U.S. sourcing from low-cost countries: a comparativeanalysis of supplier performance.

INTRODUCTION

Increasingly, U.S. firms are turning to suppliers of products and services located in low-cost countries (LCCs), (1) also commonly referred to as less-developed countries, emerging countries and developing countries. The lower labor costs in LCCs, especially China, offer an

attractive alternative to the higher cost suppliers from more developed economies. For example, the labor cost in China, an Asian LCC, is only 5 percent of that in Japan, a neighboring Asian developed country (Jiang and Prater 2002). Given the labor cost advantage offered by China, it is not surprising that, as shown in Figure 1, Asia, (2) predominantly Eastern and Southeastern Asia, was an LCC supply region from which U.S.-based firms sourced the most during the time period 1998-2004, followed by the Western Hemisphere, predominantly Central and South America (International Trade Administration 2005a). Europe, predominantly Eastern Europe, ranks third in terms of U.S. import dollar values during the same time period.

The annual growth rate of trade between the United States and each of these three regions during the time period 1998-2004 is presented in Figure 2 (International Trade Administration 2005a). Figure 2 shows that U.S. imports from European LCCs, albeit relatively small in terms of dollar values, began to outpace those from both Asia and the Western Hemisphere in the two consecutive years, 2003 and 2004. U.S. import values from Asian and Western Hemisphere LCCs increased by approximately 25 percent and 14 percent, respectively, between 2002 and 2004. U.S. imports from European LCCs increased by approximately 48 percent during the same time period--an upward trend that cannot be ignored, growing at a rate approximately two times faster than U.S. imports from Asian LCCs and more than three times faster than those from Western Hemisphere LCCs.

At the national level--among all developed countries and LCCs worldwide--the top three nations of import into the United States are Canada, a country with a developed economy, followed by two LCCs: China and Mexico (International Trade Administration 2005b). While trade with Mexico rose quickly following the enactment of the North American Free Trade Agreement (NAFTA) on December 1, 1994, U.S. trade with Mexico has slowed in recent years. Trade with China, on the other hand, is on the rise. Figure 3 illustrates a history of imports from Mexico and China into the United States during the time period 1998-2004 (International Trade Administration 2005b). Figure 3 shows that imports from Mexico into the United States during these 7 years rose by approximately 65 percent compared with an approximate 176 percent increase in imports from China during the same time period--a multiple of more than two and a half times. More recently, a growing number of U.S. firms have begun broadening the reach of their import activities, trading with suppliers in countries they had conducted little or no business with previously, such as Hungary, Poland, Romania, Bulgaria and the Russian Federation. These Eastern European LCCs serve as manufacturing alternatives to China, the top Asian LCC. Their appeal is likely to prove particularly strong within the European market (La Londe 2004; Keeling 2005; Teague 2005; Carbone 2006a, b) as they have some important advantages, including those of geographic proximity (Carbone 2006b) and closer cultural similarities (Keeling 2005).

The U.S. import statistics examined thus far suggest that the trend of U.S. firms toward sourcing from LCCs continues upward. Given the growing impact of LCC suppliers on sourcing strategy, the current work examines the comparative performance of LCC suppliers located in the top three U.S. trading regions, listed here in descending order of dollar values of U.S. imports: (1) Asia, (2) the Western Hemisphere and (3) Europe. This research focuses on evaluating 14 operational indicators of international sourcing and supply chain performance. The specific operational indicators corresponding to key aspects of product-, situation-, process-, time-, quality- and cost-related performance are listed in Table I.

Using the analysis parameters delineated in Table I, two questions are explored: (1) How do the LCC regions of Asia, the Western Hemisphere and Europe compare in terms of the 14 operational indicators?; and (2) How do LCC nations within these three regions compare with regard to the 14 operational indicators? The remaining sections of this article describe the conceptual framework, examine relevant literature, describe the methodology, present the analysis and results, discuss findings, acknowledge limitations of the study and recommend directions for future research.

CONCEPTUAL FRAMEWORK

The theory of comparative advantage in international business rooted in the work of David Ricardo suggests that a country, region or company will specialize in goods or services that it can produce most efficiently, and will seek to trade them with others such that both trading partners benefit from such advantages as lower labor wages, higher productivity and more advanced production technologies (Ricardo 1821). The specific comparative advantages of different locations, countries and regions have led to an emerging trend in global production and sourcing systems in that products become hybrid with multiple country affiliations. A product may be designed in one country, manufactured in another and parts/components sourced in yet another (Van Pham 2006). Another important trend that has characterized the world economy is regional economic integration (REI) (De Gouvea Neto 1998; Buckley, Clegg, Forsans and Reilly 2001). The globalized economy, successful conclusion of the Uruguay Round and the establishment of the World Trade Organization (WTO) have together led to lowered barriers to international business transactions (Buckley et al. 2001). Losing their conventional protective mechanism of trade barriers, a growing number of countries have grouped together into regional trading blocs--often on a pan-continental basis or unification at a continental or nearcontinental level (De Gouvea Neto 1998; Buckley et al. 2001). One of the primary purposes of REI is to shift location attractiveness, in addition to allowing member countries to exploit the economic efficiency gained from economies of scale (Buckley et al. 2001) and improved resource allocation across several countries (Kume 1996 cited in De Gouvea Neto 1998).

Hybrid-product systems and regionally integrated economies give rise to important implications for how multinational firms do business. Firms now face challenges in the physical movements not only between countries but also across regions (World Trade Magazine 2007). Maltz (2006) stressed that in sourcing internationally from LCCs, regional consideration is as important as that at a national level (Maltz 2006), particularly as regional positions shift over time (World Trade Magazine 2007). Comparative advantages of different regions and member countries change as a result of regional position shifts with new REI being proposed, new members joining the existing REIs and new activities of integration (such as customs unions, currency unions and visa-free transit) being enforced or proposed among member states. Based on the aforementioned reasoning, a review of the relevant literature was undertaken, as well as an analysis of survey data, both at regional and national levels of LCC sourcing.

