The impact of institutional pressures on supplier integration and financial performance: Evidence from China

Int. J. Production Economics 146 (2013) 82–94

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Int. J. Production Economics journal homepage: www.elsevier.com/locate/ijpe

The impact of institutional pressures on supplier integration and financial performance: Evidence from China Baofeng Huo a, Zhaojun Han b, Xiande Zhao c,d,n, Honggeng Zhou e, Craig H. Wood e, Xin Zhai f a

School of Management, Zhejiang University, Hangzhou, China School of Management, Xi’an Jiaotong University, Xi’an, China c Department of Economics and Decision Sciences, China-Europe International Business School (CEIBS), Shanghai, China d Institute of Supply Chain Integration and Service Innovation, College of Business Administration, South China University of Technology, Guangzhou, China e Whittemore School of Business and Economics, University of New Hampshire, Durham, NH 03824, USA f Guanghua School of Management Peking University, Beijing, China b

a r t i c l e i n f o

a b s t r a c t

Article history: Received 31 January 2012 Accepted 14 January 2013 Available online 24 January 2013

With the rapid development of Chinese manufacturing industry and economy, there is an increasing emphasis on the Chinese institutional environment. In this study, we examine the impact of the three aspects of institutional pressures – normative, mimetic, and coercive – on the two dimensions of supplier integration – system and process – and their impact in turn on financial performance. We test the relationships with data collected from 617 manufacturers in China. Our results show that normative and mimetic pressures are positively related to both system and process integration; while coercive pressures are only positively related to process integration and not significantly related to system integration. The results also indicate that both system and process integration have a positive impact on financial performance. By developing and testing a theoretical model about institutional pressures, supplier integration, and financial performance in the context of the Chinese manufacturing industry, this study contributes to both the institutional and supply chain management literature, as well as providing a better understanding of Chinese manufacturing practices. & 2013 Published by Elsevier B.V.

Keywords: Institutional pressure Supplier integration Financial performance China

1. Introduction Over the past few decades, the benefits of supply chain integration (SCI) such as reduced costs, short cycle time, quick responsiveness, and satisfied customers, have been validated by both academics and practitioners (Frohlich and Westbrook, 2001; Kauremaa et al., 2010; Narasimhan and Kim, 2002; Van der Vaart and Van Donk, 2004; Vickery et al., 2003; Zhao et al., 2008). Recently, there has been increasing interest in supplier integra¨ et al., 2010; Yeung tion (Das et al., 2006; Li et al., 2007; Lockstrom et al., 2009), because nowadays manufacturers are becoming increasingly reliant on their suppliers to gain competitive advantage (Prajogo et al., 2011; Van Der Vaart and Van Donk, 2008; Yeung et al., 2009). Supplier integration refers to the extent to which a manufacturer and its suppliers structure interorganizational strategies, systems, and procedures into collaborative, synchronized processes (Flynn et al., 2010; Stank et al., 2001). Much research has confirmed that supplier integration is crucial to company performance (e.g., Prajogo et al., 2011; Frohlich and

n

Corresponding author. E-mail address: [email protected] (X. Zhao).

0925-5273/$ - see front matter & 2013 Published by Elsevier B.V. http://dx.doi.org/10.1016/j.ijpe.2013.01.013

Westbrook, 2001); however, few studies have examined the enablers of supplier integration (Zhao et al., 2008). Institutional pressures have been recognized as factors that influence the adoption of supply chain practices (Lai et al., 2006; Liu et al., 2010; Wong and Boon-itt, 2008; Zhang and Dhaliwal, 2009; Zhu and Sarkis, 2007). Liu et al. (2010) suggested that ‘‘firms are not only economically rational, but also socially rational entities’’ (p. 381). This implies that when a firm is making a decision on an action, it may conform to institutional pressures from the business environment (e.g., customers, suppliers, industries) to maintain its social legitimacy, instead of only pursuing economic efficiency. From this perspective, transaction cost economics (TCE) fails to consider the significance of social factors, though it is widely used to explain SCI (Zipkin, 2012). Therefore, operations management (OM) and supply chain management scholars have embraced institutional theory, which focuses on social factors, to explain operations such as innovation adoption (Heugens and Lander, 2009; John et al., 2001; Ketokivi and Schroeder, 2004; Liu et al., 2010; Rogers et al., 2007; Teo et al., 2003; Zsidisin et al., 2005). For example, Rogers et al. (2007) illustrated that ‘‘arguments from institutional theory can contribute to a better understanding of the social context of OM and supply chain management strategies’’ (p. 569). Similarly, Zhang

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and Dhaliwal (2009) argued that institutional pressures have the potential to shape the way in which companies adopt electronic linkages with their supply chain partners. Though more and more scholars are paying attention to institutional pressures and their social impacts, our literature review indicates that the application of institutional theory in supply chain management, especially in the SCI area, is still limited (John et al., 2001; Liu et al., 2010). Although few studies investigate the direct relationship between institutional pressures and SCI, some research has examined the indirect impact of institutional pressures on some aspects of SCI (Cai et al., 2010). For example, Zhang and Dhaliwal (2009) examined the influence of institutional factors on firms’ adoption of IT-enabled supply chain operations. Similarly, Liu et al. (2010) investigated the role of institutional pressures in firms’ intention to adopt internetenabled supply chain management systems. These studies have provided adequate evidence for the influence of institutional factors on firms’ adoption of technology-enabled SCI. However, SCI includes not only the ‘‘hard’’ side of integration, which mainly consists of infrastructures and physical assets (e.g., technology, systems), but also the ‘‘soft’’ side of integration that mainly consists of process and human resources (e.g., processes, relationships). This study intends to develop a comprehensive understanding of the relationship between institutional pressures and supplier integration by classifying supplier integration into system and process integration and investigating the impact of the three aspects of institutional pressures (normative, mimetic, and coercive) on the two dimensions of supplier integration (system and process). Institutional theory argues that firms embedded in social networks perceive strong pressure to conform to institutional expectations to acquire social legitimacy because violations may jeopardize organization performance and existence (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). From this perspective, scholars have concentrated mostly on social factors when adopting an innovation, while neglecting its economic efficiency. However, Rogers et al. (2007) demonstrated that it is more likely that an innovation adopted in response to institutional pressures also has the potential to generate economic benefits at least to some extent. But to the best of our knowledge, few studies have researched the influence of supplier integration that is driven by institutional pressures on performance. This study proposes and tests a comprehensive institutional pressures–supplier integration–financial performance model. Most previous institutional pressures and SCI studies were conducted in the West; we know little about how this relationship works in Chinese companies (Zhao et al., 2008). Companies in China have experienced rapid development since the economic reforms in the late 1970s, but they are still facing various problems such as poor product quality and high logistics costs, which may be resolved by effective use of supply chain management. However, research on the special role of supplier integration in Chinese companies is still limited. With the rapid development of the Chinese manufacturing industry and economy, there is an increasing focus on the Chinese institutional environment. Recently, many scholars have grounded their research in Chinese companies, such as Zhu and Sarkis (2007), Liang et al. (2007), Hu et al. (2007), Ke et al. (2009), Zhang and Dhaliwal (2009), and Liu et al. (2010). These studies provide a better understanding of how institutional pressures work in China. But the results are inconsistent and the unique Chinese cultural aspects are mainly ignored. China’s culture provides fertile ground for investigating institutional pressures, with its characteristics of collectivism, high power distance, and emphasis on ‘‘guanxi’’ (relationship) and ‘‘mianzi’’ (face). In the collective culture, group interests dominate (Zhao et al., 2008). Members of the collective culture are more likely to subordinate their personal goals to those of the group (Briley and Wyer, 2002; Hofstede, 1991, 1984; Zhao et al., 2008) and place the interests of the collective above their own (Chow

