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Industrial Marketing Management 37 (2008) 59 68

Adding value in global B2B supply chains: Strategic directions and the role of the Internet as a driver of competitive advantage
Peter G.P. Walters
College of Professional and Continuing Education, The Hong Kong Polytechnic University, Hong Kong Received 1 September 2006; received in revised form 1 May 2007; accepted 1 June 2007 Available online 24 October 2007

Abstract The Internet increases the likelihood of disintermediation in global B2B supply chains. At the same time, opportunities for intermediaries to generate incremental value for other channel members are opened up. The discussion highlights three such strategic directions information rich, relational exchange and joint-learning with the focus on the role played by the Internet in the implementation of these strategies. Particular attention is also given to the experience of a leading Hong Kong intermediary to illustrate the alignment of the Internet with each of these strategies for enhancing the competitive position of intermediaries in global supply chains. 2007 Elsevier Inc. All rights reserved.

The rapid advances in information technology (IT) that have occurred in recent decades have resulted in innovations, such as the Internet, that have triggered new thinking in respect of marketing theory and practice. Internet enabled electronic communication between customers and suppliers, for example, opens up opportunities for new channels of distribution and novel business models that threaten the activities of traditional channel intermediaries (Saloner & Spence, 2002). Disintermediation is a particular concern in business-tobusiness markets (B2B), arising when current channel members become redundant and are either replaced by new intermediaries or simply by-passed. In this environment, traditional channel members will perish unless they offer a portfolio of services that add significant value for both their suppliers and customers. Fortunately, the Internet offers opportunities for intermediaries to pursue this objective since it facilitates access to, and the exploitation of, information and know-how. Therefore, besides opening up the disintermediation route, exploitation of IT provides a platform for intermediaries to add value to the services offered to other members of global supply chains. In particular, the IT revolution empowers intermediaries to learn more about other channel members, thereby allowing

Tel.: +852 3746 0003. E-mail address: pfpgpwal@inet.polyu.edu.hk. 0019-8501/$ - see front matter 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2007.06.010

them to generate incremental value through service customization and relational exchange. The potential of information technology (IT), particularly the Internet, to restructure B2B global supply chains is highly relevant in Hong Kong where around 100,000 trading firms play a key role in bringing together industrial buyers and sellers in international markets. Most Hong Kong intermediaries source products, mainly on the Chinese mainland, for foreign wholesalers and retailers in industries such as textiles, watches and toys (HKTDC, 1996). These firms, commonly called merchandisers in Hong Kong, play a key role in managing international sourcing and distribution. They undertake activities such as managing procurement, production, quality assurance, warehousing and shipping (Chunsun, Yip, & Chang, 1996), with marketing support, design and financing services also offered by many merchandisers. China's accession to the World Trade Organization (WTO) in 2001 has added to the challenge facing many Hong Kong intermediaries. As China moves toward playing by the same rules as other trading nations in the WTO, the Chinese economy will become more transparent and easier to understand and negotiate. Consequently, potential importers of goods sourced in China will need less assistance when seeking to identify, and do business with, potential suppliers on the mainland. As the knowledge and experience of Hong Kong merchandisers becomes less valuable, overseas customers will seek to deal

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directly with Chinese manufacturers. In this scenario, suppliers are also likely to seek out customers without assistance. Disintermediation thus presents a real threat to the existence of many Hong Kong based intermediaries. In the textile business, in particular, the demise of the global quota control system in 2005 presents a special challenge due to a rapid decline in manufacturing in North America and Europe. Increasingly, suppliers in these markets are sourcing from overseas, particularly China. They are also more likely to import from fewer producers because of the ending of quota restrictions, and many will be tempted to cut out middlemen and deal directly with overseas manufacturers. The implication of this trend has been spelled out by one senior manager as follows; They (US producers) are cutting out the cost factor and taking more control, because it is becoming more of a core competency. In the past, maybe if you're sourcing 5% offshore it wasn't a big deal. Now if you're moving 20% to 30% of your manufacturing offshore, that's a huge impact.. It's easier to do business in China directly than ever before, because companies in China are larger and more sophisticated and have the where withal to deal directly with overseas companies. Trading companies in Hong Kong are probably feeling a lot of pressure to come up with new services and larger packages, because some of their traditional work is going away. In response, the middlemen have to get more creative and expand the role they've been in historically. (Casselle, 2004: 4). Importers are becoming more demanding in this tough competitive environment. This is clear from these comments regarding the future role of Hong Kong based suppliers: Vendors that offer a wide variety of services will continue to service Liz Clairborne vendors need to manage inventory and ship to our customers and invest in technology; services are becoming an expectation just to stay in the game; we must be a partner to our customer (Shih, 2005:3). As noted above, the Internet not only threatens old established business models, it also provides intermediaries with important opportunities, and its role in support of strategies to meet the threat of disintermediation provides the focus for the discussion in this paper. The notion of value creation by intermediaries in global B2B supply chains is central to the analysis, and three strategic directions for generating incremental value are evaluated. These are information rich, relational exchange and learning strategies. Although not mutually exclusive, these strategic orientations have distinct characteristics which are highlighted. A primary objective is to identify ways the Internet, can be utilized to support each strategy in international markets. The discussion draws upon the experience of a leading Hong Kong trading firm to illustrate the alignment of IT practice with each of these strategies for enhancing the competitive position of intermediaries in the global supply chain. This discussion has particular relevance for international channel intermediaries facing a harsher competitive environment where their position in global supply chains is threatened. A common denominator between the strategies reviewed is the importance attached to information and knowledge as a critical

