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1 International Purchasing Office (IPO) and Global Sourcing Marco Sartor University of Udine
1
International Purchasing Office (IPO)
and Global Sourcing
Marco Sartor
University of Udine
2
INTRODUCTION IPO definition
“An IPO can be defined as an offshore buying
office or buying house set up to procure
components, parts, materials and other industrial
input for use by manufacturing plants globally”
(Goh and Lau, 1998)
3
OBJECTIVES OF THE STUDY
The objectives were the followings:
• To identify the factors that influence the choice and the
construction criteria of an IPO;
• To point out phases and development path in IPO’s
establishment;
• To determine the main tasks of IPOs and critical
organizational factors in its management.
4
METHODOLOGY
• Literature analysis;
• Development of a check list (collecting information such
as IPO’s enabling factors, tasks and criticalities,
characteristics of the IPOs’ path of growth);
• Sample selection;
• Case-studies development;
• Data analysis and elaboration.
• Development of a theoretical model.
5
METHODOLOGY The sample
Sector Sourcing Areas
Data processing Taiwan, China
Textile
China, Bangladesh,
Pakistan, India
Office equipment China
Engineering China
Fashion
China, Vietnam, Indonesia,
Sri Lanka
Fashion (glasses) China
(Hong Kong)
Systems for the textile industry China, Taiwan
Gift and fancy goods China
Toys China, Vietnam, Indonesia
Power
tools China
Mechanical
Electromechanical China
CAMPAGNOLO COMMERCIO
Italia
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RESULTS Sourcing typologies
• Imposed international sourcing
• Intermediated international sourcing
• Direct international sourcing
Traditional
Collaborative (non-equity)
Collaborative (equity)
PURCHASING RESPONSIBILITY
7
RESULTS Sourcing typologies
IPO ADOPTION
Industrial environment complexity
IntermediatedIntermediated ISIS
Firm’s size (purchased volumes)
Direct IS Collaborative (Direct IS Collaborative (EquityEquity))
Product complexity
Direct IS CollaborativeDirect IS Collaborative
Direct IS Direct IS TraditionalTraditional
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RESULTS Phases for the creation of an IPO
Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
9
Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
Critical activity in China
because:
• the Chinese industrial sectors
are deeply heterogeneous
• it’s wide country with a
normative and industrial
system that changes
continually
RESULTS Phases for the creation of an IPO
10
Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
Parameters to be considered :
• the distance from
current/potential suppliers;
• the presence of adequate
transport infrastructures
• the presence of suitable
infrastructures for the
communication;
• the places in which the industry-
relevant trade exhibitions are
held;
• the cost for the creation, and the
keeping of an office;
• possible opportunities at
commercial and/or fiscal level
offered by the SEZs;
• the cost of the local employees
RESULTS Phases for the creation of an IPO
11
Parameters to be considered :
• the distance from
current/potential suppliers;
• the presence of adequate
transport infrastructures
• the presence of suitable
infrastructures for the
communication;
• the places in which the industry-
relevant trade exhibitions are
held;
• the cost for the creation, and the
keeping of an office;
• possible opportunities at
commercial and/or fiscal level
offered by the SEZs;
• the cost of the local employees
Distribution of the road network
RESULTS Phases for the creation of an IPO
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Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
Parameters to be considered :
• the distance from
current/potential suppliers;
• the presence of adequate
transport infrastructures
• the presence of suitable
infrastructures for the
communication;
• the places in which the industry-
relevant trade exhibitions are
held;
• the cost for the creation, and the
keeping of an office;
• possible opportunities at
commercial and/or fiscal level
offered by the SEZs;
• the cost of the local employees
RESULTS Phases for the creation of an IPO
13
Parameters to be considered :
• the distance from
current/potential suppliers;
• the presence of adequate
transport infrastructures
• the presence of suitable
infrastructures for the
communication;
• the places in which the industry-
relevant trade exhibitions are
held;
• the cost for the creation, and the
keeping of an office;
• possible opportunities at
commercial and/or fiscal level
offered by the SEZs;
• the cost of the local employees
Main advantages:
• Special tax incentives for foreign investments
• Greater independence on international trade
activities.
