Global sourcing or deep localization: a social capital perspective
Tobias Bohnenkamp is a PhD student in the research group Technology, Management and Supply. His supervisor is Prof.Dr. habil. H. Schiele from the Faculty of Behavioural, Management and Social sciences (BMS).
Considering the increased importance that ties between different organizations have gained over the last decades in terms of contributing to the creation of value, buyer-supplier relationships have been found more and more as a source of a sustainable competitive advantage. In this context, the terminology of global sourcing, sourcing goods from suppliers on an international scale, has found wide application. Since companies increasingly outsource activities to their suppliers and thus grant them more responsibilities, being able to successfully manage these relationships naturally emerges as necessary requirement.
In countries such as China, firms increasingly tend to abandon the global sourcing focus and follow domestic sourcing approaches, going even as far as actively establishing the whole supply chain locally, a strategy also understood as deep localization. Since firms at the end of supply chains, however, can barely dictate their suppliers which sub-suppliers to select, the kind of relationship buying firms have with their suppliers may well be the tip on the scales whether deep localization can be completed successfully or not. From the theoretical perspective, social capital theory has been considered for studying relationships between individuals and organizations.
Whereas the concept of social capital has already achieved a high extent of theoretical sufficiency, literature is still on the sought for input factors, attributes that cause social capital in a buyer-supplier relationship to form, as well as output factors, effects that accumulated social capital can have on other variables. Built on this, the dissertation at hand therefore examines the main research question “How can social capital contribute to successfully managing buyer-supplier relationships and which are its requirements of and implications for organizations following a deep localization approach?”. As such, through combining literature on global sourcing and social capital, the dissertation focuses on deep localization as contrast to global sourcing, which role social capital plays and how social capital between buyer and supplier can be accumulated to support deep localization. Further, this dissertation looks into factors that influence the formation of social capital and which performance implication this entails for common projects between buyer and supplier.
In order to answer the research question, we follow several steps:
(1) Chapter 2 focuses on outlining the broader context of global sourcing. Based on an extensive literature review on global sourcing and foreign direct investment, chapter 2 provides evidence of how buying firms characterize supply market attractiveness.
As such, the study provides evidence that firms do no only consider purely cost driven factors when selecting a market but also factors that go beyond by focusing on the behavior of institutions or the availability of local partners. In particular, from a theoretical perspective, the study fills a research gap, by attempting to operationalize supply market attractiveness. By doing so, chapter 2 allows to characterize local supply markets, which might eventually determine whether or not deep localization is worth to consider.
(2) Chapter 3 then pays attention to the phase when a market has been selected, suppliers chosen and a buyer-supplier relationship established. Here, the focus lies on buyer-supplier relationships, in particular on the interaction of buyer and supplier opportunism. Through utilizing a sample of 168 different buyer-supplier relationships, the study examines the role that social capital plays as antecedent to opportunism, whether buyer and supplier opportunism have an interaction effect, and finally the effect of opportunism on the generation of innovation and strategic benefits. Results show that social capital works as an antecedent to buyer and supplier opportunism which both have negative performance implications on innovation and strategic benefits. An interaction effect between both opportunism types can however not be reported.
(3) Chapter 4 introduces the concept of deep localization, based on global sourcing theory, and highlights the benefits of social capital in a buyer-supplier relationship as well as its effect on successful outcomes of common deep localization projects between buyer and supplier. Through applying case study methodology this chapter compares successful and non-successful cases of deep localization and examine them on basis of accumulated social capital. Not only does the chapter outline a four-step approach that firms may apply to localize their supply chain, but it also describes role that social capital plays in network relationships.
(4) Chapter 5 pays attention to social capital theory and its role as antecedent of supplier satisfaction through quantitatively analyzing a sample of 140 suppliers. Through considering the three dimensions of social capital, namely cognitive, structural and relational capital, findings provide additional insights on the emergence of supplier satisfaction. As such, the chapter underlines that, contrary to what literature proposes, only relational capital shows a significant effect, whereas both cognitive and structural capital do not seem to play a role in influencing whether a supplier satisfied with the relationship to their customer or not.
(5) Finally, chapter 6 examines the role that the perception of internal social capital at the buying firm has for suppliers in building external social capital with this particular firm., through once more quantitatively analyzing a sample of 140 suppliers. Further, through analyzing the effect that the presence of external social capital can have on becoming preferred customer and in turn on succeeding in joint buyer-supplier projects such as deep localization, the study is able to determine a direct outcome that a potential internal misalignment on the buyer side can have for future projects with its supplier. Findings show that indeed perceived internal social capital influences the emergence of external social capital, whereas the link between social capital, becoming preferred customer and achieving project success is also confirmed.
Summing up, this dissertation gives further insights into the emergence as well as outcomes of social capital while simultaneously exploring the concept of deep localization. Hence, this research does not only contribute to our understanding of social capital, it also extends sourcing theory through introducing a reverse approach to global sourcing, an approach that is entirely meant to utilize local market potentials to the fullest.