To be or not to B2B: Evaluating managerial choices for e-procurement channel adoption

With the increasing popularity of commercial uses of the Internet, business-to-business (B2B) ecommerce and e-procurement are moving corporate purchasing to the World Wide Web. Eprocurement systems are computer systems and communication networks through which firms buy and sell products. We identify two types of e-procurement systems: extranets and electronic markets. Extranets connect the buyer and its suppliers with a closed network. In contrast, electronic markets create open networks for buyer and supplier interactions. The differences between these two types of e-procurement channels lie in system implementation costs, marketplace benefits, and the extent of supplier competitive advantage that develops due to information sharing. In this article, we develop a new theoretical model to analyze the adoption of e-procurement systems from the buyer’s perspective, to explore the set of conditions under which the buyer will prefer to procure via an electronic market instead of using proprietary extranet connections. The primary finding is that a buyer will adopt an e-market approach when the supplier’s competitive advantage derived from access to strategic information is modest compared with the variable net benefit that the e-procurement channel generate. We also find that the buyer is likely to have a bigger trading network with an e-market than with an extranet in order to capture the greatest available benefits. Overall, this study offers guidelines for managers to design and select e-procurement channels to fit different procurement needs.