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et al., 2000), which lays the foundation for institutional pressures. In addition, the emphasis on guanxi and mianzi makes it much easier to observe the effect of institutional pressures on Chinese companies. For example, a firm may adopt an innovation due to its good guanxi with other members to avoid losing face. Some scholars even argue that despite economic advantages, a supply chain innovation will not be adopted unless the focal firm can access a guanxi (Yaibuathet et al., 2008). From this perspective, the consideration of Chinese culture acts as a lens to more clearly delineate the role of institutional pressures in Chinese business practices. In conclusion, we need to investigate the impact of supplier integration on financial performance and factors that influence supplier integration, in order to seek ways of breaking the bottleneck in the development of Chinese companies and provide useful guidelines for Chinese manufacturers to succeed. This study addresses two major research questions: (1) How do institutional pressures influence supplier integration? And (2) how does supplier integration influence financial performance? This study contributes to the institutional theory and SCI literature and practices in China. The reminder of this paper is organized as follows: First, the theoretical background and research hypotheses are described. Next, the research methodology is presented, followed by presentation of the analyses and results. Subsequently, managerial implications are discussed. Finally, conclusions are drawn, together with limitations of this study and suggestions for future research.

2. Theoretical background and research hypotheses 2.1. Supplier integration With increasingly fierce competition, suppliers and buyers must maintain collaborative relationships to ensure that abundant resources are available in supply chains to effectively deliver products to markets (Das et al., 2006; Frohlich and Westbrook, 2001) and ultimately to gain competitive advantage (Yeung et al., 2009). In order to take full advantage of these collaborative relationships, suppliers and buyers should integrate their processes through strategic alliance, information sharing, and working together, which together represent SCI (Flynn et al., 2010). SCI refers to ‘‘the degree to which an organization strategically collaborates with its supply chain (SC) partners and manages intra- and inter-organization processes to achieve effective and efficient flows of products, services, information, money and decisions, with the objective of providing maximum value to its customers’’ (Zhao et al., 2008, p. 374). The extant literature has identified three major types of SCI: supplier integration, internal integration, and customer integration (Droge et al., 2004; Flynn et al., 2010; Koufteros et al., 2005; Narasimhan and Kim, 2002). As many previous studies have, this study focuses only on supplier integration since it has been recognized as an important practice for improving supply chain performance ¨ (Ageron et al., 2011; Das et al., 2006; Lockstrom et al., 2010; Yeung et al., 2009). Consideration of the dimensionality of supplier integration contributes to a better understanding of the way in which individual dimensions operate, as well as how they function jointly (Flynn et al., 2010). Though more and more attention has been paid to supplier integration (Ageron et al., 2011; Das et al., 2006; Lockstr¨om et al., 2010; Yeung et al., 2009), the classification of its dimensions is still mixed. While some studies examined supplier integration as a onedimensional construct (e.g., Flynn et al., 2010; Yeung et al., 2009), some broke supplier integration into internal and external integration (Das et al., 2006), and others took an even narrower perspective,

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investigating only one sub-dimension, such as process integration (Oh and Rhee, 2008; Petersen et al., 2003, 2005; Ragatz et al., 1997). In this study, we classify supplier integration into two dimensions, system integration and process integration. System integration refers to collaborative activities based on technologies. More specifically, system integration includes information networks, systems, and technologies. System integration relies largely on technology investment (e.g., information technologies and systems), which is fundamental for supplier integration. Process integration refers to collaborative activities based on human involvement and participation. To be specific, process integration emphasizes the participation of suppliers in buyers’ procurement, production, and design processes. System integration and process integration play different roles in the context of supplier integration. System integration provides a platform for suppliers and buyers to exchange strategic and operational information and collaborate through networks, representing the ‘‘hard’’ side of integration. Process integration provides a mechanism for suppliers and buyers to strategically and operationally work together by encouraging supplier involvement in a series of processes, representing the ‘‘soft’’ side of integration. 2.2. Institutional pressures and supplier integration Institutional theory argues that organizations that are embedded in an institutional environment have to conform to the rule-like social expectations and shared norms provided by the institutional environment to maintain their legitimacy and access to important and rare resources (DiMaggio and Powell, 1983; Meyer and Rowan, 1977; Scott, 2001; Zucker, 1987). Therefore, economic efficiency is no longer the sole priority for decision makers, alternatively, they have to consider institutional expectations, since violating them may jeopardize the organization’s existence and long-term development (Teo et al., 2003). Kinra and Kotzab (2008) suggest that supply chain operations may face institutional pressures at different levels: firm, supply chain, country of operations. Firm level refers to micro-institutional systems, and those at the level of a supply chain refer to meta/mesoinstitutional systems dealing with partnerships between firms. Country level refers to macro-institutional systems. Studies involving institutional theory mainly focused on either micro- (Hu et al., 2007; Teo et al., 2003; Zhang and Dhaliwal, 2009; Zsidisin et al., 2005) or macro-institutional systems (Ang and Cummings, 1997; Bello et al., 2004; Kinra and Kotzab, 2008; Zhu and Sarkis, 2007). Only a few scholars such as Lai et al. (2006), Ke et al. (2009), and Liu et al. (2010) have studied institutional pressures in the supply chain context. Since institutional isomorphism causes firms to operate in a similar fashion (DiMaggio and Powell, 1983) firms in a supply chain adopt like practices, which facilitates their integration (Lai et al., 2006). Institutional theory provides a useful research platform for the study of firms’ adoption of SCI (John et al., 2001). From an institutional perspective, firms embedded in the same institutional environment become increasingly similar in operations and structures (DiMaggio and Powell, 1983). To some extent, this argument is consistent with the philosophy of SCI, which aims at integrating the various flows along the entire supply chain. Specifically, institutional pressures stemming from supply chain partners push firms to adopt similar supply chain practices, which speed up SCI (Wong and Boon-itt, 2008). Wong and Boon-itt (2008) argued that institutional pressures can be considered as a means to improve SCI since companies can put pressure on other supply chain members to influence their practices. Similarly, Zhang and Dhaliwal (2009) illustrated that firms’ supply chain management is significantly influenced by institutional pressures. More generally, Ketokivi and Schroeder (2004) found that the institutional perspective was more important in the adoption of