REVIEW OF RELEVANT LITERATURE

LCC Regional Comparative Advantages

Studies indicate that LCCs in a particular world region--in comparison with LCCs in another world region--contend with at least some shared or similar disadvantages and enjoy at least some shared or similar advantages in exporting to the United States. Certain LCC regions and individual LCC nations demonstrate comparative advantages over the others in a range of sourcing and supply chain operational performance indicators. For instance, Asian LCCs are well known not only for their low costs of labor and raw materials (Engardio, Roberts and Bremner 2004; Harrison 2004; La Londe 2004) but also for their vast market opportunities. This is especially true for China and India, two of the United States' top Asian LCC sources, in that their large populations and increasing buying power create promising market opportunities (Carbone 2006b; Roberts 2006). On the other hand, LCCs in the Western Hemisphere offer the advantages of comparatively lower transportation costs and shorter supply lines as a result of their geographic proximity to the United States (Birou and Fawcett 1993; Palvia 2004). In addition, U.S. apparel retail firms perceive Western Hemisphere countries as less challenging than Asian countries with respect to complying with U.S. regulations such as quotas, tariffs and trade restriction bills (Cho and Kang 2001).

More recently, LCCs predominantly in Eastern Europe, in addition to those in Asia and the Western Hemisphere, have generated interest from a growing number of U.S. firms, particularly original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMS). As these firms have begun to replace Asian LCCs with European LCCs, primarily for low-tech items such as cable assemblies, racks and enclosures (La Londe 2004; Keeling 2005; Teague 2005; Carbone 2006a, b) they have experienced a variety of benefits and drawbacks. The geographic proximity of European LCCs to the United States and other European countries provides the advantages of lower freight costs and the ability to respond quickly to American and European customer needs (Carbone 2006b). Furthermore, European LCCs are viewed as having skilled, experienced, yet low-cost labor forces (Keeling 2005). An intangible yet equally important advantage of European LCCs is the cultural, political and historic similarities they share with other Western countries (Keeling 2005). Despite the apparent advantages of sourcing from European LCCs, Maltz Christiansen, Carranza and Oke (2004) observed that compared with their Asian LCC counterparts, Eastern European LCCs were less cost-effective, and less willing to respond to customer requirements.

LCC National Comparative Advantages

The disparity in supply management advantages and disadvantages must be acknowledged not only at a regional level but also at a national level. In general, regions such as Asia and Europe are viewed by outsiders as homogeneous blocs (Bookbinder and Tan 2003). Although LCCs in the same region have some similar advantages and disadvantages in creating and sustaining trade relationships with U.S. firms, each country is also distinct. That is, each individual country, even countries within the same world region, possesses a unique set of laws, economic conditions and a host of other situational factors such as language and time zones (Trent and Monczka 2003). Asia, for example, comprises almost 50 diverse countries, speaking more than 25 languages and 700 dialects and spanning six time zones (Bookbinder and Tan 2003). Similarly, Europe is a continent of 42 nations with highly diverse cultures and languages (Bookbinder and Tan 2003), speaking more than 40 languages including contemporary languages such as Albanian, Dutch, English, German, Portuguese, Russian and Spanish (BBC Education 2006). A similar highly individualized reality applies to the Western Hemisphere, which comprises 41 independent countries and dependent territories (International Trade Administration 2005a). These Western Hemisphere countries are diverse in culture and language; the populations speak a host of native languages as well as Spanish, Portuguese, French, English and Creole (U.S. Department of State 2006).

The unique characteristics of individual countries within each region influence the performance of suppliers operating therein (Min and Galle 1991; Bookbinder and Tan 2003; Trent and Monczka 2003). In fact, the differences of individual countries can be so marked as to produce disparity in supply management advantages and disadvantages among countries located in the same world region. India and the Philippines, among Asian LCC supply sources, well illustrate such disparity. A study by Javalgi, Wickramasinghe, Scherer and Sharma (2005) assessed e-business readiness of various countries in Asia and found that India and the Philippines were ahead of China, although only slightly, on various readiness drivers, such as telecommunication infrastructure, logistics, and other infrastructure supports required to conduct e-business (Javalgi et al. 2005). Owing to their English language proficiency and better equipped telecommunication and market infrastructure (Javalgi et al. 2005), it is not surprising to see that India and the Philippines are more popular supply sources for the United States than are many other Asian LCCs for software development and call centers (Palvia 2004). Similar disparities can be observed in the Western Hemisphere. The most active supply source in the Western Hemisphere, Mexico, has a number of unique advantages over other Western Hemisphere LCCs. The chief advantages offered by Mexico are its geographic proximity to the United States and its membership in NAFTA, which permits cross-border flow with reduced or no tariffs among Mexico, the United States and Canada. Moreover, Mexico is an ideal point for accessing the Spanish-speaking Western Hemisphere market due to similar language and culture, and Mexican firms' knowledge of this market (Palvia 2004).

