Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance

IMM-06976; No of Pages 13 Industrial Marketing Management xxx (2014) xxx–xxx

Contents lists available at ScienceDirect

Industrial Marketing Management

Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance Ming-Chang Huang a, Hsiang-Lin Cheng b,⁎, Chun-Yen Tseng a a b

Dept. of Business Administration, Providence University, Taiwan, ROC Dept. of Business Administration, National Chung Cheng University, Taiwan, ROC

a r t i c l e

i n f o

Article history: Received 9 July 2012 Received in revised form 2 November 2013 Accepted 24 November 2013 Available online xxxx Keywords: Supply-chain governance Formal control Social control Buyer–seller relationship

a b s t r a c t This study aims to explore the effect of governance mechanisms (including both formal and social controls) upon the buyer–supplier cooperative performance in supply chains. Empirical evidence obtained via a mail survey from 106 firms participating in the Taiwanese “Center Satellite Production System” indicates that (1) there is an inverted U-shaped relationship between formal control and cooperative performance; (2) social control has a consistent positive effect on cooperative performance; and (3) the joint use of formal control and social control could enhance cooperative performance in supply chains but only in cases with moderate usage of formal control. Otherwise, social control becomes a supportive factor that repairs cooperative performance damage from overwhelmingly applied formal control. © 2014 Elsevier Inc. All rights reserved.

1. Introduction Supply chain networks embedded with many long-term buyer– supplier relationships can enhance the resource their exchange efficiency and create more value in the B-to-B marketing (Eltantawy, Giunipero, & Fox, 2009). The outsourcing risks that are prevalent in many industries, thus, have driven buyers to develop long-term relationships with a limited number of suppliers (Jaakkola & Hakanen, 2013; Svahn & Westerlund, 2007). Despite the advantages, several concerns stemming from transaction costs (e.g., the opportunism of partners and power conflicts between partners) exist and can damage the buyer–supplier cooperative relationships in the supply chain (Cai, Yang, & Hu, 2009; Hadjikhani & Thilenius, 2005; Wong, Tjosvold, & Zhang, 2005). To mitigate these concerns, scholars have long suggested that two basic governance mechanisms, either via “formal control” or via “social control,” (Ballou, Gilbert, & Mukherjee, 2000; Mesquita & Brush, 2008; Zhang & Keh, 2009) positively enhance cooperative performance (Joshi, 2009; Yang, Zhou, & Jiang, 2011). This study thus aims to deeply explore the effectiveness of the two basic governance mechanisms and their interplay in the buyer–supplier cooperative performance in supply chain networks. By definition, “formal control” refers to the written regulations, objectives, rules and obligations that specify the expected behavior, processes and output standards explicitly within the contract (Ouchi, 1979), whereas “social control” represents shared values, norms, goals, and an atmosphere of trust that harmonizes the interests of ⁎ Corresponding author at: 168, University Rd., Ming-Hsiung, Chiayi County, 62012, Taiwan, ROC. Tel.: +886 9 20364282; fax: +886 7 5322686. E-mail address: [email protected] (H.-L. Cheng).

buyers and sellers (Tangpong, Hung, & Ro, 2010). The two distinctive governance mechanisms are often applied together to coordinate industrial buyers and suppliers (Joshi, 2009; Sánchez, Vélez, & RamónJerónimo, 2012) and must not be considered to be independent of each other (Hernández-Espallardo, Rodríguez-Orejuela, & SánchezPérez, 2010; Poppo & Zenger, 2002). Many recent studies find that the interplay between formal control and social control maintains the cooperative performance. For example, Zheng, Roehrich, and Lewis (2008) confirm that formal and social controls are complementary forms of exchange governance (see also in Heide, Wathne, & Rokkan, 2007; Liu, Luo, & Liu, 2009; Ness & Haugland, 2005). Some other empirical studies, however, find that social control can act as a substitute for formal control for cooperative performance (Das & Teng, 2001; Liu, Li, & Zhang, 2010; Şengün & Wasti, 2009). The contradictory and mixed empirical results indicate the need for further investigation of this long-debated question (Huemer, Boström, & Felzensztein, 2009). To solve this puzzle, this study firstly refines the positive relationship between formal control, known as a basic condition to use explicit contracts to reduce the “transaction costs” resulting from the opportunistic behaviors of exchange partners, and corporative performance. Many transaction cost studies have also declared that the excessive adoption of formal control may not necessarily deter opportunistic behavior but may limit a partner's autonomy and signal a lack of trust (Poppo & Zenger, 2002; Ramaswami, 1996). Both of these results increase the huge “hierarchical costs”, which may reversely reduce the cooperative performance. For example, many studies have found insignificant effects from formal control on buyer–seller cooperative performance (Grewal, Chakravarty, & Saini, 2010; Li, Xie, Teo, & Peng, 2010; Şengün & Wasti, 2009). Furthermore, this study presumes a curvilinear (inverse U-shaped) relationship between formal control

0019-8501/$ – see front matter © 2014 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.indmarman.2014.02.001

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

2

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

2.2. Governance mechanisms

and cooperative performance. In other words, the most appropriate level of formal control may already be in place and a higher degree of formal control may have a negative effect on cooperative performance after this point. If this situation is the case, this study argues that the interplay of both governance mechanisms on cooperative performance may reveal a more dynamic and contingent pattern based on the level of formal control used in each buyer–supplier relationship (Yang et al., 2011). The study then investigates the following question: “what are the joint effects, either substitute or complementary, of formal and social controls on cooperative performance in each buyer–supplier relationship (i.e., the unit of analysis of this study) based on the different contextual level of formal control?” By clarifying the nature of the curvilinear relationship between formal control and cooperative performance, this study contributes to exploring how this basic endogenous factor contingently affects the successful buyer–supplier governance mechanism design in supply chains. Most related studies have focused on the exogenous contextual factors, e.g., environmental uncertainty (Frazier, Maltz, Antia, & Rindfleisch, 2009), legal enforceability (Poppo & Zenger, 2002), traits of partners (Zhang & Keh, 2009; Zhou & Peng, 2010), product life cycle (Mahapatra, Narasimhan, & Barbieri, 2010), and asset type (Yu, Liao, & Lin, 2006). Because these studies primarily ignored the contingent nature and viewed the linear impact of formal control upon corporative performance, they cannot provide more flexible strategic thinking to help managers design different governance mechanisms to manage the relationships between buyers and suppliers in the supply chains. This study then selects to analyze a Taiwan's supply chain network that co-exists with contract- and relational-based governance between buyers and suppliers. In the following, we firstly review the existing literature and develop our research hypotheses; we then describe our research methodology; thirdly, we show our empirical results; finally, we discuss our findings and put forth our conclusions. We also comment on the limitations of our research and present possible topics for future research.

Governance refers to the organizational or structural arrangements designed to determine and influence the behavior of organization members (Das & Teng, 1998). Formal control emphasizes written procedures for monitoring, specifying the detailed roles and responsibilities to be performed and outcomes to be delivered (Li et al., 2010; Poppo & Zenger, 2002; Wang & Fulop, 2007). The application and utilization of a formal contract, rules, procedures, and policies to monitor, reward and punish a partner's behavior or outcomes provide protection by ensuring that the promise or obligation to perform particular actions is met and that organizational goals are achieved (Coltman, Bru, PermAjchariyawong, Devinney, & Beniot, 2009; Das & Teng, 2001). Social control means that the business organization uses shared values, social and/or cooperative norms, trust, consistent goals and a cooperative atmosphere to encourage specific behaviors that harmonize the partners' interests and limit opportunism (Li et al., 2010; Liu et al., 2009; Petersen, Handfield, Lawson, & Cousins, 2008; Tangpong et al., 2010). Economic behavior is closely embedded in social networks, and economic logic should acknowledge the influence (Poppo, Zhou, & Zenger, 2008). Through socialization, personal familiarity, and problem solving (Cousins & Menguc, 2006), norms, identity and cohesion can be created (Ahuja & Galvin, 2003; Şengün & Wasti, 2009), and members can become more committed to their organization and share views that strongly influence their behaviors (Das & Teng, 2001). Therefore, the more that the exchange partners trust each other, the more confident each will feel that the other will cooperate in good faith and care for their partnership rather than behave opportunistically to exploit it (Liu et al., 2009). Appendix A summarizes some of the critical articles on buyer– supplier relationship governance. In the following sections, our study will discuss the relationship between various governance mechanisms and cooperative performance and the joint effects of various mechanisms on cooperative performance.

