All the praises and thanks are for the Almighty Allah, who is entire source of all knowledge and wisdom endowed to man, I indebted heartedly to Him for all His beneficiaries to me

And purchasing of industrial goods

By

Hakon hakansson

Submitted to: Ma’am Malka Liaquat

Submitted by:

Shahzad Haider, Tahseen Fraz, Zeshan Ilyas

(2073) (2004) (2065)

Program: BBA (HONS)

Semester: 7th

DEDICATION

Dedication is a devotion to whom we love, who are our benefactors, who pray for us and who made us capable of doing all these under this head, here are two personalities, who are our

PARENTS and the person Ma’am Malka Liaquat, a most devoted person for our future. So we have devoted our Book Review to our beloved parents and beloved Ma’am.

Contents

1. IntroductionA CHALLENGE ......................................................................................... 1MARKETS FOR INDUSTRIAL GOODS ..................................................... 1BENEFITS OF STABILITY AND OBSTACLES TO CHANGE ININDUSTRIAL MARKETS..................................................................................1 IMPLICATIONS FOR PRACTITIONERS ..................................................... 1Marketing Management .......................................................................................1 Purchasing Management ......................................................................................1 Industrial Policy ...................................................................................................1

BASIC FEATURES OF THE PROJECT ............................................................1

2. An Interaction ApproachINTRODUCTION .........................................................................................RELATIONS TO PREVIOUS RESEARCH ....................................................Inter-organizational Theory and Marketing Literature ..........................The New Institutionalists .......................................................................OUTLINE OF THE MODEL .........................................................................THE INTERACTION MODEL ......................................................................The Interaction Process ..........................................................................The Interacting Parties ...........................................................................The Interaction Environment .................................................................The Atmosphere .....................................................................................IMPLICATIONS FOR MANAGEMENT .........................................................Marketing Management .........................................................................Purchasing Management ........................................................................

3. MethodologyINTRODUCTION .........................................................................................RESEARCH APPROACH . .THE FORMULATION PHASE . . Research Design . . The End of the Formulation Process . . THE DESIGNING PHASE . . Introduction . . General Interview Procedure . . Operationalization of the Variables . .

The End of the Design Phase . . THE COMPLETION PHASE . .

Introduction . . Completion Problems . .Evaluation . . Conclusions . . THE ANALYSING PHASE . . The Evolution of an Organization . . The Coding Manuals and the Coding Work . . Case Analysis . . Statement Analysis . . Theme Analyses . . SOME PROBLEMS IN CARRYING OUT AN INTERNATIONALRESEARCH PROJECT . . Initial Objectives . . Theoretical Position . . Communication . . Allocation of Work . . Language . . Output . .

4. Company CasesINTRODUCTION . . SECTION 4.1 MARKETING OF RAW AND PROCESSEDMATERIALSCHARACTERISTIC MARKETING PROBLEMS AND STRATEGIES SIDEREX S.p.A., Ivan Snehota . . SWESTEEL, Hakan Håkansson . . STAHLWERKE AG, Michael Kutschker . . BRITMET — A Marketing Case Study of a Large Producer of Special SteelProducts, Peter W. Turnbull 88BELTER METALS, David Ford ............................................................................. SECTION 4.2 MARKETING OF COMPONENTSCHARACTERISTIC MARKETING PROBLEMS AND STRATEGIES SUD COMPOSANTS, Claude Marcel and Michel Perrin ............................. AUTOSTART, Malcolm T. Cunningham ......................................................

FRANCELEC, Michel Perrin and Jean-Paul Valla ........................................... MEKANIK & MOTOR – A Case about the Marketing of Components toa Systems Seller, Lars Hallen .......................................................................... MASCHINENTECHNIK GmbH UND MOTOREN AG, MichaelKutschker ............................................................................................................