certain OM techniques than strategic or structural contingency theories. These studies have provided inductive but not adequate explanations of how institutional pressures influence SCI, since they failed to consider the pressures stemming from specific supply chain members. We believe that when referring to SCI, the institutional pressures mainly come from suppliers and customers because the focal firm integrates with upstream suppliers and downstream customers directly in the vertically cooperative institutional environment, which makes suppliers and customers much more important than competitors in influencing SCI. By the same logic, supplier pressures are more important than customer pressures in influencing supplier integration since suppliers are more involved in and benefit more from supplier integration than customers. In contrast, competitors may be more important in the horizontal competitive institutional environment. Thus, in this study, we only consider the institutional pressures from suppliers and examine their impact on supplier integration. In most cases, institutional theory is used to provide explanations for whether to adopt an innovation or the intention to adopt an innovation (Teo et al., 2003). In the context of supply chain management, scholars have employed institutional theory to examine the intention of the adoption of internet-enabled and IT-enabled SCM (Liu et al., 2010; Teo et al., 2003). But little research has paid attention to the influence of institutional pressures on the implementation of an innovation. This statement is echoed by Rogers et al. (2007) who argue that ‘‘research has considered the influence of institutional factors on the initial adoption of organizational forms and practices, but not the ongoing internal use of techniques adopted in response to institutional pressures’’ (p. 557). In this study, we examine the impact of institutional pressures on the implementation of supplier integration, contributing to the knowledge of institutional theory in SCM. DiMaggio and Powell (1983) identified three types of pressures that may influence the diffusion of an innovation: normative, mimetic, and coercive pressures. We will examine their relationships with supplier integration in the following sections.

2.2.1. The impact of normative pressures on supplier integration Normative pressures stem primarily from professionalization (DiMaggio and Powell, 1983). Professionalization refers to members who are within particular organizational contexts, who are from similar educational backgrounds, who are in similar positions, who tend to filter information and make decisions in the same way (DiMaggio and Powell, 1983; John et al., 2001). This leads to the formation of collective expectations within a particular organizational context that defines appropriate and legitimate behaviors, shared norms, and values (Liu et al., 2010). Organizations conform to these expectations to maintain legitimacy and assure their positions in the particular organizational networks (DiMaggio and Powell, 1983; John et al., 2001). Generally, an innovation prevailing in an organizational context would generate normative pressures on firms and induce them to adopt the innovation (John et al., 2001; Liu et al., 2010). But sometimes, normative pressures come from shared norms and values that are consistently recognized in the field. Firms are induced to conform to these shared norms and values to seek legitimacy. Because it has a collectivist culture, this phenomenon is much more important in China than in Western countries. Chinese companies are more likely to pursue the shared norms and values generated by a particular organizational context since they are embedded in that context. Similar norms and values often facilitate integration. If firms accept the values and cultures of suppliers, the firms will be more

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likely to integrate with the suppliers. Otherwise, if the buyers and suppliers have different values, they will be difficult to align and integrate. Therefore, suppliers that share similar norms and values with focal firms may help firms recognize the importance of system integration and push firms to build infrastructures to facilitate supplier integration. Perceiving such normative pressures, firms are likely to improve their investment in systems and technologies to learn and maintain legitimacy in the supply chain. Liang et al. (2007) argued that normative pressures directly affect firms’ ERP usage. Similarly, Liu et al. (2010) demonstrated that normative pressures affect firms’ intentions to adopt e-SCM. Zhang and Dhaliwal (2009) also argued that normative factors play a key role in firms’ adoption of technologies for supply chain operations. Therefore, we propose:

H1a: Supplier normative pressures are positively related to system integration. The shared norms and values may also recognize the importance of process integration and encourage the involvement of both suppliers and buyers to advance the level of supplier integration. Reacting to such normative pressures, firms are likely to involve suppliers in their procurement, design, and production processes or even help suppliers to improve their processes, in order to maintain their legitimacy and access to rare resources in supply chains. Therefore, we propose: H1b: Supplier normative pressures are positively related to process integration.

2.2.2. The impact of mimetic pressures on supplier integration Mimetic pressures derive from uncertainties (DiMaggio and Powell, 1983). When organizations are in a dynamic environment, when outcomes of new technologies are unclear, or when organizational goals are ambiguous, organizations may imitate other organizations that are structurally equivalent with them, such as their successful partners or competitors (DiMaggio and Powell, 1983). This kind of imitation minimizes experimentation costs (e.g., Levitt and March, 1988) avoiding risks that are borne by first-movers (Lieberman and Montgomery, 1988). Mimetic pressures may also arise from the prevalence of a practice in the organizational context. In this case, organizations may imitate other organizations to acquire status-conferring legitimacy or simple social fitness in a wider social structure (DiMaggio and Powell 1983; Teo et al., 2003). This kind of mimetic pressure is common in China, since mianzi is a great concern for Chinese companies. In China, decision makers may adopt an innovation just because its competitors have adopted it, regardless of its economic efficiency. Otherwise, they would feel loss of face. In the context of supply chain management, we assume that mimetic pressures may come from supply chain partners. This is inconsistent with several previous studies. For example, Ke et al. (2009) proposed that mimetic pressures do not operate in supplier–buyer relationships. More generally, previous studies showed that mimetic pressures mainly come from competitors (e.g., Liu et al., 2010; Teo et al., 2003). But when investigating institutional factors that affect supplier integration, we believe that examining mimetic pressures stemming from suppliers makes more sense. A firm is more likely to follow its suppliers’ successful practices relating to the use of technology for supply chain operations (Zhang and Dhaliwal, 2009). In practice, suppliers do generate mimetic pressures. For example, system integration is a relatively prevalent practice in the field of supply chain

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management. When suppliers adopt system integration and change their operation methods accordingly, buyers would perceive mimetic pressures from suppliers and learn from suppliers to maintain a close relationship with them. Zhang and Dhaliwal (2009) argued that in a supply chain trading network, suppliers play an important role in influencing their partners’ technology adoption. Therefore, we propose:

H2a: Supplier mimetic pressures are positively related to system integration. Unlike system integration, process integration places a relatively high emphasis on supplier involvement, which means process integration is widely influenced by suppliers. When suppliers exhibit their best practices, buyers will perceive these changes and would like to imitate the suppliers’ operational methods to maintain their social legitimacy. That is to say, buyers would conform to the perceived mimetic pressures to improve their process integration. Therefore, we propose: H2b: Supplier mimetic pressures are positively related to process integration.

