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How procurement managers viewlow cost countries

and geographiesA perceptual mapping approach

Joseph R. Carter, Arnold Maltz and Tingting YanW.P. Carey School of Business, Arizona State University, Tempe,

Arizona, USA, and

Elliot MaltzAtkinson School of Business, Williamette University, Salem, Oregon, USA

Abstract

Purpose There is good evidence that the shift in global sourcing is toward so-called low costcountry suppliers. Yet conditions in these countries are often not well-known. At the same time, bestpractices in integrated supply dictate a multi-faceted decision, rather than basing supplier location ona single attribute say, labor cost alone. With these issues in mind, a research project was formulatedwith two primary objectives. First, the authors wanted to compile the knowledge and perceptions ofpurchasing managers regarding low cost regions and their capabilities and to reflect the multiplefactors involved in current sourcing strategies and supplier selection decisions in these low costgeographies. Second, the authors wanted to compare managers subjective perceptions with objectivedata regarding attributes of sourcing locations to identify the relationship between perceptions andreality. This paper aims to explore the issues.

Design/methodology/approach The authors surveyed over 100 sourcing professionals on theirperceptions of various low cost sourcing alternatives. Perceptual mapping techniques were used tocombine the rankings on some 12 different attributes to visualize how the various attributes relate toeach other and how the low cost regions compare when rated against sourcing managers idealperceptions.

Findings The research results show that procurement managers select regions for low costsourcing based on both specific measures and individual and/or group perceptions of the region,whether these perceptions are correct or not. This paper probes these perceptions. Also the papercompares these subjective perceptions with objective data to show that cultural stereotypes may biasmanagers perception of location-specific characteristics. The paper closes with implications forprocurement managers and opportunities for further research.

Practical implications The authors have demonstrated that purchasing managers choosesourcing locations using multiple criteria instead of only focusing on cost. But some perceptions arebiased by cultural stereotypes and do not reflect reality. This suggests that managers have tobe careful when using their subjective judgment in choosing sourcing locations.

Originality/value The authors believe that visual representations of alternative sourcing optionshave great potential to improve the efficiency of cross-disciplinary and multi-company teams that areincreasingly responsible for global sourcing strategies. Comparing managers perception withobjective data of location attributes shows that mangers perception may be biased by culturalstereotypes.

Keywords Sourcing, Supplier evaluation, International business

Paper type Research paper

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0960-0035.htm

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Received 28 August 2007Revised 29 January 2008Accepted 31 January 2008

International Journal of PhysicalDistribution & LogisticsManagementVol. 38 No. 3, 2008pp. 224-243q Emerald Group Publishing Limited0960-0035DOI 10.1108/09600030810866995


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IntroductionGlobal sourcing is now an automatic expectation to respond to competition. But thechoice of where to obtain goods and services is not a static decision. It is subject tocontinual reevaluation. As Table I shows, patterns of US sourcing can move very

rapidly. Furthermore, there is good evidence that the shift will be toward so-called lowcost country suppliers (LCCS) (Timmermans, 2005). Much literature in outsourcingfocuses on specific supplier-related instead of location-related criteria. Thus, little isknown about sourcing conditions in these countries. At the same time, best practices insourcing dictate a multi-attribute, weighted decision, rather than basing supplierlocation on a single factor say, labor cost alone (Stalk, 2006; Timmermans, 2005; Buttaand Huq, 1992).

With these issues in mind, the authors formulated a research project with threeprimary objectives. First, the authors wanted to compile the knowledge andperceptions of purchasing managers relative to low cost regions and their capabilities.Second, the authors wanted to reflect the multiple factors involved in current sourcingstrategies and supplier selection decisions (Butta and Huq, 1992; Kirkwood et al., 2005).Third, the authors wanted to compare managers subjective perceptions with objectivedata regarding attributes of sourcing locations to identify the relationship betweenperceptions and reality. Therefore, with the help of the Center for AdvancedProcurement and Supply Research (CAPS Research), the authors surveyed over 100procurement professionals on their perceptions of various low cost country sourcingalternatives. All of these responding firms were large US Fortune 500 multinationals.We asked for rankings on some 12 different attributes that have been identified asimportant drivers of global sourcing decisions (Maltz et al., 2004; Carter andNarasimhan, 1996). Then perceptual mapping (Hair, 1995) was used to combine theserankings to visualize how the various attributes relate to each other and how the lowcost regions compare when rated against procurement managers ideal perceptions.

Finally, conceptions are compared with objective data to find out whether theseperceptions reflect the reality or are biased by cultural stereotypes.

