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Journal of Purchasing & Supply Management xxx (xxxx) xxx
Please cite this article as: Øyvind Bjørgum, Journal of Purchasing & Supply Management, https://doi.org/10.1016/j.pursup.2020.100670
Available online 30 December 2020
1478-4092/© 2020 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
Low power, high ambitions: New ventures developing their rst
supply chains
Øyvind Bjørgum
a
,
*
, Lise Aaboen
a
, Anna Fredriksson
b
a
Department of Industrial Economics and Technology Management, Norwegian University of Science and Technology (NTNU), 7491, Trondheim, Norway
b
Department of Science and Technology, Link¨
oping University, 601 74, Norrk¨
oping, Sweden
ARTICLE INFO
Keywords:
Supplier selection
Supplier attractiveness
Start-ups
Global sourcing strategy
Relationship initiation
ABSTRACT
This paper investigates sourcing decisions for new ventures. Sourcing decisions are especially problematic for
start-ups because they lack resources, knowledge and legitimacy to evaluate and interact with suppliers. We
develop and apply a framework that connects global sourcing, relationship development and attractiveness.
Further, we investigate how new ventures develop their rst supply chains by conducting an exploratory mul-
tiple case study of six Norwegian start-ups. Based on our ndings, we develop three propositions regarding how
start-ups mediate their lack of attractiveness through pre-sales and by choosing shorter supply chains and smaller
suppliers. The implications for practice include emphasizing the importance of developing a business relation-
ship with the supplier in parallel with making sourcing decisions. This study is a novel contribution to an
underexplored topic, and we conclude by proposing a research agenda for future explorations of start-ups and
supply chain development.
1. Introduction
New ventures are increasingly developing and commercializing
novel manufactured products (Mollick, 2014). This growth is the result
of several global trends that have increased the availability of new
technologies and services for start-ups developing physical products –
also referred to as hardware start-ups (DiResta et al., 2015). The last few
years have seen high growth in rewards-based crowdfunding opportu-
nities such as Kickstarter and Indiegogo; these allow new companies to
globally pre-sell the most niche products before even nalizing their
prototypes. As 3D-printers have become a part of the public domain and
off-the-shelf components can be directly sourced from anywhere in the
world at a low cost, prototyping new physical products is easier, cheaper
and faster than ever before. Sourcing decisions have always been
important to start-up performance, and due to these recent de-
velopments in global availability, they have become important in even
earlier phases of start-up development. The supply chain is developed in
parallel with the rst product and the start-up itself. This implies, for
instance, that mobilizing the suppliers’ technological and managerial
capabilities has become more important than cost-efciency concerns
(La Rocca and Snehota, 2020).
When it comes to supply chains, the start-ups exploring and
exploiting these recent global trends share certain traits with other start-
ups and small rms. For instance, previous literature has established the
supplier–buyer relationship as one of the most important factors to start-
ups’ success (Song et al., 2011). Further, start-ups’ small size and nov-
elty are a liability (Stinchcombe, 1965); and, when forming business
relationships, their lack of legitimacy (Zimmerman and Zeitz, 2002)
makes them less attractive to potential suppliers (Mortensen, 2012).
Start-ups are usually unable or unwilling to engage in direct control
strategies, thus relying on informal relations and communication in their
supplier relationships (Ellegaard, 2006). Finally, start-ups do not have
functional specialists to handle purchasing (Manzer et al., 1980). Supply
chain decisions are critical for start-up survival, as they generally lack
tangible resources and thus require speedy development (Das and He,
2006) to avoid continued losses (Weiss, 1981). However, this literature
was primarily developed in contexts where supply chain decisions were
made later on in the rm development process and based on less
available information about potential suppliers.
In one sense, the start-ups engaging in these recent global trends
resemble international new ventures (Oviatt and McDougall, 1994)
since they are exploiting opportunities across national borders from the
beginning without sequential entry into different countries. However,
the international new venture literature tends to focus more on
* Corresponding author.
E-mail addresses: oyvind.bjorgum@ntnu.no (Ø. Bjørgum), lise.aaboen@ntnu.no (L. Aaboen), anna.fredriksson@liu.se (A. Fredriksson).
Contents lists available at ScienceDirect
Journal of Purchasing and Supply Management
journal homepage: www.elsevier.com/locate/pursup
https://doi.org/10.1016/j.pursup.2020.100670
Received 15 April 2019; Received in revised form 29 November 2020; Accepted 22 December 2020
Journal of Purchasing and Supply Management xxx (xxxx) xxx
2
international customers than on international suppliers. In contrast, the
latter are found in the sourcing literature, but there is a paucity of work
on how start-ups develop their supply chains (Jia et al., 2017) – instead,
the sourcing literature tend to focus on established companies.
The business-to-business (B2B) literature contains a few studies on
start-ups’ development of supplier relationships (La Rocca et al., 2019),
technology sourcing (Jolly and Th´
erin, 2007), operations outsourcing
(Bhalla and Terjesen, 2013) and new ventures as suppliers for estab-
lished rms (Zaremba et al., 2017). These studies indicate that liabilities
of newness limit start-ups’ power to secure supplier involvement and
resources (Bhalla and Terjesen, 2013), whereas (if mobilized) supplier
relationships simultaneously provide benets beyond component supply
(La Rocca et al., 2019; La Rocca and Snehota, 2020). However,
compared to the B2B literature on suppliers and established companies
(e.g. Mota and de Castro, 2005), and even customers and start-ups (e.g.
Aaboen and Aarikka-Stenroos, 2017), the B2B literature on how
start-ups develop their supplier relationships is still in its infancy.
The recent developments in global sourcing combined with limited
sourcing literature for start-ups has shown that sourcing may be
particularly important and problematic for start-ups. Therefore, we
investigate how new ventures develop their rst supply chains. We
accomplish this by studying six hardware start-ups and their processes
from prototyping and searching for suppliers to producing their rst
commercial product.
The paper is structured as follows. In the theoretical framework
section, we combine literature on operations management, supply chain
management and B2B relationships to create a framework that allows us
to analyse the development of the rst supply chain relationships. The
third section on method explains how we collected data on the six
hardware start-ups and their development of rst supply chains. Section
four presents the details of the case studies. After a cross-case analysis in
section ve, we provide a discussion, suggest an agenda for future
research and conclude.