RESULTS Phases for the creation of an IPO
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Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
Parameters to be considered :
• the distance from
current/potential suppliers;
• the presence of adequate
transport infrastructures
• the presence of suitable
infrastructures for the
communication;
• the places in which the industry-
relevant trade exhibitions are
held;
• the cost for the creation, and the
keeping of an office;
• possible opportunities at
commercial and/or fiscal level
offered by the SEZs;
• the cost of the local employees
RESULTS Phases for the creation of an IPO
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RESULTS IPOs’ distribution
http://images.google.it/imgres?imgurl=http://news.bbc.co.uk/olmedia/1790000/images/_1790859_blackdeckerlogo300.jpg&imgrefurl=http://news.bbc.co.uk/1/hi/england/2295217.stm&h=180&w=300&sz=11&tbnid=YdapSKvoqGwJ:&tbnh=66&tbnw=111&hl=it&start=1&prev=/images%3Fq%3Dblack%2B%2526%2Bdecker%2Blogo%26hl%3Dit%26lr%3D%26sa%3DGhttp://images.google.it/imgres?imgurl=http://news.bbc.co.uk/olmedia/1790000/images/_1790859_blackdeckerlogo300.jpg&imgrefurl=http://news.bbc.co.uk/1/hi/england/2295217.stm&h=180&w=300&sz=11&tbnid=YdapSKvoqGwJ:&tbnh=66&tbnw=111&hl=it&start=1&prev=/images%3Fq%3Dblack%2B%2526%2Bdecker%2Blogo%26hl%3Dit%26lr%3D%26sa%3DGhttp://images.google.it/imgres?imgurl=http://control.univ.trieste.it/automazione/logo_DANIELI.gif&imgrefurl=http://control.univ.trieste.it/automazione/menu.html&h=92&w=147&sz=3&tbnid=zfSa8Mb2b5MJ:&tbnh=55&tbnw=89&hl=it&start=15&prev=/images%3Fq%3Ddanieli%2Blogo%26hl%3Dit%26lr%3Dhttp://images.google.it/imgres?imgurl=http://news.bbc.co.uk/olmedia/1790000/images/_1790859_blackdeckerlogo300.jpg&imgrefurl=http://news.bbc.co.uk/1/hi/england/2295217.stm&h=180&w=300&sz=11&tbnid=YdapSKvoqGwJ:&tbnh=66&tbnw=111&hl=it&start=1&prev=/images%3Fq%3Dblack%2B%2526%2Bdecker%2Blogo%26hl%3Dit%26lr%3D%26sa%3DG
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RESULTS Distribution of other IPOs
http://images.google.it/imgres?imgurl=http://www.emag.ro/images/Brands/SAMSUNGlogo.jpg&imgrefurl=http://www.emag.ro/default.php%3Fbrand_id%3D42&h=50&w=150&sz=5&tbnid=6_xnGgA2cnMJ:&tbnh=30&tbnw=90&hl=it&start=10&prev=/images%3Fq%3Dsamsunglogo%26hl%3Dit%26lr%3Dhttp://images.google.it/imgres?imgurl=http://www.emag.ro/images/Brands/SAMSUNGlogo.jpg&imgrefurl=http://www.emag.ro/default.php%3Fbrand_id%3D42&h=50&w=150&sz=5&tbnid=6_xnGgA2cnMJ:&tbnh=30&tbnw=90&hl=it&start=10&prev=/images%3Fq%3Dsamsunglogo%26hl%3Dit%26lr%3Dhttp://images.google.it/imgres?imgurl=http://www.emag.ro/images/Brands/SAMSUNGlogo.jpg&imgrefurl=http://www.emag.ro/default.php%3Fbrand_id%3D42&h=50&w=150&sz=5&tbnid=6_xnGgA2cnMJ:&tbnh=30&tbnw=90&hl=it&start=10&prev=/images%3Fq%3Dsamsunglogo%26hl%3Dit%26lr%3Dhttp://images.google.it/imgres?imgurl=http://www.mrchr.com/en/pics_lib/com_client_logo/nec.jpg&imgrefurl=http://www.mrchr.com/en/en_com/en_com_ref_01.htm&h=150&w=150&sz=24&tbnid=XMTakSc7sagJ:&tbnh=90&tbnw=90&hl=it&start=6&prev=/images%3Fq%3Dnec%2Blogo%26hl%3Dit%26lr%3D%26sa%3DNhttp://www.hitachi.com/index.htmlhttp://images.google.it/imgres?imgurl=http://www.telemanuals.com/catalog/images/toshiba_logo.png&imgrefurl=http://pp.allegro.pl/show_item.php%3Fitem%3D47353767&h=140&w=265