiations and the consummation of purchasing contracts. The second service obstacle turns out to be quality assurance. Uncertainties associated with quality assurance can always pose serious problems because product quality is such an important factor in the sourcing decision. The other serious problems encountered are transportation delays, company integrity and political stability. The result of the top five most serious problems encountered with purchasing internationally are shown in Table IX. The Strategy Development and Decision-making Dimension Previous research has identified benefits gained by firms sourcing internationally (Birou and Fawcett, 1993; Frear et al. , 1992; Monczka and Giunipero, 1984). All these studies were done in America. Table X shows the respondents ranking of benefits gained from purchasing overseas. The result is consistent with the other studies indicated above; that is, lower price was cited as providing the greatest benefit from buying abroad. Further, price is highlighted as the primary catalyst that brings firms into the international market. The ability to increase a firms competitiveness was believed to be the

Table VIII. Reasons for Firms to Continue International

Purchasing Mean scores degree of importance 1.789 1.907 1.959 2.013 2.093

Reasons Lower prices To seek strategic (competitive) advantage Better quality On-time delivery Long-term supplier relationship 1 = Extremely important 5 = Not very important

Rank 1 2 3 4 5

GLOBAL PROCUREMENT: MOTIVATIONS AND STRATEGY

Table IX. Seriousness of Problem Areas in International

Purchasing Mean source on degree of seriousness 2.158 2.711 2.356 2.560 2.711

Figure 5. Ownership of Firm and the Seriousness of

Problems Encountered from Purchasing Internationally

Variables

Rank 1 2 3 4 5

Degree of seriousness Top 5 factors Foreign exchange fluctuations Quality assurance Transportation delays ! Company integrity ! Political instability Key: q ! q ! American British European Japanese 1 = Very serious 5 = No problem at all q q 1 2 q ! ! q q ! 3 4 5

Foreign exchange fluctuations Quality assurance Transportation delays Company integrity Political stability 1 = Very serious 5 = No problem at all

second most important benefit of buying internationally. This is followed by better quality; having increased number of sources; and having access to worldwide technology. Interestingly, the top concern of the Japanese is with foreign exchange fluctuation compared with other problem areas. The Europeans identified quality assurance, while British firms believed company integrity was a major problem area in purchasing internationally (see Figure 5). By comparing the relationship between types of ownership and benefits gained from buying internationally we can see from the results shown in Figure 6 that European firms believe in lower prices and increased competition, whereas Japanese companies still cited better quality as a major benefit gained from overseas buying. The British firms believe the increase in number of sources to be their main benefit, while the Americans stress the access to worldwide technology as their major benefit. The important benefits potentially to be derived from international purchasing and the substantive challenges

encountered in its implementation require that the factors thought to be critical for implementation success ought to be identified. Basically, there are three ways in which implementation may be evaluated. First, respondents may be asked to rank the importance of the conditions that they believe are required for the effective implementation of international purchasing strategy. Second, companies may be asked to identify and rank the criteria used in evaluating their foreign source; and finally the type of international supplier relationship strategy that is adopted by the firm may be analysed and assessed. The top five conditions which the respondents believe are important in successful implementation of international purchasing strategy are: (1) cost/resource opportunity; (2) experience;

Figure 6. Ownership of Firm and the Level of Benefits

Gained from Purchasing Internationally

Table X. Benefits of International Purchase

Degree of benefits gained

Benefits

Mean score on degree of benefits 1.842 2.026 2.158 2.162 2.237

Top 5 factors

1 ! ! q q

Rank 1 2 3 4 5

Lower prices Increased competition Better quality ! Increases number of sources

Lower prices Increased competition Better quality Increased number of sources Access to worldwide technology 1 = Extremely beneficial 5 = Not at all beneficial

q ! q

q ! Access to worldwide technology Key: q ! q ! American British European Japanese 1 = Extremely beneficial 5 = Not at all beneficial

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(3) ability to evaluate suppliers; (4) measurement and evaluation of benefits; (5) top management commitment. Table XI shows these results. Developing a successful international sourcing programme requires extensive commitment of time and resources to overcome the obstacles encountered in this generally complex buyerseller environment. Therefore, identifying the cost/resource opportunity has a significant bearing on international sourcing programmes. Experience in dealing abroad, ability to evaluate foreign sources, measuring the benefits gained and having top management commitment all require a long-term perspective on entry to the international supply market. This long-term perspective must be supported by top management to assure the commitment of appropriate resources to develop an adequate foundation for the international undertaking. According to the respondents, the most important criteria to be used in evaluating foreign sources are quality, price,

