Leveraging Offshore IT Outsourcing by SMEs through Online Marketplaces

Following their larger counterparts, an increasing number of small firms outsource their IT tasks to lower cost offshore destinations. For small firms, however, offshore outsourcing is a difficult undertaking as it involves high transaction costs. Online marketplaces for IT services, which have recently become available to small firms, make offshore IT outsourcing more accessible and manageable, although differences in the marketplace design result in varying outcomes across the marketplaces. This has consequences for SME’s decision as to which online marketplace to use, because different markets may have different types of benefits and costs. This paper sets to analyze some of the similarities and differences between online marketplaces for IT services and their effects for small firms. First, we analyze if and how online marketplaces reduce small firms’ transaction costs in offshore IT outsourcing. Second, we examine the effects of market entry barriers on outcomes of online marketplaces and their implications for small firms. The results indicate that online marketplaces for IT services do reduce transaction costs for small firms in offshore outsourcing across ten specific market processes. More surprising, however, is the finding that the lower market entry barriers for suppliers result in lower prices for buyers without compromising other aspects of market performance.Offshore IT Outsourcing;Online Market;Process-Stakeholder Analysis;Reverse Auction

Efficient multi-attribute auctions considering supply disruption

Although supply disruption is ubiquitous because of natural or man-made disasters, many firms still use the price-only reverse auction (only the cost is considered) to make purchase decisions. We first study the suppliers’ equilibrium bidding strategies and the buyer’s expected revenue under the first- and second-price price-only reverse auctions when the suppliers are unreliable and have private information on their costs and disruption probabilities. We show that the two auctions are equivalent and not efficient. Then we propose two easily implementable reverse auctions, namely the first-price and second-price format announced penalty reverse auction (APRA), and show that the “revenue equivalence principle” holds, i.e., the two auctions generate the same ex ante expected profit to the buyer. We further show that the two reverse auctions are efficient and “truth telling” is the suppliers’ dominant strategy in the second-price format APRA. We conduct numerical studies to assess the impacts of some parameters on the bidding strategies, the buyer’s profit and social profitPeer ReviewedPostprint (author's final draft

To Score or Not to Score? Estimates of a Sponsored Search Auction Model

We estimate a structural model of a sponsored search auction model. To accomodate the "position paradox", we relax the assumption of decreasing click volumes with position ranks, which is often assumed in the literature. Using data from "Website X", one of the largest online market places in China, we find that merchants of different qualities adopt different bidding strategies: high quality merchants bid more aggressively for informative keywords, while low quality merchants are more likely to be sorted to the top positions for value keywords. Counterfactual evaluations show that the price trend becomes steeper after moving to a score-weighted generalized second price auction, with much higher prices obtained for the top position but lower prices for the other positions. Overall, there is only a very modest change in total revenue from introducing popularity scoring, despite the intent in bid scoring to reward popular merchants with price discounts

How do bidders’ organism reactions mediate auction stimuli and bidder loyalty in online auctions? The case of Taobao in China

© 2016 Elsevier B.V.Currently, it is critical to nurture bidder loyalty in the highly competitive online auction business. This study investigated the mediating effect of consumer perceptions between technological/brand stimuli and bidder loyalty to an online auction website by applying the traditional and evolutionary stimulus-organism-response models. We tested these models using 449 bidders from Taobao, an online auction service provider in China. Based on the results of covariance-based structural equation modelling, we showed that consumer perceptions fully mediate technological stimuli, but only partially mediate brand stimuli, and bidder loyalty. These results can be used to further improve the related research and practice.Link_to_subscribed_fulltex

Effects of Player's Participation Patterns on Economic Performance of Entertainment Shopping Website

