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All the praises and thanks are for the Almighty Allah, who is entire source of all knowledge

and wisdom endowed to man, I indebted heartedly to Him for all His beneficiaries to me

And purchasing of industrial goods By Hakon hakansson

Submitted to:

Maam Malka Liaquat

Submitted by: Shahzad Haider, Tahseen Fraz, Zeshan Ilyas (2073) Program: Semester: (2004) 7th (2065) BBA (HONS)

DEDICATION

Dedication is a devotion to whom we love, who are our benefactors, who pray for us and who made us capable of doing all these under this head, here are two personalities, who are our PARENTS and the person Maam Malka Liaquat, a most devoted person for our future. So we have devoted our Book Review to our beloved parents and beloved Maam.

Contents
1. Introduction
A CHALLENGE ......................................................................................... 1 MARKETS FOR INDUSTRIAL GOODS ..................................................... 1 BENEFITS OF STABILITY AND OBSTACLES TO CHANGE IN INDUSTRIAL MARKETS..................................................................................1 IMPLICATIONS FOR PRACTITIONERS ..................................................... 1 Marketing Management .......................................................................................1 Purchasing Management ......................................................................................1 Industrial Policy ...................................................................................................1 BASIC FEATURES OF THE PROJECT ............................................................1

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

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

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

4. Company Cases
INTRODUCTION . . SECTION 4.1 MARKETING OF RAW AND PROCESSED MATERIALS CHARACTERISTIC MARKETING PROBLEMS AND STRATEGIES SIDEREX S.p.A., Ivan Snehota . . SWESTEEL, Hakan Hkansson . . STAHLWERKE AG, Michael Kutschker . . BRITMET A Marketing Case Study of a Large Producer of Special Steel Products, Peter W. Turnbull 88 BELTER METALS, David Ford ............................................................................. SECTION 4.2 MARKETING OF COMPONENTS CHARACTERISTIC MARKETING PROBLEMS AND STRATEGIES SUD COMPOSANTS, Claude Marcel and Michel Perrin ............................. AUTOSTART, Malcolm T. Cunningham ...................................................... FRANCELEC, Michel Perrin and Jean-Paul Valla ........................................... MEKANIK & MOTOR A Case about the Marketing of Components to a Systems Seller, Lars Hallen .......................................................................... MASCHINENTECHNIK GmbH UND MOTOREN AG, Michael Kutschker ............................................................................................................

SECTION 4.3 MARKETING OF EQUIPMENT CHARACTERISTIC MARKETING PROBLEMS AND STRATEGIES UNIFIX LTD. A Supplier of large Components to the Marine Industry and the Electric Power Generation Industry, Elling Homse ..................... SVENSK PROCESSTEKNIK A Case about Marketing of Equipment to the Process Industry, Jan Johanson ...................................................... MECAMINE, Robert Salle and Michel Perrin .............................................. GENERAL INTRODUCTION TO PURCHASING CASES SECTION 4.4 PURCHASING IN FIRMS WITH UNIT PRODUCTION TECHNOLOGY CHARACTERISTIC PURCHASING PROBLEMS .......................................... ELECTRA S.p.A., Ivan Snehota ................................................................... ANTRIEBSWERKE AG, Michael Kutschker ...................................................... TEXIMAC The Multiple Sourcing Purchasing Policy of a British Machinery Manufacturer Dealing with German and UK Component Suppliers, Malcolm T. Cunningham .............................................................. SALKA LIQUID TECHNIQUE Purchasing of Material and Components, Jan Johanson .................................................................................... SECTION 4.5 PURCHASING IN FIRMS WITH MASS PRODUCTION TECHNOLOGY CHARACTERISTIC PURCHASING PROBLEMS .......................................... ACE MOTORS, David Ford .......................................................................... SPRINTER, Malcolm T. Cunningham ................................................................. SVEFO A Case about the Purchasing of Components in the Automotive Industry, Lars Hallen .............................................................................. AUTO EQUIPEMENT, Claude Marcel and Jean-Paul Valla ........................... SECTION 4.6 PURCHASING IN FIRMS WITH PROCESSPRODUCTION TECHNOLOGY CHARACTERISTIC PURCHASING PROBLEMS ................................................ BRITAPAINTS AND COLOREX The Purchasing Strategies of Two Paint Manufacturers, Malcolm T. Cunningham ..................................... LYON ACIER, Robert Salle and Jean-Paul Valla .........................................

