Business-to-Business

A Global Network Perspective

Mario Glowik, Sarah Maria Bruhs

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317807735
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

Contemporary business-to-business (B2B) industries consist of networks of customers, competitors and other stakeholders. Firms which manage their relationships with these important stakeholders are more likely to enjoy a sustained competitive advantage in the international business environment. This book is the first to provide a comprehensive overview of the field from a broad and accessible perspective.

The authors bring an authoritative, scholarly understanding to the subject, taking readers through the entire process of creating, developing and maintaining B2B networks. Case studies illustrating each chapter include: Apple, Panasonic, Johnson & Johnson, Epson and Samsung.

In providing a single and explicit established academic framework for understanding business networks in a global setting, this book is vital reading for students and researchers involved with international management, international marketing and strategic management.

1

AN INTRODUCTION TO BUSINESS-TO-BUSINESS

Dynamics of the global business environment

At the beginning of the twenty-first century, global business activities have become an important strategic imperative for many firms. The globalization of markets circumscribes the rising economic integration and extensive interrelation between various nations and governments around the world. Emerging global patterns for exchange have enabled a rapid and far-reaching distribution of goods, technologies and knowledge. This supply of assets on a global scale has opened up new opportunities for firms to become engaged in a broad range of cross-border exchange activities. Facilitated access to products, services and capital flows that originate in different countries worldwide have significantly increased the speed and complexity of international business operations (Cavusgil et al. 2008: 4).

Several trends have accompanied the globalization of business. First, the world witnessed an unprecedented surge in international trade. While in 2003 global exports in goods and services accounted for 8,539 billion euros (10,785 billion US dollars) in total, export sales by October 2013 have reached 13,316 billion euros (18,010 billion US dollars). This equals an increase of 64.1 per cent within a ten- year period (OECD, 2013). The rapid expansion of international trade activities is significantly impacting nations, firms and individuals and has led to the emergence of distinctive worldwide interconnections and global linkages (Czinkota et al. 2011: 5).

While more and more countries are taking advantage of global trade opportunities, China, the United States, Germany and Japan still claimed top positions as the world’s leading exporters in 2013 (Table 1.1). The fact that these countries, while trading high export volumes, are also importing the highest volume in goods and services makes them relatively strong players in the dynamics of international trade. Though international markets are traditionally dominated by Western nations and Japan, in recent decades, companies from emerging countries have advanced to become aggressive competitors in global trade (Ghauri and Cateora 2010: 31). Fast developing states, such as South Korea (ranked 7th in the list), Singapore (ranked 14th) and India (ranked 19th), are now claiming upper positions among the world’s largest exporters (WTO 2012: 26).

TABLE 1.1 The world’s leading exporters and importers in 2013

Source: OECD (2013) (conversion rate from 17 October 2013).

Due to the increasing flows of goods, services and capital that countries worldwide are exchanging among themselves, modern nations are bound together through their international trading activities and have become ever more economically interdependent. The availability of foreign goods is now indispensable to securing living standards for all individuals (Gillespie and Hennesey 2011: 18). In the course of globalization and with the shift of production to foreign countries, customers worldwide have gained access to products and goods that are frequently produced outside their national borders. This has led to an economic situation where the range of diversified products available to customers reaches almost unlimited variety. Consequently, customer demands for individually tailored market offerings at reasonable prices are rising (Mühlenbacher et al. 2006: 10–11).

As a response to these worldwide trends of economic integration, leading industrial nations have started to work together in various forms of economic cooperation. Today’s global business dynamics are grounded on the General Agreement on Tariffs and Trade (GATT), which was established as a multilateral initiative in 1947. Intending to open up world merchandise trade, GATT has been able to record remarkable achievements in the effective reduction of trade barriers such as tariffs and quotas within its almost fifty years of existence. GATT was replaced in 1995 by the World Trade Organization (WTO), which is committed to govern trade disputes among its 159 member states (as of 2 March 2013) (WTO 2013). In addition to GATT and the WTO, a vast number of multilateral agreements have emerged that seek to lower barriers to trade within different regions (Keegan and Green 2013 . 91–3). The most prominent example is the European Union (EU), which in light of current discussions about the financial instability of states like Greece has recently received increased attention. Initially founded with the objective of securing lasting peace, the European Union primarily aimed at improving welfare and creating mutual dependence among its member states. The overall goal was to set up a common economic space through the elimination of trade barriers and the development of a customs union. Today the EU’s mission agenda has broadened significantly and changed from purely economic cooperation to a policy of integration within various areas of economy and society (CEP 2013). The new political objectives are manifested in the Lisbon Treaty and entered into force on 1 December 2009. These involve, among other things, the following common purposes (European Union 2008: Article 3):

• create an area of freedom, security and justice without internal frontiers, in which the free movement of persons is ensured;

• establish an internal market, based on balanced economic growth and price stability;

• develop a highly competitive social market economy, aiming at full employment and social progress and a high level of protection and improvement of the quality of the environment;

• promote scientific and technological advances; and

• establish an economic and monetary union whose currency is the euro.