2. Theoretical framework
Stanczyk et al. (2017) identied the need for improved global
sourcing management in a systematic literature review of the dark side
of global sourcing. They found a lack of understanding of the risks of
global sourcing, especially the dynamic and hidden costs, rm-internal
barriers and decision-making biases (Stanczyk et al., 2017). According
to Jia et al. (2017), earlier literature has treated global sourcing strategy
and global sourcing structure as two separate subjects. However,
because two of the main challenges companies face today are the com-
plex organizational structures coming with global sourcing and man-
aging them, these processes should be seen as interlinked and include
the following (Jia et al., 2017):
•Global sourcing strategy
o Goals (cost-reduction, resource-seeking or market-seeking)
o Policies and plans (internal integration, supply internationaliza-
tion, external integration)
•Global supply chain structure
o Structural design (organizational complexity, allocation of
decision-making power and specialization)
o Control and coordination (coordination mechanisms, control
mechanisms, information and communication technology
capabilities)
Fredriksson (2011) formulated three questions that must be
answered during the global sourcing process: what to source, who is most
suitable to take over the responsibility and become a supplier and how the
structure and coordination between the focal company and the supplier
should be established and managed. The rst question, what to source, re-
lates to Jia et al.’s (2017) sourcing strategy. According to them, small-
and medium-sized enterprises (SMEs) adopt fewer formal or explicit
strategies than multinational companies. Therefore, the what question is
easy for start-ups to answer, as they only have a few (at most) products.
The second (who) and third (how) questions are often challenging for
start-ups to answer; therefore, their goal is to nd a supplier who can
supply them somewhat in accordance with their demand (i.e. become a
preferred customer) (Steinle and Schiele, 2008). The who and how
questions can be further described using the global supply chain struc-
ture category dimensions Jia et al. (2017) developed; these are further
elaborated upon below.
2.1. Structural design
Local or offshore sourcing depends on how companies decide to
structure their supply chains (i.e. how the links and nodes of the supply
chain are organized). The essential decision here is who to select as a
supplier (the second question of who to source from). Global sourcing
strategies use goals, policies and plans to identify future suppliers’
characteristics. However, the nal decision of who to contract forms
part of the structural design because – depending upon how the con-
tracts are drawn up – it describes the relationship between the focal
company and the suppliers (Jia et al., 2017). Depending on the struc-
tural design, power in the supply chain will differ, and depending on
power structure, the control the focal companies have over their sup-
pliers will also differ. Focal company control of the supply chain refers to
the ability to make the actors in the supply chain coordinate with the
focal company’s needs (Fredriksson, 2011). Studies show that devel-
oping business relationships and integrating processes may be especially
difcult within relationship-focused cultures, such as China (Handeld
and McCormack, 2005). Chinese managers expect to see their suppliers
and partners in person much more than their European counterparts
(Song et al., 2007); further, they expect social meetings before they
discuss business, which means negotiations take longer (Handeld and
McCormack, 2005; Song et al., 2007).
Aaboen and Fredriksson (2016) found that when an outsourcing
relationship develops, dependence and power gradually shift between
the supplier and the customer; further, their relationship sets a prece-
dent for the types of relationships that can be developed between the
supplier and its (sub-)suppliers. Because new rms typically lack net-
works, business experience, a proven performance record and have
limited resources and legitimacy (Pena, 2002; Stinchcombe, 1965;
Zhang and Li, 2010), they usually have very little power and control in
the supply chain, allowing the supplier to become more powerful.
2.2. Control and coordination
The third question of how to source is related to control and coordi-
nation, as it includes issues such as coordination mechanisms, control
mechanisms and information and communication technology capabil-
ities – all of these are essential parts of the actual physical exchange as
well as the planning of the same. Global sourcing creates supplier-
related risks due to legal, political, nancial and cultural differences
(Fawcett and Birou, 1992). Differences in culture can lead to low de-
livery precision or quality issues (Fredriksson and Jonsson, 2009)
because differences in culture, language, practices and time zones
diminish the effectiveness of information-dependent business processes
like demand-forecasting and planning (Mattsson, 2002; Meixell and
Gargeya, 2005; Mol et al., 2005; Levy, 1995). For example, communi-
cation in a language that is neither party’s mother tongue combined
with different cultural contexts can affect how messages are interpreted.
In relation to knowledge, complexity measures the inherent varia-
tions in combining different kinds of competencies (Zander and Kogut,
1995). Complexity has been found to degrade transfer performance
because it slows the learning process (Cheng et al., 2010; Galbraith,
1990; Salomon and Martin, 2008), requires more sophisticated training
(Cheng et al., 2010) and demands more information-processing (Stock
and Tatikonda, 2000). Product complexity comprises three main
Ø. Bjørgum et al.
Journal of Purchasing and Supply Management xxx (xxxx) xxx
3
elements: the number of parts in the bill-of-material, product architec-
ture and where each product is located in the product lifecycle (e.g.
engineering changes are more frequent early on in the product lifecycle)
(Novak and Eppinger, 2001). Furthermore, a novel product usually
needs frequent adaptations and changes, which demands a working
relationship with suppliers featuring open communication to avoid costs
related to changes in function, design or work schedule (DiResta et al.,
2015). A novel product is the norm for start-ups.
Overcoming these challenges requires communication and logistics
capabilities within the supply chain (Fawcett and Birou, 1992), which
start-ups often lack. Another way to handle this is exibility. Tachizawa
and Thomsen (2007) dened supply exibility as the ability of the
purchasing function to respond in a timely and cost-effective manner to
the changing requirements of purchased components in terms of vol-
ume, mix and delivery date. According to Duclos et al. (2003), exibility
in the supply chain adds the requirement of exibility within and be-
tween partners in the chain, dependent upon how easily the organiza-
tion can adapt its logistics, supply, organization, information system and
market and operations system to changes in the supply chain (Duclos
et al., 2003). As start-ups usually lack most of these abilities, it is hard for
them to attain the exibility needed to handle complex global supply
chains.
