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IJOPM
33,3

296
Received 15 October 2010
Revised 22 December 2010
3 May 2011
26 August 2011
23 December 2011
Accepted 12 January 2012

Differences in outsourcing
strategies between firms in
emerging and in developed
markets
Andreas Gro¨ßler
Institute for Management Research, Radboud University Nijmegen,
Nijmegen, The Netherlands

Bjørge Timenes Laugen
Department of Business Administration, University of Stavanger,
Stavanger, Norway

Rebecca Arkader
The Coppead Graduate School of Business, Federal University of Rio de Janeiro,
Rio de Janeiro, Brazil, and

Afonso Fleury
Universidade de Sao Paulo, Sao Paulo, Brazil
Abstract
Purpose – The vast majority of literature relating to operations management originates from studies
in developed markets. Emerging markets are increasingly important in global business. With this in
mind, the purpose of this paper is to analyze differences in outsourcing strategies between
manufacturing firms from emerging markets and from developed markets.
Design/methodology/approach – The paper is based on statistical analyses of a large data set of
manufacturing firms obtained from the International Manufacturing Strategy Survey (IMSS).
Findings – The findings suggest that companies that outsource internationally focus on achieving
cost benefits, while companies that outsource domestically focus on achieving capacity flexibility. In
addition, the reasons to outsource were found to be independent of the location of firms in both
emerging and developed markets. However, within the group of firms from emerging markets,
strategies seem to differ according to whether firms are domestically owned or are subsidiaries of
companies from developed markets.
Practical implications – The decisions of firms to outsource do not differ much whether the firms are
located in developed- or in emerging-market economies. Firms outsource domestically when they want
to increase their capacity flexibility; they outsource internationally when looking for cost advantages.
Originality/value – The value of the paper is that it illuminates an important contemporary
phenomenon based on analyses on data from a large-scale international survey encompassing firms
both in developed and in emerging markets.
Keywords Operations strategy, Outsourcing, Globalization, Survey research, Emerging markets
Paper type Research paper
International Journal of Operations &
Production Management
Vol. 33 No. 3, 2013
pp. 296-321
q Emerald Group Publishing Limited
0144-3577
DOI 10.1108/01443571311300791

1. Introduction
In recent decades, production systems have become increasingly complex because of
profound changes in the structure of industry. Thus, firms have begun to fulfil

specialized and complementary roles in production networks. The specific aspect of this
change process that is particularly important in this paper relates to outsourcing
decisions. These are based on several objectives usually related to cost, capacity
flexibility, or capability and knowledge seeking (Ha¨tonen and Eriksson, 2009). However,
it is unclear whether manufacturing firms from emerging markets differ from firms
in developed markets regarding from where they outsource and the objectives they
pursue in outsourcing. Manufacturing firms in developed and emerging markets are
embedded in different types of environment and position themselves differently; further,
it is reasonable to assume they operate with different levels of maturity.
There is growing interest in operations and supply chain management issues related
to practices in emerging-market economies. This is because, until recently, most
empirical studies in this literature have been based on surveys or case studies drawn
from companies in developed markets (Iyer et al., 2008). The term “emerging markets”
is now widely used to describe countries that have reached a minimum level of economic
development (usually measured in terms of GDP) and that are in the growth phases
of their economic cycles. The so-called BRIC countries (Brazil, Russia, India, and China)
are frequently considered the most significant emerging markets, due to their size
and assumed potential for market growth. However, the study of operations and
supply chain management in other emerging markets in Asia, Eastern Europe,
Latin America, and (to a lesser degree) Africa is increasingly relevant for companies
worldwide.
To date, much of the academic literature dealing with emerging markets originates
in the fields of international and strategic management or of general economics.
Main themes have been:
.
broader issues of globalization as such, primarily enabled by information and
communications technologies;
.
strategic moves in search of growth and new resources in alternative markets;
and
.
the perceived need to achieve lower costs, usually by means of offshoring
practices.
In contrast, most studies in the field of operations and supply chain management have
been of a qualitative, descriptive, or purely conceptual nature (Mefford and Bruun, 1998).
The purpose of this paper is to investigate differences between outsourcing
strategies of manufacturing firms from emerging markets and from developed markets.
We conceptualize outsourcing strategy as being composed of two sets of decisions:
the main objectives for outsourcing and the geographic region where it is allocated.
The study is based on analyses conducted on data drawn from a large-scale
global survey on manufacturing strategy and practices. More specifically, the study
addresses:
.
the differences between developed- and emerging-market firms in terms of their
objectives to outsource;
.
the differences between developed- and emerging-market firms in terms of the
decision to outsource within the firm’s country of operation, i.e. domestically,
or outside the firm’s country of operation, i.e. internationally;

Differences in
outsourcing
strategies
297

They would then become increasingly larger. in their own countries and in their international operations. The paper is structured as follows.3 . suggested complete verticalization of production. 2009. the rise of the Japanese Management Model. frequently inconsistent.. and the operationalization of the variables. 1990). as well as the influence of specific economic environments on outsourcing decisions. The shift to a more focused production model was influenced by: . Sections 4 and 5. we put forth propositions concerning the differences between firms in emerging and developed markets in terms of their outsourcing strategy. 2008). Based on this literature. . Contractor et al. . the emergence of the notion of core competencies as key assets for strategy formulation (Prahalad and Hamel. Thus. but its importance has increased in recent years. present the results of the analyses and their discussion. through the 1990s a reverse tendency could be observed: firms concentrated on their basic manufacturing strategies and supporting services. That notion was largely adopted by developed-country firms that. which embodied considerable drawbacks. preferred to internalize the activities needed for production. and . The next section reviews the literature on outsourcing objectives of manufacturing firms. conflicting or implicit tasks. respectively. the failure of large projects aimed to fully automate production (Sun. developed-country firms changed their organizational models.IJOPM 33. The Fordist model of production. 298 how this decision is moderated by the business strategy firms adopt and by other contingencies. Outsourcing in developed economies The practice of outsourcing is not new. In Section 3. The paper concludes in Section 6 with an overview of the research and practical implications to be drawn from the study and the proposition of issues for further research. However. the characteristics of the sample. 1990). in its original format. Therefore. little attention has been given to differences between outsourcing decisions made by manufacturing firms in developed and emerging markets. Simultaneously they started to build (horizontal) alliances to complement their core competencies and to outsource (vertically) the . with the focus on few specific manufacturing tasks instead of many. 2010) and even a dedicated journal (Busi and McIvor. and the influence of different ownership structures on the outsourcing strategy pursued. we present the methods used for data collection. as portrayed in the best-selling book The Machine That Changed the World (Womack et al. 2000). this includes special issues in international business journals (Kotabe and Mudambi.. 2. focusing on their core competencies – the ones through which they would be able to maximize their value propositions and capture value. It also deals with the role of business strategy and other contingencies in outsourcing decisions. as well as the statistical analyses conducted to test the propositions. Conceptual background Much literature exists on outsourcing (the organizational dimension) and related decisions on global sourcing and offshoring (the geographical dimension).

