Concurrent sourcing,governance mechanisms,and performance outcomes in industrial value chains

We examine transaction governance in the context of concurrent sourcing, where a manufacturer relies on sourcing from external suppliers and in‐house production simultaneously. Our focus is on (1) a buyer's use of particular safeguards or governance mechanisms vis‐à‐vis an external supplier and (2) how the effects of these mechanisms on various performance outcomes are influenced by the joint presence of an internal manufacturing branch. We conduct two studies in the apparel industry and show that performance outcomes are a joint function of (1) the individual governance mechanisms that are deployed in a particular relationship and (2) the larger sourcing context (concurrent or singular). Copyright © 2013 John Wiley & Sons, Ltd.     

Do External Knowledge Sourcing Modes Matter for Service Innovation? Empirical Evidence from South Korean Service Firms

To source external knowledge, firms in the service area use various sourcing modes simultaneously suitable for their internal needs or external environments. Each external knowledge sourcing mode has distinctive characteristics, and as such, they can offer different advantages and/or disadvantages to the firms. Thus, the effects of external knowledge sourcing on service innovation may vary depending on the sourcing modes. The current study aims to empirically examine the different effects of various external knowledge sourcing modes on service innovation. The study identifies three external knowledge sourcing modes: joint development, technology purchasing, and external information acquisition. Three hypotheses are established to examine the relationships between the extent of utilizing each mode and service innovation performance in terms of new service introduction. The data for analysis are selected from the “Korean Innovation Survey 2006: Service Sector” (KIS 2006). It is regarded as South Korea's version of the Community Innovation Survey (CIS). The KIS 2006 data set covers joint development, technology purchasing, and external information acquisition activities of corporations in the service sector in South Korea. The study empirically analyzes the data set using a negative binomial regression model. The results first demonstrate that the extent of the joint development has an inverted U‐shaped relationship with the service innovation performance. Second, the results indicate that, on the other hand, service innovation performance decreases with the increase to the extent of the technology purchasing when the extent is below the threshold. On the other hand, it increases with the increase to the extent of the technology purchasing; this occurs when the extent exceeds the threshold. Third, the results show that external information acquisition has a positive effect on service innovation performance. These findings support that the extent of utilizing each mode has different relationships with service innovation performance. The findings suggest that service firms need to utilize joint development at a moderate level, active technology purchasing, and as much external information acquisition as possible to maximize service innovation performance. In practice, this finding can help managers of service firms select appropriate external knowledge sourcing modes and determine the optimum level of use for each mode. This study also can help firms build up strategies for external knowledge sourcing.     

When can you trust “trust”? Calculative trust,relational trust,and supplier performance

Our research empirically assesses two distinct bases for trust: calculative trust, based on a structure of rewards and penalties, versus relational trust, a judgment anchored in past behavior and characterized by a shared identity. We find that calculative trust and relational trust positively influence supplier performance, with calculative trust having a stronger association than relational trust. Yet, important boundary conditions exist. If buyers invest in supplier‐specific assets or when supply side market uncertainty is high, relational trust, not calculative trust, is more strongly associated with supplier performance. In contrast, when behavioral uncertainty is high, calculative trust, not relational trust, relates more strongly to supplier performance. These results highlight the value of examining distinct forms of trust. Copyright © 2015 John Wiley & Sons, Ltd.     

Negative default dependence in supplier networks

The financial defaults of suppliers in a supplier network are significant risks and causes of uncertainty for buying firms. Hitherto, it has been largely neglected that default probabilities of suppliers in supplier networks are not independent of each other. We aim to overcome this shortcoming by studying negative supplier default dependencies: situations where a surviving supplier may benefit from the default of another supplier, resulting in a lower default probability. We use empirical data from the automotive supplier industry and copula functions, a method of representing joint distribution functions with particular marginals, to capture the default dependency between automotive suppliers and simulate various scenarios with negative default dependency. We also conduct a comparative static analysis illustrating the significant impact of negative default dependence. Our findings should spur managers to analyze their supplier networks with respect to default dependencies, and to take this phenomenon into consideration when making sourcing decisions.     

