Research Korner

ACID MINE DRAINAGE

ACID MINE DRAINAGE   Introduction             Currently, the world is living in an era of consequences. Nowadays, it is already common to hear news about different calamities and natural disasters from different parts of the globe, primarily because of the increasing impact of global warming and climate change. The level of pollutions in the world is mostly in highest level due to the different factories and facilities which are implementing and using approaches and methods that are harmful to the environment, at the same time, there are different products and services that are still being used and consumed by individual consumers which affect the environment.             The mining industry is considered as one of the industries that are greatly affected by global warming and climate change. For the past months, there are numerous news about injuries and deaths of miners, due to accident as well as natural calamities or disasters. One of the most vital environmental challenges which the industry is facing as of today is the increased in the level of metals in the environment because of different activities related to milling and refining. Mine waters, tailings, waste rock piles adds to the formation and creation of deleterious wastes, which may be released into the surrounding environment, which include surface and ground waters, and even the soils. Release of some dissolved metals is worsen and aggravated by the formation of acid drainage or also known as the acid drainage (AMD). It is the outcome of the oxidation of sulphide bearing minerals, which include pyrite and pyrrhotite, which are normally found in tailings and waste rock piles (Clyde and Queen’s University 2008).             This essay will focus on investigating the prevalence of AMD in national and international level, its impact on the environment, the reasons behind its occurrence and recommendations of possible solutions for the problem. What is Acid Mine Drainage (AMD)?             ACD can also be called as acid rock drainage and acid drainage. It is defined as the water with a low pH and heavy metal content (Moran 2007). This is formed from chemical reaction between water and rocks which contain sulphur-bearing minerals. The runoff formed is commonly acidic and normally comes from places where ore or coal mining activities have exposed rocks, which contain pyrite, a sulphur bearing mineral (US Environmental Protection Agency n.d.). When underground sources of pyrite-rich coal are mined, the coal becomes exposed to water and the atmosphere. As a result, the pyrite reacts with the oxygen and water, which form the acid (Girard 2010, p. 203). The term AMD was originated as a term which pertains on the waters coming from abandoned or operating mines (Moran 2007). AMD is considered as one of the most vital threats and risks to the environment of the world. This is because, it will not just affect the country which is undertaking mining activities, but also affect their neighbouring countries, because their environment can be greatly affect by the migrating pollution. The report of the U.S. Environmental Protection Agency showed that AMD is one of the major reason of pollution of ground and surface water and it renders streams and whole river systems to be used by human and other life form. These are the reasons why, countries are using huge amount of money to plan and implement strategies and methods to solve this problem (Fraser 2001). National and International Incidence of Acid Mine Drainage             AMD is considered as one of the major environmental problems in the world. It is important to take note that it is commonly due to the abandoned mines owned by both public and private sector. In the US alone, there are more or less 560,000 abandoned mines, which are considered as dangerous particularly for those individuals and groups who will attempt to explore the place without any knowledge and training about mining (People, Land and Water 2007). The U.S. Forest Service (USFS) approximate those between 20,000 to 50,000 mines are forming acid on lands that are being managed by the agency, which affect about 8,000 to 16,000 km of body of water (Forest Service 1993). Most of these mines are small abandoned facilities that are placed in remote areas of the western part of the country, which was established even before the modern environmental controls, while some of the huge mines established in the latter half of the 20th century have declared bankruptcy, which leave the tax payers and the government to treat the acid waters within the vicinity, which include the Zortman Landusky Mine (Montana), the Summitville Mine (Colorado) and Brohm Mine (South Dakota) (Jennings, Neuman and Blicker 2008). The same condition can be found in Canada, wherein the government is spending $2 to $5 billion dollars in order to handle its environmental impacts. In 1986 alone, the government of Canada estimated that acid-generating tailings cover more or less 12,000 hectares and 350 million tons of mine waste rock (MEND 2001 cited in Jennings and Neumann 2008).             In addition, the draft report of Mining for the Future by the International Institute for Environment and Development, there is 134 abandoned asbestos mines and 400 asbestos mine dumps which supply a constant flow of asbestos dust in the region. Furthermore, the report of the United Nations Environment Programme (2000) about Mining and Sustainable Development IL’ Challenges and Perspectives, Sweden is recorded to have more than 1,000 abandoned mines, while the Japan’s national survey showed that the country has a total of 5,500 abandoned mines, and 300 of which are Chilean trailing storage facilities that have been abandoned without cleaning the sites (cited in Fields 2003).             In the UK, AMD is also one of the major environment problems. According to Jackson (2000) mining and mineral extraction resulted to ground movements and emissions, which polluted flows of water. Because of the sink shafts and pump mine water from 14th century in order to extract coal, sinks are already in depth of more or less 1,000m (Wilcock 1975) and it is estimated that the extraction of 4,800 million tonnes left more or less 1,000 million m2 of voids (Norton 1996). With this, the UK has a vital legacy of mining, and most of it are now inactive. The abandonment of these mines resulted to the production of acidic mine wasters, which pollute the water system and flow of the UK. According to Jarvis and Younger (2000) it was estimated that there are more or less 700km of streams and rivers that are affected by the discharges of acid mine drainage. These mine wasters differ in nature between mines, but the common denominators is the production of acidic and metal contaminants (Pentreath 1994) and the production of orangey-brown deposit that covers the sediment (Bradley 2008). Causes of Acid Mine Drainage It is vital to take note that mining and mineral production operations and procedures, when not properly management can cause contamination of groundwater and surface water, due to AMD, therefore, can affect the overall living of those people and other living things nearby the ear. Those extractive industries, including mineral deposits, oil and gas production, quarrying to build road-making materials, and poorly abandoned or operated mine sites are common sources of minerals or chemicals that when mixed with other chemicals can result to contamination of water.             Acid drainage happens when water, oxygen, certain bacteria and sulphide metals, which include pyrite, marcasite and chalcopyrite come in contact with each other which will produce a telltale “red water” or known as the ferric hydroxide or ochre (http://www.coal.gov.uk/environmental/aboutminewater.cfm) (figure 1), which is considered as one of the first symptoms that early miners used in order to locate mineral deposits. It is vital to take note that natural changes commonly do not create sufficient acidity in order to vitally affect the environment, primarily there is no enough sulphides at the surface, which can be exposed to the air and water. This can be observed on many creeks in the world, particularly in Colorado, which are naturally too acidic to support living things, however, this is natural, thus it has nothing to do with the chemicals and minerals related to mining (Fields 2003).             Other vital oxidation products identified are melanterite (white crystals of FeSO4), copiapite (yellow crystals of ferric sulphate Fe2 (SO4)3, halotrichite (white crystals of iron and/ or magnesium aluminum sulpahte), and alunogenite (white crystals of aluminum sulphate). These minerals are present in the hydrated form, the amount of water varying with the mode of formation (Sharma 2007).    Figure  SEQ Figure \* ARABIC 1 How Minewater is Oxidized through the Mining Process Adapted from: (The Coal Authority n.d.)             The problem is that the mining activities bring large quantities of sulphides towards the surface of the earth, at the same time, break them into smaller pieces, which consequently expose it to more surface area, enough to react with air and water, which create AMD. It is important to add the sulphides are likely to appear in the same geologic conditions, same as those other types of mined metals and coals, this is because when iron sulphide are brought to the surface, then it is exposed towards oxygen and water, which result to oxidation of sulphides which create lots of acidity.  This result to sulphuric acids which play a vital role in flourishing microbes, then these microbes will further help and encourage oxidization of the minerals (Fields 2003). The probable involvement of bacteria in forming AMD was reported first by 1919 by Powell and Parr, who found out that coal inoculated with unsterilized sulphate solution, produced drainage with higher concentration and mixture of sulphate than sterile controls. In addition, the study of Colmer  et al. showed that bacterial play a vital role in iron oxidation in acid mine water based on observation of the iron oxidation which happen in water samples freed from bacteria by filtration via Scitz filter/Millipore filter or treatment with the different bactericidal agents (The Coal Authority n.d.). The consequence is chain reaction which will carry on and persist until the sulphides are fully consumed. Depending and based on the mineral deposit, this flow and process can take hundreds and even thousands of years. The speed and duration of this acid-producing reaction is considered as one of the differences between mines. For instance, according to Mr. Paul Ziemkiewicz, the director of the West Virginia Water Research Institute at the West Virginia University, the utmost acid production of coal mine is more or less 10 years, after which, the pyrite will start to expend, while, on the other hand, in coal deposits, because the surrounding rock common have 2% to 5% sulphides, which is extremely high, therefore, it will take longer time (Fields 2003). Figure  SEQ Figure \* ARABIC 2 Some Cases of AMD   Source: (Sharma 2009)   The Environment Impact of Acid Mine Drainage             There is no doubt that AMD offers different disadvantages and risks towards the greater society. Particularly it create damages towards the environment, which affect how those people and other living things manage their daily living.             