SECTION 4.3 MARKETING OF EQUIPMENTCHARACTERISTIC MARKETING PROBLEMS AND STRATEGIES UNIFIX LTD. – A Supplier of large Components to the Marine Industryand the Electric Power Generation Industry, Elling Homse .....................SVENSK PROCESSTEKNIK – A Case about Marketing of Equipment tothe Process Industry, Jan Johanson ...................................................... MECAMINE, Robert Salle and Michel Perrin .............................................. GENERAL INTRODUCTION TO PURCHASING CASESSECTION 4.4 PURCHASING IN FIRMS WITH UNIT PRODUCTIONTECHNOLOGYCHARACTERISTIC PURCHASING PROBLEMS .......................................... ELECTRA S.p.A., Ivan Snehota ................................................................... ANTRIEBSWERKE AG, Michael Kutschker ...................................................... TEXIMAC – The Multiple Sourcing Purchasing Policy of a BritishMachinery Manufacturer Dealing with German and UK ComponentSuppliers, Malcolm T. Cunningham .............................................................. SALKA LIQUID TECHNIQUE – Purchasing of Material and Components,Jan Johanson ....................................................................................

SECTION 4.5 PURCHASING IN FIRMS WITH MASSPRODUCTION TECHNOLOGYCHARACTERISTIC PURCHASING PROBLEMS .......................................... ACE MOTORS, David Ford .......................................................................... SPRINTER, Malcolm T. Cunningham ................................................................. SVEFO – A Case about the Purchasing of Components in the AutomotiveIndustry, Lars Hallen .............................................................................. AUTO EQUIPEMENT, Claude Marcel and Jean-Paul Valla ........................... SECTION 4.6 PURCHASING IN FIRMS WITH PROCESSPRODUCTIONTECHNOLOGYCHARACTERISTIC PURCHASING PROBLEMS ................................................ BRITAPAINTS AND COLOREX – The Purchasing Strategies of TwoPaint Manufacturers, Malcolm T. Cunningham ..................................... LYON ACIER, Robert Salle and Jean-Paul Valla .........................................

CHAPTER NO.1

INTRODUCTIONMarkets for Industrial goods

The market is the place where supply meets demand. Suppliers and customers meet,discuss and evaluate the conditions for exchange of goods and services, andexchanges take place.

BENEFITS OF STABILITY AND OBSTACLES TO CHANGE ININDUSTRIAL MARKETS

We may firstly consider the purchasing firm and the benefits to it of stability and itsunwillingness to change suppliers. It is possible to distinguish three different groupsof explanatory factors:

1.) Search & Evaluation2.) Internel Routines & Experince staff3.) Technology adopt & Knowledge gained

Marketing ManagementAs we mentioned in the first section of this chapter, the models and principles forindustrial marketing management that are given by the literature are normallyrelated to the marketing mix model. The problems identified in these are theallocation of resources and the designing of competitive means. However, marketersin for example, a highly concentrated industry may find different problems. Theissues associated with the handling of ten very large customers are of totallydifferent character from those of handling 1,000 small customers. Thus, marketersin firms in concentrated markets have a lack of accurate models for analysing theirmarketing problems. They have also a lack of relevant data expressed in asystematic way about the behaviour of other firms in the same situation.Purchasing ManagementThe position facing purchasing management is similar to that for marketing. Theirmodels and principles for operation are mostly developed within the context ofsingle purchasing decisions, although there are also some examples of analysisfocused more on the long term relationships.' Buyers have perhaps accepted thereality of stable markets more readily than marketers, because there have beenobvious reasons for not changing suppliers too often. However the predominanttradition in purchasing literature emphasizes the continuous evaluation of suppliersand, by implication the frequency of decisions on new sources

Industrial PolicyThe actions taken by politicians in order to control the economic development (orregression) in a country are often aimed at influencing the behaviour of firms. Theseactions must be based on realistic models of the behaviour of firms. The assumptionsthat are frequently made and the models which are used rely heavily on a marketmodel which assumes free and independent units on each side. In the same way, the

data that is collected for policy decisions is structured and deter-mined by thesemodels.

CHAPTER NO.2An Interaction Approach

RELATIONS TO PREVIOUS RESEARCH

Our theoretical framework can be traced back to two major theoretical modelsfrom outside the marketing literature. These are Inter-Organizational Theory andthe New Institutional Economic Theory. At the same time it is possible to relateour approach to earlier thinking in marketing and purchasing as well as someemerging trends in the marketing and purchasing literature.