2.2.3. The impact of coercive pressures on supplier integration Coercive pressures result from both formal and informal influences exerted on organizations by other organizations on which they are dependent (DiMaggio and Powell 1983; Teo et al., 2003). There are a variety of sources for coercive pressures, including resource-dominant organizations, high bargaining power organizations, and parent corporations (Teo et al., 2003). When an organization possesses scarce and important resources, it may require organizations that depend on it to adopt its favorable operational structures or practices to serve its own interests (John et al., 2001; Zsidisin et al., 2005; Teo et al., 2003), especially when organizations that depend on it are in conflict with its expectations. This independent organization will exert coercive pressures on the dependent organizations by imposing extra requirements. The dependent organizations will have to comply with these requirements to secure their market status and continue to access the scarce resources (Kim, 2000; Liu et al., 2010). A similar phenomenon will happen among companies that have different levels of bargaining power. For example, a company with a high level of bargaining power can exert coercive pressures on companies with relatively low levels of bargaining power by pushing them to adopt practices or structures that are favorable to its own interests. Companies with a low level of bargaining power have to conform to these coercive pressures, otherwise, they would lose orders or status in the social networks (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). Generally speaking, coercive pressures mainly stem from the asymmetry of power. A powerful company always has the ability to influence other companies to achieve its own benefits. From this perspective, Chinese companies are much more easily influenced by coercive pressures due to the high power distance culture in which there is an acceptance of power inequalities (Hofstede, 1991, 1984; Wang and Clegg, 2002). In China, people feel comfortable following decisions made by more powerful people (Randolph and Sashkin, 2002), which is to say, Chinese companies are easily influenced by coercive pressures. Coercive pressures operate through relational channels among members in the network (Teo et al., 2003). Thus, coercive pressures are common in the supply chain management field. Supply chain members are dependent on each other and they have different

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levels of power (Zhao et al., 2008). When a powerful supplier favors ordering and sharing information through networks, it can push other members like buyers to adopt system integration (Wong and Boon-itt, 2008). Buyers will conform to this requirement in order to avoid losing orders and access to rare resources. Therefore, we propose: H3a: Supplier coercive pressures are positively related to system integration. When suppliers identify the benefits of process integration, they will encourage buyers to adopt process integration (Liu et al., 2010; Lai et al., 2006), and buyers will have to comply with these coercive pressures to maintain their survival capabilities (John et al., 2001). Thus, we propose:

as design, procurement, and production. The benefits of suppliers’ involvement in the design stage have been validated by a number of empirical studies (Petersen et al., 2003, 2005; Ragatz et al., 1997). Suppliers’ involvement in the procurement stage can be explained by TCE. From the perspective of TCE, process integration reduces transaction costs (Williamson, 1973, 1991), which helps improve firms’ financial performance. Thus, even though the implementation of process integration may be driven by institutional pressures, it still has the ability to produce financial benefits. Therefore, we propose: H4b: Process integration is positively related to financial performance.

2.4. Control variable H3b: Supplier coercive pressures are positively related to process integration. 2.3. Supplier integration and financial performance The extant literature confirms that supplier integration is beneficial to company performance (Ageron et al., 2011; Das et al., 2006; ¨ et al., 2010; Yeung et al., Frohlich and Westbrook, 2001; Lockstrom 2009). But this result has not been validated with the institutional perspective. Previous research on institutional pressures mainly concentrates on the social factors of adopting an innovation, while neglecting its economic benefits. Rogers et al. (2007) argue that when the innovation is consistent with firms’ long-term strategies, it has the potential to generate economic benefits even though it is forced to maintain social legitimacy in the first place. The implementation of system integration facilitates information sharing, shortens cycle time, reduces costs, and improves customer service, which lead to improved financial performance (Flynn et al., 2010). In this way, system integration should provide direct benefits to firms and is in line with the firms’ goals. Under this circumstance, managers will not only implement system integration in a symbolic attitude (Rogers et al., 2007) or in a ‘‘loose coupling’’ way (Choi and Eboch, 1998) but also make great efforts to strengthen their system integration because companies that have adopted system integration would achieve financial benefits. Therefore, we propose:

Considering the differences among organizations, we select company size as a control variable that may influence the impact of institutional pressures and company performance. We use number of employees to represent company size as suggested by the extant literature. Furthermore, we include industry, region, and ownership as control variables since companies with different industries, regions, and forms of ownership may face different institutional pressures and have different levels of supplier integration and performance. In this study, dummy variable Industry1 refers to metal, mechanical, and engineering; Industry2 refers to electronics and electrical; and Industry3 refers to textiles and apparel. The base group is other industries. The dummy variable Region1 refers to Guangzhou; Region2 refers to Chongqing; Region3 refers to Shanghai; and Region4 refers to Tianjin. Hong Kong is the base group. For ownership dummy variables, Ownership1 refers to SOE (state-owned enterprise): Ownership2 refers to COE (collectively-owned enterprise); Ownership3 refers to POE (privately-owned enterprise); and Ownership4 refers to JV (joint ventures). The base group is FOE (foreign-owned enterprise). Fig. 1 presents the conceptual model with the hypotheses about institutional pressures, supplier integration, and financial performance.

3. Research methodology H4a: System integration is positively related to financial performance. The implementation of process integration involves suppliers’ participation in a series of processes of the focal firm, such

3.1. Sampling and data collection Since China is a very large country with economic development varying across different regions (Zhao et al., 2006), we strategically

Normative Pressures H1a H1b

System Integration H4a

H2a Mimetic Pressures

Financial Performance

H2b

H4b Process Integration

H3a H3b Coercive Pressures

Fig. 1. Conceptual model.

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selected five cities for our sample to provide geographic and economic diversity. All are important industrial cities with a broad variety of manufacturing activities. Shanghai represents the Yangtze River Delta (YRD), which has China’s highest GDP per capita. Guangzhou represents the Pearl River Delta (PRD), which has China’s second highest GDP per capita. Both are located in eastern and southern China, respectively, and have the highest degree of marketization and economic reform. Tianjin represents the Bohai Sea Economic area and reflects an average level of economic reform and marketization. Chongqing, located in the southwest, represents a relatively earlier stage of economic reform and marketization. We also included Hong Kong. Although most Hong Kong companies have their manufacturing facilities in mainland China, they operate in a very different environment. To obtain representative samples, we randomly selected companies from the yellow pages of China Telecom for the four mainland cities and from the directory of the Chinese Manufacturers Association for Hong Kong. Research assistants called randomly selected companies to determine the contact information for key informants, who were supply chain managers, CEOs/ presidents, vice presidents in charge of marketing, and sales managers. We sent the questionnaire to the key informant, along with a cover letter highlighting the study’s objectives. Respondents were encouraged to participate by the promise of a summary report of the survey results and a small incentive gift. Self-addressed, stamped envelopes were included, and follow-up calls were made to improve the response rate. Out of the 4569 companies contacted, a total of 1356 agreed to receive the questionnaire. After several follow-up calls, 617 usable responses were received. The response rate, based on the number of companies contacted, was 13.5%, however, it was 45.5% based on the number of questionnaires distributed. A profile of the respondents is presented in Tables 1–3, indicating that they represent a variety of industries and their distribution is representative of the concentration of industries in the cities studied. Most of the respondents have been in their positions for more than three years; thus, they are knowledgeable about the information requested. To assess the potential non-response bias, we compared the early and late responses to all variables using a t-test (Armstrong and Overton, 1977). No significant differences were