Once acid drainage is formed, metals will be released into the surrounding environment, which will be available towards all biological organizations. In the body of water, for instance, when fishes are directly exposed to the metals and H4 ions via their gills, they can have impaired respiration due to chronic and acute level of toxicity. Furthermore, fishes are also exposed in indirect manners towards metals via ingestion of some contaminated sediments and foods. In addition, a common enduring product of sulphide oxidation is the shape and creation of iron hydroxide (Fe(OH)3), which is a red or orange coloured substances which can be found in thousand of miles of streams, which is affected by AMD. It is important to take note that those iron hydroxides and oxyhydroxides may actually coat the surface of stream sediments as well as streambeds, which destroy and devastate habitat and living things, which diminish the availability of clean gravels, which is commonly used to spawn and reduce the fish food items, including benthic macro-invertebrates. In general, AMD attributed by metalliferous conditions in water system, which is the cause of physical, chemical as well as biological deprivation of aquatic animals (Jennings and Neuman 2008).              Furthermore, it is important to take note that drainage water from acid mine drainage will be clear at first, but will turn into a vivid orange colour as it becomes neutralised due to the precipitation of iron oxides and hydroxides. This precipitate is commonly known as the ochre, which is a very fine, which smothers the river bed with a very find slit, which further influence the life of those small animals at the bottom of the body of water or those benthic organisms, when they can no longer feed, they will be depleted. These animals are considered as the bottom of the aquatic food chain, thus, this will influence the higher level of the food chain, therefore, it affect those larger fish, consequently in the long-term, the body of water will be void of living things (Jennings and Neuman 2008).             AMD can affect a long range of the stream or bed of water. According to Hill (1974), those receiving body of waters may still have pH as low as 2.0 to 4.5 levels, which can still be toxic to most of the life form in the body of water. Studies which connect a given impacts of low pH on growth and reproduction (Fromm 1980) is connected to calcium metabolism and protein synthesis. There are different studies and reports which show that even low pH conditions and levels still affect fishes, for it changes their gill membranes or even change their gill mucus, which cause their death because of hypoxia (cited in Jennings and Neuman 2008).             It is also vital to take note that the extraction decreases the depth of groundwater and natural filtration, which consequently increases the contamination of the groundwater (figure 3).             Figure  SEQ Figure \* ARABIC 3 Impact of Extraction in the Contamination of Groundwater Source: (Sharma 2007)             Releases of acid mine waters affected many landscapes and waterways, which are documented by many organizations. One of the primary results of this is fish kills due to the toxic found in the acid mine waters which contaminate the body of water. For instance, the case of Spain in 1998, when a mine flood accident spilled 6 million m3 of acid water in the Guadiamar River rich with metal and sulphide. Another is the case of large fish kill in Clark Fork River in Montana which killed more than 5000 salmonids because metalliferous tailing and efflorescent metal salts were flushed into the river due to thunderstorm. The Sacramento River of California also experienced different fish kills because of unexpected and swift release of acid water from upstream mine areas, over 20 cases of fish kills were reported since 1963, finally, in 1967, more than 47,000 fish died (Jennings and Neuman 2008).             In the UK, the major case of AMD was the Wheal Jane AMD pollution incident. The mind produced metals and the drainage contained high levels of zinc and cadmium and ubiquitous iron, which turn the water into bright orange and plume of orange pollution was very visible to the onlookers. The incident affected the Fal Estuary (Sharma n.d.). Solutions to Mitigate the Occurrence of Acid Mine Drainage             There are 2 most popular methods or approaches in treating AMD.             First is to control AMD by reducing and eliminating the source of AMD. This can be done by preventing oxidation by replacing the air in the mine with groundwater. This air-with-water replacement is done by sealing any mine openings with an impermeable grouting material. Popular material used is gas desulphurisation (FGD) materials, which is composed of calcium sulphate (Sharma 2009).             The second focus on treating the AMD itself to remove the negative impact to the entire body of water. This use different buffering agents, which include different carbonate compounds. When these agents are dumped into the body of water, they help to raise the pH, which balance the impacts of acid in the water. One study showed that anoxic limestone drains increase the alkalinity by more 128 to 248 mg L-1. Thus, the bicarbonate ion in limestone (CaCO3) becomes a buffer by lessening the proton acidity because of hydroxylation of metals. Thus, limestone, is considered as the best solution for it is available and inexpensive and reaction which happens in the water is simple. The bases that used commonly dissolve completely in the water help to create hydroxide ions (OH-), when combine with carbonate ions (Co32-) and hydrogen ions (H+) help to neutralize them in the water, which produce water and carbonic acid (H2CO3), which do not offer negative impact on the environment, therefore, this procedure is also friendly to the environment (Lawhorn n.d.). In some places, wherein ground water has already been contaminated by waste water and AMD, microbial sulphate can be reduced by installing a reactive barriers, which is done by installing a sufficient reactive material into the aquifer in order for the contaminated water to flow via the material (figure 4). The reactive material help to induce the chemical reactions, which therefore, help in order to remove the contaminants from water, or in some cases, cause the alteration of, which lessen the level of toxicity of the water. Figure  SEQ Figure \* ARABIC 4 Underground Mine Sealing Source: (Sharma 2007)   Conclusion             AMD is considered as one of the major results of past actions of many individuals and organizations, which focus on gaining power and money, without considering the impacts of their action towards the environment, and those living things, particularly the people who are living within the vicinity. As a result, taxpayers and the government are focusing on cleaning their wastes, which takes huge amount of money, effort and time in order to remove, or even just to lessen its horrendous impact to the environment.             There is no doubt that AMD affect the overall condition of the environment, for it affect the quality of water, which influence the life of aquatic resources, then influence those other livings things, which are connected to the food chain, particularly the people. In addition, it is also important to take note of the terrible look of orangey or reddish fluids flowing in the water system, which obviously affect important industry in a given place. Overall AMD affect the environment, social and economic condition of a place. With this, it is vital for governments to focus on establishing policies and standards about mining, at the same time, focus on intensive strategies and actions to clean bodies of water contaminated by AMD. References Bradley, H A 2008, “Sediment chemistry and benthic macro-invertebrate communities within an acid mine drainage impact stream”, Earth & Environment, vol. 3, pp. 1 – 31. Clyde, E J and Queen’s University 2008, The Applicability of Passive Treatment Systems for the Mitigation of Acid Mine Drainage at the Williams Brothers Mine, Mariposa Country, California: Bench and Pilot-Scale Studies, ProQuest. Fields, S 2003, “The earth’s open wounds: abandoned and orphaned mines”, Environmental Health Perspectives, vol. 111, no. 3, pp. 154+ Fraser, L 2001, “Probing the depths of a solution for Acid Mine Drainage”. Environmental Health Perspectives. Vol. 109, no. 10, pp. 486+ Girard, J 2010, Principles of Environmental Chemistry, Jones & Bartlett Learning. Jackson, N W 2000, “Foreword”, Transactions of the Institute of Mining and Metallurgy, Section A – Mining Technology, 109, A131. Jarvis, A P and Younger, P L 2000, “Dominating chemical factors in mine waters impoverishment of the invertebrate fauna of two streams in the Durnham coalfield, UK”, Chemistry and Ecology, vo. 13, pp. 249 – 270. Jennings, S R, Neuman, D R and Blicker, P S 2008, “Acid Mine Drainage and effects on fish and health and ecology: a review” Reclamation Research Group Publication, MT: Bozeman. Lawhorn, W, Acid Mine Drainage, the Unseen Enemy [online], Retrieved from: http://www.valdosta.edu/~tmanning/hon399/wally.htm [26th March, 2011]. Moran, K 2007, A Critical Analysis of Acid Mine Drainage Prediction within the Environmental Impact Assessment Process: A Case Study of the Zortman and Landusky Mines. ProQuest. Norton, P J 1996, “Mine closure and associated hydrological effects on the environment: some case studies”, Institute of Mining and Metallurgy, Elsevier Applied Science, pp. 263 – 270. Pentreath, R J 1994, “The Discharge of Waters from Active and Abandoned Mines” in R. E. Hester and R. M. Harrison, Issues in Environmental Science and Technology 1: Mining and its Environmental Impact, Cambridge: Royal Society of Chemistry. People, Land and Water (2007), KEEP OUT! Old Mines Are Dangerous, Office of Surface Mining, US Department of the Interior. Sharma, P D 2009, Acid Mine Drainage (AMD) and its Control [online[, Accessed from: http://knol.google.com/k/partha-das-sharma/acid-mine-drainage-amd-and-its-control/oml631csgjs7/44# [26th March, 2011]. Sharma, P D. Acid Drainage from Mines and Its Related Problems.   The Coal Authority [online] Accessed from: http://www.coal.gov.uk/environmental/aboutminewater.cfm [25th March, 2011]. U.S. Environmental Protection Agency, What is Acid Mine Drainage? [online], Accessed from: http://www.sosbluewaters.org/epa-what-is-acid-mine-drainage%5B1%5D.pdf [25th March, 2011].