organizational resource which can be mobilized to generate value for customers. The study therefore contributes to the international channel business literature and also examines the relevance of knowledge based strategy for the competitiveness of firms operating in global markets, an area where relatively little research has been undertaken (Yeniyurt, Cavusgil, & Hult, 2005). 1. Customer value and the Internet A number of common dimensions can be discerned in most definitions of the customer value construct. Typically, value is defined as involving a subjective assessment in terms of the multiple costs and benefits associated with consumption activity (Monroe, 1990). Anderson, Narus, and Van Rossum (2006) emphasize that value perceptions are normally arrived at in a competitive context where it is important to understand how available market offerings compare, in the eyes of the consumer, in respect of both needs satisfaction and cost factors now, and in the future. Despite the importance of value creation for long term survival (Woodruff, 1997), relatively little empirical work has been done on the measurement of value creation in customer seller relationships in industrial markets. Lapierre (2000) has identified product, service and relationship benefit dimensions, along with price and relationship cost as key sacrifice factors; and Walter et al. (2003) review cost, quality, volume and safeguard elements as primary components of value. In this discussion, particular attention is given to the results of a qualitative study identifying nine value drivers (Ulaga & Eggert, 2006). These drivers are classified under three sources: the core offering in respect of product quality, delivery performance and direct costs; service support, personal interaction, acquisition costs in the case of the sourcing process; and supplier know-how, time to market and operations costs for customer operations. The analysis highlights the power of the strategies reviewed, in harness with the Internet, to generate value in terms of these drivers. The focus on the Internet reflects its potential contribution, as a key IT tool, to generate superior value for both suppliers and customers in the global marketplace. McAfee (2006) has delineated three categories of IT with distinct characteristics and benefits. Function IT allows for more efficiency in executing stand-alone tasks; network IT allows for better communication; and enterprise IT promotes restructured working relationships. Although the Internet's most obvious contribution is in terms of networking, it also has important enterprise implications, most notably for managing customer relations (CRM) and the supply chain (SCM). As a channel for communication supporting the capture, integration and distribution of information and knowledge, the Internet has tremendous virtues, in a global context, as an asynchronous, personalized medium which is flexible, interactive and relatively inexpensive (Poon & Jevons, 1997; Quelch & Klein, 1996). Although electronic interchange (EDI) has been used for many years to transmit electronic data between customers and suppliers over dedicated, proprietary networks,

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Internet users can take advantage of superior technology which results in cost savings and greater flexibility (Saloner & Spence, 2002). By virtue of its power as a readily available source of information, the Internet offers critical advantages for buyers and sellers that result in increased market efficiency. These benefits accrue as product and service availability becomes more transparent; as buyers and sellers are able to find each other more easily; and as price comparison is facilitated (Bakos, 1997; Benjamin & Wigand, 1995). Associated advantages arise from savings in the purchasing process and the provision of superior service. For global firms, the Internet is particularly effective in overcoming the challenge of communicating across great distances and different time zones. Apart from the benefits associated with better access to information, which reduces transaction costs, the Internet is also an important channel for the sharing and interpretation of knowledge and thus supports learning activity and service provision. Knowledge differs from information in that the latter is essentially codifiable and factual (Huber, 1991), whereas knowledge is tacit and complex, and thus sticky and difficult to transfer (Polanyi, 1996; Szulanski, 1996). Although not as rich a medium as face to face contact, the Internet allows for personalized, flexible interaction which facilitates both relational development and progress toward a common understanding of the meaning of both information and know-how. Access to information and knowledge and, more importantly, an ability to learn and use know-how effectively are core resources (Day, 2001; Grant, 1996) which enable organizations to develop superior value for their customers (Moorman, Deshpande, & Zaltman, 1993). Knowledge based resources are thus an important competitive tool and, according to the resource based view Barney (1991), provide a foundation for sustainable competitive advantage that leads to superior performance. Kohli and Jaworski (1990), for example, have defined market orientation in terms of information generation and processing activity, and demonstrate that such an orientation is associated with better performance. The resource based (RBV) focus highlights firm specific endowments. However, intermediaries are typically located in a web of networks with both suppliers and customers (Hakansson, 1982), and it has been noted that resources such as knowledge are commonly dispersed across organizational boundaries (Dryer & Singh, 1998). Accordingly, competitive advantage can be generated by collaborating with other organizations (Srivastava, Shervani, & Fahey, 1998). Joint initiatives for acquiring, sharing and interpreting information and knowledge, and the role of the Internet as a facilitator of both learning and the generation of superior customer value, are therefore of interest to corporate strategists. 2. Disintermediation Unless channel members are able to create value for their suppliers and customers in the supply chain, they will either be by-passed or replaced by other intermediaries better able to generate the required services. The development of electronic

