Buying behavior and long-term relationships in the metal mining industry : case studies of capital equipment buying

Abstract: This thesis deals with industrial buying behavior and long-term relationships in the metal mining industry. The mining environment is increasingly competitive as a result of globalization, deregulation and privatization, technological improvements, and eco-sensitivity. Hence, metal mining companies have to strive for higher productivity allied with lower costs. Sound capital equipment investments can bring about considerable costs reductions and long-term benefits for these companies. The overall purpose has been to study the buying of capital equipment by metal mining companies. Two studies were conducted. The first study investigates the industrial buying behavior of four Swedish metal mining companies (Ammeberg AB, Terra Mining AB, Boliden Mineral AB, and LKAB), and one metal mining company in Poland (KGHM). The buying behavior is characterized through the description of the buying process when buying capital equipment, the identification of those who participate in this process, the understanding of their involvement and influence, and the assessment of the main factors that affect the buying of capital equipment. The second study focuses on the development of the long-term relationships that metal mining companies establish with the sellers of capital equipment. Four cases of long-term relationship development are investigated in the metal mining industry in Portugal (Somincor and Atlas Copco, Beralt and Atlas Copco, Somincor and Sandvik, and Beralt and Sandvik). The development of the long-term relationships is characterized along four groups of variables (contextual, task, interaction processes, and outcomes). The buying processes of capital equipment were found to be similar among all the metal mining companies studied (whether located in Sweden, Poland, or Portugal). In all the cases, negotiation was identified as an extremely important buying activity. Metal mining companies can be characterized as highly production-oriented and this underlies the dominance that is commonly exerted by the production department. The domesticated nature of the market, in which the exchanges of capital equipment occur, leads to the establishment and development of long-term relationships. It was found that metal mining companies aspire to long-term relationships and regard their capital equipment suppliers’ as business partners. Compatibility between organizations’ objectives and strategies, and the choice of a direct channel (for the seller) are important driving forces for the establishment and development of these relationships. High product importance and complexity, and low substitutability of the capital equipment also aid relationship development. The functional reliability and degree of customization of the capital equipment also affect these relationships, particularly the nature of the interaction processes that occur between the companies. Exchanges are very much determined by the extent of supplier-based adaptations (product-design adaptations, technical assistance, stockholding, after-sales agreements). The outcomes of the relationships can be regarded as a consequence of the interaction processes developed between the parties. Customer-based assessments of these outcomes are very much related to the technical dimensions of the capital equipment, such as functional reliability and technical assistance. In turn, supplier-based assessments are more related to the buyers’ credibility and stability. Network effects on the development of the studied relationships are also assessed. In line with these findings, the contribution of this thesis includes the development of a model of analysis appropriate for the study of the development of long-term relationships in the metal mining industry.