Online pay-per-bid auction is a new entertainment shoppingformat with a mechanism that integrates the characteristics of traditional e-commerce, online auctions, lotteries and games. Previous researches have shown this auction format possesses high variances and uncertainties. However, research on the players' participation patterns and performance is rare. In this study, we attempt to study how players' participation patterns can affect both their own and websites' performance. An empirical study with data collected from an online pay-per-development website with 5,650players' participation behavior is performed. Particularly, the role of players preference is also explored through a cluster analysis of their historical participations. Multiple linear regression models and regression models with beta distributions are used for hypothesis testing. Findings confirm that players participation performance and websites revenue strongly associated with the players participation patterns. The results show that (1) players with longer lifetime perform better and contribute more revenue to the website; (2) players participating in more auctions show worse performance and websites obtain more revenue from them; and (3) players with a strong preference behave more irrationally and website benefits more from them. Both theoretical and managerial implications are discussed

How Marketing Factors Influence Online Browsing and Sales: Evidence From China's E-Commerce Market

As the e-commerce market evolves from being primarily transactional to being more subtle, sellers now seek to form online strategies. Previous studies have investigated buyers’ purchasing patterns, online transaction trust, electronic word-of-mouth, online resale behavior as well as online auctions. However, less is known about the antecedents that effect store traffic and sales. By using real market data from a major Chinese C2C e-commerce site, this article investigates C2C transactional formation and identifies sellers’ performance payoffs that result from various marketing factors. Marketing factors that influence store traffic and sales will be analyzed by means of the Negative Binomial model and Tobit model. Results point out that strong store reputation and high service quality are crucial indicators for increasing number of browsers and sales amount. In accordance with the results of prior research, advertising is confirmed as an effective tool for positively influencing both store traffic and sales. In addition, we found that guarantee policies can positively impact store sales only by interacting with reputation ratings. Drawing on empirical findings, we also discuss the managerial implications for C2C sellers and put forth some recommendations

Trust and Trustworthiness in Imbalanced Markets

In this thesis, we use the methodology of experimental economics to investigate issues of trust and trustworthiness in procurement and the supply chain. First, we develop a procurement model in which both seller-side and buyer-side decisions are endogenous to the trading relationship. We investigate how a real-world contractual incentive mechanism, retainage, can be used to overcome the seller-side moral hazard problem. We find that retainage can improve trade efficiency but in-creases market prices and may deter participation. We offer managerial insights on how to design the retainage mechanism, conditional on levels of trust and trustworthiness. Second, we extend the procurement model to incorporate a contingent contract and show analytically that this contract can mitigate the seller-side moral hazard problem. We observe in a lab experiment that suppliers strategically adjust their bids with a contingent contract and that the contingent contract has unintended behavioural con-sequences, with buyers rewarding sellers less for the quality of works delivered. The results have managerial implications for the use of hierarchical elements in contracts. Third, we analyse theoretically and experimentally the horizontal effects of supply chain late payments. We show that if firms discount payment received after the standard term, then late payments feed into higher prices and reduced competition. Reneging on a standard payment term entails a penalty for the buyer set by a third-party. If this penalty is not set carefully, a welfare loss arises due to price externalities. We demonstrate how free-riding payment behaviours may emerge among financially weaker buyers in the firm population

Leveraging Offshore IT Outsourcing by SMEs through Online Marketplaces

Following their larger counterparts, an increasing number of small firms outsource their IT tasks to lower cost offshore destinations. For small firms, however, offshore outsourcing is a difficult undertaking as it involves high transaction costs. Online marketplaces for IT services, which have recently become available to small firms, make offshore IT outsourcing more accessible and manageable, although differences in the marketplace design result in varying outcomes across the marketplaces. This has consequences for SME’s decision as to which online marketplace to use, because different markets may have different types of benefits and costs. This paper sets to analyze some of the similarities and differences between online marketplaces for IT services and their effects for small firms. First, we analyze if and how online marketplaces reduce small firms’ transaction costs in offshore IT outsourcing. Second, we examine the effects of market entry barriers on outcomes of online marketplaces and their implications for small firms. The results indicate that online marketplaces for IT services do reduce transaction costs for small firms in offshore outsourcing across ten specific market processes. More surprising, however, is the finding that the lower market entry barriers for suppliers result in lower prices for buyers without compromising other aspects of market performance