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found, which indicates that non-response bias is not an issue in this study. 3.2. Questionnaire design We undertook an extensive study of the literature to identify extant measures for related constructs. For constructs that had not been well documented and tested in the literature, we developed new items based on our understanding of the constructs, observations during company visits, and interviews with practitioners. The measures for normative, mimetic, coercive pressures were adapted from Teo et al. (2003) and Liu et al. (2010). On one hand, we changed the pressure sources from customers, suppliers, and competitors to suppliers only, since it has been suggested that supply chain partners can generate all three types of pressures (Lai et al., 2006) and we focused on supplier institutional pressures in supply chains in this study. On the other hand, we did not specify the exact practices that suppliers push buyers to adopt. Instead, we interpreted Table 2 Number of employees and ownership. Employees

Total (N ¼ 617) (%)

Ownership

Total (N ¼ 617) (%)

o 50 50–99 100–199 200–499 500–4999 5000 or more

198 111 100 99 102 7

State-owned Collectively-owned Privately-owned Joint ventures Foreign-owned

91 91 358 41 36

(32.1) (18.0 (16.2) (16.0) (16.5) (1.1)

(14.7) (14.7) (58.0) (6.6) (5.8)

Table 3 Respondent characteristics. Position

% of Respondents

Years in current position

% of Respondents

Top management Middle management Others

39.9% 56.9

1–3 years 4–6 years

26.9% 22.9

7–12 years More than 12 years

24.6 25.6

3.2

Table 1 Profiles of responding companies. Industries

Overall n ¼617

Hong Kong n¼ 206

Guangzhou n ¼104

Chongqing n ¼104

Shanghai n¼ 100

Tianjing n ¼103

Arts and crafts Building materials Chemicals and petrochemicals Electronics and electrical Food, beverage, alcohol and cigars Jewelry Metal, mechanical and engineering Pharmaceutical and medical Publishing and printing Rubber and plastics Textiles and apparel Toys Wood and furniture

1.9% 5.0 6.3 13.1 4.9 0.5 25.4 1.8 4.4 6.6 17.8 1.3 1.9

0.5% 1.9 1.5 13.6 5.8 1.0 9.2 2.4 2.4 9.2 35.4 3.9 1.0

3.8% 6.7 8.7 9.6 5.8 0.0 28.8 0.0 1.9 2.9 14.4 0.0 3.8

4.8% 8.7 7.7 11.5 4.8 0.0 35.6 3.8 9.6 2.9 3.8 0.0 1.9

1.0% 7.0 8.0 11.0 1.0 0.0 42.0 0.0 7.0 8.0 10.0 0.0 0.0

1.0% 3.9 10.7 19.4 5.8 1.0 28.2 1.9 2.9 7.8 7.8 0.0 3.9

Sales oHK$5M HK$5–10M HK$10–20M HK$20–50M HK$50–100M HK$100 or more

Overall n ¼587 32.4% 14.1 12.4 15.8 10.2 15.0

Hong Kong n¼ 176 9.1% 9.1 15.3 22.2 13.6 30.7

Guangzhou n ¼104 49.0% 18.3 4.8 12.5 9.6 5.8

Chongqing n ¼104 33.7% 12.5 19.2 16.3 7.7 10.6

Shanghai n¼ 100 30.0% 16.0 12.0 15.0 15.0 12.0

Tianjing n ¼103 56.3% 18.4 8.7 8.6 2.9 4.9

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institutional pressures as general attitudes that buyers perceived. This will also make the relationship between institutional pressures and supplier integration non-intuitive, contributing to our understanding of these topics. Specifically, both normative and mimetic pressures were measured using three items and coercive pressures were measured using four items. The measures for system and process integration were selected from those used by Narasimhan and Kim (2002), and Frohlich and Westbrook (2001). The measures for financial performance were adopted from Narasimhan and Kim (2002). The items used to operationalize the key constructs using a seven-point Likert scale are presented in Appendix A. Since the scales drawn from the literature were in English, the initial questionnaire was written in English, and then translated into Chinese by an operations management professor in China. It was then translated back into English by a different operations management professor in Hong Kong and the translation was checked against the original English version for accuracy. The Chinese version was used in mainland China, while a bilingual version was used in Hong Kong. The questionnaire was pilot tested in a sample of 15 companies, where we conducted face-toface discussions with executives after they completed the questionnaire. Based on their feedback, we modified, added, or deleted questions making them more understandable and relevant to practices in China. Since there was a single informant per organization, the potential for common method bias was assessed. The items comprising institutional pressures, supplier integration, and financial performance scales were not highly similar in content, and the respondents were familiar with the constructs. Harman’s one-factor test was used to test common method bias (Hochwarter et al., 2004; Podsakoff et al., 2003; Podsakoff and Organ, 1986) and five distinct factors for all variables were found (Table 4), revealing that common method bias was not a problem in this study.

Table 5 The EFA results of institutional pressures and financial performance. Factor loadings

NP1 NP2 NP3 MP1 MP2 MP3 CP1 CP2 CP3 CP4 FP1 FP2 FP3 FP4 FP5 Eigenvalues Total variance explained

Financial performance

Coercive pressures

.082 .037 .041 .100 .054 .010  .007  .031 .005  .004 .816 .884 .825 .876 .849 3.641

.060 .039 .073 .128 .210 .269 .884 .940 .898 .917  .023 .013  .013  .006  .001 3.455

Normative pressures

Mimetic pressures

.896 .920 .844 .217 .211 .237 .067 .049 .044 .044  .024 .018 .046 .071 .080 2.534 80.606%

.191 .191 .217 .883 .904 .802 .164 .137 .137 .164 .057 .052 .040 .047  .017 2.461

Table 6 The EFA result of supplier integration. Factor loadings

SI1 SI2 SI3 PI1 PI2 PI3 Eigenvalues Total variance explained

Process integration

System integration

.280 .183 .504 .812 .898 .591 2.182 71.576%

.820 .837 .632 .345 .151 .444 2.113

3.3. Reliability and validity A rigorous process was used to develop and validate the instrument. Prior to data collection, content validity was supported by previous literature, executive interviews, and pilot tests. After data collection, we performed a series of analyses to test the reliability and validity of the constructs. 3.3.1. Unidimensionality and reliability We followed the two-step method used by Narasimhan and Jayaram (1998) to test construct reliability, first employing exploratory factor analysis (EFA) to ensure unidimensionality of the scales, then Cronbach’s alpha was computed for each construct, to test for internal consistency. EFA results are presented in Tables 5 and 6, which reveal that all items had strong loadings on the constructs that they were intended to measure and had lower loadings on the constructs that they were not intended to measure. The results demonstrate construct unidimensionality. The Cronbach’s alpha values were all above 0.70 (Table 7), better Table 4 Common method bias test using EFA. Component

Eigenvalue

% of Variance

Cumulative %

1 2 3 4 5

6.038 3.771 2.582 2.106 1.235

28.751 17.956 12.294 10.030 5.882

28.751 46.707 59.001 69.031 74.913

Table 7 Reliability tests. Construct

Number of questions

Cronbach’s alpha

Normative pressures Mimetic pressures Coercive pressures System integration Process integration Financial performance

3 3 4 3 3 5

0.900 0.903 0.942 0.788 0.791 0.905

than the threshold value of 0.60 recommended by Nunnally (1978) and Flynn et al. (1990). Thus, reliability of these constructs is ensured.

