Knowing the influences of context on electronic market adoption a case study of non acceptance of electronic market in large sized companies in china

Through discussing the possible changes resulting from e-market adoption, and the impact of these changes on contextual re-situation, this thesis concludes that one reason for companies

THE SITUATED ORGANIZATION AND ELECTRONIC

MARKET ADOPTION

LI YAO

A THESIS SUBMITTED FOR THE DEGREE OF MASTER OF SCIENCE (MANAGEMENT)

DEPARTMENT OF DECISION SCIENCE NATIONAL UNIVERSITY OF SINGAPORE

First of all, I would like to sincerely express my gratitude to my supervisor, Professor Hsiao Rueylin, for his stimulating suggestions and encouragement Without his guidance and support, the completion of this thesis would not have been possible

Thanks are also due to the examiners, whose suggestions and comments have helped to further improve the quality of this thesis

My appreciation also goes to the friends who acquainted me with ChinaMarket, MobileCom, PCCom, PharmCom and EngCom, as well as those who helped me with the fieldwork, and who have in one way or other helped me

in my pursuit of my Masters’ degree and the work on my thesis, particularly the faculty members, staff and students at NUS business school

Last but not least, I express my sincere gratitude to my beloved parents and boy friend for their unfailing support and understanding

Table of Contents

ACKNOWLEDGEMENTS I TABLE OF CONTENTS II SUMMARY IV LIST OF TABLES VI LIST OF FIGURES VII CHAPTER 1．INTRODUCTION 1

CHAPTER 2．LITERATURE REVIEW 4

2.1 PREVIOUS LITERATURE ON THE FAILURE OF E-MARKET ADOPTION 4

2 1 1 The “Conditions Thesis” 5

2 1 2 The “Structure Thesis” 7

2.2 THE CONTEXTUAL ANALYSIS IN TECHNOLOGY ADOPTION 11

2 2 1 Research on the Contextual Analysis 11

2 2 2 Using the Contextual Analysis in Technology Adoption 12

2 2 3 The Contextual Analysis and E-market Adoption 13

CHAPTER 3．METHODOLOGY 19

3.1 CASE BACKGROUND 19

3.2 DATA COLLECTION AND ANALYSIS 23

CHAPTER 4．FINDINGS 29

4.1 THE E-MARKET OF CHINAMARKET 32

4.1.1 Organizing Principles: Free Market Transactions 32

4.1.2 Core Practices in the E-Market 33

4.2 CASE 1:ENGCOM 36

4.2.1 Situated Contexts 36

4.2.1.1 The Industrial Context 36

4.2.1.2 The Supply Chain Context 38

4.2.2 The Contextual Re-situated Analysis 41

4.3 CASE 2:MOBILECOM 47

4.3.1 Situated Contexts 48

4.3.1.1 The Industrial Context 48

4.3.1.2 The Supply Chain Context 51

4.3.2 The Contextual Re-Situated Analysis 56

4.4 CASE 3:PCCOM 59

4.4.1 Situated Contexts 60

4.4.1.1 The Industrial Context 60

4.4.1.2 The Supply Chain Context 62

4.4.2 The Contextual Re-situated Analysis 66

CASE 4:PHARMCOM 70

4.5.1 Situated Contexts 71

4.5.1.1 The Industrial Context 71

4.5.1.2 The Supply Chain Context 73

4.5.2 The Contextual Re-situated Analysis 76

CHAPTER 5．IMPLICATIONS 80

5.1 IMPLICATIONS 80

5.1.1 Theoretical Implications 80

5.1.2 Practical Implications 82

5.1 LIMITATIONS AND FUTURE DIRECTIONS 87

CHAPTER 6．CONCLUSION 90

BIBLIOGRAPHY 92

Summary

The challenges for organizations intending to adopt the Business-to-Business (B2B) electronic market are varied In the face of these difficulties, this thesis suggests an alternative approach for examining e-market adoption by focusing on the features of the organization rather than the features of e-market technology This thesis indicates that one core institutional feature for an organization is that the organization is always situated in its context On this basis, this thesis points out that e-market adoption is often accompanied by a series of changes in an organization, and with these changes, it may not be necessarily able to re-situate into its original context If the organization encounters contextual re-situated difficulties, it will not only fail to benefit from e-market adoption, but its normal operation may also be disrupted by the adoption of the e-market Hence, an organization which expects that it will suffer contextual re-situated difficulties due

to e-market adoption is unlikely to adopt the e-market unless it figures out a method to resolve these difficulties

In order to understand the importance of contextual re-situation in e-market adoption, this thesis has analyzed the contextual re-situated issues in four case companies, including one successful adopter, and other three companies that rejected the e-market Through discussing the (possible) changes resulting from e-market adoption, and the impact of these changes on contextual re-situation, this thesis concludes that one reason for companies opting not to adopt the e-market is the irreconcilable conflicts between the changed organization and its original supply chain and industrial contexts

This thesis contributes to current e-market adoption literature by highlighting the necessity for organizations to achieve contextual re-situation with the

influence of e-market adoption From a practical viewpoint, the thesis also addresses how companies may take advantage of the e-market within their difficult industrial and supply chain contexts

List of Tables

Table 1 The Comparison of the “Conditions Thesis”, the “Structure Thesis” and the Contextual Analysis 15 Table 2 Data Collection 26 Table 3 Sets of key points summarized from multiple data sources for the PCCom case 28 Table 4 The Re-situated Analysis for Four Case Companies 30 Table 5 The Information Flow and Buyer-Supplier Relationship in An E-Catalogue, An E-Procurement and An E-Auction 35 Table 6 The Duration of the Price Negotiation for Various PC Components66 Table 7 The Suggested Solutions for Common Challenges 85

List of Figures

Figure 1 The Conceptual Frameworks of the “Structural Thesis” and the Contextual Analysis Used in This Study 16 Figure 2 The Components and Operating Principle for Telecom Infrastructures 53 Figure 3 The Supply Chain Structure of PCCom 64

