Title: The Impact of E-procurement on the Number of Suppliers
Citation: TRANSFORMATIONS IN BUSINESS & ECONOMICS vol. 8 no. 16 p. 72-85
Publication Year: 2009
JRC N°: JRC55201
ISSN: 1648-4460
URI: http://www.transformations.khf.vu.lt/
Type: Articles in periodicals and books
Abstract: This paper examines how electronic procurement influences firms¿ sourcing strategy. I illustrate the relationship between the technology choice in a vertical structure with respect to its impact on the coordination cost and the competition between suppliers. I show that the use of technology lowering coordination cost increases the incentive of a downstream firm to increase the number of suppliers. However, despite the obvious benefits of upstream competition, the downstream firm has to find a balance between the price effect and the burden of transaction management increasing in the number of suppliers. Based on the theoretical considerations, I formulate hypotheses that are tested using data from the e-Business W@tch survey. Assessing the relationship between the effect of electronic procurement on procurement cost and sourcing strategy, I provide new evidence that electronic procurement leads to more market transactions. This effect depends, however, on industry-, firm- and product-specific features. Two implications emerge from these results. The first one is relevant for companies engaging in ICT projects. ICT leads to a reduction of market transaction costs and, as a result, opens up new possibilities in terms of how business activities can be organized and/or how to structure competition in upstream markets. This effect of new technologies is of clear benefit to companies successfully implementing and using new technologies. The second implication is of importance for companies whose customers implement ICT to intensify competition among suppliers. Changing environment forces them to adapt to new market conditions.
JRC Directorate:Growth and Innovation

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