What Are the Success Factors when Working with Large Purchasing Organisations? Lessons from the Ethnic Minority Suppliers

By exploring the prospect of ethnic minority businesses (EMB) ‘breaking out’ from the ethnic enclave, low-value-added markets, recent research has identified entry into the large purchase organisation (LPO) supply chain as a rewarding route (Ram et al., 2007), with potential access enhanced by a growing requirement for public sector LPOs to comply with official directives on diversity through engaging minority suppliers (Ram and Smallbone, 2003). But the entry into, and operating in, mainstream markets by the EMBs is found to be challenging because of a number of reasons. First, these firms lack the required capabilities, resources and managerial skills. Second, they face constrained opportunity structures. Third, they lack prior experience and knowledge of operating in such markets.

Recently, at CREME, we sought to examine what factors enable EMBs to ‘break-out’ and identified a number of success factors that help EMBs to operate in the mainstream market. The empirical work was based on interviews with 18 EMBs drawn from three contrasting sectors: business services, ICT, and food manufacture.

The key insight which emerged from the above study was that EMBs have a great potential to ‘break out’ and enter the mainstream product market, including engaging in supply chain relations with the LPOs, given their resources and knowledge base and availability of the learning opportunities. Moreover, the entry into a specific product market is driven by the combination of owner-managers’ decisions that reflect their perceptions of the product market (Ambrosini et al, 2009) and the nature of product/service offerings which are value-adding or knowledge-intensive. These key insights, in turn, have a number of implications in terms of what factors and capabilities enable the ‘break out'. The study, thus, identified a number of success factors that enable EMBs to work with the LPOs in particular and serve the mainstream market in general. These success factors include:-

1. EMBs’ ability to identify gaps in customers’ needs and products, service or process problems that they themselves could address in the market place. In other words, EMBs’ business opportunity identification and development capability is crucial. The owner-managers need to develop ability to access external knowledge through business networks and create capability for adapting routines that would enable them to recognise and exploit business opportunities.
   
   
2. EMBs’ ability to develop two levels of resource development and integrating capabilities is crucial. These are: 1) possessing the threshold minimum level of resources stock to enter the intended market and, 2) combining or integrating existing resources with new resources and knowledge. Typical resources and knowledge required to enter a specific product market included financial, informational, human resources, knowledge about technology (ICT), knowledge about market (product market) and accreditations. EMBs also should be able to understand the differentiated impacts of industry accreditations on their tendering and winning of the contracts from the LPOs. For instance, while for firms offering knowledge-intensive ICT, or those subject to auditing and regulation, the employment of accredited staff is often a necessity, this might not be the case for some firms in business services.
   
   
3. Having in place employees with appropriate skills and talents, and those who are able to build and maintain the supply chain relationship, is found to be a key success factor. This entails EMBs to develop a new relationship with the labour market and new ways of deploying and managing employees.
   
   
4. Ability to demonstrate their knowledge to their larger customers through highly-developed firm-specific qualities and bespoke offerings: EMBs’ ability to supply high-value, knowledge-intensive, products and services, and developing strategic service delivery capability are found to be key success factors.
   
   
5. Developing and using networking and bridging capabilities: Network resources have a significant influence on where and how EMBs organise their resources and what new resources and skills they could draw on. Moreover, EMBs with developed ‘bridging’ capability are able to identify product markets in which their products and services get exchanged. Relatedly, relation building with customers and suppliers, and working with strategic partners provide EMBs with a chance to better serve the identified market and help them position themselves in the new market place. Of special importance here is the owner's developed ‘know-who’ competence and his or her social networks beyond a narrow circle of personal family ties. This competence was ably demonstrated by several of our respondents in ICT and Business Services. The above two success factors suggest that EMBs ‘network competence’ enables effectiveness of entrepreneurial capability and signifies the crucial importance of the owner-managers' ‘know-who’ competence to operate in a new product market.
   
   
6. Learning about collaborative approaches of larger customers and adopting and integrating them into their relationship management approaches are key developmental issues for many of the EMBs.

 
The process of developing and use of a combination of the above success factors by the EMBs, however, could be recursively fluid, emergent and challenging for number of reasons. First, EMBs tend to develop narrow core capabilities to aid their specialization under intensive competitive situations (Crick and Jones, 2000). Second, the return from their investment in developing an array of capability might be uncertain (Chen and Chen, 2002). Third, transaction-based supply relations with the LPOs is one of the constraints for developing partnership-based relationship that enables learning. However, this said, EMBs would benefit from using the combination of the above mentioned success factors as they fit to their organisational context when engaging in a supply chain relationship with the LPOs and serving the mainstream market.


- Kassa


References:

Ambrosini, V., Bowman, C. & Collier, N. (2009) ‘Dynamic capabilities: an exploration of how firms renew their resource base’, British Journal of Management, 20 (Special Issue): S9- S24.

Chen, H., & Chen, T. -J. (2002) ‘Asymmetric strategic alliances: A network view’, Journal of Business Research, 55(12): 1007−13.

Crick, D., & Jones, M. (2000). Small high-technology firms and international high-technology markets. Journal of International Marketing, 8(2): 63−85.

Ram, M., Jones, T., & Patton, D. (2007) ‘Ethnic managerialism and its discontents: policy implementation and Ethnic minority businesses’, Policy Studies, 27(4): 295 – 309.

Ram, M. and Smallbone, D. 2003 ‘Supplier Diversity Initiatives and the Diversification of Ethnic Minority Businesses in the UK’, Policy Studies, 24 (4):187-204