2.3. Relationship development
The literature on relationship initiation describes several different
processes divided into stages, states and phases. The major difference
between them is whether it is possible to move between the phases in
any manner or whether this movement is pre-determined. More recent
models hold the view that the relationship can develop multi-
directionally between states (e.g. Batonda and Perry, 2003; Edvards-
son et al., 2008; Halinen, 1997). There are also some differences
regarding how the process begins and ends. For a review of the rela-
tionship initiation literature and the sub-processes in the phases of the
initiation process, see Aaboen and Aarikka-Stenroos (2017). Drawing on
their literature review, we use the following sub-processes: need iden-
tication, matching, attraction, accessing, dening exchange, building
conditions and forming the future (see Fig. 1). The rst sub-processes
include carrying out the initial search and connecting with the poten-
tial producer. There is an overlap between the phases, and the bound-
aries between them are rather fuzzy. Matching, attraction and accessing
all have to be in place to initiate a relationship. Dening exchange is an
important sub-process since this is where the start-up and supplier
interact and negotiate in order to agree on the intended content and type
of the relationship (i.e. the how question). The relationship is very fragile
during this sub-process because the parties need to come to a mutual
understanding even though they lack experience with one another
(Aaboen and Aarikka-Stenroos, 2017; Edvardsson et al., 2008). After the
exchange has been negotiated, the process model continues to cover
early interactions, which are crucial to the future of the relationship.
2.4. Attractiveness
Attractiveness literature builds on social exchange theory and fo-
cuses on how to become a preferred customer. ‘Customer attractiveness
is based on the expectations that a supplier has towards the buyer at the
moment of initiating or intensifying a business relationship’ (Schiele
et al., 2012, p. 1180). Becoming a preferred customer is also important
for established rms, as it enables them to get higher quality and better
prices than other customers. This may be particularly important in
markets with few suppliers (Nollet et al., 2012). In addition to describing
how to become a preferred customer, including how to ‘sell’ the com-
pany to the supplier, the literature emphasizes which factors are
important in this process. The initial transactions are particularly
important, as is the t between the companies, how well the relationship
works and the perceived interest in the supplier’s activities, business
models and development plans (La Rocca et al., 2012; Nollet et al.,
2012). Unfortunately for start-ups, suppliers tend to value performance
level, economic outcomes, long-term relationships and secure revenues.
Hence, other factors are critical for start-ups.
2.5. Analytical framework
Fig. 1 shows our analytical framework, including the relationship
between the global sourcing process (strategy and structure) and the
relationship-initiation process. The left side illustrates the important
issues of what to source, who to source from and how to source from the
global sourcing literature. The right side shows the sub-processes of
relationship initiation. As Fig. 1 illustrates, the issues in the global
sourcing literature are primarily connected to different sets of sub-
processes in the relationship initiation that takes place in parallel with
the sourcing process. The what to source question of the global sourcing
process is equal to the ‘need identication’ of the relationship initiation
process, as both aim to establish what product or component is in focus
for both processes. The who to source from question of the global sourcing
process corresponds to the matching and accessing phases of the rela-
tionship initiation process, as these aim to nd the future supplier and
evaluate them. The how to source question of the global sourcing process
matches the dening exchange, building conditions and forming the
future phases of the relationship initiation process. These all attempt to
Fig. 1. Analytical framework – The parallel processes of global sourcing and relationship initiation for start-ups developing their rst supply chains.
Ø. Bjørgum et al.
Journal of Purchasing and Supply Management xxx (xxxx) xxx
4
identify how to establish the physical exchange as well as the informa-
tion exchange needed for planning it. Since the relationship can develop
multi-directionally between states, both parallel processes become
iterative. Consequently, when analysing how start-ups develop their rst
supply chains, we focus on how the relationship development process is
connected to the global sourcing process.
3. Method
We conducted an exploratory multiple case study of the supply chain
development processes of six hardware start-ups to investigate how new
ventures develop their rst supply chains. In this context, we dene a
hardware start-up as a start-up developing and selling physical products.
In total, we contacted 10 different rms, all Norwegian start-ups that
had initiated and/or completed mass production of novel products.
However, four of these were not able or willing to participate in the
study. Table 1 provides an overview of the selected cases.
In order to conrm that a venture matched the criteria for being
included in our study, we pre-emptively collected publicly available
data from different sources such as webpages, blogs and Kickstarter
campaigns (which four rms had conducted); these included informa-
tion about the case companies and their potential production partners.
In addition to gaining deeper knowledge and understanding of the cases,
this search prepared us for the interviews and validated some of the
information from the interviews. We conducted in-depth interviews
with the individuals from the selected ventures who were primarily
involved in developing the supply chain. We interviewed the CTO and
CEO of Plasttech, the CEO of Flytech, the CEO of Magtech, the CEO of
Sporttech, the product manager of Textiletech and the founder (ex-CEO)
and supply chain manager of Camtech.
The interviews took place at the start-ups’ ofces and lasted for
about an hour each. We informed the interviewees about the general
interview topics beforehand; two members of the research team were
present for each interview. The topics covered during the semi-
structured interviews included the start-ups’ current supplier situa-
tion, how the supplier selection process was initiated, how the rst
manufacturers to be approached were identied, the interaction and
relationship with the suppliers and how production was organized. Each
interviewee was interviewed once, but additional follow-up questions
were asked via e-mail to clarify important issues that arose during the
analysis. We recorded and transcribed all the interviews. By manually
coding specic phrases in the interviews using an inductive approach,
we reduced the data to 15–25 emerging themes depending upon the case
company. Examples of emerging themes are supplier search methods,
geographical proximity, liability of newness and screening process. We
then systematically organized the categories in an Excel sheet for each
case company and analysed each case company one-by-one based on our
analytical framework (see Fig. 1). Afterward, we designed tables based
upon the emerging themes and performed a cross-case analysis (Eisen-
hardt, 1989; Miles and Huberman, 1994) by analysing and identifying
differences, similarities and patterns across the case companies.
To further increase the credibility of the research, we took several
measures that Yin (2009) suggests. We strengthened our construct val-
idity via researcher triangulation (two researchers conducted interviews
and analysis), data triangulation (we used secondary data when
possible) and by returning transcripts to the interviewees to avoid errors
and misunderstandings. To ensure external validity, our multiple case
study research design features replication logic (Eisenhardt, 1989). We
strengthened the reliability of the study by thoroughly presenting the
case companies and using a separate cross-case analysis; we also
included quotes from the case companies (in Table 2) to illustrate how
the empirical results are connected to the analytical framework.
