Research in International Marketing (RLE International Business) 9781135124359, 9780415658119

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RESEARCH IN INTERNATIONAL MARKETING Edited by PETERW. TURNBULL & STANLEY J. PALIWODA

Volume 39

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First published in 1986 This edition first published in 2013 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 1986 Peter W. Turnbull and Stanley J. Paliwoda All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-0-415-63009-2 (Set) eISBN: 978-0-203-07716-0 (Set) ISBN: 978-0-415-65811-9 (Volume 39) eISBN: 978-0-203-07625-5 (Volume 39)

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Publisher’s Note The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent. Disclaimer The publisher has made every effort to trace copyright holders and would welcome correspondence from those they have been unable to trace.

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RESEARCH IN INTERNATIONAL MARKETING Edited by Peter w. Turnbull & Stanley J. Paliwoda

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©1986 Peter W. Turnbull and Stanley J. Paliwoda Croom Helm Ltd, Provident House, Burrell Row, Beckenham, Kent BR3 lAT Croom Helm Australia Pty Ltd, Suite 4, 6th Floor, 64-76 Kippax Street, Surry Hills, NSW 2010, Australia British Library Cataloguing in Publication Data Research in international marketing. 1. Export marketing I. Turnbull, Peter W. II. Paliwoda, Stanley J. 658.8'48 HF1009.5 ISBN 0-7099-4313-X

Croom Helm, 51 Washington Street, Dover, New Hampshire 03820, USA. Library of Congress Cataloging in Publication Data Main entry under title: Research in international marketing. 1. Export marketing-addresses, essays, lectures. 2. Export marketing-research-addresses, essays, lectures. I. Turnbull, Peter W. II. Paliwoda, Stanley J. HF 1009.5.R46 1986 382'.6 85-29052 ISBN 0-7099-4313-X

Printed and bound in Great Britain by Biddles Ltd, Guildford and King's Lynn

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CONTENTS

Introduction PART 1 Organisational Buying Behaviour and Cultural Variables D.T. Wilson and A. Ghoneim, 'Transferring Organisational Buying Theory across Cultural Boundaries' S.Reid, 'Migration, Cultural Distance and International Market Expansion' M.F. Bradley, 'Developing Communication Strategies for Foreign Market Entry' A. O'Driscoll, The Change to Industry Maturity: 'An Irish Firm's Experience' K.E. Moller, 'Buying Behaviour of Industrial Components; Inductive Approach for Descriptive Model Building'

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PART 2 The Internationalisation Process Theories & Evidence M.J. Thomas and L. Araujo, 'Export Behaviour: Diiections for Future Research' P.W. Turnbull and S. Ellwood, 'Internationalisation in the Information Technology Industry' P.W. Turnbull 'Tripartite Interactional - The Role of Sales Subsidiaries in International Marketing' N.J. Barrett and I.F. Wilkinson, 'Internationalisation Behaviour; Management Characteristics of Australian Manufacturing Firms by Level of International Development' Jan Johanson and L. Gunnar-Mattsson, 'International Marketing and Internationalisation Processes - A Network Approach' PART 3 International Supplier-Customer Relationships J.M. Arnaud, R. Salle and J.P. Valla, 'The Components of the

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Complexity of International Supplier-Customer Relationships' B. Axelsson and H. Hakansson, 'The Development Role of Purchasing in an Internationally Oriented Company' S.J. Paliwoda and P. Thomson, 'Industrial Product Class and Market Behaviour' A Study in the French Packaging Market H. Hakansson, 'Technical Exchange within Industrial Networks'

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INTRODUCTION

This is a new and challenging edited collection of papers by marketing authors from Europe, North America and Australia which reflect the 'state of the art'. The emphasis is upon the importance of marketing not just as a means of exchange, but as a form of technology essential to industrial development and economic wellbeing. There is a growing recognition of the existence of international marketing in its own right, rather than as an off-shoot of domestic marketing. Increasingly, marketing is gaining importance. It is not a panacea. By itself, it is not able to make companies successful, industries whole or national economies healthy. It is however, capable of making a significant contribution to corporate and national development. Marketing is technology. An ever growing number of joint contractual ventures and industrial cooperation bear witness daily to the need for marketing in the exploitation of world markets. It is not only the Soviet bloc, and the developing nations but the large Western multinational corporations themselves who now seek cooperation ties. Shrinking world markets despite 10

population increase, and ever increasing needs for economies of scale transform former arch-rivals into industrial allies. This new global situation presents a challenge also to the academic seeking to explain it to his students, if, as we believe, academics should be ready and willing to propose normative solutions to the issue which face 'real' international marketers. We hope and trust that through this collection of research papers we may be further able to stimulate interest, ideas and debate amongst industry, academia and government. The worldwide recession of the first half of the 1980's has meant that traditionally domestically-oriented companies have had to look to export markets for growth. On the one hand, there have been stagnating markets, on the other, nervous currency markets, which has meant that foreign exchange rates have moved up and down, more due to rumour than actual or potential industrial performance. This in turn has led to companies facing international competition in their domestic markets and requiring an effective and often aggressive marketing response. While the Western nations stagnated, the developing countries for a time at least, continued to expand. Rapid technological change leading to new competition, changing market structures, and a more internationally based company procurement policy, have all had their impact. The challenge here has been to forge new forms of trading relationship and payment terms to involve the 11

less developed countries. However, before that can be done, some understanding has to be reached of the status quo. This has been another objective of this collection of papers. Political change in terms of liberalisation of markets; expansion of the EEC; the encouragement of industrial and international regroupings of companies; and policies relating to barriers to and encouragement of international trade can, for some countries and industrial sectors, be seen as a major stimulus to international business. The need everywhere today is for professional managers and effective marketing to build up relationships with foreign customers. Where relationships are , and based on good product quality and design, pre- and post sales service and interpersonal trust, then there is less likelihood of orders being lost merely on the basis of change resulting from any of the causes mentioned above. An important initiative in the field of international marketing research was taken with the formulation of the International Marketing and Purchasing Group (IMP) in 1976, whose aim was to develop collaborative research in an international setting in the field of industrial product marketing and purchasing. The IMP Group has researchers based in Germany, France, Italy, Sweden and the U.K. Since 1976, the IMP has carried out research which is probably unique in terms of its international scope and depth of approach. A particularly interesting conceptualisation to emerge 12

from the Group has been the Interaction Approach which identifies relationships and interaction as the principal focus of international marketing theory and practice. A number of the papers in this book are from IMP members. At the same time we have made contact with a number of likeminded researchers in Australia, France, and the U.K., and we include also their papers. The book is structured into three sections. Firstly, organisational buying behaviour and cultural effects issues are examined. The importance of understanding how buyers are organised, their needs, attitudes and behavioural patterns is obviously a prerequisite to successful marketing. However, this is often much more difficult when dealing with foreign markets, and the task is made more exacting by cultural differences. These issues are addressed in different ways and from different perspectives in the papers which form this section. In the second section we examine the question of how companies develop their international organisations. Much has been written about the internationalisation process, and a review of the theory is contained in the first paper of this section. The other papers present empirical research results relating to export behaviour and internationalisation, and some interesting issues emerge, including some which pose a challenge to existing theories. In the third and last section, the topic of international supplier-customer relationships is examined. Again, interesting theoretical constructs and equally 13

illuminating research results are presented to challenge once again the status guo. We must also acknowledge the contribution made by our international colleagues to this edition. It is impossible for any of us to live in a vacuum. We test and develop our best ideas by trying them out on our colleagues to gauge their validity before refining them perhaps further into working papers or models. We therefore extend our thanks to all our colleagues. Peter W Turnbull Stanley J Paliwoda

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PART ONE: ORGANISATIONAL BUYING BEHAVIOUR AND CULTURAL VARIABLES

This section looks at the application of industrial buying behaviour and behavioural theories, in the context of different cultures. It is appropriate then to begin with the paper by Wilson and Ghoneim, which reports on a complex, descriptive and general model of Egyptian organisational buying behaviour, evolved from an exploratory study of the buying process in the Egyptian industrial public sector. This paper examines the processes of adapting a theory as it moves from one culture to a very dissimilar culture. Thus, for example, the authors discuss the transfer of fundamental concepts such as the buying centre and the buygrid from a United States context to an Egyptian context. The specific modifications required of Western buying behaviour theory to accommodate the Egyptian situation are then highlighted, these being accommodations of cultural and organisational influences. Reid continues the theme of cultural differences in his paper. He proposes that cultural distance is a cognitive property which is expressed in affective preferences for market exchanges originating from particular countries. 15

Such preferences are developed through social learning and have their most significant impact on market behaviour among migrants. Migrants maintain information links with their country of origin, replicate communication networks, settlement patterns and social boundaries. These activities recreate consumption forms and patterns isomorphic with those found in a migrant's country of origin. Access to and knowledge of these markets provides decision makers with a comparative advantage which is exploited in international trade. Reid shows how and why this interpretation of cultural distance is useful to firms and public policy decision makers interested in international market expansion. Bradley's contribution has much in common with both of the preceding papers. Bradley sets out to examine the relationship between buyers' attitudes to international suppliers and countries of origin. The focus of his paper is on developing communications strategies for foreign market entry using country-company associations. Attitudinal data for a sample of 60 industrial buyers in the electrical and electronics industries in Ireland are tested for this country-company relationship using multiattribute and scaling techniques. The findings suggest that the hypothesised relationships do exist, are strong and that buyers relate to the same latent evaluative structure when assessing countries and companies in their buying behaviour. O'Driscoll places his emphasis on the organisational aspects. Here, he traces some of the changes that took

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place over a decade in a large Irish company moving from high-growth to maturity and stagnant markets. Alongside this, there is the transition from an entrepreneurial style of management to a more professional one. While organisational development continued over the decade and the company's personality gradually changed, two major structural changes took place. The strategic thinking underlining this organisational restructuring is discussed alongside the work of Porter on generic strategy. Moller returns to the questions raised by Wilson and Ghoneim. His principal objective is to provide analytical in-depth descriptions of the buying processes of strategic components. Methodologically, this means an attempt to build descriptive buying process models through inductive analysis of case material. Inductive modelling of material component buying is approached by (i) presenting a comprehensive conceptual model of production material buying, ( ii) adopting a data collection method called decision system analysis for analysing six cases of component purchase processes, (iii) drawing inductive 'maps' or models of the empirical cases through conceptualisation, and finally, (iv) evaluating the usefulness of the conceptualisations suggested and discussing the implications of the results. While this lacks an international dimension, in terms of research data we feel that it has applications which are universal. Overall, it may be said that Wilson and Ghonheim, and Reid concern themselves with the application of buyer

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behaviour models to cultural interfaces. Similarly too, with Bradley who, focusing on communication strategies, examines buyer attitudinal behaviour with regard to suppliers and their country of origin. On the organisational side, O'Driscoll examines behavioural patterns among management, identifying the actionist or entrepreneurial non-bureaucratic model, and the industrial engineering model adopted by the majority of professionals. Finally, Moller through inductive case analysis like 0 'Driscoll, presents an in-depth analysis of the buying process for strategic components, charting not only the stages but offering a conceptual model and some discussion of the implications of the results as well.

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Transferring Organizational Buying Theory Across Cultural Boundaries David T Wilson Ahmed Ghoneim: The Pennsylvania State University U.S.A.

The Problem The new open-door economic policy of the Egyptian government encourages foreign investment and provides a favourable and attractive investment climate for Western business firms. Unfortunately, there are few studies available to guide business people in serving this market. The primary problem addressed in this paper is the development of a model of the Egyptian organizational buying process that would be helpful to someone attempting to understand Egyptian public sector companies A secondary objective was to explore the transferability of organizational theory from one culture to another. The transfer of theory across international boundaries is obviously related to many variables such as culture, economics, business organization and government 19

policies. A review of the literature of cross cultural studies found that most studies were either intracountry or international studies of countries having a high correspondence on the critical variables of culture, economic and political environment (Bradley, 1977; Davig 1980; Hakansson and Wootz 1979; Woodside et al, 1978). Many of the studies were theory free and basically described the buying process. Several studies did have a simple buying stage process model underlying them. The IMP Project Group study is a major attempt to develop a new theoretical approach to international marketing and purchasing of goods based upon four groups of variables that describe and influence the interaction between buying and selling companies. This model while intPresting an challenging did not have the specificity that would be useful in adapting a model to the Egyptian buying process. The first step was to identify appropriate theories of organizational buying behaviour that may parallel the buying situation in the Egyptian public sector. A number of these models are discussed in the next section. Appendix A provides background on the Egyptian public sector, comparing operation and selected comments on cultural variables which provide useful background for model understanding.

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Complex Models of Organizational Buying Over the years a number of models have been developed in an attempt to describe the organizational buying process. These models have combined both task and non-task variables in an attempt to address the complexities of the process. A listing of the models that have been identified as 'complex' are in Figure 1. The basic concepts of the BUYGRID model have reasonable acceptance within the US academic community and have been incorporated into the MATBUY and Supplier Choice Models. These three models deal with a structured buying process, a buying phase concept and permit analysis of a buying center or buying committee process, all of which are relevant to the transfer of theory to the Egyptian situation. These models will be discussed in some detail. The BUYGRID Model Industrial buying is conceptualized as a process taking place over time rather than as a simple choice process. Many researchers (Webster, 1965; Ozanne and Churchill, 1971; Boand, 1972) have distinguished stages or phases through which the decision passes in a chronological order. In an early attempt to model the industrial buying process, Webster (1965) identified four stages; problem recognition, buying responsibility, search and choice.

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Webster's model generated interest in the concept of phases in the buying process. Robinson, Faris and Wind (1967) expanded that four-stage model to an eight-stage model, and combined it with Faris' three types of purchase situations to develop the BUYGRID model.

Figure 1

Complex Models of Organizational Buying Behavior in Chronological Order 1. BUYGRID Model (Robinson, Faris and Wind, 1967) 2. COMPACT Model (Robinson and Stidsen, 1967). 3. Simulation Model (Wind and Robinson, 1968) 4. Information Processing Model (Howard and Morgenroth,l968) 5. Organizational Buying Behavior Model (Webster and Wind,l972)

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6. Industrial Buyer Behavior Model (Sheth, 1973) 7. Dyadic Paradigm (Bonoma, Bagozzi and Zaltman, 1975) 8. Organizational Interaction Model (Hakanssen and Ostberg, 1975) 9. Industrial Buying Task Group Model (Spekman, 1977) 10.Industrial Market Response Model (Choffray and Lilien, 1978) 11.Cornrnunication Network Dyadic Systems Model (Johnston, 1979) 12.MATBUY Model (Moller, 1981) 13.Supplier Choice Model (Vyas and Woodside·, 1984) The existence and duration of each of these eight phases depends upon the buying situation. In a new-task situation all phases supposedly exist and are extensive, whereas in a straight rebuy situation phases are supposedly quickly passed through and some of them may be skipped. The BUYGRID model is 'virtually devoid of predictive ability and offers little insights into the nature of the complex interplay between task and non-task variables. It does not permit inferences about behavioral cause-and-effect relationships of the kind needed for designing efficient marketing strategies' (Webster and Wind, 1972). Despite these flaws, the model is widely accepted. It has also motivated researchers to work on the concept of phases of the buying process. 23

The MATBUY Model Moller (1981) developed a comprehensive conceptual model of production material buying (MATBUY) behavior in the following way: 1. Defining the general process (and the stages) of production material buying. 2. Assessing the different decision-making points in the process where policy decisions (implying potential organizational conflict situations) are taken. 3. Assessing the ways in which the vendor selection ( a key subprocess) can be carried out. 4. Defining the principal personal, organization al and situational or contextual variables having an effect on the production material buying process-especially policy decision points and vendor selection. Moller divided the production material buying process into eight phases: A - Purchase Initiation B - Evaluation Criteria Formation C - Information Search D - Supplier Definition for RFQ's E - Evaluation of Quotations 24

F - Negotiations G - Supplier Choice H - Choice Implementation Within each of these phases he discussed decisions, individuals/departments, and problems/tasks involved. Although the MATBUY model tried to be so comprehensive that it covers conceptually all the principal decision problems and conflict situations, it has the following flaws: 1. It is devoid of predictive validity and empirical reliability. Consequently, it has little benefit for marketing strategists. 2. Unlike the BUYGRID model, it did not combine its phases with the different buying situations.

Supplier Choice Model While the BUYGRID and MATBUY models are basically conceptual, the Supplier Choice model (Vyas and Woodside, 1984) is based on an empirical study of purchasing in 6 US firms. The major objective of the study was to identify decision rules the buyer center members use during the supplier choice process. The Supplier Choice model is based on a decision process model consisting of a finite series of steps in the form of highly simplified rules. The result is a series of

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proces flow mcdels that describe in detail the rules that guide each step of the decision model. Vyas and Woodside found that during the earlier stages in the choice process, the buyer employed noncompensatory, conjunctive rules to eliminate unworthy candidates. Later in the process the price became a predominant criterion, when additional candidates were eliminated by using disjunctive decision rule. This model was an important input into the development of the Egyptian model. The Buyer Center Concept In their case study, Cyert, Simon and Trow (1956) introduced the first citation recognizing that not only the purchasing agent and his staff, but also a number of other managers in the firm are involved in the buying decision. The term 'buying center' was, for the first time, used by Robinson, Faris and Wind (1967). Aft.er reporting the findings of several studies, they concluded that the buying influence is widely diffused among several persons and departments in the buying firm. One year later, Weigand (1968·) suggested that studying the purchasing agent only is not enough. He concluded that the industrial buying function is complex and involves many people (with vastly different views) at all levels in the firm. Brand (1972) used the term 'decision-making unit', Duncan (1972) used the term 'organizational decision unit', but they are

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still in the same direction-in stressing the multi-person nature of the buying decision and the importance of studying it from this perspective. In 1978 the buying center concept captured the attention and interest of many of the industrial buying behavior scholars (Wind, 1978; Spekman, 1978; Bagozzi, 1978). In his endeavour to define the buying center boundaries, Wind raised the following questions: direct vs. indirect involvement, roles vs. people, individuals vs. group characteristics, temporary vs. permanent buying center, single vs. multiple decisions, patterns of formation and change, and whether or not outsiders should be included in the buying center definition. A good definition of the buying center is that of Spekman who defines it as 'the informal organization sub-unit, composed of individuals from several functional departments, specifically charged with making purchasing-related decisions relative to a particular commodity or class of commodities'. The buying center concept again has good acceptance in the US and seemed to be important in the Egyptian situation. Hence, it was an important concept in developing a model of the Egyptian organizational buying process. Transferring the Theory to Egypt One basic building block is the buying center concept. In Egypt it is not difficult to define the buying center or

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to identify its members as it is formally defined by the organization. It is called the 'buying committee'. The buying committee is not on the organization chart of the company but its members are pre-appointed by the president of the company. He selects representatives from the major concerned departments (purchasing, production, financial and sometimes the legal affairs departments.) This committee is created prior to any buying decision. It differs from the general concept of buying center in literature which states that the composition of a buying center is a function of the buying situation. The buying committee studies and recommends,. but does not make the final decisions. Committee's recommendations are subject to the sanction of the appropriate authority according to the pre-set financial limits. The Egyptian model framework draws heavily upon the BUYGRID, MATBUY and the Supplier-Choice models. It attempts to explore buying phases, person/ departments, tasks/activities, decision rules and criteria that are employed in Egyptian organizational buying. The result is a generalized flow chart of the Egyptian Public sector buying process. The first step was to prepare a rough outline of a model using the structure of the US models. This structure served as a guide to the exploratory field work. In addition to personal observation, data were collected in two ways: analysis of company buying constitutions and other purchasing documents and in-depth interviews with buying committee members as

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identified by the purchasing manager. Data were collected on buying phases, persons/departments, tasks/ activities, decision rules and criteria that are employed in the buying process. As a validity check, data obtained from one member were checked with other members of the buying committee. The sample was limited to five public sector companies, one from each of the five industrial sectors. The Model As in the US models the process is triggered by the establishment of a buying need. Once this need or problem is recognized a multi-part process is initiated. The first step is assessing the degree of newness of the need. If it is not new, the user will be able to fill a purchase request which will detail the required specifications, quantity and the date by which the purchased itern(s) are required. The purchase request is then sent to the purchasing department for processing. Processing depends upon the urgency of the request. If it is not urgent, the purchasing department will invite potential suppliers to bid. The manner of bidding invitation is different according to the dollar value of the purchase. Open tenders are used when he dollar value is large and there are many potential suppliers who are not known to purchasing department or when the purchasing department wants to induce new suppliers to bid. In the open tender situation the purchasing department puts an advertisement in the two most popular daily newspapers 29

at least twice, ten days before the closing date. Few details are in this advertisement. It is an open invitation to all possible suppliers giving them general information about the tender and the specific closing date. Detailed specifications are kept in.the purchasing department where interested suppliers or their agents may obtain these details upon paying a fee. If the dollar value is moderate and there are fewer but known suppliers, the purchasing department will contact them directly (RFQ) inviting them to bid. This is called a limited tender. Before the closing date the purchasing department may receive suppliers' wax-sealed quotations which are kept in a special box. On the specified closing date at 12.00 noon, an ad hoc committee opens the tenders in front of all participant suppliers or their agents. The seals are broken and the quotations are read aloud. The data for each bidder is then transferred to a spread sheet. Samples, if any, are sent to the laboratory for inspection. Before the buying committee meeting the purchasing department converts all prices to a common comparable base. The buying committee simultaneously compares all quotations using the noncompensatory, conjunctive decision rule. They usually start by comparing quality. Any quotation with unacceptable quality, ie. does not meet the company standards, is rejected. The remaining suppliers offering are examined further. The buying committee continues these comparisons until they 30

arrive at a price, eliminating suppliers who do not meet the minimum standards on the attribute list, which is the last and decisive factor. The supplier quotation which meets all the other criteria and has the lowest price is recommended to the next level of authority. The committee reports this recommendation to the appropriate managerial authority for final approval. Returning to the beginning of the flow chart. If the problem is new and the accurate specifications cannot be determined and described, the company may, if it is possible, buy a small quantity of the product to test it. If not, they may contact or visit potential suppliers or invite their representatives for discussion with their counterparts in the buying company. By this stage, if the need is not urgent, it will be processed through the tender method as mentioned above. If the need is moderately urgent, the dollar value is not too large, and quite a few public sector suppliers available, then a negotiation committee will sequentially invite or visit possible suppliers and conduct direct negotiation. This committee procedure is less structured than the buying committee but generally follows the same procedures and uses the same criteria. After selecting the supplier(s), the comrnittee reports to the appropriate authority for final approval. At last, in all exceptional cases, ie. when the need is very urgent, price is not negotiable, only one supplier is available and the dollar value is small, a direct order is awarded to the sole supplier. One purchasing agent may 31

place the order and then report to the appropriate authority for approval. Discussion A comparison between Vyas and model and Woodside's (1984) model and the Egyptian model resulted in the following key differences: 1. Vyas and Woodside pointed out that purchasing agents do not discuss the preparation of purchase requisitions with members of other departments. On the contrary, Egyptian purchasing departments extensively discuss purchase requests with users to make sure that specifications are clearly described before any further processing. 2. Users in Egypt are not officially required to suggest names of potential suppliers in their purchase requests unless they are asked for it by the purchasing department. This is to minimize the negative effects of friendship between suppliers and users who can describe the required specifications in such a way that the specifications can only be met by their friends. According to Vyas and Woodside names of potential suppliers are suggested by users on their purchase requests. 3. The first phase of Vyas and Woodside's model is selecting those suppliers who will receive the requests for quotations. In Egypt there is no prior

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selection; rather, all possible suppliers are invited to bid. 4. Vyas and Woodside mentioned that none of the companies that they studied used a formal vendor rating system. In Egypt all buyinq processes are structured and regulated. Buying constitution states all the decision criteria decision rules. This process is to the influence of subjective factors. formally and the minimize 5. Unlike Vyas and Woodside's model, after receiving quotations no supplier is asked or permitted to change the data of his quotation. Only after the evaluation process is completed are prices negotiated if the best quality supplier has the highest price. 6. In contrast to the US, Egyptian buyers do not inform the rejected suppliers. Moreover, it is explicitly written in the tender advertisement that the buyer has the right to accept or reject any quotation with no obligation to justify his decision. 7. According to Vyas and Woodside, if only one acceptable bid is received, the buyer starts 'tactful negotiation' with the bidder who is usually unaware of the fact that his quotation is the only one received by the buyer. In Egypt because all the wax-sealed quotations are opened and read aloud in front of all participating suppliers, or their agents, a sole bidder is always aware of this fact.

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Transfer of Theory The model developed in this paper supports the general concept that organizational buying theory can be transferred across cultures. The major modifications of the model were accommodations of cultural and organizational influences. The literature review cited earlier only found one multi-national study of buying behavior (the IMP Project Group, 1982). The homogeneity of the sample nations does not lead us to explore problems of theory transfer. It seems that each group of scholars read their own set of literature and develop theory appropriate to their own needs. Major influences in this gap of mutual interest seem to be distance, language and different philosophies of science. Conferences such as this help to close the gap by bringing together scholars with mutual interests and shared goals. Theory transfer will evolve as more resarchers attempt to test their theory across multiple national and cultural situations. Appendix A: Organization of Egyptian Industry and Buying Process Organization of Egyptian Industry The output of Egyptian industry is split between the public and the private sectors. The public sector is predominant in that it produces more than 75% of the total industrial production. The public sector firm tends to be the larger one in the Egyptian economy. The private sector consists of many 34

small enterprises whereas the public sector consists of a few large companies. For instance, in the Egyptian textile industry there are more than 650 small private factories but only 30 large public companies. There are 112 companies in the Egyptian industrial public sector. They are classified, according to the last annual report of the Ministry of Industry, by the type of industry as follows: 1.Textile Industry 2.Chemical Industry 3.Metal Industry 4.Food Industry 5.Mining Industry

30 companies 23.companies 33.companies 21.companies 112.companies

These companies are under the control of the Ministry of Industry and comprise the 'public sector'. Thus, the term 'public sector industry' defines industrial companies under the control of the ministry of industry. Although there are other industrial activities under the control of other ministries, this definition is practical, clear cut and has been used in all Egyptian studies to date. Studies have concentrated on the public-sector industry rather than the private sector for the following reasons: 1. The public sector is predominant (produces 75%). 2. It is more organized and has more capable personnel. 3. Data is relatively available and trustworthy.

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4. The relative ease of obtaining data once the approval of the Central Agency of Mobilization and Statistics and letters of introduction from the ministry of industry are issued. The following chart presents the general organizational structure of public sector industry. Buying Organization and Buying Committee This section discusses the organization of buying activities in Egyptian companies. Because the buying committee plays a paramount role in buying process in Egyptian companies, a brief discussion of buying center concepts as related to the Egyptian buying committee follows. In a typical Egyptian industrial company, the purchasing department could be represented on the company organization chart as follows:

While local purchase markets, the import markets and hence departments deal with local department deals

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with foreign has different problems such as money transfer,letters of credits, and foreign currency. If there is a common product needed that has to be imported and it is used by more than one company, the company which uses the rnajor share of that itern imports it for all other companies. The buying committee will consist of a representative from each company. This pooling of purchasing orders is to gain the economies of large scale buying. Four buying methods are used: direct order, direct negotiation, limited tender, and open tender. Direct order is used when the company has only one purchase alternative. The order is placed directly with the sole source of supply. Direct negotiation is used when the company has a few alternatives all within the public sector. There is no need for the long tender procedures as each potential source is well known. When the timing of the purchase is not that urgent and potential suppliers are known to the buyer they are contacted personally (RFQ). This is called the limited tender as it is limited to known suppliers and limited in the total value of the purchase. If the total value of the purchase is large, according to known financial limits, open (unlimited) tender will be used. The unlimited tender means any supplier anywhere in the world may submit a tender.

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Every company has pre-set financial limits which determine the buying method that should be used. Although these limits differ from one company to another and from one sector to another, they are well known, and documented. Each company's purchase policies clearly describe these limits. Social Influence Social groups are perceived as a means of sharing responsibilities more than sharing activities. If anything should go wrong, responsibility will be diffused among all members and no one can be held responsible. That diffusion of responsibility can be explained by the large number of committees: 'higher committees', 'central committees' and 'supreme committees' that are found in Egyptian organizations. Fraternal organizations as they exist in the USA are not common in Egypt. Egyptians in general are friendly and it is not necessary to be a

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member in fraternal social organizations to be able to socialize. Social relationships are still quite within family structure and within the whole society. The family authoritarian pattern carries over into business organizations. Committees, though numerous, do not make decisions. Their recommendations are subject to the top management approval. Values Egyptians highly value friendship. Friendship plays a paramount role in an Egyptian's life. The impact of this norm of friendship is substantial. One's time is not his own as friends have their rights to an individual's time. It is common for an Egyptian to change his schedule if one of his friends needs him for any reason at any time. The norm is that one should not let a friend down; rather, one should look out for a friend's interests exactly as he expects his friends to guard his own interest. Friendship is valued more than money. It gives an Egyptian more satisfaction to spend time with friends than to earn more money. Friendship is an important force in business. People in power at all levels are partial to friends and their friends' friends. So, everyone strives to build friendship 'networks' and enlarge them. The religious values, brotherhood, and friendship leads Egyptians to value generosity towards their guests. Moslem teachings say 'your guest is the guest of God'; therefore, one will be rewarded from God for generosity

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now and hereafter. Egyptians are in general poor, yet paradoxically in entertaining, they are extravagent and generous. According to Islamic rules, one must hold firm to his commitments. God will hold him responsible for his word. Edward Hall (in Kassarjian and Robertson (1981) said. "in the Arab world, once a man's word is given in a particular kind of way, it is just as binding, if not more so, than most of our written contracts. The written contract, therefore, violates the Moslem's sensitivities and reflects on his honor." Egyptians conception of time is different. In rural areas farmers do not care about time as they have plenty of it. Due to the seasonal nature of their work, farmers work only 160 days a year. They are not in a hurry, always relaxed-this is the 'agricultural behavior'. In cities people schedule their time but never stick to their schedules as friendship demands cause schedule changes. In business, making a decision usually takes much time as a result of the long chain of required sanctions and the large number of committees and higher, central and supreme committees. In business meetings, people of higher status usually come late because it is not appropriate for them to wait for lower status people, especially since they are not sure that everyone will come on time and it is difficult for them to keep their time schedule. Higher status people do not wait in line to do any job. Their own jobs are always done for them. Egypt may be the only country 40

where people go to their friends' offices to visit just for business social have to visits. Others who wait as a result. References Bagozzi, R. (1978) Exchange and Decision Process in the Buying Center, in Zaltman, G. and Bonoma, T. (eds.) Organisational Buying Behavior, American Marketing Association, pp. 100-125. Bradley, M.F. (1977) Buying Behavior in Ireland's Public Sector, Industrial Marketing Management, 6, pp. 251-258. Brand, G. (1972) The Industrial Buying Decision, Wiley, N.Y. Cyert, R., Simon, H. and Trow, D. (1956) Observation of a Business Decision, Journal of Business, 29, pp. 237-238. Davig, W. (1980) Industrial Buying Behavior in Brazil, Industrial Marketing Management, 9, pp. 273-280. Duncan, R. (September, 1972) Characteristics of Organisational Environments and Perceived Environmental Uncertainty, Administrative Science Quarterly, pp. 313-327. Hakansson, H. and Wootz, B. (1979) A Framework of Industrial Buying and Selling, Industrial Marketing Management, 8, pp. 28-29.

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Kassarjian, H. and Robertson, T. (1981) Perspectives in Consumer Behavior, Scott, Foreman and Company, IL. Moller, K. (1981) Industrial Buying Behavior of Production Material, The Helsinki School of Economics, Helsinki. Ozanne, M. and Churchill, G. (August, 1971) Five Dimensions of the Industrial Adaptation Process, Journal of Marketing Research, pp. 222-227. Robinson, P., Faris, C. and Wind, Y. (1967) Industrial Buying and Creative Marketing, Allyn and Bacon, Boston, MA. Spekman, R. (1978) A Macro-Sociological Examination of the Industrial Buying Center, American Marketing Association Proceedings, pp. Ill 115. Spekman, R. (1978) An Alternative Framework for Explaining the Industrial Buying Process, in Zaltman, G. and Bonoma, T. (eds.) Organisational Buying Behavior ,American Marketing Association, pp. 84-90. Vyas, N. and Woodside, A. (Winter, 1984)An Inductive Model of Industrial Supplier Choice Process, Journal of Marketing, pp. 30-45. Webster, F. (November, 1965) Modelling the Industrial Buying Process, Journal of Marketing Research, pp. 370-376.

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Webster, F. and Wind, Y. (197 2) Organizational Buying Behavior, Prentice-Hall, Wood Cliffs, NY. Wind, Y. (Summer, 197 8) The Boundaries of Buying Decision Centers, Journal of Purchasing and Material Management, pp. 2 3-29. Weigand, R. (1968) Why Studying the Purchasing Agent is Not Enough, Journal of Marketing, pp. 41-45. Woodside, A., Karpati, T, and Kakarigi, D. (1978) Organizational Buying in Selected Yusoslav Firms, Industrial Marketing Management, 7, pp. 391-395.

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Migration, Cultural Distance and International Market Expansion Stan Reid University of New Brunswick Canada.

Introduction Cultural distance as a theoretical construct plays a major role in explaining many dimensions of foreign market expansion and international trade. For example, it is cited as influencing managerial preferences and choices of foreign markets, the international expansion strategies firms select and the administrative structures they adopt and evolve for managing foreign operations and the direction and magnitude of international trade (Hallen and Wiedersheim-Paul, 1979; Luostarinen, 1980; Reid, 1981). These observations suggest that greater understanding of what cultural distance constitutes, how it is manifested and its operational relevance, would significantly contribute to more efficient international marketing activities and practices.

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A focus on how cultural distance influences market choice appears necessary for understanding how trade between countries is created and why it takes the form it does. The literature implicitly considers cultural distance as a personalistic property expressed in how individuals interpret stimuli received from foreign markets and resulting in distinctions being made between foreign markets along relevant criterion. It is this cognitive discriminating capacity which individuals possess that impacts on international market exchanges. This paper consequently explores cultural distance in its instrumental form as a creator of markets. This market-creating potential is shown to influence how decision makers distinguish foreign market opportunities. Migration is postulated to be a primary social mechanism for reducing and creating cultural distances between foreign and domestic markets and for facilitating the conduct of market transactions across spatial boundaries. We examine how this process offers significant opportunities for international marketers and demonstrate why cultural distance must become an important consideration in export policy and international marketing strategies and practices. What is Cultural Distance? Cultural distance has its earlier origins in international trade theory as an explanation for why trade tends to be biased towards foreign markets most similar to domestic markets. The concept has received its most

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complete elaboration in the Uppsala school where researchers have been conducting programmatic investigations into firm expansion behaviour across national boundaries (Engwall 1984; Reid 1981). Cultural distance is regarded as a summary construct representing dissimilarity that decision makers perceive between foreign markets and their domestic markets. These dissimilarities are considered to be influenced by decision makers' stock of knowledge and viewed as major determinants affecting choices of foreign markets and the administrative structures used for conducting foreign market entry and expansion. The investigations into firm expansion behavior also conclude that some cognitive process resembling cultural distance is implicated in determining affective preferences that decision makers have for foreign markets (Reid, 1981 and Welch 1963). Researchers however, adopt their own coinage for what is essentially some underlying psychological construct which selectively reduces the costs of collecting, transmitting and interpreting information about foreign markets. This characteristic is alternatively referred to as 'managerial export orientation', 'international orientation', 'soft and hard market preferences', 'market similarity','similitude', 'motivation towards foreign involvement', 'spatial preferences', and 'psychic distance'. Attempts at operationalizing cultural distance or its many proxies are however subject to serious caveats because of variances in how it is conceptualised and

46

measured ( Luostarinen,l980; Reid 1981; Vahlne and Weidersheim-Paul, 1977). The literature tends to conceive the construct as a composite mix of variables which have affective, cognitive and conative dimensions. These dimensions are obviously situationally relevant and are only meaningful in the context of firm specific decisions. It is also unclear whether buyers act in the same way in spite of evidence showing sellers making perceptual distinctions between markets using a property that is recognized as cultural distance. Since trade results from market exchanges between buyers and sellers we should expect that both groups have similar cognitive discriminatory capacities. The literature is generally silent on this issue. Hallen and Wiedersheim-Paul's 1979 study of how psychic distance is implicated in relationships between exporter and importer remains an exception in this regard (Hallen & Weidersheim-Paul 1979). We can conclude that any elaboration of how the construct acts must pay attention to those mechanisms or processes which facilitate the conduct of market exchange. Contactual Functions and Cultural Distance Cultural distance essentially represents a cognitive discriminatory process that mediates information flows between market actors who are spatially separated. This becomes of major operational significance since any property which removes, reinforces or establishes contactual barriers between markets will affect the

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conduct of market exchanges. Such exchanges cannot take place without information links between buyers and sellers. As a result, market knowledge which reduces these contactual costs will result in decision makers being selectively biased towards product and market choices with which they are most familiar. Foreign market knowledge is necessary for undertaking such contactual functions as investigating market potentials, selection of most suitable customers or sources, identifying idiosyncratic market practices which affect the conduct of market exchanges and establishing personal contact between buyers and sellers. One should therefore find trading activity occurring between markets where buyers and sellers have some stock of personal knowledge which facilitates easier performances of marketing's contactual function (McGarry 1951). In addition, when cultural distance results in providing market actors with some proprietary knowledge advantage, it will most likely be manifested in trading activity. Migration, because it is a social process for transmission of market-specific knowledge across spatial boundaries, is thus relevant for understanding why and how international trade takes place. Migrants and Markets Migrants carry stocks of knowledge and culturally learned behaviors from prior socialization. These behaviors affect what assortment of goods and services particular migrant groups accumulate, which categories

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and expenditures are treated as priorities and the product choices and activities made within any given category of consumption behavior. If migrants remain in relative isolation from their host culture, one can expect a replication of social organizations, consumption styles and practices qualitatively indistinct from those of their country of origin (Barth 1969; Wallendorf and Reilley 1983). Factors which act as major barriers to acculturation and assimilation of migrants will therefore tend to preserve consumption behaviors which are specific to migrant groups. Religion, race, nationality and language are among the major factors responsible for keeping groups intact and result in socially exclusive market exchanges. As these groups become assimilated, their consumption behaviors will conform more closely to that of the general population (Wallendorf and Reilley 1983). Migrant groups tend to settle in geographically bounded territories. It is their high degree of spatial concentration that is significant. This spatial concentration encourages transmission of customs, traditions, language and identification with group as well as the development of markets with culturally idiosyncratic consumption habits and communication styles (Barth 1969; Pavalko 1981). Migrants in such markets establish formal and informal communication networks and facilities which conduct information exclusively for their groups and to which knowledge and access is difficult for outsiders (Chimbos and Agoes 1983). These communications networks include

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social and voluntary associations, fraternal qroups, religious houses, newspapers and TV stations. It is knowledge of and privileged access to these specialized markets that offers market opportunities for firms searching for customers or supply sources (Business Week, October 1979; Wall Street Journal, March 1982). Both buyers and sellers have the same objective and that is to exploit the differential advantage that this knowledge provides. They are able to identify and discriminate market stimuli which are peculiar to groups and individuals who having common ethnic and cultural origins that result in specific consumption styles and habits. Such groups in the initial stages of assimilation are closer in behaviour to populations from their homeland that they are to their country of settlement and represent culturally similar markets. Decision Makers and Ethnic Markets Our discussion so far suggests that migration, because it represents a way in which market knowledge is acquired and transmitted, influences how distant decision makers perceive other foreign markets. It provides decision makers with a specialized knowledge for reducing those risks associated with market search and selection. It confers on decision makers a comparative advantage in obtaining market information, business connections and securing commercial relationships necessary for initiating and maintaining the contactual function in marketing. Social

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processes such as migration most satisfactorily explain cultural distance acting as a cognitive property which enables decision makers to view foreign markets as not being greatly removed from their home markets since, for some decision makers, these foreign markets are their origin or heritage markets. The extensive evidence pointing to minority ethnic groups playing a disproportionate role in retail trade, acting as importers and distributors, supports our conclusions as to the relevance of migration as an explanatory factor for trade and how cultural distance is implicated (Braudel 1981). Close knit groups are able to draw on resources of kin, and community who because of specialized knowledge are more capable of evaluating the riskiness of ventures and magnitude of opportunities. Glade, for instance, shows that systematic and substantial flows of Levantines from the Mideast created externalities such as informal and extensive informational systems which gave these groups an entrepreneurial advantage (Glade 1983). The intermittent contacts between family members, informal links and business relationships formed through retail trading are shown to facilitate extensive informational networks which are used to support market activities. These contacts became a basis for mobilizing loan and equity capital for business expansion. Migration not only serves as a vector for market knowledge but also transmits technical and business skills. The domination of particular industries

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by ethnic groups is attributed to their previous familiarity with production process in their country of origin, and their ethnocultural ties to pools of cheap labour (Fraser 1983). The extensiveness of opportunities in migrant markets is limited by market size. When this happens firms can pursue other markets in close spatial or cultural proximity. It is this expansion outside their original enclaves which may obscure the ethnic distinctiveness that originally characterised such firms. One can summarily conclude that the isolation of migrant markets into groups which show isomorphic consumption patterns and communication networks with their country of origin has two main effects. First, it confers on entrepreneurs, located in either home or heritage markets, a distinct knowledge advantage which is manifested in stimulation and expansion of trade between these markets. Second, it creates market segments which initially have cultural behaviors similar to the country of origin. These behaviors will continue to the extent that goods and services are available which maintain and reinforce of migration have some major implications for marketing practices by private and public policy decision makers. Some Practical Implications We have pointed out that migrant settlements have peculiar social structures, networks and spatial locations which qualitatively distinguish them from other market

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participants. In addition, when these settlements are sufficiently large, they may satisfy necessary criteria for market segmentation. It is these properties that are of significance to international marketing practices and conduct and operationally relevant to private and policy makers concerned with efficient entry into and expansion of foreign markets. In order to determine product saleability firms must have knowledge of the products that cultural groups would consider appropriate for the activities they perform or anticipate performing. The task of introducing products to foreign markets requires firms to understand how an unfamiliar group will behave towards their products. It is this knowledge which determines whether entry into a foreign market.is advisable and what strategic modifications if any, are required for successful market expansion (Sommers and Kerman 1967). Decision makers are faced with such strategic questions in foreign market entry as which market should be expanded into, which type of channel structure and intermediary should be used, how much and what type of product modification is required, and what specific content, form and delivery vehicle is necessary for effective promotions. These decisions are clearly interwoven. Useful indicators on an appropriate entry and expansion strategy can be efficiently gleaned from examining some corresponding domestic migrant markets.

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Market Expansion An expansion strategy based on entry into foreign markets with similar consumption habits is likely to offer greatest opportunities for standardization and operational economies. Apart from securing additional benefits of accumulating marketing knowledge and experience of one market segment, such a market expansion strategy facilitates quicker entry because of lower start-up and search costs. While we acknowledge that consumer and industrial markets may require different considerations, the distinctions from the perspective of our thesis are situation specific and depend on which marketing variables are of primary concern. Entry into similar foreign segments give firms an advantage in being able to deploy specific knowledge about customers and product usage. This means that product adaptation need only address those structural and regulatory requirements peculiar to the importing country without effectively changing a product's attributes. For example, Johnson products, a U.S.marketer of black personal grooming products, has begun a major extensive export involvement in Nigeria, which is being used as a basis to reach a potential black market estimated at about ten times as large as its U.S.A. market (Marketing News February 1980).

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Market Pretesting Migrant markets present low-cost opportunities for pretesting elements of the marketing mix prior to international entry. Such markets could potentially include the foreign countries with which firms are unfamiliar. Difficulties in the market research process can be anticipated and strategies for dealing with such problems developed using migrant communities as pretest sites. For example , one could locate problems with interviewing situations, uncover translation inaccuracies, identify sensitive and misleading questions and check for validity and efficiency of data gathering techniques. All these are considered major issues in conducting cross national market research. Firms could use focus groups and convenience samples from migrant markets to provide economical ways of pretesting research instruments and elements of the marketing mix to be used in similar foreign markets. Such research can also identify or reveal additional domestic or new foreign market opportunities (Carroll 1952; Marketing News October 1981). Such forms of research will also sensitize firms as to unexpected differences which may exist in consumption decision processes between foreign markets prior to market entry. It is the last cited features that we consider to be a major benefit from using domestic migrant settlements for market pretesting. An ethnography of market

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behavior is critical for identifying idiosyncratic cultural variables that may impact on market strategy (Sommers and Kerman 1980, Winnicle 1981). It can alert firms to special product usage situations, cultural taboos and norms that proscribe product consumption and provide them with information on cultural attitudes that affect such product features as package, odour, size, taste, form, shape and brand name. Promotional strategies can also be pretested using migrant markets. This could involve testing of media vehicles for relative effectiveness in creating product awareness and identifying appeals that may be required for more efficient communication. These include testing promotional copy for its salience, appeal and recall effectiveness. One could also examine such issues as message credibility, impact and interpretability and cultural acceptability of musical themes prior to new market entry. Promotional incentives can be researched to see whether their relative impact is likely to be influenced by cultural considerations. Similar concerns as to the possible impact of ethnic differences in buyer seller dyads on selling effectiveness can also be investigated. Systematic observations of migrant markets can provide decision makers with better insights into marketing practices and consumption behavior. Information on retail outlets, their characteristics and assortments that are favoured by migrant groups is likely to make a firm aware of factors that have to be considered in foreign market entry. In addition, some firms may identify

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distributors, other intermediaries and facilitating agencies useful for international expansion to selected markets. Export Policy The export potential in migrant markets should be of primary concern for many countries promoting increased exports. Migrant markets in large metropoles may sometimes have more purchasing potential than their country of origin (Farb and Armagelos, 1980; Lee 1957; Braudel 1979). Products whose consumption is culturally influenced represent the most obvious choices for exports. Such products are likely to involve consumption objects which are tied to and sourced from the country of origin. Goods and services which are related to food, entertainment, fashion or leisure time activities and which are explicitly or implicitly symbols representing consumption styles of migrant groups, offer opportunities for increasing exports. These exports may be in the form of foods and services or cultural artefacts in such discrete forms as records, movies and folk art. Cuisine and cooking implements, clothing, literature, cosmetics , financial and personal services, non-proprietary standard medicines, drinks, housing and sport artefacts will fall into these categories of goods (Iler, 1985; Griffiths, 1985). Promoting and exporting such products have three major advantages. First, supplying these products 57

provides specialized market niches that are opportune for small businesses. Second, such exports tend to have net positive impacts on foreign exchange since they are most likely to use local inputs. Third, in migrant markets, the initial exporter has a comparative advantage in knowledge which is most effectively used. This helps in making exporting seem less risky and is an incremental way of introducing an export orientation. Since migrant markets are only part of a larger national market, exporters are thus able to profitably familiarize themselves before expansion into other national market segments. Indeed, firms could conceivably engage in multinational expansion strategy using such approaches, entering all potential in migrant markets at the same time and thus gain economies in operational scope. Research Issues and Conclusion Cultural distance is shown as a property which can be validly interpreted as a cognitive characteristic affecting how individuals perceive and discriminate stimuli from other cultures. It is manifested through consumption choices and in the main, predominantly influenced by social learning processes that promote contact between groups who are spatially separated. Migration is shown as a major contributory factor in this process since it encourages transmission and replication of behaviours across and within countries.

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We have however, no explicit theoretical framework to specifically indicate which types of consumption behaviors are most likely to be fully replicated, those most likely to be adapted and those one will expect to be rejected as migrant groups become more assimilated. In addition, more empirical evidence to show which products offer the best opportunities for exports to these markets. Recent evidence groups become more indicates assimilated that as migrant and acculturated, their consumption patterns and products become closer to societal norms. It is possible however, that these behaviors result from unavailability of products because these assimilated segments have become culturally isolated as a result of internal migration. We have data which suggests that firms serving these markets do find additional opportunities by extending their market boundaries and adapting a marketing mix to serve these 'assimilated' customers (Wallendorf and Reilley, 1983), it is, however, insufficient for generalization. Because cultural distance plays a major role in fostering international market transactions, systematic and programmatic research must be directed towards examining the phenomenon. Such research, by illuminating a central subject in international market behavior, will have significant payoffs for public and private sector export and international market expansion policies. A major indirect consequence of this type of research thrust is that it will force investigators to examine the specific context which

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defines how market consummated.

exchanges

arise

and

are

References Barth, F. (1969) Ethnic Groups and Boundaries, Little Brown and Company, Boston, Mass. Braudel, F. (1981) The Wheels of Commerce, New York, N.Y: Harper and Row, pp. 140-183. Business Week (1977; October 22) 'Businesses that ride a rebirth of ethnic pride', pp. 149 - 153, 156. Carroll, R. (1952) Selecting motion pictures for the foreign market. Journal of Marketing, Vol. 17. No. 2, pp. 162- 171. Chimbos, P. and Agocs, C. (1983) 'Kin and hometown networks as support systems for the immigration and settlement of Greek Canadians', Canadian Ethnic Studies, XV, 2, pp. 41- 56. Engwall, L. (1984) Uppsala Contributions to Business Research, Universitatis Upsaliensis, Uppsala, Uppsala University. Farb, P. and G. Armagelos (1979) Consuming passions, (Boston, MA. Houghton Mifflin Company 1980; Lee,'The cultural and emotional values of food', Merrill Palmer Quarterly, Vol. e, (Winter, 1957), pp. 8 4-88. Braudel, F. The structures of everyday Life, New York, NY; Harper and Row, pp. 104-133.

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Fraser, S. (1983 Winter) Combined and uneven development in the mens' clothing industry,Business History Review, Vol. 57, pp. 522-549. Glade, W. (1983, May) The Levantines in Latin America, American Economic Association Papers and Proceedings, Vol. 73, No. 2, pp.118-123. Griffiths, A. (1985, April) The bees knees and more: How national importers made a killing in the fad food trade. Canadian Business, pp.25 - 30. Hallen, L. and Weidersheim-Paul, (1979) Psychic distance and buyer-seller interaction, Organisation Marked og Samfunn, Vol.16, No. 5, pp. 308-324. Her, T. (1985, April) Nobody does it Beta, Atlantic Business, p. 35. Luostarinen, R. (1980) Internationalisation of the firm. Acta Academica Oesonomicae Helsingnien-sis, The Helsinki School of Economics, Helsinki, McGarry, E. (1951) The contractual function in marketing. The Journal of Business, April, pp. 96 113. Marketing News (1980, February 22) Beleaguered Johnson Product Co.,plans war with cosmetology grants, p.7. Marketing News, (1981, October 2), Firms to distribute coupons to blacks through churches, p.5

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Pavalko, R. (1981) 'The spatial dimensions ethnicity'. Ethnic Groups, 3, pp.111-112, Reid, S. (1981, Fall) The decision maker and export entry and expansion, Journal of International Business Studies, pp. 101-112. Sommers, M. and J. Kerman (1967, April) 'Why products flourish here, fizzle there', Colombia Journal of World Business, Vol.2, pp. 89-97. Stefflre, V. (1968) 'Market structure studies : new products for old markets and new markets (foreign) for o Id products' in Applications of the Sciences in Marketing Management, F.Bass, C. King and E. Pessemier, (eds,) New York, NY: John Wiley and Sons. Team Talk (1979, January-February) (Amheuser -Busch Company Newsletter) No longer minority makrets. pp. 14 - 16. Vahlne, J. and F. Weidersheim-Paul (1977) Psychic distance - an inhibiting factor in international trade Centre for International Business Studies, Working paper no. 2, Uppsala - Sweden, University of Uppsala. Wall Street Journal (198 0, December 10) Foods Inc. no. 1 in our Hispanic market aims broaden base. March 23 (1982) pp. 1, 2 4 and'Firms seek to tighten links with Hispanics as buyers and workers', pp. 1-20. Wallendorf, M. and M. Reilley (1983, December) Ethnic migration, assimilation and consumption, Journal of Consumer Research, Vol.10, No. 3, pp. 292-302. 62

Welch, L. (1983) Managerial decision-making: the case of export involvement. Scandinavian Journal of Materials Administration, Vol. 9, No. 2, pp. 42-56. Winnick, C. (1981, July) Anthropology's contributions to marketing, Journal of Marketing, Vol. 26, pp. 53-60.