Challenges Associated with Sourcing from LCCs

Compared with sourcing internationally from developed countries, challenges associated with sourcing internationally from LCCs appear to be of a greater concern. Studies indicate that product-, situation- and process-related issues are all important factors in an LCC's ability to attract and maintain its business with U.S. buying firms. Quality is one of the key product-related issues. For instance, in Min and Galle's (1991) study, participating firms rated their foreign suppliers on a national basis for their product quality, service quality and price. The study reported that India, Mexico and a number of Eastern European countries--all LCCs--were among the five least-competent performers in all three areas. In a more recent empirical study, Laosirihongthong and Dangayach (2005) investigated manufacturing strategies of automotive manufacturing firms in two LCCs, namely India and Thailand. Results indicate that these LCC firms place competitive priorities on improving product and process quality and delivering products on time (Laosirihongthong and Dangayach 2005). These results suggest that LCC automotive firms still focus on traditional competitive priorities; whereas firms in developed countries such as the United States, Japan and Korea now focus on more contemporary measures of design and manufacturing process flexibility as their competitive priorities (Kim and Arnold 1996; Laosirihongthong and Dangayach 2005).

With respect to situation-related issues, communication problems were found to be especially prevalent in LCCs where telephone and mail channels were either limited or nonexistent (Handfield 1994). In a study on e-business readiness (Javalgi et al. 2005), India, China and Indonesia--Asian LCCs--were found to lag behind Japan, Singapore, Hong Kong and South Korea--Asian developed countries--on various drivers of e-business readiness, such as telecommunication infrastructure (e.g., phone lines, digital subscriber line, access to computers and number of Internet Service Providers); and market infrastructure (e.g., logistics and other supporting factors required to conduct e-business) (Javalgi et al. 2005). Communication networks in LCCs also tend to be unreliable, and systems such as electronic data interchange cannot be supported (Sawhney and Sumukadas 2005). Moreover, compared with developed countries, LCCs' overall transportation infrastructure is less efficient. Their inland transport and terminal equipment has lower productivity, and their use of assets is inefficient (United Nations 2003). The inefficient transportation and communication infrastructure in LCCs often lead to process-related issues, such as difficulties in arranging foreign freight movements (Murphy and Daley 1994). It also leads to logistical inefficiency that adds to business costs. Rodrigues, Bowersox and Calantone (2005) reported that logistics expenditure as a percentage of gross domestic product (GDP) in LCCs ranges from approximately 15 percent to 18 percent, compared with a substantially lower approximate 11 percent to 14 percent in developed countries.

In essence, the United States' three most active LCC trading regions: Asia, the Western Hemisphere and Europe--in comparison with one another--appear to contend with at least some comparative disadvantages and enjoy at least some comparative advantages in exporting to the United States. The literature review suggests that disparities in supply management advantages and disadvantages exist both at regional levels and at national levels. Thus, operating in a hybrid-product system and ever-changing regional positions of today's regionalized economy, it is vital that supply managers acknowledge and understand the regionally and nationally comparative characteristics of increasingly important LCC sources. This study takes both the regional view and the national view in investigating sourcing and supply chain performance of LCCs in the three LCC regions discussed previously.

RESEARCH METHOD

Scope of the Study

This work focuses on U.S.-based manufacturing firms that directly purchase "leverage" products from suppliers located outside the United States. We adopt the Carter (1999) definition of "leverage" items, which purports that "leverage" items are basic, generic purchases. Leverage items are generally standardized items and represent relatively high dollar expenditures to a firm (Carter 1999). The supply market for leverage items is characterized by a large number of suppliers who can provide products, thus rendering a low risk of supply disruption to the buying firm (Carter 1999). An example of a leverage product is packaging materials such as foam and plastic purchased by an electronics appliance manufacturer. The annual expenditure on packaging materials can be significant for an electronics appliance manufacturer. However, because the packaging materials have somewhat standard features that several suppliers are capable of providing, they represent a low risk of supply disruption to an electronics appliance manufacturer.

Operational Indicators and Measurement

The 14 operational indicators investigated in this study are summarized by their respective categories in Table I. Compiled from the foregoing review of the literature, 11 operational indicators of international sourcing and supply chain factors reflect the important challenges in sourcing internationally from LCCs that arise from product-, process- and situation-related factors. This work further enhances an understanding of logistics and supply chain factors in sourcing internationally from LCCs by additionally examining the "quality" aspect of supply chain management. Three quality-related factors included in this work were derived from Coyle, Bardi and Langley's logistics and supply chain performance metrics (2002, pp. 482-499), which, in turn, were drawn from a survey-based book by Keebler, Ledyard, Durtsche and Manrodt (1999). The book explains the lessons learned from the successful logistics measurement programs of companies such as 3M, Texas Instruments, Tyson Foods, Motorola and Welch's. The 14 indicators of interest were measured through supply management professionals' satisfaction toward their suppliers in LCCs on a seven-point Likert scale (7 = very satisfied and 1 = very unsatisfied).

Data Acquisition

Data were collected using a mail survey. The questionnaire used in the survey was developed using Dillman's (2000) Tailored Design Method. The questionnaire was rigorously reviewed by import and supply managers, experts in mail survey methodology and experts in procurement, international logistics and supply chain management. It was then administered in a pilot survey.

After completion of the pilot survey, a finalized questionnaire was mailed to a sample of 3,793 supply managers drawn from the Institute for Supply Management[TM] membership list and the 2004 U.S. Importer Directory. Eighty-five questionnaires were returned as nondeliverable. Excluding these, 285 questionnaires were returned, 94 of which were excluded from further analysis for the following reasons: (1) informants indicated no personal involvement in international sourcing; and/or (2) responding firms failed to satisfy the scope of the study with respect to the type of overseas-purchased products. A further 44 responses were excluded on the basis of countries of purchase even when their responses were complete and correct. Specifically, these correctly completed questionnaires were eliminated because the responding firms sourced internationally from regions other than Asia, the Western Hemisphere and Europe; thus they did not permit the comparative analysis intended in this paper. Thirteen qualified responses obtained from the pilot survey were valid for analysis, resulting in 160 usable responses. The number of usable responses was sufficient for statistical analysis, and the careful and rigorous inspection of the final data used in the analysis indicated a high quality of data.