ACID MINE DRAINAGE

ACID MINE DRAINAGE Introduction Currently, the world is living in an era of consequences. Nowadays, it is already com...

Research Proposal on Explore Why Women Use Food as Comfort After Breaking Up with their Partner

1.0 Title             The proposed title for the drafted paper is Explore why Women Use Food as Comfort After Breaking Up with their Partner. This paper will show the different background information and theories about the topic and show the different methods, approaches and instruments to be used in order to implement the study in the future.   2.0 Background of the Study             A relationship break-up is considered as a crunch point where women’s true emotional kicks in. Men on their own do not fare as well, physically or emotionally, as women do (Hayward, 2005). As accepted by the society, it is common for women to cry and express their emotions and feelings to their friends and relatives. However, it is also common for women to look for other comfort, in order to ease their heartbreak, particularly, when they are alone. Food is the most common comfort used by women during breakup. The study of California-San Francisco showed that those women who are under chronic stress – who has experienced break up – are more likely to eat fattening foods (Ashley, 2009). This is particularly because food, particularly sweets, can offer great feeling of satisfaction, thus it enables women to temporarily forget about their heartbreak. However, due to this, it is important to consider that it can offer health and physical problems in the future such as obesity, which can greatly influence the overall psychological condition of women.   3.0 Aims and Objectives             The main aim of the study is to explore why women use food as comfort after breaking up with their partner. In line with this, the following are the specific objectives of the study: ·         To analyze the common things which are considered as source of comfort for women after break up; ·         To evaluate the reasons of women in using food as an essential comfort after break up; and ·         To present the possible impact, good and bad of using food as source of comfort during break up.   4.0 Methodology             The research study to be used in the proposed study will be descriptive method. According to Creswell (1994) it intends to present facts about the nature and status of a situation as it exists at the time of the study. In addition, it also concerns with the relationships and practices that exist, beliefs and processes that are ongoing, effects that are being felt or trends that are developing (Best 1970). Therefore, it can be helpful in order to describe the current conditions and situations based on the impressions and perceptions of the respondents of the study (Creswell 1994). Both qualitative and quantitative data will be gathered for this study. This is to ensure that both non-statistical and statistical data will be used in order to support the findings and result of the study.   4.1 Data Collection Surveys will be implemented in the study. Surveys are the most common form of research method for collection of primary data (Commonwealth of Learning, 2000). One of its purpose is to describe, e.g., to count the frequency of some event or to assess the distribution of some variables such as proportion of the population of different age groups, sex, religion, castes and languages, knowledge, attitude and adaption of practices about particular issues, and other information of similar nature about the population (Commonwealth of Learning, 2000). Survey interview and questionnaire will be used in this study, which will be used in order to gather primary data. On the other hand, secondary data will be gathered from different online libraries and databases which include BMJ, EMERALD, SCIENCE DIRECT, EBSCO, QUESTIA and GOOGLE BOOK.   4.2 Sample Frame             The target population is 150 women, who have experienced break-up before. They will be selected via convinience sampling.   4.3 Data Analysis The data results of the study will be analyzed by determining their corresponding frequency, percentage and weighted mean. The following statistical formulas will be used:   1.        Percentage – to determine the magnitude of the responses to the questionnaire.             n % = -------- x 100          ;           n – number of responses             N                      N – total number of respondents 2.        Weighted Mean             f1x1 + f2x2 + f3x3 + f4x4 + f5x5 x = ---------------------------------------------;                         xt where:             f – weight given to each response             x – number of responses             xt – total number of responses 5.0 References Ashley, J. (2009). No kidding: Study says women eat crappy comfort food when they’re stressed. Retrieved 11th October, 2010, from Shine.Yahoo.com.   Best, J. W. (1970). Research in Education, 2nd Ed. Englewood Cliffs, N.J.: Prentice Hall, Inc.   Commonwealth of Learning. (2000). Manual for Educational Media           Researchers: Knowing your Audience. Vancouver, Canada:    Commonwealth Educational Media Centre for Asia (CEMCA).   Creswell, J.W. (1994). Research design. Qualitative and quantitative approaches. Thousand Oaks, California: Sage.   Hayward, S. (2005). Women leading. Palgrave Macmillan.

Research Proposal on Explore Why Women Use Food as Comfort After Breaking Up with their Partner

1.0 Title The proposed title for the drafted paper is Explore why Women Use Food as Comfort After Breaking Up with their Par...

Research Proposal :Can good leadership provide the necessary motivation for employees at ABC Company?

Can good leadership provide the necessary motivation for employees at ABC Company?     1.0  Aims and Objectives             The main aim of the study is to investigate the interplay between good leadership and employee motivation within ABC Company. In lieu with this, the following research objectives will be addressed: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="line-height: 200%"> To determine how leadership affect motivation from the perspectives of the employees at ABC Company</li> <li class="MsoNormal" style="line-height: 200%"> To distinguish how leadership improve the motivation of the employees working at ABC Company </li> <li class="MsoNormal" style="line-height: 200%"> To identify the leadership-related hindrances in motivations for the employees of ABC Company</li> <li class="MsoNormal" style="line-height: 200%"> To assess the importance of employee motivation that is embedded on effective leadership</li> </ul>   2.0  Justification of the Topic             A wealth of studies had been done to address the conceptual linkage of leadership and motivation. Leadership has a participative nature that will greatly impact the motivation of the people being led. A challenge for the leaders at the ABC Company is whether the current leadership structure and styles are enough to motivate the employees. Towards making leadership an effective endeavor, determining how leadership impacts motivation is then a priority for ABC Company. Therefore, this research will focus on establishing associations between leadership and motivation. The study will be based upon the case of ABC Company.   3.0  Theoretical Perspectives             Leadership styles and practices in commercial context receive significant attention in the literature. There are two theories on leadership that shape leadership aspect of most organisations of today as transactional and transformational theories. Transactional theory is also known as management theory. The transactional nature of leadership deals with the task-oriented leaders. They tend to focus on role of supervision, operations and group performance in achieving finite goals. A system of reward and punishment is the basis of this theory; hence, the relationship is very dependent. Many economists believed that the integration of transactional with the transformational leadership is more favorable instead of just substituting the former with the latter (Martin, 2006, p. 47).             Transformational leadership, also refer to as relationship theory, builds upon the connection between leaders and followers. Transformational leaders have a strong sense of mission and an ability to influence subordinates. They lead the group from “what is” to “what is describable” to “what ought to be”. The main functions of transformational leaders are idealized leadership, inspirational motivation, intellectual stimulation and individualized consideration (Martin, 2006).     4.0  Data Collection             The study will explore the problem in an interpretative view, using a descriptive approach which uses surveys. Descriptive method of research means to gather information about the present existing condition. The purpose of employing this method is to describe the nature of a situation, as it exists at the time of the study and to explore the cause/s of particular phenomena. The researcher opted to use this kind of research considering the desire of the researcher to obtain first hand data from the respondents so as to formulate rational and sound conclusions and recommendations for the study.             Primary and secondary research will be integrated. The reason for this is to be able to provide adequate discussion for the readers that will help them understand more about the issue and the different variables that involve with it. In the primary research, employees of the ABC Company will be surveyed. A structured questionnaire will be developed and it will be used as the survey tool for the study. Responses will be calculated using quantitative techniques. On the other hand, sources in secondary research will include books, previous research reports, newspaper, magazine and journal content. Existing findings on journals and existing knowledge on books will be used as secondary research. The interpretation will be conducted which can account as qualitative in nature.   5.0  Timeframe         TASK Weeks 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th Read preliminary literature                         Finalize objectives                         Draft preliminary literature review                           Devise research approach                         Review secondary data                         Organize survey                         Develop survey questions                         Conduct survey                         Analyze secondary and primary data                         Evaluate data                         Draft findings chapter                         Complete remaining chapters                         Submit to tutor and await feedback                         Revise draft and format for submission                         Print, Bind                         Submit                           6.0  References Antonakis, J., Cianciolo, A. T. & Strenberg, R. J. (2004). The Nature of Leadership. Sage Publications, Inc. Bass, B M 1990, Bass and Stogdill’s Handbook of Leadership: Theory, Research and Management Applications, 3rd ed., Free Press, New York. Gandossy, R. P. Effron, M. (2004). Leading the Way: Three truths from the Top Companies for Leaders. John Wiley and Sons. Martin, B (2006). Outdoor Leadership: Theory and Practice. Human Kinetics. Schein, E. (1995). The Leader of the Future. Drucker Foundation (paper).

