The effects of supply chain collaboration on performance and transaction cost advantage: The moderation and nonlinear effects of governance mechanisms

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Abstract

A buying firm attempts to seek economic and social benefits through supply chain collaboration. Successful collaboration is predicted not only to strengthen a buying firm performance but also to reduce transaction costs. Establishment of an appropriate governance is of a great help in stabilizing a relationship and strengthening performance. Therefore, this study aims to identify underlying factors that constitute collaboration and transaction cost advantage, to explore effects of supply chain collaboration on firm performance and transaction cost advantage, and to examine the moderation effect of governance mechanisms in the proposed relationships. Data were obtained via a web survey of Korean manufacturing firms across different industry sectors. Confirmatory factor analysis was performed to assess the unidimensionality, reliability, and validity of a large-scale survey and hierarchical regression analysis was conducted for the hypotheses testing. The results indicated that supply chain collaboration leads to better firm performance and transaction cost advantage and that performance results in transaction cost advantage. A further analysis of the moderation effect of governance mechanisms indicated that firm performance with contractual governance yields better transaction cost advantage and that supply chain collaboration with contractual governance results in better transaction cost advantage than with relational governance. The findings contribute to the supply literature by providing theoretical and empirical implications. In theory, various collaborative practices in the supply chain and types of transaction cost are identified. Valid and reliable scales are also confirmed through successive stages of measurement analysis. In practice, clear definition of supply chain collaboration offers guidance in designing appropriate and effective collaborative activities which can result in a better performance. Managers are also advised to identify contexts in which either a contractual governance or a relational governance can be best utilized.

Introduction

Over the last two decades, firms have relied heavily on collaboration with partners to seize internal and external opportunities (Cao and Zhang, 2011, Wallenburg and Schffler, 2014). Collaboration refers to more than two parties' working together with the pursuit of completing tasks and eventually achieving joint goals (Liao et al., 2017). Firms have strategically recognized the importance of supply chain collaboration (SCC) (Abdi and Aulakh, 2017, Chen et al., 2017) to seek higher efficiencies in sourcing, planning, producing, and distributing (Soosay and Hyland, 2015). SCC enables firms to share gains and losses, greatly extend their resources and capabilities beyond their boundaries, and exchange key information, thus eventually resulting in better performance and overall cost reduction (Cao and Zhang, 2011, Chen et al., 2017). Many a global company such Samsung, Sony, Apple, and IBM have relied heavily on close collaboration with their partners for sustainable competitive advantage. Supply chains are now being exposed to more dynamic environments, caused by globalization and competition, rapid growth in technologies, and fluctuations in customer demand, and therefore focus firms more on collaborative efforts (Soosay and Hyland, 2015).

Despite the history and benefits of SCC, many partnerships suffer from unwanted outcomes (Fawcett et al., 2015). Those poor outcomes may result from uncertainty (Katsikeas et al., 2009), goal incongruence (Prosman et al., 2016), and absence of governances (Huang et al., 2014) that can effectively control and manage the relationships. The potential causes that jeopardize improvements in performance have prevented numerous firms from harvesting advantages of SCC (Fawcett et al., 2015). SCC seems to be of great importance, but extant literature challenges SCC, arguing that the concept is incomplete in terms of its conceptualization (Flynn et al., 2010). Various definitions of SCC have yielded inconsistent findings, suggesting that components of collaboration can be contingent upon contextual variables such as relation length, supplier involvement, and dependency (Cao and Lumineau, 2015, Cao and Zhang, 2011). A rich body of literature has concentrated on the operationalization of SCC that broadens our understandings of its concept on this expanding area (Blome et al., 2014, Chen et al., 2017, Gimenez and Sierra, 2013, Grekova et al., 2014, Lu et al., 2012, Ramanathan and Gunasekaran, 2014). However, the current understanding of SCC offers few frameworks for accurately capturing the extent of SCC (Cao and Zhang, 2011). Existing theories have provided support for the development of SCC. For instance, the Resource-based view (RBV) theory argues that firms can achieve sustainable advantages by combining resources (e.g., core competence, dynamic capability, absorptive capacity) in a unique way (Barney, 1991). According to RBV, a buying firm can strengthen core values by investing in relation-specific assets and exploiting resources, knowledge, and know-how of its key suppliers, all of which make it challenging for its competitors to imitate (Cao and Zhang, 2011, Fawcett et al., 2015, Jap, 2001). This view explains that a buying firm's superiority can be yielded through heterogeneity (Cao and Zhang, 2011). The Relational view (RV) theory suggests that superior performance is generated within networks (Dyer and Singh, 1998). This view delineates that firms can cultivate supernormal profit that cannot be made by either firm in isolation but can be generated only through an exchange relationship (Dyer and Singh, 1998, Cao and Zhang, 2011). The transcendent value can be elaborated when collaborative partners share and combine idiosyncratic resources and knowledge through investment in relation-specific assets, knowledge-sharing routines, and the establishment of effective governance modes (Fawcett et al., 2015). Those theories emphasize the importance of collaboration by taking non-relational and relational aspects of collaboration into account. An integrated approach to SCC yields the better predictability of evaluating impacts of SCC on performance. Therefore, we will identify the nature and characteristics of SCC and investigate its impact on firm performance.

