In the middle : on sourcing from China and the role of the intermediary
Abstract: In the past three decades China’s rapid transition from a closed economy to become the factory of the world has astonished economists all over the world. Surveys among sourcing practitioners show that China is the most interesting market for sourcing and research points to lower costs as the main reason. This dissertation is an exploratory study of the role of the intermediary for Swedish small and medium sized enterprises (SMEs) that source from China. Three questions are discussed. The first question concerns why Swedish SMEs choose to source from China. Although costs are a major factor for the companies, it is usually other triggers that cause the change in strategy, such as management interest or pressure from a large customer. The second research question concerns how Swedish SMEs choose to source from China and how the role of the intermediary is related to this process. The study shows that finding a good supplier is not difficult. The companies use informal channels, references and sometimes unorthodox methods such as following the supplier of the raw material to find suppliers that deliver high quality goods. The problem is however to maintain a steady quality and on time delivery which is why intermediaries are introduced late in the relationship. The cases in this study show example of five different intermediated strategies; Direct, Service,Traditional, RepO and FICE/WFOE. The traditional intermediated strategy is the only strategy where there is little or no relation between buyer and supplier, whereas the other four strategies involve different degrees of interaction between all three actors in the dyad; the buyer, the supplier and the intermediary. The third research question concerned the role of the intermediary. The study shows that the respondents are influenced by their structural view on what role the different forms of intermediaries may take. Although the respondents discuss the importance of having a long-term view on the relationship with the supplier they continuously allow intermediaries to enter the relationship on a short-term basis for quality control. These quality control centers (QC) commonly work on a fixed commission based on services that has to be specified. When the buyers are trying to change their strategy to look for an intermediary with higher involvement they usually turn to internal intermediaries (i.e. subsidiaries). When deciding on a long term intermediary the buyer usually looks for competences that supplement their own knowledge – that is Chinese language, good knowledge of the Chinese market but also technological competence. What the western owned intermediaries in China stresses however is the need to find intermediaries to supplement the suppliers’ competences, so that they are able to translate the needs of the buyer’s customer and becomes a physical reminder that they are sent from the buyer. The case of QC, shows that if a company let the relationship with the intermediary develop through interaction they can become just as involved. The study is based on interviews with key informants at Swedish SMEs andat different types of intermediaries in China. The empirical data are presented infive themes developed through an iterative process of theoretical studies anddata collection. The first two themes are directly related to the first tworesearch questions. The third theme focuses on the sourcing process andactivities of four small Swedish design companies. The fourth theme displayshow the intermediaries in China discuss their role. Finally, the fifth theme pictures the supply chain of one focal company at five points in time when they are in the process of changing their supply chain to increase transparency.
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