Chapter 1．Introduction

When marketing the electronic market (e-market) to organizations, providers find that they are often confronted with differing attitudes of organizations towards the e-market These differences can be viewed from two opposing viewpoints First, organizations assess e-market products differently from providers Providers intend to emphasize a product’s technological features, such

as advanced functions and the high integration capability of e-market systems However, organizations are more concerned about whether an e-market product could add value to their business Second, the emphasis of providers on e-market usage is again different from that of organizations Providers designing a product aim to meet the general needs for most organizations However, the prime concern

of most organizations is whether the technology product suits their own business requirements Such conflicts of interest between providers and recipient organizations lead to various problems in e-market adoption, and these problems

in turn motivate researchers to ponder the possible causes of such problems from different perspectives, be they those of providers, organizations or both

Most previous literature has analyzed problems in e-market adoption mainly from the provider’s perspective The researchers argue that adoption difficulties are due to the lack of favorable conditions or of all the successful factors needed

to adopt the e-market (Chwelos et al., 2001; Farhoomand et al., 2000; Kumar & Crook, 1999; Markus & Soh, 2002) More recent studies have started taking into account the viewpoints of providers as well as those of organizations They suggest a better understanding of adoption problems can be achieved by analyzing fundamental misalignments between an e-market product and the recipient organization (Clemons & Row, 1993; Kambil & van Heck, 1998; Levecq and

Weber, 2002) The fundamental misalignment is defined as “differences between the structures embedded in the organization (as reflected by its procedures, rules and norms) and those embedded in the package1” (p376, Soh & Sia, 2004) This stream of research has drawn attention to the viewpoints of organizations and provided a deeper insight into e-market adoption However, I believe that these efforts are still inadequate as few of them have explored the problems in e-market adoption from the viewpoint of recipient organizations To that end, this study attempts to address this deficiency in order to gain a better understanding of the problems of e-market adoption

The theoretical perspectives that I found most helpful in examining difficulties

in e-market adoption from the recipient organization’s perspective are in the field

of organizational change In particular, the contextual perspective of organizational change (Pettigrew, 1990) has provided a method for conceptualizing the relationship between organizations, organizational changes and e-market adoption According to the contextual perspective, an organization

is formed and changed in a specific context The adoption of technologies, like the e-market, would be treated as a trigger of change for this organization (Avgerou, 2001; Avgerou et al., 2004; Walsham & Waema, 1994; Walsham & Sahay, 1999).Once it has adopted the e-market, the organization may face some new changes that make it hard for it to fit into its original context, and these potential new changes may in turn lead to difficulty for this organization in adopting the e-market In the light of this contextual perspective, research questions addressed

in this research are:

1 What is the original context of an organization? In such a specific context,

1

Package in this context refers to technology products, which include hardware, software and data structure, and so on

how does an organization operate (its practices)?

2 What might be the impact on the organization’s practices when the e-market is adopted?

3 How may the fitness of an organization in its original context be impacted

by the changes in its practices?

Some key terms used in research questions are defined here The term

“organizations” in this study refers to adopters or potential adopters of the e-market An organization’s “practices” in the context of this study are defined as the organization’s supply chain practices Correspondingly, an organization’s

“context” is the industrial context in which the organization’s supply chain practices are formed and changed

In Chapter 2, literature on e-market adoption and the contextual analysis is reviewed Chapter 3 describes the background information of this research, and elaborates on the methods used in collecting and analyzing data Chapter 4 first examines the context and contextual re-situated issues for a successful case company in e-market adoption, then the context as well as the contextual re-situated analysis of three case companies in China are conducted In Chapter 5, both the theoretical and practical implications of this research are discussed The limitations and future directions are also highlighted in this chapter Chapter 6 draws conclusions based on the findings of this study

Chapter 2．Literature Review

This chapter begins with a review of previous literature on e-market adoption This is followed by a discussion on present studies which apply the contextualist perspective in analyzing technology adoption, as well as on the conceptual framework of this study

2.1 Previous Literature on the Failure of E-market Adoption

The key terms used in the research on the failure of e-market adoption are defined first, in order to focus on the insights provided by literature in this field These terms include the “e-market” and “adoption failure” The e-market is a virtual platform on the Internet, which brings various sellers and buyers together

to share information and conduct transactions In this study, the e-market mainly refers to a system that can support online transactions Most e-market systems often contain three technological elements: e-catalogue (electronic catalogue), e-procurement (electronic procurement) and e-auction (electronic auction) One example of such an e-market provider is Ariba (www.ariba.com)

Adoption failure is often perceived from three perspectives From the first perspective, non-acceptance of the e-market is considered as adoption failure There is a suggestion from the second perspective that adoption failure should be measured by the frequency and/or extent of usage of the e-market in an organization It argues that an organization which adopts the e-market in name may not use the e-market extensively In this case, such an organization cannot be considered as a successful adopter The third perspective further indicates that the extensive usage of the e-market in an organization is not without its problems The wide usage of the e-market may not ensure that the organization benefits largely from e-market adoption In fact, it might lead to malfunction of the organization

under some circumstances Accordingly, the third perspective suggests that adoption failure is measured by assessing the benefits the organization gains from e-market adoption

In the following sections, two major strands of research that analyze the failure of e-market adoption are discussed separately The first strand has mainly conducted analyses from the viewpoint of providers It attributes the failure of e-market adoption mainly to undeveloped conditions Hence, this strand of research is referred to as the “Conditions Thesis” The other stream adopts the viewpoints of both providers and organizations It considers the structural misalignment between the organization and the e-market as the main cause of adoption failure Thus, this stream of research is referred to as the “Structure Thesis”

2 1 1 The “Conditions Thesis”