2000 2005 Percentage of change

US total 1,222.0 1,671.0 37.3Canada 229.0 288.0 25.6China 100.0 244.0 143.3Mexico 135.0 170.0 25.2 Japan 147.0 138.1 25.8 Brazil 14.0 24.4 76.4

India 10.7 18.8 76.0Viet Nam 0.8 6.6 706.9South Africa 4.2 5.9 39.5Czech Republic 1.1 2.2 106.4Egypt 0.9 2.1 135.5Cambodia 0.8 1.8 113.9

Romania 0.5 1.2 157.0

Source: US Department of Commerce (2007)

TableSelected US imports b

value 2000 vs 200($ in billion

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The remainder of the paper is organized as follows. The first section includes a shortliterature review on previous studies in global sourcing and the limited treatments oflow cost country sourcing, integrating procurement managers perception in supplierselection decision making and the role of cultural stereotypes in forming these

perceptions. Then the authors explain the objectives and approach of the research inmore detail, as well as the details of the survey and sample frame. The results follow,including both single attribute and multi-attribute perspectives on the various low costregions. Then comparisons between the mapped perceptions of different areas andobjective data of location attributes are conducted to identify biases. Finally, the papercloses with a discussion of implications of the results for academics and practitioners,including limitations which point to the need for further in-depth work on low costregion sourcing issues.

Literature reviewCompanies are establishing and executing global outsourcing plans in order to (Carteret al., 2005):

.

match competitors in their outsourcing endeavors;. improve non-competitive cost structures;. focus on core competencies and reduce capital investment and overall fixed costs;. achieve cost competitive growth in the supply base for goods, services and

technologies in a companys value chain; and. establish a future sales footprint in a low-cost country by outsourcing basic

goods or business processes.

Effective outsourcing requires good processes to evaluate the many factors relatedto where to outsource, that is, how to find the supplier locations globally that alignbest with future plans (Hedderich et al., 2005). Such processes will often include a

screening step with respect to geography, since factors such as infrastructure,market attractiveness, and cost levels are characteristics of regions or countriesrather than specific suppliers (Teng and Jaramillo, 2005). All these screening factorsfrequently lead procurement managers to consider low cost countries andgeographies for their supply needs. Although the work being transferred to India-and China-based suppliers has received the majority of the headlines, countries suchas the Brazil, Russia, and the Czech Republic are also significant locations foroutsourcing (Hedderich et al., 2006). Thus, how managers perceive these potentialgeographies before they select specific suppliers within each area is an importantunanswered question.

The influence of managers perceptions on actual decisions is well-established.Webster and Wind (1972) in their book Organizational Buying Behaviorsuggested thatboth rational variables such as price, quality, flexibility, etc. and individualpsychological variables, such as perceptions of the decision-making context, should beconsidered in explaining organizational purchasing behaviors. In fact, Sterman (1989)found that misperceptions of buyer-supplier communications can lead to poorperformance. Similarly perceived risk has been shown to significantly affect complexdecision making, such as make versus buy evaluations (Sitkin and Weingart, 1995;Heragu et al., 2005). In another study, perceptions of usefulness and ease of use werefound to be direct antecedents of a buyers behavioral intention to use a new

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technology (Bala and Long, 2004). It seems clear that analytical reasoning alone cannotbe effective unless it is guided by emotion and affect (Slovic et al., 2007). Perceptionscan be as influential as objective knowledge on complex decision processes.

However, the literature in supply management, especially in the supplier selection

area, does not highlight the differing perceptions of purchasing managers. Supplierselection studies can be grouped into two major categories: supplier selection criteria(Wilson, 1994; Vonderembse and Tracey, 1999; Sharland, 2003; Choi and Hartley, 1996;Weber et al., 1991; de Boer et al., 2001) and supplier selection decision models (Sarkisand Talluri, 2002; Muralidharan, 2002; de Boer and van der Wegen, 2003; Khurrum andFaizul, 2002; Narasimhan et al., 2006). They emphasize the strategic importance of thesupplier selection process and highlight the tradeoff among quality, cost, and deliveryperformance measures in the supplier selection process. Most of these studies ignoreprocurement managers perception as an important information source for outsourcingdecision making. Also little research is done to explore purchasing managers criteriaused to select sourcing areas instead of individual suppliers within a certain area.Although it was shown (Verma and Pullman, 1998) that managers perception do notnecessarily lead to their actual decisions in the individual supplier selection process, itdoes not necessarily mean managers perception of location-relatedadvantages/disadvantages have no impact on their actual location choice. Thereason is that many geography-specific criteria, such as security of intellectualproperty, government corruption, etc. unlike characteristics related with individualsuppliers within a certain area, are often difficult to quantify and evaluate. Thus,experienced procurement managers perceptions may be a valuable source forunderstanding geographic areas selection.