Research Proposal :Can good leadership provide the necessary motivation for employees at ABC Company?

Can good leadership provide the necessary motivation for employees at ABC Company? 1.0 Aims and Objectives The...

A Novel Framework for International Sourcing Applied to the Emerging Chinese Supply Market

A Novel Framework for International Sourcing Applied to the Emerging Chinese Supply Market 1. Introduction.......................................................................................124 1.1 Global Sourcing........................................................................125 1.2 Global Integration.....................................................................128 1.3 Internationalization Strategies for Sourcing .............................130 2. Application of the International Sourcing Framework to the Emerging Chinese Supply Market....................................................137 2.1 The Chinese Supply Market .....................................................138 2.2 Three Approaches to China Sourcing.......................................141 3. Conclusion and Outlook ....................................................................147 References................................................................................................148   1. Introduction The idea of Global Sourcing is surely one of the most popular concepts in the field of supply management. Unfortunately, many applications of Global Sourcing are limited to a rather operational view focusing on the identification and utilization of foreign suppliers and thus ignore the potential benefits of a more strategic and integrated approach (Samli/ Browning/Busbia, 1998). While there is a trend of using purchasing for strategic reasons as companies have to deal with intensifying global competition (Swamidass/Kotabe, 1993) and the need to address the strategic perspective of Global Sourcing has been identified a long time ago (Arnold, 1989), academic discussion has failed to deliver satisfying results concerning its implementation (Trent/Monczka, 2003). In the light of the ever increasing importance of global business strategies it should be welcomed that recently both academic research and industry practice have begun to focus their attention not only on marketseeking international expansion strategies but also on resource- or efficiency- seeking strategies. Consequently, the interest in resource- and efficiency- seeking expansion strategies such as Global Integration is growing fast (Kaufmann/Panhans, 2004). When designing resource- and efficiency-seeking international expansion strategies companies have to consider the issue of Global Sourcing. We follow the definition of Global Sourcing by Monczka and Trent (1991, 2003). This view clearly distinguishes Global Sourcing from International Purchasing as well as from Local Sourcing for a foreign production site. We argue that Global Sourcing is an important cornerstone of the ongoing trend towards Global Integration. Furthermore, we will show that Global Sourcing represents an evolution of sourcing activities towards a truly strategic and global level. The first level of internationalization in sourcing is coined by opportunity- seeking imports. The second level is dominated by the idea of adding Local Sourcing activities to foreign production sites. Global Sourcing, as we argue in this article, represents a step towards the globally integrated company, which according to Hedlund (1986), Barlett and Goshal (1989), and White and Poynter (1990) is characterized by globally distributed but interdependent sources and activities. The third level of internationalization of sourcing is thus one of consolidation and enhancement of existing international purchasing activities. Following this introduction, we will briefly review the concept of Global Sourcing and then establish a conceptual foundation of the internationalization of sourcing as a key function for the global expansion of the company. We will then discuss the options available for an effective organizational design of Global Sourcing. For reasons of illustration we will apply our findings to the example of China Sourcing. The article concludes with a discussion of recommendations for future research. 1.1 Global Sourcing The discussion about the meaning of Global Sourcing has produced many more or less different positions which can be placed on a continuum between two extreme poles: the one view characterizes Global Sourcing just as purchasing items from many different foreign suppliers, the opposite view sees Global Sourcing as an all-dominant business function similar to past developments in marketing (Arnold, 2002). We advocate the view of Global Sourcing as being an integral part of a company’s global strategy by enabling the company to leverage its own unique competencies and at the same time benefit from the locational advantages of various countries (Kotabe, 1998; Petersen/Frayer/Scannell, 2000). Global Sourcing is considered to be highly relevant for achieving competitive advantage (Carter/Narasimhan, 1996). Many researchers, especially towards the end of the 1980s and in the beginning of the 1990s, made efforts to better understand the potential benefits of internationalizing sourcing (Monczka/Trent, 1991; Birou/Fawcett, 1993). Commonly identified benefits of the internationalization of sourcing were reducing unit prices, gaining better access to product and process technology, higher quality, and introducing competition to the suppliers at home (Trent/ Monczka, 1998). According to Arnold (1990) Global Sourcing transfers the strategic tasks of sourcing to the international context. These strategic tasks include: strengthening the innovative power of the company, supplier development, standardization and modularization of items, and managing purchasing alliances. But how should this strategic quality that distinguishes Global Sourcing from International Purchasing be understood? Trent and Monczka (2003) argue that International Purchasing relates to the actual international purchase and the related difficulties whereas Global Sourcing surmounts this level of complexity: “Global Sourcing involves proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations”. The development of new supply markets and their integra- tion into the existing supply management processes represent crucial elements of comprehensive internationalization strategies for purchasing. However, just this task of integrating and coordinating the supply management processes across geographically dispersed locations and functions turns out to be a major roadblock for most companies on their way to applying truly strategic Global Sourcing. Naturally, Global Sourcing as defined in this article cannot be achieved over night. It represents a sophisticated level of Worldwide Sourcing activities that is reached only after going through some preceding lower levels. Monczka and Trent (2003) distinguish five levels of Worldwide Sourcing: Level I represents the base case of engaging in domestic purchasing exclusively. Reacting to changes in the business environment – e.g. supply disruptions or new competitive pressures – companies progress to level II, which can be characterized as International Purchasing performed on a reactive basis. Together with level II level III corresponds to what has been identified as International Purchasing. In level III Worldwide Sourcing is treated more strategically but still rather isolated and thus lacks global coordination. Level IV has to be considered as an advanced level of sourcing strategy development. Single Global Sourcing strategies are coordinated and integrated across worldwide locations. As Monczka and Trent point out integration primarily has a cross-locational rather than a cross-functional character. The highest level of Worldwide Sourcing, level V, adds the aspect of coordinating and integrating “common items, processes, designs, technologies, and suppliers across worldwide purchasing centers and with other functional groups, particularly engineering”. This form of collaboration between functions allows to effectively involve suppliers early in the new product development phase. Figure 1 summarizes the possible levels of Worldwide Sourcing and shows the current positioning of 162 mainly large companies (average annual sales of $1.5 billion) who participated in the exploratory research carried out by Monczka and Trent (2003). Percent of Firms N = 162 0 10 20 30 40 50 13.4 7.8 21.3 7.8 31.0 14.3 18.2 15.6 16.1 54.5 Currently In 3-5 Years Level I Engage in Domestic Purchasing Only Level II Engage in International Purchasing as Needed Level III International Purchasing as Part of Sourcing Strategy Level IV Integration and Coordination of Global Sourcing Strategies across Worldwirde Buying Locations Level V Integration and Coordination of Global Sourcing Strategies with Other Functional Groups International Purchasing Global Sourcing Figure 1: Current and Expected Worldwide Sourcing Levels (Trent/ Monczka, 2003, p. 29) The need for Global Sourcing differs across companies and industries. According to Porter (1986) global industries are characterized by the need to coordinate and integrate activities on a worldwide basis in order to achieve competitive advantages. Thus, each company must determine the appropriate level of internationalization of its businesses’ sourcing processes, preferably at firm level within a specific industry (Monczka/Trent, 1992).1 Traditionally, internationalization strategies were clearly marketing- driven. Considering the perceived weakness of some local commodity sources and growing worldwide shortages this fact may be surprising (Arnold, 1990). Already in 1980 Davidson stated that “sourcing activities will play a dominant role in a company’s global strategy”. Equally, Pausenberger (1984) discussed the possibility that sourcing issues could be drivers for overall internationalization of companies. The relationship between the company’s approach to international expansion and the internationalization of sourcing is not part of Monczka and Trent’s framework. We think that examining this relationship in more depth will further benefit the discussion about the internationalization of sourcing by clarifying its outstanding role for the realization of internationalization benefits. In order to better understand the role of Global Sourcing for internationalization strategies at the business and/or firm level we will briefly discuss a novel framework of international expansion strategies developed by Kaufmann and Panhans (2004). Based on this framework and our understanding of Global Sourcing we will then present a framework