The “Conditions Thesis” defines adoption failure as the non-acceptance of e-market systems It believes that such adoption failure is caused by the fact that the conditions for e-market adoption in an organization are not adequately developed (Iacovou et al., 1995; Xu et al., 2004; Zhu et al., 2006) Researchers often assess conditions from three aspects: conditions of technology products, conditions of organizations and conditions of the public infrastructure The conditions of technology products are concerned with the technological capability

of e-market systems, for example, the functional capability, ease of use, and the integration capability of a certain system The conditions of organizations include, for example, the financial capability of organizations, the existing technological conditions of organizations, and the technological skills of the organization’s present employees The conditions of the public infrastructure take into

consideration, for example, the legal infrastructure, the logistics infrastructure, and the telecommunications infrastructure of an organization

According to the “Conditions Thesis”, therefore, adoption failure would be avoided if conditions for e-market adoptions were adequately developed To provide the adequately developed conditions, two approaches are suggested: 1) improving current conditions through barrier removal; or 2) conditions to improve over time For instance, the study of Farhoomand, Tuunainen and Yee (2000) examined 10 companies in Hong Kong and Finland to identify key barriers hindering or slowing down the wide acceptance of global electronic commerce Based on the classification of electronic commerce issues, the findings of the above study show six key barriers, which are mainly related to technical, organizational, economic, political, cultural and legal issues They suggested that these adoption barriers could be removed as electronic commerce technologies became more mature As a result, electronic commerce could be successfully adopted by more companies

The “Conditions Thesis” offers an approach for examining the problems of adoption failure, and accordingly proposes possible solutions based on the conditional analysis as well However, the successful adoption of e-market systems like Alibaba, even in unfavorable conditions has enabled researchers to notice the deficiencies of the “Conditions Thesis” (McFarlan and Young, 2001) Researchers have begun realizing that although favorable conditions greatly increase the possibility for organizations to accept the e-market successfully, they are not absolute conditions for successful adoption Hence, another stream of research on the failure of e-market adoption, known as the “Structure Thesis” has emerged These studies do not treat the e-market system as a black box, but

instead examine structures embedded in e-market systems

2 1 2 The “Structure Thesis”

The “Structure Thesis” differs from the “Conditions Thesis” in several aspects First, unlike the “Conditions Thesis”, the “Structure Thesis” stresses that adoption failure should instead be measured by the usage of the e-market in an organization

It argues that if an organization does not use a system extensively, it is very likely for this organization to abandon the system subsequently

Second, the causes of adoption failure assumed by these two “theses” differ The “Conditions Thesis” assumes that the e-market system is a black box, and attributes adoption failure to immature conditions However, the “Structure Thesis” examines structures which are embedded in the systems It suggests that adoption failure is caused by underlying misalignments between structures embedded in systems and in the recipient organizations According to Levecq and Weber (2002), the market microstructures, such as market mechanism, price discovery rules and transparency, were embedded in the e-market when the systems were being developed When the e-market is adopted, companies are in fact transferring the institutional structures embedded in the e-market into the organization However, the institutional characteristics of e-market technology may not necessarily be aligned with those of the recipient organization In such a case, the technology might disrupt the existing organizing principles For instance, the e-market may disrupt the pre-existing market-making mechanism, coordination methods, trust production, as well as buyer-supplier relationships in the supply chain (e.g Clemons and Row, 1993; Kambil and van Heck, 1998; Pavlou and Gefen, 2005)

Kambil and van Heck (1998), for example, discussed four e-market adoptions

in the Dutch Flower Auction markets The Dutch Flower Auction markets are the world’s leading centres for trading cut flowers and potted plants There are thousands of sellers (flower growers) and buyers in the market, and the price in the market is determined by the “Dutch Auction” method In the early 1990s, in order to face new challenges in the market, some Dutch Flower Auction markets sought to transform their trading mechanism by adopting the e-market, including the four adoption cases in the Kambile and van Heck (1998) study However, although the adoption conditions were almost similar, the outcomes of these four e-market adoptions were different There were two successes and two failures

To understand this phenomenon, the researchers focused on changes in trading processes that were enabled by e-market adoption in the Dutch Flower Auction markets The findings show that the adoption of the e-market called for the introduction of a new trading mechanism for the Dutch Flower Action Markets If

a flower market could, with the stimulus of the e-market, reengineer its prevalent trading processes, and thus shape a process that could benefit most shareholders, these changes in trading processes would be accepted by shareholders, and the e-market adoption would succeed Otherwise, neither reengineered trading processes nor the e-market could be accepted In this case, technology could disrupt the trading mechanisms embedded in the e-market and cause failure

According to the assumptions of the “Structure Thesis”, the key to avoiding adoption failure is to achieve structural alignment between e-market systems and recipient organizations Three methods are often suggested The first method is to customize the e-market in terms of the structures of recipient organizations This method is a possible choice for achieving structural alignments, but organizations often do not employ this approach for two reasons First, e-market systems are

designed by providers (e.g Ariba and CommerceOne) according to the general needs of organizations Thus, it is difficult to ask providers to redesign their systems to cater to the needs of a specific organization Second, organizations adopting an e-market often aim to transform their current practices Customizing applications according to the structures of companies is like putting the cart before the horse

The second method is to reengineer the processes of companies based on the structures embedded in e-market systems Researchers who support this method argue that structures embedded in systems reflect the “best practices” on procurements for organizations, and that organizations attempt to transform their practices into best practices through adoption of the e-market For instance, Lee and Clark (1997) analyzed four cases of e-market adoption Of these, two were successful, while two failed They examined the economic benefits in each case

by investigating how the innovations enabled by information technology reduced transaction costs and increased market efficiency They concluded that companies aiming to redesign market processes using e-market solutions, should plan carefully to ensure that the benefits of the proposed new market processes were not disrupted by the existing structures of the companies

The third method is to align the structures embedded in the e-market with those of companies This approach suggests that providers use differentiation strategies to attain alignments Soh, Markus and Goh (2006), for example, pointed out that suppliers would resist adopting e-market because of their concern that the great transparency caused by adopting the e-market would lower their bargaining power in transactions After examining 19 e-market providers, they suggested that providers which adopt the differentiation strategy are more likely to provide

compensatory benefits in the form of greater price transparency for sellers and in the form of lower price transparency for buyers, in order to achieve success in the e-market

