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Strategic alliance-based sourcing and market performance: evidence from foreign firms operating in China

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Abstract

Although foreign multinational firms from the Triad regions increasingly use mainland China as both a sourcing and a marketing location, no study has directly examined the sourcing strategy–performance linkage. Using resource complementarity and resource dependence theory, we extend the sourcing literature and apply these perspectives to an important transitional economy—China. These two theoretical perspectives suggest that product and uncertainty factors moderate the relationship between strategic alliance-based sourcing (SA sourcing) of major components and market performance. We find that, at low levels of product innovativeness and technological uncertainty, the use of SA sourcing is positively related to market performance. However, the effects of product differentiation and demand uncertainty on the sourcing–performance relationship are insignificant.

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Notes

  1. This cost-based explanation was suggested by an anonymous reviewer.

  2. This was the most conservative estimate for a usable sample size. It was suspected that many firms that did not respond to the survey might not have any manufacturing activities in the selected industries in mainland China. However, due to the scarcity of information, there was no way of confirming or disconfirming it.

  3. One such classic example is Apple Computer's alliance sourcing arrangement with Sony in the early 1990s. In 1989, Apple Computer enlisted Sony to design and manufacture a new notebook-size Macintosh computer called the PowerBook 100. In this arrangement, Apple gave Sony the basic blueprint, and Sony engineers, who had little experience building personal computers, developed Apple's smallest and lightest machine from drawing board to factory floor in less than 13 months. This is a strategic alliance in which Apple's basic design ability was complemented by Sony's miniaturization technology. It also became apparent, however, that Apple could lose manufacturing capabilities for the next generations of notebook-size computers without Sony's participation. On the other hand, Sony, having mastered engineering and manufacturing of Apple's notebook computers, gradually increased its role upstream to assisting Apple in product designing. Such a relationship could prove to be detrimental to Apple's competitiveness if Sony were able to take over most of what it takes to develop a notebook computer. Later, being concerned about this possibility, Apple decided to sever its relationship with Sony (Schlender, 1991).

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Acknowledgements

We thank the JIBS Departmental Editors, G Tomas M Hult, and the three anonymous reviewers for their helpful comments. Janet Y Murray and Nan Zhou gratefully acknowledge the financial support provided by the City University of Hong Kong (Grant No. 7100124) for this research project.

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Appendix

Appendix

Measurement

Market performance

(Cronbach's α=0. 86) (Much Lower 1–5 Much Higher)

Product A's market performance in the mainland Chinese market, relative to its three largest competitors in the industry in the mainland Chinese market in the last 3 years on the following dimensions, is

  • sales growth rate;

  • return on sales.

SA sourcing of major components

SA sourcing × major components

SA sourcing: Strategic alliance members of the parent system include majority- or minority-owned affiliates and joint ventures of your parent company, and independent suppliers that have long-term strategic alliance relationships with your firm. Of all the components in Product A, the percent of the total value (in your purchase price) currently sourced by your firm from strategic alliance members is: _____% of total value.

Major components (nonstandardized components): Nonstandardized components are those components contained in Product A that are customized for use in Product A. Nonstandardized components are not off-the-shelf standard components; they are crucial components that are technical in nature and affect the performance of Product A. The percent of the total value (in your purchase price) of all the components in Product A that are classified as nonstandardized components is: _____% of total value.

Product innovativeness

(Cronbach's α=0.81). (Very Few/Very Low 1–5 Very Many/Very High)

  • the number of potential applications (or uses) of the product innovations in Product A (i.e., the set of innovative ideas in Product A itself);

  • the number of potential applications (or uses) of the process innovations in Product A (i.e., the set of innovative ideas in the manufacturing process of Product A);

  • to your firm, the level of product innovations in Product A (i.e., the set of innovative ideas involved in Product A itself);

  • to your firm, the level of process innovations in Product A (i.e., the set of innovative ideas involved in the manufacturing process of Product A).

Product differentiation

(Cronbach's α=0.93). (Strongly Agree 1–5 Strongly Disagree)

Your parent company's overall competitive strategy for Product A is

  • to have Product A maintain a technological edge over competitors’ products (reverse coded);

  • to have product A maintain higher quality standards than competitors’ products (reverse coded);

  • to maintain a unique image for Product A (reverse coded).

Technological uncertainty

(Very Low 1–5 Very High)

The predictability of the general technological developments for Product A in the mainland Chinese market (reverse coded).

Demand uncertainty

(Cronbach's α=0.85). (Very Low 1–5 Very High)

  • the stability of Product A's market share in the mainland Chinese market (reverse coded);

  • the accuracy of Product A's sales forecasts in the mainland Chinese market (reverse coded);

  • the stability of the industry sales of Product A in the mainland Chinese market (reverse coded);

  • the stability of your firm's sales of Product A in the mainland Chinese market (reverse coded).

Control variables

Nationality: 0=the US, 1=Japan, and 2=Western European nations.

Product category: 0=consumer durable, 1=consumer nondurable, 2=industrial durable, and 3=industrial nondurable.

Firm size: Approximately, your parent company has _________ employees in China.

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Murray, J., Kotabe, M. & Zhou, J. Strategic alliance-based sourcing and market performance: evidence from foreign firms operating in China. J Int Bus Stud 36, 187–208 (2005). https://doi.org/10.1057/palgrave.jibs.8400120

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