Global Sourcing and Business Networks: Quality Heterogeneity and Firms' Efficiency

The paper analyses the effects of global sourcing on the efficiency of final firms via quality upgrading of intermediates, entailed by the increased availability of suppliers, also taking into account the role of Business and Social Networks (BSN) in facilitating supplier-user relations and improving information diffusion. Indeed, when new sourcing opportunities arise, the increased quality range of suppliers may allow firms to acquire higher quality inputs, but it also increases the extent of screening efforts. Global sourcing is thus a potential efficieney enhancing strategy for firns, but the potential gains may be partIy offset by the boost of screening costs produced by the increased heterogeneity of suppliers. Within this setting, we show that big firms have an advantage in the internationai arena since they can exploit better the potentiai gains of the increased availability of suppliers. Moreover, BSN have cumulative beneficial effects in reducing these costs: thicker networks imply higher cost saving and thus further incentives to invest in network linkages, making them thicker and thicker. In the extension of the modeI, we frame the problem of external sourcing at a local vs. foreign level as a problem of supplier-user matching, by considering the differences between local and foreign suppliers in terms of costs, heterogeneity and degree of embeddedness in networks. Beeause of the potentially greater heterogeneity of foreign suppliers, transnational BSN are usually more effeetive in enhancing firms' efficieney than Ioeai BSN, but thicker Ioeal BSN ean help reduce the probability of firms to souree globally and therefore reduce the 'negative' impaet of globalization on 10eal produetion systems.