Organizing for knowledge generation: internal knowledge networks and the contingent effect of external knowledge sourcing

Research summary : When faced with a new technological paradigm, incumbent firms can opt for internal development and/or external sourcing to obtain the necessary new knowledge. We explain how the effectiveness of external knowledge sourcing depends on the properties of internal knowledge production. We apply a social network lens to delineate interpersonal, intra‐firm knowledge networks and capture the emergence of two important firm‐level properties: the incumbent's internal potential for knowledge recombination and the level of knowledge coordination costs. We rely on firm‐level internal knowledge networks to dynamically track the emergence of these properties across 106 global pharmaceutical companies over a 25‐year time period. We find that a firm's success in developing knowledge in a new technological paradigm using external knowledge sourcing is contingent on these internal knowledge properties . Managerial summary : Incumbent firms in high‐tech industries often face competence‐destroying technological change. In their effort to adapt and develop new knowledge in a novel paradigm, incumbent firms have several corporate strategy options available to them: internal knowledge development and a wide array of external knowledge sourcing strategies, including alliances and acquisitions. In this study, we make an effort to address a critical question: How effective is external knowledge sourcing under different internal knowledge generation regimes? We find that external sourcing strategies are less effective when firms can already internally generate new knowledge or if they have high internal coordination costs. Therefore, when considering external sourcing, managers must carefully weigh the benefits of it vis‐à‐vis its commensurate costs as the benefits of external sourcing may be overstated . Copyright © 2015 John Wiley & Sons, Ltd.     

Leveraging supplier capabilities: The role of locus of capability deployment

This study adds to the resource‐based view by studying how client firms may gain performance benefits from supplier IT capabilities in market‐based arrangements where the supplier's IT capabilities are readily available to multiple client firms. I argue that the locus of supplier capability deployment, i.e. whether supplier capabilities are deployed at the client (in‐sourcing) or supplier (outsourcing), has implications for client firm performance. The findings show that in‐sourcing leads to complementary effects between supplier IT capabilities and client operational capabilities. In contrast, clients with weaker operational capabilities benefit from outsourcing the respective activity to the supplier, and may even be able to reduce their capability disadvantage through outsourcing. The data on 964 U.S. credit unions contracting with 22 technology solution providers is archival. Copyright © 2012 John Wiley & Sons, Ltd.     

Process Technology Sourcing and the Innovation Context

We employ transaction cost economics (TCE) and inspiration from technology innovation management to advance a model of technology sourcing governance and performance in the international environment. We hypothesize that the innovation context moderates the relationship between process technology sourcing and performance. The innovation context is defined as external factors reflected in the appropriability regime and whether the industry is characterized by a dominant design. Moreover, we suggest that, contingent upon the innovation context, subsidiaries prefer internal development to secure a positional advantage. A multi‐industry sample of 105 subsidiaries is used to test the hypotheses. We find support for a contextual model linking process technology sourcing strategy to subsidiary performance. Motivated by TCE, we find tentative evidence for a preference order of technology sourcing beginning with internal development and ending with market sourcing, particularly when the appropriability regime is weak.     

Outcome attributability in performance-based contracting: Roles and activities of the buying organization

In buyer-supplier exchanges that feature services or service elements, performance-based contracts have gained increasing popularity. One key problem in such contracts is the possible lack of attributability of performance outcomes to supplier inputs and efforts; suppliers are reluctant to be penalized for performance shortfalls that they are not responsible for. Prior literature has indeed argued that in case of low performance attributability (or: high outcome uncertainty), performance-based contracts are less effective, but has studied this uncertainty mainly in relation to external factors. Attributability of performance has not been studied in terms of the responsibilities of the supplier and the buying organization in service design and production. In addition, there has been little literature on how buyer activities during contract execution can help address some of the problems. This paper aims to fill this gap by developing a conceptual model on how outcome attributability relates to the roles of the buying organization in the service exchange, and how contract management activities can attenuate the effects of (low) outcome attributability on the level of supplier inputs and effort, which directly affects actual performance. We engage in theory elaboration to formulate a conceptual model based on two cases of performance-based contracting of cleaning services.     