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Developing Communication Strategies for Foreign Market Entry M. Frank Bradley University College, Dublin Ireland

Introduction In developing a marketing strategy for foreign market entry the firm must pay particular attention to how it wishes to be positioned in the market. Positioning strategy is part of overall marketing strategy. A positioning strategy implies a frame of reference for the company's image among its target customers, the reference point usually being the competition. In international marketing a positioning strategy can provide a focus for the development of an advertising campaign. The strategy may be conceived and implemented in a variety of ways that derive from company attributes, the competition or the types of customers involved, to name the more important. When the company and its competitors act in an international arena a further dimension becomes 64

important; the country of origin. (Bradley, 1984). The political economy of international marketing is an increasingly important factor which must be considered by the marketing manager of the multinational enterprise (Bradley, 1983). Myriad factors are thought to contribute to the formation of a country's reputation abroad and the attitudes thus formed tend to dispose foreign buyers in a particular way towards a country. Countries are known for their ability to develop and cornrnercialise new technology, for their sophistication in the arts, for their educational attainments and so forth. A propensity on the part of buyers to behave in a certain way due, for example, to country of origin effects, would be of considerable concern to the manager of a multinational enterprise operating in more than one country. The political economy of international marketing and, in particular, that manifestation of it which contributes to the development of attitudes toward countries is not a passive affair. Governments spend large sums of money promoting various aspects of their countries. Through export promotion agencies, tourism promotion bureaux and various industrial development boards governments have become highly active during the past two decades in promulgating claimed advantages for their respective countries in regard to the sourcing of products and services and in regard to suitable locations for foreign direct investment. Public policy is also designed to influence other less commercially related activities, all

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of which lead to the formation among residents of foreign countries of certain attitudes toward the country in question. A well-designed international positioning strategy based on a well conceived marketing programme can be used to mould and reinforce desirable images emanating from the political economy of international marketing framework discussed above. The decision regarding an international communications strategy will mean selecting those country-company associations to build and emphasise and those country-company associations to remove or neutralise. Research Objectives Existing research in the area is dominated by 'made-in' cues which have been shown to be unsatisfactory in understanding the latent evaluative/attitude formation structures among buyers. (Bilkey and Nes, 1982). Furthermore, recent research suggests that our understanding of this important topic in developing communications strategies depends upon few shared conceptual findings (Bradley, 1984). Consequently, the penetrating analysis of the latent evaluative mechanisms buyers use in assessing international marketing companies is required. This paper attempts the following contribution to such a debate: 1. To explore industrial buyers' similarity and preference assessments of specified countries and

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international marketing companies originating in those countries. 2. To explore the relationship using latent attitude evaluative structures, between country position and company position. 3. To attempt to identify the underlying evaluative attitudinal structures used by buyers. Research Methodology Attitudes to countries and attitudes to multinational firms corresponding to these countries were measured using the following linear compensatory multiattribute model:

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Use of the above attitude model is justified by noting that this model or variations of it have been widely discussed in the literature (Ajen and Fishbein, 1977; Fishbein, 1975; Sampson and Horns, 1970; Ryan and Bonfield, 1980). In developing a corporate attitude, the MNE is concerned with all three components of an attitude; the cognitive component, the affective component and the conative component. It is postulated that external factors and internal factors influence the attitude formation process. External factors include prior formed attitudes towards

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the country of origin. It is further postulated that external factors dominate the cognitive component whereas internal, company specific factors dominate the affective component of the attitude formation process. The conative component is the synergistic outcome of external and internal factors (Table 1).

Table 1 Components and Source of Attitudes Toward the Multinational Firm. Researchers usually focus their efforts on the affective component as it is easier methodologically and because it is presumed that the cognitive component must be activated before the affective component comes into 69

play. This, of course, gives rise to the serious methodological issue that if such priority does in fact obtain, then a low score on the affective component could reflect lack of awareness of the company rather than weak evaluation of the company per se. In measuring attitudes and interpreting attitude scores on the affective component, therefore, it is necessary to pay particular attention to the different experiences the firm may have developed in international markets. This is done in the present study by incorporating a time effect measured by market share. Data Collection Each respondent was asked to complete a structured questionnaire to determine his or her attitude towards countries and companies supplying users in Ireland. The questionnaire used in the study is available from the author. In order to elicit responses and to identify candidate countries, for further examination respondents were asked the following; Please list the countries which first come to mind when considering purchasing sources for electrical and electronic products or materials. A similar question had been used previously (Nagashima, 1977). Additional filter questions were also asked of respondents but these are not discussed here. As a result of this part of the research each respondent identified countries for further analysis. The respondent was then asked to complete Part I of the questionnaire which dealt with country evaluations 70

only. Part 2 of the questionnaire dealing with company evaluation was administered separately and subsequently. The question outlined above was also presented to the respondents with a word 'company' substituted for 'country'. Some respondents identified as many as ten suppliers whilst others had difficulty in finding five to include in the evaluation. In this fashion companies originating in eight different countries and active in the market were identified. Data for the multiattribute attitude model described above were collected by using 10 scales for country evaluations and 27 scales for company evaluation. Companies were evaluated on the principal marketing policy areas of product policy, pricing policy, communications policy, distribution and service policy and market development policy. The questionnaire was pilot tested and the 10-point scale was found to be effective in obtaining the attitude information. Likewise giving points out of ten was found to be very effective in obtaining factor importance information (Table 2). The questionnaire was administered during a personal interview, each interview taking between one and a half and two hours to complete. Respondents The respondents used in the study were 60 senior buyers in the electrical and electronic products industry in Ireland. Most of the buyers had either full responsibility for purchasing or were members of a purchasing team. Approximately half the buyers

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sampled had a technical education while the remainder were commercially educated and trained. The principal sectors of the industry covered were electronic components and finished electronic products, telecommunications equipment and sophisticated electromedical equipment. Because of the relatively small size of the market it was possible with 60 senior buyers to have very wide coverage and to minimize the possibility of serious bias. Table 2: Data Collection-Instrument for Country and Company Attitudes

Multidimensional Scaling of Attitudes The linear multiattribute attitude model described above allows us to generate individual attitude scores for countries and companies among a set of respondents. While this is valuable information in itself it was also an objective of the research to obtain a quantitative representation of the set of data provided by 72

respondents. To attain this objective a number of non-metric multidimensional scaling techniques were used for a subset of respondents. The basic idea behind multidimensional scaling (MDS) is that much data can be thought of as giving information about how similar a set of items are to each other: in the present case MDS models represent the countries and companies of interest as points in space. In the present case, interest centred on attempting to portray complex data in a simpler manner, i.e. to represent the relationships among companies and countries as perceived by buyers in a spatial format. It was also important to infer latent dimensions in the attitude formation process, i.e. to identify the factors involved in respondents' judgements of the similarity and preferences for dealing with specified countries and companies. It was also of interest to examine the degrees to which the latent evaluative structures were similar for countries and companies. A second reason for analysing the data within an MDS framework arises from the fact that we can use MDS models without being committed to the distributional or measurement assumptions usually made with other techniques. The main impetus towrd using MDS derives from a wish to develop a distance model as a paradigm for the measurement and analysis of socio psychological data such as those described above. (Coombs, 1964). In non-metric MDS only the ordinal content of the data is made use of in obtaining a

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solution, so any set of data with the same ordering of dissimilarities will generate the same metric solution. Multidimensional scaling of data as the name implies is concerned with examining relationships in data on more than one dimension. As the present study is exploratory and as it is also an attempt to contribute to research methodologies for the analysis of the attitudinal relationships presumed to exist between countries and companies the research will proceed on the basis of two dimensions only. Basically, the outcome of this part of the analysis will be the derivation of a representation for the research data similar to that shown below (Figure 1). It is of interest in examining similarities between countries and companies to observe how close the observation for, say, Country A is to its corresponding company observation, Company a. In regard to preferences for dealing with a particular country or company, it is of interest to note the length of the vector from the origin to the point concerned; the further the country or company observation is from the origin, the more preferred and vice-versa. A key part of the research is to attempt to identify the dimensions underlying the evaluation. It is hypothesised that the dimensions underlying the country evaluations are the same as those underlying the company evaluations. If this hypothesis is supported then it will be possible to superimpose the MDS solution for company data on the MDS solution for country data to derive a spatial representation of both sets of data on 74

the same diagram. Should the dimensions be different this imposition will, of course, not be possible. This then is the major objective of the MDS analysis in the present paper. In the present case similarities data for countries and companies were obtained from 20 respondents selected from the overall group of 60 to represent different sectors of the industry. The data were obtained using the anchor point method. (Neidel, 1969; Henry and Stumpf, 1975). The research instrument used to generate the scaled data is shown below (Table 3 ). Respondents used each country, and separately, each group of companies as anchor points in making the comparisons. Only that part of the matrix below the diagonal had to be completed as the rest is redundant. The triangular matrix analysed for each respondent contained numbers which could rapge from 1 (perfectly similar) to 10 )completely dissimilar). While interval measures might be derived from this procedure only the ordinal results were used.

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Table 3 : Generating Data for MDS Models

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Research Findings The research findings are presented in four sections. First, we examine awareness levels for countries and companies originating in those countries. Second, attitudes to countries and companies are discussed. In the following section these attitudes are decomposed into their constituent elements. Finally, the results for the MDS models are presented. Awareness of Countries and Companies In terms of Country awareness the data show that the United Kingdom had the highest average awareness score (l.77) and a standard deviation of l.09 (Table 4). France ranked last in terms of average awareness score (3.23) and there was very little variation around this

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score (S.D. 0.73). In terms of Country awareness Italian companies had a relatively high variation (S.D. 1.12). Overall, the average awareness level for Countries is higher than for Companies, (Country mean score 2.25; Company mean score = 2.50). But this is not true in all situations. In terms of awareness, French companies are better known than France. The same is true for Italian, Dutch, Swedish, Swiss and U.S. companies. It may be concluded, therefore, that some countries are better known as sources of electrical and electronic products, Germany arid the United Kingdom for example, than companies located in those countries, but in most instances buyers are.more aware of individual companies than their respective countries. The data provide evidence of possible interrelationships between countries and companies but causality is not inferred. Using an analysis of variance on the data in Table 4, it is shown that while the data for Country is statistically significant at the one per cent level, the data for Company is not significant. Other factors such as the role of the buyer, educational background and industry sector were also found not to be significant. Table 4 : Awareness Levels of Countries and Companies

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Attitudes to Countries and Companies Attitudes to countries and companies were derived through the use of the linear multiattribute model described above. The results are presented below (Table 5). Attitudes to countries are discussed first. Buyers of electrical and electronic products in Ireland favour the Netherlands (5.53) as a country of origin followed closely by Italy (5.16) and Germany (5.05). The least favoured country is Switzerland (4.49) which scored only marginally lower than France (4.50). But noteworthy is the degree of variation in these data. Attitudes towards Italy are the most focused as reflected in the lowest standard deviation (0.52). The largest standard deviation is associated with attitudes towards the United Kingdom ( 1. 4 0). Not much can be made of these variations, however, due to the small sample size in the case of some countries. A slightly different pattern appears in regard to attitudes towards companies. The model suggests that the most 79

preferred comapnies are Italian (4.92) followed closely by companies from the United States (4.86), and in third place, Dutch companies (4.79). The least preferred, as measured by attitudes, are French and Swedish companies, both of which had a score of 4.26. Again, the standard deviation is lowest for Italian companies (0.77). It is highest for French and US companies (1.13). Sample size is again an issue. An interesting feature of the above table and significant in present circumstances is that country attitude scores are on average higher than the corresponding company attitude scores. This is true for all cases with the exception of the United States and here the difference is only slight. A second feature is also worth noting. Respondents are more focussed in their attitudes towards companies than they are in their attitudes towards country of origin. This may be judged by noting that with the exception of Italy and the United States, the standard deviations for companies are smaller than the corresponding deviations for countries. Finally, it is clear that there is a close association between country attitude scores and company attitude scores. The Pearson correlation coefficient for this paired comparison is 0.60. Table 5 : Attitudes to Countries and Companies

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Decomposition of Attitudes Using the linear, compensatory multiattribute model, it is possible to decompose the attitude scores into their component parts. Following the traditional micro-economic view of marketing management the four major marketing policy instruments (the 4 P's) were examined separately. In addition attitudes towards company marketing R & D programmes were evaluated. The individual attitude scores for these five marketing variables are shown (Table 6). Now we see a considerable variation in attitude scores across the marketing mix elements. Taking the average for all countries first, the highest score is accorded to product policy (5.09), while the lowest score is given to pricing policy (3.94). The standard deviation associated with the product policy score is also lowest (1.14) while that associated with pricing policy is highest (1.50).

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Some of the more aggregated attitude scores are shown in a more easily assimilable form when decomposed into their respective elements. The variation in attitude scores across countries and across marketing mix elements is considerable. Taking each element in turn we note that Swiss firms score the highest on product policy (5.40) with German firms second (5.30) and Dutch firms a close third (5.25). Swedish firms performed weakest on this criterion (4/68). On price, a very different pattern emerges. Italian firms perform best on price (4.51) followed by UK firms (4.29) and in third place are Dutch firms (4.10). The lowest score on price went to Swiss firms (2.92). Italian firms dominate on communications policy (5.38), followed by Dutch firms (4.94) and U.S. firms (4.78). The lowest score on communications was obtained by French firms (4.12). On distribution policy U.S. firms were best, receiving a slightly higher score (5.26) than Italian firms with German firms in third place (5.10). U.S. firms dominate R& D policy (5.03) compared to the second placed Dutch firms (4.61) and, only marginally in third place, were German firms (4.57). Swedish firms performed weakest on this dimension (4.01). Table 6 : Attitudes to Marketing Mix of Companies

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The importance of all marketing mix elements in establishing the top three firms overall is clearly in evidence. The compensatory nature of the model is also clearly in evidence; a top performance by Swiss firms on product policy was not sufficient to compensate for the very weak performance on price. In order to establish the importance of each element of the marketing mix the Wid component of the model specified previously was computed for the 60 respondents. The results are shown (Table 7). These are the importance weights the buyer attaches to each of the elements in the marketing programmes designed by international firms active in the Irish market. Table 7 : Importance to Buyers of Marketing Policy Instruments

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Buyers attach most importance to distribution policies and how well the market is served generally (7.22). Also of considerable importance to buyers is product policy (6.96). Of interest, and confirming much that is already known of industrial marketing, is the lowest score obtained for price policies (5.87). This completes the analysis using the linear compensatory multiattribute model. We now turn to an analysis of the data in a multidimensional scaling framework. This completes the analysis using the linear compensatory multiattribute model. We now turn to an analysis of the data in a multidimensional scaling framework. Country and Company Preferences Country and company preferences were established through the use of multidimensional scaling of the data. 84

A number of the MDS (X) series of multidimensional scaling programmes were used. (Carroll and Chang). The results obtained by using the multidimensional preferences scaling model for countries, companies and respondents are shown below(Figure 2). In the figure below the preferences of 20 buyers for eight countries and companies corresponding to those countries are shown. The MDS programme reconfigures the input data to position the countries and companies in a Euclidian space, and represents each respondent by a vector or line directed towards the region where that respondent's highest preference lies. In the case of a perfect fit, the projections of the countries and companies on this line correlate perfectly with the respondent's preference scores. Note further that the respondent vectors are normalised, for convenience only, to the same length, ie. their ends lie at a common distance from the origin of the space forming a shape approximating a circle. The length of the vector from the origin is related to the amount of variation in the data explained by the two dimensions of the solution, ie. the variation explained by the two dimensions which reflect the latent evaluative structure of the present set of respondents is stronger for observations further from the origin, e.g. B, g, G, c, and a, than for observations close to the origin, eg. C, d, e, and f. There are a number of features of the solution worth noting. Taking the respondents first we see that they are concentrated in the third quadrant (10 respondents) with 85

a second group of six respondents in the second quadrant. One respondent (no. 8) is somewhat unique being located in the first quadrant. The second noteworthy feature is the position of the countries and the companies relative to the preferences of the respondents. In this context Germany and German firms, the United Kingdom and UK firms appear in the direction of the preferred location of many of the buyers in the largest definable segment (includes respondents 3, 6 and 7). This segment, if broadened out to include other buyers in this quadrant is also well served by U.S., Swedish and Dutch firms judging by their position in the figure. The position of Italy and particularly of Italian firms and the position of the United States itself also confirm some of the results obtained previously. Finally, note the position of French firms and Switzerland; there is no clear identifiable preference expressed for these positions further confirming the results obtained previously for the linear compensatory multiattribute model. Figure 2 : Country and Company Attitude Data Tested For 0 Preference

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So far we have not examined how similar countries and companies are perceived to be by the buyer group. Nor have we identified the latent evaluative structure (identity of the dimensions) used by the respondents. It can be inferred, however, that in terms of preference it appears that buyers use the same underlying evaluative structure when examining companies and countries of origin. While we have an intuitive reason for accepting this hypothesis, it is necessary to examine the issue further. The task of examining the data for similarity features is carried out first.

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Similarities Between Country & Company Evaluations The data collected to test for preferences were also tested for similarities using the individual differences scaling programme (INDSCAL) in the MDS(X) series of multidimensional scaling programmes. This programme helps to explain the relationship between buyers' differential cognition of a set of stimuli such as companies and countries of origin. The main output of the programme is a 'group space' where in our case the countries and companies are located as points along two dimensions. The configuration thus achieved is in effect a compromise between different buyers' configurations, and it may conceivably describe the configuration of no single buyer. The results obtained for the 20 buyers are shown below (Figure 3). While it has generally been found that the recovered dimensions of this particular scaling technique yield readily to interpretation, the discovery of the latent evaluative structure underlying the comparisons is not an objective here, but will be treated more formally in the next section where we attempt to identify these properties. Figure 3 : Country and Company Attitude Data Tested ror Similarity

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Referring to the perceived similarities data for countries and companies it can be seen that, for a number of pairings, a close correspondence exists in the evaluations. The following pairs are reasonably closely associated on both dimensions; B:b; C:c; G:g; and H:h/ Country company pairs A:a and F:f are close on Dimension l but not so close on Dimension 2 whereas the opposite is the case with D:d. Overall, therefore there is a reasonably close correspondence between country and company evaluations in terms of similarity.

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The average correlation coefficient for all countries was 0.52 and for all companies was 0.50. Nature of Latent Evaluative Structure In an endeavour to identify the latent evaluative structure used by buyers we fitted a linear function to the data having first identified two properties which are hypothesised as being important in determining the underlying evaluative structure. Recall that it was hypothesised that buyers use the same latent evaluative mechanisms when examining companies and countries of origin. To test this relationship we fitted country and company attitude scores to the respondent data and the results are shown below (Figure 4). In the above diagram it is noteworthy that there is a reasonably close correspondence between countries and companies using the fitted properties as determining variables. The strength of the relationship is mapped out by the vector running diagonally up through the data points for countries and companies. The relationship tested is stronger for country-company combinations towards the top of the diagram than for those toward the lower part of the figure. Hence, buyers have a stronger propensity to use the same underlying evaluative structures when dealing with the United States and US companies (H:h), Germany and German companies (B:b) and Italy and Italian companies (C:c). However, the use of the same evaluative structure is not so well in evidence for the United Kingdom and UK firms (G:g),

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the Netherlands and Dutch firms (D:d), Sweden and Swedish companies (E:e), and Switzerland and Swiss firms (F:f). Figure 4 : Identifying the Latent Evaluative Structures in Country and Company Attitude Formation Process

We also fitted additional properties, eg. attitudes to elements of the marketing mix of companies, relative marketing shares etc. Similar results were obtained but are not discussed here. The evidence available suggests that buyers do at least partly use the same latent evaluative structure when assessing countries and companies in their buying behaviour.

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Discussion and Conclusions Of particular importance to the marketing manager operating in an international environment is the increasingly pervasive influence of political economy features. The political economy of international marketing has come to the fore very clearly in economies where governments, directly and indirectly, take a keen interest in promoting aspects of their countries. It is argued that the multiplier effect of such campaigns affects the image of companies originating in such countries and, therefore, an issue to be considered by management in developing an international marketing programme and, more especially, an international communications strategy. The evidence presented in this paper suggests that there is a relationship between a buyer's attitude to a company and the country of origin. This evidence derives from three different methods of analysing attitudinal data (a) an awareness study, (b) use of the linear multiattribute attitude model, and, (c) a set of multidimensional scaling models. All three methods confirm the association postulated. A major objective of the paper was to test whether buyers use the same underlying evaluative criteria when assessing companies and countries of origin. Using a multidimensional scaling model we were able to conclude that there is evidence that such is the case. The relationships were shown to be stronger in respect of a number of country-company combinations. We

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also explored additional underlying criteria which confirm these findings. The results of the three approaches broadly confirm the hypothesis that there is a positive relationship between the country and company attitudinal formation process and that buyers use the same latent evaluative criteria in making such evaluations. There are a number of areas of further research many of which are identified above. In particular it is necessary to further test for significant relationships using the MDS models outlined. It is also necessary to test for these relationships for different environmental and marketing conditions. In developing a foreign market entry strategy the company new to international marketing or the company considering an international diversification strategy should pay particular attention to buyer perceptions of the company's country of origin. This is a new ingredient in the marketing mix which the manager must consider in developing strategy. It is an element largely ignored by companies which have developed in large domestic markets. Only recently has the phenomenon come to the attention of managers in the smaller marketing economies. Academics are also beginning to take an interest in the area. It is concluded that only the foolhardy marketing manager will ignore the effect that country level factors can have on corporate positioning strategies in international marketing.

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References Ajen, I. and M. Fishbein (1977) A Theoretical Analysis and Review of Empirical Research, Psychological Bulletin, Vol.84, No.5, pp.888-918. Bradley, M.F. (1984, April 25-27) Effect on Buyer Choice Behaviour of Attitudes Toward Countries and Multinational Enterprises, Proceedings, European Marketing Academy, The Netherlands Business School, Nijenrode, The Netherlands. Bradley, M.F. The Linear Compensatory Multi attribute Attitude Model in Marketing Research Issues in Theory and Practice, Working Paper Series No. 1, School of Applied Economics, Ulster Polytechnic, Northern Ireland. Bilkey, W.J. and E Nes (1982, Spring-Summer) Country of Origin Effects on Product Evaluation, Journal of International Business Studies, Vol. 13, No. l, pp. 89-99. Carroll, J.D. and J.J. Chang, The MDS (X) Series of Multidimensional Scaling Programmes, Distributed through MDS (X), Project Dept. of Sociology, University College Cardiff, Wales. Coombs, C.H. (1964) A Theory of Data, Wiley, New York. Fishbein, M. (1975) Attitude, Attitude Change and Behaviour: A Theoretical Overview, in Philip Levine

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(editor) Attitude Research Bridges the Atlantic, American Marketing Association, Chicago, pp. 3 - 16. Henry, W.A. and R.V. Stumpf (May, 1975) Time and Accuracy Measures for Alternative Multdimension al Scaling Data Collection Methods, Journal of Marketing Research, Vol. 12, pp. 165-170. Nagashima, A. (July, 1977) A Comparative 'Made In' Product Image Survey Among Japanese Business men, Journal of Marketing, Vol. 41, pp. 95 - 100. Neidel, L. (October, 1969) The Use of Nonmetric Multidimensional Scaling in Marketing Analysis, Journal of Marketing, Vol. 33, pp. 37-43. Ryan, M.J. and E.M. Bonfield (Spring, 1980), Fishbein's Intentions Model: A Test of External and Pragmatic Validity, Journal of Marketing, Vol. 44, pp. 82-95. Sampson, P. and P. Harris, (1970) A User's Guide to Fishbein, Journal of the Market Research Society, Vol. 12, No.3, pp. 40-60.

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The Transition to Industry Maturity: An Irish Firm's Experience Aidan O'Driscoll College of Marketing and Design, Dublin Ireland

Introduction As markets and industries evolve, so also does the competitive behaviour of their combatants. As companies' strategies change, so also do their organisational structure and behaviour. One can at least be categoric about this. One can subscribe to the view that structural change is an inherent part of strategy formulation or to the view that structure follows on strategy, but one cannot deny the need for organisational change. It can be costly, time-consuming and traumatic for companies, but if it is avoided, stagnation and decline will result. This paper attempts to briefly examine some of the changes in organisational structure and systems that took place over a decade in a large Irish company supplying stone-based building materials to the building 96

and construction industry. It describes a transition from halcyon days of high growth rates and a dominant position in a rapidly expanding industry to an era of restricted growth opportunity and competitive pressures in a more mature market. An evolution from a broadly entrepreneurial style of management to a more professional style is witnessed. While organisational development continued over the decade and the company's personality gradually changed, major re-vampings of the organisation structure took place in 1978 and again in 1982. The strategic thinking underlying this organisational re-structuring is discussed. The Company Roadstone is the largest supplier of stonebased building materials to the Irish Construction Industry. It manufactures and sells stone-fill, aggregates, readymix concrete, tarmacadam, concrete blocks and roof-tiles. It operates some 30 quarries and gravel pits throughout the country which produce the primary stone products. Secondary production of concrete products and tarmacadam takes place on a number of these locations ensuring an integrated production and process (described in Exhibit 1). Its transport fleet is second in size only to that of C.I.E. , the Irish National Transport Company. It employed approximately 1,900 people in 1982. Roadstone is the subsidiary company of C.R.H., Cement-Roadstone Holdings, which is Ireland's second

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largest manufacturing company with an annual turnover of IR £420 million in 1982 and 8,200 employees. Cement-Roadstone Holdings is itself the result of a merger in 1971 between Roadstone and Cement Ltd, the only producer of cement in the Republic. Since the merger, C.R.H. has expanded and diversified its interests within the building materials supply industry both in the Republic and in Northern Ireland as well as overseas in the UK, Holland and the US. The level of activity in the national economy and in the building and construction industry, in particular, largely dominates the fortunes of Roadstone, and, indeed, of the domestic activities of C.R.H. Government public capital expenditure in the building industry plays a crucial role as it determines almost half the industry's total output. Traditional Keynesian fiscal policy suggests that such Government capital spending should be counter-cyclical, ie. increasing investment in the construction industry to boost the economy in times of overall economic down turn, and vice-versa. In practice, however, in Ireland's Exchequer investment in the construction industry has tended, due to the exigencies of budgetary constraints, to be pro cyclical, thus further compounding the industry's reliance on the overall level of G.N.P. growth.

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Emergence The sixties were a period of 'take-off' in the Irish economy. It moved from being largely rural and isolationist into an era of rapid industrial development and of competition in world markets. Infrastructural development underwent a quantum leap. The building and construction industry boomed. Roadstone had been founded in the '30s by two brothers as a small sand and gravel business. In the '40s and '50s it steadily prospered to become the largest supplier of stoneObased building products in the country. For the company, as for the economy, the 60's were a period of rapid growth. There were many acquisitions of competitors, sizeable capital investments in new quarries and pits and the company largely attained its present size.

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The locomotive of the company's success was the dynamic stewardship of the two founding brothers. One, the Managing Director, was the classic entrepreneur, a commercial visionary, an independent-minded pioneer and something of a mechanical genius. The other brother had complementary skills in office administration, sales representation and personnel management. Together they moulded an organisation which enjoyed the ardent loyalty of its management and workforce and commanded a reputation for first quality products, excellent customer service and technical innovation. During this period in 1966, an extensive study (Murray, 1970) in organisational behaviour and administrative practice was carried on in the Company by an outside academic consultant. The study vividly conveys the organisational 'ethos' of the company at that time. Typical comments of senior executives on the leadership style of the Managing Director included; "He values energetic people-he gets things going-he is expansion minded". "The boss is a doer-he gets mortally upset with planning. He doesn't like meetings -he suffers them". "He is not interested in figures - he gets more out of looking at things than at sheets of paper. He works more by contact and sight". The study identified two styles or models of management within the firm. The first was the actionist or non-bureaucratic model adopted primarily by the

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majority of longer serving senior executives who had participated in the firm's growth and success, and who were unswerving disciples of the Managing Director. This model was characterised by a minimum of formal rules and procedures, an intensive interest in physical objects such as plant, an instinctive approach, a compulsive desire to move around and observe what was going on, and above all, an extremely rapid response to stimuli relating to production and to signals from the Managing Director. The second was categorised as the industrial engineering model and was adopted by nearly all of the professionals, mainly engineers and accountants, who had entered the company in the 60's. This model was characterised by a interest in systems, rules, procedures, organisational charts, meetings, committees and indeed contained many components of classical bureaucratic models. Because of the entrepreneurial style of leadership of the Managing Director, the actionist model was still the dominant one. The study also elaborated on the loose and informal nature of the organisation structure. It was functional in character despite the size and geographical diversity of the company. The Managing Director continued to make all the rnajor decisions. Management control procedures were crude. Reports emphasised historical and unit costing and lacked standards, targets or budgets. Budgetary control as such was in its embryo. While such an approach to organisational structure and systems had served the company well in the past, there 101

was a growing appreciation among senior management of the need for change. In the latter part of the 60's, the company was divisionalised on a geographic basis, each of the five regions having their own profit responsibility. The largest region, Dublin, was further broken-up into two divisions on a product basis. Budgetary control and management information systems were improved and a greater level of professional management became evident in the firm. Transition In the early '70s, Roadstone's performance reached a peak in terms of profitability, return on investment and market share position. The merger with Cement Ltd. in 1971 had spawned what was to become Ireland's second largest multi-national company, C.R.H. But for Roadstone itself the remainder of the decade was to present a number of sizeable problems. These were primarily three fold; (i) Hit by the two oil international crises, the economy developed much more modest rates of growth than in the 60's and early 70's. Similarly, the output of building and construction industry, following its fifteen years of frantic growth to meet the demands of the country's new-found industrialisation, was much more limited for the rest of the decade. (ii) With Ireland's accession to E.E.C. in 1972 there was shift in the growth in economic activity towards rural

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areas and away from urban areas. The economic spin-off caused by the growth of farmers' incomes ensured a considerable boost to building activity in rural areas for the 70's. Roadstone had evolved to largely serve rural markets, especially Dublin, and many small competitors were quick to take advantage of this shift in market demand. (iii) There was in general, a substantial growth in the level of competition facing Roadstone both in urban and rural markets. Greater access to capital markets and a greater availability of the technology of stone extraction and concrete product manufacture made for lower barriers to entry than had existed in the 60's, and made the prospect of an attack on Roadstone's dominant market position all the more attractive to competitors. In summary, Roadstone had emerged from almost a fifteen year period of dramatic expansion in a rapidly growing market to an era of limited growth in a more mature market with much more intense competition. Porter (1980) has identified the changing strategic needs of companies during this transition period to industry rnaturity. As competition now tends to be more cost and service oriented, there is a need for more sophisticated cost analysis, greater attention to process innovation and design for manufacture, as well as a greater commitment to planning and more careful buyer selection.

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Roadstone recognised that such sophisticated cost analysis was becoming increasingly important in maturity in order to rationalise the product mix and to price more correctly. A more detailed costing of individual products coupled to a computerised management information system enabled marginal items to be weeded out and product prices to be set more accurately. The looser average cost/pricing approach of the growth era often resulted in implicit cross subsidisation within the product line, hiding products whose markets could not support their true costs and giving away profits in those situations in which buyers were not price sensitive. This enhanced level of 'financial consciousness', to use Porter's phrase (Porter, 1980) was accompanied by increased efforts to lower costs. Design modifications to production processes, the installation of cost-saving equipment, the full exploitation of economies of scale, all helped the company to pursue its strategy of cost leadership. There was also a greater commitment to detailed planning, particularly in considering additions to industry capacity and company personnel. In the past, mistakes in this area were 'mopped up' by rapid growth increases. Now such mistakes would be unrewarding investments, cash traps. There was also greater attention paid to buyer selection, in identifying 'good' customers in terms of purchase patterns, prompt payment, etc., and nurturing them.

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The possibility of product differentiation in the supply of stone-based concrete products is very limited, especially in the case of primary stone products. The price premium Roadstone enjoyed in the growth era was based on its superior quality products, excellent customer service and its generally perceived image among buyers of being a first rate company. However, in the maturity phase,buyers are more selective and price conscious, • and the basis of many differentials erode. Indeed, this price premium was now beginning to provide a price umbrella for new competitors. It was in this area of pricing strategy that Roadstone encountered its biggest potential strategic pitfalls in this period. What was required, in theory at least, was a more aggressive pricing policy designed to slow competitors growth, yet not start a damaging price war, and which could carry a justifiable differential premium, yet not be afraid to be opportunistic on occasions. In practice a number of considerations militated against this. There was sometimes a clinging to 'higher quality' as an excuse for not meeting aggressive pricing and marketing moves of competitors. On other occasions the pressures for short-run profits meant the maintenance of high prices and the sacrifice of valuable market share. Initially there was sometimes resentment and irrational reaction to price competition ("we will not compete on price"). Equally there was sometimes too much leeway given on prices.

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Organisational Developments As well as greater attention to costs, more aggressive marketing and tighter control and budgetary procedures, a number of other organisational developments were to be perceived in the company during the middle to late seventies. In general "the atmosphere" of the company evolved from the pioneering spirit of the sixties' growth to be more staid and sober in its approach. The predominant management style within the enterprise gradually became more administrative and professional. As many of the older managers associated with the growth era of the company retired, younger professionally qualified managers joined. In the early seventies the founding Managing Director of the company retired from active management in both Roadstone and C.R.H. to pursue entrepreneurial interests elsewhere. At the same time the other brother moved on to play a management role at the corporate headquarters of the C.R.H. The general management of a company undergoing such organisational developments in this transition period is likely to be faced with a number of difficult problems. Porter has identified five and all were evidenced to one degree or another in Roadstone. (i)There must be scaled-down expectations for financial performance among managers. (ii)More discipline is required from the organisation.

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(iii)Managers must have scaled-down expectations for advancement. (iv)There is a need to place more attention internally on the human dimension and on organisational mechanisms to build more company identification and loyalty. (v)Recentralisation of organisation structure may well have to take place. A major such recentralisation of Roadstone's organisation structure took place in 1978. The company's structure for most of the previous decade is outlined in Exhibit 2. The firm was organised into five profit-responsible divisions on a geographic basis with the largest, Dublin, being further broken-up into two divisions. Clondalkin Concrete, a subsidiary of Roadstone, manufactured and sold concrete blocks and roof tiles throughout the country. Roadstone had acquired Clondalkin Concrete in the early sixties, a not unsurprising acquisition as most of Clondalkin Concrete's block-making plants were sited adjoining or near Roadstone's pits and quarries. The Company was allowed to operate fairly independently of Roadstone no withstanding that it accounted for over a third of Roadstone's total turnover. It operated its own representative force nationally and company administration was centralised in Dublin. The company enjoyed a identity both internally and externally. It purchased virtually all its concrete 107

aggregate requirements from Roadstone at prices annually agreed between the general managements of the two companies. Relations between Clondalkin Concrete's block plant managers and their Roadstone pit or quarry counterparts were good, by in large. On occasions block plant managers would complain that as they were 'tied' customers of Roadstone they sometimes received inferior quality aggregates and that they could purchase better quality more cheaply on the open market. Exhibit 2: ROADSTONE'S ORGANISATION STRUCTURE Pre 1978

The rationale of this independence was a mixture of concrete block technology was that of stone extraction and of "it's worked up to now" attitude. However, by mid 1975 this rationale was being seriously questioned by senior management in Roadstone. It was argued that the integration of the two

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sales forces, as they served largely the same customers, would be beneficial. This was particularly true in the rural areas which were then experiencing an increase in incomes and building activity and where adequate sales representation was costly and difficult due to the dispersed nature of the market. It was also argued that one overall manager of each block/quarry location would yield efficiencies in production. Accordingly there was a full integration of Clondalkin Concrete into Roadstone in 1978. In the Dublin area Clondalkin Concrete's block and tile operations became a division of Roadstone's Dublin Region. This block division continued to have its own sales force as the two other divisions in the Dublin Region, the Readymix Concrete and the Primary Products diyisions both had their own separate sales force. Outside Dublin there was a full integration of the production and selling functions. The combined sales force now sold the full product line. Exhibit 3 outlines the new organisational structure. The name Clondalkin Concrete was dropped. This caused little buyer confusion as many customers already knew of the association of the two companies. Internally, the integration facilitated the shedding of personnel at administrative, supervisory and clerical levels and enabled considerable savings in administrative overheads. Exhibit 3

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ROADSTONE'S 1978-1982

ORGANISATION

STRUCTURE

Generic Strategy Choice Because of the low value-added nature and the high transport costs of stone-based building materials, most of Roadstone's products were sold within a 25 mile radius of the producing location. The exceptions were the so-called 'national' products, roof tiles and masonry blocks, whose production was centralised in a smaller number of locations and which were distributed nationally. They enjoyed a higher added value and involved more sophisticated manufacturing processes. Concrete masonry blocks were a new product which Clondalkin Concrete had been developing and launching on the Irish Market since the mid seventies. Masonry blocks were high quality, fine-textured facing blocks, available in different colours or dyes, which once laid, provided their own facing finish and did not 110

need to be painted or covered. They were used extensively in the US and a market for them had been opened in the UK in the sixties. Unlike the rest of Roadstone's product line, these national products could be differentiated in a definite fashion. The representative force need a much higher level of technical training. Customers demanded a much higher level of technical and service back-up. Whereas builders, contractors and local authorities were the chief buyers of Roadstone products, architects, designers and the final users of buildings had to be included in the channels of purchase decision-makers in the case of national products. Again, unlike most of Roadstone's other products, substitute products were available to compete with concrete roof-tiles and masonry blocks. Hence, the national products needed different manufacturing and, in particular, marketing arrangements in an enterprise where the predominant organisational thinking was focused on producing and selling in a localised geographical market. Since the integration of 1978 many senior managers in Roadstone felt that these organisational arrangements for the national products were not very satisfactory. Tiles and masonry blocks were manufactured in both the Dublin regional division and in the South West regional division. Tiles were sold by the sales force throughout Roadstone and a 'transfer' price of tiles into the other three regional divisions was agreed in order to share profits between

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the regional division making the tiles and the one selling them. However, it was sometimes argued within the company that the regional divisions selling, but not manufacturing tiles, did not give them the deserved priority. A small technical sales force operating out of the Dublin and South-West regional divisions shared the national selling effort for masonry blocks. Again it was argued that here national co-ordination could have been improved. Porter (1980) argues "that the strategic dilemma made acute by maturity is the choice between overall cost leadership versus differentiate (versus focus)". The experience of Roadstone illustrates this. The area where the company should have been pursuing a differentiation strategy, in national products, was being subsumed into an organisational philosophy stressing overall cost leadership. In the Dublin regional division, the fact that the manufacture and marketing of national products were carried out as part of the Block division, which was in turn a division within the Dublin regional division, was increasingly seen as unsatisfactory. It was also felt more co-ordination was needed with the South-West division. Other problems beset the company in this period 1978 to 1982. By 1980 the growth in rural incomes and building activity had slowed down, and in 1981 and 1982 total output in the building industry actually declined. In this climate further recentralisation of operations was thought appropriate.

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Thus in 1982 another major organisational restructuring of the company tqok place. This is outlined in Exhibit 4. The three divisions within the Dublin regional division were amalgamated into one. Its sales force now sold the full product range. The operational independence of the four other country divisions was curtailed and integrated into one Country division. In attempting a better cost leadership/differentiate alignment, a separate National Products division was established with responsibility for the manufacture and marketing of national products throughout the country. It had the necessary status and 'clout' to ensure that where co-ordination with other divisions was important, eg. in the general sales force selling roof-tiles, overall company policy would be pursued. Exhibit 4 ROADSTONE'S Post 1982

ORGANISATION

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STRUCTURE

Conclusion As markets evolve from an era of rapid growth to one of more limited development, companies competing during this transition to maturity must undergo a number of changes if they are to continue to prosper. There will be greater attention to cost analysis and to achieving efficiency improvements in manufacture. Tighter control and budgetary systems are required. More true marketing (as opposed to selling) is necessary and strategic pitfalls must be avoided in the area of pricing and market share decisions. The creative excitement of the growth days is likely to be replaced by a more detailed and pragmatic approach. The style of management and leadership in the company will evolve from an entrepreneurial minded to a more professional and administrative minded one. Corresponding changes in organisational structures and systems are required. A move towards recentralising decision-making is often necessary. Rapid growth tends to mask strategic errors and allow most, if not all, companies in an industry to survive and even to prosper financially. In this period strategic experimentation is high, and a wide variety of strategies can co-exist. But, as Porter (1980) points out; "Strategic sloppiness is generally exposed by industry maturity, however. Maturity may force companies to confront, often for the first time, the need to choose among the three generic strategies".

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These considerations are illustrated in the case of Roadstone over the decade up to 1982. In particular, the nettle of organisational re structuring was successfully grasped on two occasions. The company perceived structural change as a key ingredient of strategic re alignment References Murray,W. (1970) Management Controls in Action, Irish National Productivity Centre, Dublin. Porter, M.E. (1980) Competitive Publishing Co., New York.

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MacMillan

Buying Behavior of Industrial Components: Inductive Approach for Descriptive Model Building K E Kristian Moller School of Business Studies Finland

1.Introduction Industrial marketing is characterized by complex interaction processes both within the marketing and purchasing companies and between these companies. Financial and technological dependencies are generally more pronounced in organizational buyer-seller relations than in consumer markets. This tends to increase both the involvement and time dimension of the exchange process. In a purchasing company the buying process of raw materials, components and investment products has a central role for the company's production capability, productivity and finally profitability. The understanding of this typically multiphased and multiobjective process is essential for effective purchasing planning and supplier negotiations,

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as well as programmes.

for

designing

industrial

marketing

Increasing academic attention has been given to the problems of modelling industrial buying, see the recent reviews by Sheth (1977), Bonoma and Zaltman (1978), Thomas and Wind (1980), Moller (1981), and Johnston and Spekman (1982). Due to the complex multidisciplinary, multifaceted nature of the buying process the aim of developing comprehensive but still testable models is far from reached. This study focuses on the industrial buying process of production components. The principal objective is to provide analytical in-depth descriptions of the buying processes of strategic components. Methodologically this means an attempt to build descriptive buying process models through inductive analysis of case material. The approach is briefly elaborated. Inductive descriptive modelling of substance phenomena is generally needed in areas lacking developed theory. Surprisingly this concerns marketing or even managerial decision processes in general, not just organizational buying (Hulbert, 1981; Raisinghani and Theoret, 1976). The lack of formal descriptive research is probably caused by several factors. First, relevant managerial decision processes are typically characterized by longitudinal multiperson, multidepartment interaction involving a number of methodological issues like the unit of analysis, intraand interorganizational relations and joint or group decision making. For a current discussion on 117

methodological problems related to the organizational buying research, see Thomas and Wind (1980), Johnston and Spekman (1982), and Moller (1982). Secondly, the complex nature of decision processes generally calls for intensive research methods to gain sufficient understanding of the process. Due to the cumbersomeness of longitudinal multiperson interviews typically only a small number of decision processes are addressed. Third, decision processes are often unique because of the relative idiosyncracy of their situational factors. Of course there is a great variation in this respect depending on the degree of routinization versus extensiveness of the decision problem. Together the above issues create a serious aggregation or generalization problem. The accumulation of knowledge is greatly impeded by these difficulties. The generalization process is related to a fourth somewhat paradoxical issue. To be able to rise above a purely descriptive level, qualitative studies must be based on a rigorous conceptual understanding of the object phenomena. In spite of the difficulties, micro-analysis of the organizational buying decision processes serves as a powerful diagnostic tool for industrial purchasers and marketers and through inductive modeling contributes to the development of the theory of industrial buying behavior. Inductive modeling of material component buying, the general purpose of this paper, is approached by (i) presenting a comprehensive conceptual model of production material buying, (ii) adopting a data

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collection method called decision system analysis for analyzing six cases of component purchase processes, (iii) drawing inductive 'maps' or models of the empirical cases through conceptualization, and finally (iv) evaluating the usefulness of the conceptualizations suggested and discussing the implications of the results. This objective description prescribes also the structure of the paper. This work is related to the current organizational buying behavior studies by Woodside and Vyas (1981), Vyas and Woodside (1982), Nielsen (1982), Vollering (1982), and Kennedy (1983). These writers and the author have been cooperating as the Industrial Buyer Behavior Group during the last three years (1). The IBB group members share common views of the importance of inductive research on organizational buying. 2. Conceptualization of Material Buying Process 2.1 Classifying Material Buying Buying processes or decision processes in general can be classified according to their level of repetitiveness versus uniqueness. Some of the better known typologies are Simon's (1960) distinction between programmes vs. non-programmed decisions, the routinized response behavior (RRB), limited problem solving (LPS), and extended problem solving (EPS) trichotomy suggested by Howard (1963), and the similar classification new buy, modified rebuy, straight rebuy used by Robinson, Faris and Wind (1967) in industrial buying research.

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These classifications reflect the importance of trying to hold constant some of the situational factors when developing general decision process conceptualizations or when doing empirical research. The nature of production component purchasing decisions can be highlighted with the RRB, LPS, EPS classification in terms of information inputs, information processing, and supplier alternatives, see Table l.( 2) The buying process of the majority of production materials belong to the RRB-category. Completely standardized materials or components whose logistical flow from stock control and order routine to reception control-can be handled with on-line EDP system, represent the most advanced examples of routinization. The materials falling into the Limited Problem Solving category often belong to the so-called strategic components either because of their technical or financial importance, or both, to the buyer. The categories, of course, represent simplifications of a continuum, not rigid classifications. However, because of the costs involved there is a normative tendency to try to move suitable materials towards the RRB-category when both the criteria information, alternative suppliers, and decision heuristics have become sufficiently specified. This tendency is contrasted by both perceived risk of the buying situation and the expected gain of negotiations. On the other hand the nature of the material buying process is not a stable phenomenon but

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affected by such contextual variables as technological development in the supplier market and in the end-product production, and the competitive situation in the supplier market. These variables introduce an outside element of dynamism into the material buying process and are therefore capable of changing the position of a certain material along the decision process continuum. Concerning the third category, Extensive Problem Solving, only seldom does the material buying process belong to this category. This can be the case when a new situation for a decision maker is in question. Table 1 Classification of Buying Processes Type

Information Inputs Routinized Prespecified Response Behaviorin detail (in (RRB) terms of supplier and product attributes).

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Processing Supplier Rules(heuristics)Alternatives Prespecified in Completely detail (in terms known and of importance specified weights and threshold levels of choice criteria (ie. attributes),and (b) the judgmental rules used in alternative evaluation and

choice)and well predictable Limited Problem Partially Prespecified in Partially Solving (LPS) structured general form, specified partially predictable Extensive Problem SpecificationTo be developed Not Solving (EPS) is developed specified when Processing rules are developed. 2.2 Elements of Material Buying Process A general conceptual model building of organizational buying comprises: (a) defining the subprocesses or stages of the buying process, (b) defining the elements that characterize the subprocesses, ie. tasks to be carried out, organizational units where the action takes place, persons (and their positions) performing the tasks, and (c) defining the variables affecting the buying process. The majority of empirical studies have been falling into the areas related to the buying process, the buying centre, and factors affecting the process and buying centre, Sheth (1977), Thomas and Wind (1980). This study concentrates on the subprocesses of component buying. The subprocesses are characterized not so much by using the buying centre concept but by adopting a multiattribute conceptualization on both the 122

supplier and the production component. These attributes are argued to be used as evaluative and choice criteria in the process. As such they form the key elements of the subprocesses. Further, the central tasks of the buying process are modelled with judgemental rules. Together the attributes/choice criteria and the judgemental rules provide a tool for integrating the complex buying process. Moreover, as higher level theoretical abstractions, these concepts are general enough for analyzing widely different component buying processes in various organizations. In addition to the attributes and judgemental rules the traditional buying process labelling emanating from the seminal BUYGRID framework by Robinson et al (1967) (problem recognition, characteristics determination, characteristics descriptions, searching for sources, proposal acquiring, proposal evaluating, order routine selection, performance feedback) and the set of decision components suggested by Farley, Hulbert and Weinstein (1980) are used in process definitions. The latter have recently argued that any decision process can be divided into the following components. - Input-the act of stimulating the decision process with information. - Communication-providing information by moving input from one part of the system to another.

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- Evaluation and Recommendation-the act of evaluating information and recommending choice. - Decision Making-the act defined as final decision making. - Conflict resolution-the act of resolving disagreement. - Decision Implementation-the act of carrying out a decision. - Monitoring-gathering information about whether and how the decision was implemented, and the impact. 2.3 Conceptual Model for Material Buying Process-MATBUY Model(3) The organizational purchasing of production materials is argued to be reducible to the following subprocesses forming a conceptual buying behavior model of production materials: Purchase Initiation, Evaluative Criteria Formation, Information Search, Supplier Definition for RFQ's, Evaluation of Quotations, Negotiations, Supplier Choice, Choice Implementation. Each substage will be elaborated in terms of the decision problems and tasks involved. This discussion is summarized in Figure 1 delineating the MATBUY model with a descriptive flow chart.