communication channels and markets provides options for both sellers and buyers to disenfranchise intermediaries and capture value through reduced transaction costs (Benjamin & Wigand, 1995). Thus the Internet can be used to identify, contact and do business directly with potential suppliers or customers in a convenient, flexible and rapid manner without the services of an intermediary. Despite the possibilities noted above, there is disagreement regarding the disintermediation impact of the Internet. Samiee (1998), for example, argues that the primary effect of the Internet has been to add additional types of intermediary rather than eliminating traditional channels. Saloner and Spence (2002: 68) support this view, noting that the challenge of the Internet is less how to respond to a completely different channel structure than how to manage a more complex one in which a new Internet channel sits beside pre-existing channels and in which Internet technology alters how the existing ones function. Thus the challenge for intermediaries is to leverage the potential of the Internet to support the development and provision of superior client services. From this perspective, the primary threat arises from inertia, and those intermediaries that pro-actively respond to the opportunities afforded by the Internet to add value to their services will continue to prosper. In the next section, strategies to create superior value for clients in global supply chains are identified and discussed. 3. Meeting the disintermediation challenge Three strategic directions to confront the disintermediation threat through the development of superior value in the international supply chain are now evaluated. All the strategies involve the exploitation of information and know-how in the value creation process. The role of the Internet, as a key tool for developing incremental value for both suppliers and customers, is a central theme in the analysis. The discussion also draws upon the experience of a successful Hong Kong trader, the Li and Fung Company, to illustrate aspects of the implementation of these strategies by an intermediary heavily engaged in the management of global supply chains. 3.1. Information rich strategy An information rich strategy (IR) is focused on the acquisition, distribution and exploitation of information. A key to developing competitive advantage is an ability to use information effectively (Menon & Varadarajan, 1992), and a primary contribution of the Internet is in terms of its potential as a channel for collecting, transmitting and storing information. This allows for better access to relevant, current data and, more importantly, facilitates more efficient usage of this data. The Internet has an important role to play in acquiring information, particularly in supporting environmental scanning, search processes and performance monitoring. Data gathered in this manner can then be transferred rapidly within the intermediary such that decision makers are constantly up-dated on relevant developments in the market context and supplier

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performance, thereby providing a platform for timely analysis and decision making. More effective internal exploitation of information supports the creation of powerful value propositions for other members of the supply chain. Rapid interaction with suppliers and customers is also facilitated, and the Internet's high potential for personalization and interactivity allows the targeting of current clients and potential customers and suppliers when acquiring and distributing information. Additionally, the Internet plays a key role in presenting the intermediary in cyber space, commonly via a website. Critical website policy issues include language policy, the level of site personalization in terms of targeted market segments, and the potential for responding to, and entering into a dialogue with, current and potential customers. An IR strategy facilitates the provision of superior service to customers through the acquisition and use of appropriate data. For example, relevant, current information can be captured and distributed internally on the needs of different customer segments and the capabilities of competing intermediaries (Anderson, Narus, & Van Rossum, 2006). This task is especially important in industrial markets where the intermediary is meeting customer sourcing requirements by coordinating production and distribution activity in many different locations around the world, and there is a need for access to rapidly changing, real time information on the availability and cost of materials, and production services. The provision of cost efficient, quality distribution services are also dependent on comprehensive, current data relating to where best to finance and insure, who to ship with and how best to comply with the regulatory context. The key role played by the Internet in support of an IR strategy is well illustrated by the global operations of Li and Fung (LF), a Hong Kong based firm focused on the management of global supply chains for high volume consumer goods. LF has established some 70 offices in over 40 countries which serve the needs of overseas customers such as Kohls, Wal-Mart, and Target located primarily in North America and Europe. Garments account for over 60% of LF's turnover, with other primary product areas including hard goods such as toys, footwear, fashion accessories and furniture. Around 30% of the stores in a typical American shopping mall stock goods sourced with help from LF (Kissel, 2005), and the firm has an enviable reputation as an innovator with a powerful business model that has propelled it into a leadership position in the global supply chain business. LF make extensive use of the Internet as a platform for the collection, distribution and analysis of information, leveraging advantage from deep, current knowledge of global sourcing and production networks and in-depth logistical expertise. This allows for highly effective management of production undertaken by contracted manufacturers and rapid distribution to clients around the world. LF provide their foreign customers a range of services in the sourcing and manufacturing processes, and their extensive information on supplier networks and the market situation ensures highly competitive sourcing costs. LF's knowledge of relevant supply and production networks generates core offering value, primarily of a direct cost nature, in terms of

