Managing buy decisions: an empirical study of purchasing behaviour and buyer-supplier relationships in the Australian automotive industry

Abstract

With the rapid development of information technology and spread of globalisation, the automotive industry’s value chain has become increasingly geographically dispersed, and global automobile manufacturers are managing the supply of parts and components around the world at an ever lower cost. However, automobile manufacturers can achieve cost-savings in supply-chain management either by setting up their own low-cost supply base overseas or sourcing parts from independent low-cost suppliers (local or overseas). The classical make-or-buy question remains. When automobile manufacturers decide to buy (i.e. source from independent suppliers), they now face an additional level of choice—whether to buy from local or foreign suppliers. Despite the significant body of literature on the first level of choice between make and buy—especially in the context of the automotive industry—the second level question of how automobile manufacturers choose between foreign and local suppliers to manage the buy decision remains under-researched. This is surprising given the relevance of the topic in an increasingly globalised industry where the choice of suppliers is more important than the choice between make and buy (since outsourcing parts and components to suppliers has become the norm). This dissertation’s objective was to advance the existing make-or-buy literature by focusing on the second step of buy decisions within the context of the Australian automotive industry. Drawing from transaction cost economics, the resource-based view, the business strategy literature and the new institutional sociological theory, a conceptual framework has been proposed to investigate (1) what factors influence Australian automobile manufacturers’ choice between purchasing parts and components from local or foreign suppliers, and (2) how Australian automobile manufacturers structure the buyer–supplier relationship with their suppliers (arm’s length or obligatory relationship). Based on a combination of quantitative methods and archival research, this study identified a range of factors that influence Australian automobile manufacturers’ choice between local and foreign suppliers, and the way they manage their business relationships with their suppliers to sustain a competitive advantage. This dissertation represents the first attempt to advance our understanding of an important yet understudied topic in the make-or-buy literature in a new empirical context.