delivery, supplier experience and R & D support (Table XII). Evaluating foreign companies against these criteria gives purchasers a measure of the suitability of the companies as potential strategic supply partners. The final aspect of successful implementation is the development of relationships with international suppliers. In the study, 35.5 per cent of the respondents indicated that there is some kind of formal policy for the company to develop relationships with international suppliers. Out of this 35.5 per cent, contractual agreement was cited as the most frequently adopted international supplier relationship strategy. This was followed by partnership agreements, licensing, strategic R&D alliances and joint-ventures (Figure 7). The Operational and Managerial Dimension To evaluate foreign sources and select a source or sources of supply, purchasers must consider three key determinants: (1) the sources of information about potential suppliers/partners; (2) the trade channel that will be used in transacting the business; (3) the primary communication media that will be used. As regards sources of information about overseas suppliers, the respondents indicated that professional contact was the most important source. This is followed by collecting information from directories; foreign subsidiaries, trade journals and trade fairs. Table XIII shows the five most important sources of collecting information used by companies in this survey. When the respondents were asked to indicate their preferred trade channels for overseas buying, the most popular mode of purchasing internationally was to go directly to their suppliers (manufacturers) through their own buying personnel (assigned buyer in the purchasing

Table XI. Importance of Conditions for Effective

Implementation of International Purchasing Strategy Mean score on degree of importance 1.474 2.000 2.040 2.145 2.243

Conditions

Rank 1 2 3 4 5

Cost resource opportunity Experience Ability to evaluate Measurement and evaluation of benefits Top management commitment 1 = Extremely important 5 = Not at all important

Table XII. Importance of Criteria in Evaluating Foreign

Sources Mean score on degree of importance 1.342 1.566 1.667 1.724 1.907

Figure 7. Firms Having Formal Policy and the Type of Relationship with International Suppliers
1 2 3 No 65% Yes 35% 5 Formal policy to develop relationship Type of relationship frequently adopted J.V. 4 Contractual Partnership Licensing Strategic R&D

Criteria Quality Price Delivery Supplier experience Technological capability 1 = Extremely important 5 = Not at all important

Rank 1 2 2 4 5

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Table XIII. The Five Most Important Sources of

Information Mean score on degree of importance 2.176 2.553 2.640 2.684 2.737

Table XV. Frequency of Communication Media Used

Communication media Rank 1 2 3 4 5 Fax Telephone Personal meeting Letter Electronic mail 1 = Most frequently used 5 = Never used 1.211 1.618 2.587 2.707 4.000 1 2 3 4 5 Mean source in degree of frequency Rank

Sources Professional contacts Directories Foreign subsidiaries Trade journals Trade fairs 1 = Extremely important 5 = Not at all important

unit). This was followed by using the suppliers representative. In other instances, the respondents use their own foreign subsidiary, trading company or international purchasing offices. Given that the research population in this survey comprised major companies in the industries involved, it is of some surprise that the use of international purchasing offices is not only ranked fifth, but also significantly below the expected mean value. Table XIV shows these results. Having direct access to the supply source appears to reduce the level of misunderstanding and miscommunication between the buyer and the supplier. It also minimizes response time and the need for slack resources. With respect to communication media, the most frequently used medium used nowadays is fax (see Table XV). The reason is that fax greatly reduces the potential for miscommunication and errors. Other reasons cited for using fax include its speed and the ability to overcome

communication barriers created by differences in time zones. Conventional media such as telephone and mail are still used to follow up the fax documents and to provide a sound legal basis for the conclusion of agreements and related paperwork. Once a firm is sourcing from a foreign supplier, there may be reasons for them to withdraw from that supply market. This can be an extremely important decision. On the question factors which may cause a firm to withdraw from purchasing from another country, the respondents cited failure to achieve purchasing objectives as the most important reason. This is followed by introduction of international sanctions, political instability, economic uncertainties and changes in government regulations (Table XVI). It is important to bear in mind that the international environment is constantly changing and is affected by various influences, which can have detrimental effects on firms sourcing from specific countries where problems arise.

