Trust and supplier-buyer relationships: an empirical analysis.

AutorVieira, Luciana Marques
CargoReport

Introduction

The supply chain is a phenomenon which always occurs when companies establish relationships, independent of the level of management existent. This statement distinguishes the supply chain from supply chain management (SCM), meaning that the latter is the systemic and strategic coordination of tasks among different companies that are part of a supply chain, aiming to improve each company's performance as well as the overall supply chain (Mentzer et al., 2001). Lately, SCs are becoming global, continuously connecting companies from different institutional contexts (MacDuffie, 2011). A strategic orientation in supply chain management is a key aspect to be competitive (Yeung, 2008) and trust has been pointed out as an asset for long-term partnerships (Cannon, Doney, Mullen, & Petersen, 2010). However, there are still some gaps in the literature on supply chain management. First, there are few studies comparing the level of trust existing in supply chain partnerships established in different countries, as noted by Dyer and Chu (2011). These authors recommend that future research should explore the conditions in which trust occurs. Second, other authors have conceptualized the influence several factors have on trust (Laeequddin, Sahay, Sahay, & Waheed, 2012) but have not explored the potential influence of supply chain characteristics, such as supply involvement in new product development and quality of buyer's products. For example, investigating suppliers in South Korea, Oh and Rhee (2010) found that supplier production capabilities positively influence collaboration with buyers. However, as noted by Pagell, Katz, Sheu (2005), national culture has an effect on operations management, and differences among countries or global regions should be taken into account in studies. We follow this line of reasoning and investigate how trust is influenced by supply chain factors in different global regions by asking: What are the aspects that influence trust-based relationships? Are there differences between trust-based relationships with suppliers in Western and Asian countries?

The objective of this paper is twofold. First, we want to evaluate the relationship between trust-based relationships and the following supply chain factors: supplier involvement in new product development and quality, supply partnership, and supply timeliness. By accomplishing this objective, we add to literature on supply chain management by showing how supply chain factors may be related to buyer-supplier relationships that are based on trust. Second, we want to explore whether there are regional differences related to trust-based relationships. By doing so, we provide a better understanding of how trust may be contingent upon regional differences, like cultural and institutional aspects.

This paper brings empirical data to this discussion through the results of a survey. Two groups of countries are analyzed using structural equation modeling (SEM): Western countries (some European countries, the USA and Brazil) and Asian countries (Japan, South Korea and China). Results have implications for managers who deal with multicultural contexts and international supply chains. The next section discusses the theoretical framework of trust and supply chain partnerships. Then, we describe the method applied in this research. A background of the sample follows. Finally, we discuss the main findings and outline the study' s final considerations.

Literature Review

This study analyzes relationships among firms, seeking the identification of the driving forces that motivate them to collaborate (Dyer & Chu, 2000). Harland (1996) defines supply chain management as the management of inter-business chains. Similarly, Charvet, Cooper and Gardner (2008) consider that a relevant stream of the current literature on SCM focuses on causal links between supply chain members (at least, a dyadic perspective). Trust would appear as an input or output of the supply chain management. The following discussion provides support for this research.

Trust

The study of trust began in economics and sociology, which have approached the institutional environment and inter-firm arrangements from different perspectives. Both areas of knowledge have some common interests that influence the way that supply chain management has been studied. However, sociology and economics view the issue from different perspectives. Institutional economics assumes opportunistic behavior as the norm. To the contrary, sociology pays special attention to the emergence and diffusion of trust in relationships (personal and institutional).

A number of scholars using a sociology basis have suggested that a variety of macro-level structures, including networks and governance, enhance the emergence and diffusion of trust. Trust involves at least two agents: the trustor (organization, product, institution) and the trustee (Lane & Bachmann, 1998; Nooteboom, 2002; Zucker, 1986). We considered in this paper that trust is "the extent to which one believes that others will not act to exploit one's vulnerabilities" (Morrow, Hansen & Pearson, 2004). Thus, both agents are simultaneously trustor and trustee.