Managers perceptions, however, may be biased. White (1979) demonstratedempirically the existence of stereotypes US purchasing managers have aboutindustrial products manufactured in England, France, Italy, and West Germany, as

well as the USA. Chen et al. (2007) showed that culture could act as either a moderatoror an independent variable to affect managers perceptions. Social psychologists havelong been interested in stereotypes and prejudice, concepts that are typically viewed asbeing very much interrelated. Devine (1989) found out that the stereotype isautomatically activated in the presence of a member (or some symbolic equivalent) ofthe stereotyped group and that low-prejudice responses require controlled inhibition ofthe automatically activated stereotype. Blair (2002) further found out that automaticstereotypes and prejudice are influenced by:

. self- and social motives;

. specific strategies;

. the perceivers focus of attention; and

. the configuration of stimulus cues.

Literature in this field holds that prejudice is inevitable as long as subjects areknowledgeable of cultural stereotypes unless subjects consciously monitor and inhibitstereotypes activation. From this theoretical perspective, we propose that culturestereotypes play a role in forming managers perception of different sourcing areas.Furthermore, managers perception may be biased by these stereotypes and do notreflect the objective truth.

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and maximize overall performance. Understanding the location-specific advantagesand disadvantages of various suppliers will facilitate the formation of such portfolios.Also, whether managers perception of these location-specific advantages anddisadvantages reflects the reality or is biased by some stereotypes is an important

question in terms of determining how much unbiased information could be obtainedfrom exploring managers perception.

Research hypothesesDerived from previous outsourcing literature, especially supplier selection literature,and the theory of stereotypes and prejudice in sociology, this section developshypotheses examining purchasing managers perceptions of location-specificadvantages and disadvantages of low cost countries in their sourcing decisions.

Although the name Low Cost Country Sourcing seems to suggest that cost is theprimary, even only, driver in sourcing from such low cost countries as China and India,we believe that experienced purchasing managers in leading companies do not base

their location choice only on cost. As previous literature suggests (Kouvelis andNiederhoff, 2007; Sarkis and Talluri, 2002), low labor cost is no longer the only driver ofmuch US offshoring/outsourcing activity. Furthermore, supply professionals haveincreasingly emphasized the need to take into account multiple factors when makingsourcing/outsourcing/offshoring decisions. Thus, we propose:

H1. Perceived location-specific advantages and disadvantages of varioussuppliers in low cost countries and geographies have multiple underlyingdimensions not limited to cost.

As argued above, sourcing country selection is a multi-attribute decision. Thus, it ispossible that different geographical areas outperform the others on different individualattributes. Furthermore, different companies have different motivations for

outsourcing, leading to different strategic preferences for sourcing locations.Therefore, it is less meaningful and efficient to use individual attributes to aid theselection than using aggregate attributes, which are the underlying driving constructsidentified by perceptual analysis. Thus, we propose:

H2. Managers perception of countries location-specific advantages anddisadvantages at an aggregate-attribute level produce more meaingfulinsights for aiding location selection decisions than that examiningperceptions one attribute at a time.

Taking the theoretical perspective that the causal relationship between culturalstereotypes and prejudice is almost unavoidable (Devine, 1989), we suggest thatmanagers perceptions of location-related characteristics are biased by their cultural

sterotypes. Country-related characteristics, such as work ethic, intellectual propertysecurity, government corruption, etc. are usually hard to quantitatively verify.Sourcing managers have to rely on either their experience or general knowledge of thatspecific country or people from that country. From the theory of stereotypes andprejudice, we know that prejudice is inevitable as long as subjects are knowledgeableof cultural stereotypes, unless subjects consciously monitor and inhibit stereotypeactivation. Thus, we have reason to believe that:

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H3. Managers perception of some location-specific advantages anddisadvantages of different suppliers in low cost countries and geographiesis biased, and in some cases, incorrect.

Research approachAs our main source of primary data, the team developed a survey that profiled eachrespondents perception of sourcing from various low cost countries and geographies.The team surveyed over 100 procurement managers on their perceptions of ten lowcost geographies across 12 evaluation criteria of attractiveness as supply sources(Maltz et al., 2004). Perceptual mapping techniques were used to condense theinformation provided into a two dimensional display showing not only the relativeattractiveness of the various low cost regions, but also suggesting the sources ofthe relative competitive positions for the various geographies.

Perceptual mapping is a graphics technique used by researchers that attempts tovisually display the perceptions of respondents, usually in two dimensions that arecomposites of rankings on multiple factors. Displaying our survey respondentsperceptions of related low cost countries and geographies is only half the story.Perceptual maps also display ideal vectors[1]. Ideal vectors reflect preferencesamong possible benefits and combinations of benefits summarized in twodimensions as seen by each respondent. Average ideal vectors can be generatedbased on the expressed preferences of each respondent in the overall sample. Thedirection of the ideal vector indicates the relative importance of the two dimensionsto the overall ideal, while the length of the vector represents the magnitude of thecombined ratings on the included benefits. The ideal vector for the full sampleprovides guidance as to the overall samples view of the relative importance of thebenefits suggested by the composite dimensions. Similarly, ratings for each country

can be combined and a position computed which represents the countrys compositeratings vs the two derived dimensions.Ideal vectors can also be generated at the individual level. In this case, clusters of

ideal vectors can be identified to produce segments within the overall sample. As wenote below, individual ideal vectors can radiate from the origin to anywhere on themap. As such it is possible to identify procurement manager segments with verydifferent benefit profiles.

