Environmental Inhibitors

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Earlier it was noted that the internationalization of the supply base is constrained by environmental factors. For foreign firms those environmental factors are usually very 'sticky': it is impossible to change them and difficult to alter them. While we can use IT to communicate the risks of doing business in a particular country, it does not help to lessen these risks. A single firm abroad is usually not big enough or important enough to change policies or politics, and even if the exceptional condition arises where a foreign firm can influence trade regulations, this is much more likely to be done by face-to-face contact and negotiations than through electronic links. If the firm cannot bring about any large-scale change in these environmental conditions, then the introduction of IT will not have an impact on the degree of internationalization of the supply base. With regards to global integration of the sourcing function, a similar argument can be put forward. Firms are often not in a position to improve the infrastructure arrangements in a particular country and neither can they do much about the extent of currency fluctuations. This means that the environmental pressures towards local or global sourcing are largely fixed and IT does not change these pressures.

In the late 1990s Ikea came under pressure from some non-governmental organizations and the public at large following a Swedish documentary. The documentary revealed that some Ikea suppliers in developing countries, and in particular subcontractors of Ikea suppliers, hosted terrible working conditions and used child labor. Officially child labor is forbidden, but due to strong pressures from Ikea to cut costs, the subcontractors of Ikea's suppliers used children aged 14 and below to produce goods. The company stated that it was unaware of such practices and objected to them. Obviously, some other countries are less strict in maintaining their labor policies than Sweden is and Ikea cannot be blamed for that. However, one of the criticisms launched at Ikea was that it was trying to monitor suppliers from a distance, i.e., the Swedish headquarters or national trading companies, and was unable to track what was really happening at shop-floor level. Commentators argued that a global supply base obliges a firm to deal pro-actively with these issues, and monitoring from a distance is often not sufficient. Ford was also faced with local forces. Some 90% of the elements of the three cars are identical but certain differences remain due to different supplier processes in the U.S. and Europe, which made it tough to achieve the desired component commonality. Furthermore local conditions and mandates forced a number of changes. Most of the problems arose when Ford had to re-engineer the Mondeo for the North American market and encountered U.S. federal standards and market conditions. Thus both Ford and Ikea were faced with the fact that their local environments posed demands that a completely global system cannot handle. Their responses should come in the form of local responsibilities or product designs. IT seems of little help in achieving such localization.

Proposition 4: IT does not alter the environmental inhibitors to global sourcing, neither the internationalization nor the functional integration.

Earlier we stated that the more the firm sources globally, the more likely it is that it will have to confront pressures towards local responsiveness. Firms that have a highly international supply base have to deal with multiple environments simultaneously. Functional integration becomes more complex as the organization becomes more international. The usage of IT increases the feasibility of a global sourcing strategy over a local sourcing strategy (Propositions 2 and 3). Since using IT does not alter the environmental forces, we can conclude that under similar circumstance higher IT usage implies more global sourcing and thus a higher likelihood of encountering environmental inhibitors to global sourcing. Paradoxically using IT will help the firm to globalize its sourcing, but will simultaneously pose new demands in the form of the need to manage environmental differences.

Over the 1990s Ikea has increasingly globalized its supply base aided by IT tools. When it started sourcing from developing countries, Ikea encountered things it did not come across in Sweden or similar countries. It found out that labor practices may differ in developing countries and that getting adjusted to those practices requires more than simply setting some rules. Ford has also significantly internationalized its supply base and production process, particularly over the last ten or so years. Information technology has been a key enabler of internationalization at Ford. The kinds of problems that Ford still encountered were related to trade issues such as local content regulation but especially to national standards and local market conditions. As Ford changed its strategy from avoiding those issues, through localized production and sourcing, to confronting them, through global supplies, it started encountering more of those problems. Ford and Ikea managed to increase their global reach but both found out that this created new and different managerial demands. Using IT helps the multinational firm to solve some problems, but it will create new ones as well.

Proposition 5: The extent of IT usage is positively related to the likelihood of encountering environmental inhibitors to global sourcing.

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