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Purchase Initiation (A) the input act of stimulating the purchasing process with information. In established stable materials this is a routine process of initiating the negotiations for renewing the annual supply contracts. In many cases, however, there exists dynamism or turbulence both in the supply markets (eg. in product development, price stability, supplier power structure, supply capacity), or within the buying company (eg. in the end-product development, production process development, warehousing system, buying policy). Due to these exogenous and/or endogenous factors the initiation may lead to a search for new potential suppliers or to starting negotiations with the established suppliers within the contract period. This kind of dynamic initiation process implies that the actors of the buying organization must perceive (i) a current or potential worsening in the supplier and/ or product attributes, (4) (ii) a potential way to gain better attributes (eg. by engaging new suppliers), or (iii) an endogenous necessity to redefine the purchasing criteria. The dynamic initiation (versus the passive one of renewing old contracts) process may take place either in a planned mode or in an unplanned mode, depending on, for instance, whether the impulse is endogenous, and on the degree of sophistication of the buying organization. In both cases there emerges the decision

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making situation whether to actually init1ate the buying process. The solution is. related to the perceived gains/losses between the attribute levels of the present versus potential supplier situation. The decision may involve conflicting goals between, say, quality specifications, price, and supplier dependence. These goals and the tradeoffs embedded typically concern multiple departments (R & D, Buying, Production) creating potential for conflict. The definition of purchase initiation shows that in the case of dynamic supply markets and/or company products or buying policy this stage may develop into a complex subprocess involving not only the input component (in the Farley et al 1980 terms) but also communication, decision making, and conflict resolution. The potential complexity of purchase initiation has been outlined above. Customarily the buying organizations strive for simplicity to avoid costs embedded in complex decision situations. In dynamic contexts, however, one may have to develop a more complex initiation either to be able to utilize potential gains or avoid unnecessary costs. This usually concerns the so-called strategic materials being either of crucial technical importance to the end product, or representing a considerable share of its costs - or both. Evaluative Criteria Formation (B) the assessing and development of evaluative criteria for supplier and product evaluation. In static, established supply markets 126

a buying organization most commonly has a defined set of both product and supplier evaluation criteria. In the dynamic case a company has to perpetually redefine these criteria. In this study the criteria are conceptualized with the attribute theory concepts as recommended by Wilson (1978). Ordinarily the criteria are composed of supplier attributes such as ability to supply (quantity plus schedule), dependability, terms of payment, technical and other service, marketing personnel, communications; and of product-related attributes such as technical characteristics and price.(S) Together the supplier and product attributes , or more exactly their values, comprise the definition of supplier alternatives. Both theoretically and pragmatically the attributes have a central role as they form the basis of buyers' material need and therefore the buying goals of the company can also be expressed in terms of these attributes, and the goals in turn used as choice criteria. More formally the criteria can be expressed as a criteria set C, which contain a number of sub-criteria, xi C = (xl,...,xm) , where xi indicates with subgoal and i = l,...,m. (6) Figure l Production Material Buying Model - MATBUY Model {Moller 1981, p.22)

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Figure 1 (continued •• )

The attributes are usually not equally important. To reflect the varying levels of importance the criteria can be assigned weights (w) which reflect their relative importance for the buying company. Not infrequently certain attributes have to pass the threshold values to be 128

acceptable. Minimum or maximum threshold values should be assigned to the respective choice criteria. Typical threshold criteria are eg. price and technical product specifications. In sum, the buying organization must produce a list of product and supplier attributes to be used as evaluative criteria. Moreover, the criteria should be assigned importance weights and/or minimum and maximum threshold values.(7) The assessing of criterion attributes, and their relative importances and thresholds leads to an interdepartmental decision making situation which may develop into a conflict calling forth conflict resolution behavior. Typical departments involved in evaluation criteria formation are R & D, Production, Quality Control and Buying. Evaluation criteria formation should actually be seen as a continuous information processing activity concerning the required material attributes and the knowledge available on potential supplier alternatives. The complexity of this process is enhanced by turbulent environments, changes causing uncertainty in criteria formation. In rapidly developing fields the threshold values of technical specifications and price may be difficult to define even for one year. The foregoing discussion has considered evaluative criteria as one set of criteria. The buying organizations are, however, frequently using two or even three criteria sets: those needed in defining the acceptable suppliers (who are to be sent a request for quotation, RFQ), and those used in negotiations and final supplier choice. 129

These criteria sets generally include many common attributes and should be viewed as dynamically evolutive, ie. time and process dependent. In the forthcoming text the evaluative criteria formation process is assumed to be integrated with the supplier definition, evaluation of quotations, negotiations, and supplier choice subprocesses. Information Search (C) the acquisition of information from internal and external sources for defining the suppliers for RFQ's and for final choice. The information search concerns items defined by the evaluative criteria (8), ie. both the supplier and product attributes, and also more general supply market information, and trends in the development of the buying firm's own production technology and end-products. This monitoring task (in Farley et al, 1980 terms) is generally taken care of by the Buying Department, although R & D and Quality Control can also provide information on technical questions and product quality of the present suppliers. The external sources can be classified as buyer dominated, supplier-dominated and, neutral sources. The first group comprises other buying companies and their possible associations, the second the supplier companies, and the neutral group trade journals, trade fairs, research organizations, seminars, etc. (9) In a stable buying context information search is usually of limited importance and represents a routinized organizational effort. If, however, a company is not

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satisfied with its suppliers, search becomes more crucial. A decision problem related to search is whether to start it at all, and if yes for how long to continue it. This is usually determined by such buying policy directives as, "we must have at least n suppliers", or "we must have one supplier in country X and one in Y ", etc., and is related to the issues discussed in the purchase initiation context. Together the purchase initiation, evaluative criteria formation, and information search form the pre-request-quotation processes which provide the basis for forming an evoked set of suppliers accepted for an RFQ. Supplier Definition for RFQ's-the decision of supplier (bidding) policy, the choice of suppliers requested for a quotation, and the acquiring of the quotations. To start the RFQ process the buyer has to decirle on supplier policy, ie. how many suppliers ctre requested for a quotation, how the established criteria are used are there any specific restrictions concerning eg. the country of origin or other geographic area of the suppliers, size of suppliers, other customers of suppliers etc. and further how to divide the total quantity between the suppliers to be given the RFQ. These supplier or buying policy criteria represent a set of policy related norms which are superior to the supplier and product attribute specific goals. That is, they guide the definition of relative importance and threshold values of the evaluative criteria, as well as providing independent rules for various tradeoff

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decisions between, say, price and quality issue, and risk and gain issues. An example of the latter is the choice between one customized supplier and a multiple supplier situation. Typically simple heuristics like "at least two to three suppliers situated in regions A and B" are dominant. The supplier policy decision generally involves multiple departments, usually at least Buying, R & D, and Production and sometimes top management. The interdepartmental cooperation can lead to conflict situations demanding conflict resolution. Formally the suppliers can be defined with the help of attributes. A supplier is a set of X containing attributes x : X= (x ,...,x). where o l,...,r, and denoting the supplier, i 1,...,n, and denoting the attribute. When each attribute comprising a supplier (suppliers can of course possess a number of attributes) has been assigned a value, the supplier is completely specified (10). When the company has defined the suppliers and decided on supplier policy it can choose the set of suppliers who are to be given an RFQ. This decision can be made by first processing the information available on the suppliers both from purchase initiative subprocess (A) and information search -subprocess {C) according to the evaluative criteria-formed in subprocess B -this processing should lead to a group of suppliers acceptable according to the criteria. Second, the set of suppliers to be given the RFQ are chosen with the rules defined in the supplier policy decision.

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If there are very few acceptable suppliers or any suppliers in general it may happen that they are fewer than the number recommended by the company's supplier policy. Three solutions are possible: (a) if the information search for new suppliers can be extended (and there is time for it) continue the search, (b) consider again the threshold levels of evaluative criteria, can they be lowered, (c) if cases (a) and (b) do not solve the situation you must accept it for the time being. The last possibility may lead the company to a make-or-buy situation, or to try to encourage new suppliers to enter into the field. The evaluation process can be carried out by both Buying (commercial type of information) and R & D departments (technical information). The final choice decision is often made by a committee (buying group) or the Purchasing Manager. This stage may again develop into a conflict situation. The probability of conflict depends on how unanimously the possible initiation problem, evaluative criteria and supplier policy have been agreed upon. If the potential intra- and interdepartmental disputes have not been solved during these preprocesses, they are likely to arise in the RFQ supplier selection. The probability of conflict is increased if the supplier definition is aggravated by perceived risk. This is enhanced in the case of new supplier alternatives when the available information is often incomplete and possibly unreliable. The seriousness of perceived

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supplier uncertainty is stressed in cases of both financially and technically important material products as the negative consequences of unsatisfactory solutions are bound to be great. Accepting only old or well-known suppliers for RFQ's or collecting more information (going back to the information search stage) represent risk avoiding strategies used by the buyers. The preparing, sending and acquiring of the RFQ's terminate the supplier definition for RFQ's-subprocess. This decision implementation can be routinized as the content of the RFQ's is determined by the evaluative criteria formation and the quantities (and other specification combinations) to be quoted in the supplier policy decision stage. Evaluation of Quotations (E) the act of evaluating the suppliers based on their quotations and other available product and company information. The evaluation is again an information processing task where the suppliers and their bids are compared according to the established criteria. As mentioned in the evaluative criteria formation, the criteria and especially their threshold values and importance weights may change at this stage (compared to supplier definitions). Moreover, the way the criteria are used, ie. the choice or judgemental rules applied to the data to produce a preference order of suppliers, may also change from the heuristics used in supplier definition. These rules are needed in decision making which

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terminates the quotation evaluation. This can lead to three potential outcomes: (a) Of the bidding suppliers n are chosen directly and the quantity demanded is divided between them. (b) It is decided to start negotiations with the n suppliers or with some sub-group n-m of them (ie. some can be chosen directly). (c) The quotations are found unacceptable. Concerning case (a) the problem is first, how to decide whether negotiations would be worthwhile, and second, how to choose the suppliers (this problem will be discussed in the choice stage), and third, how to divide the quantity among the chosen suppliers. One guiding principle for the first question would be to try to calculate the probability and values of price reductions or other concessions due to negotiations versus the costs of negotiating. The quantity problem is guided by such heuristics as supplier relations, prices, policy to keep at least n suppliers. Concerning the outcome (b) negotiations, the main question is the negotiation policy; this is handled within the next subprocess. Case (c) is improbable as the bidding suppliers have already been prechecked in the supplier definition subprocess. If it, nevertheless, occurs the options open for the buyer are those discussed in connection with supplier definition.

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The organization for the evaluation of quotations including the potential redefinition of supplier policy rules and supplier choice, usually involves multiple departments, eg. Buying, R & D, or Production. The decision group can be the same as in the supplier definition. The probability of Top Management participation is however, increased at this stage case (a) above - includes the possibility of final choice. Group decision making again implies communica Lon and the potential for conflict requiring conflict resolution. .

Negotiations (F) - the act of negotiating with the suppliers chosen in the quotation evaluation - for concessions concerning the choice criteria. Decision on negotiation policy forms a prerequisite for the actual negotiation. Information and guiding rules for policy formulation are provided by the importance weights of the criteria, the differences in the quotations on the criteria, and supplier policy heuristics. An example of a not infrequent negotiation policy is the 'playing off' of suppliers against each other to reach a lower price level or other concessions. Another aspect of the negotiation decision concerns organizing for the actual discussion (decision implementation, Farley et al, 1980),. ie. who are to participate in the negotiations and what kind of roles they should play, who, for instance, has the final decision power. Both the negotiation policy and participation questions may again involve multiple departments and potential for conflict. This is, however, fairly improbable in static buying situations, where the

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negotiations may become a matter of standardized routine. Companies having active buying policy using for example target prices below the average market price level often strive to maintain dynamism in the negotiations. Negotiations usually lead to a final choice of supplier(s). This will be discussed separately in the next section. supplier Choice (G) - the decision of which suppliers to award a contract including also the solution of the order quantity problem. The final choice stage is in principle similar to the evaluation of quotations subprocess. First the results of supplier negotiations are evaluated by comparing the renewed bids according to the evaluative criteria. These criteria may, however, have changed during the negotiations eg. the number of criteria may have been reduced and the threshold levels changed. In the supplier choice a final preference order among the supplier candidates left must be reached. This decision is made by applying the choice or judgemental rules on the processed negotiation information by the decision making group. The judgemental rules have briefly been mentioned in the supplier definition, evaluation of quotations and in negotiations subprocesses. As these rules form the decisive component of any decision they are elaborated here. The decision maker's choice heuristics can usually be described with three main types of judgemental rules (models) or with some combination of them: (a) 137

compensatory models, (b) satisficing models, and (c) lexicographic models. A decision maker following a linear compensatory rule assigns an importance weight to each attribute and then evaluates the alternatives (eg. supplier candidates, quotations, or negotiation results) according to how much of each attribute they possess. The final preference is derived by adding the weighted attribute scores (for a more detailed description of compensatory models, see eg. Green and Wind, 1973). The satisficing judgemental rules can be classified into conjunctive and disjunctive models. The conjunctive model describes a situation where the decision maker requires that in order to be acceptable the suppliers must exceed certain minimum levels (thresholds) on each attribute. That is, the conjunctive process basically only dichotomises the suppliers into unacceptable and acceptable sets without determining a complete preference order. This can, however, be achieved if the buyer gradually strengthens his attribute requirements (eg. price) until only one supplier quotation is acceptable. The disjunctive heuristics describe a choice or evaluation situation where the decision maker is highly interested in one supplier attribute having 'top' values (eg. a certain quality specification). According to the disjunctive model those suppliers who do not possess the required maximum value on the specified attribute are classified as unacceptable, ie. also this process is only a dichotomizing one. 138

The lexicographic choice rule assumes that decision makers evaluate the alternative suppliers by comparing them first on the most important attribute and if there is a significant difference choose the best one. If there are ties, ie. the decision maker will not discriminate between the leading two ( or more ) supplier candidates, the comparison is performed on the next most important attribute and so on until a preference is reached. (ll) The presented principal choice models were discussed as 'single' models. It seems, however, evident that decision makers may use more complex sequential or hierarchical choice processes constituting a number of models (choice rules). So far the choice models have received little empirical investigation in organizational buying. Some evidence, however, supports the idea of a supplier screening phase followed by an evaluative screening phase leading to choice (Crown, Olshavsky and Summers, 1980, Moller and Allos, 1983). Leaning on the results available mainly from consumer choice research and a few organizational buying studies one could assume that the first stage is characterized by satisficing rules and the second by either lexicographic or compensatory rules (Russ 1971; Stiles, 1974; Wright, 1975; Wright and Barbour, 1977, Park, 1974, Pras, 1973, Moller, 1977, Crow, Olshavsky and Summers, 1980). An exploratory attempt to integrate the choice rules and the principal stages of production material buying is ventured. The brief discussion will be confined to supplier definition, evaluation of quotations, negotiations, and choice stages.

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In supplier definition the decision problem is usually of a discriminating nature; how to dichotomize the known supplier candidates into acceptable receiving RFQ's and unacceptable ones. The conjunctive heuristics seems to be the most appropriate rule for this problem. The decision making style and rewarding policy of the buying company can considerably influence the judgemental heuristics adopted. If the basic recommendation is to avoid any mistakes in choosing a group of acceptable suppliers this tends to lead to very strict threshold values on attributes and the uses of a conjunctive rule. In the opposite situation the company policy would support finding new supplier candidates with top values on some critical criteria, this would increase the buyers' tendency to apply disjunctive heuristics. The risk in the first policy is to lose some good potential suppliers because of minor difficulties in some attributes (criteria), while the use of the second policy might lead to accepting some actually unacceptable supplier candidates. In general, one of the satisficing rules or a combination of them is most probably applied to the supplier evaluation problem by the decision makers. The evaluation of quotations subprocess contained such decision problems as whether to start the negotiations or to make a final choice among the bidding suppliers. The latter is valid for choice rule discussion. What is needed is a preference order of the suppliers. This can be achieved both with a compensatory and

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lexicographic model, or with a conjunctive model via the strengthening of attribute requirements - or with a combination of these. It is argued that the nature of the evaluation situation defined by such characteristics as the number of bidders, the number of attributes ( and the similarity level of their relative importance ), the differences between the suppliers, newness of the situation, technical and/or commercial importance of the situation, and time-pressure influences the choice model used. A few hypotheses can be made: First, if there are many suppliers and many attributes the propensity to use two-phased heuristics, with satisficing rules as a first stage restriction method, is increased. Second, if there are many attributes and relatively many competitive supplier candidates the propensity to use a compensatory or lexicographic rule for preference ordering (after a possible rejection phase) is increased. This proposition is enhanced if there is no time pressure and the buying situation is relatively new and important. Third, if there are relatively few attributes and/or suppliers the propensity to apply a conjunctive rule to preference ordering is increased. This possibility is supported by clear differences between the suppliers, time pressure, and familiarity of the situation. During the negotiations stage the concern is usually of achieving better terms in one or more attributes-eg. in price, quality or terms of delivery. The process

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generally involves playing two or more suppliers off against each other. This suggests that a sequential type use of the conjunctive rule where the buyer continuously strengthens the threshold values - would be appropriate. Concerning the final supplier choice the preference ordering task has already been discussed in connection with the evaluation of quotations with the suggestive hypotheses given. The supplier choice subprocess terminates the politically important part of the production material buying process. It should, however, still be followed with a carefully planned purchase implementation stage. Choice Decision Implementation (H) act of (a) handling the rejected bidders,(b) arranging logistical supply routines,(c) and arranging the monitoring and feedbacking of the suppliers' performance. The handling of rejected bidders involves a decision problem whether to inform them of the reasons why they have been dropped out. In a general sense this concerns all companies rejected either in the supplier evaluation for RFQ's, evaluation of quotations, negotiations or supplier choice stages. In many cases, of course, the dropped suppliers are aware of the reasons. When this is not the case a possible decision heuristic is to try to evaluate the effect of disclosing/not disclosing the raison d'etre of the dropping (or reduced order quantity) to the supplier.

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The technical arrangement of logistical supply routines is by definition out of the scope of this study. On the other hand, the logistic process is connected to the monitoring of both the supplier performance (delivery dates, quantities) and product performance (quality specifications). The organization for supply monitoring often consists of Reception Control, Quality Control and Performance Control of the production materials taken care of by the Quality Control and Production departments. The extent and degree of routinization of these performance monitoring points are generally a function of the technical complexity and importance of the materials. Monitoring provides feedback information which is mainly used in the evaluative criteria formation and information search stages. If however, the performance values monitored show a significant discrepancy from those agreed upon in the final purchase contract-or otherwise product signals of problems the initiation stage should be activated. 2.3.1 Summary of MATBUY Conceptualization The subprocess of production material buying have been defined and discussed fairly extensively. The author is well aware of the fact that companies actually strive to be simplify and routinize their purchasing. The MATBUY Model developed tries, however, to cover conceptually all the principal decision problems and conflict situations within each substage that can potentially emerge in a new and dynamic purchasing situation. For describing a static,

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well conceptualized material buying only a reduced version of the model is needed. Table 2: Summary of Decision Problems in Material Buying stage

Decision Problems

Purchase Initiation

To initiate/ not initiate the process.

Evaluative Criteria Formation

To decide on which attributes to use in evaluation, how to weight these, and what threshold values to adopt.

Information Search

To search or not : What sources to use When to terminate the search.

Supplier Definition for RFQ's

Supplier Policy Decisions: how many potentials

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should be included, what are the restriction rules guiding the process, not to divide the quantity between the potentials, which to choose Evaluation of Quotations

Are the evaluative criteria still valid, what judgemental rule(s) to use : To negotiate or make a terminal choice : Which suppliers to choose for negotiations.

Negotiations

Negotiation Policy Decisions : which attributes

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are used, what are the threshold values and goals, and what strategy(ies) is/ are adopted. Who should participate, their status and roles. Supplier Choice

Evaluation and possible redefinition of the choice criteria (attributes) and decision rules (formed in Evaluative Criteria Formation) Whom to give contract and (if more than one chosen) how to divide the

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quantity requested. Choice Implementation

To inform the rejected or not.

Table 2 summarizes the decision knots or contained by the MATBUY model. These form the chain of focal areas for buying planning. As points of multiperson and often interdepartmental interaction they indicate the potential conflict areas in the buying organization. A common set of factors covering all decisive and politically interesting decision areas are the supplier attributes, choice criteria (defined with attributes, importance weights and threshold values), and the choice rules. These can be used to conceptualize (and quantify) both the research and planning of the crucial evaluative criteria formation, supplier definition for RFQ's, evaluation of quotations, negotiations and supplier choice stages. Together the attribute/choice criteria and judgemental rule conceptualizations form a integrative element relating the subprocesses by focusing on the underlying information processing activity.

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3.Methodology for Descriptive Modelling of Material Buying The setting of empirical objectives was guided by the MATBUY- Model elaborated in the previous section. Developing detailed descriptive models of component buying processes implies knowledge of the following issues: 1) The stages or subprocesses of the buying process. 2) The type and sources of information collected during the process. 3) Who participates in the process and what are their roles and influence. 4) how are the evaluative and choice criteria formed and by whom. Are there conflicting criteria. 5) What criteria are used for selecting suppliers for quotations (bids). 6) How are the bids evaluated. 7) Are there negotiations and how are they handled. 8) What criteria dominate the final choice. 9) What kind of judgemental rules are used in various decision sets. The above issues enable the researcher to reconstruct the structure of the purchasing process, as well as the decisive content of the main subprocesses through attribute/criteria and judgemental rule analysis. This empirical objective represents a decision system or process analysis problem which has a long tradition 148

within business administration, see eg. March and Simon (1958), Cyert and March (1963), and Thompson and Tuden 1959). The 'Columbia' studies represent the most developed and best known applications of this methodology within marketing decision processes (Farley, Howard and Hulbert 1971, Capon and Hulbert 1975, Capon, Farley and Hulbert 1975, and Farley, Hulbert and Weinstein 1980.) Studies by Cyert, Simon and Trow (1956), Strauss (1962), Wind (1966), Pettigrew (1975), Woodside and Vyas (1981'), Vyas and Woodside (1981), Moller (1982), Moller and Allos (1983) illustrate the use of the paradigm in industrial buying behavior. Decision system analysis purports (a) to reveal the structure and decision making knots of a decision making process, usually including a description of both the decision criteria and heuristics (the latter generally in a rather unspecified form), (b) to identify the principal activities, and (c) to identify the participants of the system, including departments and other organizational units. Three corporate type companies were chosen for providing the case material for production component buying process analysis. Prerequisites of selection were: the buying organization had to be large enough to provide possibilities for multiperson interaction and influence, the buying programs of the companies should contain production materials or components, the companies should have multiple suppliers and evaluate them periodically. In brief, supplier competition and

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real supplier choice decisions were requested. The companies and material products selected were: Company and Division Nokia Oy Nokia Electronics

Product

Kone Oy Kone Lift Group

Guide rails Lift cable (flat)

Wartsila Oy Jarvenpaan Emali

Rolled steel sheets enamelled cooking utensils

Helsinki Shipyards

Anchor windlass

Memories Polystyrene capacitators

The example components from Nokia Electronics represent electronic components, the rest are from the metal and machine industry. All components/materials can be called strategic either because of their importance for the end product or their volume or both. They are all purchased through annual contracts. In the data collection a simplified version of the three stage interviewing process recommended in the decision systems analytic (DSA) literature ( see eg. Farley, Howard and Hulbert, 1971) was used. First, the general structure of the buying process was identified

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with the help of a key interviewee (usually a director of the buying department) and at least two other interviewees were chosen (one representing buying and another production or material control). To provide structure to the interviews and to increase comparability between various interviews, a list of discussion iterns was used. The development of the item list was based on the MATBUY model conceptualizations and on earlier empirical evidence of material buying. The final interviewing aid contained three sections: (i) company or profit center questions about the general nature, structure and context of the buying process, (ii) the detai ed determination of the phases of the buying process and the content of emerging subprocesses, especially the participants, evaluative and choice criteria and judgemental rules, and (iii) a short professional record of the interviewee. The interviews of the buying and production personnel were carried out in an informal and flexible fashion and emphasis was given to getting information on unofficial but important attitudes and events. The item list was mainly used as an aid in probing and in checking all the preselected questions. All discussions were recorded and additional documentary material, like purchasing agreements, were collected when possible. Altogether 19 interviews were made. Based on these two sets of interviews (key interviewees plus buyers and technical personnel) descriptive flowcharts of the material buying processes were 151

drawn. These summarized the material collected in an analytical fashion. As analytical tools in data processing, the concepts discussed and developed in Chapters 2 were used. The detailed flowcharts were finally shown to and discussed with the key interviewees. This round provided a qualitative validation for the data analysis. 4. Descriptive Modelling of Component Buying Processes:Summary of Results The rich case analyses based on the 19 recorded, one to five hour interviews were analyzed using the MATBUY-model and decision systems analysis as conceptual tools. Main attention was focused on the conceptualization of the protocols concerning evaluative and choice criteria. The results were operationalized with descriptive buying process models (flow charts) which integrated the verbal analysis. The list of empirical objectives, presented in section 3, provides the principal issues of the analysis. Because of the detailed level of each inductive buying process model they cannot all be presented in this context. Only one case analysis describing the nature of the descriptive modelling used in this study is provided. The rest of the results are presented in a summary fashion.

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4.1 Descriptive Model of Electronic Component Buying: Case of Nokia Electronics The purchasing of memory circuits in Nokia Electronics was chosen as a case example from among the six products investigated see the list in section 3 as it represents a complex and dynamic buying situation involving both technological and commercial risks. Further, components generally have a central role in the production process of the electronics industry. First, a brief account is given of Nokia Electronics, its buying organization and the market characteristics of the memory components. Second, the buying process of the memories is described in detail, and third, theoretical comments on the process are given. 4.1.1 General Context and Organization of Buying in Nokia Electronics(l2) Nokia Electronics (NE) is an independent division of the Nokia Group, a leading industrial company in Finland. NE consists of four subdivisions: Telecommunications, Industrial Automation, Data Processing, and Forest Industry Systems, organized as profit centres. These are supported by Finance and Economics, Marketing, Components and Technology, and Materials Administration Departments. In 1980 net sales were 120 million USD, 15% of parent company sales, 26% of the sales were exported. In Scandinavia, NE is a major producer 1n certain products, eg.

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minicomputers, terminals, specific data modems, but very small compared to multinationals like IBM, Siemens and LM Ericsson. Telecommunications and Data Processing profit centers use the bulk of the components purchased through the Materials Department. Typical end-products requiring a great number of components are NE's own m,inicomputer series Mikko, as well as terminals, radio links, and data transmission modems. The central semiconductor buying market, especially the LSI (large scale integrated circuits) components are characterized by: (1) Business fluctuations due to economic conditions and active R & D creating new component generations, which is reflected in fluctuating prices and delivery times, (2) Rapid learning effects causing as much as 30% yearly reductions in the prices of new component generations; on the other hand, the yields at launching stages may be only 5-10%. (3) An oligopoly of a few large American and Japanese producers are dominating the market. Further, the quality of LSI-components is crucial for electronics endproducts. In brief the buying situation is featured by both technological (quality) and commercial risks. In Nokia Electronics buying is organized under the Materials Department led by a VicePresident reporting directly to the Division President. The Materials Department is divided into two Buying Offices, in Helsinki and Espoo, 10 miles apart, led by Purchasing Managers. The Espoo Office is responsible for the Telecommunications purchases and has three

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buying groups for active and passive electronic components, and electromechanical components. The buying volume is about 15 million USD. The Buying Office shares premises with the Production unit of the Espoo plant and the R & D Engineers for Telecommunications. The Helsinki Office is responsible for the buying of the other three subdivisions. There are two buying groups for components and one for other materials, and capital equipment. Concerning components the most important customer is the Data Processing subdivision producing Mikko minicomputers and terminals in Helsinki. The buying volume of components is about 7.5 million USD. The buyers' work is supported by a Quality Control unit within the Materials Department consisting of a manager and three component engineers. Quality Control is responsible for testing all LSI-components, and for developing new testing methods. To have immediate access to principal producers and the latest information about the semiconductor market, Nokia Electronics has established a Buying Office in Silicon Valley, California. This Buying Office is not used for independent purchasing of components, but it is.important for buying market research, personal contacts, and fast purchasing operations in times of crises. To sum up, in Nokia Electronics buying is administratively centralized by geographically or plant-based decentralized. This organization facilitates the buyers' and Quality Control engineers' interaction with the R & D and production people.

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4.1.1 Accepting a New Component into Buying Program The initiative for incorporating a new semiconductor component into Nokia Electronics' buying program usually comes from the R & D department of the subdivision in question. The suggestion has. to pass a standard acceptance procedure described in Figure 2. First, the R & D engineer (ROE) contacts the component engineer of the subdivision production unit (CEP) and tells him about the characteristics of a new component required for a new prototype under design. The CEP provides the designer with information about the existing components and their producers. The principle is to use standardized components whenever possible. If the production component engineer lacks adequate knowledge he turns to the respective Materials Department's Quality Control component engineer (CEQC), who is responsible for monitoring international component development and availability. When the designer (RDE) has provided enough specific information on his component requirements, the Buying Office orders sample components from all relevant producers.

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Parallel with accomplishing a prototype of the new product (by the R & D) both component engineers develop a preliminary Material Code (MC) for the new component and test the sample components. A Material Code comprises basic component specifications, information about alternative producers (their number, market share, etc.), an estimate of the volume required in the first normal year of production, and a target price. Quality Control is responsible for sample testing and Material Code development. A technically acceptable and commercially advisable component is suggested to the R & D engineer, and a list of acceptable producers is defined. At least two and at most five producers are selected (more than five producers are considered to increase evaluation and buying costs unnecessarily). The choice criteria comprise factors like price, quality, specifications, delivery history, general dependability. The interaction of the R & D and Quality Control terminate at Product Inspection when the prototype is evaluated component by component. In the case of an important prototype, the· Inspection is carried out by the R & D Engineer, Production and Quality Control component engineers, and Purchasing Manager. The guideline on inspection is to minimize component costs by trying to use only standardized components from commercially attractive producers, while still maintaining high quality. After possible alterations the Material Code, with its volume requirement and target

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price, is approved. The actual buying process is then handled by the Buying Office. 4.l. 2 Buying of semiconductors: The case of 16K EPROM-memory circuits The l6K EPROM-component is an active memory circuit, having a 16-kilo memory capacity. It has been used for 2-3 years as a micromemory unit in Nokia Electronics' Mikko minicomputers produced by the Data Processing subdivision. To provide the minicomputer with the necessary user flexibility, it has to be reprograrnrnable which requires durability and dependability. The memory's price accounts for about 3% of the material costs of a Mikko computer line. Owing to its importance for the computer's performance, the memory is, however, a strategic component for the computer. 4.l. 2.1 Buying Market Situation and Annual Contracts According to the Manager of the Materials Department the Japanese have, at the moment, the leading role in memory development and production. US companies rank second and European producers have not been able to make a significant entry into the market. A few fairly large producers dominate the market (eg. Intel, Hitachi, Fujitsu, Mostek, Nippon Electric Company and Texas Instruments). Nokia Electronics is internationally a small buyer, with annual (1981) demand of about 40

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000 l6K EPROM memories. This is about 0.5% of European demand and 15-20% of Finnish purchases. Nokia Electronics has, however, some importance as one of the leading buyers of the Scandinavian market. The memory buying market is influenced by business fluctuations, R & D and learning curve effects. As strategic, frequently required components, the memories are purchased through annual contracts. Potential suppliers have been previously evaluated according to price, quality characteristics, delivery dependability, and supplier characteristics. At the moment Nokia Electronics has four accepted producers: two American and two Japanese companies. On the request of Nokia Electronics the supplier names are not disclosed. The dominating features of the memory circuits contracts are delivery terms, quality & price with a clause providing for "a considerably downward trend in the market". For instance,the price of l6K EPROM memories for 1981 was renegotiated before any deliveries were made. The present contracts are with one American and one Japanese producer, the other two producers are in reserve. The choice relfects Nokia's policy to try to create keen competition between the producers of these dominating countries. The Japanese companies have only relatively recently been included in Nokia Electronics' list of accepted producers, and only after a conflict resulting in a major change in the buying sources of memories and other key semiconductors. As such the development merits a brief digression.

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Until the late 1970's Nokia Electronics used almost entirely US made semiconductors. The buyers, however, were not satisfied with the negotiations. The chief buyer believed that the American producers were aware of each other's prices and acted accordingly. Also single source situations, delivery difficulties, and even cancellations occurred during periods of capacity shortages. The Materials Department evaluated leading Japanese producers by acquiring information and component samples. These satisfied the Quality Control and Buying Office, and the Department introduced the new component alternatives to the R & D people. The majority of R & D department refused to use Japanese components whatever the test results. The deadlock was not settled until the Materials Department had arranged a minute inspection visit, attended by the R & D manager, to the Japanese producers' plants. The results were found satisfactory and the Japanese producers became Nokia's standard semiconductor contractors. Because of Nokia Electronics' profit-oriented dynamic buying policy, all contracts are evaluated periodically and the market is monitored for potential suppliers. This procedure is described in the next section. 4.1.2.2 Memory Circuits Buying Process As an old component the 16 K EPROM memory has passed the new component acceptance procedure and has a Material Code. The Helsinki Buying Office is responsible for the buying process comprising the check-up of contracts, search for new suppliers and

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their evaluation, sending requests for quotations (RFQ's), and finally negotiating and choosing the vendors for annual contracts. The buyers are supported by the component engineer belonging to the Materials Department's Quality Control unit. A decision analysis flowchart is given in Figure 3.

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Figure 3. Buying Process of EPROM 16 K Memories.

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Figure 3. Buying Process of EPROM 16 K Memories. Initiative and Information Search: In routine situations the Product unit of the Data Processing subdivision gives the expected quantity of micromemories and the approximate production (delivery) schedule to the Buying Office. As mentioned Nokia has four accepted

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suppliers for memories and annual contracts with two of them. The Buying Office continuously receives new suggestions and information on the memory circuits. The producers are fairly active; Nokia Electronics receives about three significant company visits per main producer annually. Usually both technical and sales representatives are present. The R & D designers are the principal targets of technical marketing. Further Nokia Electronics' American buying office provides information on market developments. Other relevant sources are trade fairs, especially Muchen Electronika and Composant Electronic in Paris, trade journals, technical advertising and other buying companies. A severe problem in information acceptance is reliability. Nokia's buyers claim that some American producers provide information on interesting new components which actually do not exist yet. Producers try to evaluate the marketing potential. If the results are unsatisfactory the project is silently dropped, but some R & D designers may actually have started new · product designs based on the promises made. In addition to external search the buyers receive suggestions from the Data Processing subdivision's R & D unit. Generally these require more sophisticated memories. These initiatives have to come through the production and Quality Control component engineers. Finally the Quality Control unit provides the Buying Office with the results of the delivery inspection of the present contractors' memories. Initiation and information search are routine matters as long as there are at least the four accepted producers. 165

The situation changes if only one producer is available or some of the main suppliers are not satisfactory. In the past the latter condition led the Buying Office to active search for Japanese producers. Selecting Suppliers for Quotations: The annual contractors are evaluated on their memory quality, delivery performance and price level. These factors are used as criteria in determining acceptable suppliers for RFQ's. The original definition of the criteria is a two-stage process where the R & D engineer and the component engineers agree on a minimum technical requirements specified in the Material Code-and the Buying Office sets the price, delivery and guarantee targets, (see Figure 2). If a contractor is not considered satisfactory it can either be dropped or the matter is taken up in the coming negotiations. Radical steps will only be taken if there are acceptable alternative producers. A few years ago Nokia Electronics dropped an American memory producer. The decision was made only after the Japanese alternatives had been accepted. The rejection reasons were poor delivery performance and the aim to get better price agreements by using also non-US producers. The RFQ's are planned according to the annual agreements to facilitate the evaluation process and negotiations. Usually, however, more than one order size is used. A typical request might ask for firm bids for 30-70-100% of the total volume of memory circuits. Other important ·Specifications are the downward trend price clause, and delivery guarantees and schedules.

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Negotiations and Supplier Selection: The quotations are evaluated by the Buying Office by comparing them on the specified items. The goal is to establish annual contracts with 2- 3 producers. As the technical specifications have been tested and should be almost identical among the producers, the buyers concentrate on delivery terms and price. Before opening the negotiations the buying situation is assessed and a target price set. The aim is to reach a mean price level somewhat below the world market price for a specific purchasing volume. The quoted prices and other market information are used as guidelines. When a change to a new memory generation is expected, a leading producer is given priority despite a possibly higher price. In case of equal prices, producers who can guarantee flexible changes in volumes within the contract period are preferred. Finally the information collected on each producer is rechecked and individual negotiation arguments are formed. Since the number of bidders is only four, negotiations are carried out with each of them. The initial contacts are arranged by the Purchasing Manager of the Helsinki Buying Office and his chief electronic component buyer. Decisive talks are attended by the Purchasing Manager of the other Buying Office, the Component Engineer from either the Production Unit (Data Procession), or Quality Control, and on special occasions the Manager of Materials department. The producer's interests are generally in the hands of his marketing manager for Finland or Scandinavia and the

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respective agent's marketing manager or managing director. In negotiations the arguments selected are used in order to get concessions concerning price and delivery terms. The policy is to create competition between the producers. Further the volumes are often changed on the basis of previous supplier performance. The reasons are given to the supplier in question. In general delivery difficulties have been the principal reason for quantity reductions. Nokia's Purchasing Manager (Helsinki Buying Office) regards the atmosphere in negotiations as very important. Certain openness and trust should be expected when long term contracts are discussed. Considering the American and Japanese parties he thinks that the latter are more trustworthy because they very seldom make promises they cannot keep. The US producers seem to be guided more by short term and strict profit policy. For example, some have, dropped a component abruptly if it has fallen below their profit margin. According to Nokia's sales personnel also these cultural or negotiation style dimensions are taken into account. The negotiations usually take about two months, concentrating at the final stages on the price issue. If a producer offers the lowest price it is usually given the largest order. In case of two contractors the ordinary split would be 70/30% and in the case of three, 50/25/ 25%. Price, established relationship, and dependability influence both contractor selection and order quantity decisions. When there are no considerable differences

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between the two selected contractors the order is split; in 1981 between a Japanese and a US producer. The manager of the Materials Department has the final decision making power. 4.1.2.3 Theoretical Comments The objective has been to describe the central events, decisions, actions, and persons (or organizational positions) involved in buying memory circuits, an LSI-component in one company. Here the aim is to conceptualize the findings and relate them to certain research paradigms active in industrial buying behavior research. Concerning the fairly complex structural solutions for integrating the R & D, Production and Materials Administration, it seems that these are reactions both in contextual and internal complexity-comprising the often discussed buying market turbulence and vested interests of R & D staff versus the buyers. This phenomenon is in accordance with the organization theory postulate that complex context brings about complex organization solutions. The relationship between Production, R & D, and Materials Administration is organized around the component concept. The actions and decisions are focused on components and the different points of view toward these are reflected in the central organizational solution in the Production unit and Quality Control

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component engineers. The intersection of R & D designers' component requests often unique and Buying Officers' strive for 'cheap'-but still reliable standard components forms the focal point of conflict in the buying process. The component engineers referred to actually represent a method for both reducing the probability of conflicts and solving them. In addition to the social conflict and power concepts the perceived risk theory has an important role in buying behavior research, Hakansson and Wootz (1975); Newall (1977). In the case of Nokia the employed selective processes; comprising the principal part of the total buying process, hedge effectively both the quality and buying type risks. First, through the formalized procedure of Material Code establishment and the confirmation of Accepted Producer List. Second, through the evaluation of the listed producers on their price, quality and delivery performance for the RFQ's, and fi ally again in the negotiation stage. Risk reduction was in each case performed by staff specialized in the risk type of question. Moreover, the buying policy principles employed have also a risk reducing objective. The requirement of two to five procedures covers against delivery shortages and supplier dependence and the price clause hedges against the rapid learning curve effects reflected in downward price trends. The decision heuristics used in the buying process exhibit interesting patterns. In the Material Code or producer acceptance a noncompensatory judgemental

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rule is employed. The established minimum levels for component quality specifications act as criteria in an essentially conjunctive dichotomizing of the producers into accepted/unaccepted sets. The R & D managers early rejection of Japanese components is an illustration of the disjunctive heuristics. The country of origin or actually company image formed the top criterion which the manager used in his discrimination of the two supplier groups (Japanese vs. US). When the buying process proceeds to the supplier evaluation for RFQ's the more complex compensatory rule is applied. Here, price delivery and quality performance can, in some degree, compensate each other. No formalized or explicit importance weights were used, although it became apparent that the criteria had different weights depending on the unique situation in question. A similar compensatory heuristics was also employed in both the final supplier choice decision and in the division of the orders between selected suppliers. The choice or judgemental rules described are both empirically and theoretically sensible. In the early stage when the emphasis is on the quality qualification of the alternative producers, the conjunctive rule used represents the most simple and certain way of ensuring the objective. The compensatory heuristics employed in the RFQ's stage, final supplier selection, and order quantity decision, are more complex and cumbersome to carry out but allow for taking into account the various factors influencing the decision.

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In balance, the results show the usefulness of the conceptual framework developed within the MATBUY-model. Both the focal decision areas, supplier attributes, choice criteria, and judgemental rule theorization were valuable in conceptualizing the detailed buyflow protocols. 4.2 Summary Results of Buying Process Analyses The six buying processes were all analyzed and modelled similarly to the memory component case described in the previous section. To provide a concise summary of the buy flow models they are illustrated by defining the phases or subprocesses of the total process, the evaluation and choice criteria used at each decision stage, and the judgemental rules applied. These are reported in Figure 4. The subprocesses suggested in the MATBUY model were sufficient to describe the six buying processes. The intensity of buying, ie. the resources committed in each substage varied greatly, however, from one case to another, following logically the complexity of the product purchased and the buying market situation. However, some generalizations can be given. First, the companies tried to use stable supplier evaluation criteria. Real, non-routinized decisions concerning these criteria were made only when a new component was purchased or there were considerable changes in the nature of the component (round vs. flat lift cables for instance)(l4). The drive for constant evaluation criteria did not, however, lead to their mechanistic or 172

uncreative application. Depending on the buying market situation (characterized eg. by capacity, technological innovativeness, degree of competition) the application forms and the relative importance of the criteria used in certain material purchases can vary considerably between years. Concurrent to the normalizing evaluative criteria, there emerged the routinization of the information search subprocess. In ordinary situations this comprised a fairly passive control and follow up of the contractual suppliers and buying market. The surveillance of buying markets was most intensive in Nokia Electronics, which probably faced a more turbulent environment than the rest of the companies. In all cases the products investigated were purchased through annual contracts implying a negotiation stage. The multiphased nature of the buying processes facilitated the use of commercial and technical risk avoidance mechanisms embedded even in the most routinized purchases like steel sheets and lift guide rails. These phases can be analyzed through the choice criteria and judgemental rules applied. Generalizing, it can be stated that technical quality, dependability and flexibility in deliveries, guarantees related to both quality and delivery, and price are the principal choice criteria in all six cases. The role of quality was emphasized in the early phases when the minimum acceptable levels of criteria were defined for the suppliers. Quality was used to dichotomize the potential group into acceptable/nonacceptable sets through a

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conjunctive decision rule. In many cases the technical dimensions had been standardized. Figure 4 Summary o£ the Analyzed Buying Processes

Figure 4 (continued)

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Figure 4 (continued)

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The bidding phase was in all cases preceded by the evaluation of old contractors and in many cases a couple of new supplier candidates. Concerning the former group, delivery dependability was the vital issue, whereas price formed almost the only method for a new producer to get a request for quotation. The quotations were evaluated mainly through a compensatory procedure or by using a conjunctive rule where each of the discussed criteria was applied one by one in a restrictive manner. The quotation evaluation formed a base for negotiations and supplier choice. The most frequently used arguments in negotiations were price differences in quotations, and marginal difference in quality specifications and in terms of delivery (15). In four cases the judgemental rule applied in the negotiations and final choice was a compensatory one. The aim was to achieve the best possible price without jeopardizing the quality criteria and delivery dependability. The more standardized the component, the more weight was given to price. At the risk of a broad generalization, it seems that in the early phases of the buying process (new supplier/ component acceptance, evaluation for RFQ's), the technical and quality dimensions comprise the critical criteria. They are used in a typically conjunctive sense to discriminate the potential suppliers into acceptable/ nonacceptable sets. In the final supplier choice a compensatory approach dominates, price is here weighted more heavily if the other criteria are clearly above the threshold levels. No explicit use of criteria weights was found. However, it was evident that the 176

decision makers gave different stress to the various criteria, and that these implicit weights changed in different stages of the buying process. In addition to the decision analysis results the following conclusions could be made: 1) The initiative for starting the buying process almost always came through routinized internal channels. On a few occasions the process had been initiated during the contract term because of external market turbulence. 2) Company buying records formed the primary information source. Other sources were considerably less used. 3) When considering a new supplier a sample was requested for testing whenever possible. 4) Requests for quotations were seldom sent to over six supplier candidates. The evaluation costs were considered to exceed the marginal benefit of a greater group of candidates. Active search for new suppliers was a rare phenomenon. The buying markets as well as the RFQ suppliers were generally regarded as well known. 5) In noncomplex buying cases (established criteria, known suppliers with no turbulence) the buying responsibility was in the hands of the buying department. In new or more complex cases other

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departments, such as R & D, production and material management, participated in the buying process. 6) There emerged clear conflicts between the buying department and the more production and R & D oriented departments. These concerned technical quality dimensions of the components and materials. In all cases the acceptance of some production oriented department was requested before including a new component in the buying program. When conflicts arose, efforts were made to solve them through analytical discussions.

5.Discussion In evaluating the results presented here, the limitations and advantages of the case method should be kept in mind. The interview based data collection provided an in-depth view of the buying process. By keeping the interviews informal and discussion based, and further by taking into account the vested interests of production and buying personnel, a realistic and unrationalized process description was strived for. Moreover, after the protocol material was refined into descriptive process flowcharts or models, these were checked with the key interviewees. These validity procedures embedded in the decision systems analysis give some means of assuring internal validity of the per se subjective evaluation of the material by the researcher. I believe

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that the process models presented are adequately reliable and valid. The construction of the descriptive buying process models was based on the MATBUY-model relying on the multiattribute and judgemental rule conceptualizations. The results show that these conceptualizations enabled the abstraction of the protocol material and facilitated the comparison between various buying cases. Also the perceived risk paradigm and social conflict theory gave useful insights into the theoretical analysis of the material. On balance, the data collection methodology used and the multiattribute decision theory framework (MATBUY-model) applied in the data analysis provide a powerful combination for a detailed descriptive modelling of complex decision processes. When considering suggestions for future buying behavior research the generalization and hypothesis testing problems related to inductive modelling should be considered. The generalization restriction could be moderated by introducing more buying cases and the hypothesis testing issue by creating field experiments. A brief consideration of these directions terminates the paper. The multiattribute decision theory conceptualization suggested could be used for assessing the structure of various types of production materials' buying processes across industries. This aim would require a number of representatives intensive studies where the type of material, industry, firm size and perhaps 179

even other relevant contextual variables should be taken into account. This would provide important descriptive information about this relatively under researched field, and further of the buying process a conjunctive model is used to discriminate between acceptable/unacceptable supplier candidates whereas the compensatory rule dominated the choice phase. In the early phase the weight is on quality and delivery specifications, in the latter on price. This kind of rich data base would enhance the development of organizational buying theory and the creation of more exact hypotheses for survey studied.

The suggested research program could be further extended to cover basic normative issues. First, do there exist systematic decision process differences between efficient/inefficient buying processes, and what are the potential differences? This issue presumes the development of a cost based independent variable and contains the problem of how to normalize intervening contextual variables. Another issue of buying process optimization would be to evaluate the alternative costs 180

related to the tendencies to routinize vs. extensity the buying process. This would mean the operationalization of the theoretical 'extensive problem solving' and 'routinized response behavior' mechanisms (see section 2.1), and further a kind of value analysis of the level of buying process routinization. The following tabulations present a few suggestions about these decision strategies. In addition to the above suggestions it seems evident that more attention should be focused on the time dimension of the buyer-seller relationship and its dynamic evolution. The results of the six buying cases indicate that buyers perceive long term relations as important means for risk reduction and buying process rationalization. The length of interaction in industrial relations has also been emphasized by Hakansson (1982) and Harnrnarkvist, Hakansson and Mattsson (1982). The research strategies described briefly could lead to an enhancement of the organizational buyer behavior theory. It is hoped that this study contributes to the same aim. Notes 1. Other members of the group are Michael Baker and Stephen Parkinson (United Kingdom), Jacques de Rijcke and Wouter Faes (Belgium). 2. The classification is adapted from a more general classification of decision processes suggested by Howard,

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Hulbert and Farley (1973). This classification is preferred to the Robinson et al (1967) suggestion as it is theoretically more substantive. 3. This section is an abbreviated and developed version of Moller (1981) Chapter 2. 4. These will be defined in the next section. 5. Numerous supplier evaluation or choice criteria studies have been carried out, see eg. Lehmann and O'Shaughnessy (1974), Kelly and Coaker (1976), Kiser and Rao (1977) and Liiketaloustieteellinen tutkimuslaitos (Moller and Leino, 1980). 6. Lower case x's are used to indicate the subcriteria or elements of C instead of the c's which would be more in harmony with the set theory notation because x's will be used to denote also supplier alternatives. 7. The relative importances and threshold values do not necessarily have to be stated in explicit figures. These concepts have, however, been found to be valid in a group of Finnish companies, Moller and Allos (1983). 8. The EVALUATIVE CRITERIA FORMATION and INFORMATION SEARCH subprocesses are actually dynamically interactive and can take place concurrently. That is, the formation of evaluation criteria presumes information about product and supplier attributes. As the criteria become more structured (as is usually the case in static circumstances), they guide the information search, which eventually may further affect the criteria and so forth. 9. The evaluation of the perceived importance of different information sources and information items as well as the effect of sales personnel and industrial advertising on buying form a well developed research tradition. For recent

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studies see eg. Patti (1977), Dempsey (1979), and Liiketaloustieteellinen Tutkimuslaitos (Moller and Leino, 1980). 10. The concept 'supplier attribute' is used in an extensive sense, it covers both objective and perceived supplier and product attributes. 11. For mathematical modelling of the rules see eg. Green and Wind (1973). 12. This is an abridged version of the report published in Moller(1982). 14. By simplifying the buying process it can be noted that memories and anchor windlass represent the most complex cases, the memories facing perhaps more turbulence in the buying market. The other components are tecnically less complex and their purchasing is generally fairly standardized. Abrupt changes in their buying market situation (due eg. to currency fluctiations, supplier quantity problems, and shortages) are not infrequent,however. 14. The case of anchor windlass was a notable exception. The varying nature of the end-product (ships) and the idiosyncratic wishes of the final buyers led to a development of genuine evaluation criteria per each purchase of windlass. 15. The final choice was generally made in the negotiations. Because of this the choice criteria and judgemental rules reported in Figure 4 in either subprocess (Negotiations, Supplier choice) concerns both of them.

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References Bonoma, Thomas. V. and Zaltman, Gerald (eds.)(l978) Organizational Buying Behavior , American Marketing Association, Chicago. Capon, N., Farley, J.V. and Hulbert, J. (May,l978) Pricing and Forecasting in an Oligopoly Firm, Journal of Management Studies, Vol. 12. Capon, N. and Hulbert, J.(December,l975) Decision Systems in Industrial Marketing, Industrial Marketing Management, 4. Crow, L.E., Olshavsky, R.W.& Summers, J.O.(Feb. 1980) Industrial Buyer Choice Strategies: Protocol Analysis, Journal of Marketing Research, Vol. 27. Cyert, R.M. and March, J.G.(l963)The Behavioral Theory of the Firm. Englewood Cliffs, N.J., Prentice-Hall. Cyert, R.M., Simon, H.A. and Trow, D.B. (October,l956) Observation of a Business Decision, Journal of Business, Vol. 29. Dempsey, W.A.(l979) Vendor Selection and the Buying Process, Industrial Marketing Management, Vol. 7. Farley, J.V., Howard, J.A. and Hulbert, J. (Fall,l981) An Organizational Approach to an Industrial Marketing Information System, Sloan Management Review, Vol. 13.

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Farley, J.V., Hulbert, J. and Weinstein, D. Price (Winter,l980)Setting and Volume Planning by two European Industrial Companies: A Study and Comparison of Decision Processes, Journal of Marketing, Vol.44. Green, P.E. amd Wind, Y.(l973) Multiattribute Decisions in Marketing: a Measurement Approach, Hindsdale, Ilinois. Hakansson, Hakan,(l982) International Marketing and Purchasing of Industrial Goods. John Wiley and Sons,Chichester, Sussex. Hakansson, H. and Wootz, B.(l975) Risk Reduction and The Industrial Purchaser, European Journal of Marketing, Vol.9. Hammarkvist, K.O., Hakansson, H. and Mattsson, L.G. (1982) Markets as Networks-An Approach to the Analysis of Specific Marketing Situations, Proceedings of the European Academy for Advanced Research in Marketing, Vol. 7, Antwerpen. Howard, J.A.(l963) Marketing: Executive and Buyer Behavior. New York, Columbia University Press. Howard, J.A., Hulbert, J.M., Farley, J.V. (April, 1975) "Organizational Analysis and Information System Design: A Decision Process Perspective", Journal of Business Research, 3, pp. 133-148. Hulbert, J.M.(l98l) Descriptive Models of Marketing Decisions, in Marketing Decision Models, R.L.

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Schultz and A.A. Zoltners, (eds.) North Holland, New York. Johnston, W.J. and Spekman, R.E.(l982)Industrial Buying Behavior: A Need for a Integrative Approach, Journal of Business Research, 10, 135-146. Kelly, P. and Coaker, J.W.(l976) Can We Generalize about Choice Criteria for Industrial Purchasing Decisions, in Educators' Proceedings, American Marketing Association, Chicago. Kennedy, A.K.(l983) The Complex Decision to Select a Supplier: A Case Study, Industrial Marketing Management, 12, 45-56. Kiser, G.E. and Rao, C.P.(August 1977) Important Vendor Factors in Industrial and Hospital Organizations: A Comparison, Industrial Marketing Management, Vol. 6. Lehmann, D. and O'Shaughnessy, J.(April,l974) Difference in Attribute Importance for Different Industrial Products, Journal of Marketing, 38, 36-42. Moller, K. ja Leino, I. (1980) Liiketaloustieteellinen tutkimuslaitos Kotimaisten tuotteiden kanssa kilpailevien tuontitavaroiden hankintapaatokslin vaikut-tavat tekijat. Liiketaloustieteellisen tutkimuslaitoksen Julkaisuja,SARJA B: 26, Helsinki. March, J.G. and Simon, H.A.(l958) Organizations, New York: John Wiley and Sons.