Studies on the “Structure Thesis” offer a deeper insight into adoption failure,

as they take into account structures embedded in e-market systems However, the

“Structure Thesis” does not explain why an e-market system that is successfully adopted in one industrial context fails to be accepted in another industrial context, whose structure is nearly the same as that of the first Avgerou (2001) discussed such a case in her study The small and medium-sized enterprises (SMEs) of the textile industry in Emilia-Romagna in Italy successfully adopted flexible specialization through e-market adoption The SMEs of the furniture industry in Cyprus have similar market structures to those of the SMEs of the textile industry

in Emilia-Romagna When the SMEs in the furniture industry attempted to adopt flexible specialization, they learnt from the textile industry’s experiences and used

an e-market system similar to the SMEs in Emilia-Romagna Nevertheless, in the Cyprus’s case, e-market adoption failed and Cyprus’s SMEs did not achieve the projected success of their counterparts in Emilia-Romagna Avergou (2001) argued that examining the structures embedded in e-market systems was not sufficient for understanding the institutional features of e-market adoption In fact, researchers also need to draw their attention to the context, which forms the structure, and could change the structures over time In the next section, the contextual analysis is first introduced Then, it is followed by a discussion on the application of the contextual analysis in studies on technology adoption and e-market adoption

2.2 The Contextual Analysis in Technology Adoption

This section first introduces the contextual analysis in literature on change management and technology adoption It is followed by a detailed elaboration on the application of the contextual analysis in e-market adoption The similarities and differences between the contextual analysis, the “Conditions Thesis” and the

“Structure Thesis” are also compared in this section

2 2 1 Research on the Contextual Analysis

In 1985, based on the contextualism proposed by Stephen Pepper (1942), Pettigrew developed a theory on contextualist research to analyze change management Pettigrew (1990: 270) also defined context in his study thus:

“Context is not just a stimulus environment, but a nested arrangement of structures and processes where the subjective interpretations of actors perceiving, comprehending, learning and remembering help shape process.”

This statement indicates two key points in the contextual analysis First, it emphasizes that organizations are situated in specific contexts over time The context is more than a circumstance for organizations; it is also a structure which can interact with structures of organizations This definition of context explains the reason why organizations can be formed, and also changed in context Second,

an actor’s practices play a pivotal role in the contextual analysis, as it can reflect processes of organizational changes that happen in context An artifact is viewed

as the object that could trigger organizational change However, an artifact does not change an organization directly Instead, it does so through an actor’s practices Actors in an organization interpret the artifact in their practices; while these interpretations also impact their practices and reflect changes in their practices On the other hand, an actor’s practices represent structures of organizations, which

could influence the structures of the contexts Thus, when any changes occur in an actor’s practices, these changes would result in some adjustments between the structures of an organization and those of its context If these adjustments are acceptable, the organization will experience organizational change without interrupting the organizational context Otherwise, the changes introduced by an artifact will be strongly resisted by the organization at the beginning, or lead to the failure of organizational changes

2 2 2 Using the Contextual Analysis in Technology Adoption

Technology adoption often results in organizational changes Hence, the contextual analysis has been used by researchers in the field of technology adoption, such as the study of Avgerou, Ciborra and Frank (2004) These studies adopting the contextual analysis have made several contributions to technology adoption First, they redefine the concept of the technology They treat the technology as an artifact for organizational changes, which can be perceived from two perspectives One refers to the technology as a physical technology product, for example, software, hardware, data and electronic tables The other refers to the technology as the interpretations of actors (e.g product designers and users) in their practices The second perspective indicates that the contextual analysis in technology adoption draws more attention to structures embedded in technology products

Second, researchers emphasize the importance of practices in the application

of the contextual analysis on technology adoption For instance, Walsham and Sahay (1999) indicated that when using the contextualism perspective as an analytical tool, one must examine “in detail the actions, the perceptions of human actors and the context within which these actions took place and perceptions were

formed” (See p41) The reason is that in practice, designers and users create different interpretations of the technology within the influence of the context (Orlikowski, 2000) These interpretations influence structures of the organization, and in turn cause organizational changes If the changed structures of the organization can continue to conform to the organization’s original context, the organizational change would be accepted, and the technology adoption would succeed Otherwise, neither organizational changes nor the technology will be accepted by the organization ultimately

Finally, the multi-level features of context are also highlighted in using the contextual lens to analyze technology adoption As Avgerou (2001) noted, the focus of studies on technology adoption has extended beyond the local context of the organization, and includes aspects of the organization’s environment, such as the national and international contexts Researchers adopting such multi-level analyses aim to grasp a better understanding of organizational changes through examining context at different levels and the interdependent relationships between contexts at the higher or lower levels

2 2 3 The Contextual Analysis and E-market Adoption

Some recent studies on e-market adoption have drawn attention to the importance of context For instance, Cousins and Robey (2005) have pointed out that structures embedded in e-market systems are socially shaped by context Moreover, Avgerou (2001) suggests that “IS studies should go beyond the technical/rational actions of professional experts and managers, and should consider the institutional forces—both within an organization and its environment—that necessitate or legitimate such actions” The institutional forces

in this statement are indeed within the context of e-market adoption

As in the previous two theses on e-market adoption, the contextual analysis also defines adoption failure first (A detailed comparison of the “Conditions Thesis”, the “Structure Thesis” and the contextual analysis is found in Table 1) In the contextual analysis research, it is argued that as long as an organization cannot receive projected benefits from e-market adoption, researchers will consider the adoption as a failure Researchers define adoption failure in this way, because they observe an interesting phenomenon in some organizations Even though organizations may widely use the e-market system with external incentives or forces, they could still abandon the system once these external incentives or forces are withdrawn For instance, many organizations are likely to abandon the e-market when providers stop offering external incentives like free services An example of an external force is when the subsidiary company does not use the e-market frequently owing to lack of supervision from its parent company Researchers indicate that these phenomena occur because organizations do not gain real benefits from e-market adoption As a result, they measure adoption failure of the e-market in terms of the benefits gained in adoption