Table XIV. The Most Popular Channel Used in Purchasing

Internationally Mean score on degree of popularity 2.189 2.425 3.311 3.892 3.931

Table XVI. Five Most Important Factors Causing Firms to

Withdraw from Purchasing from Another Country Mean score on degree of importance 1.447 1.919 2.000 2.158 2.392

Type of channel

Rank 1 2 3 4 5

Factors Failure to achieve purchasing objectives International sanctions Political instability Economic uncertainties Changes in government regulations 1 = Extremely important 5 = Not very important

Rank 1 2 3 5 5

Assigned buyer in purchasing unit Suppliers representative Use foreign subsidiary Trading company International purchasing offices 1 = Most popular 5 = Most unpopular

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Table XVII. Criteria in the Analysis of International Source

Criteria Costs Risk Profitability Assets 1 = Extremely important 5 = Not at all important Mean score on degree of importance 1.667 1.707 1.987 2.459 Rank 1 2 3 4

be a significant contributor to profitability and strategic procurement orientation in the case of airlines (Rajagopal and Bernard, 1993a). With the results divided more or less into halves, it indicates that the managerial appreciation of the need for training buyers is still an open issue for debate. This may have serious repercussions for companies embarking on international sourcing strategies when their skills and knowledge are not fully developed. Review of the Research Findings The data tabulated in this article are of considerable interest in that they reveal factors of significance in international procurement strategy formulation across a broad spectrum of industries and across a range of companies from a variety of countries. Conclusions may therefore be drawn from these tables which may lead to the development of a normative strategic planning process. (See the following section). This is one of the key objectives of this article. However, the data are sufficiently rich to permit the illustration of several other points of interest and potential significance in both managerial and academic contexts. As noted in Table II, the survey covered companies domiciled in a range of geographical regions. Although it is not surprising that, in a UK-based survey, the largest single representation of companies should originate from the UK, it is noteworthy that:
q

In considering the criteria to be important in analysis of the international source, the respondents indicated that cost is the most significant factor. This is followed by level of risk and profitability. Table XVII show these results. To be able to source internationally, buyers need to be trained, and certain skills and expertise need to be gained. All the respondents indicated that there is some degree of staff training given to buyers to handle the complexities of international purchasing. However, only 34.2 per cent of the responding firms strongly agree that such training is conducted on a regular basis; 31.6 per cent state that they agree to some extent, while 31.6 per cent state that their firm does not conduct training on a regular basis. Conversely, 30 out of the 76 firms agree strongly that their buyers should be sent to external trainers, while 15 agree somewhat and 30 disagree with the statement, meaning that these firms do not see any benefit in sending buyers for external training. However, for in-house training 38.1 per cent strongly agree that their firms should provide inhouse development programmes while 28 per cent strongly disagree. Interestingly, with regard to meeting skills and knowledge development, the majority of the firms (55.3 per cent and 57.9 per cent respectively) strongly agree that their firms should or do provide the necessary training to meet these two development needs for their buyers. With respect to attitude development, 42.1 per cent (32) strongly agree with the need for training in developing correct attitudes for international sourcing, while 26.3 per cent (20) agree to some extent and 30.3 per cent (23) strongly disagree, claiming that their companies lack, or do not perceive a need for, training in attitude development for international purchasing. These results are very interesting and significant, as proper training and development may be crucial in helping to prepare buyers to handle international purchasing more effectively. This has also been shown to

UK companies do not form the majority of the companies in the sample, despite the random basis of selection; there is a sufficiently large representation of companies domiciled elsewhere to permit formulation of some qualitative distinctions between companies, based on their location.

Table XVIII presents comparative listings of motivational factors drawn from Tables VI-X inclusive, broken down by country of domicile. These comparisons might be subject to modification if larger samples were to be used, especially for non-UK companies, but despite the smaller numbers in the other areas, the responses received show very marked divergences by country/region. While perhaps these outcomes might not in themselves be surprising, and indeed confirm much conventional wisdom, the facts that:
q q q

they emerge from data expressly collected for the specific purpose; they are based on quantitative, objective research; the polarizations between the geographic segments are so clear

may be taken collectively both to validate the findings themselves and to permit their interpretation in a

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Table XVIII. Principal Expectations and Motivations by Country of Domicile

Britain Ownership/importance of factors leading to international purchasing (Table VI) Ownership/motivation to commence international purchasing (Table VII) Ownership/motivation to continue with international purchasing (Table VIII) Ownership/perceived serious problems in international purchasing (Table IX) Ownership/perceived benefits derived from international purchasing (Table X) Corporate nationality/Domicile Europe USA Non-availability of local suppliers Supplier willingness to help in problem solving Non-availability of local suppliers Japan Better quality

On time delivery Lower prices

Seek strategic advantage Competitors already sourcing aboard

Immediate performance improvement

Lower prices Gain competitive advantage On time delivery Company integrity Foreign exchange risks Quality assurance Foreign exchange risks Foreign exchange risks

Better quality Establishment of longterm relationships Foreign exchange risks Transportation delays Political instability Better quality Lower prices