we may conclude that the subject has been relatively well covered in the literature and that “frequently mentioned reasons [to adopt international sourcing] are price. 2004). In addition. 2004. Cost reduction is recognized by far as the main driver for outsourcing (Carter and Differences in outsourcing strategies 299 . the main drivers in sourcing decisions are cost reduction. 2002. 1998). Handfield (1994) indicated that the move from international purchasing (a transactional approach) to global sourcing would evolve along different phases. Murray. p. which might influence the normal flows within the supply chain (Holweg et al.. 2005). Kotabe. flexibility. 58). and global sourcing (Quintens et al. 2002. Other terms for international sourcing include international purchasing. Trent and Monczka. A few studies have been conducted that compare sourcing practices in different parts of the developed world (Kotabe and Omura. 1975. A countervailing factor is the risk associated to the various external factors. p. In contrast. p. In a study comparing the US and Europe. Kotabe and Murray. Min and Galle... Razzaque and Sheng. 1994. Mostly the discussion draws on the traditional make or buy decision. 1998) can be seen as drivers for sourcing from foreign third parties. Birou and Fawcett. or a combination of these and other theoretical approaches ( Javalgi et al.. quality and availability of goods and services”. 2011). Ettlie and Sethuraman. and there is a vast literature covering issues such as motivations.. 2006). Kaufmann and Carter. and competence seeking (Ha¨tonen and Eriksson. Ogden et al. 2000. (2005. the need for superior quality (Carter and Narasimhan. Quintens et al. 2002. Global sourcing is generally considered to go beyond international sourcing by implying a globally coordinated perspective on the supply of production goods and services (Monczka and Trent. 2002). 1992.. Therefore. Kakabadse and Kakabadse. 2006). long-term human relationships do especially well when close day-to-day cooperation is needed (Berger. 189). Japanese firms are even more conservative: [. price appears in the literature as the single most important motive to buy internationally (Giunipero and Monczka. 2005. 1991. 2008). 1998. 1993). for otherwise unavailable goods and services (Fagan. In fact. Kakabadse and Kakabadse. or for technology (Frear et al. according to the literature. 2007). 1998). 2003. 1990. problems. . McNally and Griffin. 2005. 1991. 2001. Birou and Fawcett. In general. International sourcing practices have been steadily investigated since the 1980s. the resource-based view approach (Madhok. The drivers of outsourcing decisions by manufacturing companies have been studied over the past decades (Quinn and Hilmer.. 2002. and benefits (Babbar and Prasad. 1993. international procurement. 2009)..] the shift to a global economy based on modularization and supply chains and market-based transactions plays to the American strengths.activities that were non-core and low-value-adding to such firms that were competent in areas not relevant to the outsourcing firm. obstacles. Monczka et al. Jacobides and Winter. 1990. 1998. 1998. Bozarth et al. with alternative explanations based on the transaction cost approach (Williamson. 1991. . McIvor. 2006). These papers show that there is not a unique pattern in relation to outsourcing practices. Japanese firms which operate in a world of tight. Bozarth et al. firms have moved from solely exploiting cost differences into considering international sourcing as an integral part of their strategy (Nassimbeni. 1989. it was observed that “US companies are identified as pursuing more value adding sourcing strategies while European companies are more focused on gaining economies of scope through outsourcing” (Kakabadse and Kakabadse. 2002.. worldwide sourcing. over time.. Quoting Quintens et al. Bozarth et al. 53). 2009).

The large majority of these firms can be categorized as operating in the natural-resources-based industry (for instance. p. . mature and integrated firms that grew in protected or uncompetitive markets (Bartlett and Ghoshal. 2000. Contractor et al. a fast changing environment requires firms to seek flexibility (Ha¨tonen and Eriksson. Those numbers provide the initial insights to the argument that companies that were initially considered laggards working in less developed contexts. China accounted for the largest share. the Boston Consulting Group (2005-2010) produces a report about the “100 New Global Challengers”. 2006. Que´lin and Duhamel. 2003. 2010). 1997. . 2000. Outsourcing in emerging economies: local firms The literature on international business used to characterize emerging economy firms as: . 39 in 2007. Harland et al. or Tata (India). 2002. 2006. However. Harland et al. Finally. 2005. 1990. and . 2009). 20 from India.IJOPM 33. there were 27 in 2005. 35 in 2006. 46 in 2008. Kakabadse and Kakabadse. Lao and Zhang. . 2009). Ramamurti. it seems fair to admit that. 2005. 2005. firms seek third party suppliers when they need to acquire “competencies” and skills they lack in their manufacturing or logistics processes (Razzaque and Sheng. Lao and Zhang. Contractor et al. 2000). the labour force is highly skilled and is earning relatively low wages. If only those firms from the BRIC countries are counted.3 300 Narasimhan. . 1999). In fact.. 2009. the Fortune 500 ranking included corporations from emerging countries. Nassimbeni. began to challenge the leaders. 1998. 2003. firms based on natural resources and that use cheap labour. 2009)... firms lacking technological capabilities (Dunning. Harland et al.. In 2005. 2006. (2010. 2005. In addition. Razzaque and Sheng. Ha¨tonen and Eriksson. Ha¨tonen and Eriksson. 1998. the remaining 17 coming from nine other countries. production. In 2009. what is most known are the exceptions. laggard firms in terms of managerial capabilities (Bartlett and Ghoshal. Since 2005. Birou and Fawcett. Contractor et al. Lenovo and Haier (China). . emerging countries are still lagging behind developed countries in regard to technology and managerial knowledge. 1993. seven from Mexico and six from Russia. 2010). and 58 in 2009. 1418) observe that: [.. or those firms from the emerging countries that are striving through the high-value-added segments such as Embraer (Brazil). so far. Kakabadse and Kakabadse. In this regard. Que´lin and Duhamel. The competitiveness that emerging-country multinationals show in regional and international markets is justified mainly by distinctive competencies that they have . Kakabadse and Kakabadse. However. even the largest companies no longer have all the diverse components of knowledge within their own organization. 1993). 2003. to be competitive in research. for the first time. On the other hand. firms accustomed to striving in turbulent environments (Khanna and Palepu. Brazil had three firms in 2005 and six in 2009. oil and gas. 14 from Brazil. or personnel. and marketing. Trent and Monczka. 2000. mining) or low-value-added manufacturing.] with growing complexity of products and services. that picture has changed in the recent years.. one of the ways to achieve this is by acquiring “capacity” from other producers (Sink and Langley. Baines et al. this included 36 enterprises from China.

