The Significance Of International Purchasing On The Organization Productivity
[A CASE STUDY OF DOYIN INVESTMENT COMPANY]

CHAPTER TWO
LITERATURE REVIEW
2.1    CONCEPTUAL FRAMEWORK
PERSPECTIVES ON INTERNATIONAL PURCHASING
The present chapter aims to investigate the theoretical background for international purchasing. It starts by presenting a conceptual distinction between the activities connected to internationalization of purchasing activities. In addition, a review of the most common forms of sourcing developed by firms in foreign countries will be presented. The section continues by presenting the most important challenges to international sourcing, the reasons for purchasing abroad and barriers to foreign sourcing being highlighted. Finally, the chapter concludes with the description of the most important strategic decisions faced by managers in the international sourcing context.
Definitions and classifications of purchasing activities
In today’s supply chain management real world, a multitude of terms related to firm’s acquisition of material like procurement, purchasing, sourcing or outsourcing are used interchangeably while in academic literature, all these concepts are utilized in different contexts (Leenders, Fearon, Flynn & Johnson 2006). Therefore, in order to avoid further confusion, a clarification regarding the definitions of previous concepts is necessary.
In their attempt to create a conceptual distinction between different activities related to internationalization of sourcing activities, Knudsen & Servais (2007) define purchasing as “the process of buying components in the market; these have not previously been produced within the legal boundaries of the buying firm”. Leenders et al., (2006), consider purchasing by describing the process of buying: “learning of the need, locating and selecting a supplier, negotiating the price and other pertinent terms, and following up to ensure delivery”. The same authors define procurement as “a broader term that includes purchasing, stores, traffic, receiving, incoming, inspection and salvage”.
Coming from the same idea, Leason and Gillingham (2005) add that procurement is “the process of obtaining goods and services in any way, including borrowing or leasing”.
Sourcing is usually used in literature in the broadest sense and is frequently interchanged with terms like procurement, purchasing or buying. However, domestic sourcing or local purchasing is defined when the buying firm and its suppliers are located in the same country. Conversely, international sourcing or purchasing refers to the acquisition of items from vendors situated in foreign countries. International purchasing is also described by Branch (2003) as a very high profile international business. It is a considered a fast moving market with an emphasis on purchasing value added products in order to satisfy the consumer/industrial needs found in competitive markets.
According to Ellram (2001), “outsourcing is defined as the transfer of the production of goods or services that have been performed internally to an external party”. On the other hand, in sourcing is defined as representing the relocation of the manufacturing of a component, assembly or service previously performed by other companies.
Trent and Monczka (2005), suggest that there should be a clear distinction between global sourcing and international purchasing. They consider that sourcing process reaches a global level when it involves integration and coordination of common items, materials, processes, technologies, designs and suppliers across worldwide buying, design and operating locations. Stevens (2005) indicates that integration in global sourcing involves two aspects: the internationalization of purchasing and the adoption of a strategic orientation for all organization’s resources.
Furthermore, a continuum was constructed in order to establish the borders between international purchasing and global sourcing, and to explain the movement from domestic purchasing to integrated global sourcing.