Table 1 The Comparison of the “Conditions Thesis”, the “Structure Thesis” and the Contextual Analysis

Key

Assumptions

of adoption

failure

The e-market system is a black box

Adoption failure is caused by the fact that conditions of e-market

adoption are under developed

There are structures embedded in the e-market system

Adoption failure is caused by underlying misalignments between structures embedded in systems and those of recipient

The features

of approaches

The key to avoiding adoption failure

is to make conditions for e-market adoption adequately developed

The key to avoiding adoption failure

is to achieve the structural alignment between e-market systems and recipient organizations

The key to avoiding adoption failure is to find a way that can effectively assess the fitness of the changed organization within its original context even before an organization adopts the e-market

The investigation of the relationship between the “Structure Thesis” and the contextual analysis is different The “Structure Thesis” focuses on the structural alignment between the organization and the system However, the contextual analysis focuses on the fitness of the organization within the context The structure alignment is viewed as an important factor which influences the fitness between the organization and its context

Kambil and van Heck, 1998;

Lee and Clark, 1997;

Soh, Markus and Goh, 2006

Avgerou, 2001;

Barrett and Walsham, 1999;

Kumar, van Dissel and Bielli, 1998

According to the contextual analysis, adoption failure is the result of the misfit of an organization within its original context when the organization changes after adopting the e-market The key assumption of the contextual analysis is very similar to that of the

“Structure Thesis”, since both of them closely analyze e-market systems and examine the impact of structures embedded in systems on e-market adoption

Figure 1 The Conceptual Frameworks of the “Structural Thesis” and the Contextual Analysis Used in This Study

Note:

1 The question mark in the “Structure Thesis” section represents the question: Can the organizational structure align with structures

embedded in electronic market systems?

2 The question mark in contextual analysis section represents the question: Can the organization with e-Market be re-situated in its

original context again?

e-Market Organization

Organization with e-Market

Supply Chain Context

Industrial Context

Supply Chain Context Industrial Context

E-Market Adoption

Situated Organization

Situated Organization with e-Market

With the contextual analysis, although it also draws attention to matters of structure, its key question is different from that of the “Structure Thesis” The contextual analysis on e-market adoption is concerned with whether the organization with changes brought about by e-market adoption can be situated in its original context again If the organization cannot be situated in its original context after adopting the e-market, the adoption would have failed even though structural alignments were well achieved Thus, according to the contextual analysis, the solution to avoiding adoption failure is to find a way to effectively assess the fitness of the changed organization within its original context even before the organization adopts the e-market

Current literature which applies the contextual analysis on e-market adoption mainly employs two methods The first method measures the organization’s contextual fitness at the level of national culture For instance, Kumar, van Dissel and Bielli (1998) discussed

an e-market system—Sprintel—experienced initial success and consequent failure when

it was adopted in Prato, Italy They noted that the e-market brought impersonal trading arrangements to the Pratesian textile merchants, who have traditionally valued long-standing relationships Such conflict of buyer-supplier relationships shaped in different cultural contexts eventually led to the failure of Sprintel Studies using this method provide helpful insights into e-market adoption and are easily generalized, but the problem is that the national culture context being considered on a macro-level is unlikely

to make much impact on e-market adoption For instance, the success of TradeNet in Singapore (Teo et al., 1997), and the successful deployment of the e-market of Li and Fung in China (McFarlan and Young, 2000) are outstanding examples that the e-market can still be successfully adopted in a cultural context outside the US

The second method measures the contextual fitness at the level of organizational

context For instance, Barrett and Walsham (1999) examined the failure of an electronic trading system deployed across the London Insurance Market by taking into account the professional context of the insurance market In Walsham’s (2001) later paper, he points out that the changes in work practices and worker status brought about by the introduction of the Electronic Placement System (EPS) was a major reason for the failure

of the EPS The merit of this method is that the findings based on the contextual analysis can often provide rich practical implications However, since the organizational context

of each organization is different, it is difficult for researchers to generalize their findings

My study proposes a third method to measure the contextual fitness of an organization (See Figure 1) Although multi-level the contextual analysis has been widely used in change management, such as the Kostova’s (1999) study, it does not draw sufficient attention to technology adoption and e-market adoption Hence, my study employs two interdependent levels of context On the first level, the supply chain context

is studied The second level is the industrial context, which is at a higher level of the supply chain Both industrial and supply chain contexts are in the middle of the national culture and organizational contexts The purpose of analyzing these two interdependent levels of contexts in this thesis is to provide a balanced overview of the advantages and disadvantages of the national culture and organizational contexts on e-market adoption

Chapter 3．Methodology

In this chapter, the background information of the electronic market is first introduced This is followed by an elaboration on case selection, as well as on the methods used for data collection and analysis

3.1 Case Background

This study attempts to address the adoption problems of an electronic market in China The provider of this electronic market is ChinaMarket, a company incorporated by a Chinese government agency ChinaMarket’s original idea was to build a virtual trade fair

on the Internet based on the business model of the Canton Fair, which is a very popular trade fair in China The Canton Fair is held twice a year in Spring and Autumn, with each fair lasting only two weeks During this period, thousands of companies in China and from abroad pour into Canton to participate in the Fair, and the business turnover of each fair is around US$10 billion

The main transaction employed by companies at the Canton Fair is to make exchanges by negotiating against samples Other types of business activities, such as economic and technical co-operation and exchanges, commodity inspection, transportation, consultation, and others, are also carried out at the Fair Throughout the entire trading processes, the organizer of the Canton Fair serves an intermediary role While providing and arranging exhibition venues for companies and setting the time for each trade session, the organizer is not involved in any business activities related to the trade