in their home countries. and use of local technological resources. Consequently. (2010. confirmed this hypothesis. 1421) indicated that sometimes domestic outsourcing in developed countries. firms in emerging markets outsource internationally.developed in manufacturing. addressing developed-country multinationals. we might consider that foreign subsidiaries outsource to expand capacity and use resources that are internal to the multinational when different competencies are required. 2011). depending on two dimensions: location and competencies. 2003). Contractor et al. “Location” is associated to access to low-cost production input factors. p. we would predict that. One would expect emerging-country firms to outsource the activities that are really low skilled and performed on a routine basis. To a certain extent. their international competitors are unable or unwilling to do the same. Vernon (1966) identified the trend of American firms to establish subsidiaries in developing countries. subsidiaries might be considered a sort of “outsource” from the standpoint of their headquarters. In the footwear and textile-apparel industries. 2003). The “competencies” dimension is described as the extent to which technical activities are performed at the site. Cross-country studies on outsourcing Discussing the related issues of offshoring and outsourcing. The corporate competence that constitutes the cornerstone of their strategy is production. Ramamurti. those are competencies that are usually developed in local knowledge systems (Rugman and Verbeke. In the 1960s. it is well known that larger firms in both Brazil and China subcontract either from regions that are poorer or from neighbouring countries (Gereffi and Memedovic. that is where their competitive differential resides in the international markets (Kumar and Chadda. 2009). proximity to market. Outsourcing in emerging economies: subsidiaries of foreign multinationals To a certain extent. Therefore. in order to obtain access to complementary competencies and increase capacity. argued that they should restructure to grasp the most of their subsidiaries. the picture is rather different from the firms operating in developed countries. thus enabling them to become embedded in those localities (Meyer et al. He identified six types of strategic roles. However. Ramamurti (2009. in regard to outsourcing. quality. 407) admits that “for multinationals from emerging countries the competences of greater strategic value are those related to Production and Operational Excellence”. the relative importance and the role of subsidiaries changed over time. The meaning of that statement is that emerging-country multinationals. may be better than outsourcing to an emerging country Differences in outsourcing strategies 301 . drawing on previous studies that indicated that foreign subsidiaries applied more international sourcing than purely domestic firms and had a preference for suppliers from their home country. The aim was to transfer to them the routine and standardized tasks. and cost. However. The same happens in parts production and routine types of assembling in the metal-mechanics industry (Humphrey and Memedovic. emerging-country firms built competitive advantages in regard to levels of productivity. p. Therefore. 2001). Therefore. emerging-country firms lack other competencies that allow them to compete with developed-country firms. Ferdows (1997).. complying with global quality standards. (2005). The research of Mol et al. despite the higher costs. 2009. keeping in the US the activities that were related to innovation. produce cheaply and flexibly.

and capacity flexibility. firms from both types of markets would source domestically to gain capacity flexibility. we can draw from the literature the conceptual background that constitutes the scope of our research. Kotabe. Second. However. On the other hand. They found that firms source globally to enhance their technical capabilities and use local sources to decrease transaction costs. Frear et al. More recently. cost. especially large firms. (2005) pointed out the existence of few comparative studies of international purchasing practices in different countries. With the focus on competencies. From the literature review. However. and would be prone to engage in international sourcing when looking for resources that they miss. their main driver to outsource beyond domestic borders would be to cut costs.. Kaufmann and Carter. Seeking to buy leverage.3 302 “when flexibility and speed to market are more important than saving every penny”. Quintens et al. even though those studies focused mostly on the outsourcing of logistics activities (Bhatnagar et al. outsourcing in developing-country contexts has been studied. Quintens et al. 1998.. Sahay and Mohan. in which the US and Indian international purchasing trade relationships were compared. the following research question is formulated: RQ1. 2007. we choose to investigate those . 1992. Ettlie and Sethuraman (2002) investigated global sourcing patterns in a multi-country sample of firms including both developed and emerging markets. Brazil and India is needed” (Zheng et al. Complementarily. 1999. How do outsourcing strategies pursued by firms in developed markets differ from outsourcing strategies pursued by firms in emerging markets? In this study. we do not dismiss the potential importance of other factors when it comes to outsourcing decisions. it has been claimed that “more research in purchasing and supply management in emerging economies such as China. We identified two gaps in the literature on outsourcing strategies that need to be addressed. they did not distinguish between developed and emerging markets in their analysis. Lao and Zhang. 2006. First.. Therefore. Sohail et al. These few studies compared the international or global sourcing phenomenon in developed-market contexts (Kotabe and Omura. there are few comparative studies investigating differences and similarities in the management of outsourcing activities in firms from emerging and developed markets. 77).. Considering the characteristics of local firms in emerging countries and the global dynamics in the manufacturing sector. Arroyo et al. The first relates to the objectives behind the outsourcing decision. we could assume that firms in developed countries. because they have greater experience in international transactions. p. 2005). 1989. 2008). 2006. 2006.. would be positioned in the later stages of international sourcing practices. 2002.IJOPM 33. outsourcing strategy is defined by two components.. it is to be expected that firms in emerging markets have different outsourcing strategies than firms in developed markets.. However. 2006. indicating the existence of significant differences. there is an absence of empirical evidence on how firms in emerging countries manage their outsourcing activities. Building on both the transaction cost approach and the resource-based view approach. An exception can be found in the study by Motwani and Ahuja (2000). Scope and research question At this point. firms in emerging markets lack experience in international transactions. For pragmatic reasons. Wanke et al.