&sz=3&tbnid=LXCCHnd0vGEJ:&tbnh=57&tbnw=108&hl=it&start=17&prev=/images%3Fq%3Dtoshiba%2Blogo%26hl%3Dit%26lr%3Dhttp://www.hitachi.com/index.htmlhttp://www.hitachi.com/index.htmlhttp://www.hitachi.com/index.htmlhttp://www.hitachi.com/index.htmlhttp://images.google.it/imgres?imgurl=http://www.mrchr.com/en/pics_lib/com_client_logo/nec.jpg&imgrefurl=http://www.mrchr.com/en/en_com/en_com_ref_01.htm&h=150&w=150&sz=24&tbnid=XMTakSc7sagJ:&tbnh=90&tbnw=90&hl=it&start=6&prev=/images%3Fq%3Dnec%2Blogo%26hl%3Dit%26lr%3D%26sa%3DNhttp://images.google.it/imgres?imgurl=http://www.telemanuals.com/catalog/images/toshiba_logo.png&imgrefurl=http://pp.allegro.pl/show_item.php%3Fitem%3D47353767&h=140&w=265&sz=3&tbnid=LXCCHnd0vGEJ:&tbnh=57&tbnw=108&hl=it&start=17&prev=/images%3Fq%3Dtoshiba%2Blogo%26hl%3Dit%26lr%3Dhttp://images.google.it/imgres?imgurl=http://www.mrchr.com/en/pics_lib/com_client_logo/nec.jpg&imgrefurl=http://www.mrchr.com/en/en_com/en_com_ref_01.htm&h=150&w=150&sz=24&tbnid=XMTakSc7sagJ:&tbnh=90&tbnw=90&hl=it&start=6&prev=/images%3Fq%3Dnec%2Blogo%26hl%3Dit%26lr%3D%26sa%3DNhttp://images.google.it/imgres?imgurl=http://www.mrchr.com/en/pics_lib/com_client_logo/nec.jpg&imgrefurl=http://www.mrchr.com/en/en_com/en_com_ref_01.htm&h=150&w=150&sz=24&tbnid=XMTakSc7sagJ:&tbnh=90&tbnw=90&hl=it&start=6&prev=/images%3Fq%3Dnec%2Blogo%26hl%3Dit%26lr%3D%26sa%3DNhttp://images.google.it/imgres?imgurl=http://www.emag.ro/images/Brands/SAMSUNGlogo.jpg&imgrefurl=http://www.emag.ro/default.php%3Fbrand_id%3D42&h=50&w=150&sz=5&tbnid=6_xnGgA2cnMJ:&tbnh=30&tbnw=90&hl=it&start=10&prev=/images%3Fq%3Dsamsunglogo%26hl%3Dit%26lr%3Dhttp://images.google.it/imgres?imgurl=http://www.mrchr.com/en/pics_lib/com_client_logo/nec.jpg&imgrefurl=http://www.mrchr.com/en/en_com/en_com_ref_01.htm&h=150&w=150&sz=24&tbnid=XMTakSc7sagJ:&tbnh=90&tbnw=90&hl=it&start=6&prev=/images%3Fq%3Dnec%2Blogo%26hl%3Dit%26lr%3D%26sa%3DN
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RESULTS Phases for the creation of an IPO
Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
• Critical activities for the good
office operation
• They are normally carried out by
the IPO itself in cooperation with
the headquarters
• There are several advantages in
recruiting local employees in
China
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RESULTS Phases for the creation of an IPO
Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
• Critical activities for the good
office operation
• They are normally carried out by
the IPO itself in cooperation with
the headquarters
• There are several advantages in
recruiting local employees in
China
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RESULTS Phases for the creation of an IPO
• Critical activities for the good
office operation
• They are normally carried out by
the IPO itself in cooperation with
the headquarters
• There are several advantages in
recruiting local employees in
China
• They are normally well trained (the
percentage of the PIL allocated to
instruction is recently arisen from 2.5% to
3.4%)
• They usually have a good level of
technical experience
• Their knowledge of the language and of
the local culture/normative system
simplifies the communication with the
suppliers and the operations
• Their cost is lower