Creating business value through e-marketplace trading

Electronic marketplaces (e-marketplaces) have been researched over many years from the study of electronic data interchange (EDI) systems to the current internet based trading platforms. Early e-marketplaces connected a buyer and supplier using proprietary systems that established a market hierarchy. The buyer was responsible for the system, established the terms of trade and the electronically enabled supplier could connect to the system. These systems were costly to build, which limited their use, and only organisations with an integrated system could use them. The web based e-marketplaces opened up the possibility of connecting many buyers and suppliers and enabling electronic transactions. The e-marketplace offers opportunities for establishing trade relationships with many organisations across the world. Business to business (B2B) e-commerce is a significant part of the Australian economy and there are opportunities to take advantage of e-marketplace trading. One of the advantages of electronic trading is the ability of the technology to deliver transaction benefits; these can have a significant impact on organisations regardless of organisational size. However, despite the potential of the e-marketplace to deliver organisational benefits there have been limited studies which consider the strategic implementation of e-marketplace trading. Organisational strategy and the implementation of strategic initiatives involve interactions between organisational structures and agents. The analytical dualism this represents complicates uncovering the fundamental causes of e-marketplace participation. Not only does the adoption of e-marketplace trading impact on the buyer and supplier organisations, it introduces the e-marketplace vendor organisation and the e-marketplace technology into the participation decision. The complexity of the interactions across organisational structures and between organisational agents and technology adoption can produce a diversity of outcomes. The philosophical underpinning of critical realism for the study is supported by the lack of understanding as to why, and in what circumstances, organisations successfully participate in e-marketplace trading. The critical realist philosophy provides the opportunity to understand the interrelationships between context, organisational structures and agents and identify the causal mechanisms involved in producing various outcomes. It allows for the development of middle level theory as existing theories are examined to explain the perceived phenomena. Large organisations operating in Western Australia are used as case studies to uncover the causal relationships between context, structures and agents that can produce successful, strategic implementation of e-marketplace participation. Existing literature in relation to e-marketplaces and IT adoption is used to develop the research questions and formulate the interview questions. The structured case methodology is used to analyse each case and relate the findings to possible explanatory theories. Context, mechanism and outcome patterns, identified in each case, are presented. Building on economic market, institutional and network theories the research identifies organising vision theory and community discourse as explanations for organisational legitimation that can circumscribe the use of e-marketplace trading. Six types of community group that influence organisational adoption of e-marketplace technology are identified. The research suggests that the influence of these groups within the organisation, the fit with organisational culture and strategic objectives can prevent or instigate change. Further, the decision making process supported by the group (or group member) is more influential in the strategic adoption of the e-marketplace than the ability of the technology to deliver efficiency or transaction processing gains. This implies that technology adoption studies should include contextual and environmental issues and practitioners should examine how much their decision making is influenced by organisational and environmental features. The thesis contributes to the discussion on organising vision theory, e-marketplace trading and business value creation. It demonstrates the application of the structured case study methodology to research that is underpinned by critical realism

Contingent Payments in Procurement Interactions - Experimental Evidence

A chief objective of creating competition among suppliers is the procurement of higher quality goods at lower prices. When procuring non-standard goods, it is often difficult to write a complete specification of desired quality in the contract. A moral hazard arises when this quality is costly and determined by the supplier ex post to contracting. In an effort to mitigate this moral hazard, we introduce a correlated contingent payment contract. This contract is awarded through competitive bidding. The winning supplier’s payment is, according to a fixed probability, either the amount of their bid or a quality contingent amount that depends on the bid and an exogenous norm for how a seller and buyer split social surplus. We show, both theoretically and experimentally, there is a “Goldilocks” region for high quality to emerge in which the probability of quality contingent payment is large enough to reward high quality provision, but not too large to induce overly aggressive bidding. This optimal implementation only relies upon preferences for maximizing one’s own profit and the rationality of backward induction. A surprising experimental result is that suppliers earned positive economic profits within this region. We estimate a structural model of bounded rationality to show that risk aversion can explain this result. These results have managerial implications for the design of contingent payments in contracts