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Mintzberg, H., Raisinghani, D., and Theoret, A. (June, 1976) The Structure of 'Unstructured' Decision Processes, Admin, Sci. Quarterly, 21,246-275. Moller, K. (1977) Monidimensioiset valintamallit kuluttajan merkinvalintakayttaytymisen tutkimuksessa, Publications of the Helsinki School of Economics, Series D;26. Moller, K. (1981) Industrial Buying Behavior of Production Materials: A Conceptual Model and Analysis, Helsinki School of Economics Publications, Series B-54, Helsinki. Moller, K. (1982) Industrial Buying Behavior in Electronics: Case of Memory Circuits, in Andrew Mitchell (ed.) Advances in Consumer Research, Ann Arbor, Michigan. Moller, K. (December,l982) Research Paradigms in Analyzing Organizational Buying Process, a paper presented at the Workshop on Organizational Buying Behavior, European Institute for Advanced Studies in Management, Brussels. Moller, K. and Allos, J.(l983) Tuotannillisten komponenttien ostopaatos-prosessi (Summary: Buying of Production Materials: An Intensive Study in Three Finnish Corporations). The Helsinki School of Economics Publications, Series B-60, Helsinki. Newall, J. (1977) Industrial Buying Behavior: A Model of the Implications of Risk Handling Behavior for

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Communication Policies in Industrial Marketing, European Journal of Marketing, Vol. 11, No.3. Nielsen, 0.(1982) Introducing a New Purchasing Strategy in a Firm Producing to Order: A Case of Steel Castings, in Advances in Consumer Research, A. Mitchell, (ed.), Vol.9, Ann Arbor, Michigan. Park, C. (1974) An Exploration of the Consumer's Judgemental Rules. Unpublished doctoral dissertation, University of Illinois. Patti, C.H.(August 1977) Buyer Information Sources in the Capital Equipment Industry, Industrial Marketing Management, Vol.6. Pettigrew, A. (1975) The Industrial Purchasing Decision as a Political Process, European Journal of Marketing, Vol. 9. Pras, B. (1973) Predictive Qualities of Linear and Nonlinear Evaluation Process Models. Unpublished doctoral dissertation, Indiana University. Robinson, P., Faris, C. and Wind, Y.(l967)Industri al Buying and Creative Marketing. Boston: Allyn & Bacon. Sheth, J. (1977) Recent Developments in Organiz ational Buying Behavior, in Consumer and Industrial Buying Behavior , A. Woodside et al (eds.) Elsevier, New York. Simon, H.A.(l960) The New Science of Management Decision, Englewood Cliffs, NJ, Prentice-Hall.

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Stiles, G.W. (1974) Determinants of the Industrial Buyer's Level of Information Processing: Organizations, Situations and Individual Differences. in D. Hughes and M. Ray (eds.) Buyer/ Consumer Information Processing, Chapell Hill, NC. Strauss, G. (1962) Tactics of Lateral Relation ships, Administrative Science Quarterly, Vol. 7. Thompson, J.D. and Tuden, A. (1959) Strategies, Structures and Processes of Organizational Decision. in J.D. Thompson et al, (eds.) Comparative Studies in Administration, University of Pittsburgh Press. Vollering, J. A (1982) Methodology for Analyzing Interaction Processes of Buying and Selling Organizations, Working paper, Graduate School of Management, Delft. Vyas, N. and Woodside, A.G. (198l)"An Inductive Model of Industrial Supplier Choice Processes", Unpublished paper, University of South Carolina. Vyas, N.M. and Woodside, A.G. (1982) Micro Analysis of Supplier Choice Strategies:Industrial Packaging Materials, working paper, College of Business Administration, University of South Carolina, Columbia, SC. Wind, Y.(l966) Industrial Buying Behavior; Source Loyalty in the Purchase of Industrial Components, unpublished PhD dissertation, Stanford University. Wind, Y. and Thomas, R. (l980)Conceptual and Methodological Issues in Organizational Buying 189

Behavior, European Journal of Marketing, 14 239-263. Woodside, A.G. and Vyas, N. (1981) Industrial Buying Behavior of Fuel Oil: A Descriptive Model of a Firm's Decision Process, working paper, College of Business Administration, University of South Carolina, Columbia, SC. Wright, P. (1975) Consumer Choice Strategies: Simplifying vs. Optimizing, Journal of Marketing Research, (February). Wright, P. and Barbour, F. (1977) Phased Decision Strategies: Sequels to an Initial Screening, in Multiple Criteria Decision Making: TIMS Studies in the Management Sciences, M.K. Starr and M. Zeleny, (eds.) North-Holland, Amsterdam.

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PART TWO: THE INTERNATIONALISATION THEORIES AND EVIDENCE

PROCESS

In this section we present papers which focus on the ways in which companies develop their organisational structures in response to the challenge of international marketing. The process by which companies internationalise their business has been the subject of substantial research and theoretical development during the last twenty years. Thomas and Araujo review the literature in the first paper in this section. A significant part of the literature has been devoted to the question of whether strategy proceeds structure or vice versa. That is, whether companies use their organisational structures to implement strategic decisions or do existing structures largely determine, or at least constrain, strategic choices. Closely related to this debate have been the theories of internationalisation, which propounded the idea of export marketing organisation being a consequence of increasing knowledge of and commitment to foreign markets. Thus, it has been suggested that the internationalisation process resulted from a series of

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incremental decisions - a sort of creeping commitment rather than on major and discrete investments. Thomas and Araujo take us through the historical background and the evolution of theories and thinking concerning the exporting activity up to the present day. For the main part, their paper looks at more recent times"but starts with the 1960's and the initiation of the export order. They examine the question of rationality with regard to export behavior; models of knowledge development and market familiarity alongside increasing foreign market commitment, thus preexport behaviour and, creeping incrementalism towards internationalisation as advanced by the Swedish school of Weidersheim Paul, Johansson and Vahlne and others. They discuss the Bilkey and Tesar stage hierarchy model which indicates that size is unimportant but that progress is made by stages which may be identified. They further discuss modifications made to this theory by Reid and by Cavusgil and Nevin. The two major conclusions which they draw are; 1.

That export behaviour and foreign market entry decisions can best be understood from the narrow perspective of the firm's and decision maker's characteristics, as innovation adoption behaviour.

2. In the innovation adoption process, information flows in the firm's environment play a crucial role in shaping managerial perceptions and attitudes to exporting.

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They then make four recommendations as to directions for future research: looking at export behaviour in the context of overall marketing strategy: concentrating on longitudinal studies; foreign market entry as a consequence of relationships developed in the domestic market; and patterns of communication between firms in internationalised environments. It is therefore interesting to note that Turnbull and Ellwood in their paper on internationalisation in the information technology industry present evidence that does not support a simple stages theory although they acknowledge problems of definition and interpretation. In particular they argue that it is important to distinguish between a company's attitude/orientation to international marketing, which may develop sequentially through a stages process, and the organisational structure adopted in a given country market which may not be the result of a stages process. Turnbull and Ellwood present research findings which show little evidence of a stages theory of organisational development in export markets and the authors suggest that company specific variables such as history, technology and international orientation may be more important determinants of structure than country specific variables. In the subsequent paper, Turnbull examines the role and importance of just one of the organisational alternatives, the sales subsidiary, which can be adopted as a base for foreign market operations. Utilising the interaction approach to marketing and purchasing

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within tripartite relationships he presents empirical data from research conducted in Britain, France, Germany and Spain. The interaction approach challenges the assumption that markets are segmented but passive, requiring only a change in the marketing mix to produce a response. Instead, the interaction approach shows that this buyer-seller interface is more commonly characterised by negotiation and adaptation; and that with long-established stable relationships, change is not easy. The research reported here seeks to examine the tripartite interaction process involving the seller, the intermediary and the end-user from the viewpoints of the head office; the intermediate sales subsidiary; and the customer. Thirty companies were identified and thirteen were researched in-depth, carrying out 46 interviews in total. Performance was measured against seven roles; market intelligence; market commitment; relationship management; administration; technical problem solving; commercial problem solving; and social distance. Three predominant roles of sales subsidiaries emerge: demonstrating market commitment and matching competition; the management of customersupplier relationships; and technical problem solving. There are differences, too, between supplier views and customer views regarding the importance of the individual factors. Overall, this is an exploratory paper, but highlights issues for further research, identifying clear differences between suppliers and customer views regarding the

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roles fulfilled by sales subsidiaries and suggesting some implications for marketing management. A particular problem identified is that of social distance and here it is suggested that alternative organisational forms, such as agents or joint ventures may be more appropriate to overcoming this problem. Barrettand Wilkinson test internationalisation behaviour from yet another base: that of Australian manufacturers. This paper identifies Australian manufacturing firms at different levels of international development using a classification which profiles them according to their senior managers characteristics; firstly in terms of age, level of education, country of birth, years spent abroad, etc.; secondly, managers' planning orientations; and thirdly, managers' attitudes towards and perceptions of various international marketing practices and problems. By comparing these individual characteristics with the international orientation of the employing companies, they identify significant differences among firms at different levels in the internationalisation process and the personal characteristics of top management. Barrett and Wilkinson employed a sample stratified according to firm size and whether or not the company was exporting. The weighted sample represents 1,904 cases. Their conclusion was that significant differences do exist among firms at different levels of the internationalisation process in terms of the personal characteristics of top management, managers' planning orientations, and managers' attitudes towards exporting.

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The results provide evidence of the learning process that takes place and its effects as firms travel the internationalisation path. On the basis of this evidence the authors suggest management training needs which should be addressed.

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Export Behaviour : Directions for Future Research Michael J Thomas Luis Araujo University of Lancaster United Kingdom

Background International trade has been an economic reality for a very long time, predating considerably the rather well documented activities of the Phoenicians. The intellectual history of international trade is more recent, if by that term we mean the application of rigorous analysis to the problem of why and how international trade occurs. Three classical economists, Adam Smith, David Ricardo and John Stuart Mill, provided the first theoretic economic justification for international trade, but in our view it is only very recently that viable theories of trade have begun to be formulated; that is, theories that can be said to be positive, but for which convincing normative evidence is available. This paper will look in some detail at theories of export behaviour, but it will be useful to place the discussion in context.

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The main thrust of theory in the field of economics is associated with the theory of comparative advantage, stated first by Ricardo (1917) and subject to considerable development subsequently. Much of the subsequent development of the theory has been by way of releasing the theory from the constraints of its very limiting assumptions. The most widely understood current restatement of the classical theory is that of Heckscher (1949) and Ohlin (1947). See also Lancaster (1957) and Bhagwati (1964). Though elegant in its restatement of the theory, there remains a feeling that a theory that was intended to explain the development of trade specialisation in the 19th Century was not wholly adequate to deal with 20th Century development. The highly simplistic and static assumptions about the nature of the factors of production are a serious disadvantage in the original theory, and attempts to remove these simplicities have in a real sense transformed the theory into an explanation that bears relatively little resemblance to the original statement. The transformation of theory in this way has not surprisingly allowed other theories, that more directly address the realities of patterns of trade, to emerge. Brief mention will be made of these theories. A product life cycle theory of international trade is associated with Wells (1969) and Vernon (1966) at Harvard University. It is a theory built upon examination of the pattern of trade in white goods over time, white goods originally manufactured in the United States. The theory created some interest and is frequently referred to in the contemporary international management literature. 198

An important contribution to the literature was made by a Swedish economist (Linder, 1981) who, on the basis of his examination of patterns of trade in the post World War II period, pointed out that 75% of free world trade is generated by and between the industrialised nations of the world; it is primarily an exchange of manufactures for manufactures. Linder argues that a nations trade is determined by internal demand. Entrepreneurs are, he argues, generally ignorant of trade opportunities overseas, and it is generally unlikely that they will attempt to satisfy a need overseas when that need does not exist in their home market. Hence it follows that. the more similar the demand structures for manufactured goods in two countries, the more intensive is the potential trade in manufactures between them. Further, average per capita income will determine the structure of· demand, hence differences in per capita income are a potential obstacle to trade. This contribution is important because (a) it is a more convincing explanation of trade patterns than the theory of comparative advantage (which is left to explaining patterns of trade in commodities and perhaps, undifferentiated products), (b) it draws attention to the behavioural dimension of trade, namely that it is entrepreneurs' decisions that determine the patterns of trade. Behavioural theories of trade have their intellectual roots in this development.Theories of trade that ignore the principal actors in trade must be suspect. Any theory of trade must encompass them. Linder's contention is that businessmen in general are rather 199

myopic about all the trade opportunities that may exist. Research workers have in the last two decades become very interested in what factors expand the horizons of entrepreneurs, since an understanding of those factors may be the key to understanding how to stimulate trade, particularly if it is thought to be a proper Government activity thus to stimulate trade. Thus this paper is concerned with theories of export behaviour. We have tried in the paper to assess the state of the art in the field of research into export management behaviour, and to derive conclusions as to what both management of firms and managers of government policy have to learn from this research. The paper is divided into three parts. The first part compares the different models of export behaviour and the internationalisation of the firm. The second part examines other studies in the field, including the development of exporter profiles and their implications in terms of gaining insights regarding the motivation of some firms to export while seemingly similar firms do not even consider the possibility. The third and last part attempts to summarise the insights derived from the different models and studies presented, and to assess their implications for both governmental policy and the management of businesses.

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(a) Export as an innovative strategy The first study on export behaviour as a marketing innovation was done in 1968 by Professor Kenneth Simmonds and Helen Smith.(l968) The rationale for the use of such an approach is based on the perception that entry into the export market is, from the narrow perspective of the firm, an innovation within the closed environment in which the firm operates. At this time, although little was known about export behaviour, there were many studies of adoption of innovations in other contexts, and there was every reason to suspect that many of those findings would also apply to export behaviour. The Simmonds and Smith study was based on a small sample of firms that had recently obtained their first export order, and was drawn in order to test several broad hypotheses concerning export initiation in the light of the findings of diffusion and adoption of innovation studies. The hypotheses tested were:(1) The generation of the innovation (ie. entry into exporting) could be understood by reference to the situation within the firm, without having to attribute it to external conditions or influences. (2) The innovation could be traceable to an innovator, ie. the individual playing the dominant role in the export initiation process.

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(3) The innovator would be expected to be an individual possessing aggressive and competitive traits, with greater tolerance of risk than his counterparts in the firm, and motivated by perceived rewards stemming directly from the innovation. (4) As far as the internal environment of the firm was concerned, the prediction was that export initiating behaviour would most likely come from firms with a prior history of innovation in other areas of management. (5) It was expected that entry into a new market would most likely result from careful evaluation of the market potential across different segments, ie. a rational, marketing orientation rather than a mere effort to increase sales. The cases examined failed to support the hypothesis that the innovation could be explained simply by reference to the internal situation of the firm. By and large, the hypothesis concerning the characteristics of the innovators as initiators in exporting were confirmed, although there was little support for the expectation that the innovators would have transferred experience to exporting from other situations. The main conclusions drawn from this study were: (1) Promotion of internationalisation may be more effective in stimulating new exports than a strategy of appealing to national interest motives.

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(2) Contrary to what was expected, the drive to initiate exporting was attributed to a desire to increase sales, not to marketing awareness and/or orientation.· There was little analysis of the data collected. Ten years later a new study using the perspective of diffusion of innovation theory appeared in an article by W.Y. Lee and J.J. Brasch (1978). The study was based on 35 Nebraska exporting manufacturers, and its purpose was to determine if the decision process in adopting an export extension to their marketing programme was rational or non-rational, and if it was initiated by internally perceived problems or needs, or by a reaction to received outside information about the innovation, ie. exporting. Finally, a number of descriptive variables were used in an attempt to discriminate between problem-oriented and innovation-oriented firms and between rational and non-rational adoption processes in.export behaviour. The rationale behind the dichotomous approach to export decision making was based on two assump;tions: (1) A firm can decide to begin to export because it recognises a corporate need that can be met, the information gathering process about exporting from outside sources taking place at a later stage. As Lee and Brasch (1978) pointed out "To date those who have sought to encourage exporting have hoped that outside stimulation would be effective; that is, that

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export decisions are likely 'innovation oriented' rather 'problem oriented'." (Page 87) the importance of testing assumption. to be than Hence this (2) Because the adoption of an export strategy involves a certain degree of risk and commitment of resources, rationality on the part of export initiating firms has been assumed. But, as Lee and Brasch point out: " rationality on the part of corporations is not necessarily intellectually accepted by those who encourage the adoption of an export strategy" (Page 87).There seems to be instances in which companies enter exporting on an almost impulsive basis or because of management's diffuse impression of the intrinsic attractiveness of exporting, as an abstract ideal, irrespective of its potential contribution to the growth and development of the firm. According to traditional research on diffusion of innovation theories, the word diffusion has little meaning except as it relates to a group of people; that is, social contact is the basis for awareness and the decision making process of an innovation adoption is intrinsically rational, since it involves careful consideration of alternatives and evaluation of consequences. However, in this study the authors have taken the view of the adoption process as being initiated either by knowledge of the innovation being received passively or, by influence of the environment provided by the social system, resulting from the traditional awareness sequence. According to this view, an

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innovation adoption decision making process may be either rational or non-rational. These views provide the framework for the formulation of the hypotheses to be tested, the research being conducted in terms of finding out the answers to the two following questions:(1) Is the export adoption process predominantly rational or non-rational? (2) Is the export adoption process predominantly awareness initiated or problem initiated? The study concluded that nearly one third of the firms surveyed used a non-rational adoption process in initiating exports non-rationality being evaluated in terms of lack of collection of information (both in a quantitative and a qualitative sense), lack of consultation of export authorities and lack of clearly defined goals and justifications for getting involved in exporting. But as the authors point out (Page 92), the results may have been affected by the relatively small size of the firms surveyed, with direct implications on the level of sophistication used in planning,control and information gathering systems, as well as by the perceived relevance of economic benefits from exporting. In the light of these remarks,it is perhaps worthwhile to ask whether the criteria used to classify non-rational behaviour were

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adequate and non-biassed, ie. if applying generalised, textbook measures, neglecting the context in which the problem is set, can be considered a reliable criterion. Finally, the results indicated a significant difference in company age between innovation oriented adoption process firms and problem oriented aqoption process firms, as well as differences between rational and non-rational behaviour, in the way firms perceive their overall business environment. (b) A model of knowledge development and increasing foreign market commitment: This model, developed by J. Johanson and J E Vahlne (1977), focuses "..on the development of the individual firm and particularly on its gradual acquisition, integration and use of knowledge about foreign markets and operation, and on its successively increasing commitment to foreign markets". (Page 23) This model is based on empirical observations from studies on the development of the international operation of Swedish firms and draws heavily on conclusions from a previous study by J. Johanson and F. Weidersheim-Paul (1975) on the internationalisation of four major Swedish firms Sandvik, Atlas Copco, Facit and Volvo. In this study it was observed that in the case of these firms, the internationalisation process was the consequence of a series of incremental decisions, rather than large, spectacular foreign investments.

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It was assumed that the most important obstacles to internationalisation are lack of knowledge and resources-these obstacles being reduced through incremental decision-making and learning about the foreign markets and operations. Consequently, the perceived risk of market investment decreases and the internationalisation process is furthered by the increased need to control sales, and by exposure to offers and demands, and to extend overseas operations. This might be taken as an application of the classical dynamic model (stimulus-organisational response type of behaviour) to the internationalisation development process of the firm, with a feedback loop from the response to stimulate the next stage in the internationalisation process. To understand the development of international operations of the firms referred to, Johanson and Wiedersheim-Paul chose to distinguish between four different stages, with regard to the degree of involvement of the firm in international operations:(1) no regular export activities (2) export via independent representation (agent) (3) sales subsidiary (4) production/manufacturing The examination of the four internationalisation cases presented evidence supporting the model which was further expanded, and more carefully formulated by 207

Johanson and Vahlne (1977). In this dynamic model, ie. a model in which the outcome of one cycle of events constitutes the input to the next, the main structure is given by the distinction made between state and change aspects of internationalisation variables. The state aspects are the resource commitment to the foreign markets market commitment and knowledge about foreign markets and operations. The change aspects are decisions to commit resources and the performance of current business activities, a mechanism shown diagramatically below. Exhibit 1

The basic mechanism of internationalisation assumes that market knowledge and market commitment affect both commitment decisions and the way current activities are performed and these , in turn, change market knowledge and commitment.

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The basic assumption underlying this model is that the firm strives to increase its long term profit (equated with growth, in this case) and that these strivings characterise decision making at all levels in the firm. In what concerns the state aspects, the reasons for considering the market commitment is that it is assumed that the amount of resources committed and the degree of commitment affect the firm's perceived opportunities and risk. The reason for considering market knowledge lies in its implications concerning commitment decision; first knowledge of opportunities is assumed to initiate decisions, and secondly evaluation of alternatives is based on some knowledge about relevant facts of the market environment and about performance of various activities. According to the perspectives taken in this model, there is a direct relation between the two state aspects; "..Knowledge can be considered a resource (or perhaps preferablya dimension of the human resources) and consequently the better the knowledge about a market, the more valuable are the resources and the stronger is the commitment to the market." (Page 28) The authors hypothesise that this relation is especially true of experiential knowledge, since it provides a framework for perceiving and formulating opportunities in specific situational conditions and thus cannot be transferred to other situations or other markets. In what concerns the change aspect, the reason for considering the current business activities aspect is based on the assumption that current activities, apart

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from being a source of experience, are shaping the firm's ability to exploit further opportunities in the future and therefore represent a form of commitment. The second change aspect is concerned with decisions to commit current resources to foreign operations. It is assumed that such decisions depend on what decision alternatives are raised and the criteria for the choice amongst different alternatives. Decision alternatives are raised in response to problems or opportunities and this will be dependent upon the scale and type of operations the firm is performing, ie. on its commitment to the market. Alternative solutions will consist of activities that mean an extension of the boundaries of the organisation and an increase in the degree of commitment to the market. Johanson and Vahlne (1977) conclude the discussion of commitment decisions by observing that additional commitments to a market will take place in small steps, unless the firm has very large resources and/or market conditions are considered to be stable and homogeneous (ie. easily predictable) or the firm has previously acquired experience in other markets with similar conditions. Otherwise market experience will lead to a step-wise increase in the scale of operations and of integration with the market environment, where steps will be taken to correct the imbalance with respect to the incremental risk created by the incremental additions to operations. (c)

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A model of pre-export behaviour: In an interesting article published in 1978, Wiedersheim-Paul et al (1978) developed a model that stresses the role of a firm's pre-export activities in its export start. The model basically suggests that different types of 'triggering cues' in relation to decisions about pre-export behaviour-attention evoking factors are exposed to the decision maker. The type and amount of alternatives evoked is dependent not only on the individual decision maker but also on the environment in which he is acting - that is, the environment of the firm and the firm itself. These three variables- decision maker, firm environment and firm are inter related in a flow sense, the decision maker being influenced by his environment but also creating an environment, through his and his firm's activities. Four factors are considered likely to have an effect on the pre-export behaviour of the firm: goals of the firm and their degree of realisation, type of product line, history of the firm and degree of extra-regional expansion. The attention evoking factors-those influences that cause the firm to consider the adoption of export as a possible strategy-are divided into internal and external stimuli. Under internal stimuli factors, two groups of factors were considered and they are, to some extent, dependent upon each other:-

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(1) a differential firm advantage by the possession of unique competences. (2) excess capacity in the resources of management, marketing, production of finance. In the group of external stimuli factors the following were identified:(1) fortuitous customers. orders from foreign (2) competition stimuli arising either from a tendency of domestic competitors to adopt strategies or from stronger competition in the domestic market caused by domestic or foreign competition. (3) the revealing of market opportunities abroad. (4) government export stimulation activities Pre-export perspective the firms described in activities were studied from the of the information activities of surveyed, these activities being terms of:(1) willingness to start exporting (2) information transmission activity (3) information collection activity Along these dimensions firms were classified in three groups: active, passive and domestic (viz. home market 212

orientation only). Empirical testing of various aspects of the model's operation were conducted in Australia and generally supported the approach to the nature and effects of pre-export behaviour as outlined in the model. It should be noted however that any statistical generalisation of the results is restricted by the extremely small size of the sample. Basically the model stresses the importanceof the history and the environmentwith particular emphasis on previous extra-regional expansion experience as a 'domestic internationalisation step'. It is also stressed among environmental factors the "...importance of contact patterns that allow an efficient exchange of information creating possibilities for 'contagion transmission' of ideas from other firms in different stages of expansion". (Page 56) After reading the main conclusions of this study one can hardly avoid the conclusion that the initiation of export behaviour can be seen as a diffusion of innovations problem communication assuming a central role in the process and that it also involves a normal learning sequence, in an incremental step mode. The model still needs to be tested empirically and the functional relationships between the variables used need to be explained, but, as the authors recognize, this model, "...represents a framework for the development of more partial models of a qualitative and quantitative kind which are open to operationalisation". (Page 56)

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(d)

A stage hierarchy approach:

This approach was first developed by w.Bilkey and G. Tesar (1977) using Roger's theory of diffusion of innovations. Questionnaires were mailed to a sample of small and medium sized firms in Wisconsin, and the analytical methodology used involved treating each stage of the export development process as the dependent variable in a multiple regression equation-coefficients differing at each stage to allow for experience gained in preceding stages. The basic conclusions that Bilkey and Tesar derived from their study were summarised as follows:(1) The export development process of firms tends to proceed in stages. (2) Considerations that influence a firm's progression from one stage to another tend to differ by stage. (3) Within the size range of firms studied, size was relatively unimportant when account was taken of the quality and dynamism of management. This approach was considerably amplified and refined by Reid (1981). His conceptualisation of foreign entry and export expansion behaviour is seen as a stage hierarchy, innovation adoption process leading to a model of interaction between firm and decision maker characteristics in the small firm, and their relationship

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with export behaviour. The model can be summarised by reference to Exhibit 2. Reid clearly points out that the assessment of the export adoption stage cannot be done unidimensionally and that export performance should be defined along multidimensional, time dependent variables eg. growth, rate of new market expansion and new product introduction into foreign markets. Viewing export behaviour as an innovation adoption shifts the emphasis on the study of pre-export behaviour to the study of individual decision maker characteristics and the acquisition of export related information provided that the existence of resources enables the export choice to be exercised. Based on available empirical evidence,Reid concludes that indeed "..decision maker's attitudes towards and preferences for foreign markets and export entry, together with his perception and expectations of the results from such entry, are major determinants of the subsequent export behaviour". (Page 110) (e)

Other studies:

(i) In an interesting empirical study on the internal determinants of export marketing behaviour, Cavusgil and Nevin (1981) draw on a comprehensive review of the literature to structure the four groups of organisational variables determining export behaviour, in constructing a model of causal relationships amongst

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those groups of variables. The four groups of variables were identified as: (1) differential firm advantages that may serve as attention evokers to use the terminology used by Weidersheim Paul et al (1978) causing the firm to consider export marketing as a possible strategy. (2) strength of managerial aspirations for various business goals, including growth, profits and market development; (3) management expectations about the effects of exporting on business goals; (4) level of organisational commitment to export marketing. These four variables were considered to operate at different stages of the causal process. Based on the assumptions made in the model of knowledge development and increasing foreign market commitment (Johanson and Vahlne, (1977) and the Weidersheim-Paul et al (1978) model on pre export behaviour, it was considered that the first two groups of variables served as antedecents to the latter two groups of variables. The first two groups are classified as background variables, the last two representing intervening variables, with export marketing behaviour being considered the dependent variable. Under the proposed causal relationships, both background groups of variables are supposed to affect

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the intervening group of variables, which in turn interact-as in the Johanson and Vahlne dynamic model of state and change aspects. Both intervening groups of variables affect directly the dependent variable, export marketing behaviour. One interesting feature about this study is the attempt to integrate the results of previous studies, presenting a frame-work for examining the validity of causal linkages between different groups of variables. The conclusions derived seem to support the hypothesis that export marketing behaviour can be explained, to a sub-stantial degree, by differences in the internal and management characteristics of the firm. The reluctance of firms to export may thus be largely attributed to senior managements' lack of a determination to export. It is interesting to notice that similar conclusions were arrived at by the analysis of the data collected to test the stages model of Bilkey and Tesar. Finally, although interesting, the findings and conclusions derived from this study must be interpreted in the light of several important limitations. (1) The sample was restricted to firms within a single state. (2) Longitudinal rather than cross sectional studies should be used before delving into issues of causality.

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(3) A dummy variable (coded 1 if the firm is currently exporting and 0 if not) was used in measuring export marketing behaviour. It is suggested that other measures such as percentage of total sales exported or growth of export sales over time should be used instead. (4) The number of internal determinants of export marketing behaviour was limited. The study could presumably be expanded to include other meaningful organisational determinants. (ii) In reporting on a study on data collected on small and medium-sized Wisconsin manufacturing firms, Cavusgil, Bilkey and Tesar (1979) suggested as a result of their analysis a stimulus-- organism response type of model for export behaviour; this means that an export response should be preceded by an appropriate stimulus, and for a given stimulus it is suggested that the response will be greater if: the firm is large, management does not prefer home markets, management has favourable expectations regarding the effects of exports on their firm, and allocates resources to export development. Although this study suffers from several methodological shortcomings, draws on a limited data base, and arguably, does not come up with any conclusive findings, it nevertheless points towards the useful-ness of developing an empirically generalisable path model of a firm's export behaviour.

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(iii) Reid (1983) has recently argued that export structures are both situation specific and primarily influenced by heterogeneity in export transactions, such transactions being in his view a central element in export activity. The export organisation chosen by firms is a strategic choice, representing what decision makers perceive as the most suitable arrangement for exporting. Hence, viewing export expansion as strategic choice helps in recognising the diversity in export behaviour. Reid makes the following observation: "In general, the export literature possesses little strategic content because it has been primarily concerned with firm and managerial characteristics without a focus on how these actually affect export performance and how they are implicated in choices of administrative arrangements for handling exports. Furthermore, research in export channel behaviour has adopted a strictly behavioural perspective which makes it difficult to identify those structural elements that affect the export process. These comments are not meant to be disparaging but merely to show that there has been no sustained inquiry into export performance determinants" (Page 53). Reid's argument concurs with Thorelli's ecological view of international marketing (40) and points clearly towards the importance of understanding the firm's behaviour as reaction and adaptation to its environment. We recognise the pressing demand for trying to complement the type of research we have examined here (focussed primarily on the decision-makers' and

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firm's characteristics) with the type of holistic approach Reid advocates. The emphasis in our view should be in trying to integrate the behavioural perspective in a broader framework, focused on the relation between the firm and its markets. (iv) A recently published study (Cavusgil, 1984) has concluded that the expansion of export activity is related to:management's expectations concerning the effect exporting will have on the firm's growth, market development and profits; technology orientation of the firm; management attitudes towards risk taking and desire to develop new markets; and the extent of resource allocation to exporting as exemplified by systematic exploration of foreign market opportunities and the formulation of a fixed export policy. The findings of this research confirmed the dominance of growth expectations as the best predictor of export activity. This is in accordance with the postulates of the behavioural theory of the firm, that business behaviour depends to a large extent on managerial expectations and aspirations for profits, growth, security or survival in general. (v) The importance of recent theoretical developments is also underlined by Johanson and Mattson (1985). In reviewing briefly the literature on international marketing, these authors point to the relatively poor insights the traditional marketing mix offers, particularly in relation to some of the more interesting dimensions of marketing in an international context. They specifically call for a richer and more holistic 220

process and resource oriented conceptual framework,and attempt to develop such a framework in developing a model of international markets as networks-following previous conceptual developments on industrial markets as networks (44). Returning to other conceptual work, Reid (1984) in studying the importance of cultural distance in international markets refers to the importance of this cognitive discriminatory process in mediating information flows between market actors who are spatially separated. In this light, we are almost tempted to speculate that markets should not only be seen as resource flows networks (ie. networks of exchange relationships) but also as information networks-not necessarily over-lapping networks. Perhaps the relation betwen these two networks will uncover interesting features of market structures and help give more precise meaning to, admittedly, still incipient concepts. Conclusions and Directions for Further Research The research findings reviewed in this paper lead to a number of conclusions regarding export behaviour. (a) Export behaviour and foreign market entry decisions can be best understood from the narrow perspective

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of the firm's and decision makers' characteristics, as innovation adoption behaviour. (b) In the innovation adoption process, information flows in the firm's environment play a crucial role in shaping managerial perceptions and attitudes to exporting. Although this is not confined to export behaviour, its importance in this context is magnified by the role of the cultural distance that social actors perceive between markets spatially separated. (c) The export development process should be seen in the light of an interaction between environmental properties, firms' characteristics and resources and managerial cognitions. Furthermore, the process should be seen from an ecological view-point, meaning that the firm's actions should be understood in the context of reacting to and attempting to adapt to perceived environmental conditions. (d) Most of the studies cited here lack a solid empirical basis, for they are cross-sectional, limited in geographical scope and sample size and diversity. Furthermore, most studies seem to depart from the implicit assumption that exporting is a good thing in its own right, regardless of the particular context in which the activity takes place. (e) The conclusions drawn here suggest that government policy designed to stimulate exports should not be confined to macro level inducements

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but also be aimed at directly influencing decision makers in individual firms according to the level of internationalisation of firms and/or markets.

Future research should: (1) Look at export behaviour in the context of the firm's overall marketing strategy, and examine the contribution that exporting will make to the fulfilment of management aspirations and growth expectations; (2) concentrate on longitudinal studies in order to ascertain the multivariate nature of the external determinants of export behaviour, to track down the impact of organisation and external factors on export initiation, and the interaction of these two sets of variables across different economic, cultural and market conditions; (3) look at foreign market entry in cases where this action is a consequence of the firm's relationships developed in the internal market, across different degrees of internationalisation of environments. It would also be interesting to track down exporting processes from the importer's viewpoint-eg. in trying to answer the question ' Why should a firm receive an unsolicited export order?' ;

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(4) include further work on patterns of communication between firms in internationalised environments, for the reasons already elaborated. We also need to know more about the pathology of cases in which exporting attempts have been unsuccessful, as yet; as in so many other cases researchers seem to be interested only in successful organisations. Exhibit 2 Export Behaviour as an Adoption of Innovatiop Process

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References Bhagwati, J. (1964) The pure theory of international trade: a survey.Economic Journal,Vol. 74, pp. 4 - 6. Bilkey, W.J. and Tesar, G.(l977) The export behaviour of smaller sized Wisconsin manufacturing firms. Journal of International Business Studies, Vol.8, No.2, pp. 93-98. Cavisgil, S.T. (1984) Organisational characterist ics associated with export activity, Journalof Management Studies, Vol. 21, No. 1, pp. 3 -22. Cavusgil, S.T. and Bilkey, W.J. and Tesar, G. (1979) A note on the export behaviour of firms: exporter profiles. Journal of International Business Studies, Vol. 10, No. 1., 91- 97.

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Cavusgil, S.T. and Nevin, J.R. (February 1981) Internal determinants of export marketing behaviour an empirical investigation. Journal of Marketing Research, Vol. XVIII, pp. 114-119. Heckscher, E. (1949) The effects of foreign trade on the distribution of income. In Ellis, H.S. and Metzler, L.A. (eds.) Readings in the Theory of International Trade, Blakestone. Johanson, J. and Mattson, L.G. (1956) International Marketing and Internationalisation Processes - some perspectives on current and future research. Included in this volume. Johanson, J. and Vahlne, J.E. (Spring/Summer, 1977) The internationalisation process of the firm: a model of knowledge development and increasing foreign commitment. Journal of International Business Studies, Vol. 8, No.1, pp. 23-32. Johanson, J. and Weidersheim-Paul, F. (1975) The internationalisation of the firm: four Swedish cases. Journal of Management Studies, Vol. 12, No. 3, pp. 305-322. Lancaster, K. (1957) The Heckscher-Ohlin trade model: A geometric treatment. Economics, Vol. 24, pp. 19-39. Lee, W.Y. and Brasch, J.J. (1978) The adoption of export as an innovative strategy, Journal of International Business Studies, Vol. 9, No. 1, pp. 85-93.

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Linder, S.B. (1981) An essay on trade and transfor mation. New York, Wiley. Ohlin, G. (1933) Inter-regional and international trade, Harvard University Press. Reid, S.D. (Fall, 1981) The decision maker and export entry and expansion. Journal of Internat ional Business Studies, Vol. 12, No. 2. Reid, S.D. (Winter, 1983) Firm internationalisation, transaction costs and strategic choice. Internat ional Marketing Review, pp. 44-56. Reid, S.D. (September, 1984) Migration, cultural distance and international market expansion, Paper presented at the UMIST Conference on Research Developments in International Marketing, Manchester. Ricardo, D. (1817) Principles of Political Economy and Taxation, Available in Everyman's Library edition, J.M. Dent, London. Simmonds, K. and Smith, H.(Summer, 1968) The first export order :Ca marketing innovation.British Journal of Marketing, pp. 93 - 100. Thorelli, H.B. (1980) International Marketing an Ecological View. In Thorelli, H.B. and Becker, H. (eds.) International Marketing Strategy, Pergamon Press. pp. 5-20. Weidersheim-Paul, F. et al (Spring/Summer, 1968) Pre-export activity: the first step to internationalisation.

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International Business Studies, Vol. 9, No. 1, pp. 4758. Wells, L. (February, 1969) Test of a Product Life Cycle Model of International Trade, Quarterly Journal of Economics, pp. 152-162. Vernon, R. (May, 1966) International investment and international trade in the Product Life Cycle. Quarterly ournal of Economics.

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Internationalisation in the Information Technology Industry P W Turnbull S Ellwood University of Manchester Institute of Science and Technology United Kingdom The authors gratefully acknowledge the financial contribution of the Economic and Social Research Council towards this research.

1.

Introduction

The central aim of this paper is to present the findings of recent research relating to the organisational structures adopted by companies in the high technology industries of telecommunications, computing and office systems who are endeavouring to compete in Western European markets. The research forms part of the continuing International Marketing and Purchasing (IMP) Project which was first established in 1976 and which has members based in France, Germany, Italy, Sweden and the UK.

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In the current programme of research, investigations into various aspects of international industrial product marketing are being undertaken (1). One principal area of investigation is the role of marketing organisations in relation to international marketing strategy. The theoretical and empirical issues focus then upon the process of internationalisation and the way in which organisational structure and adaptation are used by companies as a means of gaining foreign market entry and of consolidating existing positions in foreign markets. Underlying the research is the cornrnitment of the researchers to the testing and development of the Interaction Approach to industrial marketing and purchasing as conceived by the IMP Group and explained by Hakansson (1982). In this paper, empirical data will be presented in respect of the international organisation structures of companies who are operating in Western Europe. In particular, we shall examine the structures adopted by the firms in the French, German and Spanish markets. Before presenting the findings a brief synopsis of the theory relating to internationalisation is given. This is followed by a review of the information technology industry as an important context for the research. 2.

Internationalisation

Effective industrial product marketing and purchasing is essentially a matter of buyer seller relationships (Hakansson, 1982). The ability of either party to 230

initiate, maintain and effectively manage relationships has been shown to be vital to the long term success of companies. However, the processes of interaction involving technical, commercial and social exchanges sometimes over very long time periods, are obviously more difficult when they span national boundaries (Turnbull and Cunningham, 1981; Perin, 1979; Halen, 1980; Kutschker, 1980). A great deal of literature addresses these problems of international marketing (see Bilkey, (1978) and Johanson et al, (1977) for comprehensive reviews of the literature) and substantial conceptual and empirical research has been directed at determining the stimuli and processes by which companies develop international operations. A fundamental proposition of many writers on internationalisation is that a firm's export behaviour is a developmental process involving a sequential stepwise progression. This proposition underlies much of the work of Swedish researchers and the 'Uppsala approach' to internationalisation sees the process as a form of knowledge development. Thus the more international experience the company has, the lower the perceived risk of running a foreign business (Johanson et al, 1977). Early studies by Johanson, (1966), Forsgren and Kirch (1970), provided evidence that Swedish companies moved stepwise into foreign markets. Later studies by Hornell and Vahlne (1972) and Hornell, Vahine and Wiedersheim-Paul (1973) provide supporting evidence.

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Thus, there developed a belief that the geographic spread of a firm was related to that firm's knowledge of foreign markets and that uncertainty was the main obstacle to foreign ventures (WeidersheimPaul, 1972). Uncertainty was explained by the concept of psychic distance. Psychic distance can be described as the perceptions and feelings about a particular foreign market arising from differences in market conditions and the difficulties in acquiring information about these differences. Vahine and Widersheim-Paul (1973) thus define psychic distance as being a function of; the level of development and education in the foreign country, together with the differences in these levels between the two countries; language and cultural differences; and the extent of commercial connections between the countries. These authors conclude that psychic distance is a better explanation of internationalisation than trade barriers or government actions. Bilkey and Tesar (1978) also postulate that internationalisation is a sequential process and formulate a stages model to which a generalised multiple regression equation can be fitted with the coefficients differing at each stage. In this model, export activity for the stage considered is a function of management expectations, inhibitors or barriers to export, facilitators, (eg. management pressure, existence of subsidiaries, etc.) and management quality and organisational characteristics. The coefficients differ at each stage because of experience gained from the preceding stage. In their analysis of 423 American manufacturing firms, Bilkey and Tesar found that 232

export sales were strongly positively correlated with management's perceptions of the potential gains of exporting and inversely with the number of perceived inhibitors (barriers). Bilkey (1978) in his excellent review of the literature concludes that exporting is a developmental process, either as a learning sequence or as export stages. However, he also suggests that the importance of determinants of the firm's export behaviour at any given stage vary from stage to stage and highlights the major problem of the internationalisation models as being the huge number of variables that determine a firm's export behaviour. The question which then arises is to what degree these sequential or stages models can or should be accepted as a generalised explanation of export behaviour. There is a limited but growing amount of evidence that the models are not universally applicable and great care needs to be exercised in using them to predict future export behaviour and organisational developments. For example, Buckley et al (1977) reported research into the foreign investment behaviour of 43 small British firms. Whilst they found some evidence of a stepwise movement into foreign markets, in 27 cases the firms concerned were using 'mixed' approaches to serve individual foreign markets. This finding is not easily reconciled with a stages theory. Turnbull (1982) found that even in large companies with substantial international experience and commitment, a variety of export marketing organisations are utilised.

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The explanation of this apparent conflict in findings may well rest with the need for more precision in the definition of just what aspect of internationalisation is being discussed. Firstly, the concept of the firm or company needs to be clearly defined. When we examine international companies, particularly large and/or multi-product ones, we observe extremely complex and dynamic organisational forms, with product divisions, regional divisions or groupings etc. Depending on which part of the organisation one looks at or uses for the discrete unit of research one can, within a complex company, observe different degrees of internationalisation. This is particularly important when trying to define a company's existing degree of internationalisation as a proxy measure of psychic distance. Secondly, there is a need for a clear distinction to be made between the degree of internationalisation as measured for example by total value of exports or by number of markets served (Cavusgil, 1977) and international organisational forms. The two things are often combined in the sense that it is assumed that each export organisational set is automatically a consequence of the stage of internationalisation achieved. Thus, in Johanson and Wiedersheim Paul's (1975) early work, exporting through agents was associated with the primary stages of internationalisation. We do not accept this neat association and previous IMP work (Turnbull, 1982) has shown that companies with substantial international experience and commitment will adopt a variety of export marketing organisations including 234

direct sales and agents. The choice of organisation is, as Bilkey (1978) has indicated, a consequence of a whole variety of market context, company specific and historic factors. A further difficulty arises when we try to define in some way a company's degree of internationalisation, in that large multi-product/ divisional companies vary from product group to product group in terms of export sales and number of export markets served. Thus, in the case of one very large UK company included in the research, whilst total company export sales amounted to nearly 50% of turnover, in the division researched export sales comprised less than 2% of turnover. This then raises a question of the degree to which individual product groups or divisions are influenced by or directed by corporate policy and experience. This, of course, varies according to the structure and style of management. Researchers must, therefore, be careful to define degree of internationalisation to take these factors into account. Furthermore, it is important to discuss the issue of organisational forms. Classification of organisations is a necessary part of research for both descriptive and analytical purposes. Many different classifications can be found in the literature: Ansoff (1982) uses a very simple classification of direct export, international and multinational: Rothschild (1983) also propounds a simple 3 fold classification of domestic, quasi domestic and multi-national; Johanson and Wiedersheim-Paul suggest four types of exporting, ie. direct, indirect

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(using agents), local sales (sales office or subsidiary) and local manufacturing. Bilkey and Tesar (1978) suggest a more complex typology of stages: .Unwilling to export .Fulfil unsolicited orders .Explore feasibility of exporting .Export experimentally to one or two markets .Experienced exporter in a few markets .Explore further markets It is at this point where potential confusion is most likely between the classification of export activity and/ or orientation which underlies Rothschild's and Bilkey and Tesar's frameworks, and a classification of export marketing organisational forms. Obviously, the two are closely linked but must not be seen as synonymous. Whilst the process of export development may be sequential, the organisational form adopted, which can be seen as an output of the process on the one hand , and a facilitator of the process on the other hand, need not be a sequential stage process. Thus, when we try to fit organisational export structures into these classifications, difficulties arise because the classifications are so broad and some companies have characteristics which meet the criteria of two or more of the classification categories. In the research reported here, attempts were made to use the existing typologies to categorise the export organisational forms of the companies included in the 236

same with· little success. A revised classification emerged from the results of the research and this is given in the conclusion. Finally, it is necessary to describe the research assumption which we sought to test in the research. If we accept that export marketing organisation is a means by which companies seek to enter and develop export markets then the organisational form becomes the dependent variable to be tested, hence the importance of a comprehensive and realistic classification of organisational forms. In turn market entry and development strategies will be dependent upon the wide variety of factors noted by Bilkey and Tesar (1975) and others mentioned previously. It was therefore postulated that market choice would be a function of three broadly defined variables: . Market attractiveness-size and growth rates, degree of competition. . Psychic distance-as per Vah1ne and Wiedersheim Paul (1973). . Accessibility-which is a combination of formal barriers (tariffs and legislation) plus informal barriers. Whilst it may be possible to measure each of these factors in some definitive way, it is out contention that the 'reality' of these factors is less important than the perceptions of them held by the managers concerned

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with the strategic development of export marketing. The research was therefore developed to measure managers' perceptions of these three factors and then to relate the organisational forms adopted to these perceptions. In summary, then, the research seeks to test the view that export marketing organisations will at least partly be dependent on perceived market characteristics as well as company specific factors such as international trading history, size, export orientation and commitment. Depending on this complex combination of factors a company will develop appropriate organisations to serve the individual export markets it seeks to serve. In this paper, therefore, we report some early results of the research carried out at head office level. Additional research has been carried out in sales subsidiaries and distributors and with customers and is reported elsewhere {Turnbull, 1984). It is important to stress that this work is more qualitatively than quantitatively orientated. We seek to explore the degree to which previous research and literature can be used to examine and aid an understanding of international marketing and to provide some additional empirical data on this topic in the high technology marketing sector.