Tests of Representativeness and Nonresponse Bias

Table II summarizes the results of a [chi square] goodness-of-fit test and a test of nonresponse bias. A [chi square] goodness-of-fit test was implemented to identify whether the responding firms represent the target population of the study based on two characteristics: (1) U.S. state location of the firms classified into four groups based on U.S. Census Regions; and (2) the Standard Industrial Classification (SIC) System manufacturing codes (20-39) classified into four groups in ascending order of SIC code. Results of the [chi square] tests of equal proportion suggest that the proportion of responding firms across the four U.S. state regions and the four SIC groups do not differ from those of the target population at a 0.05 significance level (Pearson's [chi square] = 3.010, DF = 3, p-value = 0.390; and Pearson's [chi square] = 7.670, DF = 3, p-value = 0.053, respectively).

Nonresponse bias was tested by making a comparison between early respondents who returned the questionnaire before a reminder-thank you postcard mailing (N = 146), and late respondents who returned the questionnaire afterwards (N = 14) per Lambert and Harrington (1990). Early- and late-respondent groups were compared based on (1) four demographic variables: annual sales, number of employees, total purchases and percentage of overseas purchases; and (2) satisfaction rating responses for the 14 operational indicators. As shown in Table II, there were no significant differences in the proportion of responding firms on any of the individual demographic variables. Equally, results of a Mann-Whitney test revealed no statistically significant differences between early- and late-respondents in their responses for the 14 operational indicators. Therefore, there was no apparent nonrepresentativeness or nonresponse bias in the data.

Respondent and Sample Characteristics

Table III provides a summary of the characteristics of the respondents' companies, profiling: primary business areas; annual sales; LCCs of purchase; types of goods imported from LCCs and respondents' sourcing strategies, i.e., whether they sourced from one or more than one region. As shown in Table III, the sample is composed predominantly of relatively large firms from two industries: (1) the electronic and related electrical product industry (SIC code 36); and (2) the fabricated metal product industry (SIC code 34). The responding firms commonly import finished goods and components from a wide range of countries of purchase, including 25 developed countries and 28 LCCs. A complete list of these countries of purchase and their corresponding regional geography is provided in the appendix. The LCCs of purchase represented in this study are predominantly in Eastern and Southeastern Asia, followed by LCCs in Central and South America of the Western Hemisphere, and Eastern Europe, respectively. The scope of the responding firms' supply regions is mostly limited to one region. Approximately, only 11 percent of the firms sourced internationally from more than one region.

ANALYSIS RESULTS

Results of the data analysis at a regional level, specifically analysis comparing Asian, Western Hemisphere and European LCCs, are presented first. Then a more micro view, comparing performance of the top seven LCC sources, regardless of region, is presented.

Regional Comparative Analysis

At a regional level, a two-sample Hotelling's [T.sup.2] test was conducted to comparatively analyze data representing LCC suppliers in Asia and the Western Hemisphere. The results suggest that international sourcing and supply chain performance of LCC suppliers in Asia is not significantly different from that of LCC suppliers in the Western Hemisphere ([T.sup.2]=18.6761, F=1.2176; DF1=14, DF2=136, p-value=0.2695).

Owing to Europe's emerging role as an alternative LCC supply source, there is currently an insufficient number of observations for inclusion in the Hotelling's [T.sup.2] test. However, early indications of the relative performance of European LCCs can be discerned from the graphical analysis shown in Figure 4. Figure 4 suggests that European LCC sources could outperform LCC sources from Asia and the Western Hemisphere in several areas of interest, especially communication infrastructure and ability to ship the right quantity of the right products. Transportation costs and information systems capability are two additional areas in which Europe's activity has outperformed that of Asia and the Western Hemisphere, although not by as large a margin. While the volume of trading activity from European LCCs is not nearly that of Asia and the Western Hemisphere, the graphical analysis of the trading activity thus far indicates strong performance by European LCC sources.

National Comparative Analysis

At a national level, the top seven LCC sources, representing 89.18 percent of responses, were compared. These top seven sources, shown in descending order of frequency of responses, are as follows: (1) China, (2) India, (3) Thailand, (4) Malaysia, (5) Mexico, (6) the Philippines and (7) Brazil. The most- and least-satisfactory performers of this group on each of the 14 operational indicators and from an overall performance-satisfaction perspective--overall satisfaction represents a view of combined performance on all 14 operational indicators--are reported in Figure 5. The relative sizes of the satisfaction gaps between the most- and least-satisfactory performers on each operational indicator and on overall performance are also presented. The three areas showing the greatest disparity in performance are as follows: (1) invoice accuracy, (2) damage-free delivery and (3) cycle-time consistency. Conversely, the two areas showing least disparity in performance are as follows: (1) production capability and (2) transportation costs. Brazil is the most satisfactory performer, while India is rated the least-satisfactory performer, in the three areas of greatest performance disparity. Brazil is a leader in several other performance dimensions as well, and India the performer rated lowest on 10 of the 14 dimensions.

Based on overall performance on the 14 operational indicators summarized in Figure 6, not surprisingly, Brazil is the top performer and India the performer rated lowest among the top seven LCCs. Mexico, Thailand and the Philippines emerge as the next three most satisfactory LCC sources, respectively, from an overall performance standpoint. More details of these nationally specific satisfaction scores are included in Table IV.