In addition. the results of a subsequent iteration of the IMSS research could not be combined with the analysis in this paper. Nevertheless. while firms in emerging markets tend to outsource from within their country. outsourcing within the country means to buy part of the production from the same country as the firm is located in. whether fixed or variable. three propositions are formulated in order to guide the analyses. the study explores the influence of various contingencies. which aims at developing. maintaining. Methodology The IMSS project To address the research question. firms in both developed and emerging markets tend to outsource from within their country. To obtain access to complementary competencies. firms in developed markets tend to outsource from within their country. for example. while firms in emerging markets tend to outsource internationally. We define the competencies of firms as being complementary when what one firm can perform well supports and enhances what another firm can perform well. 3. labour costs or overhead costs: P3. An example of competencies being complementary is that one firm is good at manufacturing high-quality products and another is good at providing first-class customer service. To obtain access to excess capacity. the two firms team up to achieve the synergies embedded in those two competencies: P2. Due to changes in the questionnaire format and sample composition. as follows: P1. Therefore. practices.factors highlighted as the most relevant in the existing literature. competitive strategy. As the name – IMSS IV – implies. and analyzing a global database for the study of manufacturing strategies. in terms of the main objectives and the geographical scope of sourcing activities. 2006). elements of costs are. on the different outsourcing strategies. collected in 2005 (Taylor and Webster. and performances. and in order to address the research question. the study uses data from the International Manufacturing Strategy Survey (IMSS) IV database. firms in developed markets tend to outsource internationally. we understand the flexibility of having additional production capacity that the firm wants to have in order to fulfil demand that exceeds its normal capacity level. The second component relates to the geographical scope of outsourcing. the survey had been Differences in outsourcing strategies 303 . To reduce cost. Based on the literature review. using a variety of perspectives and research questions. “costs” combine all sorts of costs related to making a product. Thus. such as ownership. whether it is domestic or across borders. and position in the supply chain. it is acknowledged that other factors might also define an outsourcing strategy (such as type of contracts used or number of outsourcing partners). Under “excess capacity”. IMSS is a co-operative research network of business schools. accessing outsourced excess capacity is a way to balance external market demand with the internal capacity requirements of a firm. Outsourcing internationally is in this paper defined as giving away part of the production process to plants outside the country in which the firm is located. In this paper.

Venezuela was included in the emerging markets firms since the country has many of the same characteristics as other countries in South America. automotive. such as metal manufacturing. Of the 23 countries. Subsequently. BTL. Estonia is not classified and is not considered in the analyses. When the partner in each participating country had collected the questionnaires and entered the responses into a spreadsheet. and e-mails helped us to achieve a response rate of 17 per cent. semiconductor.3 304 conducted three times before. 14 checked for non-response bias. machinery.. for instance between emerging and developed markets as in the case of this paper. The organization and administration of the survey followed the method proposed by Dillman (1978. and equipment.msci. At the same time. This resulted in 237 companies representing emerging markets and 453 companies representing developed markets (Table I). Earlier studies have shown that size is an important . via a combination of e-mail and postal-based survey methods. the variance is reduced by not including an excessively broad set of industries (for instance. one of “emerging” market firms and another of “developed” market firms. Follow-up phone calls. the coordinating institution consolidated the data from each country into a global database of all responses. which are included in the emerging markets group.com/coverage/index. The selection of industries is derived from traditional manufacturing and assembly industries. 2000). The IMSS survey addresses issues of manufacturing strategy in the broad sense. letters. at the same time. This selection is deliberately chosen in order to capture a large proportion of manufacturing industries in most countries. starting in 1992 (Lindberg et al. and released the complete database to the research network.html). Companies with fewer than 50 employees and two firms with more than 10. Database and data filtering The sample of 711 companies was split into two groups. Further information about the administration of the IMSS survey can be found in Voss and Blackmon (1998) and Frohlich and Westbrook (2001). and data collection in their respective countries. Since it is international by definition. by using the Morgan Stanley (MS) Index Coverage (www.IJOPM 33. Three of the authors of this paper (AG.000 employees were excluded. RA) were involved directly and actively in the design of the survey. Venezuela and Estonia are not represented in the MS Index. it can be used to compare sourcing strategies in different types of countries. The data collection resulted in 711 complete and usable questionnaires from companies in the manufacturing and assembly industries (ISIC 28-35) from 23 countries worldwide. and did not find significant differences in company size between responding and non-responding firms. 1998). 15 manufacturing managers and eight academics (not including the authors of this study) reviewed the pre-questionnaire in order to improve clarity. Thus. and as such is well suited to research questions about sourcing strategies. sampling. and identify and resolve any unfamiliar or unclear wording. data were collected by means of self-administered questionnaires filled out by manufacturing managers invited to participate in the survey by e-mail or phone. companies in process industries. The survey was administered in each country by local research coordinators. contacting and following up of companies. the findings are expected to be more consistent than if a wider set of industries were included in the database. the possibility of generalizing findings is limited to the surveyed manufacturing segments. where practices are significantly different from assembly-based industries).

the companies were classified based on ownership and on whether the respondent firm was a single plant or a subsidiary in a larger corporate group. therefore. Further. Further. and markets in IMSS IV .. Of the 352 responding firms from developed markets. the study investigated the influence of contingencies on the geographical spread of sourcing activities. In many cases. 58 were owned by a company from a developed market.520 519 89 838 446 60 561 289 425 995 510 586 535 376 110 119 205 488 137 663 250 596 contingency for management and organization. respondents. Of the 216 responding firms from emerging markets. The remaining 158 were either single plants or firms in emerging markets owned by a company located in the same or another emerging market. this company was excluded from the analysis. Taking into account this procedure. The remaining 351 respondents were either single plants or plants owned by a company located in the same or another developed market. The Appendix presents a more thorough description of how the variables used in the analyses were operationalized.704 2. were excluded from the analyses. outsourcing strategy was operationalized partly as the respondents’ motives to outsource and partly as the geographical spread of sourcing activities. only one was owned by a company located in an emerging market. Differences in outsourcing strategies 305 Table I. Hence. 86 companies could not be classified due to missing information regarding ownership and.Market Countries Emerging markets (n ¼ 237) Argentina Brazil China Hungary Israel Turkey Venezuela Australia Belgium Canada Denmark Germany Greece Ireland Italy The Netherlands New Zealand Norway Portugal Sweden UK USA Estonia Developed markets (n ¼ 453) Not classified Number of respondents Average company size 44 16 38 54 20 35 30 14 32 25 36 18 13 15 45 63 30 17 10 82 17 36 21 711 300 2. Operationalization and statistical methods used In this study. reducing the actual sample size to 567 firms out of the total database of 711 firms. Overview of countries. micro firms and very large firms have significantly different practices and priorities than medium-sized and large firms (Cagliano et al. 2001). 654 respondents in total remained for the analyses.