2. Literature review and hypotheses development

2.3. Formal control and cooperative performance

2.1. Exchange, transaction and contracts

Formal controls set legal parameters using contracts with agreements on price, volume, logistics and quality standards that help to contain the impact of various performance uncertainties (Mahapatra et al., 2010). Formal controls provide a major regulating tool for safeguarding transaction-specific assets against opportunism (Cai et al., 2009; Liu et al., 2009; Williamson, 1979; Yu & Liao, 2008) and provide a means for making inter-firm trade work smoothly. Through formal control, a party may simply establish a standard and then threaten to replace an opportunistic partner to reduce opportunism (Das & Rahman, 2010; Heide et al., 2007; Jiang, 2009; Poppo & Zenger, 2002), protect specific investments and increase satisfaction and performance (Liu et al., 2010; Yu & Liao, 2008). Thus, irrespective of the quality of the relationship, alliance partners must design detailed contracts that specify the respective rights and responsibilities to coordinate activities, resolve future potential conflicts, plan for future transactions, adjust corporate strategies to respond to changes in the environment and provide legal protection for the participating parties (Cai et al., 2009; Liu et al., 2010). Formal control increases the ability to match rewards and sanctions to the partners' behaviors, including not behaving opportunistically (Hernández-Espallardo et al., 2010). Formal controls cannot account for all possible scenarios, but the opportunity for a partner firm to act opportunistically may be constrained (Li et al., 2010). Thus, formal controls can enhance cooperative performance. Formal controls may also have negative effects on cooperative performance. Transaction cost theory maintains that it is impossible to provide an exhaustive description of the rights and obligations to meet every contingency (Coltman et al., 2009; Williamson, 1979; Zaheer, McEvily, & Perrone, 1998). A complicated formal contract between a buyer and seller is often expensive to draft and cannot cover all future

Contracts are the best design under existing knowledge to govern buyer–supplier relationships; and they should never be too detailed or too long and leave incomplete (Tirole, 2009). An incomplete contract results in adverse selection, moral hazard, information hold-up, and opportunism, which all significantly increase transaction costs. Transaction cost theory defines opportunism as a partner firm exploiting its position and using deceit to service its self-interest to achieve gains at the expense of other partners (Das & Rahman, 2010; Tsang, 2006). Opportunism creates a need for ex ante and ex post safeguarding, including formal and social governance structures (Das & Teng, 2001; Nakos & Brouthers, 2008; Subramani & Venkratraman, 2003). The fundamental driver behind firms adopting various governance mechanisms in interfirm business is the desire to minimize transaction costs (Li et al., 2010). Social exchange theory opines that seeking rewards and avoiding punishment are two major reasons for firms to form an exchange relationship. Power, justice, and interdependence are the major issues that social exchange theory uses to explore the relationship between buyer– supplier governance and its outcome (Narasimhan, Nair, Griffith, Arlbjørn, & Bendoly, 2009). The buyer–supplier relationship may be subject to the justice perception derived from social interaction and communication (Liu, Huang, Luo, & Zhao, 2012). The relational exchange view emphasizes social embeddedness, open communication, trust and other aspects of relationalism that can mitigate the likelihood of opportunism and improve cooperative performance (Dyer & Singh, 1998; Liu et al., 2009). This study relies on transaction cost theory, social exchange, and the relational exchange view, which has many important characteristics and potential effects.

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

possibilities (Cai et al., 2009; Poppo & Zenger, 2002). When formal control is emphasized, trading partners will spend significant time and resources on monitoring to see whether the other party is shirking or fulfilling the spirit of the agreement (Dyer & Chu, 2003). It is difficult to implement explicit monitoring and evaluation as a means of keeping opportunism in check due to a lack of precise and verifiable measures (Perrone, Zaheer, & McEvily, 2003), and this may result in high monitoring costs. A high level of formal control results in high ex ante contract costs and ex post monitoring and enforcement costs (Dyer & Singh, 1998), thus reducing cooperative performance. Rigidity is another downside of formal control. Rigidity and flexibility are two contradictory tensions in a strategic alliance (Das & Teng, 2000). Thorgren and Wincent (2011) refer to rigidity as a firm's inflexibility when meeting changing external circumstances, hampering rather than enabling the inter-organizational relationship. Adjustment and adaptation are critical challenges in the buyer–seller relationship. Unexpected contingencies are always a possibility, and formal control tends to be insufficiently flexible to cope with frequent environmental changes (Tangpong et al., 2010). A high level of flexibility suggests that there is a mechanism for communicating ideas and collaborating on problem solving (Lao, Hong, & Rao, 2010). Heavy reliance on formal controls results in rigid performance measures, which may lose their relevance over time due to changing circumstances in the environment (Şengün & Wasti, 2009). When the buyer–supplier relationship is chiefly governed by a formal contract, a cooperation-oriented relationship may lack the transaction specificity of investment, and cooperative performance may be reduced (Jiang, 2009). When flexibility is emphasized, however, the buyer–supplier relationship tends to require very little control (Das & Teng, 2000) and is more likely to use social control as the governance mechanism (Zhang & Keh, 2009). Formal control deters opportunisms, but it also reduces the adaptive ability to respond to changing conditions. Formal control imposes strict guidelines regarding which activities are to be performed and how they should be performed. Formal control has a coercive influence on trading partners (Petersen et al., 2008). Das and Teng (2001) mention that formal control gives the partner firms little leeway to pursue long-term objectives at the cost of particular short-term targets because alliance outcomes will be constantly and closely monitored. Formal control would be a likely response when an alliance partner feels coerced by the focal firm in some way (Das & Rahman, 2010). A high level of formal control by one party limits the other party's autonomy and leaves that party with negative sentiments, which may cause defensive attitudes and behaviors that are opportunistic in nature (Heide et al., 2007). A formal contract may also signal distrust of the exchange partner and encourage opportunistic behavior (Poppo & Zenger, 2002). Although ex ante and ex post safeguarding can mitigate opportunism, Inkpen and Currall (2004) note that trust develops more slowly when formal control is more extensive. In sum, formal control is needed to align buyer–supplier interests and to discourage opportunism. When formal control is given too much emphasis, however, it may result in high ex ante and ex post transaction costs, low flexibility and low trust, and it may reduce cooperative performance. Thus, this study hypothesizes the following: H1: There is an inverse U-relationship between formalization and cooperative performance improvement. 2.4. Social control and cooperative performance Social control based on trust assumes that a partner will perform actions that result in positive outcomes and will not take unexpected actions that result in negative outcomes (Kwon & Suh, 2004); social control serves to facilitate cooperative interaction (Yu & Liao, 2008). Yu and Liao (2008) define trust as “a set of beliefs or expectations.” An example of trust is a supplier's expectation that a purchasing manager can be relied upon to fulfill obligations, behave in a predictable manner and act and negotiate fairly when the possibility for opportunism is present

3

(Perrone et al., 2003). From the lens of transaction cost theory, social control establishes a set of shared values and non-legal sanctions in the form of relational norms, and it encourages both the buyer and the supplier to commit to their exchange relationship and restrict the partner firms from acting opportunistically (Das & Teng, 2001; Liu et al., 2009; Tangpong et al., 2010). Social control, therefore, operates as a self-enforcement safeguard that is a more effective and less costly governance alternative (Poppo & Zenger, 2002). Social control may reduce ex post transaction costs (Dyer & Chu, 2003). Social control has the important effect of reducing transaction costs and increasing cooperative performance improvement. From the social exchange and relational view, social control also communicates mutual expectations and attitude through social exchange (Ahuja & Galvin, 2003; Perrone et al., 2003). Alliance members are socialized to accept the idea that over time they will be treated equitably, thus allowing any short-term imbalances in rewards that encourage cooperative and non-opportunistic behavior (Perrone et al., 2003) to be accepted. Based on the expectation of mutual interests and behaviors that enhance the continuation of the relationship, social control promotes trust and long-term relationships that exhibit a greater commitment to partnership (Gerwin, 2004; Tangpong et al., 2010). Thus, social control may further enhance flexibility and efficiency in buyer–supplier relationships because problems are more likely to be openly identified, examined and resolved (Cousins, Handfield, Lawson, & Petersen, 2006; Dyer & Chu, 2003; Li et al., 2010). Social control increases the likelihood of cooperation and performance. Social control can communicate expectations between buyer and supplier and create social norms and trust, which deters opportunism. Thus, this study proposes a hypothesis that social control can enhance cooperative performance. H2: Social control has a positive effect on cooperative performance improvement. 2.5. The interactive effects of governance mechanisms on cooperative performance An increasing number of recent studies suggest that multiple governance mechanisms (e.g., formal control and social control) must be used to govern trading partners simultaneously (Dyer & Singh, 1998; Mahapatra et al., 2010; Nielsen, 2010; Zhang & Keh, 2009). A review of the major articles in Appendix B indicates that the interplay effect of governance mechanisms on cooperative performance remains debated. In Hypothesis 1, this study assumes that the relationship between formal control and cooperative performance could be an inverted U shape. The discussion of the joint effect of formal and social controls on cooperative performance, however, must be separated. First, we will discuss the interactive effects when formal control has a positive impact on cooperative performance, and then we will discuss the interactive effects when formal control has a negative impact on cooperative performance. 2.5.1. The interactive effects when formal control has a positive impact on cooperative performance Formal control is necessary to guide the exchange between buyer and seller, especially in the early stage of a transaction where trust cannot be expected in advance (Camén, Gottfridsson, & Rundh, 2011). Formal control helps to clarify the exchange partner roles and expectations and provides clarity regarding the terms, remedies and conflict resolution procedures (Tangpong et al., 2010). Well-specified contracts may actually promote more cooperative, long-term, trusting relationships (Poppo & Zenger, 2002). Formal control is an alternate mechanism for managing exchange risk. When the risk is greater than the willingness to accept it, formal control can bridge the difference by lowering the perceived risk to a manageable level (Schoorma, Mayer, & Davis, 2007). By clearly specifying the expectations and negative consequences of opportunism, formal control provides an ex ante system

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

4

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

ensuring inter-firm reciprocity and becomes a necessary complement to social control (Liu et al., 2009). However, formal control will not eliminate the possibility that some suppliers also pursue their own, more self-interested, agendas (Coltman et al., 2009). Poppo and Zenger (2002) mention that a formally specified process for adapting to change promotes longevity in the exchange but does not guarantee continuance or a mutually acceptable resolution. Formal contracts do not necessarily coordinate a partner's actions (Nielsen, 2010). The contract will not be self-enforcing (Williamson, 1993); therefore, social control can mitigate these limitations because it provides for more flexible interaction between the partners. Social control insures the details that are not covered by the formal control strategies, and it mitigates any unexpected problems throughout the transaction (Yang et al., 2011). Social control may serve as a buffer against a partner's negative sentiments and possible reactions to monitoring and thus may permit monitoring to reduce opportunism (Heide et al., 2007). Social control complements the adaptive limits of contracts by fostering continuance when change arises. When the level of formal control increases, a manager will choose social control to increase the odds of continuance (Poppo & Zenger, 2002). Once trust and relational norms are established, partners may be reluctant to behave opportunistically (Liu et al., 2009). Through the development of norms and trust, exchange partners cooperate to offset the weaknesses of formal control (Liu et al., 2009). Therefore, formal control will be more effective when social control also comes into play. The combination of formal control and social control should generate a high level of cooperation (Poppo & Zenger, 2002). Accordingly, this study hypothesizes the following: H3: When formal control has a positive effect on cooperative performance, social control and formal control complement each other and result in cooperative performance.