Second, in the examination of consequences of SCC, existing literature has unexplored transaction cost advantage achieved through SCC. Transaction costs are expenses incurred in transactional processes, from searching exchange partners and negotiating and enforcing contracts, to monitoring performance and adjusting to situational conditions (Williamson, 2008). While collaboration with suppliers creates a source of sustained competitive advantage, supplier opportunism may threat to the achievement of a joint goal (Huang et al., 2014, Xie et al., 2016). Supplier opportunism, viewed as a supplier's self-interest-seeking behaviors with guile (Williamson, 1991), endangers an exchange relationship because the supplier is likely to show diminished responsibilities, deliver incorrect information, or make false promises (Yan and Kull, 2015). Such behaviors expose a buying firm to transaction risks regarding disappointing returns on investment in the relationship or leakage of valuable assets (Yan and Kull, 2015). Supplier opportunism seems likely to appear, especially when situations are unfavorable (Williamson, 1991). To protect an exchange relationship from a supplier's opportunism, a buying firm must supervise the supplier's current and future behaviors, the protective efforts that increase transaction costs (Wacker et al., 2016, Yang et al., 2016). However, effective collaboration can signal that a supplier makes genuine commitments to an ongoing relationship (Dahlstrom and Nygaard, 1999). As such, if a buying firm confirms improvements in its performance, the company can save considerable expenses of what would otherwise be paid such as controlling, monitoring, and negotiating its suppliers. This study will thus demonstrate impacts of SCC and firm performance on transaction cost advantage.

Third, regarding the specific setup of supply chain collaboration, previous literature has paid particular attention to selection of appropriate governance modes in an effort to mitigate suppliers' opportunism (Abdi and Aulakh, 2017, Bai et al., 2016, Cao and Lumineau, 2015, Prosman et al., 2016, Wacker et al., 2016). The exchange hazard is a potential concern for a buying firm because, it, if not fixed or removed, is detrimental to an ongoing relationship. To avoid the potential issue, supply chain members call for an effective governance by which transactions are regulated and guided (Cao and Lumineau, 2015). Governance, which deals with operational and structural aspects of collaboration between involved parties, falls into two main types. One is contractual governance, which refers to the extent to which a collaborative relationship is governed by a formal contract which specifies formal rules, obligations, and duties (Cao and Lumineau, 2015, Zhou and Poppo, 2010). The other type relational governance refers to the extent to which an inter-organizational relationship is governed by social relations and shared norms (Poppo et al., 2008, Zhou and Xu, 2012). While previous research has typically explored antecedents (e.g., opportunism, uncertainty) (Poppo and Zenger, 2002, Yang et al., 2016) and consequences (e.g., information sharing, performance, collaboration) (Liu et al., 2009, Lu et al., 2015, Schmoltzi and Wallenburg, 2012, Wu et al., 2014) of governance mechanism, little is known about the moderation effect of governance mechanism. In addition, previous literature has produced contradictory and inconsistent findings. Specifically, one school of thought views the interplay of governance as a substitute that the dependence on one governance reduces the other (Ghoshal and Moran, 1996, Li et al., 2010). A second one defines the relationship that the dependence on one governance is independent of the dependence of the other (i.e., complementary) (Poppo and Zenger, 2002, Yang and Wang, 2011). The relationship between contractual and relational governance, however, does not necessarily have to play by an existing rule and may be contingent upon situational and contextual factors (Abdi and Aulakh, 2017). Instead, this study explores and identifies an appropriate mode of governance that can leverage SCC and performance. An issue of the moderation effect of governance mechanisms on the SCC, performance, and transaction cost advantage appears to have gained less attention. This issue should be addressed as a mismatch between SCC and the mode of governance can jeopardize a current relationship and impede the achievement of a joint goal. Therefore, we will explore which governance may serve better to facilitate collaboration and strengthen performance.

This study aims (1) to investigate the effect of supply chain collaboration on a buying firm performance; (2) to analyze the effect of the performance on transaction cost advantage; (3) to examine the direct effect of supply chain collaboration on transaction cost advantage; and (4) to explore the moderation effect of governance mechanisms on each relationship.

This paper is organized as follows. We provide the literature on supply chain collaboration, performance, transaction cost advantage, and governance mechanisms, and propose a research framework. We then discuss the research design including the sampling and data collection, and measurement selection. We display the results and analysis. Finally, we present the summaries of this study including both academic and managerial implications, limitations, and future considerations.

Section snippets

Supply chain collaboration

Supply chain collaboration (SCC) has strategically gained much attention from firms which wish to create a comparative advantage over competitors (Chen et al., 2017, Fawcett et al., 2015, Liao et al., 2017, Ramanathan and Gunasekaran, 2014, Soosay and Hyland, 2015). SCC refers to no less than two autonomous firms working together across their boundaries for the fulfillment of a shared goal (Cao and Zhang, 2011, Chen et al., 2017, Flynn et al., 2010, Yan and Dooley, 2013). SCC enables firms to

Sampling and data collection

Supply chain collaboration represents the bilateral relationship between supply chain members. Therefore, we conceptualize the theoretical constructs to investigate the dyadic relationship between a buying firm (i.e., manufacturers) and its key supplier. We measured the theoretical constructs only from a buying firm's point of view. A web survey was conducted in South Korea to test the hypotheses of this study. As an important global manufacturing base, South Korea is a major powerhouse to

Theoretical implications

The objectives of this study are to examine how supply chain collaboration shapes a buying firm performance, how increased performance enables a buying firm to take advantage of transaction cost, and how supply chain collaboration directly contributes to a buying firm's transaction cost advantage. This study additionally investigates the moderation effects of governance mechanisms on those hypothesized relationships.

This study has confirmed valid and reliable measurement items for supply chain

Conflict of interest

We declare no conflicts of interest.

Funding

This work was supported by Kyung Hee University [grant number 20160694].

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