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3. Information Technology: The Industry and its Market "Information Technology is the fastest developing area of industrial and business activity in the Western World. Its markets are huge, its applications multitudinous, and its potential for increasing efficiency immense". Such is the impact ascribed by the UK's Minister for Information Technology to the industry under consideration in this research. Indeed it can be argued that the vast and growing social and business organisation of today's developed world relies largely upon information technology in its various forms. At the heart of the Information Technology concept lies telecommunications, beginning with the early and apparently simple analogue telephony. Now this has been technically refined to a hybrid capable of supporting communication systems as yet well beyond the bounds of ocial, commercial and economic acceptability. The 'revolution' has stemmed not simply from advances in telecommunications however, but from their merger with parallel developments in computing, printing and office automation. This can be illustrated diagrammatically as shown in Figure 1. The result is a high-powered, decentralised data-processing capability, incorporating transmission of voice data and text in uniform, digital code. Even on the basis of conservative assumptions, 239

this must surely radically change the structure of mostorganisations well before the end of this century. Figure l

Definition of the information technology industry and hence assessment of its market size is extremely complex, given the range of products and technologies which might be included under such a classification. However, we have worked on the basis of including telephone switching and transmission equipment,

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data-processing and communication equipment and also electronic office products. We have excluded radio, satellite and cable TV products as far as possible in order to keep the research on a manageable and comparable scale. Even within our defined field we find world telecommunication sales estimated at $60 bn in 1983; $13 bn of this generated in Western Europe, $22 bn in the USA and $14 bn in Japan. Total network systems markets are thus considerably larger perhaps as much as $40 bn in Europe alone. (English, 1983). Growth rates are currently believed to be in the region fo 10- 12% per annum overall, though much greater than this in certain product markets. At this rate, the world information Technology industry is likely to reach $1,000 bn annual output in the early 1990's. The significance and potential of the IT industry is therefore indisputable; even at this stage its characteristics are complex and this is largely attributable to its rapid but often strictly controlled historical development. Protectionism has been a feature of the communications industry throughout its history, indeed since the early days of competition between telephone and telegraphy service suppliers. The American Bell System of A T & T started this phenomenon; the British Post Office followed in 1912 some 25 years later-with the take over of private British telephony and telegraphy operators. The aims of both systems have been universal telephone usage throughout their country and their market monopolies have survived largely on the basis

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of arguments about the strength of technical economies of scale together with the need for technical synchronisation. Universal acceptance of this situation and sometimes considerable reliance upon Government subsidies have also been major contributors to the development and continuity of monopoly systems. Until recently then, each developed country has had a single service provider, but in addition to this, only a limited number of equipment manufacturers. Telecommunications authorities (commonly known as PTT in Europe), have governed purchasing and tended to source domestically; this has had significant implications for the more recent internationalisation of suppliers, as shall become apparent later on in this paper. Nationally, because of investment and expertise requirements, a small number of large suppliers has evolved as the supply market pattern; in the UK for example, these are GEC, Plessey, STC, Pye TMC and Cable and Wireless. Despite market constraints, technological change has occurred rapidly and ' telecommunications' has taken on much wider horizons, with new applications in industry and commerce stemming from its convergence with computing technology. Electronic typewriting, word-processing, facsimile and networked micro to mainframe computers are amongst a whole range of new developments. The effect of such technological interdependence on the structure of the supply industry is mass horizontal 242

integration: traditionally single product group suppliers now cover all areas (telecommunications, office systems and computing) in many cases. Organisationally this has generated a series of international mergers, joint ventures, acquisitions and external sourcing to enable suppliers to keep pace with each other and to stay at the forefront of technology. Competition is naturally intensified in this process. The next major development in the industry arises precisely because of changing patterns of supply and competition. It constitutes the breaking down of national monopolies, until recently so predominant throughout the world. Liberalisation remains a controversial issue, but seems an inevitable step as communications technology and internationalisation of suppliers sweep aside geographical boundaries. Political forces naturally become a force within the issue too, but broadly the points for and against liberalisation are as follow:- The introduction of competition acts as a stimuli for innovation and adoption. - The product spectrum available to business and households is improved by increased competition. - Traditional carriers supplying the bulk of network services and equipment take better account of market demand. - Tariffs become more discriminating and the price/cost margin for equipment is reduced. Conversely the major arguments in favour of the maintenance of monopoly control are;

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- Legal monopoly in a regulated form leads to the most efficient provision of services, since there is no duplicative effort or information loss. - Cross-subsidisation is possible enabling the provision of some essential services, which are otherwise not economically viable. - State-owned enterprises exercising monopoly control can afford to take risks in the introduction and provision of new services for which private companies may not find sufficient backing. American deregulation has already taken place in the late seventies; the UK has followed suit and many continental governments seem likely to take similar steps, learning from American or British experience and eager to stimulate the competitive ability of their industry in preparation for worldwide marketing. The role of the PTT wi11 not, reduced to insignificance in the however, bereduced to insignificance in the foreseeable future; in countries such as France and even the UK, it will continue to be a major consumer and provider of equipment and service. Private competition, growing initially in equipment supply, may take only 5-10% of national markets for some years, but given the growth rates previously quoted, this is still a very lucrative area. Not only is there business to be gained from new services and products, but much in the modernisation of now out-dated public and private switching systems. How, then, will this new operating environment affect the supply industry? In terms of technical development

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we have already mentioned product convergence. In terms of marketing strategy, two new forces become apparent. Firstly, both developed and Third World markets will begin to provide areas of freely competitive business potential. Any supplier with adequate expertise may attempt to benefit from these new segments. Once a foothold is gai ed, expansion will be likely, since service requirements and systems modularity make 'one off' business relatively rare. Secondly, therefore, domestic suppliers in each country will no longer be assured of automatically gaining new business from increased local demand as was previously often their privilege. Instead they will face international competition, especially from foreign industry giants but increasingly from new, specialised market entrants. In the UK, as elsewhere, full scale market entry is restrained by investment requirements, but small-scale entry through specialisation is more feasible as the common digital technology is increasingly understood and versatile. Product specialisations which exemplify this trend currently include telephones, modems, micro-computers, and software, amongst numerous other items. The result of such and dynamic forces is potentially a world-wide competitive arena for traditionally domestically-oriented suppliers. This of course, brings us to the question of organisational adaptation to meet the challenge of successfully servicing a more dispersed market, ie. those of internationalisation. The role of 245

organisation structure in internationalisation is the central issue of the research reported in this paper and is therefore discussed in detail in the next section. 4. The Research Within the framework of the total IMP research programme a number of conceptual and empirical research objectives have been, and continue to be, pursued. One such objective has been to examine the processes of internationalisation, particularly in terms of marketing organisation structured adopted by companies seeking to enter and/or develop Western European markets. As previously noted, this interest developed from earlier IMP research which provided some evidence that British companies in some sectors of manufacturing industry adopt organisational forms in a way that is not easily explained using the existing/ conventional models. Initially, then, we sought to examine these issues among British owned telecommunications companies. The development of British companies into more internationally orientated businesses is of great interest in the UK. Indeed, this is an issue of concern in many of the developed countries of the world. Two problems, however, were quickly identified from initial discussions with the industry and from published data. Firstly, British telecommunications companies were nearly all almost completely domestically orientated in

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terms of sales albeit highly interested in developing a substantial export activity. Thus, these companies were in the process of defining their strategic intentions and their marketing organisation structures. A second, and more important issue, was that. of defining just what constitutes the telecommunications industry. The earlier section of this paper has highlighted the issue of converging technology, which is increasingly bringing companies in the fields of computing and telecommunications into competition with the emerging field of integrated office systems and information technology. Many of these new competitors are significantly more international than the traditional telecommunications companies and have existing marketing organisations in place in Western European countries. The research was therefore defined to encompass any nmoany that had a full m3.rketing base in the UK and that was marketing in Western European countries. Initial desk research was pursued with the aim of identifying the political economic and technological environment of the industry and its markets. The results of this analysis are summarised in the previous section and in Turnbull and Hug (1984). A detailed analysis of supplier companies was also made in order to provide a sample frame for the empirical research. It was thereby established that a total of thirty companies with bases in the UK were supplying telecommunications and associated equipment. A close 247

examination of published material and pilot interviews was then undertaken to establish in detail the type of products being marketed and the degree of European penetration obtained by each company. Fourteen companies were thereby eliminated from consideration on the basis that their product range and export activity were inappropriate, leaving a sample of sixteen companies. Of this sample, thirteen companies, ranging in size from £50m to over £5,000m in turnover, agreed to cooperate in the research. The great majority of companies, however, can be classified in size terms as large or very large (see Table 2). The first stage of the research reported here was carried out by personal interviews with senior executives in each company who had defined responsibility for strategic and marketing planning. In some cases it was necessary to interview two or more respondents. Personal interview was considered the only possible means of obtaining the depth and quality of information required in an area of such sensitivity as international market entry strategy and export organisational structures. Information was gathered using a semi structured interview guide, thereby allowing flexibility to pursue unanticipated responses and issues arising in the course of the interviews. Information was subsequently analysed on an agreement basis in the form of case studies. Information was gathered on the nature of the company, its history, size, turnover by product and market, structure etc. The international and export

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market structure was examined in detail. Respondents were then asked about their international marketing strategies and were also asked to assess each of the foreign markets in Western Europe in terms of the three factors of attractiveness, accessibility and psychic distance. This assessment was done both through discussion and by the use of a self-completion questionnaire. Figure 2

Descriptive Profile of Country Markets

France

An attractive market in terms of total sales value and growth rate but seen as restricted in terms of accessibility, due to Government policy and actions. Psychic distance is quite high for British respondents. GermanyEqually attractive as a market, restricted accessibility but more open than France. Psychic distance moderately high. Spain Fairly attractive, especially in terms of future potential, but less so than France or Germany although more accessible. Psychic distance is similar to France. Holland Not very attractive due to limited size of market but an open market in terms of accessibility with the lowest perceived psychic distance of the four markets. UK A very attractive market of good size and fairly rapid growth. Due to the liberalisation of the market by the British Government, the market is fairly open, although quite

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competitive. Psychic distance is low with few perceived cultural barriers to foreign entrants. Table 1 Country Market Characteristics Information Technology Product Marketing

for

Not all of the companies had a presence in all of the countries considered. Therefore, to allow comparison, the results presented here only relate to the markets where all of the companies had a marketing presence of some kind, ie. West Germany, France, Holland and Spain. It should be stressed that the industries researched are in highly dynamic states and a lianitation of the research is that it provides a cross sectional view of organisational structures, although the historical evolution of export structures and strategies was discussed in detail with each company. Nevertheless it remains difficult to provide a complete picture of often rapidly changing 250

organisational structures. Indeed, one company with whom close links were established, had changed their export organisation for Western Europe three times in the previous two years. The principal objectives of the research have been described previously but it is worthwhile summarising them here. Firstly, to examine and describe the market characteristics of some West European countries. Secondly, a description and classification of the international marketing organisation of the samples companies was attempted. Thirdly, the research sought to identify potential causal variables which would explain differences in structures. Fourthly, it was intended to relate the findings to the stages theories of internationalisation.

5.

Research Findings

5.1

Country Market Assessment

A basic assumption which the researchers sought to test was that the characteristics of individual country markets would be a primary determinant of export marketing strategy. Thus, it was necessary to try to classify the four country markets in some way. As previously described, a threefold assessment was carried out whereby respondents rated each country on a five-point scale. Respondents were also asked to give qualitative assessments of each market. These comments were supplemented by data from desk research. For example, in examining the

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accessibility factor, reference was made to an EEC report (1982) which gives liberality ratings on a three-point scale of open, restricted and closed for a number of countries. Figure 2 gives a qualitative description of each country market whilst Table 1 gives the rated score for each factor.

Table 2 Profile of Respondent Companies Figure 3 A Classification of International Marketing Structure Simple The company is entirely organised in Domestic: and for its home I domestic market and has no presence, in terms of sales representation, agents-or distributors, in

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foreign markets: any export sales are handled direct from the domestic head office. Extended The company is organised for its Domestic: domestic market but has foreign market presence in the form of third-party representation through agents, distributors or licensing agreements; it does not directly employ staff in the foreign market. Primary The company has direct organisational International: involvement for marketing in one or more international markets through sales office, sales subsidiaries and/or joint venture structures. Extended The company has production, R & D, International: Marketing and other activities based in a number of foreign markets. Multi-national/The company has a complex Global Matrix: organisational structure based on product manufacturing and international marketing resources. In such an organisation, a product division may have R & D, production and technical service responsibilities for a single product range throughout the world, whilst a local,national or regional marketing function takes responsibility for marketing of all product divisions in the defined geographic territory.

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As previously noted, these three dimensions of each market are some kind of aggregate of a number of other factors and as such are open to criticism. However, respondents who were responsible for defining marketing strategies and choosing which country markets to enter, all agreed that these were the most important factors. The temptation is, however, to further aggregate the factors into some overall composite factor and say, simply sum the weighted scores shown in Table 1. Respondents generally did not believe this could be done on the grounds that the factors are distinct and separate. Thus, it can be argued that for strategic marketing decisions these three factors represent a minium which which can be used for a simple level of segmentation. This will be discussed more fully in the conclusion. 5.2

Marketing Organisation in Western Europe

As previously noted, 13 companies our sample criteria were researched Table 2 shows some of the which met in depth. essential characteristics of each company. In order to preserve the confidentiality of respondents' information, actual figures (eg. for turnover) are not shown. A number of interesting points emerge from Table 2. Firstly, comparing the traditional product industries, both office systems and computing companies are generally quite highly internationally oriented, whilst in telecommunications there is a much greater diversity. This point has been discussed in Section 3. 254

Secondly, and not surprisingly, there is a relationship between the two measures of international orientation adopted here, indicating that to some degree companies expand their international sales volume through entry to a wider number of foreign markets rather than by developing increased sales in a selected and limited number of markets. Whilst almost all the companies in the sample have turnovers greater than £100M, and nine companies have turnovers in excess of £500M, there is little apparent relationship between size and degree of internationalisation. Table 3 shows the structures for export marketing in use by each company in each of the four countries included in the study. Also shown is the degree of internationalisation of each company in terms of proportion of sales volume from foreign markets. It is important to note that this table only indicates the direct organisational units in each country. In all cases technical support service, including direct contact with customers was provided from either a UK base or other manufacturing and/or product development unit in some other country. In no cases did the country based marketing unit, whether it be a full sales subsidiary or not, act completely autonomously in terms of customer service and marketing operations. In many cases the network of relationships between the Head Office, subsidiary sales offices, distributors and agents was very complex to identify and map out.

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Necessarily, therefore, Table 3 is a simplification for purposes of analysis. It should also be noted that a number of the sales and manufacturing subsidiaries had been established as joint ventures between the OEM supplier and a local company. These joint ventures varied significantly in terms of their responsibilities but had been established principally in order to overcome trade or informal barriers in the country concerned. From Table 3 it seems that it is usual for a company to adopt the same organisational structures across the various country markets. Although sales volumes by country are not given because of confidentiality, the evidence is that this uniformity of structure applies regardless of existing sales volume in the country concerned. Thus a company such as Company 3, which has a substantial existing export business in Germany and has an established sales subsidiary there, set up a similar structure when it entered the French market. The explanation of this observation may, we believe, lie with the total organisational philosophy and strategy of the company. This observation tends to be at variance with a sequential or stepwise development of the organisation structure.

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Also from Table 3, we see that in some cases companies utilise two or more forms of marketing organisation in individual countries. Thus, Company 8 has a wholly owned sales subsidiary in the French market, yet also employs agents and distributors, with the whole being supplemented by sales and service support direct from the Head Office in the UK. These mixed approaches have been found in other countries operating in Western Europe (Turnbull 1982). Again, this finding brings into question the stages theories of internationalisation in terms of organisational development. When we compare international orientation with export organisations, using Table 3, it seems that there is little correlation between the two although this has not been tested statistically. However, we can, using some overall classification, describe a company's

257

international structures and then try to see if a relationship exists. As discussed in Section 2 a number of schemes have been proposed for the classification of companies' marketing structures. The structures existing in many of the companies researched could not be easily fitted into any of these schemes and it proved necessary to devise a new classification. Whilst it is not suggested that this classification is universally applicable or suitable for all industries, it does serve for the classification of the companies covered in this research. Table 4 shows the export structures classified by product technology. As noted in relation to Table 3, it is again evident that telecommunications based companies span a wide range of international organisations particularly in contrast with office systems. In Table 5 the degree of internationalisation and marketing structures are shown. Using Table 5 it is again possible to compare international orientation with organisational forms but on a more global level. In this case there is some evidence of a relationship between the two factors, ie. the higher the degree of internationalisation the more likely we are to find extended international or global matrix types of organisation. Table 4 Export Organisation Structures by Product Technology

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Table 5 Export Internationalisation

Structures

259

and

Degree

of

5.3 Market Characteristics and Company Structures As has been previously suggested that company structures should be seen as a means to an end. Thus, for new market entry or market development strategies we might expect different organisational forms. The findings given in Table 3 indicate that there is no 'common' pattern of structures for a given country market. Thus, in France, for example, we see a range of structures across the various companies operating in that market. This seems to suggest that although country specific characteristics will be taken into account in deciding whether to enter or stay in a market, other factors, such as company size and resources, international orientation and experience etc., may be the key determinants of the organisation. 6

Conclusion

The principal focus of this paper has been the organisational structures adopted by information technology companies in their international marketing activities in Western Europe. It is evident from the brief summary of the market and technological changes contained in the third section that the 1980's is a period of enormous importance to the telecommunications, computing and office systems manufacturing industries. The forces driving the industries into an integrated information systems technology are irresistable and

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companies have to either adapt to meet the challenges or leave the arena. There are two principal and closely linked results of any strategy adopted by companies; firstly, the need to achieve an integrated technology in order to meet the developing requirements of customers. This can be attained by internal product developments, or by external acquisition, through takeover, mergers, joint ventures and the like. Secondly, the need for the major telecommunications manufacturers to become more internationally based and to dramatically reduce their dependence upon domestic markets. In Section 2 we briefly reviewed some of the major aspects of the theory of internationalisation of the firm and reviewed the evidence for a stages theory of internationalisation.Attention was drawn to the need to define just what dimension of internationalisation is being examined. A distinction should be made between a company's orientation and/or attitude to international marketing, which may be developed in a sequential manner, and the marketing organisation structure adopted in a given country market, which may not follow a sequential process. As the research developed it was difficult to isolate marketing organisational issues from corporate and strategic marketing issues. Indeed a major factor which emerged was that individual country market characteristics were considered important determinants of market entry choices. Three principal variables were postulated to best describe country markets, ie. 261

accessibility, attractiveness, and psychic distance. These three factors could be used, it is suggested, by companies for market selection decisions. Figure 4 represents a 3-Dimensional matrix for market choice on which five country markets (ie. France, Germany, Spain, Holland and the UK) are positioned from a UK viewpoint. Whilst these factors are particularly relevant to the information technology industry, other researchers may wish to test their value in other product market contexts. In examining the marketing organisations in use in the four foreign markets included in our sample, we found that a company would usually establish the same structure across all four countries. This was often true regardless of variations in sales across the different countries. We therefore suggest that for this industry at least, there is little evidence of a stages theory of organisational development in export markets. We further suggest that company specific variables, such as history, technology and international orientation may be more important determinants of structure than country specific variables. The international orientation variable was examined by classifying a company's global marketing structures using a revised organisational classification. Further research is needed to see if this classification would prove useful in other industries. However, in this case, this classification showed some relationship between the company's degree of international orientation, as measured by proportion of sales turnover contributed by

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foreign market business, and the type of international organisation structures in use. This finding can be seen to be supportive of uncertainty/knowledge development. (Johanson et al (1977) and Weidersheim-Paul (1973). This adds weight to our view that it is important to distinguish between a company's orientation and its organisational forms when we discuss the subject of internationalisation. Figure 4: 3-D Market Characteristics for Strategic Market Choice

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References Ansoff, H.I. (1982) Strategic Dimensions of Internationalisation,EIASM Working Paper, Brussels October. Bilkey, W.J. (1978) 'Attempted Integration of

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the Literature on the Export Behaviour of Firms' Journal of International Business Studies, 9, pp.33-46. Bilkey, W. and Tesar, G. (1978) 'The Export Behaviour of Smaller Wisconsin Manufacturing Firms', Journal of International Studies, Spring, pp. 93-98. Buckley, P.J., Newbould, G.D. and Thurwell, J. (1977) 'Going International -The Foreign Direct Investment Behaviour of Smaller UK Firms in recent research on the Internationalisation of Business'. Proceedings from the Annual Meeting of the European International Business Association, Uppsala, Sweden, December. Cavusgil, S.T. (1977) 'A Proposed Conceptual isation of International Marketing Activities and Some Observations'. Studies in Development, 16, (Summer), pp. 28-42. English, M. (1983) Information Technology Task Force. Commission of the European Communities. Forsgren, M. and Kirch, N. (1970) Foretagets ampassning till forandringer i omgivande system, Uppsala. Hakansson, H. (ed.) (1982)'International Marketing and Purchasing of Industrial Goods' Wiley, Chichester. Halen, L. (1980) Sverige pa Europmarknaden. Asikter om inkop och marknadsforing' Student literatur, Lund.

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Hornell, E and Vahlne, J.E. (1972) Information vid etableringsheslut in Johanson, J. (ed.) Exportstrategiska problem, Stockholm. Hornell, E. and Vahlne, J.J. and Wiedersheim-Paul, F. (1973) Export och utlandsetableringor, Stockholm. Johanson, J. (1966) Svenskt Kyalitetsstal pa ltlandska marknader. Foretagsekonomiska institutionen, Uppsala. Johanson, J. et al (1977) 'The Role of Knowledge in the Internationalisation of Business', Uppsala University500 years, No. 7, pp. 27-45. Johanson, J. and Wiedersheim-Paul, F. (1975) The Internationalisation of the Firm: Four Swedish Cases. Journal of Marketing Studie& Johanson, J. and Vahlne, J.E. Internationalisation of the Firm' International Business.

(1977) 'The Journal of

Kutschker, M. and Kirsch, W. (1979) Industriegut ermarketing und Einkauf in Europea. Planungs-und Organisationswissen schaftliche Schriften, Munchen. Perin, M. (1979) 'Les Enterprises francaises de biena industriels face a la concurrence sur cinq marches europeens'. Institut de Recherche de !'Enterprise, Lyon, France. Rothchild, D. (1983) 'Surprise and the Competitive Advantage', Journal of Business Strategy, Vol.4,No.3.

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Turnbull, P.W. and Cunningham, M.T. (1981) International Marketing and Purchasing, Macmillan, London. Turnbull and Hug, (l984)'The Telecommunications Industry and its Markets' UMIST Discussion Paper No. 8408, July. Turnbull, P.W.(l982) 'The Marketing Organisation Structure Adopted by British Firms in Europe', Marketing Education Group Conference Proceedings, Lancaster. Vahlne, J.E. and Weidersheim-Paul, F. (1973) Ekonomiskt avstand in Hornell et al (see above). Weidersheim-Paul, F. (1972) Osakerket-en teoretisk undersokning inom internationell foretagsekonomi, In Johanson, J. (ed.) Export strategiska problem, Stockholm.

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Tri-Partite Interaction : The Role of Sales Subsidiaries in International Marketing Peter W Turnbull Institute of Science and Technology United Kingdom The author gratefully acknowledges the financial contribution of the Economic and Social Research Council towards this research.

1. The Interaction Approach to Supplier-Buyer Relationships There has been a developing trend to study industrial product marketing and purchasing as a process of interaction involving dynamic relationships over time. One early study of buyer seller relations (Hakanson, Johanson and Wootz (1977) examines the influence tactics of the parties in buyer-seller processes. The subsequent recognition of buyer-seller interdependence led to the foundation of a group of researchers based in France, Germany, Italy, Sweden and the UK (the IMP Group) who developed the Interaction Approach to 268

industrial marketing and purchasing. This group has carried out substantial research in their five countries and further research is currently being carried out. Detailed discussion of the Interaction Approach and the research project is contained in Hakansson (1982) and Turnbull and Cunningham (1982). In summary, however, it contrasts with other 'traditional' approaches to the study of industrial marketing and purchasing which rather narrowly focus upon the analysis of discrete purchasing decisions, membership of the DMU, purchase criteria, etc., and instead stresses the importance of establishing and maintaining relationships between suppliers and customers. The IMP Group challenge the view, borrowed from the consumer marketing, of industrial marketing as a simple process of manipulating the elements of the marketing mix in order to gain response from a generalised and passive, albeit segmented, market. The Interaction Approach recognises that buyers can and do play an active role in transactions and that the marketing-buying interface is often characterised by negotiation and adaptation. Furthermore, a common feature of industrial markets is stability, wherein long term relationships develop and change is neither easy or common. The Interaction Approach is an interesting development in marketing theory and continuing research is designed to refine and develop the original concept. A major limitation of the initial research and conceptualisation has been that it was based on bi-partite relationships

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between buyer and seller. In international marketing, in particular, the relationship between buyer and seller is rarely confined to a simple two party affair. Indeed the relationship is often complex and may involve various forms of intermediaries performing different roles and functions between the supplier and the ultimate end-user or customer. In such cases, the nature and characteristics of the relationship will depend upon the marketing channels and the roles performed by the intermediaries in the channel. There is a substantial amount of literature relating to distribution and marketing channels. For example, Sims, Foster and Woodside (1977) outline a simple set of channels between supplier, intermediaries and end users; in industrial international marketing, Walsh (1978) describes three methods of channel distribution between nations, ie. Indirect export (selling to domestic inter mediary selling on to overseas customers) Direct export (selling to intermediary or directly to end user overseas) Foreign manufacturing (on an independent basis or by means of a joint venture) A different view of international channels is adopted by Cateora and Hess (1979) whereby they identify three alternative channels: the employment of middlemen in the supplier's country, the employment of middlemen in the foreign country, the use of the supplier's own personnel. McMillan and Paulden (1979) list 27 270

different types of marketing agent but then divide these into four major classifications. 1. Agent acting for the exporter who is the principal 2. Agent purchasing for himself as principal 3. Agent acting for other buyers as principal 4. Agent undertaking specialised aspects of the export activity, such as financing, warehousing and shipping, other than selling. A major weakness of these studies is the one sided focus upon the activities of the manufacturer together with the intermediary in the flow of goods and services to the customer. The channel flow is shown from the manufacturer to the intermediary and to the customer but not conversely. Combining the channel literature and the Interation Approach, this author would propose that the realities of channel interrelationships in international marketing and purchasing are much more complex than the earlier framework suggests. Three broad categories of international marketing relationships are apparent. These are: 1. Supplier-customer direct interrelationships without the services of intermediaries. The suppliers employ their own sales force or use the company's group sales resources to generate sales. Conversely, the customer may approach the supplier directly to purchase the goods. 2. Supplier-customer indirect interrelation ships using the services of intermediaries based in the supplier's country. These intermediaries may be operating independently or may be representing either the seller 271

or the buyer. Generally we can divide these intermediaries into Merchant Intermediaries (ie. wholesalers and retailers operating as export merchants, export jobbers, inter merchants, export buyers, trading companies, etc.) and Agent Intermediaries (who do not take title to the goods, operating on a commission basis, and include export management companies, manufacturers' export agents, buyers' agents, etc.). 3. Supplier-customer indirect interrelation ships using the services of intermediaries based in the end-user's country. These are either independent operators or are acting on behalf of a supplier or an end-user. Merchants and intermediaries could again be included here but also involved are sales subsidiaries, sales offices and branches Fig 1 Simple Direct Interaction

Fig 2 Tri-partite Interaction

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Fig 3 Extended Channel Interaction

Fig 4 Complex Channel Interaction

273

274

Fig 5

Extended lnterac f'o n Network/System

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It is this third and specifically subsidiaries, which of this paper. group of interrelationships, those of supplier-owned constitutes the focal point Besides conceptual theories in marketing literature there have been various empirical studies on relationships in marketing channels in areas of channel power, conflict and bargaining as has been indicated earlier. However, studies using the buyer and seller relationship approach in the marketing channel are few and the only one identified by these researchers is by Ford and Rosson (1982) on the relationship between export manufacturer and their overseas distributors. Thus, this study examines the position of supplier subsidiaries in terms of the roles which they play in the marketing channel and within the tri-partite interaction process as seen by the three parties. It is important to recognise at this point that whilst this is concerned with tri-partite interaction, involving a sales subsidiary located between the manufacturer, or original supplier and the final customer, there are often more complex sets of relationships and interactions. In Figures l, 2 ,3 ,4 and 5 , an illustration is given of other interaction patterns which may exist, ranging from the simple direct interaction (Fig. l) on which the original IMP work was founded, to the extended network or system of interactions (Fig. 5) which can also be found. These diagrams may serve to put into context the research presented here and also to highlight the need for further research into the areas of the more complex interaction systems.

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Fig 6

Tri-partite interaction Model

2. The Scope of the Research It has been highlighted that traditional studies of international marketing channels have given little attention to the customer side of relationships and that the initial development of the Interaction Approach, whilst including the customer perspective, did not give attention to the intermediaries in marketing channels. The research reported here sought to explore this gap by examining the tri-partite interaction process involving the seller, the intermediary and the end-user. Tri-partite relationships are examined from the viewpoints of:(a) the supplier head office (H.O.) (b) the intermediate sales subsidiary (S.S.) (c) the customer (C)

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Figure 6 illustrates the tri-partite interaction model which has been developed to accommodate a three party relationship. Essentially, in such a relation, the elements of the interaction are similar to those of the basic interaction model, Hakansson (1982). However, the nature and characteristics of the elements within the subrelationships will be different, depending upon the condition and situations of the relationships, such as the role and position of the intermediary in the channel, the level of internationalisation, the expectations of the three parties, etc. The research was carried out among firms and custDmers in the information technology industry, as discussed later in this section. On the basis of case studies (Homse, 1981), Blackaby (1982) ), and from our own previous work, it is possible to propose a list of basic roles of sales intermediaries. These were tested in pilot interviews in the Information Technology Industry. The roles are as follows: 1. Market intelligence-to provide market information and identify market opportunities. 2. Market commitment-to demonstrate commitment to the market, match competition and encourage customer confidence by establishing a presence in the market. 3. Relationship management-to establish and maintain close relationships with customers. 4. Administration-handling of orders, enquiries and documentation.

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5. Technical problem solving-to provide technical preand post-sales service. 6. Commercial problem solving-to provide commercial service and negotiation. 7. Social distance-to minimise social, cultural and language barriers. Obviously there are roles which may be performed by any organisational marketing unit, whether in the domestic market or abroad. It is, however, presumably the reasonable belief or recognition that an intermediary located in the foreign market carries out these roles more cost effectively than direct marketing or independent intermediaries, which leads to the establishment of the foreign intermediary unit. Other IMP research (Homse, 1981) indicated that a sales subsidiary does not necessarily fulfil all of these roles and furthermore that the three parties to the relationship do not always ascribe the roles to the intermediary. In this research, therefore, we sought to examine the ascribed roles of the intermediary as seen by the Head Office, the intermediary itself and the customer, particularly in terms of their relative importance. Personal interviews with members of all three parties in the tri partite relationships, HO, SS and C, formed the basis of the research. Respondents were selected using careful judgement as to their involvement in the relevant function and responsibility for decisions making regarding the markets and activities examined.

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The companies included in the sample were drawn from the Information Technology industry which incorporates traditional telecommunications, office systems and computer manufactures, who have in recent years been brought into competition through technological convergence and changing political and economic factors (for a detailed discussion of these issues, see Turnbull and Hug, 1984 and Turnbull and Ellwood (1984) ). For the purpose of this paper, however, it is sufficient to note that a major re-orientation is taking place within the industry, particularly amongst the telecommunications companies, away from a domestic towards an international outlook. Western Europe is seen as a prime target for international development by these companies throughout the world. Consequently, market entry and development strategies and activities have become the subject of keen academic and commercial interest. At the heart of such strategies lies the role which is ascribed to channel intermediaries in terms of establishing, developing and maintaining relationships with customers. This research then focuses upon the role of intermediaries in the interactive marketing process (other work in this phase of the research has been directed towards examining the process of international development of the firm (Turnbull and Ellwood 1984), customer portfolio planning (Yorke, 1984) and market entry strategies.)

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A total of 30 companies with manufacturing and/or marketing HO organisations in the UK and with marketing activities in two or more Western European countries were identified and 13 of these were researched in depth. Interviews were conducted with senior marketing executives at the Head Office. These were followed by personal interviews with the general management of marketing operations of sales subsidiaries and finally with senior purchasing management in customer companies those responsible for procurement of information technology equipment A total of 46 interviews were carried out, in the respondent's native language, using semi- structured questionnaires, together with supplementary self-completion questionnaires. The structure of the sample is shown in Table 1. Company size in each case was carefully considered; indeed the sizes included ranged from the relatively small annual turnover of £25m per annum of the specialist company to the very large £9 bn per annum turnover of the multi product, multi-national group. This did not appear to affect roles expected of or perceived by intermediaries, merely the scale of these, which varied proportionately. Although in total 46 respondents were interviewed, it can be seen from Table 1 that because the scope of the research included 3 export markets and research at HO, SS and C levels, the number of interviews in each country at each level is small. A major drawback of research carried out across 281

a number of countries is that of cost and time: setting up research and carrying it out in foreign countries is both extremely expensive and time consuming. Table 1: The Research Sample

However, since the research is essentially of a qualitative, exploratory nature, the small sample size is not considered to invalidate the work. The work was primarily aimed at identifying and exploring issues relating to tri-partite interaction in international markets. It was not intended or designed to test specific hypotheses.

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Each respondent was asked to rate the importance of each role in relation to the SS with which they were involved, using a fivepoint scale and a weighted score was calculated. This information was supplemented by qualitative discussion regarding each role, the history of the relationship, level of activity, etc. 3.

The Role of Sales Subsidiaries

Table 2 shows the weighted scores derived from respondent's ratings of the role of sales intermediaries. Table 2: Ratings of the Roles of Sales Subsidiaries

Table 3: Derived Ranking of the Roles of Sales Subsidiaries 283

A number of interesting points arise from a detailed examination of Table 2. These points may be more easily seen if we also examine the relative ranking which can be derived from Table 2 and is shown in Table 3. A qualitative analysis of Tables 2 and 3 allows us to make some tentative observations at a general level by position in the interaction channel and by country. Before commenting on the data, however, it is worthwhile noting that, although not shown here, there were no differences in ratings by size of respondent company. Overall, three factors market commitment, relationships, management and technical problem solving-emerge as highly important at all three points in the interaction channel for all three countries. Relationships management is the one factor where all respondents gave a similarly high rating. Sales

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subsidiary respondents attributed less importance to market commitment than respondents in Head Offices and customer companies, whilst customers unanimously rated technical problem solving as the single most important role to be fulfilled by a sales subsidiary. It is particularly interesting to note that there is little difference between countries on any of these three factors, although technical problem solving appears to be marginally less important in relation to the Spanish market, whilst commercial problem solving is seen as marginally more important. One can only speculate as to whether this reflects a lower need in Spanish companies for technical assistance due to their own technical competence, or conversely and more probably, that they are less technically sophisticated and therefore less demanding of their suppliers. A third explanation which was observed and which relates to the previous point is that of business culture: in Spain this is relatively less dynamic than in non-mediterranean European countries and tends to be characterised by a less urgent attitude to technical problems. Each of the roles of the sales subsidiary will now be discussed in turn in terms of the ratings and attitudes attributed to it: Market intelligence: for reasons already given, only HO and SS respondents were asked to rate this factor. It was not considered an important role and was ranked

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6th in order of importance at both levels, although it was seen to be slightly more significant in Spain than in France or Germany. This may well be explained by Francoist policies of industrial and commercial autarcny (1940-1975) which excluded foreign importers at the very time when high technology trade was becoming established elsewhere. Thus, for the majority of operators, Spain is still a new and uncertain market requiring greater efforts in the area of market intelligence. Market commitment: as previously noted, this role is considered vitally important by HO and customer respondents. Whilst very important at the SS level, the ratings here reflect a lower ascribed importance and it is difficult to explain this apparent anomaly. As with the previous factor, Spain is seen somewhat differently but in this case the factor. is less important than in France and Germany. This possibly arises as a reflection of the fact that indigenous competition is in France and Germany, but less so in Spain. Thus in France and Germany, the establishment of a sales subsidiary is seen as the best way to match competition. Relationship management: it is clear that this role is seen to be a major activity of the SS, and was judged to be vitally important at HO,SS and customer levels. Interestingly, in depth discussions revealed a lack of awareness of recognition of this since no formal systems existed for it; nevertheless, all parties clearly carried out considerable amounts of relationship management activities and personalities emerged as a

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determinant of its effectiveness. Given that this tri-partite interaction is not likely to i volve a more complex relationship, then it is not surprising that its management is of such importance to all three parties to the interaction. This finding reiterates the percei ed importance of relationships and their management in industrial marketing as reported by Turnbull and Cunningham (1982) from their earlier research. Administration: whilst this factor was not given any real importance by the supplier side of the interaction, ie. HO and SS, customers rated it at a much higher level. This may be explained by the fact that HO and SS respondents were marketing staff, who may be less concerned with the 'nuts and bolts' or detail of business than the customer respondents (ie. purchasing staff) who do have to deal with purchasing details. This may imply that companies using sales subsidiaries to serve foreign markets should ensure that the administrative 'machinery' is given due importance and operates effectively. Technical Problem Solving like relationship management, this factor was highly rated by almost all respondents, with slightly more emphasis being ascribed by customers. Again Spain is seen slightly differently insofar as HO and SS respondents considered this aspect to be slightly less important than in Germany or France. As previously noted, this may point to a lack of technical sophistication or a lack of urgency ('manana attitude') in Spanish customer companies.

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Commercial Problem Solving: this factor was generally judged important or very important, with customers giving it a marginally higher rating than HO or SS staff. These HO and SS respondents also rated this factor as less important in the German market than in France or Spain, although this was not reflected by German customers. Social Distance there was a rather large degree of variation on this factor, with HO and SS staff generally giving it an important/very important rating, whilst customers regarded it as of little or no importance. Within this however, France was seen as the country market where the need to overcome social distance was most important, in the view of supplier and customer staff alike. Spain was generally regarded as least problematic in this sense. The difference in view between customers and suppliers regarding social distance may be explained by the fact that marketers recognise that they must be customer orientated and overcome social distance problems in some way. Customers, on the other hand, because of supplier efforts, see less of the problems and do not, therefore, rate this as a major role of sales subsidiaries. 4.

Conclusions and Implications

In this paper the author has tried to examine some of the issues of tri-partite interaction in the context of the role of sales subsidiaries operating in foreign markets. There is clearly a need for further examination of the various

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interaction structures which exist in industrial product international marketing to improve our understanding of the interplay of the various elements of interaction and relationships. What has been attempted here is simply an exploratory discussion of the roles which are ascribed to an intermediary in the interaction process. Further comparative resaerch into the role of agents and distributors is currently underway and many other issues for further research can readily be identified. With regard to the findings of this research no definitive conclusions are possible because of the qualitative nature of the work. However, a number of interesting issues have become apparent. Firstly, three predominant roles of sales subsidiaries emerge demonstrating market commitment and matching competition, the management of customer-supplier relationships, and technical problem solving. This finding from respondent ratings was supplemented by comments made by respondents. For example, a comment by a French customer: "subsidiaries are better than distributors or agents because, for high value, complex products we need to be as close to the supplier as possible"; from a supplier: "we need close collaboration with our customers to develop and adapt our products and applications software. This cannot be done at a distance". Given this preference and support for sales subsidiaries in the Information Technology Industry, together with the emphasis on technical problem solving, the case for

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manufacturing subsidiaries, or at least subsidiaries with full technical product, R & D applications capability, would seem to be very strong. This has been recognised by a number of companies who have established full manufacturing subsidiaries in Europe or have entered into joint ventures with local companies. The difference between supplier views and customer views regarding the importance of factors is also worthy of comment, in particular the greater importance given by customers to effective administration is noteworthy. This may seem a relatively mundane aspect of marketing, indeed, it may not be a role accepted by marketing, but is maybe an area where competitive advantage is relatively easily achieved by devoting time and resources to efficient support systems both within the subsidiary and at Head Office level. Finally, the issue of social distance is one which many respondents felt difficult to resolve. Whilst respondents at both Head office at sales subsidiary levels recognised this as an important aspect of interaction and agreed that the sales subsidiary was a better way to address the problem than, say, direct selling might be, many expressed the view that agents and joint ventures were superior ways of overcoming the problem. Interestingly, however, and as previously noted, customers were less concerned about this problem, possibly because of the reasons mentioned earlier. A further explanation may rest with the research methodology insofar as customer respondents were discussing existing relationships in which presumably

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the relevant supplier had already, at least partly, overcome social distance barriers. For companies just entering the market and for buyers wishing to establish new sources of supply, the problem may be much more significant than the data in this paper suggests. References Blackaby, A.F. 'The Dynamics of Buyer-Seller Relationships in Industrial Markets', Unpublished MSc Dissertation, UMIST, Manchester, 1982. Cateora, P.R. and Hess, J.M. (1979) International Marketing, 4th edition, Richard D Irwin Inc. Ford, D. and Rosson, P. 'The Relationship between Overseas Manufacturers and their Distributors', Export Management: An International Context,1982. Hakansson,H., Johanson, J. and Wootz, B. (1977)'Influence Tactics in Buyer-Seller Processes', Industrial Marketing Management, No. 5, pp. 319-322. Hakansson, H. (1982) 'International Marketing and Purchasing of Industrial Goods', J. Wiley and Sons Ltd, Chichester. Homse, E. (1981) ' An Interaction Approach to Marketing and Purchasing Strategy', Unpublished PhD thesis, UMIST, Manchester. McMillan, C. and Paulden, S. (1979) 'Export Agents' , Gower Press. 291

Sims, J.T., Foster, J.R. and Woodside, A.G. (1977) 'Marketing Channels, Systems and Strategies' , Harper and Row. Turnbull, P.W. and Cunningham,M.T. (1982)'International Marketing and Purchasing' MacMillan, London. Turnbull, P.W. and Hug, F.A. 'The Telecommunications Industry Technology,supply and Market Structures', UMIST Occasional Paper No. 8408. Turnbull, P.W. and Ellwood, S. (1984)'Internationalisation in the Information Technology Industry', Seminar on Industrial Marketing. Stockholm School of Economics. August. Walsh, L.S. (1978) McDonald and Evans.

'International

Marketing',

Yorke, D.A. (1984) 'Market Profit Centres : Fiction or an Emerging Reality?', Management Accounting, pp. 21-23, February.

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9 Internationalisation Behaviour: Management Characteristics of Australian Manufacturing Firms by Level of International Development Nigel J Barrett Ian F Wilkinson

Introduction It is becoming increasingly apparent to policy makers, the management of business enterprises, and other concerned parties, that the long term survival of the business enterprise is dependent upon its ability to successfully compete on a global basis (Hout et al, 1982; Levitt, 1983). It is predicted that by the end of the 1980's businesses will have established themselves as either global businesses or domestic businesses (Thorelli, 1983). Given these forecasts, firms expecting to survive into the year 2000 will need to give serious consideration to the international marketplace, in addition to the domestic markets which may be presently satisfying their needs. In an increasingly competitive world environment firms will seek to enter

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new markets for growth. For many businesses in the industrialised world, overseas markets become the target for expansion. In the case of Australia, the potential contribution of the export of manufactured goods to economic growth is being given increased attention (see Australian White Paper, 1977; Industries Assistance Commissioners, 1977 and 1982). In recent years however, Australia's export performance has not been satisfactory. Australia's share of world exports fell from 1.68% in 1970 to 1.29% in 1982; the international competitiveness of the industrial sector has declined dramatically; and, Australian industry ranks poorly in terms of an 'outward orientation' (Menadue, 1984). A much greater awareness of the role and impact of the international competitive environment is necessary, as well as a major increase in the level of international involvement and commitment by manufacturing firms. Significant influences on these firms' abilities and potential to engage in international business activities are the attitudes, perceptions and behaviour of senior managers. (1) The purpose of this paper, therefore, is to profile these firms at different levels of international development according to their senior managers' characteristics. These characteristics comprise firstly, personal attributes, secondly, planning orientations, and thirdly, attitudes towards and perceptions of various international marketing practices and problems. Such an understanding can assist the managers of these firms as

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well as policy makers in their assessment of ways in which international marketing performance might be improved, and thus contribute to economic growth and an improved standard of living.(2) Internationalisation Behaviour and the Role of Management No comprehensive or widely accepted theory of the process by which firms expand and develop their international business activities has yet emerged. The major difficulties can be accounted for by the multiplicity of factors which influence this behaviour, as well as the fact that firms do not necessarily proceed at the same pace nor through any strictly ordered stages of development. However, there does appear to be some consensus emerging concerning certain general characteristics of this process, ie. it is an incremental learning process which takes place over time as the firm gradually increases its involvement and commitment in foreign markets. This general approach tends to be supported by the various models that have recently been developed. (3) Of the many factors which influence firms' internationalisation behaviour, the decision making activities and capabilities of top management are critical. Managers' capabilities to seek new foreign markets and/or change the firm's level of involvement in existing markets constitutes a major change in marketing and/or corporate strategy. These types of

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changes, when implemented by firms, can be viewed as the outcomes of some decision making process within the firm. If change does occur, for example, establishing a foreign sales subsidiary, then this would normally be associated with changes in marketing strategies, organisational characteristics, and management characteristics (eg. knowledge, experience, attitudes and hence, perception). Such an outcome could also result in changes in the firm's relationships with intermediaries, foreign governments and competitive firms). It is these changes and the resulting experience of the firms that specify the conditions for further internationalisation activities. Management's perceptions of such changes and influencing factors and their actual and/or potential impact on the firm forms a major input into subsequent decision making activities. Hence, management's knowledge and skills in matching the firm's ideal and actual states will either facilitate or impede its international development and growth. Thus, the critical role of the decision making process in the firm's internationalisation behaviour is observed. The process nature of this decision making behaviour is not considered in this paper, and is better left to longitudinal studies. Rather, an attempt is made to group firms according to different types of internationalisation behaviour and to then identify managerial variables which are related to this behaviour. The objective , of course, is to try to predict a firm's internationalisation behaviour based upon a

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knowledge of these influencing factors. It could be expected that the nature of these variables and their relative importance would change over time as the firm travels the internationalisation path. Several studies have focused on decision makers' characteristics. The Swedish research such as that by Johanson and Vahlne gives some insight into the decision making process as an incremental one based upon the gradual acquisition, integration, and use of knowledge. Cavusgil and Godiwalla in a review of the international decision making literature conclude that decisions tend to be reactive rather than proactive; the early stages of internationalisation are characterised by a problem-solving orientation rather than a planned and deliberate search for opportunities; decision making approaches tend to be unsystematic; unstructured, and informal; the intuitive judgement of management plays an important role, and finally, as firms gradually internationalise decision making becomes less disjointed, adaptive and incremental and more formal and planning oriented. This is accompanied by enhanced decision making skills. This ad-hoc approach to decision making is given qualified support by Lee and Brasch who see export decision making as being more non-rational than rational. Bilkey in his review of empirical studies, summarises many of the findings: the attitudes of top management play a vital part in export development in particular, management's perception of the attractiveness of exporting, management's international orientation as measured by attitudes and personal characteristics, and 297

management's confidence in the firm's competitive advantage; with regard to the perceived profitability of exporting as a motivation factor to export, the findings are mixed-it appears that the importance of profit increases as the level of internationalisation increases; similarly, the percentage of the importance and types of obstacles to exporting tend to vary by a firm's export stages, and by industry; and lastly, Bilkey concludes that "the quality of management probably is the greatest single determinant of a firm's export success". The export stages model developed by Bilkey and Tesar reflects the crucial role management plays in the internationalisation behaviour of the firm. Based upon a consideration of this previous research on decision making activities, three general hypotheses were formulated concerning the characteristics of senior managers which are presumed, in part, to shape the firm's internationalisation behaviour. They are: General Hypothesis 1: There are differences among firms across different levels of internationalisation in terms of senior managers' personal characteristics. General Hypothesis 2: There are differences among firms across different levels of internationalisation in terms of senior managers' planning orientations.

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General Hypothesis 3: There are differences among firms across different levels of internationalisation in terms of senior managers' attitudes towards exporting. The personal characteristics in the first hypothesis refer to the managers' ages; their country of birth; the number of years they have lived abroad; the number of overseas business trips taken in the last three years; the highest level of education achieved; and, the nature of their positions in the firm (ie. titles). The planning orientations referred to in the second hypothesis relate to the formulation of written plans; the time period of these plans; the formulation of export plans; the setting of specific goals; and, the nature of these goals. The attitudes and perceptions referred to in the third hypothesis relate to various exporting practices and problems. Research Methodology Data Base The data analysed in this paper were obtained from a nationwide mail survey of Australian manufacturing firms carried out in 1983. The frame used was a list of such firms supplied by Dun and Bradstreet. This list

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provided a complete census of firms employing between 20 and 50 people. For sampling purposes, the frame was stratified according to firm size (small 20-99 employees; medium 100-499 employees; and large-500+ employees) and whether or not the firm was currently exporting. The sample included a census of all firms except small non-exporters. These small non-exporters were sampled at the rate of 1/7.16 and for analytical purposes, were weighted according to this sampling fraction. (4) In all, the chief executives of 3,977 manufacturing firms were mailed questionnaires. 1,162 questionnaires were returned (29.2% response rate) and 1,057 usable cases were finally included for analysis. The weighted sample represents 1,904 cases. The information collected in the questionnaire covered three main areas: the firm's domestic and international history, experience, and marketing practices; exporting attitudes and perceptions; and, organisational and management characteristics. The data relating to management characteristics, attitudes and planning practice provides the basis for analysis in this paper. Level of Internationalisation Firms were classified into five stages or levels of involvement in their international behaviour as shown in Table l. Firms at Level l have neither discussed nor investigated the possibility of exporting (19% of firms); firms at Level 2 have actually discussed and/or

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investigated exporting, but have not actively exported (20%); firms at Level 3 have exported but were not doing so at the time of the survey (10%); firms at Level 4 are current exporters only, and not engaged in direct foreign investment (37%); whilst firms at Level 5 are both exporters and engaged in some form of direct foreign investment (13%). 20 non-exporting firms were involved in direct foreign investment and were excluded from the analysis. Table l also shows the size distribution of firms at each level of internationalisation. The table shows that Level 4 and 5 firms are much more likely to be medium or large firms. This result must be borne in mind when comparing the characteristics of firms at different levels of internationalisation, as differences between firms at Levels 4 and 5 and other firms may be due in part to size as well as level of internationalisation. Results Personal Characteristics Tables 2 and 3 show the personal characteristics of the top three managers of firms at each level of internationalisation. Table 2 shows that there are significant differences in the five characteristics according to the level of internationalisation exhibited by the firm. The managers in Level 2 firms tend to be younger than those in other

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groups, whilst the managers in Level l tend to be older, and those in Levels 3, 4 and 5 exhibit similar ages, particularly the current exporters and those involved in direct foreign investment. In terms of country of birth, the majority of Level l managers are Australian born, whilst more of those in Levels 3 and 5 were born overseas. Managers in Level l have spent considerably less time living abroad than those in other groups-in particular Level 5 ; Levels 2 and 4 exhibit similar patterns which perhaps reflect country of birth. The level of internationalisation is clearly reflected in the number of overseas business trips undertaken - Level l managers take the fewest whilst Level 5 managers take the most. It is interesting to note the similarity between Levels 2 and 3. This is probably a reflection of the attitudes towards exporting and the level of commitment - although Level 2 managers have never exported, they tend to be more actively involved in investigation than those more passive and discontinuous exporters in Level 3. The most dramatic difference in managers' characteristics across the levels of internationalisation is observed in their level of education-the greater the involvement the higher the level of education. And further, as a general observation, the overall level of educational achievement appears to be fairly low with only 35% of firms in Level 5 having their 3 most senior managers with tertiary qualifications.

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Table l Weighted Sample: Internationalisation Behaviour Level of Involvement by Firm Size

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Table 3 Proportion of Executive Titles Mentioned for the Three Most Senior Operating Positions by Level of Internationalisation Table 3 shows the frequencies with which particular executive titles were mentioned for the 3 most senior managers. The relative importance given to the marketing/sales functions by exporters (Levels 4 and 5) and by firms that have investigated exporting (Level 2) appears to add support to the hypothesis that exporters and firms engaged in direct foreign investment activities are more marketing oriented. Similarly, the role of the international/export manager is given greater weight by firms with greater international involvement. Planning Orientation Table 4 shows the characteristics of the planning processes of firms at different levels of 304

internationalisation. Clearly, the greater the level of internationalisation, the more likely are firms to have written general plans for a longer period and written plans for exporting. Current exporters and those considering exports (ie. Levels 2, 4 and 5) are more likely to set specific goals than other firms. It could also be expected that firms at Level 2 would be more goal oriented than those at Levels 1 and 3, since they have actually investigated the possibility of exporting. Firms at Levels 1 and 3 seem to be more passive. No clear pattern seems to emerge regarding the type of goals set. Sales goals are the most common type of goal for all firms except non current exporters (Level 3), where profit is the most frequent. As is to be expected, goa1s for export are more frequent among those with greater international exporting involvement. Overall, the level of management expertise, as reflected in the degree of general planning and export planning, appears to be rather poor amongst these firms (except, perhaps. for Level 5 firms).

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Attitudes to Exporting. Firms were asked to indicate the extent of their agreement or disagreement with a number of statements regarding exporting. The rating scale used varied from 1 (strongly disagree) to 5 (strongly agree). A factor analysis of the ratings indicated that the statements could be grouped into three broad types reflecting three underlying factors. The first group of statements reflect a general anti-exporting orientation that suggests little consideration of an experience with exporting. With a little poetic licence we have characterised this group of statements as 'Fear of the Unknown'. The five

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statements comprising this group are as follows (with their varimax rotated factor loadings shown in parentheses). 1. There is too much risk involved in exporting for my organisation to be engaged in it (. 79). 2. Exporting is too different from marketing in Australia to enable my organisation to succeed (.61). 3. Exporting should only be considered when opportunities in Australia have been completely exhausted (.55). 4. The quality of my company's products could never be good enough to sell on the overseas market (.51). 5. My company is too small to be able to export successfully (.44). The second group of statements focus on various exporting problems reflecting some consideration or experience of exporting. We have characterised this group as 'Fear of the Known'. The six statements comprising this group are as follows: 1. Exporting is only desirable when a responsible Australian agent can be secured to handle transport, documentation and marketing (.53). 2. My organisation does not know enough about exporting procedures to even begin exporting (.53). 3. My organisation's high costs will always prevent it from entering exporting (.50).

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4. Our first attempts at exporting failed so there is no point in trying again (.48). 5. My company is too small to be able to export successfully (.41). Notice that the statement that 'my company is too small to be able to export successfully' appears in both groups. The third group, comprising five statements, reflects a pro export orientation. They are as follows: 1. Exporting is so important to the national interest that every Australian manufacturer should support the export drive (.63). 2. Exporting increases the prestige, reputation and success of my company in Australia (.57). 3. Exporting represents an opportunity to exploit an expanded market (.43). 4. Exporting is a necessity when Australian sales do not come up to expectations (.41). 5. Exporting is a profitable means of making use of idle factory capacity (.39). Table 5 shows the mean ratings for each statement by firms' level of internationalisation. The results for the first two groups of statements are similar. Firms at higher levels of internationalisation disagree more strongly with these statements. Level 4 and 5 firms have the lowest ratings (greatest disagreement) followed by Level 2 and 3 firms, and Level 1 'inward' orientation by firms with less international involvement,

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and a more 'outward' orientation by firms at greater levels of involvement. The amount of agreement with the third group of statements is generally much greater. Level 1 firms show the least amount of agreement with the statements although other types of firms are similar to them for particular statements. Level 1 and Level 2 firms do not agree as much as other firms that 'exporting is a necessity when Australian sales don't come up to expectation'. Conclusions and Implications The above results generally support the hypothesis in that significant differences do appear to exist among firms at different levels of the internationalisation process in terms of the personal characteristics of top management, managers' planning orientations and managers' attitudes towards exporting. As we have already noted, Level 4 and 5 firms comprise a greater proportion of larger firms and this may account for some of the differences emerging. However, when firm size was controlled for no substantial changes occured in the pattern of results emerging, which reinforces the argument that the differences emerging are associated with level of internationalisation. A possible exception to this occurs in the level of planning, where larger firms appear to be more planning oriented.