2.5.2. The interactive effects when formal control has a negative impact on cooperative performance Formal control is based on an assumption of diverging interests between the involved parties (Şengün & Wasti, 2009; Williamson, 1993). Social control emphasizes governing exchange through consistent goals and common interests (Liu et al., 2009), which increases the predictability of a partner's behavior (Zaheer et al., 1998). Both governance mechanisms serve a similar function in safeguarding against opportunism (Yang et al., 2011). When firms invest time and resources to develop high levels of contract specificity, there is little need to develop social mechanisms of governance (Nielsen, 2010). Dyer and Singh (1998) suggest that the use of one control mechanism can obviate the use of the other. Therefore, a high level of formal control reduces the level of need for social control in buyer and seller relationships (Nielsen, 2010; Poppo & Zenger, 2002). High monitoring and enforcement costs, rigidity, diminishing transaction flexibility, short-term outcome orientation, undermining trust building, and increasing the likelihood of opportunistic behavior are downside for using high level of formal control (Das & Teng, 2001; Huemer et al., 2009; Liu et al., 2010; Poppo & Zenger, 2002; Sánchez et al., 2012). Greater levels of trust between buyers and suppliers result in less formal control (Petersen et al., 2008). Self-enforcing mechanisms are more effective than formal mechanisms at both minimizing transaction costs and maximizing value-creation initiatives (Dyer & Singh, 1998). Once trust is formed and can support the use of social control, formal control may be downplayed and its high cost is decreased (Li et al., 2010). Thus, formal contracts are seldom used once trust has been established; formal contracts exist merely as documents that are necessary for the negotiation and creation of business while trust is being initiated (Camén et al., 2011). When there is a high level of trust, firms are less inclined to rely on elaborate contracts for specifying, monitoring and enforcing agreements (Zaheer et al., 1998). Applying formal control is unnecessary when there is trust.

Justice is an important dimension in the research related to social exchange. In some cases, rational control can enhance feelings of bias, inequity, and unfairness, which in turn can create a more subtle form of opportunism (Grover & Malhotra, 2003). Justice, as a firm's perception of fairness, may cause tensions in the buyer–supplier relationship (Liu et al., 2012). Therefore, buyer–supplier relationships are subject to justice perceptions that are derived from social interactions and communications (Liu et al., 2012). Based on the above arguments, we predict that social control together with formal control will have negative interactive effects on cooperative performance when formal control has a negative impact on cooperative performance. Thus, we hypothesize the following: H4: Whereas formal control alone has a negative impact on cooperative performance, social control can be a substitute for formal control, resulting in cooperative performance.Accordingly, the conceptual framework is summarized in Fig. 1. 3. Methods 3.1. Research background In the legal and economic system, Taiwan has adopted a Westernlike model of both deregulation and a free-market state (Yu et al., 2006). Legal intervention in business in Taiwan has been relatively weak in comparison with China and Korea because of historical and political reasons. The Taiwanese government has established many unofficial associations to indirectly support (or limit) business activities, rather than directly using a strict legal system. In the economic system, the free and intense competition within many manufacturing industries can be observed. Because many smaller Taiwanese suppliers adopt a contractual-based manufacturing strategy to serve a few large corporate customers, they typically view corporate customer satisfaction as a major business goal (Hsieh, Chiu, & Hsu, 2008). Consequently, diverse formal contracts between buyers and suppliers are observed based on their strategic relative bargaining power. The governance mechanisms in business relationships may be primarily based on other social cultural expectations in Taiwan. Like many other Sino-cultural regions, Taiwanese business society has functioned as a highly relational network of “clan control”, highlighting trust in B-to-B transactions (Liu & Brookfield, 2000). Calculative trust (social control) may act as a substitute to reduce the necessity of using formal control. Given that most Taiwanese suppliers are small- and mediumsized enterprises (SMEs) with limited production capacity and specialized skills, their goal is to induce other suppliers to join the same supply chain and to serve the same large buyers (Hsieh, Yeh, & Chen, 2010). By joining the same supply chain, enormous number of suppliers can share the transaction-specialized investments for the few major corporate customers, a case known as “asymmetric buyer–supplier relationships” (Lee & Johnsen, 2012). Taiwanese supplier production unions thus have more robust international exposure and are noted for the excellence of their joint services in global value chains. Recently, many projects in Taiwan have been supported by unofficial agents to improve supply chain relationship communication and cooperation, including the design of electronic collaborative and information sharing mechanisms between Taiwanese suppliers and buyers to build global competiveness (Chen & Chiang, 2011). 3.2. Data and samples The sample list was based on the 2005 List of Taiwan Central-Satellite Production Systems, published by the Taiwan Central-Satellite Production System (TCSPS) Development Center, which is subsidized by the Taiwan Ministry of Economic Affairs. TCSPS is a long-established cooperative supply chain promoted by the Taiwanese government. TCSPS included 143 hub firms (buyers) and 1440 satellite firms (suppliers) in 2005. Having long-term contracts, the satellite firms that are members

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

Formal control

5

H1 H3 H4

Cooperative performance

H2

Social control

Fig. 1. Conceptual framework of this study.

of TCSPS have stable and continuous orders. All of the firms concentrate on improving R&D and production efficiency. The satellite firms that have survived in the TCSPS are all experienced and reputed suppliers, so that we can address less attention on the effect of other potential firm traits, e.g., prior collaborative experience and firm reputation, upon corporative performance (Roehrich & Lewis, 2010). Our survey selected satellite firms as the sample. Firstly, initial contacts with the firms were made by either fax or telephone to confirm the contact information and to request cooperation. Due to incorrect information or the dissolution of partnerships, only 547 firms were contacted. Secondly, questionnaires were sent to three types of managers in each of the 547 firms. Marketing/sales managers (who have close contact with buyers) were asked to examine the characteristics of governance mechanisms whereas financial managers were asked to rate their satisfaction with the level of cooperative performance improvement. A total of 106 questionnaires (a 19.38% valid response rate) were returned after a 6-month follow-up by telephone. Table 1 shows the sample profile. Non-respondent bias and common method variance bias (CMV) are considered due to the low response rate of our mailed survey. A comparison of early (n = 73) and late (n = 33) respondents on all constructs reveals that the main responses of the two groups are similar (p N 0.1) (Armstrong & Overton, 1977; Grewal et al., 2010). Regarding the firm trait difference, this study also compared the size of the early and the late group. A t-test found no significant differences in the capital (t = 0.90, p = 0.37) and in the number of employees (t = 0.75, p = 0.45). Therefore, this study may not significantly suffer from nonrespondent bias. Non-respondent bias and common method variance bias (CMV) are considered due to the low response rate of our mailed survey. A comparison of early (n = 73) and late (n = 33) respondents on all constructs reveals that the main responses of the two groups are similar

Table 1 Sample profile. Variable

Group

N = 106

%

Industry

Automobiles Motorcycles and bicycles Machinery Electronic and information Food, textiles and others (FTO) Less than NT$ 80 million From NT$ 80 million to NT$ 200 million From NT$ 200 million to NT$ 2 billion Large than NT$ 2 billion Less than 20 years From 21 years to 35 years From 36 years to 50 years Large than 50 years b50 51–200 201–1000 N1001

20 20 24 23 19 65 24 8 9 22 42 34 8 47 40 12 7

18.87 18.87 22.64 21.70 17.92 61.32 22.64 7.55 8.49 20.75 39.62 32.08 7.55 44.34 37.74 11.32 6.60

Capital

Age

Size (numbers of employees)

(p N 0.1) (Armstrong & Overton, 1977; Grewal et al., 2010). Regarding the firm trait difference, this study also compared the size of the early and the late group. A t-test found no significant differences in the capital (t = 0.90, p = 0.37) and in the number of employees (t = 0.75, p = 0.45). Therefore, this study may not significantly suffer from nonrespondent bias. To avoid CMV bias, this study firstly collected data from different sources (marketing/sales/financial manager) in each sample. Furthermore, to assess potential CMV bias, this study applied Harman's single-factor test, as suggested by Podsakoff, MacKenzie, Lee, and Podsakoff (2003). First, all of the questionnaire items were entered together into a factor analysis. An unrotated factor analysis extracted three factors with eigenvalues greater than one. No single factor emerged, nor did one general factor account for over 45.44% of the variance. The results indicated that the CMV bias was insignificant (Hair, Anderson, Tatham, & Black, 1998). Second, we conducted a confirmatory factor analysis that assigned all variables to a single latent variable as the null model. The results indicated that a singlefactor model did not fit the data well (χ2 = 157.83, df = 35, χ2/df = 4.5, GFI = 0.59, CFI = 0.69, RMSEA = 0.183). Third, we compared the measurement model corresponding to the theoretically derived factor structure of the measurement that contained three latent variables. The chi-square difference test also demonstrated a significant difference between the null model (single-factor model) and the three-factor model (Δχ = 117.94, p b 0.001). According to these tests, this study argued that the CMV bias did not seriously distort the analytical results.