4. Case presentations
4.1. Plasttech
4.1.1. What
Plasttech’s rst product targets the consumer market and consists of
approximately ten different components. These are mostly off-the-shelf
components except for the optical lenses, which are key to the nal
product.
4.1.2. Who
Initially, the start-up wanted to have local Norwegian suppliers and
visited nearby plastic producers and contract manufacturers; however, it
did not nd any who were both capable of and interested in such small-
batch production. Instead, it used Alibaba.com to identify and contact
potential suppliers located worldwide. It conducted its rst screening
process for plastic component suppliers entirely by assessing supplier
websites, suppliers’ email responses, language barriers and how inter-
ested the suppliers seemed to be in the product. When explaining why it
ended up with the specic plastic supplier, the CTO stated that ‘at rst, it
was only our gut feeling that this was good quality, because we didn’t
actually know how to test quality’, illustrating the start-up’s limited
experience. After selecting the plastic supplier, Plasttech travelled to
China for closer assessment and to screen suppliers of other components.
This visit was decisive both for the structure of the supply chain and for
choosing the suppliers: the team was so satised with the selected
supplier that it became their contract manufacturer.
4.1.3. How
Plasttech established a primary relationship with a contract manu-
facturer in China, which in turn sourced over ten non-critical compo-
nents from Chinese sub-suppliers and assembled the nal product.
4.1.4. Business relationship
The contract manufacturer was a relatively small Chinese rm with a
CEO who was ‘personally engaged and had an entrepreneurial mindset’.
According to Plasttech, the personal relationship with the CEO was
Table 1
Overview of the case studies.
Company Main product
parts
Approx.
time from
rst supplier
talks to mass
production
Delayed
shipping
according
to plan
Previous
manufacturing
experience
Plasttech Plastic lenses
(critical
component),
injection-
moulded
plastic, fabric
6 months On time No experience in
start-up team
Textiletech Textiles and
batteries
14 months On time Product manager
with sourcing
experience from
China
Magtech Magnets,
injection-
moulded
plastic
19 months Around 5
months
No experience in
start-up team
Sporttech Electronics,
optics, plastic
20 months Around 13
months
No experience in
start-up team,
partnered with
advisory rm
Flytech Electronics,
camera, engine
18 months Around 8
months
Hired two
employees with
experience
sourcing from
China
Camtech Electronics,
camera
30 months Around 12
months
No sourcing
experience, but
hired supply
chain manager
after two years
Ø. Bjørgum et al.
Journal of Purchasing and Supply Management xxx (xxxx) xxx
5
crucial to the company’s rapid progression from prototype to commer-
cial product, especially when it came to navigating the vast number of
potential Chinese sub-suppliers and setting up the supply chain. How-
ever, to speed up the production process, Plasttech needed to be present
in China, as its small size meant it was given low priority. For example,
just before manufacturing the rst batch (2000 units), one sub-supplier
pulled out because of a larger order that suddenly presented itself. In this
case, the contract manufacturer xed the problem to avoid delays.
4.2. Textiletech
4.2.1. What
Textiletech developed a relatively simple consumer product that
consisted of textiles, batteries and heating elements. It was clear from
the very beginning that it would outsource all of its components and
production to suppliers.
4.2.2. Who
With its relatively simple product consisting of batteries and textile,
China was the start-up’s rst priority. Using Alibaba.com, Textiletech
quickly narrowed its search to Chinese textile manufacturers with
additional experience in clothing featuring heating elements and bat-
teries. When screening suppliers, Textiletech deliberately sent a speci-
cation with some minor errors to ‘test the suppliers’ interest and
competence level’. Its initial supplier criteria were price, communica-
tion, response time and interest in the product. Being a very small start-
up with no references, Textiletech had a limited pool of interested
suppliers. In addition, the start-up did not want to deal with a large
number of suppliers due to the increased time and cost related to testing
and negotiating with several suppliers.
4.2.3. How
Textiletech’s only relationship is with its contract manufacturer,
which has all the components in-house. It chose this supply chain
structure because its small size made it difcult to manage a supply
chain when the contract manufacturer was far away.
4.2.4. Business relationship
At the time of the interview, the start-up had developed a good
relationship with its key supplier and was preparing for mass produc-
tion. Textiletech’s good relationship with its contract manufacturer
made it possible to cut the minimum order quantity from 1000 down to
300 before starting production.
4.3. Magtech
4.3.1. What
Magtech has developed a simple and innovative consumer product. It
began its search for suppliers by dividing its production process into
three jobs: the key product component, the plastic components and nal
assembly.
4.3.2. Who
Early on, again with the help of Alibaba.com, Magtech identied a
Chinese supplier for testing an injection mould; however, this supplier
did not attempt or suggest any improvements on the product or process,
and the resulting manufactured test parts broke down. This experience
with an inactive supplier and poor quality convinced the start-up to
focus its supplier search on Norwegian rms only. Using its network,
Magtech identied ve relevant Norwegian suppliers that could manage
the sourcing of components and nal assembly. Magtech contacted and
visited them, but having never worked with start-ups before, most of
these rms were reluctant to engage in such a collaboration. However, it
selected the one supplier that was pro-active and interested in the start-
up’s product to be the contract manufacturer. Magtech was certain that
this supplier was professional and had high-quality products, as the CEO
illustrated: ‘We chose a Norwegian supplier because we felt safe that it
would not fail’. Feeling secure about the chosen contract manufacturer,
Magtech did not specify its requirement in a contract nor provide
written terms for the supplier relationship. In addition, the start-up did
not conduct any testing of sample quality from the contract manufac-
turer before launching a pre-sale campaign of its rst product. After a
very successful pre-sale campaign (overselling its target by 800%), the
contract manufacturer increased its price by 400% overnight due to
production problems. In addition, the quality of the nished product
was below Magtech’s expectations, causing Magtech to want to quit the
collaboration. Incidentally, the successful pre-sale campaign attracted a
Chinese supplier that suggested it could produce the key component
instead. Utilizing its experience from dealing with its former Norwegian
supplier when entering into the screening process and negotiations with
the new supplier, Magtech signed a deal with the new supplier after
travelling to China to meet the supplier and inspect its facilities.
4.3.3. How
In the rst supply chain setup, all the suppliers were Norwegian, and
Magtech had a relationship with each of them. In the nal supply chain,
all the suppliers were in China. In this case, the Chinese contract
manufacturer oversaw the sourcing and assembly of the nal product in
China. The new China-based supply chain consisted of seven suppliers,
and Magtech had direct contact with two of them.