A company considering outsourcing can use the map to identify the benefit profilethat suits them and then identify the country that best fits that benefit profile. Ifsufficient industry information is available (e.g. company size, industry) a firm mayalso use the map to identify the benefit profiles attached to competitive firms. Thisallows a firm to reconsider whether the current benefit profile they are using to make

sourcing decisions is consistent with the demographic group in which they arecompeting.

Perceptual maps need not come from a detailed study, and in fact the data here arecreated based upon the respondents understanding of each country or geographyusing their best judgment. We do not claim objective reality for these results. But theperspectives summarized represent the current thinking of procurement managerswho have significant input into the outsourcing, supplier selection, and locationdecisions.

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Survey and sample frameA survey instrument was formulated which asked each respondent to rate ten differentgeographical areas (geographies) on 12 attributes. A list of the geographies and theirdescription on the survey is:

. Coastal China (e.g. Beijing, Shanghai, Guangdong).

. Inland China (e.g. Chongquing, Lanzhou, Kunming).

. Less developed Asia (e.g. Vietnam, Cambodia).

. Eastern Europe (e.g. Romania, Bulgaria, Ukraine).

. Russia/Central Asia (e.g. Russia, Kazakhstan, Baluchistan).

. Africa (other than South Africa and Botswana).

. South America (other than Brazil, Chile, and Argentina).

. Urban India (e.g. Bangalore, Mumbai, Delhi).

. Rural India.

. Mexico.

A list of the relevant attributes is:. Labor cost unit cost of direct labor, usually per hour or per piece.. Work ethic.. Security of intellectual property.. Attraction of local market.. Reliably meet customer requirements deliver complete orders on time.. Transportation reliability consistency of lead times.. Transportation cost cost from source to buyers location.. Government support for business.. Political stability.. Flexibility ability to react to changes in requirements.. Predictable border clearance times.. Government corruption.. Overall, attractiveness for sourcing.

We also asked each respondent to rate his/her overall preference for each of the tengeographies. The survey was physically designed and administered online(Zoomerang) by CAPS Research in 2006.

Attributes were chosen based on previous case study work (Maltz et al., 2004) aswell as a review of previous articles on global sourcing criteria. We note that recentlyconsultants and academics have suggested that US firms in particular have placed toomuch importance on lower labor costs in less developed countries and are oftendisappointed (Kouvelis and Niederhoff, 2007; Stalk, 2006). In addition, the supplymanagement literature specifically advocates a multidimensional decision makingprocess. However, other than checklists and ranking procedures, there are fewexamples of how to address the various decision drivers simultaneously and in a

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rigorous, orderly fashion. Thus, one of the contributions of this research is a possibleapproach to combining the various recommended criteria for global outsourcing.

The choice of geographies was based on other research (Crnic et al., 2006) and uponprevious case study work, conversations with practitioners, and in depth scanning of

practitioner journals. We deliberately elected to go beyond the typical countrydesignation in the case of China and India because several practitioners had pointedout the wide variation between regions in those countries. On the other hand,comparison procedures such as perceptual mapping have a practical upper limit interms of the number of alternatives respondents can evaluate. Therefore, we usedregional country groupings in the case of Southern Asia, South America, and EasternEurope. Finally, we culled out Mexico separately because of its large volume of tradewith the USA and the continuing effects of NAFTA.

Our initial sample frame was approximately 1,000 purchasing managers andexecutives from the CAPS Survey database. Over 170 managers responded, but manyhad little or no data to share on the various geographies. Our final sample consists of101 fairly complete surveys, although actual responses vary by geography. Analysisfor non-response bias was performed by comparing early vs late responses on tenrandomly selected questions (Armstrong and Overton, 1977). For all ten questionsunequal variance t-tests could not reject the hypothesis of equal mean values. Actualt-statistics ranged from 0.35 to 0.97.

Around 81 respondents were employed by organizations headquartered in NorthAmerica, twelve were from Western Europe, and eight were from Asia (4), the MiddleEast (2), Australia (1) and South America (1). In terms of industry classification, thelargest groups were industrial manufacturing (16), aerospace/defense (7), chemical(7), consumer products (7), food and beverage (6), and financial services (6). Parentorganizations were large, with mean employment of nearly 40,000. Forty of therespondents worked for companies with over $10 billion in revenue in 2005, ten for

companies between $5 and $10 billion, and 39 companies recorded 2005 revenuesbetween $1 billion and $5 billion.