The New Institutionalists

Our theoretical framework is closely related to both `inter-organizational theory'

and the `new institutionalists'. At the same time it is directly related to evolutions inthe literature of marketing, and particularly to the emphasis on inter-companyrelationships. This has emerged from those studies having a distribution systemperspective and more recently from those empirically based studies which haveemphasized the importance of inter-company relations.

OUTLINE OF THE MODEL

Our approach to industrial markets – The Interaction Approach – is based on thetheoretical idea described earlier. It is also built on a number of factors which ourearlier empirical studies indicate are important in industrial markets and whichappear to have been largely neglected in previous research:Firstly, that both buyer and seller are active participants in the market. Each mayengage in search to find a suitable buyer or seller, to prepare specifications ofrequirements or offerings and to manipulate or attempt to control the transactionprocess.Secondly, the relationship between buyer and seller is frequently long term, closeand involving a complex pattern of interaction between and within each company.The marketers' and buyers' task in this case may have more to do with maintainingthese relationships than with making a straightforward sale or purchase.Thirdly, the links between buyer and seller often become institutionalized into a

set of roles that each party expects the other to perform, for example the division ofproduct development responsibility, or the decision as to who should carry inventoryand test products. These processes may require significant adaptations inorganization or operation by either or both companies. Clearly, these relationshipscan involve both conflict as well as co-operation.Fourthly, close relationships are often considered in the context of continuous raw

material or component supply. However, we would emphasize the importance ofprevious purchases, mutual evaluation and the associated relationship between thecompanies in the case of infrequently purchased products. Further, we are concernedin this research with the nature of the relationship between a buying and sellingcompany which may be built up during the course of a single major transaction.Our focus is generally on a two party relationship, but the approach can be appliedalso to a several party relationship. This, indeed, may be necessary to accommodatethe study of the simultaneous interactions between several buying and sellingcompanies in a particular industry. The main components of our approach areillustrated in Figure 2.1.In the figure we identify four groups of variables that describe and influence theinteraction between buying and selling companies:variables describing the parties involved, both as organizations and as individuals;variables describing the elements and process of interaction;variables describing the environment within which the interaction takes place;variables describing the atmosphere affecting and affected by the interaction.The approach does not only involve an analysis of these groups of variables but italso includes the relations between them.

THE INTERACTION MODEL

The marketing and purchasing of industrial goods is seen as an interaction processbetween two parties within a certain environment. Our way of analysing industrialmarketing and purchasing has four basic elements which in turn are sub-divided.These are:1. The interaction process .2. The participants in the interaction process3. The environment within which interaction takes place4. The atmosphere affecting and affected by the interaction.

The Interaction Process

(a) Episodes (i) Product or service exchange(ii) Information exchange(iii) Financial exchange(iv) Social exchange.

(b) Relationships

The Interacting Parties

The process of interaction and the relationship between the organizations willdepend not only on the elements of the interaction but also on the characteristics ofthe parties involved. This includes both the characteristics of the two organizationsand the individuals who represent them. The organization factors include thecompanies' position in the market as manufacturer, wholesaler, etc. It also includesthe products which the selling company offers, the production and applicationtechnologies of the two parties and their relative expertise in these areas. Below, wewill discuss some of the major factors:

(a) Technology(b) Organizational size, structure, and strategy(c) Organizational experience(d) Individuals

The Interaction Environment

The interaction between a buying and selling firm cannot be analysed in isolation,but must be considered in a wider context. This wider context has several aspects;

(a) Market structure

(b) Dynamism

(c) Internationalization

(d) Position in the manufacturing channel

(e) The social system

The Atmosphere

The relationships between buying and selling firms are dynamic in being affected bythe individual episodes which take place within them. At the same time they havethe stability which derives from the length of the relationship, its routinization andthe clear expectations which become held by both parties. The relationship isinfluenced by the characteristics of the parties involved and the nature of theinteraction itself. This in turn is a function of the technology involved and theenvironment within which the interaction takes place.