4.3.4. Business relationship
The start-up selected its rst supplier and organized its supply chain
based mainly on ‘gut feeling’. This supplier had not worked with start-
ups before, and the good collaboration between the rms only lasted
until production started.
4.4. Sporttech
4.4.1. What
Sporttech has developed a new camera product for the consumer
market. It consists of tens of different components, with plastics, elec-
tronics and software being the central parts. Although most components
are off-the-shelf, the nal product ranks at the top of its product cate-
gory, which demands high quality from the contract manufacturer.
4.4.2. Who
The start-up chose to bypass Norwegian suppliers of electronic
components from early on: ‘We wanted to go directly to the source in
China’. However, after discovering that sourcing from China was too
complicated, Sporttech contacted various international advisory rms
specializing in setting up global supply chains for start-ups. It chose a
Norwegian advisory rm because of physical proximity and because ‘it
felt right’. The Norwegian partner ended up providing the start-up with
access to an American supply chain company operating in China that
had a large network of suppliers and manufacturers in China. Its busi-
ness idea was to manage the supply chain and negotiations with sup-
pliers on behalf of customers such as Sporttech. The supply chain
company offered to organize the whole process, from sourcing to nal
product assembly. However, Sporttech insisted on testing all compo-
nents from the suppliers themselves since quality was its most important
selection criterion, and because it also wanted to be able to choose
different suppliers in the nal supply chain. Sporttech did not have any
direct contact with suppliers except through the supply chain company,
with the latter also conducting the commercial assessment of these (sub-
)suppliers.
4.4.3. How
Sporttech’s relationship with the Norwegian advisory rm was
central in ‘making us ready for manufacturing’ and learning to be very
specic when ordering components. The American–Chinese partner was
central in managing the entire Chinese supply chain, negotiating with
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sub-suppliers and forming specications.
4.4.4. Business relationship
The ongoing relationship with the Norwegian partner has been key
in enabling Sporttech to manoeuvre among Chinese suppliers. It also
provided the link to the American–Chinese supply chain company. In
retrospect, the CEO stated that Sporttech should have spent more time in
China – closer to suppliers and partners – to avoid delays and
misunderstandings.
4.5. Flytech
4.5.1. What
Flytech sells a complex consumer product. Some components, such
as the engine and the printed circuit board (PCB), are customized and
are critical for the nal product. Most of the other components are
typical off-the-shelf parts, such as electronic components and the bat-
tery, with almost all the potential suppliers located in China and East
Asia.
4.5.2. Who
Flytech mainly identied suppliers by inspecting components in
other quality products, nding out who made them and testing samples
of these components. Alibaba.com was a major source in this search,
which led to a great deal of ‘hit and miss’, according to the CEO. In the
selection process, product quality was central, but supplier interest in
and engagement with Flytech’s product were also important criteria.
Therefore, after initial testing, Flytech travelled to China to visit the
suppliers of its preferred components. This was important not only
because Flytech could then investigate the suppliers more thoroughly,
but also because the suppliers themselves appreciated these visits and
personal meetings. During the prototyping period, Flytech carried out a
successful pre-sale through its own website, granting it international
publicity. This pre-sale prompted one of the most renowned Chinese
suppliers to make a deal with Flytech. However, the start-up soon
discovered that the renowned supplier did not manufacture the selected
components themselves but instead had their own suppliers or sub-
suppliers manufacture components intended for Flytech. Not only did
the Chinese manufacturer fail to communicate this to Flytech, but there
were large implications for quality, since the provided components were
not the same as the samples that Flytech had tested, all of which led to a
search for new suppliers and further delays. Because of these difculties,
the company decided to move the assembly line, PCB manufacturing and
the nal product testing closer to Norway. Flytech eventually ended up
with a local Norwegian contract manufacturer.
4.5.3. How
The rst supply chain involved the production of PCBs and nal
assembly in Norway, whereas Flytech sourced the other components
from Chinese suppliers. The automated production line made the price
differences with an alternative China-based production line small.
4.5.4. Business relationship
In general, the company realized it could only solve issues related to
delivery and quality by being present on site. Although ‘a lot gets lost in
translation’, as the CEO put it, being personally present was key in
solving problems and overcoming barriers related to language, culture
and business practices. However, gaining a complete overview of the
supply chain to avoid delays was hard because Flytech did not have
enough resources to maintain a permanent presence in China. Compared
to China, switching to the Norwegian contract manufacturer and plastic
supplier sped up the process and reduced communication problems so
much that the gains outweighed the extra manufacturing costs.
4.6. Camtech
4.6.1. What
Camtech sells an advanced camera product for both the business and
the consumer markets. In addition to homemade software, the product
consists of optical, electronic and plastic components. Although these
are mostly off-the-shelf components, Camtech demands high quality.
The initial start-up team had experience in R&D and product develop-
ment within the global electronics industry but no direct experience
with suppliers, the manufacturing process or supply chain development.
4.6.2. Who
Initially, Camtech had a list of preferred Chinese suppliers based on
previous work experience and what competitors, especially the big ones,
were doing, as illustrated by the start-up’s founder: ‘If GoPro changes
supplier, there has to be some important reason for that’. The strategy
was to ‘get out there’ and visit potential Chinese suppliers from the very
beginning. However, the start-up found it hard to gain acceptance
among large suppliers and had to agree to an offer from its third choice
among contract manufacturers. The rst test production was well-
received by potential customers, resulting in a large product order
from a global market leader and an injection of venture capital. This
initial success gave Camtech the necessary resources to invest in a new
supply chain set-up and allowed it to hire new people with global supply
chain experience. After evaluating potential contract manufacturers
globally, the rm chose a local Norwegian supplier. The main reasons
for this were as follows: the proximity between manufacturing and R&D
saved time and travel expenses, the smaller Norwegian contract manu-
facturer gave Camtech higher customer priority than the former larger
Chinese contract manufacturer, and the supplier relationship was more
open and trust-based.
4.6.3. How
The rst supply chain, which produced a test series, was entirely
Chinese. Although the Chinese contract manufacturer managed the
supply chain and production, the start-up also had direct contact with
second-tier suppliers. The rst commercial supply chain consisted of a
local Norwegian contract manufacturer with Chinese sub-suppliers.