superior product quality, production cost and delivery performance. Sourcing value is generated through offering both highly competitive product acquisition costs and quality assurance. The creation of incremental value depends very crucially on acquiring and evaluating current market information on supplier capability, capacity, costs and prices in multiple locations, along with analysis of relevant historical performance data. LF manages production in, and distribution from, many parts of the world apart from China. Other significant sourcing centers include Vietnam, India, Pakistan, Bangladesh and Turkey, with goods shipped to many overseas destinations. Accurate, up-to date information on potential suppliers, their costs, and track record is thus vital, as is an ability to leverage advantage from the rapid internal distribution of this data to key decision makers. This requires the development of sophisticated, Internet-based IT systems. Efficient management of the distribution process is also data driven as information on alternative shipping routes, schedules, costs, documentation, and insurance needs to be gathered and evaluated prior to decision making. Relevant, real time data are therefore needed on financing, shipping, logistical and other activities in multiple locations around the world. Internet enabled information acquisition, distribution and storage is critical in supporting and facilitating effective decision making, and LF has significant expertise in this area, providing a powerful platform for competitive advantage. LF chairman, Victor Fung, has commented on the firm's operations as a production integrator as follows: For this customer we might decide to buy yarn from a Korean producer but have it woven and dyed in Taiwan . so we go to YKK a big Japanese zipper manufacturer and we order the zippers from their Chinese plants. Then we determine that, because of quotas and labor conditions, the best place to make the garments is Thailand. So we ship everything there. And because the customer needs quick delivery, we may divide the order across five factories in Thailand (Margretta, 1998:109). In this process, LF is essentially operating as an information hub, managing extensive external data collection and then distributing this information to relevant decision makers within the firm. LF thus mediates the production requirements of overseas importers and create opportunities for suppliers. Producer search and transaction costs are reduced, and value accrues for down-stream customers as their supplier search and other sourcing costs are reduced. The Internet is of central importance in supporting the delivery of value, from sourcing to delivery, with new data constantly entered into the firm's IT system by highly mobile staff interfacing with both suppliers and customers (Reyes, 2000). The need for flexible and reliable information systems results in the Internet playing a central role in LF in supporting access to, and distribution of, the real time data needed to facilitate flexible production runs, product customization, and a rapid and efficient response to new market developments and customer needs. The Internet is an invaluable tool enabling decision makers to continually up-date their data bases. Large amounts of information can be rapidly acquired, stored, transmitted and

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manipulated relatively cheaply to support the delivery of cost efficient, appropriate services and products from around the world. It also allows for fast exchange of data across national boundaries between multiple users and sources on a customized basis. This increases market efficiency, reduces market and sourcing risks, and allows for improved service quality. The role of IT in support of the IR strategy involves both function IT, where technology enhances the efficient execution of stand-alone tasks such as data collection and storage and, more significantly, network IT where the focus is on facilitating communication (McAfee, 2006). The primary role of the Internet is to support efficient communication within the intermediary, with the focus on discrete transactions. Communication with overseas suppliers and customers to progress these transactions is also supported. A universal corporate Intranet that allows all relevant staff to communicate efficiently by e-mail is a basic requirement. Although this is not easily or cheaply achieved, this policy has a high priority in LF, with all offices connected in a single system. Emphasis is also given to ensuring universal access to a common information platform, primarily management and technical knowhow displayed in a document library and bulletin board format. Data on historic supplier performance regarding quality, on-time delivery and prices is highly valuable both when making sourcing decisions and when dealing with customers. Creating relevant databases tracking historic interaction with suppliers and customers therefore has a high priority. Data storage is very important and establishing organizational memory, which involves developing systems for standardizing and consolidating the storage of e-mail and other types of information and knowhow and the development of a directory and access routines, is an important IT priority. Critical issues include determining the data to be stored and the length of storage. In terms of functional IT, workflow software has an important role to play along with tools that enable staff to find and mine relevant data. 3.2. Relational exchange strategy The importance of developing and nurturing relationships with buyers and sellers in global B2B markets has received increasing attention (Roath, Miller, & Cavusgil, 2002) due to the significance of distribution in the value chain, and recognition of the relevance of personal relationships and social networks in facilitating exchange transactions (Dwyer, Schurr, & Oh, 1987). Relational exchange occurs when economic actors are committed to on-going relationships which are not driven purely by market forces and where shared behavioural norms, rather than opportunist behavior, govern transactional exchange. Thus history and future expectations are key influences on the context for business engagement (Johnson, Lewin, & Spekman, 1999). In contrast to an IR strategy, where the primary focus is on communication within the intermediary, designed to maximize the value of services offered in the supply chain in the context of discrete transactions, relational exchange is externally focused and on-going. The literature indicates that a number of variables support the development of relationships. Trust has an important role in