3.3. Variables and measurement 3.3.1. Formal control Formal governance primarily relies on contracts (Li et al., 2010; Yu & Liao, 2008). Referring to prior studies (Cai & Yang, 2008; Li et al., 2010), formal control was measured using three items to reflect the level of formality in the contract: (1) a set of rules created for the buyer and the seller, (2) a specific, well-detailed agreement with the customer, and (3) formal agreements that detailed the obligations of both the buyer and the seller. These items were measured using a Likert scale, and the responses ranged from 1 (indicating strong disagreement) to 7 (indicating strong agreement).

3.3.2. Social control Adapting from Cousins and Menguc (2006) and Cousins et al. (2006), social control was reflected in the structure and processes in place to facilitate socialization between the buyer and the seller. This construct was measured using four items on a 7-point Likert scale. The respondents were asked to indicate the extent to which them and their customer used the following mechanisms to improve mutual understanding: (1) team building exercises, (2) social events, (3) joint workshops, and (4) regular supplier conferences.

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

6

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

3.3.3. Cooperative performance Most of our samples were unpublicized SMEs, so their secondary financial data are hard to obtain. This investigation otherwise measured subjective cooperative performance as suggested by Cousins et al. (2006) and Lawson, Tyler, and Cousins (2008). We asked the informants to indicate the level of agreement to which they perceived the performance improvement over the prior 2 to 3 years due to the cooperation with focal buyer in three areas: (1) the product design performance, (2) the process design performance, and (3) the lead time reduction. 3.3.4. Control variable Supplier size and the duration of the relationship are critical control variables in studying the buyer–supplier relationship (Dyer & Chu, 2003; Li et al., 2010; Liu et al., 2012). The number of employees and the year of a buyer–supplier relationship originated (using logarithm values) were used as proxies of firm size and relationship duration and were controlled in the analysis. 3.4. Validity and reliability A confirmatory factor analysis was used to test the construct validity of our measurements. The results showed that our measurement model was a satisfactory fit for maximum likelihood estimation (χ2 = 39.89, p N 0.05, d.f. = 32, RMSEA = 0.047, GFI = 0.93, AGFI = 0.88, NFI =0.91, CFI = 0.98). Although AGFI was less than 0.9, the ratio of the chi-square to the degree of freedom was 1.24; a value less than 2 for this ratio indicates a good fit. NFI and CFI were both above 0.9, indicating that the measurement model was a good fit. Table 2 shows the value of composite reliability (CR), the squared multiple correlations (SMC), and the average variance extracted (AVE) values. CR evaluates the internal consistency of a measurement. Our CR values ranged from 0.76 to 0.84. All CR values were above 0.6, and most SMC values were above 0.5, making them both above the cut-off values suggested by Bagozzi and Yi (1988). These results indicate that our measurements have a high level of internal consistency. All of the factor loadings were high (ranging from 0.55 to 0.92) and statistically significant (t values range from 4.71 to 10.53). To assess discriminant validity, we compared the AVE values as well as the variance shared between constructs as suggested by Fornell and Larcker (1981). These authors suggested that the square root of the AVE values should be greater than the correlation coefficient in the corresponding columns and rows. Table 3 shows the means, standard deviations and correlation coefficients between each of the contingency variables and the dependent variables. Table 4 also shows that the square root of each AVE was greater than the correlation coefficient in the corresponding columns and rows. This result means that adequate discriminant validity exists in our measurements.

Table 3 Descriptive statistics and correlations between constructs. Variable

Means

S. D.

1.

1. Formal control 2. Social control 3. Cooperative performance 4. Employee (log) 5. Relationship duration (log)

5.37 4.75 4.52 1.83 1.10

0.94 0.99 1.15 0.67 0.41

0.76 0.45⁎⁎ 0.38⁎⁎ 0.18 0.08

2.

3.

4.

0.66 0.49⁎⁎ 0.09 0.10

0.81 0.19⁎ 0.41⁎⁎

0.28⁎⁎

Diagonal terms are square root of the average variance extracted. ⁎ p b 0.05. ⁎⁎ p b 0.01.

4. Results A regression analysis was used to explore the direct effects of governance mechanisms on cooperative performance (Table 4). To avoid the potential for multicollinearity, a regression analysis was conducted after the balancing procedure. The relationship duration (control variable) did explain some variance in cooperative performance (β = 1.09, p b 0.001 in Model 1; β = 0.99, p b 0.001 in Model 2; β = 0.93, p b 0.001 in Model 3). Models 2 and 3 take into account the direct effects of the governance mechanisms. The primary effect of formal control on cooperative performance was marginally significant (β = 0.23, p b 0.1 in Model 2). Furthermore, a negative relationship between the formal control square and cooperative performance was revealed (β = -0.20, p b 0.01 in Model 2). In Model 3, the primary effect of formal control was insignificant (β = 0.02, p N 0.1); the formal control square in this model continued to show a negative effect on cooperative performance (β = -0.20, p b 0.01). The relationship between the formal control square and cooperative performance, as shown in the models, supported the inverted U-shaped relationship between formal control and cooperative performance, thus supporting Hypothesis 1. Furthermore, an introduction of the other governance mechanism terms showed that social control does indeed have a positive impact on cooperative performance (β = 0.44, p b 0.001 in Model 3). Accordingly, Hypothesis 2 is supported. The variance inflation factors ranged from 1.26 to 1.74, implying that there were no serious instances of multicollinearity. To examine the curvilinear relationship between formal control and cooperation in more depth, this investigation grouped the sample firms according to their formal control scores as suggested by Hitt, Hoskisson, and Kim (1997). The critical point was 0.575 according to regression Eq. (1). Cooperative performance ¼ 2:38 þ 0:99  log ðRelationship durationÞ−0:01 ð1Þ  log ðNumbers of EmployeesÞ þ 0:23 2 Formal control−0:20  Formal control

Subgroup 1 was composed of 61 firms with formal control scores below 0.575, and subgroup 2 was composed of 45 firms with formal

Table 2 Results of confirmatory factory analysis. Construct

Items

Factor loading

t-Value

SMC

CR

AVE

Cronbach's Alpha

Formal control

X1. A set of rules for buyer and seller has been created X2. Specific, well-detailed agreements with this customer X3. Formal agreements that detail the obligations of both buyer and seller X4. Team building exercises X5. Social events X6. Joint workshop X7. Regular supplier conferences Y1. Product design performance improvement Y2. Process design improvement Y3. Lead time reduction

0.71a 0.79 0.78 0.55a 0.72 0.68 0.70 0.89a 0.92 0.56

– 6.62⁎⁎⁎ 6.60⁎⁎⁎

0.50 0.63 0.61 0.50 0.51 0.46 0.49 0.79 0.84 0.32

0.80

0.58

0.80

0.76

0.44

0.76

0.84

0.65

0.82

Social control

Cooperative performance

– 4.84⁎⁎⁎ 4.71⁎⁎⁎ 4.78⁎⁎⁎ – 10.53⁎⁎⁎ 6.15⁎⁎⁎

Note: n =106. ⁎ p b 0.05. ⁎⁎ p b 0.01.

⁎⁎⁎ p b 0.001. a Item was fixed to 1 to set the scale.

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx Table 4 Regression analysis of the effects of governance mechanisms on cooperative performance. Model 1

Model 2

Model 3

Intercept Relationship duration (log) Employee (log)

3.06⁎⁎⁎ (8.30) 1.09⁎⁎⁎ (4.07) 0.13 (0.83)

Formal control

2.38⁎⁎⁎ (3.01) 0.99⁎⁎⁎ (4.07) −0.01 (−0.09) 0.23⁎⁎⁎⁎

Formal control square

(1.84) −0.20⁎⁎

1.48⁎ (1.97) 0.93⁎⁎⁎ (4.14) −0.01 (−0.04) 0.02 (0.13) −0.20⁎⁎

(−2.76)

0.34 0.31 12.76⁎⁎⁎ 12.69⁎⁎⁎

(−2.95) 0.44⁎⁎⁎ (4.34) 0.45 0.42 15.97⁎⁎⁎ 19.37⁎⁎⁎

0.17

0.11

Social control R2 Adj. R2 F value ΔF ΔR2

0.17 0.16 10.44⁎⁎⁎

Note: n =106. t Value in parentheses. ⁎ p b 0.05. ⁎⁎ p b 0.01. ⁎⁎⁎ p b 0.001. ⁎⁎⁎⁎ p b 0.1.

control scores of 0.575 and above. A regression analysis was developed for each subgroup to examine the relationship between formal control and cooperative performance. The results in Table 5 indicate that formal control had a positive effect on cooperative performance for subgroup 1 (β = 0.50, p b 0.001), and a negative effect on cooperative performance for subgroup 2 (β = − 0.27, p b 0.1). These results supported the hypothesized inverse U curvilinear relationship. Thus, in our sample, low to moderate levels of formal control are positively related to cooperative performance, but additional formal control is likely to generate negative effects on cooperative performance. Fig. 2 plots the curvilinear relationship between formal control and cooperative performance found in this investigation. Hypothesis 3 predicted the complementary relationship between formal control and social control when formal control had positive effects on cooperative performance. Subgroup 1 was used to test this hypothesis using a regression analysis. Table 6 shows the marginally significant effect of the relationship duration on cooperative performance (β = 0.74, p b 0.05 in Model 1). The direct effect of formal

Table 5 Results of subgroup analysis of the curvilinear relationship between formal control and cooperative performance. Variable

Relationship duration (log) Employee (log)

Formal control Social control R2 Adj. R2 F value Note: n =106. t Value in parentheses. ⁎ p b 0.05. ⁎⁎ p b 0.01. ⁎⁎⁎ p b 0.001. ⁎⁎⁎⁎ p b 0.1.

