Buyer–supplier relationships on environmental issues: a contingency perspective

Journal of Cleaner Production xxx (2014) 1e12

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Buyeresupplier relationships on environmental issues: a contingency perspective Cristina Sancha a, Christina W.Y. Wong b, *, Cristina Gimenez Thomsen a a b

ESADE Business School, Universitat Ramon Llull, Barcelona, Spain Business Division, Institute of Textiles and Clothing, The Hong Kong Polytechnic University, Hong Kong, China

a r t i c l e i n f o

a b s t r a c t

Article history: Received 25 February 2014 Received in revised form 4 September 2014 Accepted 5 September 2014 Available online xxx

Our study analyzes the effectiveness of governance mechanisms (transactional or relational) in managing buyeresupplier relationships with respect to environmental issues. Based on data from 170 firms located in Hong Kong, this study empirically identifies the mechanism that enhances suppliers' commitment towards environmental protection, and hence allows buying firms to improve their environmental performance. In addition, we have adopted a contingency perspective to investigate the conditions (namely product complexity, relationship stability and relationship adaptability) under which these governance mechanisms are more effective in nurturing supplier commitment. Our results suggest that while both mechanisms lead to suppliers' commitment with environmental issues, their effectiveness can be leveraged if they are applied under specific conditions. In particular, transactional mechanisms are more effective in situations of high product complexity and high relationship stability and adaptability. Relational mechanisms show higher effectiveness if they are used in the context of low product complexity and low relationship adaptability. Furthermore, implications for managers are also derived from this study. © 2014 Elsevier Ltd. All rights reserved.

Keywords: Buyeresupplier relationships Environmental Contingency

1. Introduction One of the key challenges companies face with respect to environmental sustainability is its extension to other supply chain members. In fact, suppliers' poor environmental management can jeopardize the buying firm's environmental performance (Faruk et al., 2002). It is therefore important that buying firms properly govern their relationships with suppliers to foster their suppliers' commitment to green initiatives. Many firms use similar mechanisms to govern the environmental management of their suppliers but they seem to provide different results. For example, Hitachi, a Japanese multinational in the electronic sector that was awarded with the 2012 Green Award and is known for its active involvement in environmental initiatives, asserts that it collaborates with its suppliers to guarantee that they are environmentally responsible in their operations. However, other companies, such as Nike, which followed the same approach failed to achieve the same positive

* Corresponding author. E-mail addresses: [email protected] (C. Sancha), Christina.wy.wong@ polyu.edu.hk, [email protected] (C.W.Y. Wong), [email protected] (C. Gimenez Thomsen).

results, and its suppliers were found to have environmentally irresponsible behaviors. Other firms have opted to contractually specify their suppliers' environmental requirements. For example, Mattel, an American toy manufacturing company, in its contracts clearly states its environmental policy and requests its suppliers to abide by the policy. Yet, Mattel has been forced to recall nearly 1 million products because a supplier had used lead paint in the products. These real-life case examples suggest that there are different governance mechanisms in terms of explicit and implicit control that firms can use to green up their suppliers and that each governance mechanism may be effective only under certain circumstances. The green supply chain management (GSCM) literature has emphasized the use of mechanisms to green up suppliers, ranging from codes of conduct, assessment tools, to collaborative practices (e.g., Simpson et al., 2007; Rao and Holt, 2005; Zhu and Sarkis, 2004; Lee and Lam, 2012). However, the effectiveness of specifying suppliers' environmental obligations in contracts has been underexplored. This paper draws on the buyeresupplier relationship (BSR) literature and examines environmental governance in supply chain relationships from two key governance mechanisms: transactional (in terms of explicit contract) and relational mechanisms (in terms of implicit control). It is important to mention that

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the effectiveness of these governance mechanisms on relationship outcomes (e.g., operational performance, satisfaction, opportunism) has been widely studied (e.g., Li et al., 2010; Liu et al., 2009; Lumineau and Henderson, 2012; Mahapatra et al., 2010; Nyaga et al., 2010). However, to the best of our knowledge, the study about the effectiveness of governance mechanisms in the context of GSCM, though highly important to ensure suppliers being environmentally responsible, has been largely neglected. Hence, it is worthwhile to investigate under which circumstances the traditional means of governance are effective in enhancing suppliers' environmental behavior. In this paper, our objective is to determine the effectiveness of governance mechanisms (transactional or relational) in managing BSR with respect to environmental issues. Specifically, this study empirically identifies the mechanism that enhances suppliers' commitment towards environmental protection, and hence allows the buying firm to improve its environmental performance. We adopt the contingency approach and investigate under which contingencies these mechanisms are more effective in nurturing supplier commitment. Understanding the impact of key contextual variables (i.e., operational and relational contingencies) is crucial for identifying the appropriate governance structure to manage environmental issues in a BSR. As such, this study aims to answer the following research questions: (1) what are the appropriate governance mechanisms to gain supplier commitment on complying to environmental requirements? and (2) what are the conditions under which these mechanisms are effective in achieving supplier commitment? By drawing on prior BSR literature, this study contributes to and provides new insights into the GSCM literature. In particular, we examine the neglected role of explicit contract and implicit control on supplier commitment in environmental management. This study extends the current understanding about the effectiveness of transactional and relational mechanisms in terms of explicit contract and implicit control in environmental governance by examining the effect of different contextual variables. In addition to these contributions to the existing research, we provide key managerial guidelines to managers in managing green supply chains. For instance, the findings inform managers the circumstances under which it is more advisable to manage their suppliers' environmental relationship explicitly by using an explicit contract or implicitly by building mutual understanding of how to carry out solutions and improve the environmental performance. The paper is structured as follows. In Section 2 we provide the theoretical background on transactional and relational mechanisms as well as the development of the hypotheses. The methodology used is described in Section 3. In Section 4 we present the hypotheses testing and the obtained results. The discussion of the results together with the theoretical and managerial implications are presented in Section 5. Finally, in Section 6 we provide some conclusions, state the limitations of the paper and suggest future lines of research. 2. Theoretical background and hypotheses development 2.1. Governance of buyeresupplier relationships Goal differences, opportunistic behavior, and different operational routines make the governance of BSR essential (Birnberg, 1998; Jap and Ganesan, 2000; Mohr and Spekman, 1994). Governance between business partners refers to the mechanisms in a relationship that guide the parties' behavior with the aim of fulfilling some common objectives (Liu et al., 2009). In the BSR literature, there are two traditional sets of mechanisms to govern such relationships, namely transactional and relational mechanisms