ResultsIndividual attribute findingsThe outsourcing decision is driven by multiple considerations, but prior research hasestablished the continuing importance of cost as first among equals (Kirkwood et al.,2005). Previous research has also identified and evaluated a variety of possibleinfluences on the sourcing/outsourcing decision. In conversations with procurementmanagers, we similarly found that one, two, or three specific concerns often emerged inaddition to the need for cost reduction. Thus, we begin our analysis of supply

managers views on geographies by looking at how these geographies ranked onindividual attributes.

Table II summarizes key findings from our analysis at the individual attribute level.Respondents were asked to rate each region on all attributes (column 1) on a scale from1 to 7, with 7 indicating a very favorable impression of the region on the attribute, and1 indicating a very unfavorable impression of the region on the specific attribute. Thesecond column of the table shows the mean for all respondents across all regions on theparticular attribute, the third column lists the two regions with the highest mean

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scores, and the fourth column shows the two regions with the lowest mean scores.Actual means by region are in parentheses[2].

Any screening process requires a well-defined rankingprocedure which produces clearresults. Interestingly, Table II suggests that Africa can typically be eliminated fromconsideration because it is statistically worse than even the second lowest area on thecriteria of work ethic, local market attraction, reliability, political stability, flexibility,border clearance times, and overall attractiveness. Furthermore, Africa was also ratedlowest, though not statistically distinct, on transportation reliability, transportation cost,

government support for business, and government corruption. In fairness we should notethat only 50 or so of our respondents rated Africa at all, vs 70-80 raters for the othergeographies, suggesting that lack of knowledge, rather than first hand experience of poorperformance, may be driving the higher perceived risk of sourcing products and servicesfrom Africa. It is possible that companies that have never sourced from Africa will have abetter experience, but we cannot conclude that from our information. To avoid thesepossible biases, we elected to eliminate Africa from the multi-attribute analysis which isshown below.

Attribute Mean

Two regionswith highestscores

Two regionswith lowestscores

Labor cost 5.18 Inland China (5.93) South America (4.60)Less developed Asia (5.90) Mexico (4.62)

Work ethic 4.93 Coastal China (5.69) Africa (3.66) *

Urban India (5.50) Russia (4.36)Security of intellectual property 3.55 Mexico (4.51) Inland China (2.40)

Urban India (4.39) Coastal China (2.63)Attraction of local market 4.79 Coastal China (6.12) * Africa (3.41) *

Urban India (5.59) Russia (4.34)Reliably meet customer requirements 4.55 Coastal China (5.22) Africa (3.50) *

Urban India (5.18) Russia (4.12)Transportation reliability 4.29 Coastal China (5.26) Africa (3.23)

Mexico (5.08) Less dev. Asia (3.58)Transportation cost 3.97 Mexico (5.00) Africa (3.10)

Coastal China (4.44) Rural India (3.37)Government support for business 4.49 Coastal China (5.18) Africa (3.31)Urban India (5.06) Russia (3.73)

Political stability 4.41 Urban India (5.35) Africa (2.60) *

Mexico (5.33) Russia (3.71)Flexibility 4.28 Coastal China (5.05) Africa (3.14) *

Urban India (4.88) Russia (3.84)Predictable border clearance times 4.33 Mexico (5.41) Africa (3.04) *

Urban India (4.92) Russia (3.67)Government corruption 3.67 Urban India (4.45) Africa (2.76)

Mexico (4.18) Russia (3.02)Overall attractiveness for sourcing 4.62 China (5.80) Africa (2.86) *

Urban India (5.47) Russia (3.75)

Note:

*

Indicates difference between the two regions is statistically significant at p

0.05 based ontwo sample t-test

Table IOverview of attribu

evaluation by geograph(all variables scored fro1 to 7, with 7 being ver

favorable andunfavorab

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Consideration of the highest scoring regions on each attribute resulted in a muchless clear result. Although Coastal China was ranked the highest on six attributes work ethic, local market attraction, reliability, transportation reliability, governmentsupport, flexibility, and overall attractiveness only one of these scores, for local

market attractiveness, was statistically different (p 0.05) from the next highestregion. There was no statistically distinct winner on the other attributes. InlandChina and Less Developed Asia were essentially tied on labor cost, Mexico and UrbanIndia were rated roughly equal on intellectual property, political stability, borderclearance, and corruption, and Mexico and Coastal China were roughly equal ontransportation issues[3].