3.3.2. Construct validity Confirmatory factor analysis (CFA) was conducted to assess both convergent and discriminant validity. To assess convergent validity, a CFA model was constructed in which each item was linked to its corresponding construct, and the covariances among those constructs were freely estimated. The model fit indices were w2 ¼511.28 with d.f. ¼174, RMSEA ¼0.056, NNFI¼0.97, CFI¼0.98, standardized RMR ¼0.043, indicating that the model was acceptable (Hu et al., 1992). All factor loadings were greater than 0.50 and all t-values were greater than 2.0 (Chau, 1997;

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Fornell and Larcker, 1981); therefore, convergent validity was demonstrated. To assess discriminant validity, we built a constrained CFA model in which the correlation between each possible pair of constructs was fixed to one. This was compared with the original unconstrained model, in which the correlations were freely estimated. All differences of w2 were significant at the 0.05 level; therefore, discriminant validity was demonstrated. The results of discriminant validity are presented in Table 8. Also, we tested discriminant validity by comparing the relationship between shared variances among constructs and the values of AVEs as suggested by Paulraj et al. (2008). As shown in Table 9, none of the correlations between constructs was higher than the square root of the related value of AVE, which further supported discriminant validity. As shown in Table 9, only one inter-construct correlation was higher than the benchmark of 0.60. We conducted a multicollinearity test (Table 10); the results showed that multicollinearity did not appear to be a problem.

89

was supported. Both system and process integration are positively related to financial performance suggesting support for hypotheses H4a and H4b, although the standardized coefficient for the path from process integration to financial performance is significant at the 0.10 level. We also found that company size has a positive impact on financial performance. To further explore the relationships among institutional pressures, supplier integration, and financial performance, we examined the interactive effects of institutional pressures on supplier integration and the interactive effects of supplier system and process integration on financial performance. The results were presented in Table 12. Overall, only one interactive effect was found, which was the interactive effect of normative and coercive pressures on process integration, while mimetic pressures influence supplier integration independently. Furthermore, the regression results indicated that system and process integration influence financial performance independently, indicating that they provide two different pathways to performance.

5. Discussion and managerial implications 4. Analysis and results 5.1. The impact of institutional pressures on supplier integration Structural equation modeling (SEM) with MLE method was used to estimate the relationships among the constructs. SEM estimates were generated using LISREL 8.54. A two-step approach was used, with the measurement model tested prior to the structural model (Anderson and Gerbing, 1988). The goodness of fit indices were w2 ¼852.90 with d.f. ¼195, RMSEA ¼0.070, NNFI¼0.94, CFI ¼0.95, and standardized RMR¼0.088, which are better than the threshold values suggested by Hu and Bentler (1999). Therefore, the model can be accepted. Fig. 2 shows the SEM model with standardized coefficients for the paths. The results of hypothesis tests are presented in Table 11. Both normative pressures and mimetic pressures are positively related to system and process integration, supporting hypotheses H1a, H1b, H2a, and H2b. Coercive pressures are positively related to process integration; but not significantly related to system integration. As such, H3a was rejected, but H3b Table 8 Discriminant validity: chi-square differences between the constrained and unconstrained models.

1. 2. 3. 4. 5. 6.

Normative pressures Mimetic pressures Coercive pressures System integration Process integration Financial performance

1

2

3

4

– 12.31 65.87 17.91 12.56 108.99

– 19.05 15.43 5.32 119.32

.– 45.52 12.09 152.02

– 50.91 45.03

5

– 50.97

6

–

Consistent with institutional theory, our results show that all three institutional pressures, normative, mimetic, and coercive, clearly can be distinguished conceptually and empirically, when the institutional environment is applied to supply chain networks and focused on institutional pressures from suppliers. Our study indicates that institutional pressures serve as an effective influence on the implementation of supplier integration, although different dimensions of institutional pressures have differential impacts on the dimensions of supplier integration. Specifically, normative pressures have a positive influence on both system and process integration. This finding is partially supported by previous studies such as Teo et al. (2003), Liu et al. (2010), and Ke et al. (2009). Normative pressures exerted by suppliers play a significant role in improving system and process integration. Generally, shared norms and values can be strengthened or changed with the prevalence of an innovation. As such, they influence decision makers in an informal and continual way, in which organizations Table 10 Multicollinearity test. Constructs

Tolerance

VIF

Normative pressures Mimetic pressures Coercive pressures System integration Process Integration

.765 .650 .824 .542 .496

1.308 1.538 1.214 1.844 2.016

All chi-square differences are significant at the 0.05 level.

Table 9 Means, standard deviations, and correlations.

Normative pressures Mimetic pressures Coercive pressures System integration Process integration Financial performance

Mean

SD

NP

MP

CP

SI

PI

FP

4.69 4.08 2.87 3.80 3.46 3.99

1.29 1.27 1.45 1.58 1.50 1.16

0.87 .46nn .15nn .26nn .31nn .11nn

0.88 .38nn .30nn .38nn .11nn

0.90 .10n .26nn  .01

0.75 .67nn .22nn

0.76 .20nn

0.81

The numbers in bold in the diagonal row are square roots of the AVEs. n

p o 0.05. p o0.01.

nn

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Pormative Pressures 0.17**

System Integration

0.18**

0.17** 0.26** Mimetic Pressures

Financial Performance

0.28**

0.08* Process Integration

0.13** Company Size

0.18** *p<0.10; **p<0.01

Coercive Pressures

Fig. 2. SEM results (*p o0.10; **p o0.01). Table 11 Results of hypothesis tests. Hypothesis

Results

H1a: Supplier normative pressures are positively related to system integration H1b: Supplier normative pressures are positively related to process integration H2a: Supplier mimetic pressures are positively related to system integration H2b: Supplier mimetic pressures are positively related to process integration H3a: Supplier coercive pressures are positively related to system integration H3b: Supplier coercive pressures are positively related to process integration H4a: System integration is positively related to financial performance H4b: Process integration is positively related to financial performance