that shows strategies for the internationalization of sourcing and how these support the overall internationalization of the firm. 1.2 Global Integration As was mentioned in the introduction the interest in global business strategies and especially in resource- or efficiency-seeking strategies such as Global Integration is growing fast. Global Integration is characterized by foreign operations that have strong resource-interdependencies with the parent or other corporate group members. In order to exploit locational advantages the value chain is deconstructed and each process step is placed at the ideal location and the entire volume is processed there. Thereby firm-specific and country-specific advantages are combined (Rugman/ Verbeke, 2003). Locational advantages may be low factor costs, qualifications and externalities, or proximity to natural resources, suppliers, and other strategic resources. Kaufmann and Panhans (2004) argue that Global Integration represents a third wave of internationalization. A first wave was dominated by market- seeking exports: Highly national production systems were squeezed for efficiency and learning effects. These scale effects allowed aggressively priced exports. Toyota’s production system and export strategy to Europe and the U.S. is a typical example of this approach, which could mainly be observed in the 1980s. The market-seeking transfer of businesses coined the second wave of internationalization: Largely independent businesses were created by replicating entire business processes in foreign markets in order to exploit firm-specific core competencies. The business transfer strategy was helpful in overcoming trade barriers and efA Novel Framework for International Sourcing 129 fective in assuring customization to local needs. The third wave is Global Integration as described above. These three internationalization strategies can be classified using two approaches to international expansion: exports and foreign value creation.2 As figure 2 shows a simple base case called National Focus is added to the three international expansion strategies: Export Orientation, Business Transfer, and Global Integration. Business Transfer – Market expansion – Economies of scope National Focus Export Orientation – Market expansion – Economies of scale – Economies of scope Global Integration – Economies of location – Economies of scale – Market expansion – Economies of scope Local Home Abroad Value creation Sales Exports Figure 2: Framework for International Expansion Strategies The actual internationalization strategy of any firm can be a mix of the above four pure strategies. The rationale behind applying one or more of these strategies is to expand the potential sales market and exploit advantages of internationalization such as economies of scope, economies of scale, and economies of location. All three approaches give access to economies of scope. Different markets share common competencies and/or overhead. Reducing unit costs by realizing economies of scale is a characteristic of Export Orientation and Global Integration as with Business Transfer only national volume is processed. By definition, economies of location can only be exploited by Global Integration as this means performing steps of the value creation at the place of the absolute locational advantage. Every company has to choose the internationalization strategy (or mix) most appropriate for reaching its goals. As we have pointed out, we consider sourcing to be a crucial function for implementing international expansion strategies. Depending on the overall internationalization strategy sourcing must be adapted accordingly. In the following chapter we will develop a similar framework for the internationalization of sourcing as was developed for the business-level by Kaufmann and Panhans (2004). 1.3 Internationalization Strategies for Sourcing Two approaches to international expansion are used to construct our framework: Foreign value creation from a global business strategy perspective and imports from a sourcing perspective. Foreign value creation can be performed through franchises, joint ventures, and subsidiaries. Imports include intra- and extra-firm trade. Figure 3 shows the four resulting sourcing strategies: Domestic Local Sourcing, Import Orientation, Local Sourcing Abroad, and Integrated Global Sourcing. Domestic Local Sourcing is characterized by low to no imports for home-based value creation. Although it represents a more or less trivial base case, it serves well as a starting point for strategy development. Local Sourcing Abroad – Supply market expansion (to a lesser degree) Import Orientation – Supply market expansion Integrated Global Sourcing – Supply market expansion – Maximize purchasing power Domestic Domestic Abroad Location of Own Value Creation to be supported by Sourcing Location of Supply Sources Abroad Hurdles Barriers to Foreign Value Creation – Coordination complexities – Knowledge stickiness Trade Barriers – Tariffs, quotas – National regulations – Transportation and communication costs – Heterogeneous market preferences Domestic Local Sourcing – Facilitated early supplier integration Figure 3: Benefits and Hurdles of International Sourcing Approaches The case of Import Orientation reflects an international expansion of the target supply market: As described by Monczka and Trent (1991) companies are often driven towards increasing their international purchasing volume in the form of imports by triggering events, such as supply disruptions, etc. So to say international purchases are mostly a reaction – a “defensive measure” – to increasing competitive pressure with the goal of realizing short-term cost reductions, quality improvements, access to technology, and delivery enhancement. Imports may be managed through different supply channels, e.g. interaction with a foreign supplier (Kaufmann, 2001). Imports may also be supported by setting up IPOs in key supply markets (Leenders et al., 2002). In the case of Import Orientation the company does not source from own intra-firm offshore sources as can be seen from the lack of foreign value creation activities. Local Sourcing Abroad is characterized by low intra- and extra-firm imports: As it is integrated with foreign value creation activities it can be regarded as a replication of Domestic Local Sourcing in a foreign market. Strictly spoken, Local Sourcing Abroad is not Global Sourcing as crossborder flows of inputs do not play a prominent role here. It is thus lacking the extensive need for coordination of global purchasing requirements. Nevertheless, setting up sourcing activities in a foreign market is part of the internationalization of sourcing. Local Sourcing Abroad is often driven by local opportunities such as low labor cost. Moreover, in many foreign sales markets local content requirements make Local Sourcing a mandatory prerequisite for profitable operations. However, it has been a difficult task in many industries until today. Developing sourcing strategies that “fit” foreign investment as well as local business strategies represents a challenge not to be neglected (Kotabe/Zhao, 2002). Foreign supply markets often were and in some cases still are not capable of meeting quality or quantity requirements of foreign companies, which fuelled a development of bringing along known suppliers from home markets (Kaufmann, 1995). In many cases Local Sourcing remains limited to the purchasing of basic components and indirect materials. Technologically complex purchasing items were or are still sourced and shipped from established supply markets to foreign production and assembly facilities (Kaufmann/Carter, 2000). Finally, high levels of imports and foreign value creation require the strategy of Integrated Global Sourcing: Globally dispersed value creation and purchasing locations must be integrated and coordinated in the context of Global Sourcing to unfold the full potential of Global Integration. The key challenge is to coordinate company-wide demand to maximize purchasing power while simultaneously addressing all relevant supply markets in order to solicit the best possible quotes (Hausmann/Kaufmann, 2002). The integration of different functional requirements in the course of the Integrated Global Sourcing process addresses the need for a crossfunctional perspective on sourcing. Arnold (2002) underlines the importance of viewing Global Sourcing not as an isolated strategic concept but combined with organizational implementation. He approaches the question of organizing Global Sourcing from a transaction cost perspective and proposes three distinct organizational designs: a hierarchy approach, a market approach, and a hybrid approach. The hierarchy approach requires to centralize control over purchasing spend in order to reduce internal coordination and transaction cost. However, Arnold recommends this approach only to companies that have little international activities, which is not the case for Global Integration. The market approach may be especially attractive for highly internationalized companies with a low degree of centralized control. For companies that need to exercise central control while leveraging their global capabilities Arnold recommends a hybrid approach, which is designed to combine the benefits of hierarchal control and autonomy (market) for the best of global coordination. This approach is needed to overcome the challenge of concurrently pooling demand (central control) and assuring global supply market reach (autonomy). The next question is then how to create processes that support such a hybrid-coordinative approach to Global Sourcing. Hausmann and Kaufmann (2002) recommend a flexible but disciplined Global Sourcing process, which consists of four main steps: − First step: Local Purchasing Teams (LPTs) are appointed to specific regions (or purchasing items). − Second step: Lead Buyers or Corporate Supply Management pool demand for pre-determined items. − Third step: The information on purchasing requirements is transferred to LPTs, who sent out Requests-for-Quotation (RFQs) to suppliers in their respective regional supply markets. In the course of a competitive bidding process offers are compared to quality and cost targets. − Fourth step: A Central Sourcing Committee (CSC) makes the final decision concerning supplier selection. Before this decision is reached several negotiation loops may take place. Figure 4 illustrates the structure of the Global Sourcing process. Corporate SCM (CSCM) or Lead Buyers (LB) pool demand across plants/divisions Info transferred to LPTs who send out RFQs in their region Corporate Sourcing Committee (CSC) decides final supplier selection