(Aulakh et al., 1996; Brown et al., 1995; Heide and John, 1992; Jap and Ganesan, 2000; Lumineau and Henderson, 2012). While transactional mechanisms govern exchanges amongst parties through the use of explicit and detailed contracts (Heide and John, 1992; Heide and Stump, 1995; Lusch and Brown, 1996; Williamson, 1985), relational mechanisms govern such exchanges through shared behavioral expectations that imply implicit control and mutual understanding between parties (Gibbs, 1981; Heide and John, 1992; Lusch and Brown, 1996; Macneil, 1980). Transactional and relational mechanisms are generally considered in previous research as effective governance mechanisms in curtailing opportunism, mitigating conflict and enhancing performance (Cannon et al., 2000; Cavusgil et al., 2004; Jap and Ganesan, 2000; Li et al., 2010; Liu et al., 2009; Nyaga et al., 2010; Poppo and Zenger, 2002). For instance, Cavusgil et al. (2004) found that relational norms are an effective tool for deterring opportunism. Similarly, Liu et al. (2009) suggested that both relational and transactional mechanisms are effective in alleviating opportunism, yet, transactional mechanisms are more powerful than relational mechanisms. Regarding the effectiveness of these mechanisms on performance, prior studies have considered performance from different perspectives. Some of them have looked at the traditional measures of operational performance (i.e., quality, delivery, flexibility and cost) in their research (Cannon et al., 2000; Jap and Ganesan, 2000; Liu et al., 2009; Nyaga et al., 2010), while others have considered relationship performance (e.g., satisfaction with the relationship, achievement of common goals) (Jap and Ganesan, 2000; Li et al., 2010; Poppo and Zenger, 2002). Cannon et al. (2000) found that transactional (i.e., contracts) and relational (i.e., social norms) mechanisms were both effective in enhancing operational performance. Similarly, Liu et al. (2009) found that although both mechanisms are effective in contributing to performance improvements, relational mechanisms are more profound in improving performance than transactional ones. As an explanation of the different performance impacts of the two mechanisms, Jap and Ganesan (2000) suggest that the effectiveness of these governance mechanisms on enhancing operational performance, preventing conflict, and improving relationship satisfaction is contingent on the relationship phase. While relational mechanisms are vital in the maturity phase of the relationship, transactional mechanisms are essential in the decline phase. These results indicate the important role of contingencies in a BSR that may affect the performance impacts of different governance mechanisms. To answer the research questions of this study, we examine the impact of transactional and relational mechanisms on relational performance (i.e., supplier commitment) by drawing on the transaction cost economics (TCE) and social exchange theory. TCE, whose primary objective is to design effective governance mechanisms to govern exchanges between exchange parties, prescribes formal contracts as a governance tool. According to TCE, transactional mechanisms are derived from economic rationality that governs BSR through the use of explicit contracts (Heide and John,1992; Lusch and Brown, 1996; Williamson, 1985). As stated by Williamson (1985), explicit contracts “entail comprehensive contracting whereby all relevant future contingencies pertaining to the supply of a product or service are described and discounted with respect to both likelihood and futurity” (p. 69). In that sense, a detailed contract, which stipulates the rights and obligations of exchange parties and limits acceptable behavior between them, can effectively protect the relationship against opportunistic behavior and bounded rationality since it (1) specifies rewards and sanctions, (2) provides details about the resolution of conflicts and disputes, and (3) helps establish the longevity of the relationship (Coase, 1937; Williamson, 1985). On the other hand, social exchange theory describes BSR as social interactions and socially embedded relationships in economic

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activities (Granovetter, 1985). Governance is then the result of agreed values and processes that are derived from these social relationships (Macneil, 1980; Noordewier et al., 1990; Heide and John, 1992). The enforcement of the relationship obligations is based on social processes that promote norms of flexibility, solidarity, and information exchange. These relational norms facilitate adaptation to unexpected events, joint problem solving and joint action between exchange parties, which promote mutuality and cooperation between both parties (Poppo and Zenger, 2002). In other words, relational mechanisms govern BSR by generating common standards of expected behavior and relational norms that increase the parties' commitment towards the relationship (Granovetter, 1985; Seabright et al., 1992). Relational norms, which refer to the expected behavior shared by both parties, circumscribe and guide the parties' conduct helping them to achieve their goals (Heide and John, 1992) and improve the relationship (Macneil, 1980; Noordewier et al., 1990). These relationship improvements are related to the expectations of continuity that accompany relational mechanisms, which encourage both parties to invest in the relationship. In this paper, our objective is to extend the presented BSR framework (i.e., transactional and relational governance mechanisms) to the GSCM context. In the context of environmental sustainability, the need to govern such relationships is pivotal since there is high risk of suppliers acting opportunistically. In our study, we define transactional mechanisms as explicit contracts that entail the specification of the buyer's environmental requirements to suppliers. On the other hand, relational mechanisms are considered as implicit control that describes the parties' mutual understanding with respect to environmental issues. In the following sections we develop hypotheses related to the effectiveness of each governance mechanism on achieving suppliers' environmental commitment (i.e., willingness to comply with the buyers' environmental requirements) and their effect on the buying firm's environmental performance. 2.2. Hypotheses development 2.2.1. Transactional mechanisms Transactional mechanisms are those that govern BSR through detailed and binding contractual agreements (explicit contracts hereafter) (Cannon and Perreault, 1999). Explicit contracts stipulate the parties' rights and obligations, specify duties and expected outputs to be delivered, and propose penalties for non-compliance (Cannon and Perreault, 1999; Liu et al., 2009; Poppo and Zenger, ~ o, 2007; Williamson, 1985). In that sense, 2002; Reuer and Arin contracts provide the parties with a framework that will guide task fulfillment and will constrain opportunistic behavior (Carson et al., 2006; Liu et al., 2009). If contracts are sufficiently elaborated and carefully built they can become a form of quasi-integration and establish an interfirm authority that can lead behavior (Stinchcombe, 1985). As pointed out by Yu et al. (2006), explicit contracts will serve to increase suppliers' compliance with the buyer's requirements as a way to support their relationship. This means that, in the context of environmental sustainability, the stipulation of environmental requirements and conditions by the buyer in a contract will result in the supplier making efforts to comply with them (e.g., make environmental evaluations of their products or improve their business operation). Therefore, we hypothesize that:

H1: Explicit contract, in which the buyer specifies environmental requirements, is positively associated with the suppliers' commitment to buyer's environmental requirements.

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2.2.2. Relational mechanisms In some cases, contracts can be a liability since they can become increasingly complex, specific, and difficult to account for all the uncertainties in a BSR, hence favoring the development of relational mechanisms to govern such relationships (Reve, 1986; Nyaga et al., 2010). Relational mechanisms, rather than counting on enforceable contractual agreements, rely on implicit norms that determine the appropriate behavior in a BSR and help identify mutual understandings between partners with respect to their obligations (Lusch and Brown, 1996). These norms provide an €ls et al., important safeguard against opportunistic behavior (Canie 2012; Macneil, 1980; Dwyer et al., 1987). Hence, implicit norms create informal pressures that lead to cooperation and guide the partners' behavior to fulfill the relationship requirements (Kauffman and Carter, 2006; Lusch and Brown, 1996; Ring and Van de Ven, 1994). In BSRs governed by implicit norms, suppliers are more willing to make investments related to green initiatives €ls et al., 2013). The institutional forces induced from implicit (Canie control reflect the social reinforcement of partner firms to cooperate and join force to address environmental issues in the supply chain. Such relational mechanism is conductive to collaboration and commitment for long-term exchange and social legitimacy. Mutual understandings with respect to environmental issues (e.g., environmental protection requirements, actions to take in case of environmental accident) will encourage the supplier to adopt such behaviors that lead to the fulfillment of the buyers' environmental requirements. Therefore, we hypothesize that:

H2: Implicit control by buyers on environmental management is positively associated with suppliers' commitment to buyers' environmental requirements.