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RESULTS Phases for the creation of an IPO
Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
CRITICAL ACTIVITY:
It’s important to exactly define task
distribution among IPO, central
(purchasing) units, and suppliers
(for example with reference to
quality control)
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RESULTS Phases for the creation of an IPO
Control of the
production phases
Pre-shipment control
Other activities
(Administration,…)
Monitoring of the
improvement projects
Personnel
distribution
Flows monitoring
Receipt and assimilation
of project specifications
Organize tasks
subdivision
Creation of new channels Monitoring of the
current channels
Sending own
personnel to China
Choice of the location
Recruiting
Training
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RESULTS IPO’s activities
Quality control
Know-how and technology transfer
Search for new suppliers
Recruiting and training of the Chinese
personnel
Negotiation
Information exchange
Other activities (legal, organization, and
administrative ones)
Main activities
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Case Country
origin
Annual
turnover
(2010)
1st IPO Financial profile Components sourced from
the IPO
Stand-
alone /
Inside a
plant
No. of
staff
No. of
suppliers
Appliances Sweden EUR 11,12
billion 1998
Internal Trading
Company
Electrical, mechanical, and
chemical components Stand-alone 70 N/A
Automation Italy EUR 0,18 billion 2007 Internal Trading
Company
Mechanical, electro-
mechanical, and electric
components
Stand-alone 6/7 N/A
Engine USA USD 13,2 billion
(fortune 500) 2003 Centrally funded Machining parts Stand-alone 75 100+
Engineering Italy EUR 2,58 billion 2004 Funded by the
plant in China All kinds of mechanical parts
Inside a
plant 250 N/A
Identification USA USD 1,26 billion 2006 Internal Trading
Company
Maintenance, repairing, and
operational identification Stand-alone 6 N/A
Industrial A USA USD 13,2 billion
(fortune 500) 2003 Centrally funded Mechanical precision parts Stand-alone 7 20
Industrial B USA USD 1,9 billion 2004 Internal Trading
Company
Electrical and mechanical
parts; sheet metal Stand-alone 20 20+
Industrial C UK GBP 0,38 billion 2006 Funded by the
plant in China
Plastic, aluminium casting, and
cast iron
Inside a
plant 3 4/5
Industrial
tools USA USD 8,4 billion 1998
Internal Trading
Company
Motor, plastic, and machining
parts
Inside a
plant 8 98
Lighting Netherland
s EUR 25 billion 2003 Centrally funded Lamps and automotive lighting Stand-alone 500 N/A
Printing UK GBP 0,3 billion 2004 Centrally funded Electronics in a PCB, power
supply, injection mouldings Stand-alone 4 around 12
Retailer A Sweden/N
etherlands EUR 23.5 billion 1992 Centrally funded
Textile, steel, aluminium,
plastic Stand-alone 500 300+
Retailer B UK GBP 1,08 billion 1994 Centrally funded Toys, clothing, home & travel
systems Stand-alone 300
100 core of
5-600
Solar Germany EUR 2,38 billion 2005 Centrally funded Solar products Stand-alone 7 4
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25
Multidimensinal divelopment - APPLIANCE case study
26
Selective development - RETAILER A case study
27
Stable configuration - ENGINE case study
28
International Purchasing Office (IPO)
and Global Sourcing
Marco Sartor
University of Udine