The Canton Fair is popular for Chinese companies However, ChinaMarket has pointed out that the Canton Fair is not without shortcomings that can be improved by the

use of Internet technology The first shortcoming of the Canton Fair is the geographical limitation Companies from other Chinese cities or from abroad must travel to Canton to attend the Fair, not only leading to high accommodation costs but also possibly resulting

in traffic jams or an increase in social problems, such as petty crimes The other concern with regard to the geographic limitation is that it is often difficult for the organizer to find new venues to further expand the current range of transactions at the Fair The second shortcoming is the duration, because the Canton Fair is held for only four weeks a year This means that at other times, companies cannot exchange information or make deals as frequently and widely as they do at the Fair The other time concern is that people who attend the Fair neglect their office duties during these periods The third shortcoming is concerned with the way exchanges are made At the Canton Fair, companies conduct business through face-to-face communication Although such communication is considered as sound, it is often time-consuming and not required for all business activities, such as publishing detailed information on supply and demand ChinaMarket thus has proposed that if the Canton Fair can go online, all these shortcomings could be easily remedied

However, in early 2001, when ChinaMarket was beginning to put its ideas into practice, the advent in China of CommercOne, a major technology provider of the electronic market worldwide, totally changed ChinaMarket’s plans ChinaMarket in partnership with CommerceOne, used the business model suggested by CommerceOne instead of the business model adopted in the Canton Fair ChinaMarket did that for several reasons First, the business model of the electronic market introduced by CommerceOne is a proven model Before CommerceOne accessed the China market, it already had many successes in the western world However, the business model of the

Canton Fair came directly from the practices of a real trade fair, and it had never been used for online transactions Second, CommerceOne had in place technological products

to support its business model However, if ChinaMarket wanted to use the Canton Fair’s model, it would have to develop the technological products from the very beginning Third, ChinaMarket could take advantage of CommerceOne’s rich experience in electronic market implementation Fourth, CommerceOne could also share some of its financial burdens with ChinaMarket The last reason was concerned with an idea which was taken for granted by most people in China during the late 1990s and early 2000s It was widely believed that American technology or business models had to be better, since Internet technology was first invented in the US, and since modern business concepts also came from the US

However, ChinaMarket was not successful in using CommerceOne’s model On the contrary, most companies targeted by ChinaMarket rejected its electronic market; and CommerceOne closed its Asian office Consequently, ChinaMarket had to terminate its electronic market project in late 2001 However, at the same time, some electronic markets like Alibaba, which had used a model that was similar to the Canton Fair’s model, did attract a great number of companies Some practitioners did learn some lessons from ChinaMarket’s experiences, but most of them remain confused and hope to seek answers

to the following questions: Why was CommerceOne’s business model, that was supposed

to be good, rejected by most companies in China? How can providers and recipient companies learn from ChinaMarket’s experiences? What should they do in future?

To address these questions, four case companies are selected for this thesis These four case companies are all large-sized companies, since the reason for small and medium-sized companies (SMEs) to reject ChinaMarket’s electronic market is obvious,

they could not afford it The first case company, EngCom, is a successful adopter in Singapore This case is used as a reference to provide a better understanding of ChinaMarket’s problems It may be argued that EngCom is not an appropriate reference, since the electronic market it uses is not offered by ChinaMarket However, it is important to note that ChinaMarket is indeed an intermediary, who helps CommerceOne

in promoting its technological products and business model in China To that end, as long

as a company uses an electronic market, whose technological products and the business model are from CommereOne, this company can be treated as a reference ChinaMarket did not have a successful adopter EngCom simply used an electronic market whose products and business model were exactly the same as those of CommerceOne because the provider of this electronic market had merged with CommerceOne Thus, EngCom was qualified to be a reference in this analysis

The other three case companies are all companies in China They were targeted by ChinaMarket, but they all rejected ChinaMarket’s electronic market subsequently They were chosen for investigation because they represented a wide range of large-sized companies in China The second case company in this thesis, MobileCom, was selected

as a representative of State-Owned Enterprises (SOE) MobileCom was once a SOE, but

it has since become a public company However, it can still be treated as a SOE, since its biggest shareholder is the Chinese government and its operations, in fact, are still greatly influenced by the Chinese government The third case company, PCCom, is a private company When it was incorporated in the early 1980s, PCCom was one of the distributors of foreign brand PCs in China However, it has since developed to be one of the major PC manufacturers in China The fourth case company, PharmCom, represents foreign-invested companies or wholly-foreign owned companies It was one of many

joint ventures in China Currently, since its foreign partner has more than a 51% shareholding, PharmCom is indeed a subsidiary of its foreign parent company

One other reason for selecting these four case companies is that they all share the characteristics of large-sized companies First, these four companies are large-scale companies For instance, the annual revenue of EngCom was around US$ 3 billion in

2006, and the initial investment for PharmCom was more than US$ 10 million Second, these four companies are all leading companies in their respective industries For instance, PCCom is in the leading position of China’s Top 100 Electronic Companies In 2006, MobileCom ranked among the top three of The Mundell 500 Largest Companies listing

in Asia Third, these companies are all the focal companies in their supply chain, and their operational practices can influence the supply chain practices of other companies

3.2 Data Collection and Analysis

The methodology adopted for this thesis is the ethnographic approach This method enables the study of the practitioners’ practices through in-depth interviews A better understanding of practices can in turn enhance the examination of the influences of electronic market adoption on the fitness of the recipient companies within their original contexts Although data is collected from multiple sources (e.g internal documentation, observation and site visits), the primary data for this study is mainly derived from face-to-face interviews at the field sites There are two field sites for this study: one in Beijing, China and the other in Singapore Beijing is an important field site for this thesis, because both ChinaMarket and the three Chinese case companies are based there Singapore serves as a complementary field site to Beijing, since the researcher is studying

in Singapore and EngCom is also located there

In Beijing, two intensive investigations were conducted separately in September 2004

and December 2005 The first investigation was conducted by the researcher and her supervisor As it was the first fieldwork for the researcher, the guidance of her supervisor was necessary In this investigation, the researcher and her supervisor interviewed practitioners from the top management teams of ChinaMarket and of two other providers that operated in the same period as ChinaMarket Moreover, five companies varying in size and business categories, which were targeted by ChinaMarket, were also visited during the fieldwork The interviewees from the companies were mainly from the procurement department