Supply chain environmental governance, whether explicit contracts or implicit control, is described as being effective in suppliers' compliance with buyers' environmental requirements. Based on the contingency theory, contextual variables influence the effectiveness of these governance mechanisms, implying that the impact of environmental governance (i.e., explicit contract and implicit control) on suppliers' environmental commitment is not universal and may be affected by different contingencies. Additionally, “alignment” theory suggests that any strategy is only appropriate in a given set of conditions or situations (Chorn, 1991). In this study, we consider both operational (i.e., product complexity) and relational conditions (i.e., relationship stability and adaptability) as exchange conditions that potentially affect the effectiveness of supply chain environmental governance on the suppliers' environmental commitment. In the following lines we describe their role and hypothesize their impact on the relationships between environmental governance mechanisms and supplier commitment. 2.2.3. Explicit contract, implicit control and product complexity Explicit contracts are crucial to structure and control BSR (Cannon and Perreault, 1999). However, “contracts are not indefinitely elastic” (Williamson, 1991, p. 273) meaning that regardless how explicit a contract is, there will be certain dimensions of the relationship that may be impossible to specify. It is virtually impossible to account contractually for every possible set of circumstances that may arise in a BSR (Johnson, 2006). As a result, the ability of the exchange partners (i.e., buyer and supplier) to fulfill the relationship requirements is constrained (Macneil, 1980). As such, product complexity, understood as the customizability,

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intricacy, and varieties of the products (Schoenherr et al., 2010), might be a hindrance for the effectiveness of contracts in the governance of BSR. Product complexity implies that the level of sophistication and technicality of the suppliers' products increases resulting in more complex contracts. As product complexity increases, the number of technicalities, specificities and requirements to be considered also increases. In this context, contracts will not be able to account for all of them. Based on this limitation, explicit contracts will be a rigid mechanism to govern the relationship and will be less effective in achieving environmental commitment. For example, if a specificity has not been considered in the contract, the supplier may be reluctant to adapt its processes (especially, if it incurs more costs). In fact, Williamson (1991) describes contracts as being more effective in perfectly competitive markets that involve simple and functional products rather than complex ones. Therefore, we hypothesize that:

H1a: The effectiveness of explicit contracts on the suppliers' environmental commitment is higher when product complexity is low as opposed to high product complexity.

As pointed out by Nyaga et al. (2010), limitations coming from explicit contracts are better addressed by relational mechanisms (i.e., implicit norms). This means that the explicit contract shortcomings that arise in situations of high product complexity can be overcome by the use of implicit norms. Relational mechanisms (i.e., implicit control) are described as being more suitable for situations involving complex and innovative products (Dyer, 1997; Teece et al., 1997) since they entail openly sharing useful information, ideas or initiatives, solving possible conflicts and problems by working together and participating in joint decision making between both partners (Macneil, 1980; Heide and John, 1992; Jap and Ganesan, 2000). As such, the use of relational mechanisms provides a flexible governance mechanism for partner firms to mitigate complications that may arise in managing complex products. Thus, we hypothesize that:

H2a: The effectiveness of implicit control mechanisms on supplier's environmental commitment is higher when product complexity is high as opposed to low product complexity.

2.2.4. Explicit contract, implicit control and relationship stability Relationship stability involves adopting a long-term orientation towards the relationship rather than understanding partners' exchanges as discrete events (Dwyer et al., 1987; Lai et al., 2005). For a relationship to be described as stable, the joint work of partners is needed. In addition, it requires the partners to be willing to make short-term sacrifices to realize long-term benefits of the relationship (Dwyer et al., 1987). Lai et al. (2005) consider willingness to adopt harmony, to foster cooperation and to maintain a good relationship with the supply chain partner as indicators of relationship stability. We have argued for a positive relationship between explicit contracts and supplier commitment to environmental issues. However, the effectiveness of this contractual agreement in leading the supplier to make efforts to comply with the buyers' environmental requirements may be hampered if the supplier does not see the relationship with the buyer as a long-lasting one (i.e., low

relationship stability). In contexts of low relationship stability, the supplier does not see the maintenance of a harmonious relationship with the buyer as a preference and may not cooperate in fulfilling the contractual requirements, showing lower levels of commitment (Lai et al., 2005). Therefore, we expect that specifying the buyer's environmental requirements in a contract will be more effective in contexts of high relationship stability. The supplier will be willing to make sacrifices (e.g., product modifications such as the use of more environmentally friendly raw materials) for the benefit of the relationship, showing willingness to comply with the buyer's environmental requirements (i.e., higher commitment). Thus, we hypothesize that:

H1b: The effectiveness of explicit contracts on the suppliers' environmental commitment is higher when relationship stability is high, as opposed to low relationship stability.

The same reasoning applies for the relationship between implicit control and the suppliers' environmental commitment. Implicit control in a BSR suggests the existence of expected and acceptable environmental performance and standards that are shared by buyers and suppliers (Heide, 1994). It provides a set of guidelines of environmental requirements that govern the decisions and actions of suppliers. Although implicit control enables mutual understanding of responsibilities and roles of suppliers, restraining the temptation of opportunism (Yang et al., 2008, 2009), such condition may change based on the level of relationship stability. When suppliers perceive a non-harmonious relationship and do not see the potential of future cooperation in the BSR, the implicit control fails to curtail the self-interest seeking of suppliers. This is mainly because the objectives of gaining legitimacy by following the institutional governance for mutual benefits in environmental protection diminish. On the contrary, suppliers are likely to continue to commit to the environmental requirements governed by implicit control when they perceive a future exchange relationship. Thus, we hypothesize that:

H2b: The effectiveness of implicit control on the suppliers' environmental commitment is higher when relationship stability is high, as opposed to low relationship stability.

2.2.5. Explicit contract, implicit control and relationship adaptability Relationship adaptability entails the willingness of one exchange party to make investments in the relationship to fulfill the needs or requirements of the other exchange party (Cannon and Perreault, 1999). These investments can imply adaptations in processes, products or procedures. For instance, partners can adapt their inventory and distribution policies, product features or even change capital equipment (Hallen et al., 1991; Noordewier et al., 1990). These adaptations can be initiated by any of the parties and can be mutual or one-sided (Campbell, 1985). In BSR suppliers can be expected to adapt to the needs of their customers (Hallen et al., 1991). In this line, we will focus on those adaptations that the supplier makes to fulfill the buying firm's environmental requirements. By committing resources to the relationship, the supplier adapts to the needs of the buyer (Metcalf et al., 1990). Therefore, these adaptations are specific investments that show commitment by the supplier (Ford, 1981). For instance, to comply

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with customers' environmental requirements (e.g., reduce the products' environmental footprint), suppliers can be expected to adapt their production processes by changing their current capital equipment to the one that pollutes less. In previous lines we have hypothesized a positive and direct effect between both types of governance mechanisms (i.e., explicit contract and implicit control) and supplier's environmental commitment, meaning that the formal stipulation of environmental requirements by the buyer in the contract and the mutual understanding between buyer and supplier with respect to environmental issues will lead to suppliers' efforts in fulfilling the buying firm's environmental requirements. To meet buyers' environmental requirements, suppliers may need to modify their products, processes or even procedures (e.g., avoid using hazardous materials or use recycled materials). The suppliers' willingness to invest in making necessary adaptations (i.e., relationship adaptability) will ease the compliance with the buyers' environmental requirements both coming from explicit contracts and/or implicit norms. However, in contexts of low relationship adaptability, the supplier will not implement the needed changes, making the compliance with the buyer's requirements more difficult. In fact, attempts at greening suppliers are bound to fail if suppliers are not able to make the required adaptations €ls et al., 2012). In that sense, we believe that the effectiveness (Canie of explicit contracts and implicit control on supplier commitment will be moderated by the extent to which the supplier is willing to adapt to the buying firm's requirements and hypothesized that:

H1c: The effectiveness of explicit contracts on the suppliers' environmental commitment is higher when relationship adaptability is high, as opposed to low relationship adaptability.