Parallel sourcing and supplier performance in the Japanese automobile industry

Japanese auto makers are reported to enjoy high supplier performance through long-term relationships, specific investments, and sole sourcing. Quality management consultants in the U.S. have been strongly advocating adoption of these practices. But economic and management theorists would predict that the combination of a high level of relationship-specific investments and sole sourcing will lead to problems with supplier performance. In fact the Japanese auto makers use a hybrid form of organization we term parallel sourcing. We present a transaction costs model that shows how parallel sourcing provides incentives for supplier performance associated with multiple sourcing while preserving claimed benefits of sole sourcing.     

Sourcing strategies of U.S. service companies: a modified transaction–cost analysis

Global procurement of services has been receiving an increasing amount of managerial attention in recent years. Service firms seem to have begun sourcing part of their service activities from abroad in much the same way as manufacturing firms have sourced components and finished goods in the past 30 years. However, little is known about the nature of service sourcing strategy. In this study, we employ a modified transaction–cost analysis to examine empirically the locational (domestic vs. global sourcing) and the ownership (internal vs. external sourcing) aspects of service sourcing strategy. In addition, performance implications on both the locational and ownership aspects of service sourcing are investigated. The results show that, similar to components and finished goods procurement, supplementary services are sourced globally, either internally or externally. Furthermore, the relationship between asset specificity and internal sourcing of supplementary services is moderated by the level of inseparability and transaction frequency. Finally, internal sourcing and foreign sourcing of supplementary services are negatively related to a service’s market performance. Copyright © 1999 John Wiley & Sons, Ltd.     

Leveraging internal and external experience: exploration,exploitation, and R&D project performance

Although one tenet in the alliance literature is that firms learn from prior experience, we posit that any potential learning effects depend on the type of experience. In particular, we hypothesize that alliance exploitation experience has positive effects on R&D project performance, while alliance exploration experience has negative effects. We further posit that an internal exploration competence allows firms to leverage their external exploitation experience more fully. In contrast, when firms combine internal exploitation experience with external exploration experience, the negative effects on R&D project performance become more pronounced. To test this integrative model of organizational learning, we leverage a unique and detailed dataset of 412 R&D projects in biotechnology conducted by large pharmaceutical companies between 1980 and 2000. Using a competing risk event history model predicting successful product approval versus project termination, we find support for our theoretical model. Copyright © 2010 John Wiley & Sons, Ltd.     

Gaining from vertical partnerships: knowledge transfer,relationship duration,and supplier performance improvement in the U.S. and Japanese automotive industries

We study sources of operational performance improvement in supplier partnerships. We argue that supplier performance will benefit most where time‐bound relational assets have developed between a buyer and supplier and the firms exploit the resulting communication efficiency by transferring productive knowledge. We examine the effects of two forms of knowledge exchange together with the prior duration of the buyer–supplier relationship. We find similar interaction patterns in two survey samples of Japanese and U.S. automotive suppliers. The effect of ordinary technical exchanges on supplier performance improvement does not vary with relationship duration. The effect of higher‐level technology transfer, however, grows more positive as relationship duration increases. Other results show relevant contrasts consistent with heterogeneous sourcing behavior between the two countries. The findings highlight the role of relational assets and show that it is important to distinguish between simple techniques and higher‐level technological capabilities when studying interfirm relationships. This research extends the literatures on knowledge transfer, buyer–supplier partnerships, and the performance dynamics of interfirm and intrafirm relationships in general. Copyright © 2002 John Wiley & Sons, Ltd.     

Does the technological sourcing decision matter? Evidence from Spanish panel data

This paper extends previous analysis of the choice between internal and external R&D to consider the effect of this decision on productivity. Existing empirical research confirms that there is a positive relationship between technological assets and firm performance. However, few works have attempted to identify whether the technological sourcing decision taken by the firm affects productivity. The main finding of this paper is that the technological strategy developed by the firm does affect productivity. This issue is particularly novel as it incorporates the technological sourcing decision taken by the firm. The results we obtain indicate that the technological sourcing decision affects the relationship between technological capital and productivity. Thus, our findings suggest that the decision between internal and external R&D matters.     