Subgroup 1: Low formal control group (n = 61)

Subgroup 2: High formal control group (n = 45)

0.23⁎ (2.60) 0.05 (0.53) 0.50⁎⁎⁎ (4.77) 0.30⁎⁎ (3.00) 0.59 0.56 20.24⁎⁎⁎

0.34⁎⁎ (2.19) −0.01 (−0.05) −0.27⁎⁎⁎⁎ (−1.90) 0.39⁎⁎ (2.76) 0.31 0.24 4.46⁎⁎

7.00

Cooperative performance

Variable

7

6.00 5.00 4.00 3.00 2.00 1.00 -4.00

-3.00

-2.00

-1.00

0.00

1.00

2.00

Level of formal control Fig. 2. The relationship between formal control and cooperative performance.

control and social control were statistically significant (β = 0.62, p b 0.001; β = 0.36, p b 0.01 in Model 2). The third model indicated that the interactive effect of formal control and social control on cooperative performance was marginally significant (β = 0.25, p b 0.1). The regression model accounted for almost 56% of the variance in cooperative performance. The variance inflation factors ranged from 1.12 to 2.64, suggesting that multicollinearity was insignificant. The results suggest a complementary relationship between formal and social controls when formal control has a positive effect on cooperative performance. Therefore, Hypothesis 3 is supported. This study hypothesized the substitutive relationship between formal control and social control when formal control had a negative effect on cooperative performance. Subgroup 2 was used to test this hypothesis. Table 6 reports that the relationship duration has a statistically significant effect on cooperative performance (β = 1.24, p b 0.01 in Model 4). The direct effect of formal control had a negative impact on cooperative performance (β = − 0.42, p b 0.05 in Model 5). Social control also had a direct positive effect on cooperative performance (β = 0.44, p b 0.01 in model 5). Although the beta coefficient was consistent with our prediction, the interactive effect was insignificant (β = − 0.65, p N 0.1). The variance inflation factors ranged from 1.12 to 2.64, implying that there were no serious instances of multicollinearity. These results suggest that the substitute relationship that social control has with formal control is insignificant when formal control has a negative effect on cooperative performance. Hence, Hypothesis 4 is not supported. 5. Discussion Major findings of this study provide valuable contributions to the scholars and managers in the area of buyer–seller relationships. Several theoretical discussion points are addressed as follows along with possible suggestions for further studies in B-to-B marketing. 5.1. Joint effect of formal and social controls upon buyer–seller cooperation This study elucidates the joint effect of formal control and social control upon buyer–seller cooperative performance and clarifies its nature in two unique situations. In the supply chains with a critical moderate level of formal control, responding to the findings of Zheng et al. and other scholars (e.g., Heide et al., 2007; Liu et al., 2009; Poppo & Zenger, 2002), this study confirms the general complementary nature of these governance mechanisms. This study reveals that trust, social norms and shared values between the buyers and sellers can interact together with unobtrusive monitoring activities and mutually adaptable formal contracts

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

8

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

Table 6 Interactive effects of governance mechanisms on cooperative performance. Variable

Subgroup 1: Low formal control group (n = 61) Model 1

Intercept Relationship duration (log) Employee (log)

Model 2

Model 3

Model 4

Model 5

Model 6

3.15⁎⁎⁎ (6.94) 0.74⁎ (2.15) 0.25 (1.17)

−0.89 (−1.36) 0.62⁎ (2.60) 0.08 (0.53) 0.62⁎⁎⁎ (4.77) 0.36⁎⁎ (3.00)

−1.54⁎ (−2.05) 0.61⁎ (2.59) 0.11 (0.70) 0.69⁎⁎⁎ (5.23) 0.32⁎⁎ (2.83) 0.25⁎⁎⁎⁎

3.27⁎⁎⁎ (5.35) 1.24⁎⁎ (3.10) 0.02 (0.08)

4.19 (0.93) 0.96⁎ (2.16) −0.10 (−0.41) −0.42⁎ (−1.96) 0.44⁎⁎ (2.48)

0.06 0.04 4.13⁎

0.54 0.52 22.47⁎⁎⁎ 30.30⁎⁎⁎ 0.49

0.20 0.16 5.12⁎⁎

0.31 0.24 4.46⁎⁎ 3.24⁎ 0.11

0.74 (0.13) 1.11⁎ (2.39) −0.21 (−0.77) −1.15⁎⁎⁎⁎ (−1.87) 0.48⁎⁎ (2.87) −0.65 (−0.09) 0.33 0.24 3.75⁎⁎ 0.95 0.02

Formal control Social control Formal × Social R2 Adj. R2 F value ΔF ΔR2

Subgroup 2: High formal control group (n = 45)

(1.70) 0.59 0.56 16.96⁎⁎⁎ 2.88⁎⁎⁎⁎ 0.05

Note: n =106. t Value in parentheses. ⁎ p b 0.05. ⁎⁎ p b 0.01. ⁎⁎⁎ p b 0.001. ⁎⁎⁎⁎ p b 0.1.

to improve cooperative performance. In contrast, the mutual reinforcing effect of the two control mechanisms will disappear in the supply chains with an overwhelmingly applied degree of formal control (Mahapatra et al., 2010; Yang et al., 2011). If the formal contract is overly severe, it is the buyers' and sellers' trust that secures the transaction and repairs any performance damage due to the heavy regulations and strict monitoring imposed to decrease the opportunistic behavior of the buyers and sellers. Therefore, social control may directly have a supportive, not a substitutive, effect on formal controls. In particular, their positive correlation (γ = 0.66, p b 0.001) shows that formal control can be regarded as a source used to design the social control activities taken by another. The above-average performance level in the high formal control subgroup (mean = 4.73) reveals the strong contribution that social control can make under strict formal control. Recalling previous studies (e.g., Huemer et al., 2009; Poppo & Zenger, 2002), this study argues that formal control institutions can contribute to the development of social control, which largely supports the positive efforts of formal control when a market contract failure occurs (Ouchi, 1979). Further studies can clarify either the complementary or the supportive nature between social control and formal control in different contextual situations. 5.2. Contingent effect of formal control upon buyer–seller cooperative performance This study also finds an inverse-U curvilinear relationship between formal control and cooperative performance, which somewhat clarifies the contingent implication of formal contracts on supply chain corporative performance in transaction cost economics. Neither the positive (Poppo & Zenger, 2002) nor the negative (Lao et al., 2010) view of formal control draws the entire picture for understanding the governance nature in buyer–seller relationships. A careful design of formal controls may be necessary to monitor opportunistic behaviors within the buyer– seller relationship (Coltman et al., 2009). To highlight, formal contracts are often primary and roughly designed with both environmental and behavioral presumptions (Nielsen, 2010); they are often incomplete and outdated (Williamson, 1993). Indeed, formal control should only be regarded as a fundamental infrastructure to provoke the

collaboration, mutual learning and resource leverage between buyers and sellers in long-term supply chain relationships. Otherwise, formal control becomes an impediment to cooperative performance. This study has shown that a moderate level of formal control (the critical point =0.575) is best for enhancing cooperative performance. We call for further qualitative studies to explore the unique combinations of moderate formal control in terms of monitoring type, amount of rules, duration of exchange, and other detailed contract conditions (Heide et al., 2007). 5.3. Endogenous contingent factors in the interplay between formal and social controls The relationship between formal and social controls should be moderated by many exogenous conditions (e.g., cultural, market and institutional environmental factors) of the cooperation (Li et al., 2010), however, the impact of some endogenous contingent factors in the interplay between formal and social controls upon cooperative performance must be notified. This study argues that the endogenous configurations and internal dynamics of governance mechanisms design play a critical role on the buyer–seller exchange relationships. Indeed, increasing numbers of studies have emphasized on how endogenous factors (e.g., relational phase, life cycle, and quality of both governance mechanisms) affect the performance interplay between formal control and social control (Chang, Chiang, & Pai, 2012; Eggert, Ulaga, & Schultz, 2006; Jap & Anderson, 2007; Yang et al., 2011; Zheng et al., 2008). This study particularly demonstrates that “the level of formal control itself” becomes a functional and critical complement to enhance/restrain its compatible and interactive relationship with social control. To highlight, both social and formal controls should be arranged by firms' design (Das & Teng, 1998). Therefore, buyers/ sellers plan to use both governance mechanisms to achieve an “internal governance fit” in each different exchange. If it is the case, the usefulness of one governance mechanism (e.g., social control) must depend on the practical usages of the other one (e.g., formal control), and vice versa. Within the Taiwanese buyer–seller relationships, explicit and concrete regulations to solve environmental risks can determine the