This lack of clarity reinforces the need for a multi-attribute perspective on theevaluation of competing geographies. Porter (1990) found that specific regionssuccessfully specialized based on a combination of local conditions, and a number ofprocurement scholars have suggested that sourcing decisions should be based onmultiple considerations, rather than one dominant advantage. Sarkis and Talluri (2002)and Kirkwood et al. (2005) both set forth analytically consistent, auditable approachesto the multi-attribute sourcing problem for supplier selection. Below we propose anddemonstrate a different approach as applied to the issue of regional sourcing selection.In so doing we attempt to combine all of the single attribute information available todisplay the relative positions of all the regions in a spatially consistent, helpful visualperspective.

Geographies and multi-attribute analysisAlthough low labor cost was the initial driver of much US offshoring/outsourcingactivity, this is no longer the case (Kouvelis and Niederhoff, 2007). Furthermore, supplyprofessionals have increasingly emphasized the need to take into account multiplefactors when making sourcing/outsourcing/offshoring decisions (Sarkis and Talluri,

2002). However, analytical approaches to simultaneously incorporate multipleinfluences and communicate the interaction of these influences have been relativelyrare in the supply management literature.

Marketing also recognized early on that consumer purchasing decisions involvedbalancing many factors. Recognizing that new products were particularly risky,marketers looked for ways to better understand how consumers combined multiplebuying criteria and how to communicate the subtleties of the consumer decisionprocess to new product developers. Borrowing from psychology, marketers beganconstructing perceptual maps of consumer product evaluations. These mapsrepresent a visual summary of multidimensional customer evaluations of productsand services. Perceptual mapping techniques allow managers to see comparisons ofmany objects at once, with the assurance that the relative distance between the

objects on the map is calculated to mirror the combined ratings of each of the objectson several dimensions by several evaluators. There are a variety of methods fortransforming multiple evaluation ratings into two-dimensional (or higher) maps,depending on the distance rules used, the availability of overall preferences inaddition to individual dimensions, and whether ideal points/vectors are a goal of theanalysis. (Hair, 1995).

The authors collected 101 observations for ten low cost geographies on 12attributes. We applied the CPM System for Composite Product Mapping from

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Sawtooth Software to obtain two composite dimensions for mapping purposes, andthen to produce perceptual maps which show the position of both the geographies andthe attributes vs the two composite dimensions. The makeup of the two dimensions isshown in Table III, and the derived map is shown in Figure 1[4].

Vector 1, which is the horizontal or x-axis in Figure 1, is characterized by high levelsof attributes associated with reliability or predictability. Thus, geographies with largervalues of vector 1 are perceived as being more reliable and stable areas to source from.As Figure 1 indicates, Coastal China and Urban India stand out on this basis, whileRussia and less developed Asia (Vietnam, Cambodia, etc.) are seen as much riskier andless dependable locations.

Vector 2, the vertical or y-axis in Figure 1, represents the well-known trade-off(especially associated with China) of low labor cost and good productivity vs high riskto intellectual property. Thus, China, both Coastal and Inland, scores well on labor costbut badly on intellectual property safeguards, while Mexico is nearly 180 degreesopposite from Coastal China on the map.

The above observations go to the face validity of our findings. The map anddimensions are generally consistent with concerns raised by practitioners and in thepractitioner literature. Note, for example, that the reliability axis is in the samegeneral direction as flexibility, political stability, and reliable production, each of whichcontributes to order filling capability. Similarly, transport cost, transport reliability,border crossing predictability, and government corruption have similar orientations,which is not surprising to transportation professionals. Border crossings can only beconsistent where government corruption is relatively low, and internationaltransportation service and cost in turn depend on predictable border crossings.From these results, one can see that H1 and H2 are supported by the data. Managersdo use multiple criteria to make sourcing location selections. For example, the firstdimension considered is the reliability dimension which accounts for approximately 35

percent of the variance. The second dimension, the trade-off between cost andintellectual property protection accounts for approximately 15 percent of the variance.This suggests that procurement managers may consider reliability prior to theconsideration of cost. This is contrary to conventional wisdom which considers costfirst among equals. Analyzing different countries position along these same criteria at

Attribute Vector 1 Vector 2

Labor cost 20.175 0.748Work ethic 0.462 0.773Intellectual property 0.210 20.938

Market attraction 0.669 0.697Reliable delivery 0.966 0.110Reliable transportation 0.830 20.219Transportation cost 0.723 20.372Government support for business 0.910 0.365Political stability 0.925 20.017Flexibility 0.973 0.136Predictable border crossing 0.927 20.215Corruption 0.827 0.827

Table IIComposite attribu

vectors for preferenma

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an aggregate level provides new insights which may be masked when considered atindividual attribute level.

However, the power of the technique is its ability to show all geographies on the samesurface and understand their strengths and weaknesses vs each other at a glance. This isstrengthened by the fact that we have overlaid a preference map on the perceptual map.

Figure 1.