CHAPTER NO. 3

Methodology

RESEARCH APPROACHThe methodological problems of the IMP-project and the way they were solved areprobably best understood in terms of the basic research approach of the project.This can be explained by distinguishing between two basic types of possibleapproaches. The first we refer to as the Co-ordinated Decision Approach and thesecond as the Incremental Commitment Approach

THE FORMULATION PHASEThe First Idea and the Development of Resources and

OrganizationThe Uppsala group was the first to explore the possibilities of research collaborationwith colleagues in other countries. This was in order to add a new dimension to theirseveral observations of relationships between buying and selling firms in industrialmarkets. These earlier studies had been of the inter-national marketing operations ofSwedish firms and of industrial purchasing. These studies led to the objective ofcarrying out a broader investigation of seller–buyer relationships for industrialproducts in several international markets.

Objectives

The research objectives were empirical as well as theoretical. The empiricalobjectives relate to the desire of each of the research groups to extend their ownprevious studies of such subjects as organizational interaction, buyer behaviour,organizational risk handling, decision-making, power dependence, and buyer–sellerrelationships into a wider international context.

Research Design(a) Choice of Relationships to be Studied

(i) The demands of scope

(ii) The demands of depth(b) Main Outline of the Data Collection Procedure

The importance of carrying out the field research work simultaneously in all fivecountries was realized in order to ensure that economic, political, and market conditionswould be consistent and capable of being monitored. The field research was therefore programmed to be completed within a 12 month period. Identical data collection procedures and interview schedules were to be used in all five

countries. These were based on master documents in the English language which were translated into the national language of the other four countries.

The End of the Formulation ProcessThe incremental commitment approach underlines that research must be seen as a

process. A typical characteristic of a process is that it is difficult to divide intodistinctive parts. Thus when we talk about the formulation phase it is a reconstructionof what happened and the end of that phase is difficult to define exactly.Earlier, we have said that the main objectives and the main design were agreed inSeptember 1976. However, a lot of the questions treated above were discussed at thenext meeting in January 1977. This meant that the design phase, which is describednext, took place at least partly in parallel with the formulation phase. This sequencehowever, is not so important. What is important is that after the first meeting theresearchers felt it necessary to proceed to design the study in more detail, bydeveloping questionnaires for example. The main reason for this need for`movement' was a feeling among all the participants that without progress to thisnext step the project could be one among many other inter-national projects that arediscussed but never achieved. Everybody agreed therefore to go further withouthaving an explicit or exact formulation of the project at that stageTHE DESIGNING PHASE

1. The Interaction Process2. The Interacting Parties3. The Interaction Environment4. The Atmosphere

The End of the Design Phase1. Manager Questionnaire2. Operative Questionnaire3. Statements Questionnaire4. Background and Experience Questionnaire5. Interviewer Questionnaire.THE COMPLETION PHASEThis phase comprises the gathering of data throughout the five countries,Using the questionnaires described in the previous section. It was during this phase that some of the problems of co-ordinating an international project of this size becameapparent. However, one of the strengths of the project was the use of researchersoperating in their own countries and languages. This involved the delegation of theresearch task to individual groups in each country. This delegation was within theconstraints of the choice matrix and questionnaire design discussed earlier. Theresearch procedure within each country differed somewhat according to the avail-ableresources.

CHAPTER No.4

Company CasesINTRODUCTIONThe use of company cases is intended to serve three purposes:

(i) In all the cases some relationships between selling and buying companies aredescribed and analysed in accordance with the theoretical model presented inchapter two. Thus the cases can be seen as illustrations to how the model can beused: additionally, they are also developing the model by relating the variablesto each other. In this way the model is gradually reaching an explanatory level.

(ii) All the company cases contain data about different industrial markets, therefore,they can be seen as pictures of small parts of these markets. If all the cases areseen together they form a more comprehensive picture of how industrial marketswork.

(iii) Almost all cases focus on a specific company's situation in relation to certain ofits customers or suppliers and describe how the relationships develop and arehandled. In this way the cases give a special insight and relevant illustration ofwhat kind of marketing and purchasing problems these kinds of companiesencounter.1. Marketing of raw and processed materials2. Marketing of components3. Marketing of equipment4. Purchasing by companies with unit-production technology5. Purchasing by companies with mass-production technology6. Purchasing by companies with process-production technologyCharacteristics of the Interacting Parties

1.) The Companies2.) The Individuals

Characteristics of the Interaction Environment1.) Market Environment2.) The Atmosphere