FINDINGS

This study suggests that Eastern Europe, an up and coming LCC region of the world, is performing well from a supply chain perspective, and possibly better than its Asian and Western Hemisphere LCC counterparts. Communication infrastructure, particularly the sophistication and reliability of the telecommunication network in the LCC sources, is an area where Eastern European LCCs appear to be potential leaders compared with LCCs in Eastern and Southeastern Asia and Central and South America of the Western Hemisphere. LCC suppliers in Eastern Europe also perform relatively well in their ability to ship the right products in the right quantity to their customers. Suppliers' performance in this operational area is essential to supply chain managers as it influences levels of supply uncertainty, which, in turn, can drive safety stock and customer service levels.

The findings empirically show that Western Hemisphere LCCs deliver shipments to U.S. buying firms with the most satisfactory cycle-time length, cycle-time consistency and on-time delivery performance. However, LCCs in the Western Hemisphere, especially the least-price-satisfactory Western Hemisphere nation of Mexico, are not as price-competitive and quality-competitive as those in Asia. This result is consistent with a case study by Rubesch and Banomyong (2005) on a U.S.-based automotive firm that sources automotive seats, leverage purchases for the automotive firm, from suppliers in Mexico and Thailand. The case study illustrates a global sourcing strategy that involved selecting an 8-week-transit-time supplier in Thailand, rather than a 1-week-transit-time supplier in Mexico, in order to obtain a better-quality seat at lower cost (Rubesch and Banomyong 2005). Nonetheless, when delivery performance and responsiveness are major concerns for a firm seeking some level of price advantage from LCCs, LCC supply sources in the Western Hemisphere, compared with Asian and European LCC counterparts, are the preferred sources of leverage products.

[FIGURE 4 OMITTED]

At a national level, in the three world regions of Asia, the Western Hemisphere and Europe, this study finds that the top seven LCC nations, given here in descending order of combined satisfaction score on the 14 operational indicators, are as follows: (1) Brazil, (2) Mexico, (3) Thailand, (4) Philippines, (5) China, (6) Malaysia and (7) India. With India ranking the lowest in our study, this finding suggests that India's competency in the high-tech environment such as information technology software development, call centers (Palvia 2004) and research and development centers (Vestring, Rouse and Reinert 2005) may not transfer to the leverage goods that are the focus of this study.

[FIGURE 5 OMITTED]

[FIGURE 6 OMITTED]

The findings also show an inverse relationship between the product-price satisfaction scores and overall-satisfaction scores. China, Malaysia and India, the three most-satisfactory countries in terms of product prices, are the three least-satisfactory sources from an overall performance perspective. On the contrary, the four most-satisfactory countries from an overall performance perspective--Brazil, Mexico, Thailand and the Philippines--turn out to be the four least-satisfactory sources in terms of product prices. Despite being among LCC nations of lowest overall-satisfaction scores, China and India are the two most widely used LCC sources by the responding firms, supporting the widely held view and previous studies' notions that price is a prevailing motivation for firms involved in international sourcing from LCCs (Engardio et al. 2004; Harrison 2004; La Londe 2004; Eye for procurement and Eye for Transport 2006).

Furthermore, this study suggests that the nations of Thailand and the Philippines are suitable candidate sources for firms concerned with quality of product and seeking cost-competitive Asian LCC sources. While China may be the most satisfactory source among the top seven LCCs in terms of product prices, this study finds that the product quality in China (ranked 6th among the top seven LCCs) is surpassed by the quality of goods supplied from its neighboring Asian LCCs: Thailand (ranked 1st) and the Philippines (ranked 3rd). China is also noticeably less satisfactory than the other top seven LCCs in terms of communication infrastructure and information system capability--in fact, China ranked last in both. From an overall performance standpoint, China ranked 5th among the top seven LCCs. If the price benefit in China continues to erode due to ongoing labor shortages and high turnover rates in the China labor market (Roberts 2006), Mexico remains a strong alternative LCC supplier. In this study, Mexico, for long the United States' most actively sourced LCC until outpaced by China in 2003 and 2004 (International Trade Administration 2005b), earned a higher overall satisfaction rating than China. In fact, Mexico outranked China in 11 of the 14 operational indicators.

A satisfaction gap analysis of the most- and least-satisfactory LCCs on each of the 14 operational indicators demonstrates that the areas of greatest disparity in performance and, therefore, potentially distinguishing factors in supplier selection are: (1) invoice accuracy, (2) ability to deliver damage-free shipments and (3) cycle-time consistency performance. Brazil performs most satisfactorily among the top seven LCCs, and India least on these three operational indicators. On the other hand, production capability and transportation costs are the two areas of least disparity in performance, suggesting that while these two areas are important in evaluating supplier performance, they may not be of practical use as distinguishing factors in supplier selection.

In essence, there are notable differences at both the regional and national levels among LCC sources in Asia, the Western Hemisphere and Europe. However, no one region or country outperforms the others on all 14 operational indicators of interest. Supply managers should examine specific regions and countries on a case-by-case basis to identify supply sources most compatible with their respective firms' specific strategic goals.

LIMITATIONS AND RECOMMENDATIONS FOR FUTURE RESEARCH

Certain limitations of the study should be acknowledged and incorporated into the identification of future research opportunities. This study investigates the buying firms' levels of satisfaction for suppliers' performance in the "leverage" purchasing circumstances. Many leading firms have expanded their overseas sourcing to more "strategic" products and services that require different sets of evaluation and selection criteria for their potential overseas suppliers. Simultaneously, LCC sources that have been primarily used for standard, commodity-like products and services have made progress in technological and manufacturing advancement to tap into higher-value areas such as digital products (Engardio et al. 2004). Future research might investigate more "strategic" purchasing circumstances that have become increasingly important for many leading firms striving for global supplier development to meet the requirements of their global businesses.