Perceptual map ofattributes and geographies

MAP ABBREVIATIONS KEY

CChina Coastal China Mexico MexicoEEur Eastern Europe RIndia Rural IndiaIChina Inland China Russia Russia/Central AsiaLDAsia Less Developed Asia SAM South America

Border Predictable border clearance times Matt Attraction of local marketFlex Flexibility RProd Reliability to meet customer requirementsGcorr Government Corruption Pstab Political Stability

Gsupp Government Support Rtran Transportation ReliabilityIntprop Security of Intellectual property Tcost Transportation CostLacost Labor Cost Weth Work Ethic

UIndia Urban India

IChina

Lacost WethCChina

Matt

Gsupp

FlexRProd

Pstab

UIndia

Gcorr

BorderRtran

Tcost

Mexico

Intprop

SAM

EEur

RIndia

Russia

LDAsia

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Insights from the preference mapThe preference analysis utilizes paired comparisons to infer relative ideal vectors foreach individual radiating from the origin of the map. These ideal vectors are thenoverlaid on the perceptual map to get a sense of the ideal benefit profile given the

tradeoffs that have to be made when choosing among products (or in our case regionsor countries). The overlaid perceptual map is called a preference map.

The preference map in Figure 2 shows the average ideal vector for the sample asa whole and spaces in the map where large numbers of individual level idealvectors are located. Note that the average ideal vector from the total sample splitsthe upper right hand quadrant. Also note that Coastal China is located very close tothe end of the vector indicating, not surprisingly, that Coastal China is a preferredsourcing location on average. The three triangular regions on the map show areaswhere large numbers of ideal vectors end. Thus, 43.21 percent of respondents showideal vectors in the upper part of the upper right hand quadrant. These companiesare focused on cost and reliability but more focused on cost. As such they are likely

to see Coastal China, Inland China, and less developed Asia as desirable sourcinglocations. Another 23.46 percent of respondents are in the lower part of the upperright hand quadrant. These companies are also focused on cost and reliability butmore focused on reliability. Thus, they are more likely to see Coastal China as astrong sourcing candidate. Finally, we have another group of respondents who haveideal vectors located in the upper part of the of the lower right hand quadrant.These companies are focused on reliability and the protection of intellectualproperty (though more focused on reliability). They may very well begin theirsearch for new sources with urban India.

Figure Preference ma

Low Cost

Intellectual Property Protection

LowR

eliability

HighReliability

Avg. Ideal Vector43.21%

23.46%

23.46%

Coastal ChinaInland China

LD Asia

Russia

Rural India

Eastern Europe

South America

Mexico

Urban India

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Perceptions versus realityThe question arises as to the accuracy of stereotypical perceptions. Do regional culturalstereotypes impact the accuracy of managers perceptions? There is empirical evidencethat this does indeed occur. For example, comparing the managers perceptions of labor

cost with empirical data compiled by the Bureau of Labor Statistics (BLS) reveals alack of correlation between perception and reality. As the North American purchasingmanagers perceive and rate Mexico as having the most unfavorable labor cost relativeto the other regions, BLS (2007) data provides a contrarian factual example. CoastalChina, rated by the respondents as very favorable, is in fact on a par with Mexico laborcosts.

A similar lack of correlation between perceived and factual measures exists uponexamining the attribute evaluations of transportation reliability and transportationcost. While Mexico is rated by respondents as being one of the highest rated regions ona par with Coastal China, in fact, Mexico is rated factually as being far below China onperformance for these two attributes in a recent comprehensive survey of logistics

capabilities (Arvis et al., 2007).Finally, a measure of government corruption provided by Corruption perceptionindex (Transparency International, 2007) is also not consistent with our managersperceptual attribute evaluations. In our data, Central India and Africa are ranked as thebest and the worst in terms of government corruption. But CPI shows that CentralIndia and Africa are at the same level in terms of government corruption. Obviouslybias exists here.

Thus, we could see that H3 is also supported. Managers perceptions oflocation-related characteristics are biased by regional stereotypes. However, it is not sosimple to say that managers perceptions of attribute values are wrong. For someregions they are factually incorrect and in other cases more accurate. But the idea thatperceptions are impacted by regional stereotypes has face validity and supported

factually by empirical comparisons.

Key findings and implicationsThis research should provide several prescriptive benefits for practicing procurementmanagers and foster several streams of future research for academicians. From theseperspectives, the analysis has provided insights on several issues.

. Where there are cross-functional members of a sourcing or buying team, theperceptual map gives everyone on the sourcing team a sense of how the variouscountries/regions are viewed. This helps foster discussions of how to leverageoverall spend by sourcing multiple items and services from the same region or

country.. The perceptual map serves as a screening mechanism for sourcing strategy. If

managers are charged with sourcing based on low cost, for example, the mapgives them an easy way to compare regions along the cost axis whilesimultaneously being able to gauge service or other considerations.