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These results provide evidence of the learning process that takes place and its effects as firms travel the internationalisation path. Levels of knowledge and skills increase and perceptions change as a result of this learning process. Firms with greater international experience have more executives who were born overseas and have lived for longer periods overseas. The greater the level of involvement, the greater the number of business trips undertaken and the higher the level of education. As a result, attitudes towards exporting change. More favourable attitudes to exporting emerge and the significance of the risks and problems involved diminishes. Firms tend to adopt a more 'outward' orientation. This greater level of involvement and cornrnitment is also evidenced in the higher proportion of international/export managers and marketing managers found in more senior positions as the firms internationalise. Associated with these findings concerning changes in attitude, knowledge, and perception is the level of management skills and expertise which is reflected in firms' planning orientations. The results lend support to previous findings that decision making approaches tend to be more informal and unplanned at the earlier stages of international development, and at later stages they become more structured and formalised, ie. the level of management expertise improves as the firm develops (6). Of course, the question could be posed: is this expertise a result of the firm's learning experience in the internationalisation process, or, is the firm's level of 311

internationalisation a result of its management expertise? The answer probably lies somewhere in between. Irrespective of the answer, it is clear that the quality of management needs upgrading, ie. basic management and marketing skills together with changed attitudes towards a more global and outward orientation. If the contention is correct that , in order to survive both domestically and internationally, firms will need to be able to effectively compete in an increasingly competitive world environment, then quite clearly an important focus of attention for policy makers and firms alike is the improvement and development of management's attitudes knowledge, skills and perception. In order to stimulate the international growth of firms, policy makers need to be able firstly, to identify firms with the potential for such growth, secondly, to identify and assess firms' specific needs relative to their potential, and thirdly, tailor assistance schemes to suit the needs of selected firms. Several management characteristics, which vary according to the firm's level of internationalisation, have been identified in this paper. From a policy making stance these characteristics can be viewed as either facilitating or impeding a firm's ability to achieve its potential for successful international growth. By identifying management characteristics, which may be preventing or delaying such growth, more effective 312

assistance schemes can be targeted to these firms. This paper certainly does not furnish a complete profile of firms which would be required for the development and targeting of effective assistance schemes. Other organisational characteristics such as resources, size, nature of product, and domestic and international history and experience, would need to be included in the assessment. However, in order to overcome some of the deficiencies identified in the management characteristics studies, assistance schemes would need to be directed at developing general management courses offered at the tertiary level. In addition to this basic management training, educational and promotional programmes could be aimed at building awareness of the importance of international business and at overcoming the various knowledge, attitudinal and perceptual deficiencies. More direct intervention in firms in the form of consulting services aimed at overcoming the experience gap particularly the knowledge, skills and resources of firms at earlier levels of internationalisation, would also seem desirable. Such intervention would also help in breaking down the anti-exporting attitudes identified above. At this stage only a general indication of the forms that assistance schemes might take have been given. A more detailed account of possible schemes can be found in Barrett and Wilkinson. Further analysis of the data will attempt to expand upon these policy areas and will be reported upon later.

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Footnotes 1. It has been demonstrated in previous Australian research that the international potential of these firms varies and a key influence is the nature of management (2, 21). 2. The deficiencies of past and present attempts by Government to stimulate exports have been noted (2). 3. See Bilkey and Tesar (Spring-Summer (November 1980); Johanson and Vahlne 1975); Johanson and Wiedersheim Paul 1978); WiedersheimPaul et al, (Spring, Welch (1977,1980)

1979); Cavusgil (Spring,Summer (Spring,Summer Summer 1978);

4. A sampling fraction of 1 in 7.16 was chosen to make the total number of firms included in the survey 4,000. But due to multiple listings in the sampling frame, the effective sample was actually less than 4,000. 5. A three factor solution was selected based on Cattell's Scree test (5) and the interpretability of the factors resulting. It is beyond the scope of this paper to report the factor analysis in detail. Three statements could not be classified because their factor loadings were too low and similar for each factor. The three statements are (a) "Exporting is not sufficiently profitable for our organisation to be interested" which loads.35 on factor 1,.33 on factor 2 and -.28 on factor 3; (b) "The main cause of our failure in exporting was the poor performance of our overseas agents" which loaded.28,.09 and.17 on the three factors, and (c) "Exporting should only be considered after a written order has been received", with loadings of.03,.30 and -0.05. 6. It is interesting to note that significant differences were found in the level of planning and managements' level of

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education. Only 35% of firms with no executives who had completed tertiary education drew up written plans, whereas the proportion for firms with 3 executives having completed tertiary education was 81%.

References Australian Government,(l977) White Paper on Manufacturing Industry, Australian Government Publishing Service, Canberra, Barrett, N.J. and Wilkinson, I.F.(May 1981) 'Encouraging Exporting: A Study of the Types of Assistance Required by Australian Manufacturing' paper presented at the 51st ANZAAS Conference, Brisbane. Bilkey, W.J.(Spring-Summer 1978) 'An Attempted Integration of the Literature on the Export Behaviour of Firms', Journal of International Business Studies, pp. 33-46. Bilkey, W.J. and Tesar, G. (Spring- Summer 1979) 'The Export Behaviour of Smaller-Sized Wisconsin Manufacturing Firms' Journal of Internat ional Business Studies, pp. 93-98. Cattell, R.B. (1977) Handbook of Multivariate Experimental Psychology, Chicago: Rand McNally, pp.l74-243.

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Crawford, J.G.(l977) Study Group on Structural Adjustment, Australian Government Publishing Service, Canberra. Cavusgil, S.T. (Nov. 1980) 'On the Ihternationalisation Process of Firms' European Research, pp. 273-281. Cavusgil, S.T. and Godiwalla, Y.M.(l982) 'Decision making for International Marketing : A Comparative Review',Management Decision, Vol. 20, No.4, pp. 47-54. Hout, T., Porter, M.E. and Rudden,E (September October, 1982) 'How Global Companies Win Out', Harvard Business Review, pp. 98-108. Industries Assistance Commission,(l977 and 1982) Export Incentives, Australian Government Publishing Service, Canberra. Jackson, R.G. Policies for Development of Manufacturing Industry,(l975) Report of the Committee to Advise on Policies for Manufacturing Industry, Australian Government Publishing Service, Canberra. Johanson, J. and Vahlne, J.E. (Spring-Summer, 1975) 'The Internationalisation Process of the Firm-A Model of Knowledge Development and Increasing Foreign Market Commitments',Journal of International Business Studies, pp. 23-32. Johanson, J. and Weidersheim-Paul,F. (October, 1975) 'The Internationalisation of the Firm - Four Swedish

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Case Studies, The Journal of Management Studies, pp.305-322. Keegan, W.J. 'Global Strategic Marketing', in Kirpalani, V.H. (ed.) (1983) International Marketing Managerial Issues,Research and Opportun ities, Proceedings Series, American Marketing Association, Chicago, Illinois, pp. 94-105. Lee, W.Y. and Brasch, J.J.,(Spring- Summer, 1978) 'The Adoption of Export as an Innovative Strategy', Journal of International Business Studies, Spring/ Summer, 1978, pp. 85-93. Levitt, T.(May-June, 1983) 'The Globalization of Markets', Harvard Business Review, pp. 92- 102. Menadue, J. (1 February 1984) 'Structural Change in Australian Industry-Implications for Export Trade', Address to International Marketing Seminar, Canberra. Thorelli, H.(July 5, 1983) 'Internationalizing the Marketing Curriculum Calls for an Entirely New Philosophy of Teaching Marketing', Address given at The American Marketing Association's Third Annual Faculty Consortium, Georgia State University, Atlanta. Weidersheim-Paul, F., Olson, H.C. and Welch, L.S. (Spring, Summer, 1978) 'Pre-export Activity -The First Step to Internationalisation' Journa of International Business Studies, pp.47-58. Welch, L.S. (1977) The Internationalisation Process of the Firm, PhD Thesis, University of Queensland.

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Welch, L.S. and Weidersheim-Paul, F. (October, 1977) 'Export Promotion Policy -A New Approach', Australian Journal of Management, Vol. 4, No. 2, pp. 165-177. Welch, L.S. and Wiedersheim- Paul, F.(December, 1980) 'Domestic Expansion-International- isation at Home', Essays in International Business, University of South Carolina,No. 2, p. l-32.

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International Marketing and Internationalization Processes - A Network Approach Jan Johanson Lars Gunnar-Mattsson University of Uppsala and Stockholm School of Economics Sweden

Introduction Recent state-of-the-art presentations indicate that researchers in international marketing are less than happy with the situation. International marketing is a 'step child of marketing' (Wind 1979), it has failed to develop a specific body of knowledge (Hampton and Van Gent, 1984, p.202), there is an absence of conceptual and theoretical frameworks to guide research (Cavusgil and Nevin, 1981, p. 207), the literature on 'comparative marketing' is lagging behind that of other areas of marketing (Kaynak and Savitt, 1984, p. 273). All these reviewers, not surprisingly agree that international marketing is an important subject for resesarch, and increasingly so.

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The modest aim of our paper is to discuss some of the critical problems in received international marketing research in relation to conceptual frameworks used by researchers. More specifically, we will examine potential contributions, in terms of problem recognition and research approaches, by looking at markets as networks of relationships between actors. We have not any ambition to systematically present or assess the 'state-of-the-art' in international marketing, but we believe that our analysis might also be relevant for many aspects of consumer goods marketing. The title is meant to signify that we believe that important issues in international marketing can be fruitfully analysed as interdependent with internationalization processes in the firm and in the firm's environment. We take the broad view that international marketing concerns the exchange of goods and services with actors from more than one country involved. International marketing therefore involves crossing of national borders, operating in 'foreign' markets and dealing with interdependent activities in several nations. The individual firm can be more or less internationally interdependent and go through internationalization process. After this general introduction we will try to categorize some major aspects of international marketing research and the general conceptual frameworks that the studies build on. After that, admittedly very sketchy, background we will briefly describe our network model 320

and the types of research issues it raises for marketing in general. Then international marketing and internationalization processes are interpreted within the network model and some of the research insights are mentioned. Finally, we discuss how the firm's and the environment's internationalization interact in analyses of international marketing problems. Major aspects of international marketing research Cavusgil and Nevin (p. 197) organise their review of international marketing in four broad categories of studies. The environment of international marketing: These studies include the impact of political, legal,cultural, economic, technological variables on international marketing activity. Area oriented studies of markets in the sense that structure and behaviour of customers, distribution channels, competitors and facilitating institutions are described and analysed Strategic international marketing management: This category of studies includes entry and expansion strategies, segmentation strategies, marketing mix policies and relationships between head-quarters and subsidiaries.

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Decision tools for international marketing include both research methodology and studies of buyer behaviour. We fin that this way of structuring the subject areas 1s typical for the international marketing literature. There is a division between the general international institutional environment, the immediate business environment, the strategic, tactical and organizational behaviour of the individual firm and the analytical and descriptive background for analysis of the market. We might add that this is also typical for the general marketing management literature linked to the marketing mix model. With reference to the definition of international marketing and to the above categorization, it is possible to list five major research areas. a) Differences markets. (and similarities) between b) Interdependencies between markets. c) Foreign market entry strategies and expansion, including modes of entry and expansion. d) Characteristics of the firm's marketing activities on foreign markets. e) Interdependencies between activities on different markets and control of these activities.

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a) Comparisons between markets in different national, regional or cultural contexts are made in comparative marketing studies. These studies have to a large extent concentrated on consumer behaviour, distribution channels and different types of institutional arrangements on a macro level. Even if not very much research in the comparative marketing field has concerned industrial marketing, relevant material can be found in the comparative management or cross cultural management literature and in industrial organization studies comprising several countries or internationally dispersed industries (de Jong, 1981). Comparisons, when made from an actor's point of view, often concern differences between foreign markets, and the home market.Variables measuring the distance in various respects (economic, psychological) between markets have been used to explain the internationalization processes by individual firms (Hornell, Vahlne and WiedersheimPaul, 1973). Comparison between markets has also been a major tool suggested in the literature on international market segmentation and market selection, and has obviously relevance for the analysis of the standardization-adaption issue. Finally differences and similarities influence the type of methodological problems encountered in international marketing research (Douglas and Craig, 1983). b) Interdependence between markets exists if the behaviour on one market influences the behaviour or outcome of activities on another market. Studies on

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international oligopolistic competition, (Knickerbocker, 1973), on purchasing by international companies (Davis, Eppen and Mattsson, 1974) on the effects of economic integration between countries, on the diffusion of innovations (Ray, 1984), on the product cycle (Vernon, 1979) and on transfer of technology (Frame, 1983) give examples of such interdependencies that can be seen as aspects of internationalization of the environment. In a very general sense the literature on international economics and international politics is relevant. In a more narrow sense, the recent interest focussed on the globalization of markets (Levitt, 1983) fits into this category. Foreign market entry and expansion strategy is a very important international marketing research issue that links marketing, international business, and corporate strategy oriented studies. One aspect is the determination of which markets the firm enters. Another is by which organizational and inter-organizational arrangement that the entry takes place. A third aspect is the development over time of the firm's involvement on the foreign market. These three aspects are integrated in the process models that describe the firm's internationalization as a gradual, step-by-step commitment to sell and to manufacture internationally as part of a growth process (Johanson and Wiedersheim-Paul, 1974; Johanson and Vahlne,1977). Focussing specifically on export behaviour, Bilkey (1978) conceptualized exporting as a learning sequence by which the firm went through

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stages of increasing commitment to foreign markets. The stage model has lately come under criticism. Reid (1983) argues that successive internationalization, going from low commitment modes and selling in near-by markets to high commitment modes like manufacturing abroad and to operating also in more distant markets is a too deterministic and general model. The firm's choice of entry and expansion modes are according to Reid more selective and context specific and can be explained by heterogenous resource patterns and market opportunities. Firms will therefore use multiple modes of international transfers. Reid suggests that a transaction cost approach is superior to the experential learning model. Hedlund and Kverneland (1983) also criticize the stage model. They conclude that "experiences of Swedish. firms in Japan suggest that establishment and growth strategies on foreign markets are changing towards more direct and rapid entry modes than those implies by theories of gradual and slow internationalization processes " (Hedlund and Kverneland, p.22). The literature on foreign direct investments and on alternative modes for international resource transfers is of course very relevant in this context. A recent analysis of the links between international business theory and international marketing is Soldner (1984). Especially analysis of the advantages and disadvantages of internalisation (Rugman, ed.,l982) is of interest because the analysis can be linked to specific market

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characteristics, and not only to country 'industry or companyspecific advantages. A quite different approach to entry strategies is taken ori the marketing management literature that looks at the selection of which countries to enter as a rational screening process..The following quotation from a recent textbook on international marketing research is typical. "For companies entering international markets for the first time, a dual decision has to be made concerning the appropriate combination of countries and modes of entry to be used. This requires the collection of information to assess the investment climate and market potential in all countries to be considered, as well as the risk and costs associated with operations in these different environments". (Douglas and Craig, p. 105) They advocate the use of secondary data in the evaluation of which countries to enter! (op.cit.,p.129) Entry and expansion modes involve strategies concerning cooperative and competitive relations to other firms. The literature on inter-organizational cooperation, mergers and acquisitions therefore give important inputs to these aspects of international marketing (Goldberg,ed., 1983). Given that the firm sells on several markets, how does it behave on each of these markets? The majority of studies deal with adaptation to each individual market 326

versus standardization of the behaviour across countries. Some of the classical, often reprinted and quoted articles analyze this problem (Keegan, 1970; Buzzell, 1968). Obviously, the trade-off is between the scale-economy and control offered by standardization on one side and the benefits from adaptation to the specific environmental conditions on the other. Much of the writing on the standardization issues deals, not surprisingly, with mass communication (see Cavusgil and Nevin, p.204 for an extensive list of references.). Most of the studies referred to in this subsection have the marketing mix model as their conceptual background.Recently a number of studies using an interaction approach have emerged. Hakansson (ed., 1982) reports on a large research programme involving researchers in five European countries (the IMP Group) and most of the analyses and results deal with firms'interactive behaviour on different European markets. Cunningham (1984) and Ford (1979) are other interaction studies linked to international marketing contexts and to the IMP programme. Baker and Parkinson (1984) also report on some interaction studies, in their case, of innovative behaviour, on different national markets. Even if there is a growing number of international marketing studies using an interaction approach, as will undoubtedly be revealed at this UMIST conference, the marketing mix approach still completely dominates the literature on international marketing.

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Interdependencies between the firm's behaviour on one market on behaviour and outcome of activities on other markets are treated in some of the entry/expansion strategy literature and is also a more or less explicit background for the analyses of the adaptation-standardization issue. Interdependencies between the various markets obviously can create inter-dependencies between the firm's own activities, e.g. in international oligopolies, or when customers operate internationally. Interdependencies call for coordination and coordination can also cause interdependencies. The typical studies dealing with coordination take the headquarter-subsidiary perspective, analysing the centralization-decentralization issue. These studies either are limited to marketing activities (Picard,l977) or deal wit:h the total corporation (Otterbeck,l982). On the general level of the firm Pearlmutter's (1969) classical distinction between ethnocentric, polycentric and geocentric attitudes in the multinational corporations adds a behavioural dimension to the analysis of the firm's internationalization. We draw the following conclusions from this short overview: 1. International marketing needs a broad conceptual framework than the 'marketing mix' approach that is predominant. We have seen how most of the international marketing issues deal with comparisons between socio-economic-political systems, with

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interdependencies between markets, with corporate strategy issues involving various forms of cooperation and competition in interorganizational contexts, with development processes anq with interdependence and coordination between activities. To look, as the marketing-mix approach does, at the actor in international marketing as an autonomous,decision-making unit that decides upon and controls its marketing activities in order to influence a passive environment, disregards too much of the above. (It is not a very helpful solution to increase the number of 'Ps' by adding 'production' and 'probe' as suggested by Keegan (1984)!) Therefore it is quite natural that much of the literature referred to above under a-e usually is not labelled 'marketing' but inter national business, corporate strategy, organization-al behaviour, cross-cultural management. We agree with Hans Thorelli's ecological view of international marketing (Thorelli,l980,p.5).According to this the company (and its resources),its marketing strategy and its market environment is regarded as an open interaction system. The firm must fit into specific contexts and is dependent on its interaction over time with its changing environment. 2. The 'non-marketing' literature that is of relevance for international marketing is, however, either mostly without explicit links to market and marketing concepts (such as the comparative management

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literature),is built on market concepts that are difficult to link to marketing activities (such as the traditional micro economic theory) or is not conceptually 'rich' enough in its description of markets and marketing (such as the Williamsonian transaction cost approach). We need therefore a conceptual framework that includes rich 'market' and 'marketing' concepts and is more holistic, process and resource oriented than the marketing mix/marketing management framework. 3. The criticism directed against one of the few process-oriented international marketing models, the 'stage' or 'establishment chain' model seems to be very relevant. At the same time we think that it is important to describe and explain longitudinal developments of firms in international markets. In the beginning of this paper we referred to the lack of conceptual frameworks for international marketing that some of the recent state-of-the art authors mentioned. If we look at the 'typical' international marketing issues that have been touched upon under a-e we can conclude that we need a framework that includes: 1) interactoin between firms disaggregated environment and their

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2) processes including time length and timing of these processes 3) total company resources and activities, and 4) complementary inter-organizational relationships. The first point deals with the always difficult bridging of the analytical distance between macro and micro analysis. The second deals with several important issues.'Internationalization' is a process, interdependencies between firms make the length of time and the timing of activities and processes important. Also the problems encountered in implementing plans and decisions make the process and time element important. The third point, that we must look not only at marketing activities but also other activities and not only activities but also resources of the firm, is important when we consider that much of the relevant non-marketing literature deals with total firm activity, and the need to coordinate activities between markets. The fourth point is linked to the importance of different types of entry and expansion modes and in general to the importance of interorganizational interdependencies. The following section describes an attempt to develop a conceptual framework that includes the above dimensions.

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Markets as networks - a general description Markets as networks - a general description The network approach in the form that is described in this section has been developed by a group of Swedish researchers whose background is research on distribution (systems) internationalization of industrial firms (processes) and industrial purchasing and marketing behaviour (interaction). (Mattsson, 1984 describes this background). The approach is developed in a general way in Hagg and Johanson (eds.) (1982) and Hammarkvist, Hakansson and Mattsson (1982). The section builds on those publications and on Johanson and Mattsson (1984). The industrial system is composed of firms engaged in production, distribution and use of goods and services. We describe this system as a network of relationships between the firms. There is a division of work in the network which means that the firms are dependent on each other and that their activities need to be coordinated. Coordination is not brought about through a central plan or an organizational hierarchy, nor does it take place through the price mechanism as in the traditional market model. Instead coordinates takes place through interaction between firms in the network, where price is just one of several influencing conditions (cf.Lindblom,1977). The firms are free to choose counterparts and thus 'market forces' are at play. To gain access however, to external resources and make it

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possible to sell products, exchange relationships have to be established with other firms. Such relationships take time and efforts to establish and develop, which constraints the firms' possibilities to change counterparts. The need for adjustments between the interdependent firms as to quantity and quality of goods and services exchanged and the timing of such exchanges call for more or less explicit coordination through joint planning, or through power exercised by one party over the other. Each firm in the network has relationships with customers, distributors, suppliers etc., as well as indirect relations via those customers, distributors, suppliers etc., with the suppliers' suppliers, the customers' customers etc. The networks are stable and changing. Individual business transactions between firms usually take place within the framework of established relationships. Evidently, some new relationships are established now and then and some old relationships are disrupted for some reason (e.g. competitive activities), but most exchange takes place within earlier existing relationships. However those existing relationships are changing all the time through activities in connection with transactions made within their framework. Efforts are made to maintain, develop and change the relationships. In the relationships, bonds of various kinds are developed between the firms. We ,Pistinguish technical, planning, knowledge, social, economic and legal bonds. These bonds can be exemplified

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by, respectively, product and process adjustments, logistical coordination, knowledge about the counterpart, personal confidence and liking, special credit agreements, and long-term contracts. We stress complementarity in the network. There are also important competitive relations. Other firms want to get access to specific exchange possibilities either as sellers or as buyers, and cooperating firms also have partly conflicting objectives. The relationships imply that there are specific inter-firm dependence relations which are of a different character than the general dependence relations to the market in the traditional market model. A firm has direct and specific dependence relations to those firms with which it has exchange relationships. It has indirect and specific dependence relations to those firms with which its direct counterparts have exchange relationships, that is the other firms operating in the network where it is engaged. Because of the network of relationships the firms operate in a complex and difficult to survey, system of specific dependence relations. Getting established in a new market, that is a network which is new to the firm, it has to build relationships which are new to itself and its counterparts. Sometimes this is done by breaking old existing relationships and sometimes by adding a relationship to already existing ones. Initiatives can be taken both by the seller and by the buyer. A supplier can become established in a network which is new to the firm, because a buying firm takes initiative. 334

This model of industrial markets implies that the firm's activities in industrial markets are cumulative processes where relationships all the time are established, maintained, developed and broken in order to give satisfactory short term economic return and create positions in the network, securing the long-term survival and development of the firm. Through the activities in the network the firm develops the relationships which secure the access to important resources and the sale of its products and services. Because of the cumulative nature of the market activites, the market position is an important concept. At each point in time the firm has certain positions in the network. They characterise its relations to other firms, are a result of earlier activities in the network both by the firm and by other firms, and constitute the base which defines the development possibilities and constraints of the firm in the network. (See Mattsson, 1984, for an analysis of strategies to defend and change positions). We distinguish between micro-positions and macro-positions. A micro-position refers to the relationship With a specific individual counterpart. A macro-position refers to the relations to a network as a whole or to a specific section of it. The micro-positions are characterized by: a) the role of the firm in relation to the other firms b) its importance to the other firm, and

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c) the strength of the relationship with the other firm The macro-positions are characterized by: a) the identity of the other firms with which the firm has direct relationships and indirect relations in the network b) the role of the firm in the network c) the importance of the firm in the network, and d) the strength of the relationships with the other firms. Thus the macro-position, while referring to the whole network, is not an aggregation of the micro positions in the network. The macro-positions are also affected by the interdependencies in the whole network as well as by the complementarity of the micro-positions in the network (see figure 1). Example of micro-position of firm A in relation to firm B: a) it is a secondary supplier of fine paper and of know-how about printing processes b) the sales volume is 100, A's share of B's purchases of fine paper is about 30 per cent and A is an important source of technical information.

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c) the knowledge bonds are , but social bonds are rather weak due to recent changes in personnel 'in both A and B.

Example of the macro-position of firm A: a) lists exist of suppliers, customers, competitors and other firms in the network to whom the firm is directly or indirectly related b) it has the role as a full line distributor of fine paper in southern Sweden c) its market share is 50 per cent which makes it the market leader

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d) it enjoys strong knowledge,planning and social bonds to its major customers and strong economic and legal bonds to its suppliers. The positions describe the firms relations to its industrial environment and thereby also important strategic possibilities and constraints of the firm. All the other firms in the network likewise have positions which they want to establish. Desired changes or defence of positions describe important aspects of the firm's strategy. The strategies of firms can be complementary to each other or competitive or a combination of both. Important dimensions of the network structure are related to the set of positions of the organizations that are established there. The degree of structuring of the network is the extent to which positions of the organizations are interdependent. In tightly structured networks the interdependence is high, the bonds are , and the positions of the firms are well defined. In loosely structured networks, the bonds are weak and the positions are less well defined. The global industrial network can be partitioned in various ways. Delimitations can be made concerning geographical areas, products, techniques etc. We use the term 'net' for superfically defined sections of the total network. When the grouping is made according to national borders, we distinguish different 'national sets'. Correspondingly we refer to 'production nets' when the grouping is made on 338

the basis of product areas. A production net contains relationships between those firms whose activities together produce functions linked to a specific product area. Thus it is possible to distinguish a heavy truck net including firms manufacturing whole or parts of heavy trucks, distributing, repairing and using heavy trucks. This heavy truck net differs from the corresponding 'industrial branch' as it comprises also firms with complementary activities whereas the industrial branch comprises firms with similar, mostly competing, activities. The firms in the net are linked to each other and have specific dependence to each other. Within the framework of a product area with its production nets, different national production nets can be distinguished. Thus, in the heavy truck field we can speak of a Swedish, a Danish, a West German, an Italian etc. heavy truck net comprising the firms or operations in each country engaged in manufacture, distribution and use of heavy trucks whole or parts or services linked to heavy truck transport. To sum up we have described markets as networks of relationships between firms. The networks are stable and changing. Change and development processes in the networks are cumulative and take time. Individual firms have positions in the networks. Those positions are developed through activities in the network and define important possibilities and constraints for present and future activities. Marketing activities in networks serve to establish, maintain, develop and sometimes break relationships, to 339

determine exchange conditions and to handle the actual exchange. Thus important aspects of market analyses have to do with the present characteristics of the positions, the relations and their development patterns in, for the firm relevant, networks. Important marketing problems for management, and for researchers, are related to investments (since activities are cumulative), timing of activities (because of interdependencies in the networks), internal coordination of activities (since all the firm's resources are involved in the exchanges and since the micro-positions are interdependent), and cooperation with counterparts (since activities are complementary). For a conceptual analysis of investments in networks, see Johanson and Mattsson (1984). After this general description we will turn to the meaning of internationalization in networks. Internationalization according to the network approach The internationalization of the firm means according to the network model that the firm establishes and develops positions in relation to counterparts in foreign networks. This can be done: 1) through establishment of positions in relations to counterparts in national nets that are new to the firm, i.e. international extension.

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2) by developing the positions in those nets abroad where the firm already has positions, that is penetration, and 3) by increasing coordination between positions in different national nets, that is international integration. The firm's degree of internationalization informs about the extent to which the firm has positions in different national nets, how those positions are, and how integrated they are. International integration is an aspect of internationalization which it seems motivated to add to the traditional extension and penetration concepts against the background of the specific dependence relations of the network model. Since position changes, by definition, internationalization according to the network model will analytically direct attention to the investments in internal and external assets used for exchange activities. Furthermore, the firm's positions before the internationalization process starts are of great interest, since they show what external assets the firm has access to via relationships which might influence the internationalization. The network model also has consequences for the meaning of internationalization of the market (network). A production net can be more or less internationalized. High degree of international ization of a production net implies that there are many and relationships between the different national sections of

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the global production net. Low degree of internationalization instead means that the national nets have few relationships with each other. Internationalization means that the number and strength of the relationships between the different parts of the global production network increases. It can also be fruitful to distinguish between the internationalization of production nets i plying increased links between the national sections of the global production net and the internationalization of national nets implying that they are becoming increasingly interconnected with other national nets. The difference is a matter of perspective. In the former case attention is focussed on the production net, in the latter on a national net. The distinction is interesting, because there may be important differences between the degree of internationalization of different national nets. In one country the production net may be highly internationalized whereas the corresponding net is not very internationalized in another country. The distinction is also interesting, because in some situations an internationalization of the global production net affects all the national sections of the global production net. In other situations only some specific national nets with their production nets are internationalized. This may be the case when two or more national economies are integrated.

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An Application of the Network Model to Analyses for International Marketing Against this background we can formulate some overriding research questions for international marketing research: how is the international marketing activities of the firm affected by the internationalization of its markets and how is this effect in turn dependent on the degree of internationalization of the firm? We shall discuss the question by distinguishing four different situations, which are characterized by, on the one hand, low or high degree of internationalization of the firm and, on the other, by low or high degree of internationalization of the market (the production net) (figure 2). The Early Starter The situation is characterized by the firm's having few and rather unimportant relationships with firms abroad and that the same holds for other firms in the production net. Competitors, customers, suppliers and other firms in the domestic market as well as in foreign markets have no important international relationships. The firms which started their internationalization during the early twentieth century were usually in this situation. The studies of the internationalization of Swedish industrial firms, on which the Uppsala model of the internationalization process was based, have described this situation and its transition to the situation of The Lonely International. Similarly, government

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export promotion policy studies of export behaviour and marketing of small and medium sized firms and the need for development aid for their export behaviour seem generally, implicitly, to assume this type of situation. In this situation the firm has little knowledge about foreign markets and it cannot count upon utilizing relationships in the domestic market to gain such knowledge. As ventures abroad demand resources for knowledge development and for qualitative and quantitative adjustments to counterparts in the foreign market, the size and resourcefulness of the firm can be assumed to play an important role. The strategy, often found in empirical studies, of starting internationalization in nearby markets using agents rather than subsidiaries can be interpreted as 1)

minimization development

of

the

need

for

knowledge

2) minimization of the demands for adjustments, and 3) utilization of the positions in the market which already established firms have. The firm can utilize those investments in positions which the agent in the foreign market has made earlier and thereby it can reduce the need for investment and risk taking.

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Figure 2 Four cases of International Marketing Situations

An alternative strategy of firm acquisitions or greenfield investments in subsidiaries would require a greater investment in the short run and might perhaps enhance the long-term possibilities for knowledge development and penetration in the market. This is a strategy which is possible mainly for firms which have already become large and resourceful before internationalization. The importance of agents and other middlemen is reinforced by the presumptive buyers in the foreign market lacking experience of international operations. If those buyers happened to be conscious of foreign supply alternatives they would probably be somewhat reluctant. This means that the supplier must let some third party an agent guarantee the firm's delivery capability or itself invest in confidence creating activities, for instance getting 'reference customers', keep local stocks or build a service organization in the foreign market. This means further market investments.

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Initiatives in the early internationalization of the firm are often taken by counterparts, that is distributors or users which already have positions in the foreign market. Then the counterpart uses its own market assets to establish a new firm within its own network. If the firm, with this introduction as base, can develop its position in the market is very uncertain and may depend on the degree of structuring of the network and on the positions of the 'introducer'. If the 'introducer' is a leading distributor in a tightly structured network, it is probable that conditions are created for rapid penetration of the network, given that the adjustments to the network are made. An obstacle may be that the demands for quantities become so high that the production capacity of the firm is too small. This may require increased engagement in the market through the establishment of production units. To reduce the risk of overcapacity the parties may have to enter into long-term supply contracts which is quite consistent with a tightly structured network. In the Uppsala model of internationalization the gradual the firm's involvement in the market via agent and sales subsidiary to manufacturing subsidiary was primarily a process by which market knowledge gave the base for stronger corrunitments. The network model analysis stresses the need for balance between internal resources and external demands and possibilities, and the consequent need to establish market positions which can match the production capacity that is supplied to the market through a production investment. The production investment can also be regarded as a means 346

to improving the firm's position in the market by giving possibilities for development of supplier relationships and thereby strengthening technical and planning bonds to the users (Johanson and Mattsson, 1984). As already discussed, the need for resource adjustment may become quite heavy in connection with a first step abroad. Such adjustments can be assumed to imply investments and it must be important to minimize the resource adjustment need in connection with early steps abroad. This holds for quantitative resource adjustments in connection with capacity increases which the added market may demand. It also holds for qualitative resource adjustments which may be required due to the new market need possibly deviating from the earlier. Obviously, it may be possible to complement the resources through external sources. To the extent that such resource completions are made in the domestic market they probably imply the same type of problems. They mean corrunitments which may be difficult to fulfill if the foreign engagement is a failure. On the other hand they are probably risk reductions if they can be made in the actual market. It is, however, not likely that a firm which has no experience of foreign operations would have qualifications for organising resource completions in the actual market, that is establish positions through supplier relationships. Another problem is that some resource adjustments can be made possible by giving up control over the operations in exchange for the flexibility needed to reduce risk taking in connection with foreign ventures.

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Such ventures may be carried out if the old owner transfers control over the firm to someone being able to complement the resources of the firm. The Lonely International In what ways is the situation changed if the firm is highly internationalized while its market environment is not? To start with, in this situation the firm has experience of relationships with and in foreign countries. It has acquired knowledge and means to handle environments which differ with respect to culture, institutions etc. Therefore failures are less likely. The knowledge situation is probably more favourable, also when establishing the firm in a new national net. A second advantage is that the international firm probably has wider repertoire of resource adjustments. The need for resource adjustments is likely to be more marginal and less difficult to handle. This holds for both quantitative and qualitative adjustments even if the former perhaps are more strongly affected by the bigger size which follows internationalization rather than by the internationalization per se. In particular it is easier for the international firm to make various types of resource completions in the foreign markets. This is a special case of the general advantage for international firms, because of much greater resource combination possibilities. Note that resource combinations also include those external resources which the positions give access to. 348

Concerning the structuring of the national nets it can be assumed that the international firm has less difficulties than others to enter a tightly structured net. Experience and resources give it a repertoire that allows it to make the heavy investments which are required to enter a tightly structured production net. It has also better possibilities to take over firms with positions in the structured net or to establish relationships with such firms. It can also give the counterparts access to other nets. For instance, the international firm has greater possibilities than others to engaged in barter trade. Initiatives to further internationalization do not come from other parties in the production nets, as the firm's suppliers, customers and competitors are less internationalized. On the contrary, the lonely international has the qualifications to promote internationalization of its production net and consequently, the firms engaged in it. The firm's relationships with, and in, other national nets may function as a bridge to those nets for its suppliers and customrs. Perhaps they have a similar effect on the competitors (Knickerbocker, 1973). Firms which are internationalized before their competitors, are forerunners in the internationalization process and may enjoy advantages for that reason, in particular in tightly structured nets by having developed market positions before the competitors. A basic condition if the firm is to be able to exploit the advantages of being a lonely international is that it can coordinate activities in the different national nets. 349

International integration is therefore an important feature in the development of the highly internationalized firm. However, this is probably less so when the environment of the firm is not internationalized than when it is internationalized. In that case integration may be enforced. The Late Starter If the suppliers, customers and competitors of the firm are international even the less internationalized firm has a number of indirect relations to foreign networks. Relationships in the domestic market may be driving forces to establishments in foreign markets. The firm can be 'pulled out' by customers or suppliers, and in particular, by complementary suppliers, e.g. in big projects. Thus market investments in the domestic market are assets which can be utilized when going abroad. In that case it is not necessary to go from the nearby market to more distant markets and the step abroad can be rather large already in the beginning. On the whole the internationalization process can proceed much more rapidly. On the other hand, if the firm is embedded in a highly internationalized network its products can be spread internationally by its international customers. Volvo's Swedish subsuppliers to Swedish plants, have their products spread internationally via Volvo's foreign sales without the firms needing to establish themselves in those markets.

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Is the market penetration process of the firm affected by the degree of internationalization of the production network where it is operating? The need for coordination is greater in a highly internationalized production net, which implies that establishment of sales subsidiaries should be made earlier if the firm is a late starter, than if it is an early starter. The size of the firm is probably important. A small firm going abroad in an internationalized world probably has to be highly specialized and adjusted to problem solutions in specific sections of the production nets. Starting production abroad probably is a matter of what bonds to the customers are important. If joint planning with customers is essential it may be necessary to start local production. Similarly, if technical development requires close contacts with the customers it may be advantageous to manufacture locally. On the other hand, it may be easier to use relationships with customers in the domestic market for development purposes. We can also hypothesize that the structuring of the production net is very important if the late starter is a small firm. In a loosely structured net a small firm can probably establish some relationships on which further penetration of the market can be based. This is less likely if the net is tightly structured. The situation is different for large firms. As firms which have become large in the domestic market often are less specialised than small firms their situation is often more complex than the situation is for the small

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firm. One possibility is to get established in a foreign production net through acquisition or joint venture. Of course, this is associated with great risks to a firm without experience of foreign acquisitions or joint-ventures, in particular so if the other firms in the production net are internationalized. In general, it is probably more difficult for a firm which has become large at home to find a niche in highly internationalized nets. It cannot, as the small firm, adjust in a way which is necessary in such a net. Nor has it the same ability as the small firm to react on the initiatives of other firms, which is probably the main road to internationalization in a net where other firms are already international. The late starter has a comparative disadvantage in less market knowledge than its competitors. Furthermore, it is often difficult to establish new positions in a tightly structured net. The best distributors are already linked to competitors. Competitors can, more or less legally, by predatory pricing make the late newcomer unprofitable. In comparison with the early starter, the late starter probably has a less difficult task with regard to trust. The firms in the foreign markets already have experience of suppliers from abroad. In a highly internationalized world the firms are probably more specialized. Consequently, a firm which is a late starter has to have a greater customer adaptation ability or a greater ability to influence the

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need specifications of the customers. However, the influence ability of a late starter is probably rather limited. The comparison between early and late starters can serve as an example of the importance of 'timing' in international marketing. The International among Others In this situation both the firm and its environment are highly internationalized. A further internationalization of the firm only means marginal extensions and penetrations which, on the whole, do not imply any qualitative changes of the firm. It is, however, probable that international integration of the firm can lead to radical changes concerning internationalization. Both with regard to extension and penetration the firm has possibilities to use positions in one net for bridging over to other nets. A necessary condition for such bridgings over to other nets. A necessary condition for such bridgings is that the lateral relations within the firm are rather. Some kind of international integration is required. As extension takes place in a globally interdependent network the driving forces and the obstacles to this extension are closely related to this interdependence. Models of global oligopolies fit in here. Establishments are made in those sections of the global production net which the competitors consider their main markets in order to discourage the competitor to make threatening competitive moves in other markets. In such a situation

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the establishment may meet some resistance, but it is difficult for the competitors to use predatory pricing. For the 'early starter', penetration through production in a foreign market was mainly a result of need to bring about a balance between internal resources and external demands and possibilities in the specific market. For the 'international among others', the situation is affected by the firm's having operations in several markets as well as the markets being highly internationalized. The operations in one market may make it possible to utilize production capacity for sales in other markets. This may lead to production coordination by specialisation and increased volumes of intra firm, international trade. SKF in Europe is an example of such a development. When the markets are expanding it is possible in that case to put off capacity increases in one market, while capacity increases are made in another market before the positions in that market motivated such expansion. The surplus capacity could be linked to the wider international network, but this requires international integration of the firm. Establishment of sales subsidiaries is probably speeded up by high internationalization as the international knowledge level is higher and there is a stronger need to coordinate activities in different markets. The need for coordination puts heavy demand on the organisation. The competitors can utilize weaknesses in one market if they are not likely to meet counter attacks in markets where the firm is. Coordination gains in 354

production and R & D are possible in a different way than if the internationalization of the firm and of the surrounding network is low. National differences are smaller, innovations are diffused more rapidly, indirect business relations via third country become more important to utilize. The market investments in one country will probably be more important as the external resources which the relationships give access to are more dispersed internationally. The advantages of being able to coordinate operations in international networks is still more evident when change takes place in the environment. Assuming that such changes spread from country to country the international firm is likely to have better possibilities to discover such changes as well as better possibilities to take advantage of them by adjusting and complementing resources. A third advantage may be that the international firm can dominate and influence the international diffusion process and thus affect tqe development. But this probably requires size as well. Concluding remarks In the discussion of the four situations we focussed our attention on the two internationalization characteristics, that of the firm and that of the environment. We discussed how various aspects of the firm's international marketing strategies and organization could be explained by each specific context. Both the internationalization of the firm and of its environment imply change processes and increasing

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interdependencies that influence, and are influenced by, marketing activities and marketing resources. Our analysis suggests a number of research ideas of a conceptual and empirical nature. We need empirical, conceptual and methodological studies of various types of industrial networks as to their structure in terms of positions and relationships and as regards structural change processes. Such studies would differ from typical industrial organization studies because the emphasis would be on relationships rather than corporate units or plants. We need also descriptions of strategic developments on the firm level, taking into consideration the processes by which a firm's network positions undergo changes. Such studies will include both entry and further development processes. Also development over time of relationships between individual counterparts, and how these relationships are controlled, need to be described and explained. The key issue as we see it is to be able to conceptualize and understand the cumulative nature of the marketing activities. Linked to this is the sequential developments in the market, the timing of activities, the balancing and development of different kinds of interdependent resources, and action preparedness. When is action appropriate? All this is not a matter of increasing the complexity of market models. It is rather a matter of finding new and better conceptual frameworks for describing markets and firms' behaviour on and relations to markets. Obviously, we consider the network approach promising, but must of course at the same time admit that we are only at the very beginning

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of its development. Many of the basic concepts are vague, only few empirical studies exist. There are of course also alternative conceptual frameworks that might be used to handle the problems that characterize international marketing. It is, however, easy for us to nterpret empirical case stories, that we have come into contact with, in the network model described here. In fact, the major empirical input to our framework comes from contacts with managers through research, consulting and teaching. Our subject is international marketing. What we have done is of course not only to discuss paradigmatic issues in international marketing, but also as regards marketing in general. The debate among marketing academicians on such issues has somewhat increased during the last years (Dholakia and Arndt, eds., 1984). It is also interesting to note that most of the published literature on international marketing has originated in North America. Of the more than 250 writings listed by Cavusgil and Nevin more than 90% are written in the U.S. or Canada. It might very well be that the institutional setting, academically and as regards business conditions, can explain the nevertheless relatively little interest shown in the U.S. by the academic community to do research on these phenomena and the research frameworks and methodologies used. (cf. the analysis in Mattsson and Naert, 1984, on the different marketing research b_ehaviour in Europe). We believe that a positive development for research on international marketing 357

lies ahead, a belief that this UMIST conference no doubt will serve to reinforce. References Baker, M. and Parkinson, S.T. (1984) 'Research into Organizational Buying Behaviour and Industrial Marketing: The Strathclyde Experience'. Paper presented at the International Research Seminar on Industrial Marketing, Stockholm School of Economics, August 29-31. Bilkey, Warren J. (Spring, 1978) 'An Attempted Integration of Literature on the Export Behavior of Firms'. Journal of International Business Studies, pp. 93-98. Buzzell, R. (November December, 1968) 'Can You Standardize Multinational Marketing?' Harvard Business Review, 46, 6. p. 702. Cunningham, M.T. (August, 1984) 'Controlling the MarketingPurchase Interface: Resource Deployment and Organizational Implications'. Paper presented at the International Research Seminar on Industrial Marketing, Stockholm School of Economics. Cavusgil, S.T. and Nevin, J.P. (1981) 'State of-the-art in International Marketing: An Assessment', Review of Marketing 1981, Enis and K.J. Roering (eds.) pp. 195216.

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Davis, H.L., Eppen, G.D. and Mattsson, J.G. (November/December, 1974) 'Critical Factors in World Wide Purchasing'. Harvard Business Review, 52,PP. 81-90. de Jong, H.W. (ed.) (1981) The Structure of European Industry, The Hague: Martin Nijhoff. Dholakia, N. and Arndt, J. (eds.) (1984) Changing the Course of Marketing: Alternative Paradigms for Widening Marketing Theory, Greenwich, CT: JAI Press (forthcoming). Douglas, S.P. and Craig, C.S. (1982) International Marketing Research, Englewood Cliffs, N.J. Prentice-Hall. Ford, I.D. (1979)Developing Buyer-Seller Relationships in Export Marketing, Organisation,Marked og Samfunn, Vol. 16, No. 5, pp. 291-305 Frame, J.P. (1983) International Business and Global Technology, Lexington MA: Lexington Books. Goldberg, W.H. (ed.) (1983) Mergers, Motives, Modes, Methods, Gower. Hammarkvist,K.O., Hakansson, H. and Mattsson, L.G. (1982)Marknadsforing for konkurrenskraft , Malmo: Liber. Hampton, G.M. and van Gent, A.P. (eds.) (1984) Marketing Aspects of International Business, Boston: Kluwer-Nijhoff.

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Hedlund,G.and Kverneland, A. 'Are Establishment and Growth Patterns for Foreign Markets Changing? The Case of Swedish Investment in Japan'. Stockholm School of Economics, Institute of International Business. Holmlov, P.G. and Julander, C.R. (1984) Reklam i satellitTV-Konsekvenser for svensk industri, Stockholm: EFI. Hakansson, H. (ed.) (1982) International Marketing and Purchasing of Industrial Goods; An Interaction Approach, Chichester: J Wiley. Hagg, I. and Johanson, J. (ed.) (1982) Foretag i natverk, Stockholm : SNS. Hornell, E., Vahlne, J.E. anmd Weidersheim-Paul, F. (1973) Export och utlandsetableringar, Uppsala: Almqvist and Wiksell. Johanson, J. and Vahlne, J.E. (1977) 'The Internationalization Process of the Firm A Model of Knowledge Development and increasing Foreign Market Commitments', Journal of International Business, No.8, pp. 23-32. Johanson, J. and Wiedersheim-Paul, F.(1974) 'The Internationalization of the Firm-Four Swedish Case Studies', Journal of Management Studies, No.3, pp. 305-322. Johanson, J. and Mattsson, L.G. (August, 1984) 'Marketing Investments and Market Investments in Industrial Networks', Paper presented at the 360

International Research Seminar in Industrial Marketing, Stockholm School of Economics. Kaynak, E. and Savitt, R. (eds.) (1984) Comparative Marketing Systems, New York: Praeger. Keegan, W.J. (1984) 'International Marketing: Past Present and Future'. in G.M. Hampton and A. van Gent (eds.) Marketing Aspects of International Business, Boston: Kluwer-Nijhoff Publishing, pp 1-14. Keegan, W.J.(1970) 'Five Strategies for Multinational Marketing', European Business, pp. 35-40. Knickerbocker, F.T. (1973) Oligopolistic Reaction and Multinational Enterprise, Cambridge MA, Division of Research, Harvard Graduate School of Business Administration. Levitt, T.H. (1983) 'The Globalization of Markets', Harvard Business Review. May-June, pp. 92-102. Lindblom, C.E. (1977) Politics and Markets, New York: Basic Books. Mattsson, L.G. and Naert, P. (1984) 'Research in Marketing in Europe: Some Reflections on its Settings, Accomplishments and Challenges' (Submitted for publication). Mattsson, L.G. (1984) 'An Application of a Network Approach to Marketing: Defending and Changing Market Positions', In N. Dholakia and J. Arndt (eds.) Alternative Paradigms for Widening Marketing Theory, Greenwich CT : JAI Press (forthcoming).

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Otterbeck, L. (ed.) (1982) The Management of HeadquarterSubsidiary Relationships in Multinational Corporations, London : Gower. Perlmutter, H.V. (1969) 'The Tortuous Evolution of the Multinational Corporation', Columbia Journal of World Business, pp. 9-18. Picard, Jacques (Summer, 1977) 'How European Companies Control Marketing Decisions Abroad',Columbia Journal of World Business, 12. Ray, G.F.(1984) MatureTechnologies, University Press.

The

Diffusion of Cambridge:Cambridge

Reid, S. (1983) 'Firm Internationalization,Transaction Costs and Strategic Choice',International Marketing Review, Winter, pp. 44- 56. Rugman, A.M. (ed.) (1982) New Theories of the Multinational Enterprise, London: Croom Helm. Soldner, H. (1984) 'International Business Theory and Marketing Theory: Elements for International Marketing Theory Building', In. G. Hampton and A. can Gent (eds.) Marketing Aspects of International Business, Boston, Kluwer-Nijhoff, pp 23 -57. Thorelli, H.B. (1980) 'International Marketing : An Ecological View', In H. Thorelli and H Becker (eds.) International Marketing Strategy.

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Vernon, R. (1979) 'The Product Life Cycle Hypothesis in a New International Environment', Oxford Bulletin of Economics and Statistics, Vol. 41. pp. 255-267. Wind, Y. (1979) 'The Journal of Marketing at a Crossroad', Journal of Marketing, pp. 9-12.

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PART THREE: INTERNATIONAL RELATIONSHIPS

SUPPLIER-CUSTOMER

This section comprises of contributions from IMP Group members in Sweden, France and Britain. A central theme to IMP Group work has been the Interaction Approach and the statement that markets are not passive but active, that industrial marketing is not composed of single transactions but relationships which covey change and adaptation over time. We begin with a contribution from two early pioneers in this area of international industrial marketing Johanson and Mattson. Johanson and Mattsson introduce a model to explain international supplier-customer relationships which describes industrial markets as networks of relationships between firms. This model relies on the transaction cost based theory of internalisation for the multinational enterprise, and the Uppsala internationalization process model which emphasises experiential learning and gradual cornrni tment. There are four cells to this model of internationalization of the firm and of the network: The Early Starter; The Lonely International; The Late Starter and the International 364

Among Others. The two dimensions are: Degree of Internationalisation of the Market; and Degree of Internationalization of the Firm. Important to note here is the investment nature of marketing and of purchasing activities. The contact pattern between the firms is an indicator of the investments of the firms in each other. Significant business transactions require that the parties have confidence in each other's abilities and wilingness to fulfil their commitments. It takes time and effort to build such confidence. Johanson and Mattsson assume that firms in industrial markets are linked to each other through long lasting relationships, developing complex, interfirm information channels as well as social and technical bonds. Markets are to be seen as networks of relationships between firms and with interdependencies. Market coordination takes place through interaction between firms in the network. Firms are free to choose their counterparts and thus market forces are at play. However, unlike the traditional market model, price is only one of several influencing conditions. This means that the firm establishes and develops positions in relation to counterparts in foreign networks, either from new ie. international extension; by increasing resources where they already exist, ie. penetration, or by increasing coordination between positions in different national nets,ie. internaitonal integration. Johanson and Mattsson expect the internationalization model to be most valid for the International Among Others. In short, Johanson and Mattsson believe that both the internalisation and the 365

internationalization models leave out characteristics of the firm and the market that seem especially important in the case of global competition and cooperation in industrial systems. Arnaud, Salle and Valla take the same theme but further. In their paper, they examine the components of the complexity of international supplier/customer relationships, so their paper may be seen to begin where Johanson and Mattsson finish. The mode of analysis adopted by Arnaud et al is to examine the dimensions of 38 relationships: nature; degree of cornmi tment; adaptations; degree of closeness; and stability. These dimensions are gauged by certain criteria of evaluation, and, following from this, the measurement technique adopted. Arnaud et al seek to pursue two objectives: on the one hand, describing customer/supplier relationships; on the other, evaluating the level of complexity attached to a set of supplier/customer relationships. In effect, the two overlap in many ways. The empirical data illustrates the concept of complexity and proposes explanatory variables of different complexity levels. levels of segmentation by value-added and product complexity: commodity; relatively high valueadded; and systems packaging across five distinctly separate end-use sectors. Five firms were drawn from each end-use sector with one at least being multinational, international or national in purchasing orientation. Paliwoda and Thomson hypothesise that the level of buyer sophistication would correspond to the levels of

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value added. The study shows the long duration of many relationships; the number of functions involved in order specification and the degree to which technical and aesthetic considerations are included in order specifications. Finally, matrices illustrate the strengths of these bonds for each end-use sector and across all levels of value-added. Hakansson's paper follows on well from that of Paliwoda and Thomson, based as it is on technical exchange within industrial networks. Hakansson states that the starting point for his study of technical development through technical exchange between companies, arose from empirical observations of different kinds of technical cooperation. These observations gave rise to theoretical development work based on a network model. Four empirical studies have been conducted: one regarding the strategies of cooperation amongst 130 Swedish companies; and two, regarding the development structure within certain technical sets. As some of the studies have not been completed, the main part of the paper is devoted to their background and content. However, some tentative managerial conclusions are drawn in relation to each of the individual studies.

