Journal of Purchasing & Supply Management 11 (2005) 97–106 Managing competitive software component supplier relationships Pauliina Ulkuniemi a,Ã , Saara Pekkarinen b a Department of Marketing, Faculty of Economics and Business Administration, P.O. Box 4600, 90014 University of Oulu, Finland b Department of Management and Entrepreneurship, Economics and Business Administration, P.O. Box 4600, 90014 University of Oulu, Finland Received 29 April 2005; received in revised form 4 October 2005; accepted 7 October 2005 Abstract This study addresses purchasing challenges faced by companies buying commercial software components. The purpose is to find out how we can understand the purchasing challenges in software component business. First we develop pre-understanding based on knowledge on competitive supplier relationships and competitive bidding. This is elaborated empirically through a qualitative case study. We contribute to prior literature by concluding that the nature of software component supplier relationships is influenced by the object and costs of exchange. We also argue that, in markets like software component business, it is essential to pay attention to the development of the whole supply market. r 2005 Elsevier Ltd. All rights reserved. Keywords: Managing supplier relationships; Emerging market; Competitive purchasing 1. Introduction For some time now industrial purchasing literature has emphasised the importance of creating close and co- operative relationships with strategic suppliers and devel- oping supply networks composed of close relationships. The world of competitive bidding has, at least in relation to complex products and services, been abandoned and it has suggested that competitive bidding works only for very standardised and basic products. There is, however, an industry which apparently contradicts this point of view. In the software industry, a new segment has rapidly been emerging, one that is based on the idea of standard and competitive market forces: commercial software compo- nent business (Ulkuniemi, 2003). The software industry is one of the most influential branches of business in the present growth of the global economy (Autere et al., 1999). Software as part of other products has had a great impact across several industries, and it has enabled and fuelled economic growth in many high-tech industries, such as the telecommunication, automotive and medical industries (Hoch et al., 1999). In the field of software engineering (the development of software products and software-intensive systems), one of the most recent issues has been the increasing interest in software components (Morisio et al., 2000). Estimates put the annual market for commercial software component applications to 200 million dollars worldwide (SIIA, 2003). Component-based software engineering is based on the idea that software systems are developed by pre-producing and selecting appropriate existing components and assem- bling them according to a well-defined architecture that supports the componentisation (Pour, 1998). There are many benefits of software components including lower development costs, higher productivity and more manage- able quality of the software. Componentisation can be seen as one type of modular- isation, which has already been used in manufacturing processes of physical products. A final software system includes several software components of which some are possible to purchase from the competitive software component market. Hence, these components form mod- ules within a software system (a product) increasing the degree to which the components of the software can be ARTICLE IN PRESS www.elsevier.com/locate/pursup 1478-4092/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.pursup.2005.10.001 Ã Corresponding author. Tel.: +358 8 553 2941; fax: +358 8 553 2906. E-mail addresses: Pauliina.Ulkuniemi@Oulu.fi (P. Ulkuniemi), Saara.Pekkarinen@oulu.fi (S. Pekkarinen).