9 1.4 Significantly different pairs ED-EE * * *.6 1. ED-D * * *. * *p .3 306 Three groups of firms were investigated in the paper and were operationalized as follows: (1) firms located in emerging markets owned by a firm located in a developed market (abbreviated as ED in the rest of the paper).9 Emerging markets owned by emerging market EE (n ¼ 158) Mean SD Developed markets D (n ¼ 351) Mean SD 68.514 0.3 1.05 and * * *p . or cost) for outsourcing of firms in the three different markets. 0.9 38.1 International sourcing 35.4 Size 964 1.4 55. SPSS 15 was used to perform the analyses.8 per cent) and Ds (16 per cent).4 Note: Significant at: *p . EE-D * * * ED-D * * .2 Capacity 2.1 3.7 3.8 3.7 Quality strategy 4. No significant differences were found in international sourcing between EEs and Ds. There are no significant differences in the amount of domestic sourcing between EDs and Ds.9 41. EEs source significantly more domestically. 0. significantly more than EEs (17.6 1. ED-D * * *.0 2.5 per cent).5 per cent) and Ds (54.0 3.6 1.2 3. 0. Findings Table II presents an ANOVA analysis of the differences found in the variables.2 1.5 16.1 17. (2) firms located in emerging markets owned by a firm located in an emerging market or a single plant in an emerging market (abbreviated as EE).3 42.3 Cost 3.640 Market dynamics 3.0 Position in supply chain 57.7 0.8 28. The EDs and EEs in the IMSS IV sample are significantly larger than the Ds in the sample.8 0.6 22.IJOPM 33. than both EDs (47.3 1.2 1.6 Delivery strategy 4. 68. EE-D * * * ED-EE * * *.1 per cent of their sourcing activity.2 4.1.8 3.8 0. 4. ANOVA and multiple regression analyses were used in order to investigate the relationships between outsourcing motives and the geographical spread of sourcing activities and between contingencies and the geographical spread of sourcing activities. A reason for this might be that production in developing countries often is Emerging markets owned by developed market ED (n ¼ 58) Mean SD Table II.4 1. The highest amount of international sourcing is found among EDs (35.9 54.6 0.2 0.8 Innovation strategy 3. EE-D * * * ED-D * * ED-EE *.5 30.7 0.3 1. ED-D * * * ED-D * * *.5 4.5 32. The findings do not indicate significant differences in the motives (competencies.0 20.7 Competencies 2. capacity.2 793 3.4 61.5 per cent).4 4.7 1.0 3. ANOVA showing the differences in mean values and standard deviation in the three investigated groups Sourcing strategies and contingencies National sourcing 47.0 3.01 31.7 0.3 453 3.7 0. and (3) firms located in developed markets – either single plants or a plant owned by a firm located in a developed market (abbreviated as D).4 0.3 762 0.

054 2 0. 0.593 0.520 22. geographical spread of sourcing activities.192 2 1.655 20.328 4.055 1.0391 Adjusted R 2 F 1.037 20.258 * 1.0460 2 0.294 supply chain 0. EDs seem to have a significantly higher focus on quality in their business strategy than companies in developed markets.0854 0. The discussion in the remainder of this paper refers to Table III.218 Sig.850 Competencies 0.061 0. both EDs and EEs place higher emphasis on delivery in their strategy than Ds.815 Delivery strategy 0.012 2 0.712 20.097 4.362 Cost 20.094 2 0.704 Company size 20.472 0.803 Capacity 20.313 Innovation 0.071 2. Regarding strategy.049 1. but their role is similar.580 0.45 Mean: 0.01. However.064 2 0. it might also indicate that such companies manufacture products that are not as sophisticated as those manufactured in developed countries. negative b-values indicate an inclination towards domestic sourcing Table III.265 * * * 0. firms participate in different value chains.305 * 1.945 21. although significant.070 Market dynamics 20. Finally. No significant differences were found in the position of firms in the supply chain in the three groups of firms.058 0.311 2 0.780 1.1.051 1.129 2 0.169 * 2 0. outsourcing motives and contingencies .058 0.320 2 0. are relatively small.237 * * * 0.653 2 3.868 20.026 0. the absence of significant differences between EDs and EEs indicates that size does not contribute to explain the difference in domestic/international outsourcing in the two groups of firms in emerging markets.128 2 1. it is important to observe that all these differences.845 1. EDs seem to operate in more rapidly changing markets than firms in developed markets.810 0.963 0. 0.177 * * 2 0. positive b-values indicate an inclination towards international sourcing. 0.072 20. EDs focus more on innovation in their strategy than do Ds.294 0.159 * 2 0.008 20. Regression analysis of different categories of firms.644 strategy Position in 20.198 1. * *p . This finding indicates that firms in all three groups are similarly positioned in relation to end-users. In addition.000 Notes: Significant at: *p .648 1. which presents the statistical results and summarizes our findings in relation to the propositions Differences in outsourcing strategies 307 Dependent variable: difference between national and international sourcing (0 ¼ 100 per cent domestic sourcing. 1 ¼ 100 per cent international sourcing) Mean: 0.193 * * * 0.more labour intensive. 0.098 * 0.31 markets owned by markets owned by Firms in developed firms in emerging firms in developed markets D (n ¼ 351) market EE (n ¼ 158) market ED (n ¼ 58) b T b T b T Sourcing strategies and contingencies (Constant) 0.562 Quality strategy 20.24 Firms in emerging Firms in emerging Mean: 0.286 * 2 1.153 * * * 1.629 0.613 20.05 and * * *p . However. There are two potential interpretations for this between which it is impossible to decide right now: it indicates either that emerging-country markets are more dynamic (turbulent) than developed-country markets (and then it would be the same for EEs) or that EDs are linked to more dynamic (global) value chains than both EEs and Ds.

