Understanding governance mechanisms of buyer-supplier relationships in emerging markets

Abstract

Interfirm governance has been the subject of buyer-supplier relationships studies for decades. Given the substantial hazards and uncertainties involved in interfirm exchanges, governance devices becomes critical in ensuring satisfactory performance outcomes. Despite the great insights provided by extant governance literature, the complexity of governance mechanisms has not been fully addressed. The goal of this dissertation is to better understand the role of contractual and relational governance in influencing interfirm co-exploration, protecting transaction-specific investments, and fostering interfirm exchanges in the challenging context of China.

The first study looks at how contracts function in emerging economies in which legal institutions are underdeveloped but guanxi norms are pervasive. Drawing on transaction cost economics and institutional theory, this study disentangles two facets of contractual governance: (1) task specificity, which primarily safeguards transactions, and (2) contingency specificity, which mainly coordinates adaptations. This study examines their direct effects on exchange performance and their contingent effects, given different levels of legal inadequacy and guanxi importance. A survey of 307 manufacturer–supplier dyads in China reveals that, compared with contingency specificity, task specificity is associated with better exchange performance. However, the role of task specificity declines when the legal system is inadequate and guanxi is important. In contrast, contingency specificity is more helpful when guanxi importance is high.

The second study explores how relational ties affect exchange partners’ co-exploration of novel products and processes. A tension between the strength and brokerage dimension of relational ties becomes evident during buyer-supplier co-exploration. Tie strength facilitates coordinating but creates the novelty problem; tie brokerage expands the knowledge diversity but aggravates the coordination difficulty. Drawing on the relational exchange theory, this study compares and examines the contingent value of tie strength and tie brokerage under different levels of environmental factors and exchange characteristics. The findings from a survey of 396 manufacturer–supplier dyads in China show that guanxi importance increases the effects of strength while decreases the value of brokerage. As market uncertainty increases, the role of brokerage becomes more salient. Brokerage also exerts a stronger impact on co-exploration when exchange is highly formalized, whereas tie strength has a weaker impact when exchange centralization is high.