CHAPTER NO.1 INTRODUCTION


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

BENEFITS OF STABILITY AND OBSTACLES TO CHANGE IN INDUSTRIAL MARKETS


We may firstly consider the purchasing firm and the benefits to it of stability and its unwillingness to change suppliers. It is possible to distinguish three different groups of explanatory factors: 1.) Search & Evaluation 2.) Internel Routines & Experince staff 3.) Technology adopt & Knowledge gained

Marketing Management
As we mentioned in the first section of this chapter, the models and principles for industrial marketing management that are given by the literature are normally related to the marketing mix model. The problems identified in these are the allocation of resources and the designing of competitive means. However, marketers in for example, a highly concentrated industry may find different problems. The issues associated with the handling of ten very large customers are of totally different character from those of handling 1,000 small customers. Thus, marketers in firms in concentrated markets have a lack of accurate models for analysing their marketing problems. They have also a lack of relevant data expressed in a systematic way about the behaviour of other firms in the same situation.

Purchasing Management
The position facing purchasing management is similar to that for marketing. Their models and principles for operation are mostly developed within the context of single purchasing decisions, although there are also some examples of analysis focused more on the long term relationships.' Buyers have perhaps accepted the reality of stable markets more readily than marketers, because there have been obvious reasons for not changing suppliers too often. However the predominant tradition in purchasing literature emphasizes the continuous evaluation of suppliers and, by implication the frequency of decisions on new sources

Industrial Policy
The actions taken by politicians in order to control the economic development (or regression) in a country are often aimed at influencing the behaviour of firms. These actions must be based on realistic models of the behaviour of firms. The assumptions that are frequently made and the models which are used rely heavily on a market model which assumes free and independent units on each side. In the same way, the data that is collected for policy decisions is structured and deter-mined by these models.

CHAPTER NO.2 An Interaction Approach


RELATIONS TO PREVIOUS RESEARCH
Our theoretical framework can be traced back to two major theoretical models from outside the marketing literature. These are Inter-Organizational Theory and the New Institutional Economic Theory. At the same time it is possible to relate our approach to earlier thinking in marketing and purchasing as well as some emerging trends in the marketing and purchasing literature.

The New Institutionalists


Our theoretical framework is closely related to both `inter-organizational theory' and the `new institutionalists'. At the same time it is directly related to evolutions in the literature of marketing, and particularly to the emphasis on inter-company relationships. This has emerged from those studies having a distribution system perspective and more recently from those empirically based studies which have emphasized the importance of inter-company relations.

OUTLINE OF THE MODEL


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

set of roles that each party expects the other to perform, for example the division of product development responsibility, or the decision as to who should carry inventory and test products. These processes may require significant adaptations in organization or operation by either or both companies. Clearly, these relationships can involve both conflict as well as co-operation. Fourthly, close relationships are often considered in the context of continuous raw material or component supply. However, we would emphasize the importance of previous purchases, mutual evaluation and the associated relationship between the companies in the case of infrequently purchased products. Further, we are concerned in this research with the nature of the relationship between a buying and selling company which may be built up during the course of a single major transaction. Our focus is generally on a two party relationship, but the approach can be applied also to a several party relationship. This, indeed, may be necessary to accommodate the study of the simultaneous interactions between several buying and selling companies in a particular industry. The main components of our approach are illustrated in Figure 2.1. In the figure we identify four groups of variables that describe and influence the interaction between buying and selling companies: variables describing the parties involved, both as organizations and as individuals; variables describing the elements and process of interaction; variables describing the environment within which the interaction takes place; variables describing the atmosphere affecting and affected by the interaction. The approach does not only involve an analysis of these groups of variables but it also includes the relations between them.

THE INTERACTION MODEL


The marketing and purchasing of industrial goods is seen as an interaction process between two parties within a certain environment. Our way of analysing industrial marketing and purchasing has four basic elements which in turn are sub-divided. These are: 1. The interaction process . 2. The participants in the interaction process 3. The environment within which interaction takes place 4. The atmosphere affecting and affected by the interaction.