promoting cooperative behaviour and strong business relationships (Morgan & Hunt, 1994). Shared values (Ouchi, 1979) and commitment (Anderson & Weitz, 1992) have also been identified as important influences. Relationships thrive when time, effort and resources are invested in developing the channel infrastructure and context for business with partners (Smith & Barclay, 1997), particularly when such investment is difficult to re-deploy. Communication is frequently identified as important in limiting conflict and for the integration of channel activity (Mohr & Nevin, 1990), and it has been identified as a pre-cursor to trust (Morgan & Hunt, 1994). This is particularly the case in an international context, where the challenge of developing close, trusting relationships is normally greater that at home because of cultural distance and consequent differences in behavior and normative frameworks. IT facilitates communication prior to, and after, the establishment of business relationships. Before relational exchange becomes the norm, use of the Internet allows for gathering and disseminating information on potential partners in an anonymous, confidential manner. The Internet also enables constant dialogue with clients and suppliers on the status of business transactions and other matters of interest. Timely and efficient interaction is facilitated, thereby providing a platform upon which strong relationships can develop. Once relational exchange is established, then both information and knowledge are likely to be shared. However, indiscriminate sharing of data can be counterproductive and there is a need for targeted information distribution (Liker & Choi, 2004). Here the Internet's capability for selective, personalized contact, with a rapid response capability, is especially valuable in fostering relations with targeted partners. Customized interaction and feedback are supported, with the Internet allowing for flexibility, intimacy, confidentiality and, at the same time, enabling information to be widely shared when desired. When the focus is on maintaining frequent interaction, external to the firm, hardware and software requirements are more challenging than in the case of internal communication. IT systems, such as the Internet, have a key role to play and sophisticated setups, based on open architecture that can accommodate the variety of hardware and protocols used by external partners, are needed. At the same time, systems must be robust enough to function in less developed markets, such as China mainland, where the IT infrastructure is often problematic. These issues imply that it will not be cheap to meet the systems investment needed. Achieving systems compatibility with multiple different customers and suppliers is a major challenge, and is normally dependent upon developing on-going relationships with business partners willing to make relation specific investment. Since different channel members are likely to deploy varying systems, flexible, open architecture arrangements are desirable. Division of labor, where the staff is dedicated to interacting with a single large client or supplier, is also helpful in addressing systems compatibility issues. LF has refined and up-graded its business model over time (Margretta, 1998). Initially the firm was primarily an order taker connecting overseas customers with suppliers, mainly located on the Chinese mainland. Subsequently, LF has increased its

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involvement in managing product development and production processes as many clients have focused more on their core expertise, in areas such as understanding target customer needs and retailing, and have outsourced other value chain activities. As a result, LF has taken increasing responsibility as a value chain integrator in areas including product design, manufacture, and supply chain management. An entrepreneurial approach is encouraged, along with teamwork and relationship development. Typically, high value activities, such as design and quality assurance, are undertaken in Hong Kong, with manufacture and related distribution functions undertaken in many locations in accord with cost, efficiency and other relevant factors. LF will assume wide ranging responsibilities for customers and these often go beyond managing sourcing, production and distribution operations. For example, a global beverage company hired them to work with suppliers around the world to assure that all products featuring the company trademark complied with specified safety, quality and social criteria (HKTDC, 2002). In the context of the growing significance of business activity characterized by broader scope and longevity, LF management gives a high priority to establishing and maintaining on-going partnerships with down-stream customers and, to a lesser degree, suppliers. Individual customers are serviced by a dedicated division, which may only have a single customer in the case of large clients (Margretta, 1998). In the case of major clients, sourcing teams will be located in key overseas markets concentrating on meeting just the needs of the particular customer. Close contact with suppliers is also pursued, but in this case interaction with several divisions may occur, in line with the production needs of clients. A relational exchange strategy offers opportunities to generate value in the sourcing process in respect of providing appropriate services for customers and suppliers, and in facilitating personal interaction which results in improved communication and problem solving. The Internet's networking role (McAfee, 2006) is fundamental to supporting such collaboration to promote relationship building. However, the Internet is not as rich a medium as face to face interaction, and effective communication is not assured by investing in high technology hardware and software. In global B2B markets, cultural distance can readily lead to misunderstanding, and Internet enabled contact frequently needs to be supplemented by human engagement (Rosenbloom & Larsen, 2003). This is particularly desirable in the context of facilitating the establishment of initial relationships in high context cultures and when problematic, non-routine situations arise. Despite the benefits of face to face engagement, this is expensive and time consuming in an international context, particularly when managing relationships with large numbers of overseas suppliers and clients, and is thus normally infrequent. In contrast, the Internet provides a relatively inexpensive, highly effective international communication channel and can be seen as the glue that facilitates and cements relational exchange. 3.3. Joint-learning strategy Learning involves the acquisition, distribution, interpretation and storage of information and know-how (Bruner, 1990), and