Increased sourcing options Lower prices

Lower prices Increased competitiveness

Access to worldwide technologies Better quality

generalized respect as well as their use as indicators for managerial strategic planning. From Table XVIII it is clear that European, American and Japanese companies motivations to enter and remain involved in the international purchasing arena have radically different foundations, but conversely that there is a very strong element of agreement as to the major problems to be faced in practice. The data show up basic differences in strategic approach to business: q European companies emerge as being primarily concerned with competitiveness, with particular emphasis on prices/costs perhaps driven by habits of responsiveness, rather than by innovation, and perhaps indicative of their having been forced into follower positions by external constraints such as funding and investment limitations and short-term reporting necessities. q American companies enter the international procurement arena primarily when driven to do so by inabilities to source domestically, although it should be remembered that their domestic market is extremely large and there has been a long tradition of buying American wherever possible, especially when faced with Japanese competition. q Japanese businesses are fundamentally motivated by quality considerations and perceive quality/ performance enhancement to be the key to

achievement of price advantage and overall competitiveness. These findings are consistent with conventional wisdom that European/American organizations tend to be driven by short-term considerations whereas Japanese companies base their strategic plans on longer term objectives, geared in reality to gaining both competitive advantage and profitability from providing better products with lower levels of wastage. This is entirely consistent with the marketing philosophy and the notion of a win-win strategy based on strict principles of cost containment (Bernard and Rajagopal, 1992; Rajagopal and Bernard, 1993b). In respect of perceived problems in international sourcing, respondents from all geographical areas highlighted issues related to foreign exchange dealings, but it is noteworthy also that Japanese companies also raised issues of delays in transit and of threats caused by political instabilities. This confirms and amplifies the deduction to be made from Table XVI that the key demotivators from persistence with international purchasing activities are strongly associated with uncertainties and also with the threats or actualities of external intervention or regulation. Table XVII suggests similarly that, second only to matters of costs (which at least notionally are quantifiable), risk is the matter of greatest concern.

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Nevertheless, while a pessimist can always find a host of good reasons for doing nothing, the clear conclusion drawn from this sample of respondents is that the benefits derivable, and the risks of being left behind through non-participation in international purchasing programmes, are enough to outweigh the operational risks involved in participation. It also appears likely that, among the companies surveyed, the existence of strategic plans and objectives, and the establishment of performance monitoring systems, provide a basis for constructive management of the purchasing function, even though only just over half of the companies identify purchasing strategy as a matter of top management concern.

Framework for the Development of a Global Sourcing Strategy

Based on the literature and the empirical evidence, the authors propose that the process of deciding whether to, and who should, develop a global sourcing strategy can progress by understanding three fundamental dimensions. (Figures 8 and 9 provide the general framework to develop a global sourcing strategy.) Within each of the three dimensions, crucial strategic questions can be asked to help devise a focused tailored worldwide sourcing strategy unique to the organization. Step One: Analytical and Motivational Dimension This step enables the firm to assess the worldwide business situation including the market factors influencing the need to go overseas e.g. supply disruptions, declining domestic supply base, and access to worldwide technology.

With the environmental factors, changes in government and international regulations, foreign exchange fluctuations and general economic conditions need to be appraised carefully. Together with these external factors, firms need to review internal factors. These can include top management visions, corporate objectives and global strategy. The human factors such as the individual managers skill, knowledge and aspiration can be considered as motivators for the firms involvement in the international arena. Other firm-specific factors like cost, quality, product development and delivery requirements must also be considered when entering the international arena. Thus, the starting point for global strategy development is an accurate assessment of the present and prospective extent of globalization. This will be determined by the presence and intensity of the following underlying forces and trends (Day, 1990): q increasing homogenization of customer need and behaviour, and likewise the development of supply base in these markets;
q q q q

competitors that think and behave globally; opportunities for substantial economies of scale or scope in key value-creating activities; supportive macroeconomic environments that encourage and even demand a global presence; technological developments that facilitate the coordination of wide-spread networks of activities.

Step Two: Strategic Decision-making Dimension A business contemplating sourcing from global markets has numerous strategic choices to make. Three of these choices are fundamental to any competitive strategy. First, the strategic thrust specifies the international

Figure 8. General Framework on the Development of Global Sourcing Strategy

Company internal factors

Market factors Environmental factor

Analytical and motivational dimension

Active sourcing strategy International sourcing decision strategy Managerial issues

Degree of involvement

Strategic decisionmaking dimension

Operational and managerial dimension

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15

Figure 9. Sub-framework on International Sourcing Decision Strategy

International sourcing entry strategy Local sourcing Indirect import Direct import Establish International procurement offices (IPOs) foreign buying offices (FBOs) Trading companies (contractual/captive) Foreign direct investments