A Model of Supplier Integration into New Product Development*

In many industries, firms are looking for ways to cut concept‐to‐customer development time, to improve quality, and to reduce the cost of new products. One approach shown to be successful in Japanese organizations involves the integration of material suppliers early in the new product development cycle. This involvement may range from simple consultation with suppliers on design ideas to making suppliers fully responsible for the design of components or systems they will supply. While prior research shows the benefit of using this approach, execution remains a problem. The processes for identifying and integrating suppliers into the new product development (NPD) process in North American organizations are not understood well. This problem is compounded by the fact that design team members often are reluctant to listen to the technology and cost ideas made by suppliers in new product development efforts. We suggest a model of the key activities required for successful supplier integration into NPD projects, based on case studies with 17 Japanese and American manufacturing organizations. The model is validated using data from a survey of purchasing executives in global corporations with at least one successful and one unsuccessful supplier integration experience. The results suggest that (1) increased knowledge of a supplier is more likely to result in greater information sharing and involvement of the supplier in the product development process; (2) sharing of technology information results in higher levels of supplier involvement and improved outcomes; (3) supplier involvement on teams generally results in a higher achievement of NPD team goals; (4) in cases when technology uncertainty is present, suppliers and buyers are more likely to share information on NPD teams; and (5) the problems associated with technology uncertainty can be mitigated by greater use of technology sharing and direct supplier participation on new product development teams. A supplier's participation as a true member of a new product development team seems to result in the highest level of benefits, especially in cases when a technology is in its formative stages.     

The environment and its impact on satisfaction with supplier performance: An investigation of the mediating effects of control mechanisms from the perspective of the manufacturer in the U.S.A.

An important question for manufacturers relates to how to conduct exchanges with suppliers when the interaction is done in an uncertain environment. Existing literature suggests the use of unilateral control (i.e., vertical control over the supplier) to reduce the negative effects of environmental uncertainty, whereas recent research on relational norms suggests bilateral control mechanisms (i.e., the norm of information sharing) as an alternative. We propose that in order to secure satisfactory performance from suppliers, manufacturers rely on different control mechanisms depending upon the level of environmental uncertainty on one hand, and the nature of interdependence in the manufacturer-supplier relationship on the other. Our empirical results based on 162 manufacturers indicate the following: 1) manufacturers' reliance on vertical control increases as environmental uncertainty and power asymmetry increase; 2) by contrast, reliance on the bilateral information sharing increases as interdependence magnitude increases and as environmental uncertainty decreases; 3) suppliers' performance, as perceived by manufacturers, increases with the use of bilateral information sharing.     

Buyer opportunism in business-to-business exchange

A phenomenon of significance in buyer–supplier relationships is opportunism. In lieu of the known negative effects of opportunistic behavior on buyer–supplier relationships, the circumstances in which a sourcing professional engages in acts of opportunism are unclear. Combining theories from multiple disciplines, a comprehensive model tested buyer–supplier relationship-specific factors, environmental factors, an individual-difference factor, and situational factors likely to affect a buyer's decision to use opportunistic tactics. Results reveal how these different theories combine to provide a more comprehensive explanation of buyer behavior than existed in prior literature. Using structural equation modeling of a sample of 328 procurement transactions, factors found to affect buyer opportunism included buyer power, corporate ethical values, honesty/integrity, leader opportunism, willful ignorance, and subjective expected utility. This study also provides empirical support for distinguishing between two types of opportunism — strong and weak. The research concludes with implications for theory and practice, limitations, and areas for future research.     