Camtech formed relationships with all the sub-suppliers in this setup.
4.6.4. Business relationship
The rst contract manufacturer focused more on quantity than
quality; further, communication was poor. The start-up learned the hard
way that ‘a yes is not necessarily a yes – things will not always get done.
You need communication experience’. Language barriers with the Chi-
nese contract manufacturer made communication unnecessarily
complicated. These difculties became visible in the relationship phase
of dening exchange (before the rst commercial batch was produced).
The relationship with the Norwegian contract manufacturer was more
trust-based.
5. Cross-case analysis
Since all of the case companies are unknown start-ups, they typically
have low control and power in the supply chain, which means suppliers
can more easily dictate the relationship, such as by changing sub-
suppliers (as in the case of Flytech) or prioritizing other customers (as
in the case of Plasttech). We can divide the case companies into two
groups based on the complexity of their products. For Group 1 (con-
sisting of Plasttech, Magtech and Textiletech), the lack of control and
power in the supply chain is somewhat reduced by sourcing simpler
products whose components are easily identied in the market, making
it relatively easy to identify new suppliers. Group 2 (consisting of Fly-
tech, Sporttech and Camtech) initially has considerably more complex
products than Group 1, as they make more electronic products with
many different electronic, optical and mechanical components and a
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Journal of Purchasing and Supply Management xxx (xxxx) xxx
7
more advanced product architecture. This requires a more complex
governance structure, with the start-ups needing to initiate and develop
closer relationships with several suppliers to supply high-quality, and
sometimes customized, components. This is made even more chal-
lenging by the fact that the initial suppliers are global and mostly from
China, which lowers the start-ups’ control and power even more. In
addition, the relationship-focused business culture of China means the
start-ups must invest in relationship development with many potential
suppliers, which is time-consuming, expensive and challenging for start-
ups.
In Table 2, we illustrate difculties the case companies faced when
designing their initial supply chain. Overall, the main challenges arose
early on when the start-ups tried to identify, screen and engage suppliers
or later in the relationship when rst product testing or commercial
batches were underway. For the rms in Group 1, the main challenges
were mostly related to the supplier relationships processes of matching,
attraction and accessing (see Fig. 1). For Plasttech and Textiletech, the
main challenge was to identify and engage a contract manufacturer,
whereas for Magtech, the challenges arose in the negotiation and testing
phases when it experienced quality issues and relationship problems
with its Norwegian contract manufacturer. For rms in Group 2, most of
the challenges were related to the relationship process dening ex-
change, such as challenges of being low-priority to suppliers because of
low order volumes or quality problems that became magnied by
physical distance, distance in the business culture and communication
barriers. Thus, as the supplier relationships developed, the initial supply
chain setup became too complex to manage and involved too much risk.
Accordingly, the start-ups in Group 2 needed to lower the organizational
complexity of their sourcing and increase coordination and control
before producing their rst commercial batches. This process involved
both nding new suppliers and redesigning their supply chains. Flytech
and Camtech did this by switching their contract manufacturers from
Table 2
Cross-case analysis illustrating challenges and solutions.
Company Quote Challenges in establishing GS network Solutions to challenges
Structural design: Who
to source from
Control and coordination: How to
source
Group 1: Low product complexity and mainly market and modular structures
Plasttech ‘We used Alibaba to contact potential Chinese
suppliers. But actually, Alibaba is a sales channel for
them, so perhaps we came off as a bit
unprofessional’.
Identifying and
screening suppliers
Using Alibaba.com to increase the pool of
potential suppliers
‘The day before our rst 2000 units were to be
produced, our box manufacturer suddenly got a
much larger order and just said it didn’t want to
supply us anymore’.
Low attractiveness among suppliers Reduced complexity and increased control
by using a Chinese contract manufacturer
to manage the supply chain
Textiletech ‘Suppliers did not bother meeting us at conferences
or talking to us until they were certain we could
order their minimum order quantity’.
Low attractiveness
when engaging
suppliers
Using Alibaba.com to increase pool of
potential suppliers to contact and screen
‘I think it was a good choice to choose only one
supplier to have a relationship with that integrates
textiles, battery and heat elements. Two extra
suppliers could have been chaotic’.
Long distance to China, challenging
communication
The Chinese contract manufacturer
manages a small Chinese supply chain,
increasing coordination and control and
limiting complexity.
Magtech ‘It sounds rather foolish, but I must admit that we
did not ask for any samples before signing the
contract [with the supplier]. We believed we could
trust a Norwegian rm’.
Supplier selection
process
Learned from these mistakes when
screening next contract manufacturer
‘Instead of offering a discount for all the errors and
delays, it actually raised the price by 400% after our
successful Kickstarter campaign’.
Developed poor relationship with
Norwegian contract manufacturer
Switched to Chinese contract
manufacturer that was attracted by the
successful pre-sale campaign; it managed
the new supply chain set-up
Group 2: High product complexity and mainly modular and relational structures
Sporttech ‘After having met three rms, we thought, since we
prefer the Norwegian rm more than two world-
leading American rms, what are the odds of
meeting someone even better? So, I don’t actually
have a rational and logical argument for that
choice’.
Selecting supply chain
consultancy rm
Using unconventional and less resource-
demanding assessment criteria based to a
large degree on a non-rational ‘gut feeling’
‘We identied components ourselves, but
negotiating prices with Chinese suppliers was
difcult. So now our partner negotiates with
suppliers for us’.
Smallness and communication
problems slowed down supply chain
setup
Increased coordination and control by
having external partners help setup and
manage Chinese supply chain
Flytech ‘We could not speak English with the engineers – we
had to use interpreters who did not have technical
skills’.
Communicating with
Chinese suppliers
Using Alibaba.com to increase pool of
potential suppliers to screen; presence in
China lowered communication issues and
increased control
‘Our main supplier got another, smaller supplier to
make the component. But this supplier was also too
big for us, so our main supplier found an even
smaller supplier to make it. We knew nothing about
this’.
Low attractiveness among suppliers
due to smallness increased
organizational complexity and
lowered control
Changed to local Norwegian contract
manufacturer to overcome communication
issues and increase quality control
Camtech ‘It was a challenge to identify [suppliers], but
mostly, it was a challenge to be accepted by a large
supplier as a ve-person Norwegian start-up’.