H2c: The effectiveness of implicit control on the suppliers' environmental commitment is higher when relationship adaptability is high, as opposed to low relationship adaptability.

2.2.6. Supplier's commitment and environmental performance Commitment is the key element to successful relationships (Morgan and Hunt, 1994) and is defined as “an enduring desire to maintain a valued relationship” (Moorman et al., 1992, p. 316). In this study we focus on supplier's commitment and we define it as the efforts made by the supplier to comply with the buying firm environmental requirements (e.g., product improvements). Commitment leads to mutual benefits for both parties in a relationship (i.e., buyer and supplier) (Anderson and Weitz, 1992). In fact, as stated by Morberg and Speh (2003) the partners' desired outcomes can only be achieved through the partner's existing commitment to the relationship. If the supplier is committed to its relationship with a buying firm, the supplier will make efforts to ensure that their relationship continues and will therefore meet the buying firm's environmental requirements (Prahinski and Benton, 2004) contributing to improve its performance. In other words, suppliers' efforts to comply with buying firm's environmental requirements (i.e., supplier commitment) (Wong, 2013) will result in improved environmental performance for the buying firm (e.g., reduction in hazardous materials used as a result of suppliers' providing more environmentally friendly products). Accordingly, we hypothesize (Fig. 1):

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H3: Supplier commitment is positively related to buying firm's environmental performance.

3. Methodology 3.1. Sample and data collection The garment trading industry in Hong Kong was selected to be the empirical setting for a number of reasons. While many consider China as being the world's largest garment production base and export country (China Research and Intelligence Co. Ltd., 2012), with growing trend of clothing consumption due to rapid economic growth (Gu, 2011), Hong Kong plays a significant role as the major ^t for foreign companies to source and market garments in entrepo the Chinese mainland. Being the world's 10th largest trading economy, 62% of Hong Kong re-exports were of China origin, while 54% were destined for the China market (Hong Kong Census and Statistics Department, 2013). The garment trading firms in Hong Kong facilitate trade and provide value added services, such as sourcing and quality assurance. However, Chinese manufacturers were recently accused of conducting environmentally irresponsible acts, such as discharging toxic and hazardous waste, raising public concern of products made in China (Barboza, 2011; Watts, 2011). Such case also raises hesitation of international garment retailers, e.g., Nike, Adidas, and H&M, in sourcing from China, as they are being criticized for not being able to monitor and manage their Chinese manufacturers. Facing the increasing concern of environmental damages, the garment trading firms play a major role in supplier management to ensure supplier compliance to environmental regulations and specifications. This study focuses on the garment trading industry to minimize potential effects of industrial and product differences, ensuring high internal validity. According to the Hong Kong Statistics and Census Department, the population of the garment firms in Hong Kong in 2013 was approximately 1000. The sample for this study was randomly drawn from Dun & Bradstreet. A mailing list of 800 garment trading firms was established and three waves of surveys were administrated. 170 usable responses were collected, representing a response rate of 21.25%, which is similar to prior environmental management studies targeting executives as key-informants (Wiengarten et al., 2013). Executives, such as CEO, president, vice president, director, environmental managers, operations managers, sourcing managers, and supply chain managers, were identified as target respondents due to their knowledge in environmental and supplier management, and environmental performance. In addition, 47.6% of the respondents have been working with the company for more than 5 years, thus they possess knowledge of the management of suppliers in China. The garment trading firms in Hong Kong are relatively small in scale. In fact, more than 50% of them have less than 10 employees (Hong Kong Census and Statistics Department, 2013). This is in line with our sample, in which 56.5% of the sample firms have less than 10 employees. Table 1 summarizes the profile of respondents. 3.2. Bias issues If respondents differ substantially from non-respondents, nonresponse bias might be a threat to our study. To test for nonresponse bias, we used the extrapolation method suggested by Armstrong and Overton (1977), which assumes that late respondents are similar to non-respondents. In that sense, we conducted t-test to compare the first-wave and the second-wave

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Fig. 1. Research model.

mailing responses. t-test is appropriate to analyze differences among groups (e.g., early and late respondents) by assessing whether the means of two groups are statistically different from each other (Trochim, 2002). In that sense, as our objective is to analyze if the responses of early and late respondents differ, we found the use of t-test suitable. Our results showed no statistical differences across the variables at p < 0.05, suggesting that nonresponse bias is not an issue in our study. Further, we tested for non-response bias by comparing whether there is significant difference across the variables of early respondents and the respondents who initially declined to respond but returned the questionnaire later. The test results show no significant difference at p < 0.05. These results collectively suggest that non-response bias is not an issue in this study. Since the data was collected from a single informant, common method variance can be an issue. We therefore took steps to minimize the problem. We first segmented the questions in the questionnaire into sections pertaining to the dependent and independent variables (Podsakoff et al., 2003). Second, we assessed through Harman's one-factor test (Podsakoff and Organ, 1986) if there was only one factor that accounted for the majority of the covariance. The results indicated that no single factor accounted for more than 40% of the total variance, providing preliminary evidence that common method variance is not an issue in this study. Third, following Lindell and Whitney (2001), we used a marker variable to detect common method variance. We used firm ownership type as marker variable, which is theoretically unrelated to the dependent variables in our study. We found that firm ownership type is not significantly related to any of the variables, suggesting that common method bias is not a considerable concern in this study.