thereby facilitates the development and exploitation of knowledge as a core competency and foundation for achieving competitive advantage (Grant, 1996; Itami, 1987). Although the traditional focus is on organization specific capabilities, there is increasing interest in the potential for creating enhanced competency through collaboration (Srivastava, Shervani, & Fahey, 1998). Knowledge and information exchange offers an attractive direction for boundary spanning activity (Selnes & Sallis, 2003), and a joint-learning strategy has significant traction, in a global, network oriented economy, as a route to sustainable competitive strength that is hard to replicate. In particular, deep learning activity, where information and knowhow is subject to assessment, analysis and synthesis, is difficult to achieve jointly, but is most likely to generate value (Huber, 1991). Because of the need for collaboration between suppliers and customers, nurturing close learning relationships has particular potential for creating incremental value in global supply chains (Helper & Sako, 1995), and the advantages of cooperation have been demonstrated in a number of studies (Asanuma, 1989; Saxenian, 1994). However, the joint-learning process involves sharing confidential know-how, and there is evidence that mutual trust and the development of strong ties are important facilitators of such learning (Jap, 1999). Additionally, there needs to be confidence that learning benefits will be shared equitably. It follows that there is likely to be a close association between relational exchange and a joint-learning strategy, with deep learning unlikely to occur unless supported by the development of strong relationships and trust (Dwyer, Schurr, & Oh, 1987). Collaborative use of the Internet, as a means of facilitating intra-organizational, cross national joint-learning, implies a willingness to make significant investment. On the hardware side, compatible IT systems need to be in place in order to facilitate the exchange of information and knowledge, and software development will be needed to support data storage and access routines. Organizational inertia may constrain the necessary collaboration and investment needed to support the transfer and joint interpretation of knowledge and the establishment of common organizational memory. Alongside organizational and system compatibility issues, Szulanski (1996) has identified absorptive capacity, analytical problems and relational friction as key constraints to knowledge transfer. Storing and providing access to knowledge is a big challenge because know-how is typically tacit and personalized, and therefore hard to document. In order to promote the surfacing and storage of tacit, hidden know-how, use can be made of expert directories and social networking tools such as Wikis and blogs which allow staff to articulate experience and knowledge. However, investment in hardware and software will not ensure effective communication and learning, and good working relationships are important. Cross-organizational team work is not easy, and structural and systems initiatives are needed to facilitate communication and reward staff willing to share their expertise pro-actively. Integration of global supply chains necessitates the management of multiple learning contexts and external relationships of

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both a dyadic and network nature (Nohira & Ghoshal, 1994). In this environment, the Internet's wide scope, low cost, and ease of use make it an invaluable tool in support of communication and learning. Several examples illustrate the multiple learning possibilities opened up by the medium. One path involves monitoring consumer sentiment, and the case of a firm that developed a popular web-based discussion forum, primarily for the benefit of its clients, illustrates that it too was able to learn more about its customers (Renart, Segarra, & Pares, 1999). Thus, as a result of evaluating the online discourse, the firm developed an enhanced understanding of customer needs and this facilitated product development and market segmentation. In another case, customer performance data was gathered, aggregated and analyzed by an intermediary. This information enabled the firm to learn more about market dynamics, performance metrics and its customers. The aggregated data was also made available to customers, allowing them to engage in valuable benchmarking activity. In this process, the Internet played a key role in capturing and communicating relevant data (Dawar & Vandenbosch, 2004). Although both cases concern join-learning in a down-stream context, intermediaries can also use the Internet to share data on patterns of end-user demand and other market developments in return for production related information. Manufacturers who better understand their end-users are likely to be more efficient producers, and the intermediary benefits from an enhanced appreciation of their suppliers' situation. The chairman of LF is keenly aware of the power of a jointlearning strategy, where relevant information and know-how are developed and shared, as a means of generating incremental value for both customers and suppliers, and has commented that: Now as retailers increasingly use private labels, we advise them what items to add at what price points and how it is displayed. We help flesh out the alternatives to realize their goal. We were a small part of their import department before, and we are now a part of their merchandising and product development and their management thinking (Meredith, 2006: 2). LF are thus increasingly fulfilling the role of a knowledge generator in areas, such as retailing, that lie outside their long standing expertise in sourcing, logistics and design. In order to stay close to customers and suppliers, and to optimize the development of the know-how needed for customized services, LF's communications and organizational structure emphasize the link to an individual business partner. Close relations are developed by the relevant LF division, with dedicated communication integral to the system. LF management is working on organizational memory, with databases established to systematically record hard information relating to, for example, supplier performance (Margretta, 1998). There is also an appreciation that soft know-how is often even more important. For example, perceptions of the trustworthiness of a customer or supplier are often undocumented. Recovering and storing such knowledge, which is tacit, frequently sensitive and subject to being lost due to manager mobility, is highly challenging. As a result, problems remain regarding capturing and exchanging know-how; making

