Can Market-Based Contracts Substitute for Alliances in High Technology Markets?
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964
JOURNAL OF INTERNATIONALBUSINESS STUDIES, SPECIALISSUE 1996
SynchrotonRadiation Facility,The Joint EuropeanTorus, CERN and the EuropeanCommunityresearchlaboratoriesall select suppliersbased on the lowest bidder(and partly on geographicquotas). For policymakersand the generalpublic, the economic and technologicalevaluationof such relationshipshas beendifficultand recently,has come underincreasingpublicscrutiny. This study examines forty-nine equipment contracts between CERN, the EuropeanLaboratoryfor ParticlePhysics,and its industryequipmentsuppliers in ten Europeancountries.CERN is the most importantlarge-scale internationalbasicresearchcentrein Europeand has a wide rangeof different types of productsand suppliersthat spans five differenttechnologydomains: electricalengineering,mechanicalengineering,ultra-highvacuumtechnology and super conductivitymaterialsand cryogenics,telecommunications,and electronics.The scientificequipmentdevelopedby CERN is technologically very advanced,and productdevelopmenttime is often measuredin years.The developmentof such projectsrelies on core capabilitiesfound within CERN itself and on the complementaryexternalskills availablein nationalresearch institutes,universitiesand industry. Although CERN typically designs, constructs and operates its scientific devices,the manufacturingof componentsis mostlysubcontractedto industry. From an industrialsupplier'sperspective,dealingwith an internationalscientific laboratoryinvolvesconsiderableeffort.In additionto cost pressures,there are technicaldifficultiescaused by demandingspecificationsand the need to producenonstandardproducts.Sincerequiredcomponentsare seldomreadily availableon the market,industrialsuppliersmust often commit specificassets to productionthat are monitored by the researchcentres through detailed technicalspecifications. While other forms of technology-intensivecollaboration do occur, the dominant trading interface used by CERN in its dealings with industrial suppliersis fixed-pricemarket-basedcontracts.Accordingto the purchasing rules[CERN 1984],calls for tendersneed to be sent to at least threepotential suppliers in member states of the European Union. In practice, CERN's PurchasingOffice has, until recently,made an effort to contact all member states so that the typical number of suppliers bidding on contracts over 200,000Swissfrancscan go as high as seventyfirms.Thesecontractsare short term in nature;the averagelengthof a contractis twenty-twomonthsand the averagevalue is 600,000Swissfrancs. Althoughabout 15%of industrialsuppliersdo receivefollow-upcontracts,the tendering procedure of CERN does not automatically favor established suppliers.Since sealed bids are opened in the presenceof externalobservers, and the biddersidentifiedand rankedon the spot, thereis no way any supplier can have access to privilegedinformationthat might strengthentheir bid. In addit
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