BUS602: Marketing Management

Previous studies have identified the search for innovation as a key driver of global purchasing. The results of this study provide support for this view: firms purchasing globally are significantly more likely to cite the search for innovation as a priority for purchasing. Moreover, firms purchasing globally are also significantly more likely to prioritize reducing TTM, probably because they are aware of the negative effects on TTM that a long distance may have. Firms may expect that new ways of working, for example common tools like e-mail, web meetings or ERP systems, have made global NPD more manageable and able to mitigate the negative effect of geographical distance observed by previous studies. Another reason may be that firms expect that competent suppliers, which are more likely to be found in a global search, will reduce TTM by more than the greater geographical distance would increase TTM.

There has been a rather frequent concern that geographical distance has a negative effect on innovation performance. Previous studies showed that global purchasing can have a negative impact on TTM, whereas the effects on the level of supplier product innovation are less clear in the literature. This study finds no such negative effects: firms purchasing globally do not perform better or worse than firms purchasing locally in terms of product innovation and TTM from suppliers. Keep in mind that the threshold at which we considered firms to be purchasing globally was if more than 10 percent of a category is purchased globally, in line with Mol et al. and Quintens et al. This study confirms that actual global purchasing is less relevant for innovation performance than how the purchasing is managed, which further highlights the relevance of H3 and H4, which focus on the impact of supplier integration.

Although this study showed that global purchasing does not influence the innovation outcome directly, the findings did show that for firms purchasing globally there is a strong link between supplier integration and supplier product innovation, as well as between proficiency in supplier integration and supplier product innovation. In other words, performance depends on how well they integrate their suppliers and what supplier integration tools they use. That high proficiency in purchasing results in a higher level of innovation from suppliers has been established in the literature, but that companies purchasing locally fail to reap the benefits is more surprising. That supplier integration is associated with shorter TTM has also been well documented by previous empirical studies. The surprise is again that this association is only valid for firms purchasing globally.

Four interrelated explanations have been identified. First, whereas IT tools may be essential for managing global NPD, there are alternatives, such as meeting in person, when suppliers are located closer. Thus, the difference between using IT tools and not using them is likely to be higher if the distance is greater, thereby mitigating the hypothesized negative impact of distance. Second, global purchasing is a relatively new phenomenon for many firms and requires particularly high proficiency in supplier integration and extensive supplier integration to prevent a negative impact on innovation. Local suppliers that the customer firms already know require little formal integration. This explanation is in line with previous studies showing that supplier integration is particularly important when outsourcing. In this view, supplier integration is a prerequisite for global purchasing, since it allows customers to get to know new suppliers in a systematic way. Third, since firms that source regionally are likely to have a longer history in dealing with their suppliers, their suppliers are directly involved with other departments such as R&D, thus bypassing the purchasing department. This would imply that firms that plan to source more globally would be wise to move resources to the purchasing department from other departments, whereas firms purchasing regionally can afford to have a more lightly staffed purchasing department. The fourth and final identified explanation is that supplier integration is only effective if suppliers are capable, and there simply are not enough capable suppliers locally. However, this explanation is unlikely to be true, since there is no difference between the two groups when it comes to suppliers providing unique assets or resources. It is possible, but somewhat unlikely, that local suppliers are unique, but not in the areas required for innovation.