Strategic Suppliers' Technical Contributions to New Product Advantage: Substitution and Configuration Options

Current theory lacks clarity on how different kinds of resources contribute to new product advantage, or how firms can combine different resources to achieve a new product advantage. While several studies have identified different firm‐specific resources that influence new product advantage, comparatively little research has explored the contribution of strategic supplier resources. Combining resource‐based and relational perspectives, this study develops a theoretical model investigating how a strategic supplier's technical capabilities impact focal firm new product advantage and how firms combine different resources to gain this advantage. The model is tested using detailed survey data collected from 153 interorganizational new product development projects in the United Kingdom within which a strategic supplier had been extensively involved. Empirical results support our research hypotheses. First, supplier technical performance is shown to have a significant positive impact on new product advantage. Next, we show that while supplier technical capabilities have a positive influence on supplier technical performance, the a priori nature of the supplier's task moderates the relationship. Finally, our data support our hypotheses related to the positive relationship between relationship‐specific absorptive capacity and new product advantage, and the proposed negative moderation of supplier technical capabilities on this relationship. Based upon these findings, we encourage managers to recognize that strategic suppliers' with greater technical capabilities perform better regardless of the degree of creativity required by their task; but that strategic suppliers with lower technical capabilities may partially compensate (substitute) for their lack of technical capabilities, if they are able to respond to high problem‐solving task requirements. Furthermore, we suggest that the firm's development of relationship‐specific absorptive capacity is much more important when a strategic supplier is less technically capable. A buying firm's relationship‐specific absorptive capacity can, according to our data, substitute for low supplier technical capabilities. On the other hand, where the supplier has strong technical capabilities, investments in relationship‐specific absorptive capacity have no effect on new product advantage. Our findings reinforce recent calls for research on how firms can combine different resources and capabilities to achieve superior performance.     

The social underpinnings of absorptive capacity: The moderating effects of structural holes on innovation generation based on external knowledge

Building on absorptive capacity and social network research, in this paper I investigate how individuals inside the organization use external knowledge to generate innovations. Through original sociometric data collected from 276 scientists, researchers, and engineers from the Research and Development division of a large multinational high‐tech company, I show that the effects of external knowledge on individuals' innovativeness are contingent upon individuals' position in the internal social structure. In particular, results indicate that the positive effects of external knowledge on innovation generation become more positive when individuals sourcing external knowledge span structural holes in the internal knowledge‐sharing network. Copyright © 2013 John Wiley & Sons, Ltd.     

How much you know versus how well I know you: selecting a supplier for a technically innovative component

How do firms select a supplier for an innovative component? Three literatures speak to this question. Transaction cost economics focuses on the value of internalization, the literature on inter‐firm relationships on the value of past relationships, and the firm capabilities literature on the value of superior capabilities. Choosing a supplier means choosing a bundle of these characteristics—internal vs. external, amount of prior transactions, and capabilities—but no study has integrated all three characteristics, making it impossible to understand the trade‐offs involved either theoretically or managerially. I propose and test a model integrating all three factors, allowing us to understand the trade‐offs involved. I find that when uncertainty is low, the decision is made primarily on the basis of differences in technical capabilities. As uncertainty increases, prior relationships and a supplier being internal take on greater positive significance relative to the importance of technical capabilities. At extreme levels of uncertainty, the value of internal supply relationships becomes very high and past relationships lose their significance. While adherents of each literature have criticized the others for what they omit, this model moves beyond this mutual recrimination by incorporating the key concerns of each literature, setting the stage for future research that draws upon the strength of each. The model provides guidance for any situation where a firm must chose a partner under uncertainty. Lastly, it addresses the strategic question of how companies should organize in the long run to access the capabilities needed for competitive success. Copyright © 2004 John Wiley & Sons, Ltd.     

Buyer-supplier relational strength and buying firm's marketing capability: An outside-in perspective

Extant literature in marketing capability with an inside-out perspective stresses existing internal resources as the basis for developing marketing capability. This study, taking an outside-in perspective, argues that starting from external environment and developing strong buyer-supplier relationship can help formulate strong marketing capability of the buying firm. Using survey data from 199 Chinese manufacturing buyers who identified 937 suppliers, we found that strong buyer-supplier relationship can breed strong supplier information sharing and supplier flexibility, which fully mediate the effect of buyer-supplier relationship on buying firms' marketing capability. The findings provide support to the outside-in approach and reveal how external inter-firm relationship can be turned into intra-firm capability, and suggest that strong upstream buyer-supplier relationship can be a necessity for building downstream buyers' marketing capabilities. The findings also suggest an alternative strategy for developing marketing capabilities starting from external suppliers, and may help close the gap between marketing capability and dynamic external environment.