3.3. Measures To improve the validity of the measurement, we adapted existing scales from the literature for our constructs: explicit contract (Cannon and Perreault, 1999; Heide and Stump, 1995), implicit Table 1 Sample profile. Annual sales HKD$20M
$50M >HKD$50M
$100M >HKD$100M

Percentage 52.9 22.9 7.6 9.4 7.1

Number of employees 1e10 11e50 51e100 101e500 >500

56.5 22.4 11.8 6.5 2.9

control (Lusch and Brown, 1996), supplier commitment (AragonCorrea, 1998; Buysse and Verbeke, 2003; Siguaw et al., 1998), and environmental performance (Montabon et al., 2007). A five point Likert-scale was used for assessment, where a higher value indicates a higher detail level of contract, higher level of implicit control, higher level of supplier commitment, and better performance. Following Gerbing and Anderson (1988), we performed confirmatory factor analysis (CFA) to assess the psychometric properties of the measurement scales using the maximum likelihood estimation of AMOS 20.0. The CFA results of the measurement scales are summarized in Table 2. The goodness-of-fit indices, namely comparative fit index (CFI), incremental fit index (IFI), TuckereLewis coefficient (TLI), of all the constructs are above the recommended cut-off value of .90. The root mean square residual (RMR) of all the constructs are also below the recommended threshold of .08 (Hu and Bentler, 1999). The reliability of all the constructs surpasses the recommended .70 threshold of Cronbach's alpha and composite reliability, suggesting that the measurement scales have adequate reliability (Nunnally, 1984). We evaluated the convergent validity by assessing the loadings and significant level of each measurement item on their respective construct. As shown in Table 2, all the measurement items load significantly on their respective constructs with factor loadings ranging from .58 to .97, suggesting convergent validity of the theoretical constructs. The average variance extracted (AVE) of each construct also exceeds the recommended value of .50 (Fornell and Larcker, 1981), providing further evidence of strong convergent validity. As depicted in Table 3, the bivariate correlations between explicit contract, implicit control, supplier commitment, product complexity, relationship stability, relational adaptability, and environmental performance range from .20 to .60 at p < 0.05, indicating acceptable criterion validity (Nunnally, 1984). We tested the discriminant validity of the constructs by conducting a series of chi-square difference tests to assess the differences between each pair of constructs. The chi-square difference test between each pair of constructs are conducted by comparing the chi-square between the unconstrained model where the two constructs vary freely, with the constrained model where the path between the two constructs are constrained. The results are summarized in Table 3. The chi-square difference of each pair of construct is found statistically significant, suggesting discriminant validity of constructs (Bagozzi et al., 1991).

4. Hypotheses testing 4.1. Structural model testing To test the hypotheses, we established a structural equation model using maximum likelihood estimation of AMOS 20.0. The goodness-of-fit indices indicate that the structural model provides

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C. Sancha et al. / Journal of Cleaner Production xxx (2014) 1e12 Table 2 Measurement scales. Construct & indicators (goodness of fit indices)

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Table 2 (continued ) Construct & indicators (goodness of fit indices) Loadings

Explicit contract (CFI ¼ 0.92; IFI ¼ 0.92; TLI ¼ 0.75; RMR ¼ 0.05; Cronbach's alpha ¼ 0.94; Composite reliability ¼ 0.94; AVE ¼ 0.79) 1. Specifying our environmental requirements in our contract with .97 major supplier. 2. Listing the technical environmental requirements of our company .94 in our contract with major supplier. 3. Listing the conditions of termination due to failure to meet .84 environmental requirements in our contract with major supplier. 4. Listing disputes and arbitration about our environmental .79 requirements in our contract with major supplier. Implicit control (CFI ¼ 0.95; IFI ¼ 0.95; TLI ¼ 0.90; RMR ¼ 0.04; Cronbach's alpha ¼ 0.94; Composite reliability ¼ 0.94; AVE ¼ 0.75) 1. The mutual understanding of the role of both parties with our .75 supplier in environmental protection is 2. The mutual understanding of how both parties perform with our .84 major supplier in environmental protection is 3. The mutual understanding of how to carry out solutions for .89 failure with our major supplier in environmental protection is 4. The mutual understanding of how to settle down conflicts with .91 our major supplier in environmental protection is 5. The mutual understanding of actions to be carried out when there .92 are accidents that damage the environment is Supplier commitment (CFI ¼ 0.98; IFI ¼ 0.98; TLI ¼ 0.95; RMR ¼ 0.02; Cronbach's alpha ¼ 0.90; Composite reliability ¼ 0.90; AVE ¼ 0.69) 1. Our major supplier keeps evaluating and improving their services .77 and products supplied to us to comply with our environmental requirements. 2. Our major supplier keeps evaluating and improving their .87 business operation to fulfill our environmental requirements. 3. Our major supplier keeps managing environmentally related data .86 and information to facilitate quality enhancement to comply with our environmental requirements. 4. Our major supplier designs a set of procedures to ensure the .83 reliability, consistency and access efficiency of environmentally related data and information to comply with our environmental requirements. Environmental performance (CFI ¼ 0.98; IFI ¼ 0.99; TLI ¼ 0.99; RMR ¼ 0.01; Cronbach's alpha ¼ 0.87; Composite reliability ¼ 0.86; AVE ¼ 0.60) 1. Reduction in the use of electricity .65 2. Reduction in total packaging materials used .70 3. Reduction in air emissions .86 4. Reduction in solid waste disposal .87 Product complexity (CFI ¼ 1.00; IFI ¼ 1.00; TLI ¼ 1.00; RMR ¼ 0.01; Cronbach's alpha ¼ 0.86; Composite reliability ¼ 0.86; AVE ¼ 0.53) 1. The sophisticated level of the items from our major supplier is .58 2. The technical level of the items from our major supplier is .84 3. The complicated level of the items from our major supplier is .87 4. The environmentally responsible level of the items from our .58 major supplier is Relationship stability (CFI ¼ 0.93; IFI ¼ 0.93; TLI ¼ 0.90; RMR ¼ 0.03; Cronbach's alpha ¼ 0.93; Composite reliability ¼ 0.93; AVE ¼ 0.73) .83 1. The determination level of our major supplier to maintain a harmonious relationship with us by complying with our environmental requirements is 2. The frequency of our communication with major supplier about .83 our environmental requirements reduces most of the misunderstandings is 3. The willingness of our major supplier to maintain a harmonious .91 relationship with us for future cooperation in environmental protection is 4. The willingness of our major supplier maintains a harmonious .88 relationship with us for goodwill in environmental protection is .83 5. The willingness of our major supplier maintains a harmonious relationship with us for smooth arrangements of contract in environmental protection is Relational adaptation (CFI ¼ 0.97; IFI ¼ 0.97; TLI ¼ 0.94; RMR ¼ 0.03; Cronbach's alpha ¼ 0.90; Composite reliability ¼ 0.90; AVE ¼ 0.58)

In order to fulfill our environmental requirements, 1. The frequency of our major supplier to alter the merchandises' features is 2. The frequency of our major supplier to train their personnel is 3. The frequency of our major supplier to alter their inventory and distribution is 4. The frequency of our major supplier to change their marketing is 5. The frequency of our major supplier to change their capital equipment is

Loadings .76 .65 .82 .80 .80

Questionnaire items (Likert scale: 1 ¼ very low, 5 ¼ very high).