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

implicit joint usage of social control by members to address relational risks and to influence the effectiveness of their cooperative performances (Huemer et al., 2009; Yang et al., 2011). As suggested by Williamson (1999), adopting either a contract or trust in a transaction should be evaluated based on the practical usage of the other. Thus, when considering the interplay of both governance mechanisms, it is necessary to elucidate their individual natures in each interorganizational relationship. Thus, future studies should firstly identify the scope, scale, maturity, effectiveness, and development status of either formal control or social control and then should identify how each endogenous nature influences its interaction with the others in the different relational phases between buyers–sellers (Zheng et al., 2008) rather than focusing on other often-discussed exogenous factors. A life-cycle perceptive study to elucidate the endogenous interplay nature between formal control and social control is also strongly recommended. 5.4. Different cooperative performance implications for formal control and social control This study finally compares the different cooperative performance implications of both governance mechanisms in TCSPS: social control has a steady positive effect on cooperative performance, while formal control does not (Roseira, Brito, & Ford, 2013). This study reveals the closed partnerships within this long-term supply chain network, which consist of reputed buyers and sellers with prior cooperative experiences with each other and joint investments in specific assets, and it mirrors the “quasi–integration” case as argued by transaction cost economics in the B-to-B marketing literature (e.g., McCutcheon & Stuart, 2000; Subramani & Venkratraman, 2003). Responding to Cai et al. (2009), this study argues that appropriate “legal contracts” (formal control) should be applied in the quasi-integration to provoke further joint actions and that collaborative communication (social control) should be applied to continuously affect buyers' commitments and suppliers' performances. Especially in TCSPS, which is embedded with a few buyers and a great number of suppliers, detailed formal contracts and monitoring activities that are specific to many suppliers are costly and ineffective for the buyers. In this case, social control becomes a better group-based governance mechanism to maintain relationships among suppliers via shared values and mutual trust, which have lower transaction costs than the mechanisms of formal control. More studies should further elucidate the governance choices in such a quasi-integration case. 6. Conclusion This study aims to answer the independent and the joint effect of formal control and social control upon cooperative performance in Taiwan's central-satellite supply chains. Based on the empirical results, we firstly conclude that social control has a steady positive effect, while formal control has an inverse-U curvilinear effect (from positive to negative) upon cooperative performance. Secondly, this study concludes a complementary interplay between formal and social controls when the status of formal control is under a moderate degree. After that the formal control is overly applied, however, the joint effect of the two governance mechanisms upon cooperative performance no longer exists. Accordingly, our findings provide important managerial guidelines: managers who design B-to-B relationships can adapt in Taiwanese businesses. In Taiwan, the dominant buyers primarily design both cooperative governance mechanisms in the supply chain. Although the buyers are more likely to use detailed formal contracts to monitor the opportunistic behaviors of supplier, Taiwanese managers should also use more social controls to build mutual trust and improve communications in the supply chains with more than one supplier. A similar case is seen in Toyota's supplier system (Dyer & Chu, 2003). The appropriate usage

9

of formal contracts indeed exerts a significant influence to improve cooperative performance. However, the usage of formal control should be carefully evaluated and flexibly used to avoid strict contract regulations and monitoring activities. Furthermore, adaptable formal control activities that can concurrently contribute to fostering social control should be listed in the supply chain management principles, including the following: the duties of both buyers and sellers to aggressively participate in projects, the monitoring feedback mechanisms for suppliers, the quality circle teams among suppliers, the employee rotation and expatriate programs between buyers and suppliers, etc. When formal control is overly applied due to other legal and emotional constraints, the managers must develop the same degree of joint socialized actions between buyers and sellers based on the formal control infrastructure. As firms seek more cooperative advantages in their supply chains, relationship building with buyers or suppliers can help the managers to solidify the group's collective interests and can reduce opportunism and the conflicts of individual members. The alignment of both governance mechanisms is more effective than the use of only one. In supply chains with progressively mature buyer–supplier relationships, business practices should be designed based on many inter-personal and inter-organizational connections so that the relationship building between buyers and suppliers becomes even more effective than a formal contract. Both buyers and sellers should commit to exercise the optimal combination of both governance mechanisms.

6.1. Limitations This study has some limitations. First, our findings are based on a single survey collecting cross-sectional data, and the result can only testify to the situations of two subgroups with a different current level of governance mechanisms; it does not study the joint effects of both governance mechanisms over time (Roehrich & Lewis, 2010; Zheng et al., 2008). A longitudinal research design of each supply chain should be considered for future studies to clearly draw out the relationship between both governance mechanisms across relationship phases. Second, the small size of the subgroup and the subjective measurement of perceived cooperative performance reveal the insufficiency of our research design. A large-scale survey may be needed for additional work to obtain a more generalized conclusion. A more objective measurement (e.g., using secondary data) of cooperative performance in supply chains should be further considered. Third, only the opinions of the satellite suppliers are collected in the data, and further research should examine the opinions of the center firms, which were ignored in the empirical analysis. A dyad study to collect the opinion of both sides could also be performed. Although the unit of analysis of this study is “each buyer–supplier relationship”, future studies should apply a network approach to study the comprehensive network performance in a supply chain network. Fourth, TCSPS consist of few dominant customers and many suppliers with lower bargaining power, which represent an asymmetric buyer–seller relationship network. Future studies should focus on other balanced supply chain networks that have buyers and sellers with a similar status.

Acknowledgment The authors gratefully acknowledge the anonymous referees and Dr. LaPlaca, Editor in Chief of Industrial Marketing Management, for their insightful and constructive advice on how to improve an earlier manuscript of this article. In addition, the authors wish to thank the National Science Council in Taiwan for providing financial support for this research under grant NSC 101-2410-H-126033.

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

10

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

Appendix A. Summary of the key finding of main studies about the relationship between governance mechanisms and performance Article

Theory

Governance mechanisms

Burkert, Ivens, and Shan (2012)

1. Transaction cost theory 2. Resourcebased view

HernándezEspallardo et al. (2010)

1. Transaction cost economics 2. Resourcebased view

Formal contract are effective because they specify the rights and obligations of the parties to an exchange, when one party can consider its right not respected, what consequences a breach of contract would entail. Relational norms are the expectations Value-creation norm and valueclaiming norm drive trust and about those actors in a relationship relation-specific investments directly. share. Formal control can be categorized into 1. Legal contract, explicit rules and commands reduce uncertainty that output control and behavior control shifts the risk to the controlled firm. which are different type of formal 2. Does not require the controlled controls and are linked to specific firm's knowledge of the outcomes and behaviors. transformation process.

Advantage

Disadvantage

1. Increasing familiarity between supply chain members and reduce conflict and other transaction costs. 2. Influencing the assumption of common norms and value. 3. Developing a common dominant logic among firms. 1. Specify outcomes and specific Formal governance is a reliance on financial parameters, and the drafting behaviors that enable transactions that require investments in specific and implementation of formal investment. contracts. 2. Formal governance enables coordination by enhancing the predictability of each party's action and structuring communication flow. Relational governance means a set of Relational governance enables the broadly mechanisms that enhance parties to resolve conflicts based on the open communication and sharing open communication and a of information, trust building, preference for non-opportunistic, dependence, cooperation, and social win–win solution. identification

Performance outcome 1. Formal contract has negative impact on customer commitment. However, the relationship between formal contract and customer satisfaction is insignificant. 2. Value-creation norm has indirectly positive effect on customer commitment and customer satisfaction.

Formal contracts are legally binding documents in which the parties involved agree on their rights and obligations in the transactions they intend to execute.

1. Output control and behavior control can be viewed as an expression of distrust in the target and a restriction of autonomy and self-control. 2. Motivating dysfunction behaviors which erode the relationship climate and cooperation between parties.

1. Output control exerts a negative influence on learning in supply chain. 2. Output control and behavior control have insignificant effect on performance. 3. Social control and behavior control favor knowledge sharing, learning and performance in supply chain.

Social enforcement which relies on personal trust relation or reputation to reduce the likelihood of opportunism.

Hoetker and Transaction Mellewigt cost theory (2009)

Poppo and Zenger (2002)

Yang et al. (2011)

Transaction cost economics

Formal contracts specify contingencies, adaptive process and control that act to minimize the transaction costs and performance losses arising from exchange hazards. Social process promotes norms of Relational governance emerges from values and agree-upon process found flexibility, solidarity, and information change that mitigates the economic in social relationships. and sociological exchange hazards.

Formal contracts represent promises or obligations to perform particular action in the future.

Formal control is the level of Transaction customization, specific, and detail of a cost contract. economics Social embeddedness theory Trust is the extent of confident, positive expectation about other party's conduct that focus on the good-will.

Zheng et al. (2008)

Transaction cost economics

Contractual governance: To safeguard against the hazard of opportunism by applying legal contracts specify what is acceptable and what is not with the treats of legal enforcement.

Optimal configuration of formal and relational governance mechanisms depends on the assets involved in an alliance, with formal mechanisms best suited to property-based assets and relational governance best suited to knowledge-best assets. 1. Relational governance imposes considerable costs in terms of time and resource allocation. 2. Relationships based on frequent interaction take on some aspects of internal supply that diminish incentives. Both formal contract and relational 1. More complex contracts governance have direct positive have additional contracting effects on performance. costs.

1. The development and maintenance of relational governance may involve considerable cost in terms of time and resource allocation. 2. Dense social ties in economic exchange may restrict firms from new information and new opportunities. 1. Formal control appears as Building a stable structure and institutional framework and promote a denial of previous harmonious relationships positive expectation of one party toward its partners that make future and a signal of distrust. transactions more foreseeable, especially in weak tie relationship context. Trust promotes the positive belief to believe that partners should behave appropriately and ethically that safeguards proper behavior in exchange relationships. 1. Detailed contract can be Providing a legally bound, both inflexible and difficult institutional framework in which each party's rights, duties, and to monitor ex-post. responsibilities are codified; and 2. Contract can be incomgoals, polices, and strategies plete such that offer less

1. Formal control enhances long-term orientation and reduces opportunism in weak tie relationship context. 2. Trust reduces opportunistic behavior and increase long-term orientation.