The analysis of the IMSS data only partially corroborates the propositions concerning the outsourcing strategies of manufacturing firms in emerging and developed markets. For firms . the most probable reason is the lower number of respondents in this group (n ¼ 58) relative to those in the two other groups (EE: n ¼ 158. Note that some of the results presented in Table III are only weakly significant ( p . The proposition holds for firms from developed countries.e.193. which source internationally in order to reduce costs.01). The decision to separate this group of “hybrid” firms from genuinely emerging-market firms seems appropriate when the differences in statistical results between them and the “pure” firms are considered.e.237. 0. P2 is only partially supported by results. However. D: n ¼ 351). firm ownership patterns stand out as a crucial issue. we operationalize the level of internationalization in sourcing using a continuous variable based on the difference between percentage sourced internationally and percentage sourced domestically (see Appendix for full details).01). negative b-coefficients mean that high scores for the independent and control variables go together with a high degree of domestic sourcing. firms source largely domestically when they outsource for capacity reasons (b ¼ 2 0. then the case of the “hybrid” group (i. 0.2 per cent of the sample size). Discussion This section summarizes and discusses the findings from the statistical analyses. Ginsberg and Venkatraman (1985) for a discussion of the importance of statistical and scientific significance in strategic management research). The other way around appears more often: 58 firms in emerging markets (or roughly 10 per cent of the sample size) are owned by firms in developed markets. geographical scope of sourcing. and contingencies. The acquisition of competencies is seemingly not linked to the geographical scope of sourcing. P1 is not supported by the analyses. It starts with an overview of results in relation to the propositions.and intergroup analyses of outsourcing objectives. Positive b-coefficients mean that high scores for the independent and control variables indicate a high amount of international sourcing in the responding companies. In particular for the findings for ED companies. ED) is discussed. In this table.IJOPM 33. This is followed by a discussion of major differences resulting from the intra. Neither firms in developed markets nor firms in emerging markets focus on either domestic or international sourcing activities in order to acquire competencies. In the same market. Findings in relation to propositions When looking for differences in the outsourcing strategies of firms from emerging versus developed markets.1). EE versus D) are addressed first. firms in developed markets that indicate cost reasons for their outsourcing activities have a high extent of international sourcing (b ¼ 0. p .3 308 formulated above. firms in emerging markets owned by emerging-market firms or firms in developed markets owned by developed-market firms. It is important to note that only one firm was found in a developed market that was owned by a firm in an emerging market (0. p . firms in emerging markets owned by developed-market firms. 0. the “statistical” significance should in this case be considered in parallel with the “scientific” significance of the findings (see. For instance. 5. Differences between the “pure” firms (i. This should be borne in mind when conclusions are drawn from the analyses involving ED firms. for example.

As pointed out by Contractor et al. however. Two possible reasons can be advanced to explain this. Contracting is less difficult within one legal system and “out-of-the-contract” deals might seem more feasible within the same country (because. full support was found for P3. One may speculate that this finding also represents the phenomenon of countries in traditional low-cost regions evolving over time into emerging or developed markets. This finding holds for firms from both emerging and developed markets. there seems to be a wide variety in what is generalized under the term “emerging market”. outsourcing objectives do not depend on whether the company is located within an emerging or a developed market. labour costs) seem to outweigh the potential disadvantages of sourcing from abroad as well as the cultural. substantial differences in outsourcing objectives exist. when they primarily source domestically. Firms in both types of markets can therefore be treated equally when it comes to the motivation for their outsourcing decisions.. An unexpected result of the study is that competencies do not play a differentiating role as a motivation for either sourcing domestically or internationally.from emerging countries. or language-related barriers that come with it. for example. Differences in outsourcing strategies 309 Comparison between the two groups of “pure” firms The statistical analyses show that the major differences between the outsourcing strategies of firms do not depend on whether they are in an emerging. they do so for the same reason as firms in developed markets: to become more flexible concerning production capacity. one could have . firms within the same country are easier to reach in a geographical sense. however. firms from both market types source internationally. Likewise. However. (2010). First. Firms in both types of markets want to achieve a more flexible position concerning the production capacity to which they have access. components can be easily transported to the outsourcer (for example. When firms in emerging markets decide to follow a domestic sourcing strategy. an extensive range of different labour costs may be expected within these countries (Reiner et al. When they want to achieve an improved cost position. Thus.or a developed-market economy. the same is true: they also source internationally – and not domestically. It is important to emphasize again that firms in emerging markets (which are often perceived as having a favourable cost structure per se) also source outside their countries and regions for this same reason. when firms in emerging markets opt for an international sourcing strategy. the objective is the same that firms in developed markets have when following this strategy: to achieve cost reductions. language barriers do not exist). Both groups of firms (from emerging as well as from developed markets) look for access to production capacity when sourcing domestically. this facilitates speed to market. legal. Second. depending on what region a company addresses as a source (domestic or international). as the proposition would suggest – in order to achieve a better cost position. more favourable cost structures in other parts of the world (in particular. In this case. For instance. this finding supports Ettlie and Sethuraman (2002) in the argument that local sourcing reduces transaction costs. in general it should be simpler to deal with firms in the same country when it comes to finding ad hoc solutions. Furthermore. In contrast. 2008). for instance when additional capacity is needed that was not foreseen. no tax or customs regulations have to be taken into account). Thus.