With a similar intent to foster economic development of larger regions and regulate trade between member states, institutions such as the ‘G8’, a consortium of the eight largest industrial economies (United States, Germany, France, Canada, Italy, Japan, United Kingdom and Russia) has been installed in order to monitor and manage the emerging global world economy. Joint efforts of the G8 are concentrated towards achieving economic stability and sustainable growth, thereby dealing with central questions of international trade, foreign and security policy, development policy, and emerging topics of climate and energy (Deutsche Bundesregierung 2013).

An additional effect of globalization is the growing diversity of actors that participate in country-spanning activities (Parker 2005:8). The advent of modern communication technologies has made individuals around the world more closely connected than ever before. More reliable and widespread transportation systems allow us to almost effortlessly travel across different countries and nations. Especially for businesses, the upsurge in international trade and global integration provides a vast array of new and attractive opportunities. Ongoing technological innovation and the shift of operations into emerging countries have made production more efficient. Products and half-assembled components are produced in different locations all around the globe. International sourcing, combined with more sophisticated means of distribution, additionally lower costs for firms that seek to expand into international markets (Czinkota et al. 2011: 5–6).

These accelerated developments led to the emergence of so-called multinational enterprises (MNEs). An MNE is typically defined as a large and resource-rich corporation engaged in a variety of value-adding activities in multiple country regions. The traditional MNE has conducted foreign direct investments in a number of markets located abroad and usually possesses a network of subsidiaries over which it maintains direct hierarchical control (Cavusgil et al. 2008: 13; Shenkar and Luo 2008: 10). Multinational enterprises combine the advantages of different geographical locations for their product development, production and sales facilities in a comprehensive set of global strategies. The superior competitive position of MNEs is, in this sense, derived from their multi-level social and economic embeddedness in different national and international contexts. The interaction of the MNE’s foreign subsidiaries with regional actors (e.g. suppliers, customers, competitors, governments, industry associations, etc.) in their local environments is a vital source of the company’s technological and market-driven competencies. Economic, institutional and socio-cultural linkages of the MNE and its affiliates thus form the basis for the multinational’s position in the global marketplace. Consequently, multinational companies provide a raw model of successful business management in the emerging globalized economy (Heidenreich 2012: 549–50).

While large MNEs have typically been considered to be main players in international business due to their favourable resource endowments, in recent times, more and more small- and medium-sized firms (SMEs) have entered global markets (Cavusgil et al. 2008: 13). Though these firms are regularly constrained by limited resource assets compared to resource-rich multinationals, the globalization of markets and the advent of the World Wide Web have significantly improved the conditions for the participation of SMEs in international business. SMEs have advanced as important market participants in most industries, incorporating the role of suppliers, distributors and even customers of larger firms. With regard to the growing number of small- and medium-sized firms that are engaged in cross-country activities worldwide, their growing international expansion has particular implications for the structure and development of the global marketplace. While SMEs get involved in the manufacturing and supply operations of other economic actors, they increasingly shape the structure of internationally widespread industrial markets (Ndubisi and Matanda 2011: 334). Ninety-nine per cent of all businesses in Europe are classified as small- and medium-sized enterprises. By generating ‘more than half of the total value-added created by businesses in the EU […], SMEs [form] the true backbone of the European economy’ (European Commission 2013).

Opportunities

Firms are making use of liberalized trade patterns and almost borderless foreign direct investment opportunities. These opportunities allow them to seek to supplement their existing technologies and manufacturing processes by expanding internationally in order to gain access to rare and new knowledge (Chidlow et al. 2009: 119). Newly upcoming technologies for data storage and information exchange, along with advanced hardware and software systems, help them take advantage of real-time communication. A global firm is able to communicate with its suppliers, service providers and customers, who are often spread around the world, much faster and at less cost than in the past. Overall, a firm can make use of borderless business opportunities. But challenges, often underestimated or even ignored by the management, have developed accordingly. Why? Overall, the firm’s interfaces with its external international environment have become multifaceted and ‘the factor of time’ in daily business has become the key to success or failure. The ‘factor of time’ is defined as the time spent from research and development to the market launch of a product or service. Why has the time factor become crucial in the light of globalized business-to-business market surroundings?

• Technology life cycles and product life cycles shorten while, simultaneously, research and development as well as investments in operations and the firm’s necessary service infrastructure increase. As a result, costs have to be amortized within shorter time horizons. The firm’s management must continually raise and answer the question of whether the firm’s product and service can keep pace with its competitors on a global scale.

• Due to the liberalization of world trade, market dynamics have accelerated. There are no ‘safe haven’ markets anymore. A firm that is leading the market today may easily run into trouble or even face the risk of disappearing tomorrow – if new technological trends are mistakenly forecasted or, in the worst case, ignored.

The challenge in this context is to understand internationalization as a process that is highly dynamic and time dependent (Hurmerinta-Peltomäki 2003: 217). Time enables us to understand and better forecast the firm’s macro environmental economic, political-historical and societal dimensions. Thus, from an international firm’s perspective, there are, among others, the following time-dependent developments in global business-to-business.

• Globally interlinked markets cause domino effects. Financial and economic turbulence in one market is rapidly transferred to other markets even if the markets are geographically located at a great distance from each other.

• It is questionable, for a Western firm’s manageme...