1. Contract remains incomplete even contract negotiation process is extensive. 2. Relational governance increases information sharing and encourages

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

11

Appendix (continued) A (continued) Article

Theory

Governance mechanisms

Relational governance: Through the social processes, like trust, that promotes norms of flexibility, solidarity and information exchange to safeguard against the hazard of opportunism.

Advantage

Disadvantage

Performance outcome

underlying the relationship are specified.

certainty. 3. Contract can promote conflict and defensive behavior. 1. The development and maintenance of relational governance may be time and resource consuming. 2. Intensive social tie may restrict companies from reacquiring information and supporting new opportunities outside their networks. 3. Exchanges are harder to maintain and sanction through long-standing ties.

joint problem-solving that sometimes outside the framework specified by the contract as the relationship moves into. 3. The significant of contractual and relational governance are different at different phase of a project.

Unforeseeable contingencies may be accommodated by a bilateral approach to problem solving which facilitates adaptation.

Appendix B. Summary of the key finding of main studies about the interplay between formal control and social control Literature

Governance Mechanisms

Mechanisms interplay

Reasons

Das and Teng (2001)

Formal control and Trust

Substitution.

Heide et al.(2007)

Monitoring and social contract

Complementary.

Li et al. (2010)

Formal control and social control

Substitution in domestic buyer-supplier relationship. Neither complement nor substitution in international buyer-supplier relationship.

Liu et al. (2009)

Transactional mechanisms and relational mechanisms

Complementary.

Ness and Haugland (2005)

Market contract and relational contract

Complementary.

Poppo and Zenger (2002)

Formal contract and relational governance

Complementary, especially in the earlier and vulnerable stage.

Şengün and Wasti (2009)

Output control and social control

Substitution

Yang et al. (2011)

Formal control and trust

Substitution in the strong tie relationship context, but complementary in the weak tie relationship context.

Zheng et al.(2008)

Contractual and relational governance

Complementary.

1. The employment of strict rules and objectives means that members do not have autonomy to decide what work best, thus formal control undermines trust and creates mistrust atmosphere. 2. Formal control gives partners little leeway in pursuing long-term objectives at the cost of certain short-term targets, because alliance outcomes will be constantly and closely monitored. 3. When behavior and processes are specified in an alliance, the implication is that the partners cannot be trusted with things being done their own way. 4. When one firm controls the behavior of another, a dependence relationship is created. 1. The party that is being monitored perceives the governance practices as confirming to existing beliefs, as established in the social contract, the party will assign lower authority costs to the relationship and be more willing to cooperate. 2. In the absence of social contract, monitoring will be considered as an invasive form of control, which may produce retaliatory opportunistic behaviors. 1. Formal control may also result in high contracting costs. The use social control obviates the use of the other. 2. Social control may remedy the inherent limitations of formal control. 3. Social control have governed exchanges in China for a long time and perceived as more effective to govern interfirm cooperation. Transactional mechanisms provide an institutional framework for relational mechanisms, while relational mechanisms offer stimulations for executing transactional mechanism. Economic incentives provide an important condition to form relationship, and as the parties interact, rules and procedure will be added to the relationship and complement incentives. Well-specified contracts may promote more cooperative, long-term, trusting expectation relationship. Relational governance may generate contractual refinements that overcome the adaptive limits of contracts and further support greater cooperation. The presence of one governance mode would negate the need for the other. Formal control increases the probability of conflict, fosters distrust, and reduces cooperation between the exchange partners. In strong tie relationship, formal control signals distrusts. In weak tie relationship, formal control offers the structural framework that provides a stable infrastructure for relationship continuity. Contractual governance capability should been seen as a crucial but not sufficient ‘qualifier for’ effective change and therefore needs to act in combination with pro-active relational governance. Any contract in a complex exchange remains incomplete. Trust can facilitate the negotiation and drafting of complex contract.

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

12

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx

References Ahuja, M. K., & Galvin, J. E. (2003). Socialization in virtual groups. Journal of Management, 29(2), 161–185. Armstrong, J. S., & Overton, T. S. (1977). Estimating nonresponse bias in mail surveys. Journal of Marketing Research, 14(3), 396–402. Bagozzi, R. P., & Yi, Y. (1988). On the evaluation of structural equation models. Journal of the Academy of Marketing Science, 16(1), 74–94. Ballou, R. H., Gilbert, S. M., & Mukherjee, A. (2000). New managerial challenges from supply chain opportunities. Industrial Marketing Management, 29(1), 7–18. Burkert, M., Ivens, B.S., & Shan, J. (2012). Governance mechanisms in domestic and international buyer–supplier relationship: An empirical study. Industrial Marketing Management, 41(3), 544–546. Cai, S., & Yang, Z. (2008). Development of cooperative norms in the buyer–supplier relationship: The Chinese experience. Journal of Supply Chain Management, 44(1), 55–70. Cai, S., Yang, Z., & Hu, Z. (2009). Exploring the governance mechanisms of quasi-integration in buyer–supplier relationships. Journal of Business Research, 62(6), 660–666. Camén, C., Gottfridsson, P., & Rundh, B. (2011). To trust or not to trust? Formal contracts and the building of long-term relationships. Management Decision, 49(3), 365–383. Chang, C. -W., Chiang, D.M., & Pai, F. -Y. (2012). Cooperative strategy in supply chain networks. Industrial Marketing Management, 41(7), 1114–1124. Chen, W. -H., & Chiang, A. -H. (2011). Network agility as a trigger for enhancing firm performance: A case study of a high-tech firm implementing the mixed channel strategy. Industrial Marketing Management, 40(4), 643–651. Coltman, T., Bru, K., Perm-Ajchariyawong, N., Devinney, T. M., & Beniot, G. R. (2009). Supply chain contract evolution. European Management Journal, 27(6), 388–401. Cousins, P. D., Handfield, R. B., Lawson, B., & Petersen, K. J. (2006). Creating supply chain relational capital: The impact of formal and informal socialization processes. Journal of Operations Management, 24(6), 851–863. Cousins, P. D., & Menguc, B. (2006). The implications of socialization and integration in supply chain management. Journal of Operations Management, 24(5), 604–620. Das, T. K., & Rahman, N. (2010). Determinants of partner opportunism in strategic alliances: A conceptual framework. Journal of Business & Psychology, 25(1), 55–74. Das, T. K., & Teng, B. -S. (1998). Between trust and control: Developing confidence in partner cooperation in alliances. Academy of Management Review, 23(3), 491–512. Das, T. K., & Teng, B. -S. (2000). Instabilities of strategic alliances: An internal tensions perspective. Organization Science, 11(1), 77–101. Das, T. K., & Teng, B. -S. (2001). Trust, control, and risk in strategic alliances: An integrated framework. Organization Studies, 22(2), 251–283. Dyer, J., & Chu, W. (2003). The role of trustworthiness in reducing transaction costs and improving performance: Empirical evidence from the United States, Japan, and Korea. Organization Science, 14(1), 57–68. Dyer, J. H., & Singh, H. (1998). The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23(4), 660–679. Eggert, A., Ulaga, W., & Schultz, F. (2006). Value creation in the relationship life cycle: A quasi-longitudinal analysis. Industrial Marketing Management, 35(1), 20–27. Eltantawy, R. A., Giunipero, L., & Fox, G. L. (2009). A strategic skill based model of supplier integration and its effect on supply management performance. Industrial Marketing Management, 38(8), 925–936. Fornell, C., & Larcker, D. (1981). Structural equation models with unobservable variables and measurement error: Algebra and statistics. Journal of Marketing Research, 18(3), 39–50. Frazier, G. L., Maltz, E., Antia, K. D., & Rindfleisch, A. (2009). Distributor sharing of strategic information with suppliers. Journal of Marketing, 73(4), 31–43. Gerwin, D. (2004). Coordinating new product development in strategic alliances. Academy of Management Review, 29(2), 241–257. Grewal, R., Chakravarty, A., & Saini, A. (2010). Governance mechanisms in business-tobusiness electronic markets. Journal of Marketing, 74(4), 45–62. Grover, V., & Malhotra, M. K. (2003). Transaction cost framework in operations and supply chain management research: Theory and measurement. Journal of Operations Management, 21(4), 457–473. Hadjikhani, A., & Thilenius, P. (2005). The impact of horizontal and vertical connections on relationships' commitment and trust. The Journal of Business and Industrial Marketing, 20(3), 136–147. Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis with readings. Upper Saddle River, NJ: Prentice Hall. Heide, J. B., Wathne, K. H., & Rokkan, A. I. (2007). Interfirm monitoring, social contracts, and relationships outcomes. Journal of Marketing Research, 44(3), 425–433. Hernández-Espallardo, M., Rodríguez-Orejuela, A., & Sánchez-Pérez, M. (2010). Interorganizational governance, learning and performance in supply chains. Supply Chain Management: An International Journal, 15(2), 101–114. Hitt, M.A., Hoskisson, R. E., & Kim, H. (1997). International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4), 767–798. Hoetker, G., & Mellewigt, T. (2009). Choice and performance of governance mechanisms: Matching alliance governance to asset type. Strategic Management Journal, 30(10), 1025–1044. Hsieh, Y. -C., Chiu, H. -C., & Hsu, Y. -C. (2008). Supplier market orientation and accommodation of the customer in different relationship phases. Industrial Marketing Management, 37(4), 380–393. Hsieh, T. -J., Yeh, R. -S., & Chen, Y. -J. (2010). Business group characteristics and affiliated firm innovation: The case of Taiwan. Industrial Marketing Management, 39(4), 560–570. Huemer, L., Boström, G. -O., & Felzensztein, C. (2009). Control-trust interplays and the influence paradox: A comparative study of MNC-subsidiary relationships. Industrial Marketing Management, 38(5), 520–528.