Local Purchasing Team (LPT) appointed for each region CSCM/LB CSC LPTs LPTs Corporate demand Figure 4: Generalized Global Sourcing Process At Germany’s prominent carmaker Volkswagen (VW) such a Global Sourcing process was successfully installed. Through process standardization and obligatory participation, weekly meetings of the CSC, and joint decision-making it was possible to improve the effectiveness of Global Sourcing. Purchasing responsibility was given to production locations, which are assisted by the LPTs. These locations and the LPTs were integrated into the sourcing processes across the entire group. The LPTs were established in key sourcing areas and used their local procurement skills also for analyzing trends and innovations, carrying out surveys, establi- shing the supply base, and acting as the first point of contact for new suppliers. The importance of the cross-functionality of the Integrated Global Sourcing process must be clear to all parties involved. Only by integrating other functional groups, such as research and development, logistics, production, etc. early in the sourcing process, will it be possible to realize many of the potential benefits of Global Sourcing (Arnold, 1990). Setting up cross-locational sourcing teams is a common practice to improve coordination, which is the central prerequisite for the pooling of purchasing demand. Cross-functional teams improve the integration of purchasing needs across functions, which is the prerequisite for supplier involvement in the new product development process and thus a key to managing purchasing cost as long as they are not fixed in a final design. Furthermore, teams also create continuity in buyer-supplier relationships and thus help to build trust as the potential negative effects of fluctuation can be reduced (Kaufmann/Carter, 2000). Other approaches to supporting the integration of supply management with other functional groups and suppliers are: extensive top management support, i.e. in the form of regular meetings with all parties involved in the cross-functionally integrated process (Petersen/ Frayer/Scannell, 2000), the use of sophisticated purchasing-related ITsystems, which lower the costs of communication and transaction (Kaufmann/ Carter, 2000), and the proactive development of capabilities that enable the persons involved in the process to work together efficiently and effectively, e.g. job rotation programs, intercultural and language trainings (Menze, 1992). Typically, the main focus of sourcing strategies is still on cost reduction.  The internationalization of sourcing assists this goal in different ways. Expanding the supply market gives access to more and usually also cheaper suppliers. However, applying a total cost perspective may reveal that fewer international sources than expected offer really advantageous conditions. Supply market expansion may also reduce cost by introducing competition to the local supply base or by giving access to better quality purchasing items. Import Orientation and Integrated Global Sourcing benefit from this effect. Local Sourcing Abroad may lead to finding cheaper suppliers as compared to the home market but the expansion of the supply market is by definition limited to one additional market. The second approach to cost reduction is the worldwide coordination and pooling of purchasing volumes which leads to higher purchasing power and – hopefully When talking about cost we refer to purchasing cost and not the cost of performing purchasing. – better negotiation results. This second effect can only be realized by Integrated Global Sourcing. Certainly, there are not just potentially positive effects of internationalization. There are two kinds of hurdles that correspond to the dimensions of the framework as depicted in figure 3. The first, trade barriers, includes such frictions as tariffs, quotas, national regulations, transportation, communication costs, and search cost as well as specificity in terms of heterogeneous market preferences. The second hurdle, barriers to foreign value creation, includes the difficulties of transferring knowledge and complexity of managing a dispersed organization. It is important to understand that the supply management function is not independent in shaping its International Sourcing Strategy. Focusing on Domestic Local Sourcing or expanding the supply market by following the Import Orientation approach represent decisions that are mainly driven by supply management considerations. But when corporate management decides to replicate or disperse value creation steps, supply management will need to accommodate such a change. Some of the following examples will show that any upward movement in the framework as depicted in figure 4 is originally determined by decisions outside supply management. On the other hand this close connection of international expansion strategy and international sourcing strategy shows the importance of involving supply management in this kind of strategic decision-making. Approaches to international sourcing mainly driven by supply management decisions: − Domestic Local Sourcing may support a National Focus approach by assuring proximity or even co-location between buyer and supplier(s), which can foster innovation success in R&D-intensive businesses. − Import Orientation may help to counter limited capacities in the domestic supply market or price pressures in the domestic sales market, which may be obstacles for a successful National Focus approach. − Domestic Local Sourcing in combination with Export Orientation offers the buying company to potentially benefit from economies of scale realized by the supplier. − Import Orientation may be needed to fulfill countertrade agreements or natural hedging needs, which can be a result of Export Orientation (for an overview of possible countertrade agreements please refer to Monczka/ Trent/Handfield, 2002, p. 357-360). International sourcing approaches mainly driven by corporate management decisions related to the positioning of value creation steps: − Local Sourcing Abroad becomes necessary, when a Business Transfer strategy is pursued. − Supply management will need to implement an Integrated Global Sourcing approach, when corporate management decides to disperse value creation steps while establishing close links between these steps. So far, we have discussed two important dimensions of the international expansion of sourcing activities: (1) the location of value creation steps to be supported by and integrated with sourcing activities and (2) imports, which represent resource-interdependencies between different locations. Now we would like to raise the issue of ownership. As figure 5 shows, adding ownership to our framework provides us with four variations of the described sourcing strategies. Local Sourcing Abroad Domestic Local Sourcing Import Orientation Integrated Global Sourcing Domestic Domestic Abroad Supply Sources Abroad Procurement Process Outsourcing Abroad Domestic Procurement Process Outsourcing Import Partnering Global Sourcing Spin-off 100 % Ownership 0 % 100 % Ownership 0 % 100 % Ownership 0 % 100 % Ownership 0 % Location of Value Creation to be supported by Sourcing Figure 5: International Sourcing Framework Outsourcing Domestic Local Sourcing to a third party creates the case of Domestic Procurement Process Outsourcing (PPO). Domestic PPO is feasible when processes can be standardized and do not relate to the sourcing of strategic items. Companies that apply outsourcing free up resources to A Novel Framework for International Sourcing 137 focus on strategic sourcing projects and may benefit from economies of scale realized by a third party procurement service provider. Import Partnering corresponds to the strategy of Import Orientation outside the firm. Experienced import agents take over the main part of the international sourcing activities. In this case we also speak of indirect imports. Although sourcing through an import agent may actually represent a national purchase for the buyer – which is the case if the agent is located in the same country – it is different in terms of supply risk, which is a result of the underlying cross-border trade. Import Partnering may be an attractive alternative to Import Orientation in the early phases of foreign supply market development as required management capacity is reduced and external know-how is provided by the agent (Leenders et al., 2002). Procurement Process Outsourcing Abroad is again a replication of the domestic case. Outsourcing the local procurement function or procurement processes in a foreign country to a (local) third party service provider may give access to crucial market know-how and accelerate the build-up of foreign value creation activities. Taking into account the complexity of outsourcing of Global Sourcing this option may seem infeasible at first. How could the tasks of coordinating and integrating be handed over to a third party? A possible way of outsourcing Global Sourcing (or parts of it) is to create a spin-off of the Global Sourcing function. Global Sourcing activities would then be “bought” by the firm’s businesses. By spinning-off and not simply outsourcing to a “regular” third party some of the complexity involved in such a procurement outsourcing decision could be eliminated, as a spin-off is more likely to understand the specific needs of coordination and integration (Kaufmann/Buchholz, 1998). Siemens Procurement & Logistics Services (SPLS) is a well-known example of a spin-off that today serves customers within and outside the Siemens corporation. 2. Application of the International Sourcing Framework to the Emerging Chinese Supply Market In this chapter we will first give a brief overview about the development of the Chinese supply market in general before applying the International Sourcing Framework and deriving requirements for the implementation of different forms of China Sourcing. 2.1 The Chinese Supply Market The popularity of China as a location of export processing facilities and a source for both components and finished goods bound for overseas markets is well known. According to the Federal Statistical Office German imports from the People’s Republic of China (PRC) grew by 17.3 percent in 2003 as compared to the previous year to reach an annual total worth of €25 billion. Since 1998 imports from the PRC to Germany have been growing on average by 17 percent per year, which made the PRC the biggest low cost country importer into Germany. The Chinese government reported that overall exports grew by 35 percent in 2003 to approximately $438 billion. This development of exports shows that Chinese manufacturers continue to improve their capability of accommodating the needs of foreign buyers. One third of U.S. imports come from low cost countries such as China, whereas in Germany only about a sixth of total imports can be attributed to low cost countries. 