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The Components of the Complexity of International Supplier/Customer Relationships Jean Michael Arnaud, Robert Salle and Jean-Paul Valla Institut de Recherche de L'Enterprise, Lyon France

Introduction The issue of supplier/customer relationships (hereafter referred to as s/c relationships) has only recently been identified as a key element of both marketing and purchasing. In a previous IMP book (Hakansson, 1982), all authors dedicated considerable attention to the understanding of s/c relationships in industrial markets. Considering the previous work ( only case studies were used in the above mentioned IMP book) and dealing now with somewhat larger samples, the aim of this article is to take a closer look at the various components of the s/c relationships' complexity, to try to identify explanatory variables of its different levels and to discuss methodological issues related to this area of analysis. 368

The perception and understanding of this complexity could open ways for a better evaluation and allocation of resources in s/c relationships. As it was defined and developed in the IMP study, we shall adopt in this paper an interactive analysis perspective. I. The Dimensions of Interorganizational Complexity I.l The concept of complexity:definition and discussion Before pointing out the main elements of the relationships studied, it appears necessary to define the term 'complexity1 in this context. A system is complex when composed of a large variety of interconnected components and elements,each of them defined as a specialized function. Table 1: The analysis of s/c relationships: a methodology

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Table 2 : Position of the relationships in the sub-sample matrix

Table 3 : Levels of human investments in four types of marketing/ purchasing situations (sample of 38 relationships)

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Table 4 : Examples of factors contributing to higher or lower complexity

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Table 5 : Relative implication of each organizational function during interaction processes (interpersonal contact)

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Table 6 : Variations and explanatory variables of the relative implication of organizational functions in four marketing/purchasing situations.

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Table 7 : Technical versus non-technical contacts in s/c relationships

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This condition, characterised by a high degree of interconnections, appears to be one of the main specifities of the s/c relationships in industrial markets. Moreover, this contribution to an explanation of the usual stability of such relationships (Hakansson, 1982). This was largely emphasised in the case studies presented in the above mentioned IMP book. The IMP model shows an interaction process (between two organisations) composed of several kinds of exchanges: products or services, information, financial and social. The s/c relationships will then vary in complexity according to the intensity, nature, frequency and importance of these exchanges. Therefore, one may distinguish between simple relationships composed of a few limited exchanges and a vast network of interlocking contacts between groups of specialists from different departments at different levels. In the second case, the supplier and the customer face a variety of complex problems which lead to different kinds of adaptations (technical, organizational..).

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In our view, the nature, intensity and purpose of interorganizational contacts, the volume and types of adaptations define the complexity of the s/c relationships. As we define it here, the notion of the s/c relationships complexity was explored in previous research. Cunningham and Turnbull (1982) put the emphasis on the fundamental role played by interpersonal contacts between two organisations. The authors underline the small amount of research reported on the patterns of interpersonal, interorganizational communications, even if their importance has long been recognised. They present these contacts as dynamic tools to maintain and develop s/c relationships: "Although personal contacts help towards the establishment of intercompany relationships, it should not be thought that their function is purely one of preserving a static relationship. Rather, they provide both companies with the dynamic necessary to respond to new opportunities and threats. The contacts serve as antennae of the organisations which provide feed back for action to change the relationship". Many factors can explain the complexity of these interorganizatonal contacts. For Cunningham and Turnbull, the more the technical complexity increases, the more the contact complexity is important. In fact, the technological characteristics of both organizations will condition the nature and complexity of this relationship: "Technical issues are often critical in buyer/seller interaction in

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industrial markets. The aim of the interaction process can be interpreted as tying the production technology of the seller to the application technology of the buyer. Thus the characteristics of the two technological systems and the differences between them give the basic conditions for the interaction. The basic conditions influence all the dimensions of the interaction process; for example, the requirements for adaptations, mutual trust and contact patterns". (Hakansson, 1982). Therefore explanatory factors of the complexity of contact patterns have emerged. I.2 Review of explanatory factors from previous research The age of the relationship: Cunningham and Turnbull (1982, op. cit.) suggest that the complexity of s/c relationships varies over time. In fact, an institutionalization of the relation sometimes occurs, leading to a variation of contact intensity. Ford (1982) also shows that s/c relationships have a lifecycle. During this cycle, the intensity of interpersonal contacts varies according to the different kinds of investment and adaptations made by both parties. For instance, after initial human investment and technical adaptation at the beginning of the relationship, the experience level of the two groups increases. This gain of confidence tends to institutionalise the relationship and decrease the inherent difficulties. As a

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consequence, the apparent relationship decreases.

complexity

of

the

The importance attached to a given customer and the cultural and linguistic gap between two organisations: Cunningham and Turnbull (1982) introduce two other explanatory factors of the level of complexity in s/c relationships. One is related to the supplier's behaviour and his process of resource allocation. According to the importance attached to a particular customer, the supplier may decide to limit the number of people involved in the interaction with this customer. The cultural distance between a supplier and a customer of different nationalities is also presented, by the two authors, as an important variable. The greater the cultural distance, the greater the necessity of interpersonal contacts in order to establish a lasting relationship. The production technologies: With the typology of production technologies defined by Woodward (1965) as a basis for comparative analysis, Johanson (1982) points out the different organizational functions involved in s/c interaction. He shows which of these functions appear most frequently and how interorganizational contacts occur by type of production technology on the customer's side. Along the same lines, Hallen (1980) studies the need for stability and the need for change in s/c relationships according to the continuity of the customer's production process. He shows that the greater the continuity, (eg. 379

processes based on the assembly line) the greater the need for stability. As a general rule, a stable relationship is characterised by a relatively small number of people involved on both sides. On the contrary, a greater need for change results in more complex contact patterns, whereby various organizational functions are involved inside both organizations with an important part played by Research and Development departments. The need for stability and the need for change may co-exist within a particular s/c relationship and the relative importance of each will condition its complexity. Previous analysis of the French data: Comparisons are made in relation to two main factors -

the product group (semi-finished components and equipment goods)

products,

- the country market (five European countries involved in the IMP project) This analysis shows significant variations in almost all the characteristics of s/c relationships such as the nature and volume of adaptations and the level of human investment (on both sides). Therefore, it appears that each country and product group can be characterised by rather specific traits. The country market and the product group factors may then be accepted as explanatory factors of the complexity of s/c relationships. 380

Other explanatory factors are also identified in this analysis. Among the most important ones are the following: the firm's size, the market structures and importance (supply or demand markets), the cultural differences and the geographical distance between suppliers and customers, as well as specific features of the suppliers and customers' behaviour (purchasing or marketing strategies and tactics). II. The Study of the Complexity of S/C Relationships : Methodological issues II.l A methodology for the analysis of s/c, relationships Ford (1980) already discussed several methodological issues related to the study of inter-company relations in industrial market channels. Cunningham and Turnbull (1982) proposed to focus on the number of people and the organizational functions involved as well as the frequency of contacts between the two interacting companies. However, there is still a need for formal methodology which could be used to analyse s/c relationships in a systematic way. Using the interaction model and previous research findings, it appears that the analysis of s/c relationships at a general level can be exhaustively performed through the following features presented in table 1. A similar methodology was used by Valla (1984 ) in his analysis of the French data.

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II.2 Some explanations about the methodology The objective of the above methodology is the systemat description of s/c relationships. At the same time, a number of the criteria that are used constitute a set of indicators of the relationship's complexity (eg. 'the degree of commitment1 dimension and its components). This methodology was used in the analysis of the French data (IMP project) and a part of it will be applied to data presented in the following section. Additional explanations are needed however since various decisions had to be made as regards the choice of criteria or measurement technique. Each point of discussion is presented in summarised form hereafter: - Age of relationship: the number of years was counted starting from the initiation of the relationship even if it had been interrupted; this interruption would appear in the 'stability' dimension. - Importance of supplier: this criteria came out to be very important since most customers tend to use multiple sources for a given product; however, the actual measure may vary over time due to variations in marketing or purchasing strategies and tactics; in some instance, a

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qualitative classification may be better, such as the use of the following three classes: (1) main supplier, (2) important supplier, (3) marginal supplier. - Total human investment: this criterion may seem superfluous; however, as we shall see in the following section, it is often useful to compare the total size of interacting groups in different situations. - Exchange of information: some information exchange always takes place between a customer and a supplier; what was needed here was to identify relationships in which special and unusual procedures were established between the two organisations, ie. procedures which were not established with other similar customers (see IMP methodology-Hakansson, 1982, - Degree of reciprocal adaptations: this is a very simple measure of reciprocity; its interest is that it permits a quick identification of very unbalanced relationships; additional information is provided by the other criteria on the 'Adaptations 1 dimension. - Total volume of adaptations: see comment on total human investment here above. Variation of turnover over time: small variations in

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turnover are frequent and of little interest; a simple binary measure is justified when the purpose of the analysis is to identify major events; in an empirical way, the minimum variation to be taken into account was set at 20% of turnover; however interpretation became difficult during the actual analysis of the French data; when it appeared that major crisis could be caused by either environmental factors (the majority of cases), or specific problems in the relationship, we did not distinguish between these two situations considering that a strong relationship would be less affected by environmental changes, than when the supplier and the customer do not feel committed to each other. II.3. The analysis of complexity The two objectives of describing s/c relationships on one side, and evaluating the level of complexity attached to a set of s/c relationships on the other side, overlap in many ways. It is our view that the criteria which are necessary to evaluate complexity are contained in the methodology presented above. These criteria are as follows: - human investment by supplier (number of people) - human investment by customer (number of people)

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- total human investment (total number of people) - functions involved within the purchasing organization (number of functions) - functions involved within the supplying organization (number of functions) - nature of interpersonal contacts (technical versus non-technical) - customer's adaptations (number of adaptations; technical versus nontechnical ) - supplier's adaptations (number of adaptations ; technical versus nontechnical ) - total volume of adaptations (total number of adaptations; technical versus non-technical) An empirical analysis on the first six criteria listed above will be presented in the following section along with an exploratory identification of some explanatory variables of s/c relationship complexity. Before doing so however, we shall now briefly discuss our sample characteristics II.4 Sample characteristics A sample matrix was used by the IMP Group in order to select the firms to be interviewed (Hakansson, 1982). In the French section of this project, interviews were conducted in 45 French companies. Within the 45

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firms, a total of 139 relationships were analysed. One must emphasise that the customers chosen by the 45 suppliers interviewed were necessarily 'targeted customers', the importance of which may originate from a variety of causes (large volume, high profitability, innovativeness, opinion leader...) The relationships studied were related to the type of product sold and the nature of the customer's production technology (see IMP sample matrix - Hakansson, 1982). This total sample was used as a basis to study the main characteristics of s/c relationships and the variation of the relationships characteristics due to the type of product sold and the country market dimension (Valla, 1984) In this paper, and in order to apply part of the methodology presented above, we selected from our total sample of 139 relationships a subsample of 38 relationships. They show the following characteristics: no missing values on the criteria that we wish to analyse - a fair or high level of complexity as compared to similar relationships in our sample (in the same matrix cell) - relationships concern continuous types of sales at the exclusion of discrete ones in order to have a more

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homogeneous sample (the equipment product group is excluded) Of the 38 relationships studied, 15 were established with French customers and 23 with customers from the 4 other countries of the IMP sample (Germany, Italy, Sweden and the United Kingdom). III. Analysis of the s/c Relationship Complexity: The people and functions involved in s/c relationships We explained above that the number of people involved and the number and nature of interacting organizational functions were two of the dimensions which revealed s/c relationship complexity. In this section, we shall analyse and interpret data on these two dimensions in the following four situations: (case 1): semi-finished products sold to customers with a unit or small batch production process (case 2):

semifinished products sold to customers with a large batch production process

(case 3):

components sold to customers with a unit or small batch production process

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(case 4):

components sold to customers with a large batch production process

We shall hereafter deal with two issues. The first one is to determine and compare complexity levels in these four cases. The second one is to identify explanatory factors of the variations in complexity. In order to do this, we shall analyze successively the levels of human investments, the nature and number of functions involved and complement this analysis by the identification of the reasons (technical versus non-technical) for interpersonal contacts. Through this analysis, we hope to contribute to a better understanding of complex s/c relationships. Ill.1 The levels of human investments Table 3 presents data on human investments in the four cases described above. A simple glance at table 3 shows that we are here far away from a mere interface between a salesman and a purchaser. This is true regardless of the type of marketing/purchasing situation. The bottom line of the table points out the average size of the interacting groups, ie. mixing suppliers' and customers' personnel, for semi-finished products (average size 13.1 people) and for components (19.2 people). We may therefore rightly speak of rather complex supplier/customer systems.

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However, large variations may be observed. First of all, we can establish a ranking of complexity on the basis of average total human investment. From the more complex to the less complex we find the following result: 1 - Case 4 (components/large batch)....26 people on average 2 - Case 1 (semi-finished products/unit or small batch).....20 people on average 3 - Case 3 (components/unit or small batch 12.5 people on average 4 - Case 2 (semi-finished products/large batch)....9 people on average Interacting groups sizes are on average for case 4 three times larger than for case 2. Significant differences exist between the four marketing/purchasing situations. Another interesting feature of table 3 is that results are exactly reversed for unit or small batch environments and large batch ones, when the variable 'type of product sold' changes from semi-finished products to components. This suggests that other variables may explain the nature of the quantitative results. Going back to the original data for each supplier/ customer relationship, we thus looked for additional

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explanatory variables of variations in complexity on the human investment dimension. Results from this analysis led to the identification of the following factors: (a) The technical essentiality of the product bought (impact on customers' final products and production processes) and its use (some products are integrated as such others need machining or some kind of adaptation) (b) The financial importance of the purchase (average unit price and average volume consumed). (c) The frequency of delivery (coordination of production planning between customer and supplier). (d) The characteristics of the supply market (degree of maturity, rate of innovation, average growth). (e)

The general economic conditions (general characteristics of the particular country market at the time of the interview).

(f) The degree of flexibility of production processes (mainly on the customer's side but also on the supplier's side). (g) The demand fluctuations on the customer's markets (in case 1 for instance, the customers' markets strongly fluctuate; this in turn, requires close

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cooperation with important suppliers for permanent adjustments of orders and deliveries). (h) The age of the relationship (long established and stable relationships can be managed on both sides by smaller interacting groups). (i) the atmosphere of the relationship (willingness to cooperate closely and good interpersonal relationships, as opposed to the risk of dependence as regards either the supplier or the customer). (j) the size of the interacting firms (in smaller firms people are less specialised and one single person may handle a variety of different problems). These ten factors were found to be the main explanatory variables of complexity variations in our sample of 38 relationshps. Specific combinations of these factors may lead to higher or lower complexity on the 'human investment' criterion. As an illustration, cases 2 and 4 (lowest and highest average total human investment) may be defined by important characteristics on the ten factors introduced here.

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III. 2 The implication of organizational functions in s/c interaction In Table 5, we report the implication of each organizational function on the basis of the analysis of interorganizational contact patterns. The data that is presented results from a ratio between the number of contacts achieved by a particular function and the total number of identified contacts for one relationship. Averages are then computed for each of the four cases. As shown in table 5, average complexity is also high on this dimension. A minimum of 5 functions are involved on the supplier's side (cases 2, 3 and 4), and on the customer's side (case 1). Other features can be identified at a general level: - the relative part played by the supposed key function on the customer's side (ie. purchasing) is significantly less important than the part played by its natural counterpart on the supplier's side (Sales/Marketing). This indicates that sales and marketing departments on the suppliers' side are responsible for a large part of the technical negotiation. One may also point out the importance of the customers' technical functions in s/c interaction. Research and Development, manufacturing and control account for a minimum of 54% of total

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interpersonal contacts (case 2), up to a maximum of 79% (case 1). They actually play the key role in s/c interaction. - Another interesting finding is the presence of the customers' sales and marketing functions in all four cases. Even though the correspondent number of relationships is small, it indicates situations of extensive s/c cooperation. - Finally, one should emphasise the significant implication of top management in most cases (at the exception of case 1). It is especially noticeable in case 4. This is consistent with the fact that case 4 previously showed the greatest complexity in terms of human investment on both sides (customer and supplier). In spite of common features due to high average complexity in our sample, it is of interest to note that some significant differences can be identified between the four cases. Table 6 shows the distinctive characteristics of each, and presents the explanatory variables that were found in the data, to account for observed variations. As it can be seen in the above table, new explanatory variables of s/c relationship complexity were identified in this part of our analysis. These are the following:

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- the supplier's strategy: the criterion was the importance given to a market which, when it is low, affects the supplier's willingness to invest in a relationship even though the customer may be important in relative terms, the technical training and knowledge of the marketing personnel: whenever the technical expertise of the marketing personnel is high, it apparently allows them to handle technical problems by themselves which, in turn, reduces the level of implication of the supplier's technical functions. III.3 The objectives of interpersonal contacts: technical versus non-technical In order to complement our previous analysis, we may now take a closer look at interpersonal contacts by identifying the objectives or purposes of such contacts. Interorganizational contacts were classified in two categories: - technical contacts which correspond to interpersonal contacts related to the production technologies and processes, the product sold, quality control and the exchange of technical information. - non-technical contacts, which are related to delivery problems, commercial negotiations, organizational

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issues, administrative procedures and the exchange of non-technical information. The data on this criterion are presented in Table 7. Here again, we observe important variations among the four cases. Three groups of relationships can be identified: Group 1(case 1):

in this type of situation technical contacts are highly dominant in the relationship. Group 2(cases 3&4):technical contacts are still dominant (strong majority of contacts with 63 and 67 respectively) but nontechnical ones are significantly higher than in Group 1 (roughly one third of the total number of contacts) Group 3(case 2) : in this case, non-technical contacts are a majority even if technical contacts still play an important part (45% of all contacts) It should be noted that this ranking differs from the one that was established when we analysed the 'human investment' data (see page here above). This indicates that the importance of technical matters in a relationship does not necessarily lead to higher human investments. In some ways, this also confirms the

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previously established fact that a rather large number of different variables explain variations in the characteristics of s/c relationships. Explanatory variables for the above part of our data can be found in the analysis that we presented in other parts of this section. The high percentage of technical contacts in Case 1 is probably due to the fact that products are often adapted to customers needs. Case 2, which is the only situation in which non-technical contacts are more frequent than technical ones, is also characterized by mature technologies and standardised products. Finally, even if Cases 3 and 4 show similar data as regards the relative importance of technical and non-technical contacts, we know from previous analysis that they differ in the role played by technical functions. In Case 3, sales and marketing people take over a large part of the technical problem solving tasks, while technical functions are more often directly involved in Case 4. However, and in our view, the high average percentage of technical contacts in all four cases (45% at the lowest, 82% at the highest) is an indication of higher complexity and is due to our selection of relationships (see sample description here above page 11). Concerning other parts of our sample (not presented here), for instance in the case of quasi-commodities, the percentage of technical contacts within the total number of contacts is much lower.

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Conclusions In this article, we have defined the concept of s/c relationships complexity, discussed methodological problems and proposed a methodology for the analysis of s/c relationships. Finally, we have presented and analyzed empirical data which illustrated the concept of complexity and proposed explanatory variables of different complexity levels. Part of our results confirms previous research findings by Hallan (1980), Cunningham and Turnbull (1982), Ford (1982), Johanson, (1982) and Valla, (1984) New insight was gained by the presentation and discussion of descriptive data on the issue of s/c relationships complexity and by a systematic search for explanatory variables. It is our opinion that such an analysis raises important theoretical and managerial issues. Two of them may deserve special attention: - the issue of efficiency. Complex s/c relationships pose an equally complex problem of resource allocation for both marketing and purchasing, as well as a complex problem of coordination. On which basis and with which method can efficiency be evaluated and controlled and adequate coordination achieved?

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- the issue of profitability. Profitability is usually evaluated by means of the difference between the turnover and the cost of products sold. Transaction costs are disregarded. Our analysis shows that transaction costs due to s/c relationships complexity are not necessarily related with the volumes sold or purchased. Can s/c relationships involving interacting groups of 26 people or more be profitable? On which basis and with which method can it be evaluated and controlled? In the stage of present knowledge ii* industrial marketing, we feel that the above questions cannot be answered. This is certainly a strong motivation for further research in this area of supplier/customer interaction References Cunningham, M.T. and Turnbull, P.W. (1982) 'Inter-organisational personal contact patterns', in Hakansson, Hakan (ed.)'International Marketing and Purchasing of Industrial Goods' by IMP Group - John Wiley and Sons , pp. 304-316. Ford, D. I. (1980) Ά methodology for the study of inter-company relations in industrial market channels', Journal of the Market Research Society, 22, no.l, pp. 44-59.

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Ford, D. I. (1982 ) 'The development of buyer-seller relationships in industrial markets', in Hakansson Hakan (ed.) International Marketing and Purchasing of Industrial Goods, by IMP Group - John Wiley and Sons, pp„288-304. Hakansson, Hakan (1982) 'International Marketing and Purchasing of Industrial Goods' , by IMP Group - John Wiley and Sons. Halien, L. (198 0) Stability and change in supplier relationships, Acta Universitatis Uppsaliensis, 12, pp. 83-101. Johanson, J. (1982) 'Production technology and user-supplier interaction', in Hakansson, Hakan International Marketing and Purchasing of Industrial Goods by IMP Group - John Wiley and Sons, pp. 316-323. Valla, J.P. (1984) 'Industrial firms in European markets : the French approach', in Turnbull, P. and Valla, J.P. Management of Customer Relationships in European Industrial Markets: marketing strat es and export organizations, by IMP Group - to be published in 1985. Woodward, J. (1965) Industrial Organisation: Behaviour and Control, Oxford University Press, London.

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The Development Role of Purchasing in an Internationally Oriented Company Bjorn Axelsson and and Hakan Hakansson University of Uppsala Sweden

A Resource Management Approach Purchasing problems have been seen mainly as how to handle individual purchasing situations. This was formulated by several authors in terms of a number of R's (right price, right quality, right quantity, right time, etc.). As an effect each purchasing situation was more or less seen in isolation and the recommendation was that the purchaser each time should try to make the optimal decision in terms of the R's by choosing the best alternative (ie. supplier). During the 70's this perspective was challenged. The criticism was focused on two interrelated issues. One point was that the supplier was evaluated on too narrow grounds. Important attributes such as willingness to find new solutions adapted in different ways to the buying company's needs or special delivery forms, were easily

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overlooked. Another point of criticism was the lack of a long-term perspective in the evaluation of suppliers. How for example different suppliers acted in situations that were critical for the buying company were easily overlooked. Based on these and similar arguments a resources management approach to purchasing was developed (Guillet de Monthoux, 1975; Hakansson and Wootz, 1975; Blois, 1975; Eriksson, 1976; Cunningham, 1982; Melin, 1977 ; Farmer, 1978; Hakansson (ed. ) 1982.) Using this approach purchasing is assumed to be concerned mainly with developing the company's external resource network. This includes starting, developing and ending longlasting relationships with suppliers in order to create an effective structure. This study of purchasing in internationally oriented Swedish companies is in line with this later theoretical development and purchasing is accordingly seen as a resource management problem. Three Important Purchasing Roles Seeing purchasing from a resource management perspective, the purchasing function can increase the competitiveness of the company in several ways. Here all these will be grouped together under three 'roles' (see Figure 1). Firstly, the purchasing function can increase the efficiency in a company's R &D activities by a systematic matching of the own company's resources 401

against the resources and development activities of the suppliers. It can thus have a development role. Secondly the purchasing function can increase the competitiveness of the company by decreasing the total costs in production, store-keeping, input products, etc., - it can have a rationalization role. Thirdly it can give competitive power by acting in such a way that the company's position within the total network is improved - it can have a network role. In the rest of this article we will limit the discussion to the development role of purchasing. The study In cooperation with the Swedish Federation of Purchasing Managers an interview was conducted in order to learn about important issues in advanced purchasing companies in relation to the above identified roles. The investigation included extensive discussions by the authors with purchasing managers in eleven well-known Swedish companies. In addition students in a seminar group conducted similar interviews with more than 30 other companies. The interviews were made as structured discussions and the interviewed persons have afterwards received an opportunity to comment on the outcome of the interview.

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The Development Role In marketing literature the product development process is normally considered to be a process which undergoes a number of different stages; starting with an idea which later on is developed and modelled to a finished product and introduced on the market. These descriptions normally assume that the development work mainly takes place within one company - the company which later on is going to market the product. A general recommendation is that the needs of the users should be guiding the work, but the users are in all other respects given a passive role.

Figure 1.

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Roles of Purchasing For producer goods there also exists an alternative picture. The buying side is there often dominated by a few companies which are able to make specific demands on the seller. Producer goods are often complicated products from the user's point view. Therefore many different kinds of specialists take part in the exchange. Buying and marketing has in such cases the character of an interaction process between two active parties. The interaction process consists of more than the simple exchange of products. First there is an exchange of information between the two companies. They exchange experiences, know-how, desires and demands in a number of respects, for example regarding qualities, prices, deliveries and services. Secondly the process allows for a social exchange so that the parties build up trust for each other. Lastly there are adaptations of products, production and organization. Product development can thus be regarded as an interaction process. Two or more parties analyse from different points of view the demands on the future product. The parties try different solutions and exchange experiences of them with each other. These parties build up trust for each other's desires and ability and thereby make future developments of the product possible. In this interaction there are normally a number of units active within each of the interaction firms.

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Bergman and Johanson (1978) characterize different product development processes by positioning them on a scale where one extreme is the case when the seller conducts the entire development task and on the other extreme the case where the buyer conducts the entire development task. Close to the first extreme is what normally is regarded as market-oriented product development, ie. the producer develops the product after an analysis of the needs of the users. Close to the second extreme is the situation where the user is the most active part in the development work. Lastly , in the middle we have the cases where both producer/ seller and user/buyer are active during the development process. These cases can all be characterized as development through interaction-processes (see Figure 2). Figure 2 : Scale over producers and users relative activity in product development (Source; Bergman &Johanson, 1978,p.42).

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Product development as an interaction process means that the resources of a single company in terms of technology, know-how, personnel etc., are combined with the resources of one or more external units. In general a certain company's total resources are limited compared to the total resources controlled by units in tfte company's environment. Therefore there always are reasons to try to utilize these external resources. This is an important strategic task. The degree of cooperation with suppliers, the choice of partners and the form of cooperation are three strategic issues relevant to the purchasing function. The way to handle these are related to the characteristics of both the company's internal resources and to the resource structure of its suppliers. Thus, the purchasing function has to find a certain 'balance' between these two types of resources. This can be achieved by internal adaptations, by choosing the 'right' environment and the 'right' suppliers, and/or to influence the partners in such a way that they will be matching. This perspective actualizes some general management problems that will be discussed below. The development interaction processes are today of increasing importance and furthermore often carried out in an international setting which ; adds some specific aspects. This is due mainly to two interrelated processes on the industry level. Firstly we have an ongoing specialization process where individual companies increase their degree of specialization in production which means that an increasing part of their turnover is 406

purchased products (in many cases 60-70%). Secondly and interrelated this is due to an increased internationalization of production. Thus, in combination there seems to be a tendency towards more development work taking part jointly between companies and this is to an increasing degree taking place in an international arena. Results - Case Illustrations In the discussions with the purchasing managers three important groups of issues were identified in relation to the development role. First we will offer a brief description of these groups and later on we will go deeper into the discussion with each of them and offer illustrative case descriptions extracted from the interviews. Three groups of development issues: In the first group two issues concerning the internal resources of the purchasing company were identified. One concerns the organization of the purchasing functions within the company, ie. the hierarchical position of the purchasing department and its role within the company. The design of the company's organization seems to heavily influence its ability to handle different relations, as well as the possibilities to create a satisfactory balance between these relations and the company's internal resource structure. One 407

important organization variable here is the degree of centralization or decentralization within the company. The second identified issue is due to the fact that different supplier relations must be handled in an individualized way. Each relation has to be organized depending on the aims and characteristics of it. Various company specialists have to be involved and coordinated. Furthermore it takes time to learn how a certain supplier can be used. This learning process is an investment and should be handled as such. The investment character of the relation makes it necessary to have a long term perspective when dealing with it as it will be difficult to change suppliers. At the same time the need to regularly analyze the suppliers value to the company increases. In the interviews a second group of issues concerning how to handle the external units (suppliers) were also identified. The balance between internal and external resources in the development work is such an issue. This is very much concerned with the degree of externalization and which parts of the company's development work that can be totally externalized or take place in co-operation with suppliers. On the one hand it is, of course, less resource demanding when segments can be allocated to others; on the other hand there is a need for internal development activities which excludes others in order to maintain control of development, to attract competent counterparts and to be able to formulate the correct demands as well as exploit the results.

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Another issue within the framework of this balance between internal and external development resources regards the choice of individual suppliers in order to structure the company's supplier network. It is, of course, impossible for a company to be involved in development cooperation with all its suppliers, as this would be too resource demanding. The company has to select and prioritise Then, it must not only make sure that the suppliers fit their own resources, but also that the parties match each other. An important task is therefore to identify the combination possibilities between the company and its supplier as well as combinations within the supplier group. The third group of identified issues has to do with the role of the buying centre in this interplay between internal and external resources. Hereby one must differentiate between the buying function and the buying department. The function could of course be fulfilled by other departments, ie. Research and Development or the Production department. Thus, one issue is what role the buying department has, ie. to what extent it fulfils the total buying function. Another matter is its actual and potential role in development. A third one has to do with the internationalization of developmental interaction processes and its influence on the role and the demands of the buying centre. The examples and illustrations that will follow have been grouped according to the three main groups of issues that have been identified above. First there are some examples of the internal issues. These have been 409

grouped in a way that company strategies according to development, come first. Thereafter it follows a sub-section of organization of single development relations and projects. In a second section there are examples of the external issues. These have been grouped in such a way that the balance between external and internal development resources comes first. Thereafter it follows illustrations on the choice and handling of single development relations as well as a subsection on international issues. The third group of issues, the role of the purchasing function respectively the buying department, is present throughout the discussion. Internal issues-strategy and organisation One example, Ericcson Information Systems, illustrates strategical thinking and the related organization structure. The main focus is on the purchasing concept in the company Ericsson Information Systems(EIS): Ericsson Information Systems is a part of the business area information systems within the Ericsson group.Other business areas are among others Public Telecommunication, Cabel, Radio Communication, Defence System, Net Building. The area information systems supplies products for handling of speech, data, text and picture which may be part of integrated

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systems. These include telephone exchanges, mini computers, terminal systems for banks and offices. EIS has developed a purchasing concept which says that the buying centre should be involved from the idea stage, ie. when the new products are about to be specified. The company stresses that its future is very much dependent on the ability of its buying centre to establish suitable supplier structures. The concept means that the buying centre does not only work with calculations for buy v. produce but for buy v. develop. A decision of buy - produce starts from an existing construction. A decision of buy-develop starts from a solution that is demanded by the customer. Then the question is how to develop products from that point onward. The technical development within the EIS product area is very rapid. A central aim for the company is therefore to be able to shorten the development time as much as possible. The basic idea of the company is to use all solutions that already are available on the market, or to take advantage of those suppliers that have the competence to develop what EIS needs. It is important that every development step could be taken as quickly as possible. EIS has limited resources of its own. Therefore it has to work with external units in the development. The aim of the company is to learn how to handle this in a proper way.

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Comments to the EIS case: This case illustrates the background of the increased interest in using suppliers from a development point of view. The technical development within many industries is rapid and forced by highly specialized companies. The production-technical, but also the product-technical, becomes in many cases more complex. This can be seen by the accelerating use of combined technologies (mechanically electronic/ chemical etc.). In order to be up to date within all the areas that are of relevance for a single company it would successively have to direct more and more of its resources to follow up the technical development. On the other hand, by cooperation in various ways with suppliers the company will improve its possibilities of specializing in its own field. The resources do not need to be spread to all areas but can be concentrated on certain key areas. To establish development relations is in other words a prerequisite for increased specialization in development work. Another general problem mentioned in several interviews is the need of keeping an eye on technologies, which are not at present important for the company but where the development sooner or later might make them interesting. Personnel within the buying centre who naturally have broad contact areas may thereby have important watching functions. A prerequisite is that the buying personnel are technically qualified enough to judge different technical solutions.

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This purchasing concept is new to EIS, but the company has, one year after its implementation, realized a large project where both development and production has been bought. The company did not have adequate production skills, but needed the product to achieve a better product program. In this way the company can expand without binding its own resources. When the study was made three buying-teams were visiting suppliers in different parts of the world. They worked with buying-developing issues, ie. the needs of the market are known and EIS had developed product concepts. The problem was to find thos external units which could develop, produce and deliver. These teams were all composed of both buyers and technicians. This strategical new-thinking which has radically changed the role of buying within EIS has been rapidly implemented. Half a year before the study was done many of the people in the purchasing staff felt uncertain as to how to act in accordance with the new concept but they have adjusted readily to it. The new way of working means a strong decentralization of the strategical development function. For the buying department it means broader responsibility and higher hierarchical status. This is probably one prerequisite in order for the purchasing department to execute the desired function.

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Internal issues - organisation of single development relations and projects: Two cases are given to illustrate how single development relations and/or development projects may be organized. The first case, Saab-Scania, deals with the contact pattern within a customer-supplier relation where development is an important part. The second case, Bahco Tools, deals with the organizing of development projects. Saab-Scania: The Scania division within Saab Scania designs, manufactures and markets lorries, buses and separate machines. Scania is also responsible for the development and manufacture of motors and gearboxes for Saab cars, lorries and aircraft. It has a number of sister companies. Due to continuously changing conditions for the use of lorries there always arises needs for developing different parts of the product such as the break-system with its components. The demand for improvement comes to the buying department primarily from the engineering department. Behind these demands there often are regulations concerning the use of the product and its performance. There may also be demands from the service department,. which may have arisen from complaints by users or desires from service workshops.

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The purchasing department handles the contacts with the supplier. The responsible buyer passes on demands from various units within the company to the supplier. In this specific case the suppliers representative visits the company at least once each month. Before each visit the buyer contacts the engineering department and other concerned units in order to check if they want to raise some issues during the visit, and if so, want to participate personally. This review together with desires from the buying department and the supplier is the basis for the decisions as to which issues are to be dealt with. A typical visit covers about ten points concerning the quality and shape of the various components. To a large extent this is a matter of demands from Scania that the supplier should modify, develop and improve its components in different ways. To some extent it is desired on the part of the supplier that Scania accept the standard-components that the supplier makes for some of its other customers. The dominant part of the visit is devoted to those kinds of quality - and development issues. Only about ten per cent of the time is dedicated to traditional buying matters as price negotiations and delivery questions. Scania also makes tests - in the laboratory and in the field - of various components. Sometimes the company proposes new shapes and materials to the supplier. In some cases the buyer himself has raised these proposals. In addition to this way of encouraging the supplier to improve its components, the buyer regards as one of his most important tasks to induce the

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engineering department to test the standard components of the supplier. This in-door directed influence is regarded as part of the development work. In this company it is an explicit policy that the buying department is responsible for all supplier contacts. The buyer passes on demands and experiences between the company and the supplier. There also exist direct contacts , for example, between design engineers in the two companies, but the coordination of the contacts are handled by the buyers. In 310 product development processes the buyer regards himself mainly as an intermediary between the companies and to some extent as an administrator of contacts concerning product development. Comments on the Saab-Scania case: This is an example of a relation with an almost continued process of development. The development process has no beginning and no ending. It is composed of a series of minor adjustments and improvements over a long period of time. Every single adjustment is probably of minor importance but in the long run they could result in substantial changes. The principal motive for the cooperation seems from Saab-Scania1 s point of view to be able to manage the suppliers development work and to get desired products. It is the supplier who carries on with the main part of the development work, but the buyer supports it and tries to govern the process. A number of employees and departments within both companies take active part 416

in the relation. The buyers task in this relation is primarily to be an intermediate link between the company and the supplier. The buyers task may vary due to for example the organization of the supplier, the speed of technical development etc. The task may in some cases be more of coordination than intermediation , and they may require more or less active participation in the development work. Generally, this kind of relation is very resource-demanding, not least because of the great number of employees that have to be involved. Therefore it is of utmost importance that the relations are evaluated regularly in order to relate the handling costs to the exchange value of the relations. Bahco Tools Bahco Tools is a company within the Bahco Group Hand Tools Division. Other divisions are among others Automatization and Mechanisation,Air treatment.The company produces various types of hand tools,ie. screw drivers and tools. At Bahco Tools the buying department takes part in every important development project working with new products. Beginning 3-4 years ago, the buying department also began to take part in every decision concerning investments. This may be in new products or new machinery in order to insure that for example suitable raw materials will be available. An important event which has taken place at Bahco Tools is the development of a new screwdriver. It differs from the previous models by being lighter, more 417

functional and having more long-lasting qualities. The company has in this case used new materials in both helve and spear. This has contributed to an ergonomically better halve which makes it possible to turn harder. The company developed this product in cooperation with various suppliers and consultants (ergonomic). As it was considered important to develop a new technique to manufacture the spear employees from the production department were appointed to lead the project, otherwise a buyer would have been chosen. In this process the buying department had an important role in finding the cheapest way to produce the product. They worked together with three suppliers. The most expensive tool for the plastic manufacturer proved to be the cheapest to produce. The purchasing department cooperated in the project group with construction, marketing, the head of the production department and with the export people. The purchasing department also had an important role as contact link concerning the development of the tool. If the tool would have been developed before the new organization was implemented, none of the buyers would have taken part. The group would exclusively have been comprised of the engineering people. Comments on the Bahco Tools case: In spite of this active role on behalf of the purchasing department, there are claims for improvements from the buyers point of view. The head of the purchasing department supports the view that the buying

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department should be used more actively as a service unit. Information to the company often comes to the buying department. It is therefore important that the buyers are able to select and pass it on internally. Furthermore, the internal information flow ought to be followed up. The buying department should be responsible for covering the useage and spreading of the in-coming information. In connection with each development relationship there are a number of phases where the buyng department has various tasks. First, there is an initiation phase. This contains both a creative and organizing aspect. Ideas for projects may come back both from internal and external sources. In the first case the idea may come from some technical department. The buying department may then be of help by finding some suitable partner. In the other phases the buying department has a clearer function thanks to its normally large contact pattern to the supplier markets. It cannot, however, pass on every idea but must have the competency to select and prioritise. When a project has started it must continually be watched and followed up. "The world is full of non completed projects", as one of the buyers said. They are often expensive from a manpower point of view and are not always effectively organized. The buying department may contribute in different ways. It demands however skills in a project leading. Another related task is coordination of projects and relations. Information must be transferred between the projects

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and the projects sometimes may have to be coordinated from a time point of view. The projects also need to be completed. If a certain project does not work out it has to be abandoned at once in order to save unnecessary costs. If the result is positive it must on the other hand be rapidly transferred into concrete action. Also commercial matters, such as agreements and patents, may demand attention. In each of the three phases - initiation, coordination/ watching and finishing - the buying department can actively participate, but only if it has the right competency! External issues - organizing structures In this part we turn from the internal issues in organizing the resources of the company and single relations and projects to the external issues. One example may illustrate how the balance between internal and external development may be attained. The case Saab-Scania, deals with internal versus external development in terms of how the company tries to influence the development of the suppliers and create a desired external development structure. Saab-Scania: The buying centre and the suppliers have an important role in Saab-Scania's product-development. The company holds the opinion that it is important that the 420

suppliers develop and modify their products according to the company's needs. Saab-Scania and more precisely the Scania-division within the company has a number of suppliers that they consider strategic from this point of view. It tries to steer these in the 'right' direction and carefully choose its suppliers according to propensities for development. The number of important component suppliers who deliver the approximately 500 articles comprise Scania's dominating costs. The circa 250 biggest suppliers corresponds to 50% of the total amount that is bought and most of the strategic suppliers are within this group. In one buying department which handles about 90 of the 250 suppliers the purchasers estimate that the company has ongoing joint development projects with 50. Development contacts are resource-demanding. Therefore it is important to choose the right partners. For example, one could ask why Scania, if there is a good forge in Sweden, nevertheless chooses to buy in Germany. One reason for this is that the German suppliers are technically leading and for this reason many other car and lorry producers buy from them. Different suppliers have thus different values. Comments to the Saab-Scania case: This case raises at least three important issues. Firstly, the buying department has a role to convince the suppliers to carry on their technical development in a way which is in the company's interest. This demands 421

knowledge both of the potential of the supplier and its willingness to make adaptations. Here there is a problem in balancing the demands for adaptations with the competence of the supplier. It may, for example, be easier to get a less competent supplier to adapt. But on the other hand it may also be of great value to buy from the leading suppliers, even though these may not be interested at all in making adaptations. In sum this means that the company must try to develop a suitable mix (structure) of various kinds of suppliers. This structure is important to analyse and take care of as the corresponding structure of customers. Secondly, the above identified need to have contacts with technically leading companies indicates how important it is to the company to in some way be present at those geographical points that can be considered as nodes in the total development network. One typical example is Silicon Valley, but similar areas also exist for other technical fields. If the company wants to be leading within its field it has in some way to be present at these nodes in order to maintain competence. One important way is to buy from suppliers situated at these places. Thirdly, the case points indirectly to the task of buying to coordinate different kinds of expertise internally, for example to coordinate design, materials and production skills with the corresponding skills of the suppliers. This balance between internal and external may also take other expressions than direct developmental interaction. Information of technical development is 422

important. In one of our cases it is shown how Sandvik, in its production of saws has started to use some external steel suppliers as a complement to the internal supply from its own steel work. One important reason for this is to broaden and improve possibilities to thereby get information of technical development. There are also cases where a company starts a development project together with one or more suppliers but during the process realizes that future work should be done internally in spite of well working cooperation. The reasons for this may be diverse. The project may turn out to be delicate in some way, for example it may touch knowledge areas that the company wants to keep to itself. Thus there are reasons to continually watch the balance as to what should be done internally or in cooperation with external units. External-organisation of single development relations and projects One example, Vattenfall, may illustrate a single buyer-seller relationship which to a very high degree may be regarded as a development relation. Vattenfall: Vattenfall has a number of supplier relationships which may be regarded as development relations. One such connection is with ASEA which is Vattenfall's biggest supplier. ASEA and Vattenfall have continually had

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satisfactory cooperation in development. One could use the term know-how symbiosis. This relationship has a very long history. One project within this relation goes back to the 1930's. At that time these two parties jointly developed the HVDE-system (High Voltage Direct Current), for transferring electricity. The roles were as follows: Vattenfall had the facilities, electrical energy and personnel at the power stations. ASEA designed, manufactured and delivered the equipment. It was a development project over a long period of time with many modifications and new constructions which were jointly development and tested. A characteristic issue of this relationship is that the technology within this field is in a constant state of development. Therefore, the general ability of the two companies is important. Vattenfall does not specify products when there are important development moments. It buys concepts. The role of buying is in such cases the writing of agreements, and the buying of certain machines. When, for example, a proto-type is to be upscaled, the buying department negotiates the contract. At this point the buying department must have foreseen the possibilities for faults. This demands significant technical competence, a skill which the buying centre has to have or make available.

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Comments on the Vattenfall case: Among the companies in this study there are many which consciously work with certain suppliers as development resources. It doesn't always give such revolutionary results as in the above example, but the phenomenon is usual. The ongoing specialization within the industry also indicates that external development cooperation becomes more and more common. There are however a number of things that can cause problems to arise. One is the fact that it may be necessary for the company to expose much of its technical core knowledge. Another issue is how to split the plus and minus posts that the cooperation gives rise to. Among the companies included in this study these aspects usually have not been problematic. Fundamentally, there is trust between the parties. Many companies stress the advantages of cooperation with geographically close suppliers. The contacts become easier to make, the parties learn to understand each other, and also, it is easier to build up trust and to involve more people. One way of solving problems is to bring people into closer contact. The above example shows a large and important supplier relation. But it could also illustrate a very long and continuous supplier relation. Such examples are also present in the Scania case. In the total material there are many examples of these more or less continual relations where development takes place in many and 425

small steps. Sometimes these steps encompass various aspects (such as exchange of information, test etc.). In this way product and production processes are improved and/or simplified in a number of ways. From a competitive point of view these small but numerous steps may prove to be, for the smaller company, more important than the big speculative leaps. However, work conducted in the small steps is much less exciting, much more an everyday routine, which easily focuses interest on the big steps. No doubt, the buying function has a very important role to play in motivation, forcing, organizing, governing and controlling the work in all these relationships. While much is being done, there should be a convenient internal development project within most companies. External issues - the increasing degree of internationali zation There are several ways that the increased internationalization influences the purchasing function. Some are related to a company's degree of internationalization and some to the changing supplier structure due to international competition. When the company achieves a global sales and production structure, purchasing is influenced. IBM is one example. This company has a corporate policy that its purchase should have the same structure as its sales, in terms of geographical origin. This has caused the Swedish production unit, for example, to acquire

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Danish purchases in order to increase the purchases from Denmark. It can also be important for an international company to use locally produced components in order to create a good after sales service for their customers. Local or regional standards etc. can in the same way influence the use of suppliers. All the above identified factors are perceived as restrictions by the purchasers but the internationalization also gives some positive possibilities for purchasing. This has to do with a changing supplier structure. The need for purchasers to have an international approach to their work has been stressed in all interviews and already illustrated by the EIS and Scania cases. The purchasers must learn how to use highly specialized foreign producers in order to take advantage of the technical development in different fields. Another effect of international competition is that local production and competence at least within certain technical fields disappear as they are driven out of business by foreign competitors. For this reason, purchasers may at times be forced to be international in order to find products. The great advantage with an international approach is, however, to find better suppliers - more advanced or cheaper. From a development point of view the first type is of more interest. The technical developments

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within different fields are carried out by companies and research units throughout the world. Thus, there are a lot of possibilities for an international company to find different kinds of cooperation partners. By combining technologies developed in different parts of the world, the company can gain advantages in relation to more local competitors. A problem with international interaction development processes is the increased handling costs. Earlier we have pointed to the investment character of development relationshps due to the mutual learning costs. These costs are increased when the distance between the two partners is increased. The process normally becomes more expensive (higher communication costs etc.) while at the same time the need of an extension of the process increases. Therefore, from a purchasing point of view there is a need for developing both the personnel and the organizaiton in how to handle such relationships. Concluding Comments These concluding comments begin with a discussion of the need of the development role of purchasing for the competitive power of the company, thereafter we turn to a discussion about the need for and possibilities for improvements in these respects. The section ends with a discussion of marketing implications.

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The importance of the role There are several reasons for a buying company to get involved in cooperative development together with suppliers. Compared to carrying on development work exclusively internally, the interaction means that the company may take advantage of external development resources. At the same time, however, the company loses some of its control of the development process. From these points of view the suitable degree of interaction is a matter of judging the value of the increase in relation to the control possibilities. A more long term reason for involvement may be that a certain supplier has an important competence that the buying company wants to dispose, not only by product-development but also to learn from the supplier and to get early information about new products and techniques. In a similar way the buying company may have long term reasons to develop the skills of the supplier. A very important reason to cooperate with suppliers in development issues is that the cooperation means that the development of the company gets coordinated with the development of the suppliers. In this way the company secures that its own development is in line with the development at least of some part of its environment. Of course, there is also a danger here, because the development of some other part of the environment may be competing. This means that the

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buying department needs to overview the development of the total environment. The importance of various reasons for development interaction in specific cases is probably related to a number of factors, for example the properties of the product (among others its complexity) the buying respectively selling company's properties (among others their resource strength regarding personnel and equipment) and properties of the environment. The properties of the environment can be analysed in network terms and be expressed in terms such as , among others, the stability or changeability of the technical area and/or its degree of concentration in some companies. Possibilities for and needs for buying development The examples show that many companies consciously work with external units as development resources and this seems to mean strategically important investments. It is also evident that the buying department has or may have a very important role in these fields. The importance of this depends among other things, on the strategy of the company and on how the buying department enters into development projects and relations. It is hereby possible to differentiate between responsibility for large decisions to buy development or to do the development internally, to less central aspects as for example, work as intermediate between internal expertise and the suppliers expertise, and questions as to who will be coordinating these employees.

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The buying department contributes primarily with market know-how, as for example, choice of supplier. Another important situation is the more continuous development processes with no beginning and no end which take place within many relationships on industrial markets. To make sure that the activities within an established relationship also corresponds to the long run commercial aims it is an important task as well as to carry on the development work within each relation. Buyers and buying departments thus have an important function. It is however doubtful to what extent they systematically fulfil this function today. In an education project three groups of buyers have been asked how important they consider this role and to what extent they think it is performed today. The answers were unanimous. Everybody considered the role very important and also in large agreed that there were very important deficiencies in its performance at present. Lack of competence and historical drawbacks (low status) were mentioned as important explanations to this. There are reasons to believe that the development role of the buying department successively will be even more important. In combination with the shortcomings indicated above, this points to a great internal need for development within the purchasing function. First of all there is a need for consciousness and secondly initiatives aimed at competence, motivation and organization development.

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Marketing Implications We are convinced that the given examples are not just exceptions. In the total material related to this study more than forty companies have been contacted and in a majority of these important changes in the attention to the possibilities to use the suppliers in the buying company's technical development have taken place. This should naturally have implications for the selling companies. One of the first issues that can be raised regards the need for a strategic consciousness on the part of the selling companies in regard to their customers' needs and willingness to cooperate and furthermore about their own abilities to carry out such projects. In order to have such an ability the company must dispose of resources of interest to its customers. It must also be able to handle such relationships from an organizational and individual point of view. The company can, of course, decide not to take part in such relationships due to lack of resources or some other reason. Still, it has to be conscious and prepared to meet and handle customer's inquiries in such matters.

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Figure 2. Marketing implications of the changing role of the buying function. The advantages of taking part in these cooperative relationships for the selling company can be several. One advantage can be that it obtains a more secure position as a supplier and thereby better control of its sales. The customers have, similar to th selling company, made investments in the relationships and they will not, of course, lose these investments by breaking the relationships without due course. Another advantage can be that a greater development potential becomes available as the development resources are combined with the cooperating companies giving a much larger total resources base. A third advantage can be that the cooperation gives security from a developmental point of view as the company's

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development is in line with the development of its customers. A second issue has to do with the design of the organization. In general the organization must be designed to facilitate the handling of individual customer relationships, while at the same time it facilitates the possibilities of connecting different relationships to each other. Task or project groups, including both marketers and technicians of different kinds can be formed in relation to individual customers, but these groups must at the same time be systematically related to each other in order to take advantage of all combination possibilities but also to 'map' the network. A third issue concerns the way of handling close relationships. This is closely related to the above issue but of such importance that we want to point it out separately. A cooperation strategy calls for finding ways of fulfilling ambitions at the lowest possible transaction costs. This calls for creativity, especially in an international context. Thus it may not only require changes in the organizational design but also for example systematic training of sales personnel, new ways of working with the distribution channels, and so on. This section on marketing implications may thus be summarized as indicated in Fig. 2. The changing role of buying makes it necessary from a marketing point of view to realize the company's

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overall possibilities in order to obtain the necessary strategic consciousness.If it wants to try to take advantage of the opp ortunities in cooperation it must then find ways to reduce transaction costs. This in turn may demand organisational adaptations and also different ways of working within relationships. References Bergman, B., Johanson, J. (1978) Inkop och produttutveckling (Buying and Product Development) in Hakansson, H. and Melin, L. (eds.) Inkop, Norstedrs, Lund. Blois, Κ., (1975) Supply Contracts in the Galbraithian Planning System. The Journal of Industrial Economics, Vol XXIV, No.1.pp.29-39. Cunningham, K. (1982) An Interaction Approach to Purchasing Strategy. In Hakansson, H. (ed.) International Marketing and Purchasing of Industrial Goods: An Interaction Approach , John Wiley, Chichester. Eriksson, D. (1976) Vertical Marketing Systems. Design and Development, SIMS, Gotenborg. Farmer, D. (1978) Developing Purchasing Strategies. Journal of Purchasing and Materials Management, Vol. 14, No. 3, (Fall) pp. 6-12. Guillet de Monthoux, P. (1975) Organizational Mating and Industrial Marketing Conservation -Some Reasons

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why Industrial Marketing Managers Resist Marketing Theory. Industrial Marketing Management, Vol.4, No. 1, pp.25-36. Hakansson, H. (ed.) (1982) International Marketing and Purchasing of Industrial Goods: An Interaction Approach, John Wiley, Chichester. Hakansson, H., Wootz, B. (1975) Foretags inkopsbeteende (Buying Behavior of the Firm), in Studentlitteratur Lund. Melin, L. (1977) Strategisk inkopsverksamhet organisation och interaktion (Strategic Purchasing Actions - Organisation and Interaction) Ph. Dissertation, University of Linkoping.