acceptable fit to the survey data (c2 ¼ 270.99, df ¼ 115, IFI ¼ .94, TLI ¼ .92; CFI ¼ .93, RMR ¼ .05). The results indicate that both explicit contract (b ¼ .22, p < 0.05) and implicit control (b ¼ .43, p < 0.001) are positively related to supplier commitment, which subsequently is positively associated with environmental performance (b ¼ .29, p < 0.001). These results provide support to Hypotheses 1, 2 and 3 respectively, and show that both explicit contract and implicit control are significantly and positively associated to supplier commitment, while supplier commitment in turn is significantly and positively related to environmental performance. 4.2. Moderated structural model testing To examine the contingencies of the relationship between explicit contract and supplier commitment, and implicit control and supplier commitment, we used the multi-group analysis in AMOS 20.0 for a number of reasons. First, multi-group analysis allows us to compare different conditions, e.g., highly complex products vs. less complex products, that are beneficial or detrimental in nurturing supplier commitment. Such discovery can provide insights into the situations where it is beneficial to apply explicit contract or implicit control in order to obtain supplier commitment. Second, multigroup analysis has been shown as a more appropriate approach to assess the moderating effects of contingencies than positing them as direct interactive effects, which are short of details about the structural associations between the independent and dependent variables under different conditions of the contingencies. Following the guidelines of Marsh and Hocevar (1985) and prior studies (e.g., Doll et al., 2004), we conducted the multi-group analysis in four steps for each contingency factor, i.e., product complexity, relationship stability, and relational adaptability. First, we split the sample and classified them into high and low groups based on the mean of the composite score of each contingency factor. Second, we established a baseline model where all the structural parameters varied freely across the two groups. Third, we formed a constrained model by constraining the parameters to be equal across the two groups. Fourth, the chi-square difference test was conducted to assess the equality of the paths between the baseline and constrained model. An insignificant or small chi-square difference suggests structural invariance, indicating that the same pattern of structural relationships exists between the high and low groups. Following this procedure, we created a high product complexity group (n ¼ 92) and low product complexity group (n ¼ 78). We conducted multi-group analyses using AMOS 20.0. We tested the influence of high and low product complexity on the relationship between explicit contract and supplier commitment, and between implicit control and supplier commitment, while constraining the path between supplier commitment and environmental performance. Panel A in Table 4 summarizes the findings of the multigroup analysis. The significant chi-square difference of the baseline and constrained models (Dc2 ¼ 75.57, Ddf ¼ 37, p < 0.05)

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Table 3 Mean, standard deviations, correlations, and chi-square differences. Construct

Mean

SD

1

1. Explicit contract 2. Implicit control

2.26 2.72

.92 .83

a

55** 38.5*** .49** 77.6*** .20** 72.2*** .41** 62.9*** .43** 49.1*** .03 114.5***

2

3

4

5

6

.39** 34.1*** .60** 25.9*** .48** 51.2*** .54** 29.3*** .15 103.8

.20* 86.0*** .46** 39.2*** .25** 73.7*** .18* 76.4***

.45** 10.4*** .53** 8.1*** .18* 70.5**

.49** 7.9** .11 31.7***

.28** 34.5***

b

3. Product complexity

2.69

.63

4. Relationship stability

3.09

.80

5. Relational adaptation

2.70

.69

6. Supplier commitment

2.98

.81

7. Environmental performance

3.31

.66

a b

**p < 0.01; *p < 0.05 (2-tailed). Chi-square difference with df ¼ 1; ***p < 0.001; **p < 0.01; *p < 0.05.

The associations between explicit contract and supplier commitment, and between implicit control and supplier commitment under different levels of relationship stability are tested following the same procedure. The total sample firms are divided into a high (n ¼ 86) and low (n ¼ 84) relationship stability groups based on mean split. The significant change in chi-square values between the baseline and constrained models is found (Dc2 ¼ 75.57, Ddf ¼ 37, p < 0.05), suggesting the contingent role of relationship stability. The relationship between explicit contract and supplier commitment in the high group is positive and significant (b ¼ .38, t ¼ 2.79), but in the low group is insignificant (b ¼ .24, t ¼ 1.32). These results provide support to Hypothesis 1b and indicate that explicit contract is beneficial to cultivate supplier commitment under a highly stable relationship in a supply chain. The chi-square difference test for the relationship between implicit control and supplier commitment is insignificant (Dc2 ¼ 1.14, Ddf ¼ 1, p > 0.05). The relationship in the high group (b ¼ .16,

provides support to proceed with the equality test of the paths between high and low product complexity groups. The findings indicate that product complexity moderates the relationship between explicit contract and supplier commitment, and the relationship is positive and significant (b ¼ .37, t ¼ 2.80) when the level of product complexity is high. On the other hand, the relationship between implicit control and supplier commitment is positively significant in the less complex product group (b ¼ .61, t ¼ 4.38). These results show that product complexity moderates the relationships between both types of governance mechanisms (i.e., explicit contract and implicit control), but do not support our hypotheses (H1a and H2a). Opposite to what we have hypothesized, the results suggest that the use of explicit contract can nurture supplier commitment when the buyers and suppliers work with high complex products. Also, contrary to what we hypothesized in H2a, the use of implicit control brings supplier commitment when less complex products are developed.

Table 4 Multi-group analysis results. Panel A: invariance tests across different levels of product complexity Models

c2

df

RMR

IFI

CFI

Dc2

Ddf

p

Baseline model Constrained model Constrained path: Explicit contract / supplier commitment Implicit control / supplier commitment

468.34 543.91

231 268

.06 .08

.90 .88

.90 .88

75.57

37

<.05

473.17 472.12

232 232

.07 .07

.90 .90

.90 .90

4.83 3.78

1 1

<.05 <.05

Highly complex product

Less complex product

Hypothesis

.37**a (2.80)b .24 (1.84)

.02 (.167) .61*** (4.38)

H1a not supported H2a not supported

Panel B: invariance tests across different levels of relationship stability Models

c2

df

RMR

IFI

CFI

D c2

Ddf

p

Baseline model Constrained model Constrained path: Explicit contract / supplier commitment Implicit control / supplier commitment

454.96 561.95

231 268

.06 .15

.90 .87

.90 .87

106.99

31

<.05

503.20 456.10

232 232

.06 .06

.90 .90

.90 .90

48.24 1.14

1 1

<.05 >.05

Highly stable relationship

Less stable relationship

Hypothesis

.38** (2.79) .16 (1.99)

.24 (1.32) .34 (1.88)

H1b supported H2b not supported

Panel C: invariance tests across different levels of relationship adaptation Models

c2

df

RMR

IFI

CFI

D c2

Ddf

p

Baseline model Constrained model Constrained path: Explicit contract / supplier commitment Implicit control / supplier commitment

454.51 539.82

231 268

.06 .13

.90 .88

.90 .87

85.31

37

<.05

459.32 459.17

232 232

.06 .07

.90 .90

.90 .90

4.81 4.26

1 1

<.05 <.05

a b

High relational adaptation

Low relational adaptation

Hypothesis

.30* (2.50) .38** (3.04)

.04 (.30) .44** (2.91)

H1c supported H2c not supported

Standardized coefficient. t-Value.