Supported Supported Supported Supported Rejected Supported Supported Supported

are gradually changed according to these norms and values. From this perspective, our study finds support for the continual effects of normative pressures. This means that normative pressures explain not only the adoption of an innovation, but also the implementation of the innovation. The significant role of normative pressures can be attributed to the unique context of China in which the study was conducted. In China, the importance of supplier integration has been widely recognized, the implementation of supplier integration has been gradually conducted, and the shared norms and values with regard to supplier integration have been formed. These shared norms and values are like group goals to supply chain members, who would subordinate their individual goals to group goals in the collective culture. As a result, Chinese companies tend to conform to normative pressures and implement supplier integration. The positive effect of mimetic pressures on supplier integration is partially consistent with Teo et al.’s (2003) results, but is inconsistent with Liu et al.’s (2010) findings that mimetic pressures have no relationship with the adoption of e-SCM. This can be explained by the complexity of supplier integration. According to Teo et al. (2003), mimetic pressures play a role only when the innovation is highly complex and hard to use. Compared with e-SCM, supplier integration is much more complex, comprising both system and process integration. The inconsistent results with Liu et al.’s (2010) research could also be attributed to the different sources of mimetic pressures. In Liu et al.’s (2010) research, mimetic pressures are exerted by competitors. But in our study, mimetic pressures are exerted by suppliers. From this perspective, supply chain practices are more likely to be

influenced by mimetic pressures stemming from supply chain partners. Mimetic pressures stem either from the uncertainty or the prevalence of an innovation. Both situations can ultimately lead to the successful implementation of the innovation. For example, when suppliers have benefited from supplier integration, buyers will perceive the mimetic pressures and imitate suppliers by implementing supplier integration. The significant role of mimetic pressures can also be explained by Chinese culture, where mianzi is emphasized greatly. In China, companies will easily conform to mimetic pressures to avoid losing face. In other words, an innovation successfully implemented by its partners will arouse the organization’s strong willingness to imitate that innovation, since the adoption of the innovation will maintain its mianzi and social status in the network. Coercive pressures are positively related to process integration, but not related to system integration. This result is inconsistent with those of previous studies. For example, Teo et al. (2003) and Liu et al. (2010) both claimed that coercive pressures have a positive effect on the adoption of technology-based practices. One possible explanation may be that the source of coercive pressures in our study is suppliers only, while the sources in previous studies include both suppliers and customers. Suppliers and customers have different levels of power in a supply chain, thus the perceived coercive pressures from suppliers and customers have different impacts. The non-significant relationship between coercive pressures and system integration could also be explained by the relatively fundamental role of system integration. Compared to process integration, system integration has been much more widely implemented in China. Companies have established networks and other systems to communicate and operate since the emergence of supply chains. Thus, suppliers have benefited from system integration for a long time and have no interest in expanding it. The significant role of coercive pressures on process integration can also be explained by Chinese culture, which is characterized as exhibiting high power distance. In a high power distance culture, people feel comfortable to follow the other party’s directions and decisions. This implies that decision makers of firms are comfortable to conform to the perceived coercive pressures exerted by their suppliers. Our findings also indicate that there is an interactive effect of normative and coercive pressures on supplier integration, while mimetic pressures influence supplier integration independently. This can be explained by the different functions of the three pressures. As suggested by DiMaggio and Powell (1983), normative and coercive pressures normally operate through interconnected relations while mimetic pressures act through structural equivalence. Therefore, normative and coercive pressures operate through

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5.2. The impact of supplier integration on financial performance

Table 12 Regression results. Independent variables

Dependent variables System integration

Process integration

Financial performance

Constant Size Industry1 Industry2 Industry3 Region1 Region2 Region3 Region4 Ownership1 Ownership2 Ownership3 Ownership4 Normative pressures Mimetic pressures Coercive pressures NPnMP NPnCP MPnCP System integration Process integration SInPI

1.468nnn (.000) .173nnn (.000)  .017 (.681)  .002 (.969) .058 (.133) .077n (.088)  .065 (.152) .112nn (.018)  .051 (.281)  .119n (.078)  .058 (.396)  .078 (.367)  .046 (.385) .151nnn (.001)

0.78nn (.033) .147nnn (.000)  .019 (.629) .011 (.777) .004 (.916)  .041 (.339)  .040 (.358) .088n (.056)  .025 (.583)  .099 (.125)  .032 (.634)  .044 (.593)  .011 (.825) .161nnn (.000)

2.827nnn (.000) .212nnn (.000) .012 (.766)  .070n (.094) .106nnn (.007) .139nnn (.002) .134nnn (.004) .178nnn (.000) .186nnn (.000)  .130n (.056)  .105 (.130) .010 (.908) .050 (.355) –

.258nnn (.000)  .025 (.575)  .063 (.146) .084 (.104) .021 (.681) – – –

.276nnn (.000) .090nn (.035)  .050 (.233) .092n (.065) .045 (.361) – – –

– – – – – .105nn (.042) .096n (.063)  .051 (.188)

R2 F p-value

0.159 7.482 .000

0.217 10.484 .000

.136 7.476 .000

Notes: p o 0.10. p o0.05. nnn p o0.01. n

nn

the same mechanism; they can complement and strengthen the effect of each other. But no interactive effects are found between normative and mimetic pressures or coercive and mimetic pressures. Thus, in practice, coercive pressures should be used together with normative pressures, since coercive pressures may damage relationships with partners in the long run. Overall, our findings provide strong support that institutional pressures from suppliers are positively related to supplier integration in the context of Chinese supply chains. These results provide detailed insights on the implementation of supplier integration from the institutional theory perspective. Chinese companies have employed supplier integration to achieve competitive advantage. But system and process integration have not experienced an equal development, with a relatively high level of system integration and a relatively low level of process integration. As has been claimed by Koulikoff-Souviron and Harrison (2007) and Shub and Stonebraker (2009), it appears to be easier to concentrate on the ‘‘hard’’ side rather than the ‘‘soft’’ side of SCI. Institutional pressures serve as a factor that influences supplier integration. And they have different effects on the two dimensions of supplier integration. The difference can be explained by the different development stages and prevalent levels of system and process integration. From this perspective, we further confirm that there is a continual influence of institutional pressures on an innovation and the influence will change according to the development and prevalence of the innovation. In practice, even though a firm has adopted supplier integration, continual institutional pressures exerted by suppliers can help to improve the level of supplier integration. This phenomenon is much more common in China, due to its unique culture. As such, suppliers exerting institutional pressures on other firms would achieve a better result in China than in Western countries.