The questions asked in this investigation were evolved from the core question for the initial stage of this study, i.e: Why did companies not adopt the electronic market provided by ChinaMarket? The first investigation did not result in a satisfactory answer

to the core question, but the analysis based on transcriptions of interviews did take this study one step further First, the researcher decided to focus on large-sized recipient companies in the study, since the reason why SMEs rejected the electronic market was too obvious Second, the conflicts in perceptions between providers and recipient companies enabled the researcher to notice the significance of organizational practices The researcher realized that only if the practices of the recipient companies could be understood, would it be possible to figure out the possible causes of those conflicts, and

to find out the possible reasons for the non-adoption of the electronic market

The second investigation in Beijing was carried out by the researcher The purpose of this investigation was to understand the procurement practices conducted in three selected case companies: MobileCom, PCCom and PharmCom To this end, 28 formal interviews were carried out in these three case companies as well as on the suppliers and competitors of these companies Some key persons, such as the purchasing managers of

the case companies, were interviewed more than once Interview length varied, with each interview lasting from 45 to 105 minutes A tape recorder was widely used to help the researcher focus on asking questions However, tape recordings were sometimes rejected

by practitioners, most of whom were from the procurement departments of the case companies In such cases, extensive notes had to be taken during the interviews Key points of interview transcriptions and the extensive notes were often written into bullet-point reports on the same day as the interview and coded later

Questions designed for the second investigation were more specific They include: What are the core activities in the purchasing or selling processes? Give examples to explain how these activities were carried out? How did you negotiate with suppliers/buyers during the bidding? How do you describe the buyer-supplier relationship

in your company? What kind of communication or cooperation does exist between you and your suppliers/buyers? What is the electronic market (a technology or a purchasing process) in your viewpoint? What changes may be brought about by adopting the electronic market? What impact may these changes make on your company?

In order to complement the data collected in Beijing, investigations carried out in Singapore served two main purposes One was to find out more about the technological products of the electronic market offered by CommerceOne To this end, practitioners who once worked in or with CommerceOne were interviewed Other data sources were also used, such as the observations on product demonstration and archival data The other purpose was to investigate EngCom’s purchasing practices and their successful experiences in using the electronic market To achieve this purpose, the researcher interviewed personnel from the procurement department in EngCom, with most of them being interviewed more than once In addition, the researcher took part in some activities

related to the electronic market adoption in EngCom, such as observing the real e-auction

processes and attending seminars that reported on the successful adoption experience of

EngCom Besides attaining these two purposes, and in order to enrich the data of the

three case companies in China, the researcher also used the telephone and Microsoft

Messaging Network (MSN) to interview practitioners in China when she was in

Singapore A total of 85 interviews were conducted for this study (See Table 2)

Table 2 Data Collection

Company Number

Number of Interviews

Total No of Interviews

ChinaMarket 1 8 ChinaMarket

The entire data analysis procedures were carried out with the purpose of finding an

appropriate method of interpreting the causes for electronic market non-adoption In

doing so, the basic principle of grounded theory was followed More open-ended

interviews were conducted at earlier stages, especially in the first investigation in Beijing,

whereas the later stage investigations were more closely directed towards the emerging

concepts and analytical perspectives For instance, the questions designed for the second

investigation in Beijing were more concerned with purchasing or exchange practices

conducted in companies During another later stage investigation, the researcher also asked the practitioners to comment on the industrial contexts within their companies Basically, analytical procedures were conducted as follows First, the researcher forms concepts and the analytical framework according to her understanding of the data Then, the researcher uses these concepts and an analytical framework to interpret past and new data If the new data is in conflict with the present analytical framework, the restructuring

of data is necessary Otherwise, the researcher could choose to improve the present framework using the new data Next, all data is recoded according to the updated analytical framework In common with the previous procedures, the improved or restructured analytical framework is also used for interpreting new data in order to ensure that the data could be interpreted appropriately Such procedures are repeated until both

of the following conditions are satisfied First, data is repeated This means that all important points have been covered by the current data Second, the framework could interpret data and answer the practical questions appropriately One important thing to note about those analytical procedures is that the researcher must ensure that the emerging concepts and the analytical framework are appropriately supported by data Table 3 is an example showing the connection between multi-data sources and the concepts of the analytical framework in PCCom’s case

Table 3 Sets of key points summarized from multiple data sources for the PCCom case

Market research reports in the PC industry summarize the past market situation and/or predict those of the future one in detail, periodically

The price of PC parts, such as the CPU and the memory, changes weekly

In an electronic exhibition, companies often arrange a small room near its counter for a quick bargain

of leading suppliers are high or large enough

The market research reports of the PC industry often present the market share and the

performance ranking of PC manufacturers in China with big tables including hundreds of companies

In configuration lists for different branded PCs, the core parts are mainly from several well known brands

Cutting total cost in the

supply chain is the key principle

The purchasing manager indicated that they were inclined to build long-term supplier relationships, since selecting suppliers based only

on price can decrease purchasing costs, but may increase the total costs in the supply chain

A document stated that PCCom’s supply chain has transformed from being inventory-driven to market-driven as the price pressure shows that cost is greatly intensive in the PC industry

PCCom draws many working area lots on the floor in yellow

If any division uses the lots, it will be charged according to time and space considerations

Lowering the total cost in

purchasing with

supplier collaboration

The purchasing manager described the communication on

technological skills with suppliers

The purchasers said that they are required to attend each electronic exhibition to discover the potential suppliers with lower prices