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t ¼ 1.99) and low group (b ¼ .34, t ¼ 1.88) are both insignificant. These results suggest that supplier stability does not moderate the relationship between implicit control and supplier commitment, thus, not supporting Hypothesis 2b. Lastly, we test the influence of relational adaptation by classifying the firms into high (n ¼ 97) and low (n ¼ 73) groups of relational adaptation based on mean split. The chi-square difference test shows that the associations between explicit contract and supplier commitment, and between implicit control and supplier commitment, are contingent on the level of relational adaptation (Dc2 ¼ 85.31, Ddf ¼ 37, p < 0.05). Explicit contract is found advantageous to nurture supplier commitment on environmental protection when suppliers are highly adaptive to fulfill environmental requirements (b ¼ .30, t ¼ 2.50), but such relationship is insignificant if suppliers exhibit low level of relational adaptation (b ¼ .40, t ¼ .30). These results support Hypothesis 1c. On the other hand, the relationship between implicit control and supplier commitment in the high group (b ¼ .38, t ¼ 3.04) and low group (b ¼ .44, t ¼ 2.91) of relational adaptation are both positive and significant, with a significant change of chi-square values. The fact that the coefficient for the low group is higher suggests, contrary to what we hypothesized, that implicit control encourages supplier commitment when the relationship exhibits less relational adaptation in comparison to high relational adaptation. This provides no support for Hypothesis 2c. 5. Discussion As suggested in the literature, supplier environmental commitment is crucial for buying firms to achieve environmental performance. The research question of this study concerns the impact of transactional and relational governance mechanisms on supplier commitment on environmental protection, and subsequently, its impact on environmental performance. In addition, we examine the operational and relational conditions under which these governance mechanisms can improve supplier commitment. We found that both explicit contract and implicit control have positive impact on supplier commitment. In line with prior studies, our findings indicate the importance of both transactional and relational governance mechanisms to nurture supplier commitment in buying firms' environmental requirements. While explicit contract provides clear specifications of environmental expectations and requirements for suppliers to oblige due to legal sanction, implicit control helps develop long-term orientations of suppliers by having mutual understanding between the exchange parties in a supply chain. Consistent with our theorization, the study results also show that supplier environmental commitment is important for buying firms to improve environmental performance. Suppliers' commitment and willingness to fulfill the buying firm's environmental requirements (i.e., use of recycled packaging, avoidance of hazardous and/or toxic materials) implies that the buying firm will receive more environmentally friendly raw materials to be used in the production process. As we have already mentioned, both explicit contract and implicit control will help buying firms achieve suppliers' environmental commitment. However, these mechanisms might not be effective in all kind of contexts. In that sense, we examined the operational and relational conditions between buyers and suppliers in influencing the effectiveness of these governance mechanisms. More specifically, we examined the role of product complexity, relational stability and relational adaptation. Regarding product complexity, we expected explicit contract to be more effective when product complexity is low. On the contrary, we expected implicit control to be more effective when product complexity is high. Our results, however, show the opposite. When partner firms are in a relationship to develop a highly

9

complex product, the suppliers tend to be more committed to the buying firm's environmental requirements with the use of an explicit contract. On the other hand, implicit control can engender supplier commitment when the product complexity is low. These unexpected results can be explained as follows. In case of high product complexity, there is a higher likelihood that an environmental problem or incident may occur, as there are more components, more processes, and more suppliers involved. Under these circumstances, contracts are perceived to be more effective, as the probability to use the contract (as a result of an environmental incident) is higher. The contract can provide specific guidelines about how the suppliers may manage environmental issues related to component sourcing and production. However, in the case of low product complexity, the probability of an environmental incident is lower (due to the fact of having fewer components and fewer suppliers involved). In this case, the need to revisit the contract for guidelines about environmental management is lower and therefore, the contract is perceived to be less effective. Contracts, although not being able to account for all the different dimensions that product complexity may require, have the characteristic of being able to provide clear specifications and guidelines about the environmental requirements in case of an incident. This study also investigated the impact of relationship stability on supplier commitment of the transactional and relational governance mechanisms. In line with our theorization, the findings indicate that explicit contract increases supplier commitment under a highly stable relationship. The supplier will have higher commitment to fulfill the buyer's environmental requirements if the relationship is meant to be a long-term and harmonious one. If the relationship between buyer and supplier is understood as a punctual exchange, the explicit contract will be less effective on achieving suppliers' commitment since the supplier will have no incentive to realize longterm benefits for the relationship. However, contrary to what we expected, the relationship between implicit control and supplier commitment is not influenced by relationship stability. Buying firms are able to gain supplier commitments in meeting their environmental requirements by using implicit control as a governance mechanism regardless the level of relationship stability. This suggests that while mutual understanding between suppliers and buying firms are well established by having implicit control governance mechanism in place, the importance of how the suppliers perceived the duration of the relationship diminish. When buyers and suppliers are in a highly adaptive relationship, such that suppliers are flexible in changing their operations or making investments to buying firms' expectations, the impact of explicit control on supplier commitment is higher than when the relationship is low adaptive. If a supplier is willing to make investments and commit resources for the benefit of the relationship, then the effectiveness of explicit contracts on suppliers' commitment will be higher since the supplier will be willing to fulfill all the different requirements (i.e., those requirements that need product or processes adaptations). However, opposite to what we expected, the impact of implicit control and mutual understanding on supplier commitment is higher when there is low adaptation (low frequency of change in the suppliers' system to adapt to the buying firm's requirements). This unexpected finding can be explained as follows: in case of low adaptability (low frequency of changes), there is lower probability of having an environmental accident, making implicit control and mutual understanding more effective than in the case of high adaptability. 5.1. Theoretical implications In this study, we examine the impact of two key environmental governance mechanisms, namely explicit contract and implicit

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control, on supplier commitment, and in turn its impact on buying firms' environmental performance. Representing the transactional governance mechanism, explicit contract nurtures supplier commitment to buying firms' environmental requirements by detailing economic exchange conditions and liability limitations, and specifying environmental requirements in the agreement. It provides environmental guidelines for suppliers to comply and follow that enable them to monitor, assess, and improve their environmental performance in meeting buying firms expectations. The findings also highlight the importance for firms of developing mutual understanding between buyers and suppliers in gaining supplier commitment. This study advances the knowledge of environmental governance by revealing the operational and relational contingencies that can facilitate buying firms to increase supplier commitment with the use of explicit contract and implicit control as environmental governance mechanisms. As summarized in Table 5, relationship stability has no moderation effect on the relationship between implicit control and supplier commitment, suggesting that implicit control exerts an impact on supplier commitment that is not affected by the level of relationship stability. However, relationship stability is important in the case of explicit contracts, as high relationship stability strengthens the impact of explicit contracts on supplier commitment. Interestingly, as shown in Table 5, product complexity and relationship adaptability affects the relationship between governance mechanisms (implicit control and explicit contracts) and supplier commitment in the same way. This is due to the fact that both high product complexity and high adaptability imply a higher probability of having an environmental incident, as there are more components and more changes in suppliers' processes. Explicit contracts have a higher impact on supplier commitment in the case of high complexity (high product complexity and/or high frequency of changes in the suppliers' systems) with respect to contexts of low complexity (low product complexity and/or low frequency of changes in the suppliers' systems), whereas implicit control has a higher impact on supplier commitment in the case of low complexity. This study provides empirical evidence to extend the TCE and social exchange theory: The effectiveness of transactional and relational governance mechanisms to achieve supplier commitment depends on the operational and relational conditions of a BSR. 5.2. Managerial implications This study has several managerial implications that are useful for buying firms to organize their exchange arrangements to achieve supplier commitments towards their environmental requirements. First, it is important for buying firms to gain supplier commitment as it is critical in achieving the environmental performance. Second, in addition to contractual agreements, buying firms should establish mutual understanding with suppliers to