in either developed or in emerging markets. Firms in developed markets. favouring domestic sourcing. establishing a global value chain effect. and high capital requirements. outsourcing is conducted using local low-cost manufacturers. irrespective of where they have to source from. there is a tendency to source internationally if firms follow a quality strategy. It may be assumed that this result is related to the pursuit of new ideas for innovation in foreign places. They might outsource internationally in exceptional cases only. This finding could indicate that these companies use and benefit from the parent company or maybe the network of companies in the concern. Emerging-market firms owned by developed-market firms source domestically (i. which leads to a statistically insignificant result. Another explanation . unlike those in the other two groups. the motivation to source internationally is significantly related to whether a firm follows an innovation strategy or not. in contrast to the “pure” firms. The contingencies that might affect the findings show no consistent behaviour. it shows the motivation is no different whether firms source from within their country or from another region. small volumes.IJOPM 33. However. in emerging markets) for cost advantages. Hence. and willingness to share expertise in the selection of partners to a higher extent than companies in developed markets do.3 310 expected that at least firms from emerging markets would try to acquire competencies by outsourcing internationally. for the same group of firms there is a tendency to source domestically if firms follow a delivery strategy. might access these competencies domestically or internationally. firms’ choices are determined by whether their ownership is in emerging or developed markets. Comparison between “hybrid” and “pure” firms Emerging-market firms owned by developed-market companies (“hybrids”) seem to source internationally to access competencies. “Hybrid” firms do not source domestically to obtain access to excess capacity. if firms follow a delivery strategy. subject to headquarters’ approval. In emerging markets. However. therefore deliberately trying to benefit from the location in a low-cost country (as compared to the developed market). firms do not pay too much attention where they obtain their supplies from – they just want to secure high quality. intangible assets. This outsourcing strategy reflects the fact that subsidiaries usually are in charge of developing local supply chains in order to benefit from the location in a low-cost country. easy and fast access to supplies seems to be more important. One interpretation for this could be that the subsidiaries in emerging markets are located there due to a specific purpose and do not need to outsource because they have all the necessary capacity in-house. One could assume that a developed-market company has established a plant in an emerging market in order to serve the local market based on a low-cost strategy. firms might wish to mitigate risk by sourcing internationally. Thus. for which no such significant relationship was found. We assume that if quality is in the centre of strategic intent. rather than “around the corner”. While this does not disqualify competence access as a reason for outsourcing. Firms following an innovation strategy prefer to source internationally. these findings are consistent with Hitt et al. If so. In developed markets.e. on the contrary. It could also be a way to handle risks involved with this strategy: when there is uncertainty in regard to the potential success of innovations.’s (2000) study on partner selection in different contexts: they found that firms in emerging markets emphasized technical capabilities.

However. while. differences between countries in the same group might be hidden due to the superficial split into emerging or developed markets. Anyhow. it may be assumed that this potential risk has been mitigated. By excluding small companies from the data set and using only data that were collected in 2005. in principle.and emerging-market firms.e. as mentioned above. such as the stage of local production in emerging markets (whether the market is mature or at an incipient stage). it is more surprising that this is not visible for firms located in and owned by firms in emerging markets. although the MS index is widely used. despite their advantages. This study uses a global database of manufacturing firms. the initial propositions were only partly supported by the statistical analyses. these aspects also carry some limitations. 6. access to excess capacity for a hybrid depends on the available capacity at the headquarters as well as other subsidiaries. and applies a widely used classification to differentiate emerging from developed countries. however. First. If so.could be that the sourcing is done both locally and internationally (e. and the local content requirements in the host country. within an emerging market) for cost issues. Third. even within the same type of market (emerging versus developed). It may be concluded that the set of emerging markets is rather heterogeneous. with capacity management being done at the corporate level. Supposedly. the reason for this is that – being based on the literature review – the propositions place too much focus on differences between firms in emerging and developed markets. Therefore. through the established channels of the subsidiary). Another is that there are factors explaining firm outsourcing decisions other than those included in this study. there seem to be much stronger differences between firms within these two types of markets. indicating that the explanatory power of the analyses is limited. However. it may be assumed that this bias is not highly relevant in the case of this study. An explanation for this is that they source in other emerging markets in order to achieve further cost advantages. For “pure” firms. The adjusted R 2 of the regression analyses is relatively low. It is also expected that firms in emerging markets owned by firms in developed markets source domestically (i. In this study. depending on the primary objectives of outsourcing and the ownership pattern. this limitation could be seen as one of the results of this study in itself. we selected a set of contingencies and variables that were suggested as important in the determination of Differences in outsourcing strategies 311 . the sample is not completely homogeneous among countries concerning some characteristics. the competence of the local supplier base. the combination of sourcing regions blurs the statistical relationships. the data collection procedure was the same for all countries in the IMSS project. Second. places the perspective on assumed differences between developed. IMSS is a single-respondent survey. the pattern is much clearer: both groups source domestically and not internationally for excess capacity. looking at the installed capacities of the network of subsidiaries. International sourcing for cost reduction is an expected finding for firms in developed markets. There are many other factors influencing the objectives and nature of both international and local sourcing. which might suffer from key-informant bias. Since performance measures were not extensively used in the analyses. One explanation for this could be the issues regarding the sampling. Implications and research agenda Research implications and limitations In summary.g.

Additionally. or capital costs) might be feasible in a future study. provide outsourced activities for other firms: the objectives of their customers can be assumed the same. Although this is an established and recognized classification index. as most of their competitors). A closer look should be given to the differences among countries summarized as emerging markets. in terms of the market type. remains crucial. Second. Third. operations managers in both types of markets can concentrate their outsourcing decision on the primary motivations for outsourcing – the context. A fine-grained analysis of different cost types (materials. for example. In addition. no matter in what type of market their customers are located. a repetition of data gathering and analysis seems useful. as third parties. treating all countries summarized as “emerging markets” the same might be too superficial. who analyzed the influence of national culture on some operations management decisions). of course. However. is less important. it is expected that these countries differ substantially concerning cost structures. The findings shed light on important aspects of the differences in the management of manufacturing in emerging and developed markets. it may be assumed that increasing labour costs have an effect in most emerging markets. 2000). for managers of firms that. distribution. This is also relevant. might lie in the reasonable violation of such “general” behaviour. Strategic leverage. there are reasons to believe that there are differences among the countries within the “emerging” and “developed” categories that are not adequately captured. Pagell et al. firms behave as the majority of other firms (i. we suggest several areas for further investigation. the MS Index was used to classify the countries. a more detailed classification based on within-market differences may improve the understanding of the phenomenon (Prasad and Babbar. First. Suggestions for future research Given the dynamic nature of internationalization. (2005). looking for cost advantages seems to imply international outsourcing. It should be noted that. manufacturing. Based on the analyses in this study. and given the exploratory nature of this paper. nevertheless. since differences exist – for instance in the cost structures of these countries – that have an influence on outsourcing strategies. for instance when advantageous ways can be found of combining high flexibility in terms of capacity utilization with beneficial cost structures by means of international outsourcing. considering the absence of studies on the differences between emerging and developed countries. Furthermore. in order to develop a more complete understanding of outsourcing strategies in both emerging and developed markets (see. 312 Managerial implications Three managerial implications can be drawn from this study. however. when following these orientations. In this paper. of course. further studies are strongly encouraged to look more carefully into factors excluded from the analyses. focus group and other qualitative studies with practitioners may be helpful in further exploring implications and providing triangulation support to our statistical results. The overall goal of securing product availability. longitudinal analyses based on the previous and subsequent IMSS .e. no matter what the strategic intentions for outsourcing are.IJOPM 33. In addition.3 outsourcing decisions. transportation and legal issues seem to ask for domestic outsourcing when capacity flexibility is needed.