Engaging suppliers Presence in China to engage suppliers, but
low attractiveness made preferred supplier
impossible to get as a contract
manufacturer
‘A main problem was poor communication and the
contract manufacturer’s lack of taking responsibility
for product quality. The contract manufacturer
focused mostly on quantity delivered’.
Communication issues and lack of
quality control
Switched to Norwegian contract
manufacturer before rst commercial
batch to increase control, exibility and
communication
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Journal of Purchasing and Supply Management xxx (xxxx) xxx
8
China to Norway. In addition to being closer both physically and
culturally, the Norwegian contract manufacturers were much smaller
companies than the Chinese ones, giving Flytech and Camtech relatively
more control, power and exibility in the supply chain. In contrast,
Sporttech went from doing screening, testing and negotiations itself to
utilizing the competences of its supply chain advisory partners to in-
crease control and power in the supply chain (and to reduce
complexity).
6. Discussion
In the present paper, we have investigated how new ventures
develop their rst supply chains. To do this, we use relationship initia-
tion and attractiveness to explain the companies’ global sourcing pro-
cesses. Based on the cross-case analysis and the analytical framework,
we will next develop and present three propositions related to start-ups’
sourcing decisions.
6.1. Structural design
Opposite to what the traditional global sourcing literature suggests
(e.g. Francioni et al., 2019; Bozarth et al., 1998; Steinle and Schiele,
2008; Jia et al., 2017) – that rms use thorough processes for identifying
a pool of possible suppliers and select the most suitable from this pool –
we can see that the search for suppliers among the case companies was
quite different. First, they all focused on a very limited number of
markets (either China or Norway/home) and actors. Second, due to
limited networks and no prior experience, four of the six case companies
used arenas such as Alibaba.com to identify possible suppliers. There-
after, they relied on more traditional communication channels such as
emails and cold calls when approaching manufacturers. Third, the
ventures’ selection criteria differed from the selection criteria of estab-
lished companies due to limited experience, resources and time. The
case companies mainly used price and qualitative criteria such as the
quality of components, suppliers’ interest in the nal product or in the
start-up, and whether the communication between the companies dur-
ing the process was adequate or provided a good ‘gut feeling’ (i.e. a
feeling without a logical rationale). This is very different from the more
sophisticated techniques and screening criteria used by established
rms, such as performance history, warranty, technical capability, de-
livery or other quantitative criteria (see e.g. Dickson, 1966; Ho et al.,
2010). In this way, they kept the organizational complexity of the
structural design to a minimum (Jia et al., 2017). However, as will be
discussed later, even minimal organizational complexity can be too
much for a start-up with scarce resources. This led four of the case
companies (Plasttech, Textiletech, Magtech and Sporttech) to actually
focus on suppliers with less specialization but with the ability to help
them manage the supply chain.
Relationship with the suppliers was of great importance, as the case
companies had low legitimacy (Zimmerman and Zeitz, 2002) combined
with typically small volumes, making it hard to attract interest and of-
fers from suppliers, especially desirable suppliers. In such circum-
stances, the decision-making power is almost entirely in the hands of the
supplier. However, our ndings suggest that pre-sales is one way new
ventures can become more attractive. The pre-sale process provides
additional nancial resources, making it easier to engage suppliers by
increasing the new ventures’ ability to pay for their orders and
emphasizing that the new ventures could become protable long-term
customers – this proved true for Sporttech, Magtech and Flytech.
These case companies’ pre-sales showed huge commercial interest
among end-users, which attracted suppliers. However, public pre-sale
and the promise to deliver the nal product are connected to goal
commitment and the need for achievement. Our ndings show that the
case companies followed the same pattern that Mollick (2014) illus-
trated: the rms that were overfunded by the pre-sale process had higher
risk of experiencing delays. One reason for this could be that having a
successful pre-sale gives the ventures more funding, which means that
they can use more resources and time to nd their preferred suppliers.
Our empirical ndings suggest:
Proposition 1.During structural design in the global sourcing process, new
ventures
1) use less sophisticated and resource-demanding methods for identifying
and screening suppliers than established rms; and
2) can increase their attractiveness among suppliers with the help of pre-
sales.
6.2. Coordination and control
Our empirical ndings revealed that the new ventures lacked the
ability to communicate their product components’ specications,
thereby leaving them unaware of whether the suppliers understood the
specications and if they in turn had provided the correct specications
to the sub-suppliers. Due to their low attractiveness, the case companies
also had problems coordinating and controlling their supply chains
(Schiele et al., 2012). This made it difcult to predict whether the
manufacturers and their sub-suppliers would prioritize the new venture
enough to follow the specications; in some cases, it was also difcult to
know who the sub-suppliers were. The low priority among suppliers is
illustrated in the Flytech case, whose supplier sourced components to
sub-suppliers without further communication. Further, in Plasttech, its
supplier cancelled the order on short notice due to a much larger order
from another customer.
For several of the case companies (e.g. Camtech and Flytech),
problems were exacerbated by language and cultural differences;
further, the lack of resources made it hard to deal with the relationship-
oriented culture in China, which demanded presence on site to solve
problems (Handeld and McCormack, 2005). In addition to being
difcult, the case companies emphasized that relationships that
demanded physical presence were expensive and time-consuming, and
that these challenges escalate further the more suppliers the new ven-
ture initiates relationships with. Established companies have often
solved this problem by establishing local joint ventures, founding their
own subsidiaries on site in China (Fredriksson and Jonsson, 2019) or
even backshoring (see e.g. Kinkel and Maloca, 2009; Di Mauro et al.,
2018). In this study, examples of backshoring were seen in Flytech and
Camtech – both companies with high levels of complexity in their
product and production processes (Group 2). One cause of these prob-
lems is the relative ease of nding suppliers in China, causing the case
companies to underestimate the problems that their differing cultures
and languages create. However, the opposite was also witnessed in
Magtech, a company with low complexity (Group 1), who experienced
problems with local suppliers in Norway. It underestimated the supply
chain risks due to having the same language and culture.
Proposition 2.During coordination and control in the global sourcing
process, new ventures
1) experience lack of control and coordination due to low attractiveness;
2) require a short supply chain with a limited number of system integrators;
and
3) combine more readily with comparably small suppliers.