A set of tables in PCCom’s documentation lists the bargain period for each type of materials

in detail

A PC manufacturer’s supplier management guidelines list a series of criteria and period for evaluating its suppliers

PCCom’s materials warehouse was just adjacent to the production lines, and it used a system

to account for and transport materials automatically

PCCom’s factory was located in Zhong Guancun Science Park, Beijing Most of its suppliers’ factories were also in Zhong Guancun Science Park

Chapter 4．Findings

This chapter begins with an elaboration on organizing principles embedded

in the e-market of ChinaMarket The core practices of buyers in the supply chain which relate to the main technological elements of the e-market are also discussed

in this section The next section focuses on a successful adoption case company, EngCom, in Singapore The contextual characteristics of EngCom at the industrial and supply chain levels are elaborated through investigating actors’ practices in EngCom It is followed by a discussion on the impact of e-market adoption on EngCom The third to fifth sections draw attention to three other case companies

in China which did not adopt the e-market of ChinaMarket These case companies are MobileCom, PCCom and PharmCom Like the contextual analysis on EngCom’s case, the analyses of these three case companies also conducted by examining actors’ practices in these organizations Based on contextual analyses

of these three case companies, the possible impact of e-market adoption on the organizations’ practices and on the fitness of the organizations in their contexts are discussed A summary of four case companies is presented in Table 4

Table 4 The Re-situated Analysis for Four Case Companies

engineering groups in Singapore

It is one of six major telecom service providers

in China

It is one of the largest branded Personal Computer (PC) manufacturers in China

It is one of the top 10 pharmaceutical companies in China

The market is segmented into two parts One part is a competitive market, and the other is a cost plus market

The telecom industry in China is highly regulated

by the government

Both the market structures of the buyers and the suppliers are oligopoly markets

The market in the PC industry

is highly competitive

Although there are many suppliers in the market, the leading PC manufacturers purchase only from the leading suppliers

The pharmaceutical industry in China is closely supervised by the government

The pharmaceutical market is segmented into high end and low end markets The high end market

is monopolistic; while the lower end is a competitive market

EngCom cuts the costs in the supply chain through minimizing purchasing costs

EngCom’s supply chain in the cost plus market is quality-oriented

EngCom often purchases from customer designated suppliers to guarantee product quality

MobileCom’s supply chain is

knowledge-intensive

MobileCom acquires knowledge from suppliers

MobileCom invites recognized suppliers to collectively set

technological standards

The first meetings of an auction are always held to discuss technology solutions

PCCom’s supply chain is cost-sensitive

PCCom cuts time costs through supply chain coordination, and cuts the objective cost by lowering purchasing prices

PCCom has an operations department to coordinate the supply chain

PCCom adopts an Approved Vender List (AVL) to pre-qualify suppliers

PharmCom’s supply chain is quality-oriented

PharmCom controls the quality of every process, including the quality of materials, as well as the production techniques and factory environment management

Most of PharmCom’s suppliers are PharmCom’s sister

Table 4 The Re-situated Analysis for Four Case Companies (Continued)

EngCom previously negotiated the price through face-to-face meetings, but presently, EngCom serves more like a market guardian and allows the suppliers to compete with each other in

an e-auction

EngCom used to purchase a huge portion from incumbent suppliers, but presently EngCom selects suppliers through e-auctions

MobileCom uses technological clarifications

to shortlist suppliers in the first meetings If it uses the e-market, MobileCom cannot conduct technological clarifications

in an auction

MobileCom is inclined to award subsequent

contracts to existing suppliers If it adopts the e-market, it will award contracts through e-auctions

PCCom mainly selects suppliers from an Approved Vender List (AVL) If it adopts the e-market, it will be encouraged to seek new suppliers from the database of the e-market

PCCom pre-qualifies its suppliers’ coordinative capability If it adopts the e-market, it will

pre-qualify the technical competence of the suppliers

Most of PharmCom’s suppliers are PharmCom’s sister

companies If it adopts the e-market, it will be encouraged

to source in an open market

PharmCom pre-qualifies a third-party supplier by a series of assessments If it adopts the e-market, it will pre-qualify suppliers according to their technical capability

PharmCom negotiates prices with suppliers annually If it adopts the e-market, it will negotiate a price for each purchase

Unsuitable (for business units in the cost plus market), because the changes

in practice caused by e-market adoption would result in low quality products

Unsuitable, because the changes in practice caused

by e-market adoption would cut off the knowledge transfer channels from suppliers

Unsuitable, because the changes in practice caused

by e-market adoption would increase time costs and in turn increase total costs

Unsuitable, because the changes

in practice caused by e-market adoption would result in low quality products or quality problems, and in turn influence the quality of the drugs

4.1 The E-Market of ChinaMarket

In the first section of Chapter 3, the initiation, development and failure of ChinaMarket have been elaborated on Based on such background information, ChinaMarket adopted the business model of the e-market which was proposed by CommerceOne subsequently Before studying the impact of ChinaMarket’s e-market

on organizations in China, this section elaborates on the organizing principles of the business model suggested by CommerceOne, and the core practices related to the main technological elements of the e-market products

4.1.1 Organizing Principles: Free Market Transactions

The business model introduced by CommerceOne was based on the western business model, since CommerceOne is a US-based company The key principle of such a business model is to provide a free market environment for companies to conduct transactions The concept of the free market was first proposed by Adam

Smith (1776) in The Wealth of Nations It is defined as a market place where price is

determined by unregulated supply and demand This definition contains three key assumptions of the market First, transactions carried out in the market are not regulated by the government or any third party such as industry associations Second, there are many alternative buyers and suppliers in the market Third, a company in the market is a self-interested rational organization The first two assumptions place the market in a perfectly competitive environment, and the final assumption determines that companies in the market would use various methods to maximize their own benefits For instance, buyers could lower prices by intensifying competition among suppliers