A Study of Sourcing Channels for Electronic Business Transactions

There are two popular forms of business-to-business (B2B) marketplaces: public marketplaces and private channels. We study why firms choose either or both of these sourcing channels. Using a framework of decision making under uncertainty, we explain firms' choice of B2B channels as a hedging strategy and as a method of obtaining greater managerial flexibility for the future. We show that greater uncertainty can lead to higher investment with firms more likely to invest in both public and private channels. We find that the level of information technology (IT) capability and spending is an important factor in firms' decision making. When a firm chooses its level of IT investment simultaneously with the decision about which sourcing channels to use, the firm choosing both channels selects the highest level of IT capability and the firm implementing only one channel selects lower levels of IT capability