Additionally, this empirically based study statistically compares international sourcing and supply chain performance of LCC regions of Asia and the Western Hemisphere. Owing to Eastern Europe's emerging roles as an alternative LCC supply source, there is an insufficient number of observations for inclusion in the statistical comparative analysis presented here. As Eastern European LCCs are gaining U.S. import momentum, there is opportunity for follow-on research that allows for sufficient observations to include them in the statistical analysis.

In summary, this work empirically shows the diversity in sourcing and supply chain performance that exists among differing LCC regions and nations. To maintain and improve firms' future competitive advantage in the heightening global competition, firms must develop and enhance management knowledge to optimize the strategic values of differing regions and nations of supply. Limitations notwithstanding, the findings from this study contribute valuable insights for prudent supply managers to evaluate and select overseas supply sources that contribute to achieving the firms' strategic purchasing emphases.

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APPENDIX

Table A1 A LIST OF RESPONDING FIRMS' COUNTRIES OF PURCHASE*

                                        Low-Cost
Developed Countries  World Region       Countries        World Region

Japan                Eastern Asia       China            Eastern Asia
Taiwan               Eastern Asia       India            South-Central
                                                           Asia
Hong Kong            Eastern Asia       Thailand         Southeastern
                                                           Asia
South Korea          Eastern Asia       Malaysia         Southeastern
                                                           Asia
Germany              Western Europe     Mexico           Central America
Italy                Southern Europe    Philippines      Southeastern
                                                           Asia
Singapore            Southeastern Asia  Brazil           South America
Canada               Northern America   Indonesia        Southeastern
                                                           Asia
France               Western Europe     The Czech        Eastern Europe
                                          Republic
Non-specified        Northern Europe    Vietnam          Southeastern
  United Kingdom of                                        Asia
Great Britain and
  Northern Ireland
Holland              Western Europe     Russian          Eastern Europe
                                          Federation
Switzerland          Western Europe     Pakistan         South-Central
                                                           Asia
Spain                Southern Europe    Turkey           Western Asia
Austria              Western Europe     Sri Lanka        South-Central
                                                           Asia
Belgium              Western Europe     Non-specified    South America
                                          South America
England              Northern Europe    Romania          Eastern Europe
Finland              Northern Europe    Poland           Eastern Europe
Australia            Australia and      Madagascar       Eastern Africa
                       Oceania
Israel               Western Asia       Hungary          Eastern Europe
Norway               Northern Europe    Gabon            Middle Africa
Sweden               Northern Europe    Estonia          Northern Europe
Denmark              Northern Europe    Egypt            Northern Africa
Ireland              Northern Europe    Colombia         South America
Scotland             Northern Europe    Chile            South America
Non-specified EU     Europe             Non-specified    Central America
                                          Central
                                          America
                                        Argentina        South America
                                        Albania          Southern Europe
                                        Non-specified    Africa
                                          Africa

*Shown in descending order of frequency of responses. World regions are
delineated according to the United Nations (2006) definitions of major
areas and regions.

AUTHORS

Kusumal Ruamsook is a visiting research scholar in the Smeal College of Business Administration at Pennsylvania State University in University Park, Pennsylvania.

Dawn Russell is an assistant professor of supply chain and information systems in the Smeal College of Business Administration at Pennsylvania State University in University Park, Pennsylvania.

Evelyn Thomchick is an associate professor of supply chain management in the Smeal College of Business Administration at Pennsylvania State University in University Park, Pennsylvania.

(1) The term LCC used hereafter in this work refers to countries identified by the World Bank (2006) as developing countries. These are countries that are classified into low-, lower-middle and upper-middle income economies by the World Bank (2006) based on 2004 Gross National Income (GNI) per capita.

(2) The terms LCC regions of Asia, the Western Hemisphere and Europe used hereafter in this work refer predominantly to LCCs in boundaries delineated by the United Nations (2006) as Eastern and Southeastern Asia, Central and South America, and Eastern Europe, respectively. According to the United Nations (2006), examples of LCCs in Eastern and Southeastern Asia are China, Brunei Darussalam, Cambodia, Indonesia, Lao People's Democratic Republic, Malaysia, Myanmar, Philippines, Thailand and Viet Nam. Examples of LCCs in Central and South America are Costa Rica, El Salvador, Mexico, Nicaragua, Argentina, Brazil, Chile, Colombia, Peru and Venezuela. Examples of LCCs in Eastern Europe are Bulgaria, the Czech Republic, Hungary, Poland, Romania, the Russian Federation, Slovakia and Ukraine (United Nations 2006).

This work was funded in part by a Doctoral Dissertation Grant awarded by the Institute for Supply Management[TM]. Additional support on survey preparation and execution was provided by the Center for Supply Chain Research in the Smeal College of Business at the Pennsylvania State University.

Figure 1 1998-2004 U.S. IMPORT VALUES FROM LOW-COST COUNTRIES (LCCS) IN
THE THREE MOST ACTIVE LCC TRADING REGIONS FOR THE UNITED STATES: ASIA,
WESTERN HEMISPHERE AND EUROPE

                    1998     1999     2000     2001

Asia                347,915  383,727  447,418  403,188
Western Hemisphere  249,579  285,636  325,511  307,965
Europe                9,868    9,978   13,860   12,169

                    2002     2003     2004

Asia                424,021  452,053  528,769
Western Hemisphere  308,945  313,132  352,610
Europe               11,250   13,084   16,685

Source: "U.S. Manufactures Imports from Individual Countries 1998-2004
Statistics" (International Trade Administration 2005a).