secure their commitment to environmental protection. Third, the effectiveness of explicit contracts and implicit control on achieving supplier commitment depends on the operational and relational conditions of the BSR. Specifically, whereas contracts are more effective in relationships with high stability, implicit control impacts supplier commitment regardless of the level of relationship stability. Additionally, explicit contracts work better when context is complex (high product complexity and/or high relationship adaptability) whereas mutual understanding works better in simple contexts (low product complexity and/or low relationship adaptability). 6. Conclusions The objective of this paper was to analyze the effectiveness of transactional and relational mechanisms in managing BSR with respect to environmental issues. As we have seen, both mechanisms are effective on driving suppliers to comply with the environmental requirements of the buying firm. However, the effectiveness of these mechanisms can be leveraged if they are applied under specific conditions. Explicit contract shows higher effectiveness in situations of high product complexity, high relationship stability and high relationship adaptability. In other words, the use of explicit control in order to achieve suppliers' commitment towards environmental issues will be more effective in situations in which products are characterized by being sophisticated, technical and/or complicated. In the same line, explicit contracts are preferable when the relationship between buyer and supplier is defined as a harmonious one and when the supplier is willing to make the necessary changes and adjustments. On the other hand, the effectiveness of implicit control is higher if they are used in the context of low product complexity and low relationship adaptability. These results provide valuable knowledge for managers who are willing to improve their suppliers' commitment towards environmental issues in an effort to improve their own environmental performance. They need to be aware that the abovementioned mechanisms will be more effective depending on the characteristics of their products and/or the type of relationship they have developed with their suppliers. In addition, our study has contributed to the GSCM literature by analyzing the neglected role of contracts, which have shown to be an effective tool in managing BSR with respect to environmental issues. Besides these contributions, our paper has some limitations that need to be acknowledged. In the literature of BSR, there is an existing debate on whether transactional and relational mechanisms are substitutes or complements. Further studies should incorporate the interaction effect between these two mechanisms to add to this debate. In addition, we have narrowed the studied contingencies to operational and relational ones. Further studies should examine the effectiveness of these mechanisms under other different contingencies (e.g., environmental uncertainty). Finally, our study is limited to the Hong Kong garment industry setting. By

Table 5 Summary: governance mechanisms, supplier commitment and context.

Relationship stability

Product complexity

Relationship adaptability

Explicit contract

Implicit control

HIGH The impact of explicit contracts on supplier commitment is higher when relationship stability is HIGH with respect to low HIGH The impact of explicit contracts on supplier commitment is higher when product complexity is HIGH with respect to low HIGH The impact of explicit contracts on supplier commitment is higher when relationship adaptability is HIGH with respect to low

NO MODERATION Implicit control impacts supplier commitment regardless of the level of relationship stability LOW The impact of implicit control on supplier commitment is higher when product complexity is LOW with respect to high LOW The impact of implicit control on supplier commitment is higher when relationship adaptability is LOW with respect to high

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choosing this setting we have been able to ensure high internal validity, however we are aware that results may differ in different settings (i.e., country and economic sector). Countries with different cultural values (e.g., trust as a key element) may prefer the use of implicit control mechanisms to the use of explicit contracts. Differences in results may also appear when looking at different economic sectors. Sectors with a high impact on the environment (e.g., chemical sector) might be already highly regulated in terms of environmental issues and therefore the establishment of the buying firm's environmental requirements in a contract (i.e., explicit contract) might be enough for the supplier to comply with them. Because of this, in terms of generalizability, it would be useful that further research tries to explore if these results also hold for different countries and/or economic sectors. Acknowledgment The authors would like to acknowledge the Guest Editors and three anonymous reviewers for the constructive and insightful suggestions provided to improve the earlier versions of this paper. This research is supported in part by the Research Grants Council of the Hong Kong Special Administration Region (PolyU 5017-PPR-12), and the Hong Kong Polytechnic University (G-YZ48).The authors also acknowledge financial support from research grant ECO201016840 from the Spanish Ministry of Science and Innovation and from research grant ECO/155/2012 (ref. 2014FI_B1 00203) from the Research and Universities Secretary, Economic Department, Generality of Catalonia. References Anderson, E., Weitz, B., 1992. The use of pledges to build and sustain commitment in distribution channels. J. Mark. Res. 29, 18e34. Aragon-Correa, J.A., 1998. Strategic proactivity and firm approach to the natural environment. Acad. Manag. J. 41 (5), 556e567. Armstrong, J.S., Overton, R.S., 1977. Estimating nonresponse bias in mail surveys. J. Mark. Res. 14 (4), 396e402. Aulakh, P.S., Kotabe, M., Sahay, A., 1996. Trust and performance in cross-border marketing partnerships: a behavioral approach. J. Int. Bus. Stud. 27 (5), 1005e1033. Bagozzi, R.P., Yi, Y., Phillips, L.W., 1991. Assessing construct validity in organizational research. Adm. Sci. Q. 36, 421e458. Barboza, D., 2011. Apple Cited as Adding to Pollution in China. The New York Times, New York. Birnberg, J.G., 1998. Control in interfirm co-operative relationships. J. Manag. Stud. 35 (4), 421e428. Brown, J.R., Lusch, R.F., Nicholson, C.Y., 1995. Power and relationship commitment: their impact on marketing channel member performance. J. Retail. 71 (4), 363e392. Buysse, K., Verbeke, A., 2003. Proactive environmental strategies: a stakeholder management perspective. Strateg. Manag. J. 24 (5), 453e470. Campbell, N.C.G., 1985. The Psychology of the Chinese Mind. Oxford University Press, London. €ls, M.J.C., Gelderman, C.J., Vermeulen, N.P., 2012. The interplay of governance Canie mechanisms in complex procurement projects. J. Purch. Supply Manag. 18 (2), 113e121. €ls, M.J.C., Gehrsitz, M.H., Semeijn, J., 2013. Participation of suppliers in Canie greening supply chains: an empirical analysis of German automotive suppliers. J. Purch. Supply Manag. 19 (3), 134e143. Cannon, J.P., Perreault, W.D., 1999. Buyereseller relationships in business markets. J. Mark. Res. 36 (4), 439e460. Cannon, J.P., Achrol, R.S., Gundlach, G.T., 2000. Contracts, norms, and plural form governance. Acad. Mark. Sci. 28 (2), 180e194. Carson, S.J., Madhok, A., Wu, T., 2006. Uncertainty, opportunism, and governance: the effects of volatility and ambiguity on formal and relational contracting. Acad. Manag. J. 49 (5), 1058e1077. Cavusgil, S.T., Deligonul, S., Zhang, C., 2004. Curbing foreign distributor opportunism: an examination of trust, contracts, and the legal environment in international channel relationships. J. Int. Mark. 12 (2), 7e27. China Research and Intelligence Co. Ltd., 2012. Research Report on China's Textile Industry 2012. Chorn, N.H., 1991. The “alignment” theory: creating strategic fit. Manag. Decis. 29 (1), 20e24. Coase, R.H., 1937. The nature of the firm. Economica 16 (4), 386e405.

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