6.3. The inter-connectedness of the sourcing process and the relationship
initiation process
Our framework enables us to show the importance of developing the
sourcing process and the relationship initiation process in parallel. As
illustrated by Fig. 2 below, ‘dening exchange’ was the key sub-process
for the six start-ups in the present paper. It was in this stage of the
Ø. Bjørgum et al.
Journal of Purchasing and Supply Management xxx (xxxx) xxx
9
relationship when the start-ups began to interact and negotiate with
selected suppliers about the content and type of their relationship
(Aaboen and Aarikka-Stenroos, 2017) – this is where any major prob-
lems become visible. This can be illustrated by Magtech, whose contract
manufacturer quadrupled its production prices almost overnight,
eventually halting their trust-based collaboration. Furthermore, Cam-
tech experienced such difculties communicating and negotiating with
its selected Chinese contract manufacturer that it decided to stop
collaboration after receiving the rst pre-commercial delivery. Thus, our
ndings suggest that one challenge start-ups face is maintaining
attractiveness to keep suppliers from losing interest as the relationship
develops from the initial stages to the sub-process of dening exchange.
This is new knowledge compared to the earlier literature in which
attractiveness has been seen as most important in the sub-processes
matching, attracting and accessing.
Proposition 3.For a start-up it is equally important to maintain attrac-
tiveness during the dening exchange sub-process as during the matching,
attracting and accessing subprocesses.
In Fig. 2 below, we have summarized the propositions and updated
the relationship initiation process for the global sourcing of new ven-
tures. Compared to the analytical framework presented in Fig. 1, the
sub-processes of matching and attraction have in Fig. 2 changed places
with the sub-process accessing. This is because our ndings indicate that
for a new venture to start a relationship with a supplier, it must rst
access a supplier before it can match and attract.
7. Conclusion
We have investigated how new ventures develop their rst supply
chains using a multiple case study of six Norwegian hardware start-ups
and a framework that connects global sourcing, relationship develop-
ment and attractiveness. Our study increases the understanding of new
ventures’ global sourcing processes, which is an underexplored topic.
Our ndings show some central challenges that start-ups face and
indicate potential strategies to overcome these.
One limitation of the study is its geographical context. Although the
forces driving the new ventures’ supply chain development are global (e.
g. pre-sales, web portals such as Alibaba.com and manufacturing in
China), there may be specic conditions that are distinct to Norway.
Norway has a highly internationally oriented business sector but a
relatively small population (5.5 million) and a limited industrial history.
Thus, there are potentially fewer domestic suppliers and less sourcing
experience available in general, which might make Norwegian start-ups
more likely than new ventures in other countries to try to develop a
global supply chain by themselves. Therefore, similar studies in other
countries and contexts are welcome, especially since there is very little
research conducted on new ventures and supply chain development.
Additionally, all the case companies are technology-based producers,
which may have implications for the availability of soft funding and pre-
sales. Alternative research designs, such as data from other perspectives
than the start-ups and longitudinal data, are needed to gain deeper
understanding of start-ups’ global sourcing processes.
7.1. Agenda for further research based on the propositions
This study is one of very few focusing on new ventures’ sourcing
decisions – we believe there are several research possibilities within this
domain. The new ventures in our study tended to use less sophisticated
methods for identifying and screening suppliers compared to established
rms. This is in line with Ellegaard (2006), who also highlighted instinct
and intuition in a research agenda for small rm purchasing. However,
while most of the small rms in Ellegaard’s (2006) paper tended to use
domestic suppliers, the start-ups in our paper engage in global sourcing
by approaching potential suppliers they found on the internet. This
brings us to the rst point of the agenda: Explore resource-efcient ways to
identify, evaluate and qualify potential suppliers in new channels such as Al
ibaba.com and on the internet. This research may benet from building
upon systems developed by established companies for screening and
processing large amounts of information about potential suppliers (e.g.
Dickson, 1966; Ho et al., 2010); however, it needs to consider that the
needs and conditions, and thereby the selection criteria, are different for
a start-up.
The remaining agenda for further research use Proposition 3 as a
starting point since dening exchange is identied as key in whether the
relationship becomes successful or not. As mentioned in Propositions 1
and 2, start-ups lack control and coordination due to difculties being
regarded as preferred or attractive customers (see Schiele et al., 2012).
La Rocca and Snehota (2020) found that start-ups’ attractiveness among
suppliers is based on different factors compared to established rms. The
authors mention, for instance, the potential for co-development and
exploitation of resources together with the start-up when doing business
with other customers as an important factor for suppliers. In contrast,
our study pointed toward the pre-sales enabled by crowdfunding op-
portunities as a factor that seemed to increase attractiveness. The second
point on the research agenda is as follows: Explore how a start-up may
manage its attractiveness before and during interactions and negotiations
with potential suppliers. As mentioned in Proposition 2, start-ups benet
from short supply chains consisting of suppliers who are small rms in
order to be able to full their own goals of quality, price and product
delivery. Furthermore, as illustrated in Fig. 2, the structural design of the
supply chain is interrelated with the relationship development between
Fig. 2. New ventures’ relationship initiation process for global sourcing
Ø. Bjørgum et al.
Journal of Purchasing and Supply Management xxx (xxxx) xxx
10
the start-up and the suppliers. The third point on the research agenda is
as follows: Explore how start-ups may develop their supplier relationships in
order to achieve short, well-functioning supply chains with limited resources.
Finally, our study also has implications for managers. First, for new
ventures to succeed in setting up their rst supply chain, start-ups should
aim to design a short supply chain consisting of small suppliers with a
limited number of system-integrators. They should also utilize the
attractiveness that comes with pre-sales to gain the attention and in-
terest of relevant suppliers. Managers should be aware that it is in the
interactions and negotiations with suppliers that the potential suppliers’
true interest, ability and trustworthiness are revealed. The implications
for practice thereby include emphasize developing a business relation-
ship with the supplier in parallel with making sourcing decisions.
Author statement
This academic paper, entitled ‘Low power, high ambitions: New
ventures developing their rst supply chains’, is the result of an equally
share of work and responsibility of the three authors.
Declaration of competing interest
The authors declare that they have no known competing nancial
interests or personal relationships that could have appeared to inuence
the work reported in this paper.
Acknowledgements
The authors would like to thank the managers of the case companies,
and Emilie Aabakken and Andrea Holvik Thorson for assistance in data
collection.
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