International supplier relationship strategy Contractual agreement Alliances Co-production Joint ventures Partnership agreement Licensing

International sourcing decision strategy

International sourcing analysis strategy Profitability Assets Costs Risk factors

International withdrawal strategy Failure to meet international purchasing objectives International sanctions Political instability Changing government regulations

sourcing decision strategy (Figure 9) which embodies the international sourcing entry strategy, the international analysis strategy, the international supplier relationship strategy and the international withdrawal strategy. In respect of international sourcing entry strategies, Rajagopal and Bernard (1993c) have discussed the various modes of entry into foreign supply markets. From the survey, the majority favour direct and/or indirect import. With the international sourcing analysis strategy, firms need to consider the resource impact of deploying such a strategy. Again, from the study, cost and risk are considered significant in analysis of international sources. Third, the international supplier relationship strategy is fundamental to a firm when considering long-term perspectives of global sourcing: the research identified only a minority of the respondents who consider a formal policy for developing relationships with international suppliers. Out of these, contractual agreements, partnership agreements and licensing are popular modes of establishing relationships with foreign vendors. Finally, withdrawal strategy is important for a firm to bear in mind, once they have made the initial sourcing decision. This is because factors such as failure to meet international purchasing objectives, international sanctions and political instability and changes in government regulations can influence the supply

markets. A good example of this is MSA (Britain) which manufactures high technology safety apparatus for the oil and coal industry. They buy platinum from South Africa. When international sanctions against South Africa were imposed, MSA had difficulty in sourcing elsewhere due to short lead times. MSA had not been proactive and they almost stopped their production. It is critical for firms to consider withdrawal strategy and to have an alternative supply source always ready. The second strategic choice in the decision-making dimension is the degree of involvement. This involvement identifies the firms stage in international development and the top management commitment involvement in the international marketplace. A firm can have total commitment to global strategy, or be active or only involved experimentally. Rajagopal and Bernard (1993c) have identified these stages as the internationalization of the procurement process, which can be affected by the organizational objectives, structure, network and channel of information integration. Step Three: Operational and Managerial Dimension To implement global sourcing strategy, a firm requires not only a tight central direction and harmonization of selection of sources, but also the managerial resources to carry out the strategy. These include having the right

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MARKETING INTELLIGENCE & PLANNING 12,9

personnel with appropriate skills, backed up by necessary training and development programmes, and having adequate channels for collection of information to control and co-ordinate worldwide sourcing activities. For firms to implement a global sourcing strategy successfully, they need to achieve congruency at two levels the degree of managerial co-ordination and the organizational structure, and collectively the degree to which they facilitate international sourcing.

considerable period of time (e.g. Booz-Allen and Hamilton, 1982; Cooper, 1970; Twiss, 1992, among others). The overall conclusion therefore appears inescapably to be that international procurement strategies can be devised and implemented successfully, competitively and profitably provided that: q they are carefully thought out, with proper attention to the benefits desired and the risks/uncertainties and control issues involved; q they are integrated with other corporate strategies and receive the full backing of corporate management; q procurement is seen as a proactive discipline in its own right and not simply as a cost-saving service function for other internal functions. The processes of research in the area and conceptual development continue in order to explore further the extent and constraints (if any) to which the principles established so far can be applied to smaller organizations and to organizations not perceived as being among the leaders in their business fields.
References

Conclusions
Global sourcing is not a simple or easy solution to a companys sourcing needs. For a firm to develop a global sourcing strategy successfully, it requires top management commitment and the allocation of resources to co-ordinate and integrate worldwide sourcing activities. This integration is critical to support and achieve the corporates global strategic thrust. With new markets and new competitors challenging established business, global sourcing is now offering an opportunity for organizations to meet these challenges on a global basis.

International procurement strategies can be devised and implemented

While the research on which this article is based has acknowledged limitations of being confined to a sample of companies operating in one particular location (UK), being confined to large or significant operators in the defined industrial segments, and therefore may not be typical of all types of companies, the strength and consistency of the findings indicates considerable consensus and suggests the viability of the general decision framework which has been proposed. It is, in conclusion, also considered significant that: q the practices which have been identified and implemented by operating companies owe little to any preceding academic thought or proposal; q the evidence offered is broadly consistent with accepted principles in other areas of marketing philosophy and management practice. It is, for example, pertinent to note that the conditions cited for the successful implementation of international purchasing programmes (Table XI) are closely similar to the perceived conditions of success in new product innovation identified by many authors over a

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Shan Rajagopal and Kenneth N. Bernard are Lecturers in the Department of Marketing at the University of Strathclyde, Glasgow, Scotland, UK.