Our study finds a positive relationship between supplier integration and financial performance suggesting that although the implementation of supplier integration is driven by institutional pressures, it still has the ability in turn to generate financial performance. The positive impact of supplier integration on financial performance has been validated by previous studies such as Cao and Zhang (2011), Frohlich and Westbrook (2001), Flynn et al. (2010), Prajogo et al. (2011), and Narasimhan and Das (2001). Our study provides evidence that the implementation of supplier integration is beneficial to company performance, although it is influenced by institutional pressures. This indicates that when decision makers are deciding to adopt an innovation, they consider both social and economic factors. Social factors, such as institutional pressures, ensure the organization’s long-term existence and development, while economic factors ensure the organization’s direct economic benefits. In other words, an innovation that is first adopted to conform to institutional pressures must have the potential to generate economic benefits to some extent (Rogers et al., 2007). Our findings also suggest that system integration has a much larger impact on financial performance than process integration. One possible explanation is that, as discussed before, process integration has not received enough attention and is in a relatively low level of development, while system integration is in a relatively high level of development. Therefore, the implementation of process integration is not capable of generating as much financial performance as system integration. This result is inconsistent with those of previous studies which were conducted in Western countries where process integration has experienced a rapid development and has the full ability to improve performance to a large extent (Oh and Rhee, 2008; Petersen et al., 2003, 2005; Ragatz et al., 1997). This kind of inconsistency further confirms that the level of process integration in China is relatively low. As such, companies should pay attention to process integration, since its potential has not been realized. At the same time, system integration should not be neglected. From the managerial perspective, Chinese companies could benefit from supplier integration. This implies that companies that adopt supplier integration due to institutional pressures should not view it only as a symbolic sign to maintain their legitimacy. Instead, they should recognize the importance of supplier integration and make great efforts to improve it. Furthermore, the two dimensions of supplier integration both influence financial performance. Thus, managers should pay attention to both system and process integration and pursue them at the same time.

6. Conclusions and limitations Based on institutional theory and the extant literature on supply chain practices adoption and implementation, we developed and tested a model of the relationships among institutional pressures, supplier integration, and financial performance in the context of Chinese supply chain management. Our results indicate that institutional pressures are positively related to supplier integration, which is positively related to financial performance. This study contributes to the literature in three ways. First, we extend the previous studies on institutional pressures by limiting pressure sources from a broad population (including customers, suppliers, stakeholders, industries, etc.) to only suppliers. It is evident that when we study the impact of institutional pressures on supplier integration, pressures coming from suppliers are

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important enablers. Moreover, our study, conceptually and empirically, provides evidence that all three institutional pressures stemming from suppliers can be clearly distinguished. Thus, future research regarding supply chain management should consider institutional pressures coming from only one particular supply chain member. Second, previous studies on institutional theory focused only on its social effects, neglecting its potential to generate economic benefits. Our research adds financial performance to the normal linkage of institutional pressures to innovation adoption and suggests that practices that are enabled by institutional pressures could also have the ability to improve economic performance. Finally, we employ institutional theory in the Chinese context and explain its impacts on supplier integration using aspects unique to Chinese culture. This enriches institutional literature by involving culture in the explanation of institutional pressures. Our findings also contribute to practice. From the perspective of suppliers, Chinese companies are easily influenced by institutional pressures due to the special cultures; thus, suppliers that want to benefit from buyers’ implementation of supplier integration can continually exert institutional pressures on buyers and push them to improve supplier integration. From the perspective of buyers, the implementation of supplier integration indeed has a positive impact on financial performance; thus, although its implementation is pushed by institutional pressures, companies should also place emphasis on supplier integration and provide enough resources to guarantee its successful implementation. In addition, the two dimensions of supplier integration have not experienced equal development in China, although both of them are important for company performance. Thus, managers should pay attention to both system and process integration. From the institutional perspective, coercive pressures have no direct influence on system integration; but they influence system integration through the interactive effect with normative pressures. Thus, coercive and normative pressures should be exerted together when companies are aiming at improving system integration. Overall, our study highlights and validates the importance of supplier integration for Chinese manufacturers to succeed and demonstrates that SCI has become a new trend for Chinese manufacturers to enhance competitive advantages. More importantly, our study illustrates that the institutional environment could serve as a driver for manufacturers to adopt supplier integration, which improves the implementation of SCI in manufacturing industries. Although our study contributes to both theory and practice, it still has some limitations that suggest directions for future research. First, we examined the role of institutional pressures on the implementation of supplier integration and argued that there is a continual influence of institutional pressures on supplier integration using cross-sectional data in China, but we did not use longitudinal data to empirically confirm it. Future research can further examine the different impacts of institutional pressures on supplier integration at different development stages using longitudinal data collected from more regions. Second, a contingency approach may provide more interesting results. Future research could examine the different impacts of institutional pressures on supplier integration in different industries, ownerships, cultures, and regions. Third, this study only examines the impact of supplier pressures on supplier integration, future research can investigate the impact of customer and competitor pressures on supplier integration, and these pressures on other types of SCI, such as internal integration and customer integration. Finally, our study shows that institutional pressures indirectly and ultimately influence financial performance. Thus, we argue that the implementation of an innovation is, on one hand, to pursue social benefits and, on the other hand, to seek

economic benefits. But our study did not include social benefits in the model. Future research could include both social and economic benefits to examine the overall influence of institutional pressures.

Acknowledgement This research was supported by National Natural Science Foundation of China (#70902069, #71090403/71090400) and Natural Science Foundation of Shaanxi (#2010JQ9003) and Centre for Supply Chain Management & Logistics, Li & Fung Institute of Supply Chain Management & Logistics.

Appendix A. Construct measurement Normative pressures Please indicate the degree of agreement that you have with each statement (1-Strongly disagree; 7-Strongly agree).

NP1: The reason we prefer this supplier to others is because of what it stands for, its values. NP2: During the past year, our company’s values and those of the major supplier have become more similar. NP3: What this supplier stands for is important to our company. Mimetic pressures Please indicate the degree of agreement that you have with each statement (1-Strongly disagree; 7-Strongly agree).

MP1: We really admire the way our major supplier runs their business, so we tried to follow their lead. MP2: We generally wanted to operate our company very similar to the way we thought the major supplier would. MP3: Our company did what the supplier wanted because we have very similar feelings about the way a business should be run. Coercive pressures Please indicate the degree of agreement that you have with each statement (1—Strongly disagree; 7—Strongly agree).

CP1: The major supplier’s personnel would somehow get back at us if we did not do as they asked and they would have found out. CP2: The major supplier often hinted that they would take certain actions that would reduce our profits if we did not go along with their requests. CP3: The major supplier might have withdrawn certain needed services from us if we did not go along with them. CP4: If our company did not agree to their suggestions, the major supplier could have made things more difficult for us. System integration Please indicate the extent of integration between your organization and your major supplier in the following areas (1—Not at all; 7—Extensively).

SI1: The level of information exchange with our major supplier through information network. SI2: The establishment of quick ordering system with our major supplier.

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SI3: Stable procurement through network with our major supplier. Process integration Please indicate the extent of integration between your organization and your major supplier in the following areas (1-Not at all; 7-Extensively). PI1: The participation level of our major supplier in the process of procurement and production. PI2: The participation level of our major supplier in the design stage. PI3: We help our major supplier to improve their process to better meet our needs. Financial performance Please evaluate your company’s performance in the following areas relative to your primary/major competitors (1-Much worse; 7-Much better).

FP1: FP2: FP3: FP4: FP5:

Growth Growth Growth Growth Growth

in in in in in

sales. return on sales (ROS). profit. market share. return on investment (ROI).

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