best use of the massive amounts of data that are available for processing; and establishing and managing organizational memory, particularly in respect of personal know-how. Very significant barriers thus constrain the establishment of a real joint-learning culture. A joint-learning strategy has great potential to generate value across all three of the primary domains suggested by Ulaga and Eggert (2006). In the up-stream interface, the intermediary and the supplier can jointly evaluate data relating to customer patterns of demand with a view to aligning product quality with consumer needs; and also plan future sourcing and production so that direct product costs are minimized and patterns of market demand are forecast more accurately. Service support for both suppliers and customers can be improved, as a result of a better understanding of their requirements, along with inventory management and product diffusion performance. The establishment of new routines, work flow procedures and systems, for example in respect of CRM and SCM, facilitates joint-learning. These involve enterprise IT (McAfee, 2006) and require on-going contact mediated through standard systems which often require the use of specialized software, systems modification and innovation. The contribution of the Internet in facilitating such joint-learning is important in terms of providing a reliable and convenient mode of communication allowing for frequent personal interaction and discussion. Socially oriented systems, such as work blogs, which surface know-how in a tangible form that can be debated and stored, are particularly valuable. The role of the Internet in supporting the establishment of, and joint access to, organizational memory is also vital. 4. Discussion In the recent debate on the nature of marketing, support has emerged for a perspective emphasizing a shift in the marketing paradigm from a goods dominant view, in which tangible output and discrete transactions were central, to a servicedominant view, in which intangibility, exchange processes and relationships are central (Vargo & Lusch, 2004: 2). Advances in IT have played a crucial role in facilitating this transition by opening up access to information and knowledge that was previously dispersed and enabling the real time coordination of dispersed organizational activities .. and the synchronization of the myriad points of customer contact that are integral to the new dominant logic (Day, 2004: 18). The Internet has been a major force for innovation and change in the field of marketing, providing a superior channel of communication and a foundation for information exchange, relationship development and learning strategies in international markets. This crucial support role is reflected in Victor Fung's statement that we add value for our customers by using information and relationships to manage the network. We help companies navigate through a world of expanded choice. And the expanded power of IT helps us to do that (Margretta, 1998: 107). Intermediaries in global supply channels have many options to exploit the power of the Internet in support of strategies to

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develop competitive strength aimed at counteracting the disintermediation challenge to their role and viability. The three strategies discussed in this paper depend heavily on the support of IT to add value to services provided in global supply chains. However, the role of the Internet, as a crucial tool for navigating an increasingly complex environment, varies significantly in the three strategic postures discussed in this paper. The Internet provides vertical connectivity in the supply chain, but its critical contribution, in support of an IR strategy, is in facilitating horizontal communication within the intermediary such that relevant information is exploited to the maximum degree in the value creation process. The internal networking capability of the Internet, plus its functional role in facilitating tasks such as data acquisition are thus central to its role. Although an IR strategy has limitations arising from a focus on information and discrete transactions, it is able to create enhanced transactional value with highly tangible benefits. These relate primarily to product quality, delivery performance and acquisition costs. The intermediary Intranet, and routines for generating, distributing and storing information internally, are instrumental in delivering these advantages, with a high premium accorded to speed, depth of coverage and security. It is noteworthy that an IR strategy can achieve significant traction without a need to enter into significant collaboration with other channel members. Thus the LF case indicates that a critical requirement is to be closely attuned to the market environment in terms of key factors such as supply availability, prices, relative quality and the transaction specific needs and situation of down-stream customers and up-stream suppliers. Relational exchange with channel members will often make it easier to access required data, but much of the information needed is not highly confidential and can be captured if an intermediary knows who does what where and has the right systems in place to make effective use of this data. A service-centered model of marketing emphasizes collaborating with and learning from customers and being adaptive to their individual and dynamic needs (Vargo & Lusch, 2004: 6). Critical ideas underpinning this perspective are the notions that customers should be actively engaged in relational exchange and that they are co-producers of services which have value in use; and that information and know-how are the fundamental drivers of service value. This implies a critical role for IT in enabling organizations to learn and to store more information about the customer, which in turn gives the company more ability to customize its services and to develop customer relationships (Rust, 2004:24). In this light, it is desirable that intermediaries move beyond IR strategies to the development of relational and joint-learning strategies. Both these directions have an external orientation, involving a focus on on-going organizational interaction, in contrast to intensive management of information in a one-off, transactional context. In the case of relational exchange, the networking capability of the Internet is crucial in facilitating the delivery of incremental value to other members of the supply chain, primarily through sourcing process benefits in the areas of service support and personal interaction.

As a consequence, systems compatibility between partners in the supply chain is a primary concern, and this will normally require heavy Internet related investment in both hardware and software that is designed to support seamless communication across organizational boundaries with multiple partners in the global supply chain. Explicit recognition of the international context is important, with a need to consider cultural issues that will affect the infrastructure that is put in place. In respect of website policy, for example, important questions need to be addressed regarding customization in areas such as language policy and varying customer requirements. In most situations, successful relational exchange is essential in order to provide a platform for a joint-learning strategy. However, joint-learning requires much more than relational exchange since it involves capturing, storing and sharing knowledge which is characteristically experiential, intangible, sensitive and hard to store and absorb. The networking role of the Internet is, once again, fundamental in facilitating cross organizational, cross border connectivity between learning partners. Equally important is the Internet's enterprise role in supporting the new working relationships needed to support crucial activities concerning the surfacing and exchange of know-how, and the establishment and management of joint organizational memory. In the context of information acquisition and exploitation, search engines and data mining have obvious value. Knowledge discovery and capture is more challenging because of the tacit nature of much know-how. Despite these problems, Internetbased tools give staff the opportunity to make their know-how more tangible, and also promote the discussion and debate which is central to much learning activity. Social networking systems are particularly valuable in supporting relational exchange and learning. Relevant tools include electronic discussion groups, blogs and collaboration software that enable work groups in a network to coordinate their activity. The establishment of virtual communities of interest organic and self-organized group of individuals who are dispersed geographically or organizationally but communicate regularly to discuss issues of mutual interest (BecerraFernandez, Gonzalez & Sabherwal, 2004: 366) is particularly valuable. But it is important to recognize that, however powerful the technology deployed, much knowledge cannot easily be articulated and codified (Mohamed, Stankosky, & Murray 2006). Once information and know-how that can be codified are identified and captured, the problem of establishing organizational memory becomes a key issue. Primary questions concern how to retrieve and store know-how and information, what should be stored and for how long; what directories should be established; and who can access what? Overseas locations will typically store key data locally, but establishment of organizational memory to support joint-learning normally requires centralization. It thus becomes important to develop Internetbased best practice and lessons learned databases, and expert locator systems. Other challenges concern standardizing and consolidating e-mail storage silos, replacing separate storage with a centralized system and enforcing service level agreements