. The map is a fine communication device to non-procurement executives from therest of the company, or even the supply chain. When a non-procurement executiveasks about the how and why of global sourcing, it is easy to superimpose key

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supplier locations on top of the overall map to see what the most attractivestrategy might be.

. Comparing managers perceptions with objective data of location attributesclearly demonstrates that perception is biased by cultural stereotypes. This isconsistent with assertions made in the extant literature.

. Finally, the map can serve to communicate with suppliers and authorities in thepolitical structure of the geographies. Presently, most low cost geographies areactively seeking investment and economic development. Perceptual maps canshow these areas where they must improve to equal or better the competition,and equally, where they should not slip since it might give the competition asignificant advantage.

Limitations and the need for further researchAlthough our results have significant face validity, more work is required tounderstand the value of this approach as well as the usefulness of the specific findings.

The sample used is relatively small and spread across a multitude of industries,although other research suggests that sourcing needs may vary by industry and itemsto be outsourced (Global Competitiveness Studies, 2006). Furthermore, it would beextremely useful to construct perceptual maps by buying region to test if, for example,Asian buyers have different perceptions of intra-Asian differences vs North Americanand European procurement managers. Global sourcing is no longer of interest only tomanufacturers and retailers in the advanced economies. As China, Korea, and othersexperience increases in labor costs and living standards, companies in those areas willbe increasingly looking to reduce their own costs through advanced sourcingstrategies.

The authors believe that visual representations of alternative sourcing options havegreat potential to improve the efficiency of cross-disciplinary and multi-company

teams that are increasingly responsible for global sourcing strategies. The authorshave also demonstrated that managers perceptions are biased by regional stereotypes.Thus, managers should be cautious in solely relying on their subjective perceptions inmaking sourcing location decisions. Finally, this research is only a first step in what wehope will be another approach to advancing the theory and practice of global sourcingand outsourcing decisions.

Notes

1. Perceptual mapping can be done using multiple discriminant analysis, composite vectoranalysis, or composite ideal point analysis. Composite vector analysis was used in thisresearch because it has the advantage of easily combining perceptual and preference datawhich discriminant approaches do not, and because the attributes we use in this research areof the more is better type. Vector approaches are superior to ideal point approaches forthese kinds of attributes as they more clearly differentiate between the variouscountries/regions we included in the study.

2. A complete table of all means for all regions and attributes is available by request from theauthors.

3. The t-test for transportation cost differences between Coastal China and Mexico produced aconfidence interval which just barely included 0, as did the t-test for differences betweenMexico and Urban India on border clearance.

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4. The two dimensions account for 51.38 percent of the variance in the overall map. Thissuggests that while these dimensions are useful there are still significant factors that are notaccounted for in the analysis. The authors looked at adding a third dimension to the map butchose not to do so because it accounted for only 9.03 percent of the variance. The convention

is to typically not include a third dimension unless it accounts for over 10 percent of thevariance because it greatly complicates interpreting the analysis. In addition, the analysisprovides an indication of the extent to which the estimated ideal vectors are successful inaccounting for individual preferences. Respondents should prefer to source products closestto their estimated ideal vectors. The authors also measured the distance between thatrespondents perception of each sources product as a point in the space and the location ofhis/her estimated ideal vector in the same space. If the preferred product is farther from theideal vector than the non-preferred product, we score a miss. The percentage of orderviolations 17.697. When one should expect an error rate of 50 percent due to randomchance, the perceptual model provides a pretty significant improvement.

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About the authors Joseph R. Carter is a Professor of Supply Chain Management, the Avnet Professor in theW.P. Carey School of Business and was founding Chair of the Supply Chain ManagementDepartment at Arizona State University. Of the 60 refereed journal articles and researchmonographs either published or under review for Professor Carter, all address issues ofrelevance within the field of purchasing and supply management. Professor Carters researchcontribution encompasses three major content areas: buyer and supplier communicationprocesses and information exchange systems, international sourcing and supply managementissues, and strategic procurement. Joseph R. Carter is the corresponding author and can becontacted at: [email protected]

Arnold Maltz is an Associate Professor of Supply Chain Management in the W.P. CareySchool of Business at Arizona State University. Professor Maltz has done nationally recognizedwork on logistics outsourcing and decision analysis models for procurement. His current

research focus is on border issues, and supply chains that include less-developed countries.Tingting Yan is a doctoral student in the Department of Supply Chain Management,

W.P. Carey School of Business in Arizona State University. Her research interests include: timingissues in multi-stage inventory management, game theory applications in supply chaincoordination, integration of financial derivatives in supply contracts, internet and service supplychain, and supply risk management from a real option perspective.

Elliot Maltz is a Professor of Marketing in the Atkinson Graduate School of Management atWillamette University, Salem, Oregon. Professor Maltz research interest areas includemarketing management and strategy with particular emphasis on acquisition and disseminationof market information for strategic decision making.

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