Inkpen, A.C., & Currall, S.C. (2004). The coevolution of trust, control, and learning in joint ventures. Organization Science, 15(5), 586–599. Jaakkola, E., & Hakanen, T. (2013). Value co-creation in solution networks. Industrial Marketing Management, 42(1), 47–58. Jap, S. D., & Anderson, E. (2007). Testing a life-cycle theory of cooperative interorganizational relationships: Movement across stage and performance. Management Science, 53(2), 260–275. Jiang, B. (2009). The effects of interorganizational governance on supplier's compliance with SCC: An empirical examination of compliant and non-compliant suppliers. Journal of Operations Management, 27(4), 267–280. Joshi, A. W. (2009). Continuous supplier performance improvement: Effects of collaborative communication and control. Journal of Marketing, 73(1), 133–150. Kwon, I. -W. G., & Suh, T. (2004). Factors affecting the level of trust and commitment in supply chain relationships. Journal of Supply Chain Management, 40(2), 4–14. Lao, Y., Hong, P., & Rao, S. S. (2010). Supply management, supply flexibility and performance outcomes: An empirical investigation of manufacturing firms. Journal of Supply Chain Management, 46(3), 6–22. Lawson, B., Tyler, B. B., & Cousins, P. D. (2008). Antecedents and consequences of social capital on buyer performance improvement. Journal of Operations Management, 26(3), 446–460. Lee, C. -J., & Johnsen, R. E. (2012). Asymmetric customer–supplier relationship development in Taiwanese electronics firms. Industrial Marketing Management, 41(4), 692–705. Li, Y., Xie, E., Teo, H. H., & Peng, M. W. (2010). Formal control and social control in domestic and international buyer–supplier relationships. Journal of Operations Management, 28(4), 333–344. Liu, R. J., & Brookfield, J. (2000). Stars, rings and ties: Organizational networks and their dynamics in Taiwan's machine tool industry. Long Range Planning, 33(3), 322–348. Liu, Y., Huang, Y., Luo, Y., & Zhao, Y. (2012). How does justice matter in achieving buyer– supplier relationship performance? Journal of Operations Management, 30(5), 255–367. Liu, Y., Li, Y., & Zhang, L. (2010). Control mechanisms across a buyer–supplier relationship quality matrix. Journal of Business Research, 63(1), 3–12. Liu, Y., Luo, Y., & Liu, T. (2009). Governing buyer–supplier relationships through transactional and relational mechanisms: Evidence from China. Journal of Operations Management, 27(4), 294–309. Mahapatra, S. K., Narasimhan, R., & Barbieri, P. (2010). Strategic interdependence, governance effectiveness and supplier performance: A dyadic case study investigation and theory development. Journal of Operations Management, 28(6), 537–552. McCutcheon, D., & Stuart, F. I. (2000). Issues in the choice of supplier alliance partners. Journal of Operations Management, 18(3), 279–301. Mesquita, L. F., & Brush, T. H. (2008). Untangling safeguard and production coordination effects in long-term buyer–supplier relationships. Academy of Management Journal, 51(4), 785–807. Nakos, G., & Brouthers, K. D. (2008). International alliance commitment and performance of small and medium-size enterprise: The mediating role of process control. Journal of International Management, 14(2), 124–127. Narasimhan, R., Nair, A., Griffith, D. A., Arlbjørn, J. S., & Bendoly, E. (2009). Lock-in situations in supply chain: A social exchange theoretical study of sourcing arrangements in buyer–supplier relationships. Journal of Operations Management, 27(5), 374–389. Ness, H., & Haugland, S. A. (2005). The evolution of governance mechanisms and negotiation strategies in fixed-duration interfirm relationships. Journal of Business Research, 58(9), 1226–1239. Nielsen, B. B. (2010). Strategic fit, contractual, and procedural governance in alliances. Journal of Business Research, 63(7), 682–689. Ouchi, W. G. (1979). A conceptual framework for the design of organizational control mechanisms. Management Science, 25(9), 833–848. Perrone, V., Zaheer, A., & McEvily, B. (2003). Free to be trusted? Organizational constraints on trust in boundary spanners. Organization Science, 14(4), 422–439. Petersen, K. J., Handfield, R. B., Lawson, B., & Cousins, P. D. (2008). Buyer dependency and relational capital formation: The mediating effects of socialization processes and supplier integration. Journal of Supply Chain Management, 44(4), 53–65. Podsakoff, P.M., MacKenzie, S. B., Lee, J. -Y., & Podsakoff, N.P. (2003). Common method biases in behavioral research: A critical review of the literature and recommended remedies. Journal of Applied Psychology, 88(5), 879–903. Poppo, L., & Zenger, T. (2002). Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal, 23(8), 707–725. Poppo, L., Zhou, K. Z., & Zenger, T. (2008). Examining the conditional limits of relational governance: Specialized assets, performance ambiguity, and long-standing ties. Journal of Management Studies, 45(7), 1195–1216. Ramaswami, S. N. (1996). Marketing controls and dysfunctional employee behaviors: A test of traditional and contingency theory postulates. Journal of Marketing, 60(2), 105–120. Roehrich, J. K., & Lewis, M.A. (2010). Towards a model of governance in complex (product-service) inter-organisational systems. Construction Management and Economics, 28(11), 1155–1164. Roseira, C., Brito, C., & Ford, D. (2013). Network pictures and supplier management: An empirical study. Industrial Marketing Management, 42(2), 234–247. Sánchez, J. M., Vélez, M. L., & Ramón-Jerónimo (2012). Do suppliers' formal controls damage distributors' trust? Journal of Business Research, 65(7), 896–906. Schoorma, F. D., Mayer, R. C., & Davis, J. H. (2007). An integrative model of organizational trust: Past, present, and future. Academy of Management Review, 32(2), 344–354. Şengün, A. E., & Wasti, S. N. (2009). Revisiting trust and control: Effects on perceived relationship performance. International Small Business Journal, 27(1), 39–69. Subramani, M. R., & Venkratraman, N. (2003). Safeguarding investments in asymmetric interorganizational relationships: Theory and evidence. Academy of Management Journal, 46(1), 46–62.

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001

M.-C. Huang et al. / Industrial Marketing Management xxx (2014) xxx–xxx Svahn, S., & Westerlund, M. (2007). The mode of supply net management: A capability view. Supply Chain Management: An International Journal, 12(5), 369–376. Tangpong, C., Hung, K. -T., & Ro, Y. K. (2010). The interaction effect of relational norms and agent cooperativeness on opportunism in buyer–supplier relationships. Journal of Operations Management, 28(5), 398–414. Thorgren, S., & Wincent, J. (2011). Interorganizational trust: Origins, dysfunctions and regulation of rigidities. British Journal of Management, 22(1), 21–41. Tirole, J. (2009). Cognition and incomplete contracts. American Economic Review, 99(1), 265–294. Tsang, E. W. K. (2006). Behavior assumptions and theory development: The case of transaction cost economics. Strategic Management Journal, 27(11), 999–1011. Wang, K. Y., & Fulop, L. (2007). Managerial trust and work value within the context of international joint ventures in China. Journal of International Management, 13(2), 164–186. Williamson, O. E. (1979). Transaction-cost economics: The governance of contractual relations. Journal of Law and Economics, 22(2), 233–261. Williamson, O. E. (1993). Opportunism and its critics. Managerial and Decision Economics, 14(2), 97–107. Williamson, O. E. (1999). Strategy research: Governance and competence perspective. Strategic Management Journal, 20(12), 1087–1108. Wong, A., Tjosvold, D., & Zhang, P. (2005). Developing relationships in strategic alliances: commitment to quality and cooperative interdependence. Industrial Marketing Management, 34(7), 722–731.

13

Yang, Z., Zhou, C., & Jiang, L. (2011). When do formal control and trust matter? A context-based analysis of the effects on marketing channel relationships in China. Industrial Marketing Management, 40(1), 86–96. Yu, J. C. -M., & Liao, T. J. (2008). The impact of governance mechanisms on transaction-specific investments in supplier–manufacturer relationships: A comparison of local and foreign manufacturers. Management International Review, 48(1), 95–114. Yu, J. C. -M., Liao, T. J., & Lin, Z. D. (2006). Formal governance mechanisms, relational governance mechanisms, and transaction-specific investments in supplier–manufacturer relationships. Industrial Marketing Management, 35(2), 128–139. Zaheer, A., McEvily, B., & Perrone, V. (1998). Does trust matter? Exploring the effects of interorganizational and interpersonal trust on performance. Organization Science, 9(2), 141–159. Zhang, J., & Keh, H. T. (2009). Interorganizational exchange in China: Organizational forms and governance mechanisms. Management and Organization Review, 6(1), 123–147. Zheng, J., Roehrich, J. K., & Lewis, M.A. (2008). The dynamics of contractual and relational governance: Evidence from long-term public–private procurement arrangements. Journal of Purchasing & Supply Management, 14(1), 43–54. Zhou, J. Q., & Peng, M. K. (2010). Relational exchange versus arm's-length transactions during institutional transitions. Asia Pacific Journal of Management, 27(3), 355–370.

Please cite this article as: Huang, M.-C., et al., Reexamining the direct and interactive effects of governance mechanisms upon buyer–supplier cooperative performance, Industrial Marketing Management (2014), http://dx.doi.org/10.1016/j.indmarman.2014.02.001