Trust and supply chain relations

Morrow, Hansen and Pearson (2004) highlight the challenge of studying inter-organizational trust as only individuals, and not organizations as a whole, are capable of trust. Batt (2000) asks, for example, who is able to develop trust, the salesperson or the sales organization? Organizations and individuals may pursue their self-interests by forming relationships with others to economize on transaction costs (Batt, 2000; Lindgreen, 2003; Morrow et al., 2004; Sako, 1992). Examples are the sharing of information on bad payers, reducing the need to inspect quality or the need to organize payment at the time of delivery. Besides reducing transaction costs, the reduction of uncertainty and information asymmetry is an important consequence of a trusting relationship (Dyer & Chu, 2003). There has been some criticism regarding the use of transaction cost, as it focuses on dyadic relationships and cannot really identify interdependence across chains. It also fails to analyze the institutional complexity, change and power existent in business relationships (Cox, Lonsdale, Sanderson, & Watson, 2004; Dubois, Hulthen, & Pedersen, 2004).

Trust is a key factor for the development of partnerships among the different agents of a supply chain, distinguished between interpersonal and inter-firm trust (Johnston, Mccutcheon, Stuart, & Kerwood, 2004). The creation of trust in inter-firm relationships can be considered related to a country's cultural context (Dyer & Chu, 2003; Sako, 1992; Zaheer & Zaheer, 2006). In this sense, Dyer and Chu (2000), in their meritorious study, found significant levels of supplier trust in the US, Japan and Korea. These differences are related to the institutional environment. These authors suggest that supplier trust depends on frequency and long-term interactions (which they called process based trust). However, they also admit that the automaker buyers studied incur additional costs while developing this kind of relationship.

Supplier involvement

First, it is crucial to define involvement. We consider involvement as "the act of sharing in the activities of a group" (Webster's, 2008, p. 711). Therefore, according to our definition, partnership is a more advanced state in a relationship between buyers and suppliers than involvement. Involvement is a condition for partnership but it is possible that involvement is present in some situations of relationship while trust and partnership are not.

The literature on new product development has provided evidence suggesting that supplier involvement may positively contribute to improve buyer ability to develop new products (Brown & Eisenhardt, 1995; Montoya-Weiss & Calantone, 1994; Ragatz, Handfield, & Petersen, 2002; Song & Benedetto, 2008). These contributions by suppliers to buyer ability to develop new products are somewhat related to trustworthy relationships between buyers and suppliers. Dyer's works (Dyer & Chu, 2000, 2003) and Zaheer, McEvily and Perrone (1998) have contributed to provide an understanding of how trust-based relationship can reduce opportunistic behavior by suppliers and improve their contribution to new product development. High levels of trust reduce the need for buyers and suppliers to spend long periods of time and effort during meetings to negotiate and write complex contracts in order to safeguard their investments in the relationship. By reducing the time and effort required to negotiate and monitor the relationship, buyers and suppliers can focus on one activity that mostly contributes to new product development: information exchange between parties. Information exchange can help the buyer obtain information about innovation occurring on the supplier side. In this case, new components and product parts can contribute to incremental and even radical product development.

Hypotheses

Supplier involvement and trust

Supplier involvement in quality tends to influence the trust between buyers and suppliers because it demonstrates supplier commitment to the quality of its outputs. In this case, better supplier outputs mean better buyer inputs into the production system, influencing buyer performance (Chopra & Mendl, 2010). Trust may also reduce the need for buyers to monitor supplier deliveries and quality of inputs as well as reduce the need to enforce penalties in the case of lower quality inputs (Dyer & Chu, 2003). In this case, supplier involvement in quality may become a first step for commitment in a relationship and contribute to an improving cycle of trust: increasing quality may lead to reduction in transaction costs, which in turn improves trust, reinforcing the relationship and rewarding supplier involvement in quality. Finally, supplier involvement in quality may be a form of...

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