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Industrial Product Class and Market Behaviour: a Study in the French Packaging Market Stanley J Paliwoda and Patricia Thomson University of Manchester Institute of Science and Technology United Kingdom

Introduction This paper is part of a larger team project study to investigate buyer-seller relationships in the flexibles packaging and carton packaging industries in Britain, West Germany and France. A few papers have already been published and research is currently underway with regard to foreign supplier representation in the British market for flexibles packaging, and to the assessment of buying behaviour with regard to the importation of folding cartons into the British market. The support of the Economic and Social Research Council is gratefully ,acknowledged.

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The French carton industry In France, packaging is the 12th most important industry with folding cartons representing a little over 6.5% of the total industry turnover. In 1980 the value of folding cartons was approximately 2,091 m FF. As Pickering (1984) has pointed out: "Market structure...may be of little significance in its own right but it is often held to be a useful predictor of market conduct and performance". The French carton market is highly fragmented, served by some 550 small and medium sized companies. Whilst it must be acknowledged that the economic crises of the 1970's led to many companies going out of business, there is still substantial over-capacity in the carton industry and competition is intense. With margins being low over the past decade, many companies have been unwilling to invest and there is thus great inequality in the technological sophistication levels of the companies. It is to be noted that whilst printing methods remain fairly stable, there is much innovation in machinery and as the machines modernise there are greater demands on the mechanical qualities of the cartons to obtain higher performance and greater productivity. Essentially in our study we looked at three types of carton by value: the high value-added carton such as that used in the perfumes and cosmetics industry; the systems carton, and specifically the multipack, which is

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supplied often with machinery and used in both the drinks and dairy produce industries; and more standardized, basic cartons such as those used in the frozen foods and detergent industries. Such cartons are more of a 'commodity' than either of the other two groups. The French carton industry may be divided into three broad sectors (see Diagram 1): 50% of carton producing companies serve the food industries, 40% serve the pharmaceutical industry, and only 10% serve diverse industries including the perfumes and cosmetics industry. As one of our interviewees stated: "historically, economically and for reasons of technical performance and machinery performance, French printers are more or less specialised". There is, thus, a tendency for French printers to not simply become industry specific, but to be industry sector specific. As another interviewee explained, "with extremely printing trades unions, the printing companies who survive are those who specialise for example in perfumery which is extremely technically sophisticated". Some printing companies are also integrating horizontally in buying machinery manufacturers or developing their own business in machinery production.

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The sectors studied (see Diagram 2 and 3) 1) The 'commodity' carton market: with great overcapacity in this sector, there is a buyer's market. Margins are very low and in general manufacturers are not very innovative. In the folding carton industry as a whole, there are only 12 large manufacturers (ie. producing over 10,000 tons per annum) and the majority of these serve the 'commodity' carton market. These suppliers tend to be highly mechanised with extremely rapid production machinery. It may be seen that the barriers to entry to this sector of the carton industry include the low profitability and sophisticated mechanical technology. Consequently the market tends to be national since transportation would add to costs and short delivery lead times are common, thus speed of production and of delivery are of great importance. The enormous investment required to acquire the present level of machine technology is also a barrier to many new companies. There has been intense competition from flexibles, rigid plastics and blister packs as well as B and E-flute card (a fine corrugated card with all the characteristics of flat card but with increased strength and rigidity). In the two sectors studied in this category, cartons for frozen foods have been threatened by the lkg plastic bag and in detergents there is a threat from liquid detergents. However, such threats have had little effect on carton consumption in these sectors.

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2) The 'systems' carton market: in systems multipacks, the market is oligopolistic. Whilst there are a few minor multipack systems suppliers and non-systems suppliers, Mead and 4P hold an estimated 90% of the market. Although there is severe competition between 4P and Mead, prices of both the machinery and cartons tend to be high and margins are large. One would expect that these factors make the market attractive to newcomers, but the systems machinery is so fast, sophisticated and expensive that very substantial investment would be required. Moreover, systems suppliers also service the machinery they supply. 4P and Mead are also firmly implanted in the market and their customers are often tied to them under 5 year contracts. Certain of our interviewees claimed the systems multipack market was a 'buyers market': yet many of them were developing their own system to escape the high prices and constraints imposed in being tied to suppliers.

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3) High value-added carton market: There are only approximately 10 French printers of high quality cartons. These companies also tend to be the best performing companies in the folding carton industry.The high value-added sector tends to be the most innovative in terms of printing methods and the companies within it have more sophisticated quality control departments. Margins are higher in this sector, in part to cover the costs of R & D. New developments tend to trickle down from this sector to others. It is also noticeable that whilst there are only 10 printers of any size, this market is also served by many very small artisan printers who are extremely specialised and by

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certain large European companies such as Edelmann, Cartondruck and Rentsche. There are very few threats to this market since there is low substitutability. Plastics do not have the high quality image for the products by which this sector is served and this situation appears unlikely to change. The barriers to entry include the sophistication of the printing techniques, and, as will be shown later, the close relationships which tend to form between buyers and sellers. Research design:sampling of end-use sectors(see Diagram 4) First let us say that Barnes and McTavish (1983) established 3 levels of buyer sophistication in which, at the lowest level the buyer acts as 'an order clerk' and has no involvement in performance assessment. On the second level the buyer enjoys greater discretion, is involved in the drawing up of specifications, initiates some supplier contact, is concerned with total cost and not just price, and participates in feed-back analysis. At the most sophisticated level the buyer considers the strategic aspects of buying, participates fully in the initiation of purchase, initiates two-way communications with suppliers and is fully involved in wide ranging assessment activity. Diagram 4

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In conducting our research into the French folding carton industry, five end-use sectors were selected: - the perfume industry in the high value-added sector; - the dairy produce and the drinks industries in the systems sector; and - the frozen foods and the detergents industries in the 'commodity carton' sector. In choosing these sectors an attempt was made to select a gradation of level of value added, the industries above being in declining order of value-added. It was further hypothesised that the level of buyer sophistication, as developed by Barnes and McTavish (1983) would correspond to the three levels of value-added. In the perfume industry it is obvious that packaging plays a vitally important role as the silent salesman. Presentation is all-important to project the quality image of the product. Thus the cartons tend to be highly sophisticated, requiring complicated and expensive printing techniques. The use of cartons by this industry is traditional, and , as previously explained, this situation is unlikely to change. Thus, the market is extremely stable with an average growth of 6% p.a. between 1980 and 1985. However, the volume of cartons is fairly small at approximately 9,000 tons per annum in 1980. With the emphasis on presentation and the high level of exportation, carton rigidity is also very important. Consequently, one would expect that the carton quality would be of greatest importance to the purchasers in this industry and that price would play a lesser role. 446

The second sector that of dairy produce was selected since carton multipacks are used to portray a higher quality image for various desserts than can be achieved with packaging in grouped moulded plastic pots. Again, this market is fairly stable and is dominated by five major companies who hold jointly an 83% market share. The multipack has been introduced in this sector comparatively recently. In this sector one would expect time to be an important factor since several functions must be coordinated in a 'systems' production line. Furthermore, in a highly competitive market there is a promotional element which again means rapid and punctual delivery is vital. Servicing of the machinery will naturally also be very important. Price was expected to play a lesser role again.

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The drinks industry is also a fairly stable market. Whilst Mead dominates the beers market, 4P dominates the soft drinks market. Both are at present developing a multipack for wines. The market for multipack in drinks is long established but is now threatened by B and E flute cartons plus shrink wrap since there is a tendency for customers to buy two dozen bottles. As with the dairy sector, time and service factors were expected to be extremely important. However, price was expected to be more important to purchasers in this sector than to those in the dairy sector. A fairly new and rapidly expanding sector in France is that of frozen foods. This sector was seen as a favourable market sector by INSEE (1980) with an estimated growth rate of over 7% per annum between 1980 and 1985. Thus,. the volume was expected to rise from some 8,000 tons per annum in 1980 to around 11,000 tons in 1985. There is however some substitution by plastic packaging for larger quantities. Until recently, there had been few frozen foods manufacturers serving the French market, but with the number increasing there is greater price competition and the cost of packaging has subsequently been reduced. With rapid production lines, the emphasis was expected to be on the mechanical qualities of the carton, the most important factor being 'lowest cost' purchasing. The detergents market is extremely stable and, again dominated by a few major MNC's. The market is of average prospects with a growth of 2% per annum

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between 1980 and 1985. There is a substantial threat of substitution by B and E-flute, drums and also the threat of liquid detergents. However, the consensus is that little will change at least within the next five years. Since the detergents market is extremely competitive, the price of cartons was expected to be all important. Again, the mechanical qualities of the carton were expected to be extremely important due to the high productivity production line orientation of the companies. The Fieldwork Interviews In selecting the sample it was decided that the companies should be based in the Paris basin. However, on researching the drinks industry it was discovered that the majority of breweries were based in or around Lille. Once the locations were fixed upon, a stratified sample was drawn using number of employees, turnover and capital as an indication of company size. A minimum of three companies we e then drawn from each sector, at least one of which was to be a small, medium and large company. Further, an attempt was made to obtain a spread of multinational, internationally and nationally oriented companies. The problems anticipated including obtaining access to certain sectors, notably the highly secretive perfume sector. Originally, the intention had been to interview several pharmaceutical companies but this industry was found to be firmly closed. Surprisingly, of all sectors, perfumery was the most receptive. A further problem

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lay in the fact that, due to the expense of multipacks and their systems, small companies in both the drinks and dairy sectors tended not to use them. In the frozen food industry there were no medium sized manufacturers in the Paris region and similarly with detergent manufacturers, although it must be acknowledged that the detergents industry is dominated by MNC's. The fieldwork was conducted in France with the use of a questionnaire in French which was personally administered. Whilst the questionnaire served as a control, much supplementary information was offered by the interviewees in the course of the interviews which lasted for between one and four hours. Identifying bonds within a buyer-seller relationship The interaction approach to the study of buyer seller relationships emphasises 'the importance of the establishment and maintenance of relationships between suppliers and customers'. "Relationship management" between buyers and sellers is, according to Levitt (1983) much like that between husbands and wives where the maintenance of the relationship is important perhaps due to the stringent technical specifications or limited sources of supply then the purchase decision is not a decision to buy an itern or in Levitt's analogy, to have an affair, but a decision to enter a bonded relationship, in other words to get married.

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Kotler (1973) in an article provocatively entitled "Buying is Marketing too!" stated that companies have most to gain when they view their relation as one of mutual benefit rather than conflicting interest. Or as Henderson (1975) phrased it: "The common long-range interests between manufacturer and supplier are becoming so great that they require a degree of coordination and intimacy that is at variance with the traditional arms-length concept of purchasing". These relationships are often complex, dynamic and long lasting phenomena. From our research it was evident that the majority of companies had buyer-seller relationships of over ten years and just under half the companies interviewed had suppliers with whom they had worked for over 20 years. The number of such relationships increases if one examines the seller-purchaser interface since many respondents had changed companies but took their suppliers with them. It is natural that in such long term relationships certain 'bonds' should be established. Particularly with goods such as packaging, the customer is concerned not only with completing transactions but also with maintaining the process. Purchasing is the mirror-image of marketing, as emphasised by Farmer (1978). "The key criteria in the development of effective purchasing strategies are the same as those which apply to marketing strategies; they should focus on the area of greatest potential in terms of contribution; exploit the competitive advantage available to the buying company

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as a consequence of its particular mix of resources; emphasise creative management in use of those resources vis a vis competition (buyers or sellers); stress consistency and feasibility and specify who, what, when and how through an effective plan". Researchers who have separately studied the components of such 'bond relationships' include both Ford (1982) and Hammarkvist (1983). Ford (1980) sees buyer/seller relationships evolving through five stages: 1. Pre-relationship stage where we have the evaluation of the new potential supplier. 2. The early stage: negotiation of sample delivery. 3. The development stage: where a contract is signed or there is delivery build up. 4. The long term stage: after several major purchases or large-scale deliveries 5. The final stage in long established stable markets. Whilst both these authors studied the bilateral nature of buyer-seller relationships, Ford stressed the development of the relationships with respect to the five variables of experience, uncertainty, distance, commitment and adaptation. The variable of perceived distance has several aspects including social, cultural, technological, time and language dimensions. Within this he examined the characteristics of the relations and suggested five different types of bond binding

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companies together, technological bonds, time based bonds, knowledgebased bonds, social bonds and financial and legal bonds. These bonds perform essential functions, promoting closeness between the buyer and seller, reducing perceived risk and providing a communications system. It may be seen that there are similarities in Ford's and Hammarkvist's separate approaches and there is a certain amount of commonality in the variables identified. In our research, an attempt was made to identify these bonds according to the hypothesis that the different levels of buyer sophistication and value-added would determine the respective importance of each of these bonds. However, it is acknowledged that such bonds are not easily testable and whilst for a certain number of criteria component parts of these bonds can be identified and coded for the purposes of computer analysis, much of it remains purely speculative. Individual criteria are also inevitably industry specific and each buyer seller relationship will have varying bond strengths. However, it was hoped that a sufficiently broad pattern might be established. In the interviews it also became apparent that interviewees found it difficult to speak of one particular type of network exclusive of all others, and indeed the bonds are frequently interdependent. A technological bond, such as collaboration in new product development may occur as a result of trust developed through social contact or as a result of knowledge based 453

bonds formed through a long term relationship in which the buyer and seller have learnt of each others respective capacities. Whilst the bonds we refer to here are drawn principally from Harnrnarkvist (1983), they have in some cases been redefined or expanded. Technical bonds included the importance of carton machinability, collaboration with the supplier on new product development and R & D, the availability of technical assistance from the supplier, the importance of salesmen's technical knowledge, product adaptations, after sales technical advice and assistance, the way purchasers allocated business for new product developments, and the exchange of product and machinery specific technical information. Time-based bonds concentrated on delivery leadtimes and punctuality as well as the importance of stock-holding on behalf of the customer. Knowledge-based bonds are harder to identify and measure but include the length of supplier buyer relationships, understanding of how each others company operates, understanding of the purchasers end-use market(s), adaptations to each others administrative methods, knowledge of the suppliers abilities and the suppliers ability to analyse the purchasing company's needs. Social bonds are far wider-ranging, and many buyers dislike admitting that these may have any importance. Thus they are hesitant in discussing them. However, as

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an indication of their importance we used access to, and contact with, various people in the supplier company, the type of information exchanged (since information exchange is based on trust as Zand (1981) explained); the importance of social meetings; personal friendships and commercial advice. Finally, whilst there is minimal backward integration into the packaging industry on behalf of customers in France, in examining financial and legal bonds we looked at the type of commercial and contractual links between customers and suppliers, the lengths of these contracts and their force. We also looked at the importance of payment and credit facilities offered. The Matrices Explained The four matrices derive from a structured interview schedule comprising of eighty-eight questions in all, ranging from the simplistic such as industry sector to the more complex questions on purchasing policy on supplier selection. It is important therefore to note that the numbers displayed in the cells are aggregates of responses to several questions by several people. Respondent selection was by 'cold call' in most cases. Where we had already a contact we would send a letter in advance of our travel to France in order to arrange an interview time before our date of departure. For the remainder, we phoned direct from our Manchester base, and for a few, we had to leave it until we actually arrived in France. Overall, a very warm welcome was received from purchasing managers in all sectors. 455

Purchasing as a function is not well developed in France and so there was a willingness to meet us but also a curiosity on their part as to why a British university team should interest themselves in the workings of their particular industry sector. In the matrices we use a rating of 1 5 with 1 being the most important. It is important to remember that these are aggregates, often of several respondents to a number of questions under the headings of each of these bonds. 'Technical' comprised nine questions; 'Knowledge' comprised ten; 'Time' three; 'Financial and Legal' two; and 'Social', eighteen. In our calculations we took an arithmetic mean for each and rank ordered accordingly. We then added this nominal rank ordering number to the total and then rounded up. In some instances though, we had to interpret from what was being said as we had incomplete data to certain of our questions. Table 1 Overview of company size with respect to bonds in a given

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Table 2 A micro-view of bonds in a given sector

Research Findings The accompanying Tables l 4 summarise the position with regard to bonds within a given sector and across a given sector for large medium and small firms as well as the five end-user sectors previously mentioned. Tables l and 3 examine bonds from a macro viewpoint whilst 2 and 4 examine the micro viewpoint from the end-use sector. Before attempting to go into detail, it must be said that this was a first attempt to quantify bond strengths within a relationship. This should be borne in mind always with the analysis that follows. Turning now to our findings, it became apparent in our analysis that more functions were involved, for example, in the establishment of carton specification in the perfume industry than in any other sector: between 4 and 10 functions. In the drinks sector 2 and 5 functions were involved; l to 3 in the dairy sectors, 1 to 3 in frozen foods; and 2 to 3 in the detergents sector. In 457

all but the detergents sector, purchasing had some influence although it was most influential in perfumery where it was involved in 80% of cases. Our interviews also showed that in this sector the buyers had a wider ranging technical and marketing knowledge and thus were involved in both the technical and aesthetic aspects of the specification. 100% of the perfume companies also involved their quality control departments in the drawing up of specification and 80% of the companies gave their suppliers six monthly reports on their product quality and service performance (adherence to delivery dates, accuracy of delivery quantities etc.). The purchasers were directly involved in such assessment. The purchasing agent tends more frequently in establishing to be involved specifications in the drinks sector than in the dairy sector (66.7% and 50% of cases respectively). Marketing again had substantial influence, as does engineering and production. In all cases, before a system was installed, the decision was referred to senior management since the engagement is so important and far beyond the level of responsibility accorded to the purchasing department. It is however the purchasing department who recommend the suppliers. Once a system is installed, the purchasing department tends to establish the yearly market and often calls the orders. They also negotiate modifications instigated by the marketing or packaging department. The supplier deals with any technical problems which may arise. Since, once the system is installed, the purchasing company is contract bound and 458

has little influence on carton prices, the purchaser tends to perform order clerk activity. Table 3 An overview of company size with respect to bonds in other sectors

Table 4 A micro view of bonds across sectors

In the frozen food sector, the purchasing, engineering and marketing departments have greatest influence in drawing up specifications. It was apparent in the 459

interviews that the purchasing agent played the role of 'arbitrator' as all interviewees stated. He had both technical and marketing knowledge but neither in such depth as buyers in the perfume sector. In the detergents sector, the packaging, sales,, and marketing departments established the specifications. The purchaser played no role, despite a certain amount of technical knowledge. However, the major concern of the purchaser in both cases was total cost and not simply price. The selection of a supplier tended to be agreed by senior management upon the purchasers recommendation. This tended to be a formality. Once again, evaluation of supplier performance was effected, usually on an annual basis, although this was done by quality control and passed on to the purchaser for him to evaluate his own performance in order distribution. A certain number of strategic aspects were considered in supplier selection and order distribution. Thus, it may be seen that the most 'sophisticated' buyer was the one in the perfumery sector, and the least sophisticated in the drinks and dairy sector. The purchasing agent in the dairy sector appeared slightly less sophisticated than the one in the drinks sector although there were obvious exceptions. This to some extent contradicts the original hypothesis that the level of buyer sophistication would correspond to the level of value added, although the buyer in the perfume industry was certainly the most sophisticated.

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As to what we may have expected to find it was hypothesized that the more sophisticated the buyer, the stronger the bonds between the buyer and seller. It was further expected that the higher the level of value added and the greater the importance and sophistication of the packaging, the stronger the bonds would be between buyer and seller. Various criteria were selected as evidence of such bonds and their strength and importance to the purchasing company were measured. The results were then analysed both by industry sector and size of company and a two dimensional diagram developed (see accompanying matrix). The matrices in Tables 1 and 2 represent the rating of the bond of one to five for that sector with respect to the other bonds. Thus, the most important bond to perfume companies is the time-based bond, and the least important are the financial and legal bonds. Similarly, for small companies the most important bonds are the financial and legal bonds and the knowledge-based bonds, the least important ones being the technical and time-based bonds. The matrices in Tables 2 and 3 show the rating of the strength of the given bond for that sector with respect to that bond strength in all other sectors. Thus it may be seen that although technical bonds are only the third most important bonds to perfumiers, these bonds are stronger than the technical bonds in any other sector. A further example is that of time bonds for the dairy sector. These are the second most important bonds to dairy product manufacturers but are the weakest of time

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bonds with respect to all other sectors. Thus, whilst the order of importance of the bonds may be similar in the perfumery and the detergents sectors, the strength of these bonds is substantially different for each of these sectors. Time based bonds are the most important bonds to both sectors but relative to each other, detergents sector as time-bonds in either the drinks or frozen foods sectors. Consequently, totalling the figures in the fourth matrix for each sector (the rating of each bond relative to that bond for all other sectors) and dividing by three for company size, and by five for industry sector will indicate the overall bond strengths for each sector. The strongest bonds overall are between buyers and sellers in the large customer companies and the companies in the perfumes and dairy sectors. In detailing the findings presented in the matrix, we shall deal with each bond in turn: Technical bonds: In our findings analysed by both industry sector and size of company, it became apparent that technical bonds involving the carton quality, the willingness of supplier to adapt their products and aspects involving the smooth passage of the carton through the machinery thus the 'production' aspects were more dependent on company size. All these criteria were significant at 95%. As company size increased so did the emphasis laid on productivity and carton performance on the production line. It was further found that technical cooperation in R & D and new product development was dependent on industry 462

sector. Thus collaboration with suppliers is 'very important' to perfumiers and less important to detergent manufacturers. Similarly, perfumiers never do developments on their own whilst 66.7% of the drinks companies interviewed do. Indeed,on looking at buyer sophistication levels we can see that 100% of perfumiers and 'commodity carton' purchasers (frozen foods and detergents) do developments with their suppliers, 72% of 'systems' purchasers (dairy and drinks) do not. It was clear from the personal interviews that the quality control departments are more important in perfume companies and, in all the cases the quality standards were established in collaboration with the suppliers. In all other sectors, the purchasing companies imposed their standards and methods. The interviews also indicated a greater understanding on behalf of purchasers in the perfumes sector of the technical problems encountered by suppliers. One interviewee, the purchasing manager of a medium-sized perfumes manufacturer, stated that they ask their suppliers "to do both technical and industrial miracles" and that by their technical demands they "force them to progress". The same interviewee cites one supplier who teaches him "about technical aspects and what it is like to be a printer the problems he encounters etc.". All perfumiers insisted on the importance of technical collaboration. It is also clear that printers serving the perfumes industry are highly specialised and, since the tools used 463

are very costly, not all companies can afford them. If more companies were to possess such tools, prices would be increased since the spreading of the industry volume would serve to increase costs. Conversely, 'systems' users are tied to their suppliers by machinery but since the suppliers provide both machinery and cartons, 'systems' purchasers have no technical involvement. The machinery and carton are standard products, although the printing obviously makes all products 'tailor made' to some extent. However, suppliers tend to make no product adaptation and joint R & D is extremely rare. A comment typical of the 'systems' purchaser is that.."since the machines belong to the supplier, any technical problems arising, whether they concern the carton or the machine, are his." Amongst 'commodity carton' purchasers, collaboration with their suppliers in R & D and product development is quite frequent although this concerns not so much the aesthetic aspects as the mechanical 'production orientated' aspects. The stress is on 'higher productivity... to improve profitability" as one interviewee explained. Another explained that his company demands that suppliers should have very fast machinery and 'must invest in new machines and methods immediately'. Timebased bonds: Medium sized companies, perfumiers, drinks, frozen foods and detergents manufacturers all considered these bonds to be the most important. Although none of our findings were 464

statistically significant, certain conclusions may be drawn. For example, short delivery lead-time was considered important by all perfumiers, usually since they are working to very tight promotional dead-lines. Although one would expect 'systems' purchasers to lay more stress on factors such as delivery and short lead-times, this was not so s1nce they tended to give their suppliers extensive production plans and suppliers usually held stocks for them. The one exception to this was a small manufacturer renting another company's system. Knowledge-based bonds: In general such bonds are established through long-term relationships. There appears to be no difference between the various sectors in the length of the buyer seller relationships, all companies aiming for solid, long-term transactions. Again, no findings were conclusive statistically. However, detergents manufacturers found understanding of how their company operates very important and perfumiers found it fairly important. In all other sectors, the importance varied widely between companies. The larger the company, the more important the suppliers knowledge of how the company operates the purchasing company's end-use markets. As with willingness to adapt products, the larger the purchasing company the more important it is that a supplier should be willing to adapt to his administrative procedures. It appears that perfumiers have more frequent and higher level contact with their suppliers than do other sectors. Also, whilst dairy product manufacturers see

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the supplier representative frequently, the drinks manufacturers see the sales director. The principal reason for this may well be that Mead serves the drinks sector and 4P the dairy sector. These two companies have very different structures with 4P tending to be more rigid and hierarchical. Given that the companies serving the perfume manufacturers are highly specialised and often fairly small, this may explain the high level contact. Since perfumiers are more frequently involved in new product development and joint R & D, knowledge of suppliers' abilities is all the more important in selecting which suppliers to work with. Thus, it appears that purchasers in perfume companies have a greater knowledge of suppliers than do buyers in other sectors. However, it must also be acknowledged that there are fewer suppliers serving this market than there are in any other market, so such knowledg is more easily acquired. However, the drinks sector buyers consider it extremely imporant that their supplier understands both them and their end market. All interviewees commented on their supplier, Mead Emballage, sophisticated marketing department which supply them with information on their end market. One interviewee, whose company had just changed from Mead to 4P, commented that he was 'a bit worried' since he 'knew Mead well' and they were well adapted to each other's methods. The frozen foods and detergents sectors all stressed the importance on the supplier knowing their aims and 466

procedures. Typical of both sectors, one intervieee commented that "a supplier's perspicacity is all important". Another commented that one "must know the technical capacities of the supplier as he must know yours". Another commented that it is only possible to work with suppliers who can analyse his company's needs and who are willing to get to know and adapt to his company's administrative methods. Although statistical data showed that perfumiers do not have very knowledge based bonds, qualitative data indicates that this is not so. Social bonds: In general the larger the company the more importance is laid on information exchange and social contact, although social meetings and personal friendships are more important to perfumiers. In interviews, perfumiers tended to be more anecdotal about social contacts with suppliers, despite initial hesitancy. Buyers in all perfume companies mentioned the importance of knowing the 'whole team' from the Managing Director to the machine operative and invoice clerk. General comments were that it made the people 'more involved in the products' or 'more willing to provide a better service'. Several cited examples of personal friendships because "since we are rather loyal clients, years go by and people get to know each other...". One buyer in the perfume industry explained that suppliers often became very involved in the perfume industry since it is so 'attractive and interesting' and for this reason there is much contact and involvement. It is also evident that buyers in the

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perfume industry work with a restricted field of suppliers and often take their suppliers with them in each step of their professional career. Such social contact may well be the result of the sophistication of the buyer as well as the high level of buyer-seller technical collaboration and contact necessary when working to tight dead-lines as is frequently the case in the perfume industry. In general, 'systems' buyers tend to exchange a fair amount of information but relations are never 'personal', as all interviewees stressed. However, contact is frequent with the supplier, although the level tends to depend on which of the two principal suppliers with which one works. In the frozen foods and detergents sectors, social contact tends to depend on the size of the company. Larger companies tend to have much contact at all levels with suppliers, but relations were strictly professional. However, as one purchaser for a large detergents manufacturer stated, "it is very important to know the person with whom one deals. It is a question of trust..." Financial and legal bonds: Obviously 'systems' purchasers are both financially and legally more bound to their suppliers than either the perfumery carton buyer or 'commodity' carton purchaser. Significant at the 99% level is also the fact that large companies are far more interested in and make more use of payment and credit facilities offered by suppliers. Small companies are not at all interested in such facilities. The majority of companies in our sample worked on a yearly market,

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since only on an annual market can the best terms be obtained. Conclusions This was a first attempt to quantify the nature of bonds existing within a buyer-seller relationship. We naturally make reference below to the shortcomings but before we do so, despite the inherent weaknesses, this research design has succeeded in pointing to differences within sectors and across sectors with regard to bonds and to levels of value added. More research of this kind would help focus the question of segmentation strategies as well as deficient areas in which there was a need for client services. We remain confident, also, that the data presented is valid in portraying the market behaviour and buyer-seller relationships within the French carton market and hope that before too long, we should be able to replicate this study in the British carton market. As to the weaknesses we acknowledge that the sample was small and that certain of the data was not useable. Secondly, although an attempt was made to select a cross-section of small, medium and large companies and of multinational, international and national companies, we were restricted by several factors. Small companies tend not to be able to afford to purchase systems, and thus, in the'systems ' sector, our sample was lacking. In both the detergents and frozen foods sectors, the difficulty was in finding medium sized

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companies in the Paris region. In terms of data collection, much of the data was subjective evaluation by the purchasers and, inevitably this will. lead to a certain bias in the results which would possibly be reduced by having a larger sample. Again, the official title of the interviewees varied as did the length of the interviews and the company policy on the depth of information the interviewees were allowed to release. As in all data collection, there is a possible bias in the information received since one is only able to collect data from respondents willing to give it. The data from those companies which remain closed to such research may well differ. Nevertheless, in case these weaknesses should be allowed to foreshadow our findings, we must point out that we did find a certain homogeneity in the information given. It should also be noted that in discussing the bonds and bond strengths, the criteria used are not exhaustive. The data evaluation is as yet incomplete and it is expected that further findings will emerge to complement those discussed in this paper. References Barnes, J.G., McTavish, R. 'Segmenting industrial markets by buyer sophistication'. European Journal of Marketing, Vol. 17, No. 6, pp. 16-34, Farmer, David. H. (1978) 'Developing purchasing strategies', Journal of Purchasing and Materials Management, Fall, pp. 6-11. 470

Ford, D. (1980) 'The development of Buyer-seller relationships in industrial markets', European Journal of Marketing, Vol. 14, no. 5/6, pp.339-353. Ford, D. (1982) 'Development of buyer-seller relationships in industrial markets', International Marketing and Purchasing of Industrial Goods, Wiley. Hammarkvist, 0. (1983) 'Markets as Networks' in Marketing Education Group Conference Proceedings, edited by Martin Christopher, Malcolm McDonald and Angela Rushton, Cranfield Institute of Technology. Henderson, Bruce D. (1975) 'The coming revolution in purchasing', Journal of Purchasing and Materials Management, Summer, pp. 44 -46. INSEE, Paris, 1980. Kotler, P. and Levy, S.J. 'Buying is Marketing too'. Journal of Marketing, Vol. 37, January 1973, pp. 54-59. Levitt, T. (1983) 'After the Sales is Over', Harvard Business Review, Sept-Oct. pp.87-93. Pickering, J.F. (1974) Industrial Structure and Market Conduct, Martin Robertson. Zand, D.E. (1981) Information, Organisation and Power :Effective Management in the Knowledge Society, McGraw-Hill.

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Technical Exchange within Industrial Networks Hakan Hakansson Stockholm School of Economics Sweden

The start-Empirical observations The main starting point for our interest in the subject are the empirical observations made within the 1M-Group (1). We have been studying industrial markets in terms of both marketing and purchasing, during the last fifteen years. One major finding has been the existence of long lasting relationships between selling and buying companies. One of the most important reasons for these relationships is that one or both of the parties in some way, have used the counterpart in their technical development. The rationale for this is easy to understand. By using the resources of the counterpart it is possible to attain increased output of one's own development inputs. At the same time development activities can be better coordinated with the surrounding units.

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Some empirical examples of this kind of technical development for different types of companies will be given below (more of them can be found in Hakansson (ed.) (1982) and Hakansson and Laage-Hellman (1984) (2). Equipment producers: Two very well known Swedish equipment producers are ASEA and Ericsson. Both have benefited in their technical development from cooperation with customers. ASEA has for many years worked closely with Vattenfall (the main Swedish producer of eletric power) and SJ (Sweden's National Rail Service) but also with several steel and paper and pulp producers. Ericsson has in the same way cooperated with Televerket (the Swedish telephone company): Sala International (a producer of mining equipment) closely with Boliden and LKAB (the two large Swedish mining companies). There are several other examples. It can be said, with some reservation, that every equipment producer has at least one customer with whom they work closely from a technical development point of view. Component producers: These types of producers often have at least one major customer with whom they have some type of technical exchange or cooperation. In Sweden plenty of examples can be found in the automotive industry, ie between the car and vehicle manufacturers Volvo and Saab Scania and their component suppliers. The same can be found between companies selling large systems and their suppliers eg.

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between ASEA Atom and some of their components or subsystem suppliers or Alfa-Laval and their component suppliers. Raw and processed materials: A well known example of technical cooperation for these types of producers is the cooperation between the steel producer Sandvik and the razor-blade producer Gillette. Another example is the cooperation between Avesta (a stainless steel company) and Alfa-Laval. The same kind of cooperation can be found between for example paper companies and their customers as well as between mining companies (LKAB) and their customers (steel producers). The above observations (as well as others) together with the major arguments behind them prompted us to make a more systematic study of the phenomenon. There must be a need to develop theoretical concepts in order to describe and analyse it. Furthermore, there must be managerial as well as political implications. Managerial and political implications If the empirical observations are not simply exceptions but are indicative of an overall trend they as such have both managerial and political implications. From a management point of view issues regarding resource allocation between internal development work and external cooperation projects, choice of cooperation partners and cooperation forms, and internal organization of development work are raised. The

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management of technical development becomes with this perspective very much a relational problem; to combine and relate internal and external resources, to organize the resources in an efficient way, to identify combination opportunities and so on. The observations also have political implications. Technical development has become of increasing importance to society and thereby to politicians. From the political point of view there is an interest in creating or speeding up technical development. The observations above indicate that in order to do so companies should enter into relationships with each other, or combinations or constellations of different kinds. Regional or national policies must take this into account in a more systematic way than is the case today. Theoretical Consequences The observations also have theoretical implications. They do not coincide with a market model where the units are perceived to be free and independent. Instead we have observed stable relationships where units are heavily dependent on each other. Nor do they fit a hierarchy model. There is no central unit controlling the activities. Instead several units act at the same time in relation to their own self-interests. The best theoretical starting point is in our opinion some kind of network model. Based on earlier research with interorganizational theory our theoretical development work has taken place in several steps (Harnrnarkvist et al, 1982; Hagg and Johanson,(ed.) 1982; Hakansson,

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1982; Mattson, 1983; Hakansson and Johanson, 1983, 1984). Here the presentation will be limited to some notes regarding concepts important in relation to technical development. Network and sets A network consists of 'sets of two or more connected exchange relations' (Cook and Emerson, 1978, p. 725). This means that the exchange between two parties is positively or negatively related to their exchange relationships that either of the two parties have. In the type of networks we analyse there always exist both conflicting and cooperative relationships. Furthermore each relationship in itself includes both conflicting and cooperative elements. This is a very important feature from a technical point of view. It indicates the existence of a technical interplay between the units regarding both similarities and differences in technical dimensions. This technical interdependence must be of utmost importance when a company designs their development strategy. Within the total network different sets of units can be identified in relation to a certain company (company set), a certain technology(eg. the hydraulic set), a certain product (eg. the stainless tube set) and so on. A certain unit can normally be characterised from a technical sense by its belonging to several different sets. But in order to be perceived as belonging to a set the company needs to have a position within it which in turn requires investments both in knowledge and in

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relationships. In order to understand and analyse these type of industrial networks we have found it useful to focus on actors activities, and resources. Important conceptual features on each of these will be presented below. Actors The actors perform and control the activities. They decide alone or together (in interplay) with others which activities should be executed, how they are executed and which resources are used when they are executed. Some important characteristics are: - Different types of actors are active at the same time: individuals, groups or departments, companies and sets of companies. - Each actor is characterized by a certain experience or knowledge of the activities and the resources that are used. - The aim of the actor is mainly to increase his control over the network: - There ls always an imbalance in the distri bution of the degree of control (some actors have a higher degree of control than others) From a technical point of view an actor can be characterised by which activities and resources it can

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control and thereby what kind of experience and knowledge the actor has. Activities Two different types of activities are identified: 1. Transformation activities where some resources are processed within the control of one actor (company) by use of other resources. 2. Transaction activities where resources are exchanged between different actors which in turn requires transaction-specific investments in terms of relationships. The activities are related to each other in different ways. Some belong to repetitive cycles where a number of dependent activities are repeated. Some of these cycles are related to each other and can be seen as transaction chains. The activities within the network, thus, are characterized as being more or less related to each other. This dependency often has a technical background. Transaction activities are in many situations clearly dependent on the characteristics of the transformation activities before and after the transaction. Transformation activities at different levels of a transaction chain are often dependent on each other from a technical point of view. At the same time there often exist different technical solutions to different

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activities and these solutions are represented by different actors. Resources In order to perform transformation or transaction activities resources are needed. The activities imply that resources are combined in different ways. The resources are controlled by actors operating either alone or in groups of two or more. The resources are composed of assets as equipment, raw materials, licenses and capital, as well as human resources such as manpower and knowledge. A fundamental feature of these resources is that they are heterogeneous, which means that they have qualities in an endless number of dimensions. This in turn implies that the area of use of the resources can never be fully determined. There will always be possibilities to use certain resources in one way or another connection. This means that it can never be finally judged how certain resources can be combined with other resources. The result of the combination can always be improved. Knowledge and experience of such resources is important. Through activities where a certain resource is used new experience can be attained which offers opportunity for various types of improvements. New insights regarding the use of a certain resource can modify previous activities and thereby also activity cycles and transaction chains.

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Empirical studies In the following section the empirical studies based on the above theoretical concepts and concerned with technical development will be presented. The connection between technical development and marketing the case of the wood-saw-set(3) The aim of this study was to study the interrelationship betwen marketing activities a,nd technical changes within a set of companies. The design of the study in terms of investigated variables is shown in Figure 1. The technical development as well as changes in the marketing efforts of different companies were studied for a ten year period. Technical development was observed in three aspects. First, major investments made by any of the involved actors were mapped. Secondly, day to day rationalization in terms of smaller tehnical improvements as well as changing ways of producing or using products were identified. Thirdly, product improvements of different kinds were analysed. The marketing activities of any unit were described and analysed in terms of strategy, organization and content of the marketing messages. The analysed set included four different types of producers; saw steel producers (Uddenholm Strip Steel, SKF Strip Steel and Sandvik), saw

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blade producers (Sandvik, Iggesund, Stridsberg and Biorck etc.), saw equipment producers (Kockums, Ari AB and A K Ericsson) and lastly sawmills. The analysis was limited to Swedish companies. Several of them , however, are highly international (all steel producers, Sandvik among the saw blade producers, Kockums among the saw equipment producers and many of the larger saw mills). In order to show the type of results Figure 2 summarises the connections between technical development among the different units and the marketing activities of the saw-blade producers. As can be seen in the diagram, several important technical changes that have affected the marketing opportunities of the saw-blade producers are presented.

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Figure 1. Studied variables

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Figure 2. The effects of technical changes on the marketing of the saw-blade producers.

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In general the results of the study can be summarized in the following five points: 1. Efficient marketing can mean that the company exploits or creates technical changes. The changes can take place within suppliers, with the company, within competitors or other parallel companies or within customers. 2. The knowledge about the feeling for the interplay between technical changes within different units and between technical changes and marketing can in many situations be a critical feature of the selling company. 3. Efficient marketing can often be based on the technical changes among the customers but it can also be based on the technical changes within suppliers or within parallel companies (selling competing or complementary products). 4. Marketing in terms of the direct contacts with the customers can often be technically oriented against applications and services, but the more strategic marketing issues should be governed by technical knowledge of a more general nature. This depending on the fact that the technical development in some other part of the technical set or even in some other technical set can open up new opportunities in the future.

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5. Based on the above four points marketing and technical development within an industrial network at least in the long term perspective, can be seen as two sides of the same coin. The Role of External Technical Exchange in R & D: An Empirical Study of the Swedish Special Steel Industry (4) Based on the earlier presented theoretical model this study analyses how the Swedish Special Steel companies have been using external units, such as customers and suppliers, in their process and product development. Three basic types of techical exchange are identified as a) information exchange, b) cooperation regarding tests of new products and applications, and c) cooperative R & D. The last of these means for example that a buying and selling company together can develop a new product or production process. The technical exchange is done either as a a result of existing technical interdependencies within the network, or in order to take advantage of synergy effects. A company's technical exchange can be characterized in five dimensions: - the extent of the technical exchange with other units within the network ( a company can choose a more or less externally oriented strategy) R & D strategy)

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- the orientation of the technical exchange (with what type of units does it cooperate customers, endusers, suppliers, research institutes, Swedish or foreign units, etc.) - the content of the technical exchange (information exchange, tests, research cooperation) - the variation of the technical exchange in relation to different phases of the innovative process (idea generation, development, market introduction). - form of cooperation (eg. the degree of formalization) These variables are used in order to describe how the special steel companies have cooperated with external units in their R & D. The empirical investigation consists basically of nine cases. Three of these regard the development of new production processes. The other six regard the product development. The cases have not been selected in a random way in order to find an average picture. Instead the aim has been to find different types of situations in order to analyze problems and possibilities in external cooperation. The results show that external units can and often do play an important role in the technical development of the special steel companies. Several of the new production processes that have been developed in Sweden recently are the result of close cooperation between steel companies and Swedish suppliers of equipment. The technical exchange regarding product

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development is mostly characterized as being limited to information exchange regarding product development is mostly characterized as being limited to information exchange and cooperation regarding tests. Larger cooperative project where both sides take an active part during a longer period of time exist but are rare. It seems that possibilities to cooperate with customers and end-users in the te hnical development up to now have not been fully used. This opinion is shared by several R & D managers within the steel companies and for this reason, there is now work going on which will build up closer technical relationships with steel users. Technical Development within Buyer-Seller Relationships. Fourteen significant buying companies view of the importance and role of the Swedish Special Steel Companies (5) This study regards the technical exchange between fourteen large special steel users, mostly mechanical companies, and the Swedish special steel companies. The study is done in the form of 14 cases where the content of each of them is: the technical development within the working area of the company in terms of product and production processes. - the role of different materials in this development, especially the role of special steel

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- examples of technical cooperation with Swedish special steel companies - a discussion of the importance of external units in technical development, including trends during the last ten to fifteen years. Further a comparison between the importance of Swedish steel ffrms compared with foreign ones and also between the special steel companies and other material suppliers - the users opinions about their cooperation with the Swedish steel companies - the users opinions about the future prospects of technical cooperation regarding different materials The study is related to a large number of different technical areas. It shows that technical exchange between buyers and sellers is a common and important part of technical development. Some of the companies see technical exchanges as 'the normal way of conducting technical development '1.The study shows that almost all the companies can point to at least one example of an important technic l cooperation project with one of the Swedish special steel companies. Usually they can give several such examples. The fourteen companies investigated all claim that the importance of external units in their development have increased over the years. Ten of the companies perceive the special steel companies taken together as a very important development resource. However, there are

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many other types of suppliers which are important to the users. One trend is that the Swedish special steel companies compared to foreign ones are decreasing in importance. Still the Swedish special steel companies are more important on average than foreign ones to more than half of the investigated companies. In the study the effects of three variables on the technical exchange have been studied. The three variables are the characteristics of the parties, the structure of the technical set and lastly the existence of relationships between the companies. The characteristics of the parties are important in several ways. One important feature is that the two parties control resources of importance to their counterparts. It is also shown that parties and resources are difficult to change. It is important that the two parties know each other well and that they have dealt with each other for a time before an important technical exchange can take place. The strategy and structure of the counterparts in terms of, for example, the degree of internationalization, have also important effects on the technical exchange. The structure of the technical set has important effects. It determines the number of alternatives to both the buyer and the seller. The increasing degree of specialisation on the corporate level has, as one effect, a decrease in the potential

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number of possible cooperation partners to the special steel users. The existence of different kinds of relationships have effects on the technical exchange. One important feature is the different kinds of technical bonds that are created. Formal bonds, eg. ownerships, effect the technical exchange and has as a feature the fact that the results are not always positive. Close geographical proximity is a third aspect that has been pointed out as especially important. Most of the user companies consider this to be of large importance. They consider this to be something which should be exploited by the Swedish special steel companies to a greater degree. The Contract Network of Technicians within the Special Steel Industry (6) In the earlier theoretical section actors on several levels were identified-from individuals to sets of companies. Thus, we believe that individuals or groups of individuals can play an important role within the network. Especially interesting are of course groups that interlink individuals in different companies. Within the special steel industry we have such a group of technicians in Sweden those who have studied at the Department of Mining and Metallurgy of the Royal Technical School of Stockholm. Sometimes they are talked about as the 'steel syndicate'. They have a special society with meetings and so on. They have, without a doubt, a vital and central position within the Swedish steel industry.

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The contact network of this group was perceived to be of great importance in order to understand the technical exchange between the companies. Through a postal survey of this group (narrowed to those who graduated before 1970), the aim was to get a picture of their contact network. The target group consisted of 637 individuals of which answers have been received from 453. Of these 134 worked within special steel companies and the discussion here will be limited to this group. The main contact network of this group is given in Figure 3. The group has been divided into four subgroups in relation to the appointments of the individuals: a) general managers, b) production, c) R & D, and d) marketing. In average there are three types of external units that dominate the contact network. Those units are steel companies, customers and equipment suppliers. There are also a lot of contacts with domestic universities, industry organizations and research institutes. All four of the different appointments groups have important contacts with customers. These contacts are also perceived to be of importance from a technical point of view. One example, 80% of the general managers perceived contact with the customers to be of g:t:"eat importance. The contacts with the customers are not at all restricted to purchasers (even if they are an important contact point). The group of general managers often have contact with the customers' general manager and the R & D group have almost 491

exclusively contact with technical personnel of the customer. Thus, it is basically production and marketing technicians that have contact with the customers purchasing personnel. Most of the contacts with other steel companies are with technicians. All perceive these contacts to be of great importance. A large share, between 80 and 90%, of the production and the general manager groups has contacts even with foreign steel companies. About 65% of the marketing and R & D groups have these types of contacts.

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Figure 3. The contact network of the technicians working within special steel companies. Almost the entire production and general manager groups have important technical contacts with suppliers

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of equipment. Half of the R & D group has also such contacts but rather few of the marketing group do so. The contacts are concentrated on the marketing people of the equipment producers. The analysis of the data is not yet finalized but the above examples for the group of technicians working within the special steel industry indicates the kind of results that will be obtained. Cooperation Strategies in Technical Development ( 7) The cooperation strategies of companies in their technical development work are the focus of a survey study conducted during 1984. More than 130 companies have been interviewed regarding their way of handling technical development issues. The companies have between 20 and 500 employees and they all conduct in-house production. The aim of the study can be summarized in the following way: 1. To measure the importance and the role of relationships to other units in the company's technical development. 2. To describe and analyse the strategies of the companies in terms of a) extent of external cooperation

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b) choice of cooperation partners c) forms of cooperation

3. To analyse if external units that are situated near by play any special role or are of special importance to the companies The above issues are in the study systematically related to a number of background factors. These have been identified by combining actors and resources as shown in Figure 4.

Table 1 The extent of external cooperation

Table 2 Type of cooperation partners and their locations

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Figure 4 Background or independent factors

Thus the company is expected to handle the co operation issues in relation to variation in their resources or in the sets (one set can be identified in relation to each type of the resources).

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The last interviews have been done during August 1984 so as yet no results can be given from the main study. However, a pilot study conducted during 1983 can be used in order to give some ideas about the kind of results that the study will give. In Table 1 and Table 2 the cooperation strategies of the companies included in the pilot study is described in terms of the extent of external cooperation and the choice of cooperation partners. The pilot study only included one type of company (selling to the construction industry) and the results in for example terms of choice of partners is expected to be quite different from the main study. The results in the pilot study convinced us, however, that the variations and differences between the companies in these respects were large enough to be of interest to an empirically study on a larger scale. Conclusions We are in the middle of a research program with several studies not yet completed. Furthermore two new projects (not described above) have been started up during the last year. This means that we can only make some general conclusions. (8) These are: - the investigated issues are perceived to be important both to companies and to regional and national organizations responsible for development issues. We have been received in all our studies with interest

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and there have been no problems in obtaining access to data and/or interviews. - one reason for the interest is that these issues are seen as rather problematic. It is for example difficult to find the right strategic balance between internal and external development projects and furthermore, the latter can be rather difficult and tricky to deal with both in terms of organization and routines. One special problem regards the need of increasing the cooperation with foreign units as the increasing degree of specialisation reduces the possibilities to have exclusively domestic cooperation partners. - there are still a lot of research issues that ought to be penetrated. Several of them can be identified by combining our three basic theoretical concepts activities, actors and resources.

Notes 1. The IM Group is an informal group of researchers. The members belong to the Faculty of either Uppsala University Department of Business Administration, or the Stockholm School of Economies. Members have a common research interest in the area of industrial markets. 2. Other examples can be found in Czepiel (1974), (1979), Von Hippel (1977), (1979), and Olofsson (1980). 3. Hakansson (1982)

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4. Laage-Hellman (1984) 5. Axelsson (1983) 6. Hamfelt and Lindberg (1984) 7. Hakansson and Henriksson (1983) 8. See also Hakansson and Lange-Bellman (1984)

References Bergman, B., Johanson, J. (1978) Inkop och produttutveckling (Buying and Product Develop ment) in Hakansson, H. and Melin, L. (eds.) Inkop, Norstedrs, Lund. Blois, K. (1975) Supply Contracts in the Galbraithian Planning System. The Journal of Industrial Economics, Vol. XXIV, No.1, pp. 29-39. Cunningham, K. (1982) An Interaction Approach to Purchasing Strategy. In Hakansson, H. (ed.) International Marketing and Purchasing of Industrial Goods: An Interaction Approach, John Wiley, Chichester. Eriksson, D. (1976) Vertical Marketing Systems. Design and Development, SIMS, Gotenborg. Farmer, D. (1978) Developing Purchasing Strategies.Journal of Purchasing and Materials Management, ilol. 14, No.3, (Fall), pp. 6-12. Guillet de Monthoux, F. (1975) Organizational ating and Industrial Marketing Conservation - Some Reasons 499

why Industrial Marketing Managers Resist Marketing Theory. Industrial Marketing Management, Vol. 4, No. l, pp. 25-36. Hakansson, H (ed.) (1982) International Marketing and Purchasing of Industrial Goods: An Interaction Approach, John Wiley, Chichester. Hakansson, H., Wootz, B. (1975) Foretags inkopsbeteende (Buying Behaviour of the Firm). In Studentlitteratur Lund. Melin, L. (1977) Strategisk inkopsverksamhet organisation och interaktion (Strategic Purchasing Actions-Organisation and Interaction) PhDDissertation, University of Linkoping.

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