Figure 2 GROWTH RATE OF U.S. IMPORT VALUES FROM LOW-COST COUNTRIES
(LCCS) IN ASIA, WESTERN HEMISPHERE AND EUROPE 1998-2004

                    1998-1999  1999-2000  2000-2001

Asia                10.29      16.60       -9.89
Western Hemisphere  14.45      13.96       -5.39
Europe               1.11      38.91      -12.20

                    2001-2002  2002-2003  2003-2004

Asia                 5.17       6.61      16.97
Western Hemisphere   0.32       1.36      12.61
Europe              -7.55      16.30      27.52

Source: "U.S. Manufactures Imports from Individual Countries 1998-2004
Statistics" (International Trade Administration 2005a).

Figure 3 U.S. IMPORT VALUES FROM MEXICO AND CHINA 1998-2004

        1998    1999     2000     2001     2002     2003     2004

China   71,169   81,788  100,018  102,278  125,193  196,699  196,699
Mexico  94,629  109,721  135,926  131,338  134,616  138,060  155,843

Source: "Top 50 Suppliers of U.S. Imports 1998-2004" (International
Trade Administration 2005b).

Table I INTERNATIONAL SOURCING AND SUPPLY CHAIN PERFORMANCE OPERATIONAL
INDICATORS

International Sourcing and
Supply Chain
Performance Factors         Operational Indicator

Product-related factors     Product quality
Situation-related factors   Communication infrastructure
Situation-related factors   Business customs and practices
Process-related factors     Information system capability
Process-related factors     Production capability
Time-related factors        On-time receipt at buyers' location
Time-related factors        Cycle-time length
Time-related factors        Cycle-time consistency
Quality-related factors     Accurate selection and quantity of shipments
Quality-related factors     Delivery damage
Quality-related factors     Accurate invoice
Cost-related factors        Product price
Cost-related factors        Transportation costs
Cost-related factors        Safety stock levels

Table II [chi square] GOODNESS-OF-FIT AND NONRESPONSE BIAS TEST
STATISTICS

                                                Test Statistics
                                      Pearson's
Variables                             [chi square]  d.f.  p-Value

Test of Representativeness
  ([chi square] Goodness-of-Fit
  Test)
  Geographic location                 3.010         3     0.390
  Standard Industrial                 7.670         3     0.053
    Classification (SIC) code
Demographic responses
  Test of Non-Response Bias
    Annual sales                      1.472         2     0.479
    Number of employees               0.243         2     0.885
    Total purchases                   1.289         2     0.525
    Percentage of overseas purchases  0.427         2     0.808

                                              Mean Rank
                                 Early respondents  Late respondents
Satisfaction rating responses    (N=146)            (N=14)

Product quality                  80.10              84.64
Transportation costs             81.34              71.71
Communication infrastructure     79.43              91.68
Information system capability    79.90              86.79
Production capability            79.98              85.96
Business custom and practice     80.59              79.57
On-time receipt                  81.02              75.11
Cycle-time length                80.22              83.43
Cycle-time consistency           80.61              79.32
Accurate selection and quantity  80.87              76.68
Delivery damage                  80.67              78.75
Accurate invoice                 81.08              74.46
Product price                    81.50              70.04
Safety stock levels              81.02              75.04

                                        Test Statistics
                                                 Two-tailed asymptotic
Satisfaction rating responses    Mann-Whitney U  significance

Product quality                   964.0          0.724
Transportation costs              899.0          0.453
Communication infrastructure      865.5          0.342
Information system capability     934.0          0.592
Production capability             945.5          0.642
Business custom and practice     1009.0          0.937
On-time receipt                   946.5          0.646
Cycle-time length                 981.0          0.803
Cycle-time consistency           1005.5          0.920
Accurate selection and quantity   968.5          0.744
Delivery damage                   997.5          0.881
Accurate invoice                  937.5          0.604
Product price                     875.5          0.369
Safety stock levels               945.5          0.642

Table III SAMPLE CHARACTERISTICS

Characteristics                                       Count  Percentage

Top five primary businesses (the Standard Industry
  Classifications (SIC) manufacturing code)
Electronic and other electrical products, except       31    19.38
  computer equipment (SIC code 36)
Fabricated metal products, except machinery and        24    15.00
  transportation equipment (SIC code 34)
Industrial and commercial machinery and computer       15     9.38
  equipment (SIC code 35)
Measuring and controlling instruments; photographic,   10     6.25
  medical and optical goods; watches and clocks (SIC
  code 38)
Rubber and miscellaneous plastics products (SIC code   10     6.25
  30)
Annual sales
  Less than $100,000                                    1     0.63
  $100,001-$999,999                                     4     2.52
  $1 million-$99 million                               63    39.62
  $100 million-$1 billion                              49    30.82
  More than $1 billion                                 42    26.42
  No response                                           1     0.63
Top five low-cost countries of purchase and their
  corresponding world region
  China (Eastern Asia)                                137    85.63
  India (South-Central Asia)                           55    34.38
  Thailand (Southeastern Asia)                         35    21.88
  Malaysia (Southeastern Asia)                         31    19.38
  Mexico (Central-America Western Hemisphere)          24    15.00
Other commonly sourced low-cost countries in
  descending order of response frequency are the
  Philippines (Southeastern Asia), Brazil (South-
  America Western Hemisphere), Indonesia
  (Southeastern Asia), the Czech Republic (Eastern
  Europe), Vietnam (Southeastern Asia), the Russian
  Federation (Eastern Europe) and Pakistan (South-
  Central Asia)
Top five imported goods
  Finished goods                                       71    44.38
  Subassemblies for company's products                 56    35.00
  Mechanical components                                53    33.13
  Electrical/electronic components                     50    31.25
  Capital equipment for in-house use                   24    15.00
Sourcing Regions
  Multiple regions                                     18    11.25
  Single region                                       142    88.75

Table IV A SUMMARY OF SATISFACTION SCORES FOR THE TOP SEVEN LOW-COST
COUNTRIES*

Country (N)
(Overall average
and rank)           PQ          Tran        Com         IS