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In the regression analyses. The indication of “outside your continent” is considered in this paper as being international sourcing.E. 16 Nos 2/3. indicate the “approximate” split of purchasing according to the following (your answers should add up to 100 per cent): Sourcing activity This country _____ % Within your continent _____ % Outside your continent _____ % 100 % Differences in outsourcing strategies 319 . Zheng. 11. L. J. M. The Free Press. 80. and De Meyer. Knight. (1998). (2008). Appendix. pp. (2002). Vol.. and Roos. L. P. This was then transformed into a continuous 0-1 scale. pp. Quarterly Journal of Economics. Arkader. A. 13 No. (2005). (1966). pp. pp. pp. Journal of Purchasing & Supply Management. “An analysis of research into the future of purchasing and supply management”. SC3. 5 No. S. “The impact of outsourced manufacturing on timing of entry in uncertain markets”. Markets and Hierarchies. Humby. K. 492-514. 4. Vol. pp. Vereecke. 22 No. NY. “International investments and international trade in the product cycle”. van Dierdonck. “Differences in manufacturing strategy decisions between Japanese and Western manufacturing plants: the role of strategic time orientation”. D. within the continent or outside the continent in which they operate. O. “The strategic role of the plant: testing Ferdow’s model”. NY.B. In the ANOVA analyses.U¨lku¨. To obtain an understanding of the geographical spread of the respondents’ sourcing activities respondents were asked the amount of sourcing that was done domestically. International Journal of Operations & Production Management. 69-83. 147-58.F. which we used as dependent variable. C. we developed a new variable based on the difference between international (“outside your continent”) and domestic sourcing. Vol. pp. Voss. Toktay. R. Vernon. D. (1990). 301-14. S. R. New York. Journal of Operations Management. Vol. C. 14 No. (2006). R.. R. The Machine That Changed the World. “The relationship between logistics sophistication and drivers of the outsourcing of logistics activities”.. (1975). the two measures are used: “domestic” and “international” sourcing. Production and Operations Management. Williamson. Harland. Regarding location of your sourcing activity. and van Dierdonck. 3. New York. 190-207.. E. with 0 indicating 100 per cent domestic sourcing. K. A. J. and Hijjar. Womack. 1737-50. 52 No. and 1 indicating 100 per cent international sourcing. Vol. and Yu¨cesan. 5. “A typology of plants in global manufacturing networks”. and James.. Jones. Dependent variable Sourcing domestically versus internationally. Vereecke. Harper Perennial. 1. Vol. Vol..F. Wanke. (2007). and Blackmon. 260-74. Management Science.. A. Brazilian Administrative Review. Operationalization of variables The numbers indicate the item numbers in the original IMSS IV questionnaire.

Size can affect the company’s market power (Hitt et al. respondents were asked about the percentage of sales to different categories of customers (see question below). Position in the supply chain. From the contingency theory of organizations. However.IJOPM 33. origin and size of the corporation of which your business unit is a part? Size (# of employees): Local plant _____ Market dynamics. What are the name. SC1. the influence of environmental change on sourcing decisions is not clear. SC9. Kwok and Reeb (2000) find that risk in internationalization is related to whether companies move upstream or downstream. the respondents were asked to describe it by scoring on a five-point Likert-scale ranging from “rapidly decreasing” to “rapidly increasing”. 2008. A4. returning three factors. and “sales to end-user”. Respondents were asked about their reasons for outsourcing activities. and “3” indicates “declining/growing rapidly” (1 and 5 on the 1-5 scale).. Firm size. while emerging markets companies moving upstream are likely to face reduced risk (Kwok and Reeb.3 Independent variable Sourcing objectives. 2000). Respondents were asked to indicate the importance of 11 order-winners. where 1 indicates “not important” and 5 indicates “very important”. firm size. 2010). delivery and innovation strategy. How would you describe the external environment? Market dynamics Declining rapidly 1 2 3 4 5 Growing rapidly Business strategy. 2000) and access to resources. 2007). For what reasons have you outsourced some production activities? 320 Access to complementary competencies Access to production capacity Reduce costs Level of Importance None 1 2 3 1 2 3 1 2 3 High 4 4 4 5 5 5 Contextual factors In the regression analyses. quality. Kathuria et al. The study controlled for the effect of firm size on domestic versus international sourcing. as shown in Table AI. Developed-market companies moving downstream into emerging markets are most likely to face increased risk. where “1” indicates “stability”. To measure market dynamics. a new variable was developed to indicate the sum of “sales to wholesalers/distributors”. A1b. it is known that market dynamism is an important determinant for companies’ structural and infrastructural choices (Daft. An exploratory factor analysis was performed. we checked for the direct influence from four contextual factors.. To assess the respondents’ competitive strategy respondents were asked to indicate their firm’s current order winners (A5). Indicate the percentage of sales in the following categories of customers (your answers should add up to 100 per cent): . business strategy and the firm’s position in the supply chain. “2” indicates “slight deterioration/increase” (2 and 4 on the 1-5 scale). To measure the position in supply chain. measured on a five-point Likert-scale. both important elements to consider for sourcing decisions.. From this a three-point scale was developed. Outsourcing decisions can be influenced by the firm’s strategic competitive priorities (Swoboda et al. In order to obtain an approximation of how close to the end customers the respondents are. market dynamics. Company size was measured as the number of employees in the plant.

18 0.722 0.97 3.802 3.787 3.633 0.38 0.90 0.Factor Action programmes Quality Superior product design and quality Superior conformance quality Delivery More dependable deliveries Faster deliveries Greater order size flexibility Innovation Offer more innovative products Offer new products more frequently Wider product range Variable average Differences in outsourcing strategies Loading Factor average Cronbach’s a 4.groessler@fm.567 321 3.557 4.862 0.51 3.nl To purchase reprints of this article please e-mail: reprints@emeraldinsight.com/reprints .661 0.774 Table AI.ru. Factor analysis of the respondents’ competitive priorities Customers System integrators _____ % Finished products manufacturers _____ % Wholesalers/distributors _____ % End users _____ % 100 % Corresponding author Andreas Gro¨ßler can be contacted at: a.21 4.21 0.766 4.20 0.59 0.emeraldinsight.35 3.706 0.com Or visit our web site for further details: www.23 3.