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to establish the rights and obligations of the user and the service provider. (Milburn, 2006 p. 20). Joint approaches to codifying and storing know-how and systems which allow for both security and open access for learning partners will require new working relationships within and across organizational boundaries. If these challenges can be surmounted, joint-learning has the potential to deliver significant incremental value across all three of the major value drivers identified by Ulaga and Eggert (2006). Developing strong relationships, particularly in the context of collaborative learning, will normally require some direct personal engagement. Here the role of the Internet is supportive in facilitating pre-and post-meeting communication. However, personal interaction is expensive and normally infrequent, particularly in an international context, and the Internet plays a vital role in supporting the on-going engagement needed for successful relational exchange and joint-learning. LF's success in meeting the disintermediation threat is primarily due to the implementation of a flexible business model where the services the firm offers to global supply chain members have been incrementally expanded and refined over time. As discussed, the Internet has played an instrumental role in this process, and the LF case supports the argument that the opportunities opened up by IT do not necessarily imply greater disintermediation (Samiee, 1998), and that the Internet plays an integral role supporting strategies for the generation of incremental value for supply channel members. Investment in hardware and systems to capture, distribute, store and manage access to information and knowledge mediated by the Internet is essential, with particular systems requirements likely to vary with the strategy being pursued. Irrespective of the policies being implemented, the required investment will encompass expenditure in many areas. Apart from obvious spending on hardware and software, it will also be necessary to spend heavily on training in fields such as data management and the use of customer specific software. Capturing relevant information will also be expensive. In the LF case, for example, the costs of supporting staff out in the field, who obtain critical market and supplier data, are high. Security is another key concern, with a requirement for secure Internet connections that are hard to hack, and control over access to stored data. Software that allows for rapid data transmission, the collaborative management of data files and unified access on demand should also be user-friendly. This can cause conflicts since high security software is less convenient to use and decisions need to be made bearing in mind the trade-off between security and breadth of access to confidential data. Policies therefore need to be developed regarding user data needs, information risks, and the assignment of access rights. Ideally, standardization is desirable but customization of service level agreements will be necessary because of the need to interact with multiple channel members. Common systems requirements include software for document management, analytical processing and query and reporting tools, with socially oriented systems likely to be particularly valuable in supporting relational exchange and learning. However, if a company does not have a culture of knowledge sharing and

collaboration all the technology in the world is not going to help. (Baxter, 2006: 1). Therefore, there needs to be a willingness to work together, both within and outside organizational boundaries. This requirement is most marked in the case of joint-learning strategies where the intermediary commonly needs to pursue a proactive role, but will not succeed without the willing collaboration of other members in the supply chain. Ensuring cooperation and teamwork within organizations is not easy, and the problems of cross-organizational collaboration are an even greater challenge, particularly in a cross-cultural international context. This insight has several implications. First, it indicates that a pre-requisite for successful joint-learning is the implementation of a relational exchange strategy. Without the trust and mutual confidence associated with relational exchange, there is unlikely to be the required investment in resources and time, and the willingness to share confidential information and knowledge, necessary for joint-learning. Here it is important to recognize that personal contact will often be needed from time to time to support trust building. Second, joint-learning is hard to implement and will only flourish when the benefits from engagement are shared equitably. Finally, organizational initiatives are needed to support and encourage information exchange, relational involvement and joint-learning. LF's development of specialized, entrepreneurially oriented divisions focusing on working with selected customers, on a onestop basis, illustrates the power of the strategystructure linkage. Additional initiatives are also desirable to reward collaborative behavior, and the deep involvement needed with supply chain members for successful relational exchange and learning will normally require periodic, direct personal interaction to support the development of personal chemistry, trust and commitment. Internet linkages thus need to be supplemented by using richer channels for personal engagement at the appropriate time. Finally, it should be noted that there is evidence from the relational exchange literature that suppliers are more interested in relational exchange than buyers (Jap, 1999), primarily because of perceptions of greater uncertainty in transactions with customers who are often able to find an alternative service provider without too much difficulty. When operating as a buyer, the shoe is on the other foot, with less interest in relationships with suppliers since this reduces flexibility to respond rapidly to changing conditions on the supply side. In so far as this perspective reflects mainstream practice, then intermediaries will devote less time to pursuing relational exchange and joint-learning with suppliers, and the Internet will play a less important role in the up-stream context. References
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