Top seven low-cost
  countries
China               136         134         129         135
(N=137)               5.00 (4)    4.19 (4)    3.93 (7)    4.00 (7)
(4.474, 5)            1.305       1.305       1.547       1.451
India                55          52          53          55
(N=55)                4.60 (7)    4.12 (6)    4.08 (6)    4.02 (6)
(4.202, 7)            1.369       1.423       1.504       1.367
Thailand             35          33          32          35
(N=35)                5.49 (1)    4.15 (5)    4.47 (5)    4.54 (3)
(4.663, 3)            1.040       1.176       1.565       1.358
Malaysia             31          27          28          29
(N=31)                4.94 (5)    3.89 (7)    4.54 (4)    4.48 (4)
(4.457, 6)            1.389       1.121       1.374       1.379
Mexico               24          23          22          23
(N=24)                4.63 (6)    4.74 (1)    4.64 (2)    4.17 (5)
(4.670, 2)            1.377       1.514       1.560       1.337
Philippines          17          18          17          18
(N=19)                5.06 (3)    4.22 (3)    4.71 (1)    4.83 (1)
(4.612, 4)            1.345       1.309       1.263       1.295
Brazil               12          12          11          11
(N=12)                5.42 (2)    4.42 (2)    4.64 (3)    4.64 (2)
(4.903, 1)            0.900       1.311       0.924       1.120
Average               5.02        4.25        4.43        4.38
SD                    0.346       0.158       0.303       0.323

Country (N)
(Overall average
and rank)           Mfr         Culture     OT          CT

Top seven low-cost
  countries
China               135         132         134         135
(N=137)               4.78 (5)    4.19 (6)    4.24 (6)    3.70 (6)
(4.474, 5)            1.535       1.415       1.566       1.574
India                55          54          54          53
(N=55)                4.55 (7)    4.00 (7)    3.94 (7)    3.38 (7)
(4.202, 7)            1.425       1.479       1.497       1.417
Thailand             35          34          35          35
(N=35)                5.14 (1)    4.50 (3)    4.63 (1)    4.09 (3)
(4.663, 3)            1.167       1.237       1.165       1.483
Malaysia             31          29          31          31
(N=31)                4.81 (4)    4.35 (5)    4.39 (5)    3.71 (5)
(4.457, 6)            1.470       1.289       1.407       1.697
Mexico               24          24          24          23
(N=24)                4.67 (6)    4.50 (4)    4.54 (2)    4.35 (1)
(4.670, 2)            1.435       1.769       1.793       1.584
Philippines          19          18          19          19
(N=19)                4.90 (3)    4.67 (1)    4.47 (3)    4.11 (2)
(4.612, 4)            1.410       1.237       1.389       1.370
Brazil               11          11          11          12
(N=12)                5.09 (2)    4.55 (2)    4.46 (4)    4.08 (4)
(4.903, 1)            1.221       0.934       1.293       1.084
Average               4.85        4.39        4.38        3.92
SD                    0.216       0.231       0.228       0.331

Country (N)
(Overall average
and rank)           Consist     Prfct       Dmge        Invc

Top seven low-cost
  countries
China               133         132         135         133
(N=137)               4.23 (6)    4.71 (4)    4.93 (3)    5.02 (4)
(4.474, 5)            1.526       1.542       1.441       1.401
India                53          53          53          51
(N=55)                3.94 (7)    4.45 (7)    4.32 (7)    4.73 (7)
(4.202, 7)            1.586       1.682       1.504       1.297
Thailand             34          35          35          35
(N=35)                4.47 (4)    4.83 (3)    4.71 (4)    5.11 (3)
(4.663, 3)            1.212       1.272       1.319       1.231
Malaysia             30          30          31          30
(N=31)                4.23 (5)    4.60 (6)    4.68 (5)    4.80 (6)
(4.457, 6)            1.431       1.429       1.351       1.215
Mexico               23          21          24          22
(N=24)                4.57 (2)    5.19 (2)    5.17 (2)    5.32 (2)
(4.670, 2)            1.647       1.401       1.373       1.249
Philippines          18          19          19          18
(N=19)                4.50 (3)    4.68 (5)    4.53 (6)    5.00 (5)
(4.612, 4)            1.150       1.157       1.349       1.029
Brazil               11          12          11          11
(N=12)                5.00 (1)    5.42 (1)    5.46 (1)    6.00 (1)
(4.903, 1)            1.265       1.240       1.635       0.632
Average               4.42        4.84        4.83        5.14
SD                    0.333       0.343       0.388       0.427

Country (N)
(Overall average
and rank)           Price       SS

Top seven low-cost
  countries
China               134         126
(N=137)               5.77 (1)    3.94 (4)
(4.474, 5)            1.201       1.498
India                50          45
(N=55)                5.22 (3)    3.49 (7)
(4.202, 7)            1.433       1.308
Thailand             35          33
(N=35)                5.06 (6)    4.09 (2)
(4.663, 3)            1.162       1.259
Malaysia             28          26
(N=31)                5.50 (2)    3.50 (6)
(4.457, 6)            1.000       1.449
Mexico               23          22
(N=24)                4.96 (7)    3.96 (3)
(4.670, 2)            1.261       1.362
Philippines          19          19
(N=19)                5.11 (4)    3.79 (5)
(4.612, 4)            0.994       1.273
Brazil               12          10
(N=12)                5.08 (5)    4.40 (1)
(4.903, 1)            1.084       0.966
Average               5.24        3.88
SD                    0.290       0.324

*The numbers represent number of observations, mean values (rank) and
standard deviation, respectively. Operational indicator glossary
provided in Figure 4.