4 This gap shows the high probability of a further increase of China-related sourcing activities of German companies. As these figures only give a first, general impression of the dynamism in the Chinese supply market a more detailed analysis is required. When evaluating the attractiveness of the Chinese supply market four main criteria have to be taken into account: cost structures, performance characteristics, structure of competition, and market specific risks: 2.1.1 Cost Cost is the one all-important factor that gives China its advantageous position. The low labor costs, which have attracted significant foreign direct investment (FDI) in the past, seem to remain sufficiently attractive to guarantee investments in the future. High estimated unemployment rates, as well as strong migration movements from the interior parts of China to the industrialized coastal areas and overcapacities in some industries, slow down the convergence of salaries. The current wage level ranges around 4-8 percent of the German wage level. However, well-educated engineers and managers receive much higher salaries. Labor productivity in China is competitive due to high technological standards and more working days per year as well as lower levels of absenteeism. Non-wage labor costs and taxes are lower than in Germany. Anecdotal evidence showed savings of up to 45 percent for purchases of electronics, ceramics, and castings. 2.1.2 Performance Chinese factories are now steadily producing export-quality electronics, machinery, and appliances. The educational level of the Chinese work force is constantly increasing. The annual number of graduates in engineering is far higher than in the U.S. The high amount of FDI and the well-qualified but relatively cheap manpower make China increasingly attractive for the offshoring of production and product development.5 Knowledge and competencies in several special industries – among them automotive, high technology, apparel, and consumer products – add to China’s advantageous position. The accession of the World Trade Organization (WTO) and investments in infrastructure and electronic communication systems (e.g. Enterprise Resource Planning systems) create the foundation for a further positive development in the future. Nevertheless, supplier and quality management were identified as two of five main problem areas for manufacturing companies in a cross-case analysis carried out by Zhang and Goffin (1999). The importance of the quality issue is also reflected by the order of selection criteria applied by foreign manufacturers in China: First quality, then delivery and only then price. Especially variability of quality posed significant problems. The absence of competent suppliers sometimes renders it impossible to meet local content requirements (Kaiser, 1998). 2.1.3 Competition The intensification of competition in most Chinese markets is another widely known fact. However, as a the booming Chinese economy is characterized by high capacity utilization rates in many industries some suppliers are in the comfortable situation of having immense bargaining power and thus refuse to negotiate volumes below a certain minimum level. The WTO accession has fuelled another interesting development: A virtual flood of medium and small foreign manufacturers is moving capacity to the PRC in order to cut costs and follow the relocation moves of their major customers. Issues of intellectual property protection and supply reliability are increasingly solved by means of acquiring high quality Chinese suppliers. As a result the number of capable suppliers is growing quickly in many industries. Consequently, the intensity of competition in the Chinese supply market, which impacts on the relative bargaining power of the buying organization, has to be analyzed on a case-by-case basis. The in- fluence of state-owned-enterprises is another important aspect that has to be taken into account. 2.1.4 Risks Kaufmann (2001) recommends analyzing the additional risks of sourcing from a foreign market along four axes: economic, communication, sociocultural, and political-regulatory risks. Discussing all risks of sourcing in and from China in depth would certainly surpass the possibilities of this article. Hence, we content ourselves with briefly naming the most prominent risks involved: − Lead time extension, e.g. it takes six weeks on average to overcome the distance between Shanghai and Hamburg, − the underdeveloped Chinese infrastructure still leads to logistics delays, − unforeseen increases in transportation cost, e.g. ocean freight container prices have surged in recent months, − integrated Supply Chain Management is often not applicable due to the lack of IT-Infrastructure, − long term currency risk (currently the Renminbi is pegged to the Dollar), − intellectual property protection is hardly enforceable, therefore extensive due diligence and ongoing monitoring become necessary, − missed quality standards (as described above), − language barriers (although English is the business language spoken in China), − higher search costs due to lacking information infrastructure, e.g. market data about potential suppliers, − cultural problems, difficult access to Chinese decision-makers due to lacking Guanxi6, − regulatory system is at times opaque, if not even arbitrary, − and intervention by authorities, e.g. pressure to collaborate with a specific supplier (Zhang/Goffin, 1999). 2.2 Three Approaches to China Sourcing In order to determine the appropriate international sourcing approach for China we have to determine the underlying driving factor. Is it an importbased expansion of the supply market, primarily initiated by supply management? Or is a corporate level decision of implementing a Business Transfer strategy that requires the build-up of local sourcing within China? Or is the corporate decision about applying Global Integration, which requires the build-up of China Sourcing activities and their integration into group-wide sourcing activities? This last possibility of addressing China in the context of Global Integration is far from being hypothetical: China’s importance as a sales market is beyond question. Because of the lowering of trade and investment regulations – e.g. in the course of the WTO accession – China has become a more attractive candidate for locating value creation steps and hence, inclusion in Global Integration strategy. Moving assembly or manufacturing activities to China has proven to be an effective way to reduce cost for many companies by exploiting locational advantages. With the increasing capabilities of human resources new opportunities to relocate steps of the value chain to China arise. Especially the offshoring of R&D-intensive activities is becoming increasingly attractive. Figure 6 shows the three possible approaches to China Sourcing and highlights four transition steps. Local Sourcing within China (Intra-China Sourcing) Imports from China (Sourcing ex China) Integrating China Sourcing into Groupwide Global Sourcing Activities Domestic Domestic Abroad Location of Own Value Creation to be supported by Sourcing Location of Supply Sources Abroad Domestic Local Sourcing A B Y Z Figure 6: Three Approaches to China Sourcing and Transition Steps We will explore the requirements that have to be fulfilled in order to progress from the case of Domestic Local Sourcing to Imports from China (A) and/or Local Sourcing within China (Y) as well as to progress from these cases to integrating China Sourcing into group-wide Global Sourcing activities (B, Z). The focus will be on transition steps B and Z, because establishing this level of China Sourcing supports the implementation of Global Integration. We will describe the transition steps by three categories of requirements for designing sourcing activities in China: organizational infrastructure, purchasing information systems, and personnel capabilities (Monczka/Trent, 1992; Kaufmann/Carter, 2000). 2.2.1 Case A – the build-up of Sourcing ex China Using China as a supply source is especially interesting for items with a high labor cost content and low demand variability (e.g. used in many product lines). Technologically mature items are also interesting as maturity reduces the potential detrimental effects of the violation of intellectual property rights. Sourcing high volumes that appeal to high quality suppliers facilitates leveraging the potential of the Chinese supply market. In order to communicate with suppliers and send out RFQs the buyer will need to formulate purchasing requirements and specifications that match the technical and language standards in the Chinese supply market. The requirements concerning the organizational infrastructure depend on the chosen supply channel for importing. The three main alternatives for importing from China are: using direct suppliers, setting up International Purchasing Offices (IPOs), or outsourcing to a service provider (Burt/Dobler/Starling, 2003). Appointing a domestically located buyer for importing directly from Chinese suppliers offers the cost reduction potential of cutting out middlemen but requires investment in travel, communication, and logistics. Considering the significant risks involved in working with suppliers from emerging markets across long distances without means of control or assistance, this option can only be recommended for uncritical, standard purchasing items. To respond to this problem of lacking control and communication with the local Chinese supply base an IPO can be set up. The proximity of the IPO to the supply base should improve the flow of information and help to build up local market expertise in terms of optimal purchasing processes and reliable suppliers and thus benefit the sourcing process through continued learning. IPOs may engage in supplier development efforts if necessary. However, anecdotal experiences show that Chinese suppliers may be very reluctant to accept the offer of participating in supplier development programs, as they fear knowledge leakage. Although it is common practice that IPOs charge a markup of around two percent on purchase price, additional corporate funding will be necessary to cover the cost of operating in the Chinese supply market (Goh/Lau, 2002). Search cost, staff training, and quality inspection cost are likely to be higher than in more developed supply markets. Outsourcing the actual China Sourcing activity to service providers such as import merchants, commission houses, agents, import brokers, or trading companies may add significant cost but in return eliminate unforeseen problems or mitigate risk, especially concerning logistics. Import Orientation activities in China can be effectively supported by IT-systems and E-Commerce applications such as an own purchasing website in English and Chinese language, which enables Chinese suppliers to contact the potential importer proactively. Moreover, use should be made of B2B-plattforms for China Sourcing. IT is also needed to support the complex logistics within China and overseas shipments. The demands on personnel capabilities depend on the purchased items. If imports are limited to uncritical standard items, the need for highly specialized personnel is low. On the other hand complex purchasing items result in complex negotiations, which can only be mastered by competent staff that is able to handle cultural challenges, language barriers, risk management, business and technical issues. 