DEPENDENCE OF SOURCING STRATEGY ON INDUSTRY

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DEPENDENCE OF SOURCING STRATEGY ON INDUSTRY

(A) Sourcing Strategy Distribution According to Industry Type

Sourcing Strategy Standard Industrial Long-Term Competitive Classification Vertical Taper Cooperative Spot-Bid (SIC) Integration Integration Relationship Contract

20 2 5 1 2

22 7 15 12 4

23 4 12 1 2

24 2 4 3 0

25 0 10 0 0

26 2 5 1 3

27 1 2 5 1

28 1 12 5 3

29 1 1 1 0

30 0 6 3 1

31 0 0 0 2

32 0 3 2 0

33 2 2 1 2

34 1 12 1 0

35 3 10 1 1

36 1 14 0 0

37 2 5 1 0

38 0 3 0 0

Total 29 121 38 21

(B) Chi-Square Test for Association of Sourcing Strategy with Industry Type Sourcing Strategy

Long-Term Full Taper Supplier Competitive

SIC Integration Integration Relationship Bidding

20 66

9 55

29

9

15

6

XI 7.56 significant at p = 0.10.

Furthermore, industries with unspecialized products showed a significantly higher incidence of competitive bid- ding and long-term supplier relationships, as opposed to taper and vertical integration. On the other hand, industries with specialized products showed a significantly higher inci- dence of vertical and taper integration, compared with long-term supplier relationships and competitive bidding

A tentative explanation for the above finding is the following. Industries that manufacture specialized prod- ucts often experience high levels of transaction costs

(Williamson 1985). Therefore, these firms are more likely to integrate fully or use taper integration to avoid being subject to supplier opportunism. The manufac- turers of unspecialized products are less likely to experi- ence supplier opportunism. Therefore, production costs are perhaps more likely to be a deciding factor in the choice of a sourcing strategy in unspecialized industries. The outsourcing and long-term supplier relationship strategies may help the unspecialized manufacturers to economize on production costs.

CONCLUSION This study investigates the frequency of use of sourcing

strategies among a sample of 209 manufacturing firms in the Southeastem United States. The study’s purpose was to evaluate the extent to which firms use intermediate sourcing strategies, such as taper integration and long- term supplier relationships, as opposed to the polar strate- gies of vertical integration and competitive spot bidding. The findings suggest that firms use intermediate sourcing strategies more frequently than the polar strategies. They also suggest that firms choose a particular intermediate sourdng strategy consciously and not randomly. Further, the distribution of sourcing strategy differs significantly across industries. The specialized goods manufacturers used vertical and taper integration more frequently than long-term supplier relationships and competitive spot bidding. On the other hand, the unspecialized manufac- turers used long-term supplier relationships and competi- tive spot bidding more frequently than taper and vertical integration.

Much of the existing literature on sourcing strategies focuses on the polar sourcing strategies. This can mislead managers and researchers to conclude that firms usually choose between vertical integration and competitive spot bidding to the neglect of intermediate sourcing strategies. The results of this study suggest the opposite. The study also tentatively supports Hennart’s (1993) proposition that intermediate sourcing strategies may constitute a “swollen middle.” It appears that firms may choose a sourcing strategy in order to economize on both transaction costs and production costs.

Taper integration has received very little attention in the literature. Hopefully, this study will lead to exploration of the determiinants of taper integration and other interme- diate sourcing strategies.

This study is an exploratory investigation into the use of intermediate sourcing strategies by manufacturing firms. Exploratory studies generally provide a starting point where there is relative lack of theory. Therefore, they are also subject to several limitations. The explana- tions advanced while addressing the research questions in this study should be viewed as tentative, given the exploratory nature of the study. In the future, researchers may build on the existing theoretical foundation and generate testable hypotheses.

24 The Journal of Supply Chain Managetnent I Winter 2001

20-29

30-40

 

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