The Interaction Process


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

(b)

Relationships

The Interacting Parties


The process of interaction and the relationship between the organizations will depend not only on the elements of the interaction but also on the characteristics of the parties involved. This includes both the characteristics of the two organizations and the individuals who represent them. The organization factors include the companies' position in the market as manufacturer, wholesaler, etc. It also includes the products which the selling company offers, the production and application technologies of the two parties and their relative expertise in these areas. Below, we will discuss some of the major factors: (a) Technology (b) Organizational size, structure, and strategy (c) Organizational experience (d) Individuals

The Interaction Environment


The interaction between a buying and selling firm cannot be analysed in isolation, but must be considered in a wider context. This wider context has several aspects; (a) (b) (c) (d) (e)
Market structure Dynamism Internationalization Position in the manufacturing channel The social system

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

CHAPTER NO. 3 Methodology


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

THE FORMULATION PHASE The First Idea and the Development of Resources and Organization
The Uppsala group was the first to explore the possibilities of research collaboration with colleagues in other countries. This was in order to add a new dimension to their several observations of relationships between buying and selling firms in industrial markets. These earlier studies had been of the inter-national marketing operations of Swedish firms and of industrial purchasing. These studies led to the objective of carrying out a broader investigation of sellerbuyer relationships for industrial products in several international markets.

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

Research Design
(a)

(i) (ii)
(b)

Choice of Relationships to be Studied The demands of scope The demands of depth Main Outline of the Data Collection Procedure

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

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

The End of the Formulation Process


The incremental commitment approach underlines that research must be seen as a process. A typical characteristic of a process is that it is difficult to divide into distinctive parts. Thus when we talk about the formulation phase it is a reconstruction of what happened and the end of that phase is difficult to define exactly. Earlier, we have said that the main objectives and the main design were agreed in September 1976. However, a lot of the questions treated above were discussed at the next meeting in January 1977. This meant that the design phase, which is described next, took place at least partly in parallel with the formulation phase. This sequence however, is not so important. What is important is that after the first meeting the researchers felt it necessary to proceed to design the study in more detail, by developing questionnaires for example. The main reason for this need for `movement' was a feeling among all the participants that without progress to this next step the project could be one among many other inter-national projects that are discussed but never achieved. Everybody agreed therefore to go further without having an explicit or exact formulation of the project at that stage

THE DESIGNING PHASE


1. 2. 3. 4. The Interaction Process The Interacting Parties The Interaction Environment The Atmosphere

The End of the Design Phase


1. Manager Questionnaire 2. Operative Questionnaire 3. Statements Questionnaire 4. Background and Experience Questionnaire 5. Interviewer Questionnaire.

THE COMPLETION PHASE


This phase comprises the gathering of data throughout the five countries, Using the questionnaires described in the previous section. It was during this phase that some of the problems of co-ordinating an international project of this size became apparent. However, one of the strengths of the project was the use of researchers operating in their own countries and languages. This involved the delegation of the research task to individual groups in each country. This delegation was within the constraints of the choice matrix and questionnaire design discussed earlier. The research procedure within each country differed somewhat according to the avail-able resources.

CHAPTER No.4 Company Cases


INTRODUCTION
The use of company cases is intended to serve three purposes: (i) In all the cases some relationships between selling and buying companies are described and analysed in accordance with the theoretical model presented in chapter two. Thus the cases can be seen as illustrations to how the model can be used: additionally, they are also developing the model by relating the variables to each other. In this way the model is gradually reaching an explanatory level. (ii) All the company cases contain data about different industrial markets, therefore, they can be seen as pictures of small parts of these markets. If all the cases are seen together they form a more comprehensive picture of how industrial markets work. (iii) Almost all cases focus on a specific company's situation in relation to certain of its customers or suppliers and describe how the relationships develop and are handled. In this way the cases give a special insight and relevant illustration of what kind of marketing and purchasing problems these kinds of companies encounter. 1. Marketing of raw and processed materials 2. Marketing of components 3. Marketing of equipment 4. Purchasing by companies with unit-production technology 5. Purchasing by companies with mass-production technology 6. Purchasing by companies with process-production technology

Characteristics of the Interacting Parties


1.) The Companies 2.) The Individuals

Characteristics of the Interaction Environment


1.) Market Environment 2.) The Atmosphere

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