2.2.2 Case Y – the build-up of Intra-China Sourcing The start of manufacturing activities in China to exploit factor cost advantages may require the build-up of local sourcing activities. Especially standard direct and indirect materials need to be sourced locally to avoid high cost of transportation. The big difference as compared to Sourcing ex China is that Local Sourcing within China aims at supplying operations with all required inputs, whereas Sourcing ex China represents “cherrypicking”. The scope of purchasing activities to be covered by the local purchasing staff is thus broader than for an IPO for Sourcing ex China. Kaiser (1998) describes the gradual implementation of local sourcing activities: In the case of Braun Electric (Shanghai) Co. Ltd in the beginning of operations sand had to be imported from Germany to perform sandblasting for molding. Volkswagen Shanghai required about ten years to move from importing standard kits to close to one hundred percent local content. This was achieved by establishing precise standards, bringing in home country suppliers, choosing adequate locations, and monitoring logistics closely (Story, 2003). In terms of organizational infrastructure this means that a local purchasing function is established that works closely with suppliers and other functions such as engineering. IT-systems are needed for market research and order tracking. Electronic data interchange (EDI) technology is becoming more common with Chinese suppliers and may thus be used to implement optimal delivery frequencies. Proximity with Chinese suppliers opens up new possibilities for close collaboration. For example Zhang/Goffin (1999) report of positive examples of successful Western-Sino collaboration on innovation projects. Consequently, purchasing staff needs a high level of technical expertise and cross-functional skills. The local purchasing function has to be able to dedicate a significant part of its time to careful supplier evaluations. Apart from quality and reliability issues, the analysis of suppliers must focus on their potential to achieve or sustain cost leadership. Suppliers that may develop into competitors must be identified and eliminated from the selection process. 2.2.3 Case B and Case Z – the integration of existing approaches to China Sourcing into the group-wide Global Sourcing process Managing this transition needs top management commitment, e.g. in the form of regularly scheduled meetings of corporate and business unit executives with purchasing managers, which represent an excellent opportunity to jointly discuss the progress of implementing Global Sourcing. Issues of coordination and integration thus receive high visibility and supA Novel Framework for International Sourcing 145 port, which is crucial for successful transition (Palaniswami/Lingaraj, 1994). The prerequisite for the integration of a new supply market into an existing Global Sourcing process is the systematic stabilization of the existing sourcing process in that market. Stabilization means that LPTs must be in place that have a sound understanding of the local supply market and that dispose of sufficient resources to carry out the important tasks of supplier pre-selection, quality control, and supplier development (including monitoring). Existing IPOs and/or Local Sourcing staff take over the role of LPTs in the Global Sourcing process. The Chinese LPT should report directly to corporate purchasing. Its major tasks apart from representing the “one face to the supplier” include: spotting adequate suppliers in the assigned regional supply market, manage the RFQ process, keep track of shipments, carry out or assist negotiations, support information exchange between buyer and seller, dedicate resources to problem solving related to engineering, design and quality (Monczka/Trent, 1991). A representative of China Sourcing has to be included in the Central Sourcing Committee (CSC). In the CSC representatives of the different global purchasing locations get together and jointly define a strategy for the commodity, product group, etc. and decide on appropriate suppliers. Thus, knowledge about the Chinese supply market is exchanged and taken into account when selecting items for Global Sourcing initiatives. Acting as a gatekeeper to the group-wide sourcing network, the Chinese LPT needs technical equipment for quality control, e.g. laboratories. Carrying out reliable quality control locally represents an enormous advantage. The risk of discovering quality problems only at the manufacturing site and thus incurring significant costs of delay or even downtime can thus be eliminated or at least reduced significantly. Quality standards for purchasing items must be tested with the same reliability across all purchasing locations before these items enter the Global Sourcing process. Costly duplication of quality control efforts could thus be avoided, too. The existing (local) IT-systems must be integrated with the worldwide purchasing information system in a way that international purchasing locations become interlinked and thus able to efficiently share information concerning material requirements among each others, functions, and suppliers. Setting up such a sophisticated information system is problematic due to several obstacles, e.g. the high set-up cost involved may be regarded as reducing the independence of the buyer (Kaufmann/Carter, 2000), compatibility of diverse software standards, the lack of reliable data input in many intransparent supply markets, and data protection issues. Due to the underdeveloped IT-infrastructure of some Chinese suppliers this element of integration may represent a major challenge. However, investments in appropriate IT-systems by Chinese companies have been rising constantly through recent years. The need for sophisticated international sourcing skills increases with the complexity of the item-related purchasing process which is reflected in more complex negotiations including, co-development projects, incoterms, etc. (Kaufmann/Carter). Furthermore, LPT members need to develop more profound strategic capabilities. They have to develop the local supply base in the context of a global supply strategy. Training programs and employee reward systems are considered to be a way to develop the necessary skills (Petersen/Frayer/Scannell, 2000). Job rotation may be applied to foster the ability to work in cross-functional teams. In order to give the LPT the necessary time to establish a stable and transferable sourcing process it seems recommendable to initially keep China Sourcing out of the Global Sourcing process and manage it separately. One-time projects on selected purchasing items can be used to test the transferability and gradually approach full integration. Such projects will allow learning effects at relatively low risk. Figure 7 summarizes the main requirements for the four transition steps. Transition steps Transition requirements A From Domestic Local Sourcing toImporting from China Y From Domestic Local Sourcing to Local Sourcing within China B, Z From Importing from China/ Local Sourcing within China to integrating China in the Global Sourcing process Organizational infrastructure IT-Systems/ E-commerce Personnel capabilities I. Buy directly from suppliers II. Set up IPO in China III. Source through 3rd party service providers English/Chinese Website B2B-Plattforms Track shipments Development of Chinaspecific skills (culture, language, risk mgmt.) depending on complexity of purchases/need for interaction Set up local purchasing function that collaborates with other local functions and suppliers Closer collaboration requires technical and relationship-building skills as well as sophisticated supplier selection Set up LPTs or transform existing IPOs/local purchasing function Install China representative in Corporate Sourcing Committee Regular review meetings with top management to assure progress of transition If necessary, adapt China Sourcing data base to group-wide standard for purchasing information Integrate Chinese data base with group-wide purchasing information system Process RFQs Focus on cross-functional skills Provide resources for reliable quality inspection Ability to develop local supply base in the context of global strategic perspective English/Chinese Website B2B-Plattforms Track shipments/ Use EDI to coordinate deliveries Figure 7: Requirements for Transition of China Sourcing Approaches 3. Conclusion and Outlook In this article we have presented a novel framework for the classification of internationalization strategies for sourcing and how these sourcing strategies relate to the overall internationalization approach of the company. Thereby we have identified Integrated Global Sourcing as the most promising way of supporting the current trend of Global Integration. Challenges of implementing Global Sourcing were addressed with the example of the emerging Chinese supply market. The presented framework provides top management and purchasing executives with a helpful tool to clarify their approach to the internationalization of sourcing. If they can identify the appropriate way of supporting the overall internationalization of the company, they will be able to determine the necessary sourcing processes and capabilities to be developed. Management should try to anticipate the future need and path of international expansion and include these analyses in their planning. 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A Novel Framework for International Sourcing Applied to the Emerging Chinese Supply Market

A Novel Framework for International Sourcing Applied to the Emerging Chinese Supply Market 1. Introduction..............................