The influence of institutional norms and environmental uncertainty on supply chain integration in the Thai automotive industry

ARTICLE IN PRESS Int. J. Production Economics 115 (2008) 400– 410

Contents lists available at ScienceDirect

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

The influence of institutional norms and environmental uncertainty on supply chain integration in the Thai automotive industry Chee Yew Wong a, Sakun Boon-itt b, a b

Logistics Institute, Hull University Business School, Hull HU6 7RX, UK Faculty of Commerce and Accountancy, Thammasat University, 2 Prachan Road, Bangkok 10200, Thailand

a r t i c l e i n f o

abstract

Article history: Received 2 October 2006 Accepted 28 May 2008 Available online 22 June 2008

Supply chain integration has been recognised as one of the today’s competitive advantages in a global marketplace; therefore it is essential to research factors that contribute to integration. In this paper, we review the literature of supply chain integration and then by means of multiple case studies in the Thai automotive industry explore the roles of environmental uncertainty and institutional norms in affecting supply chain integration. Results indicate that the implementation of supply chain integration is found to be associated with environmental uncertainty and institutional norms. This finding provides a new perspective of the implementation of supply chain integration under different levels of environmental uncertainty; and offers a framework for further empirical investigation of supply chain integration. Theoretical and managerial implications of the findings are discussed, along with future research issues. & 2008 Elsevier B.V. All rights reserved.

Keywords: Supply chain integration Environmental uncertainty Institutional norms Thai automotive industry Case study

1. Introduction The effective management of supply chains requires integration of business processes internally within an organisation and externally across suppliers and customers. Supply chain integration may be defined as a process of interaction and collaboration in which companies in a supply chain work together in a cooperative manner to arrive at mutually acceptable outcomes (Pagell, 2004). Benefits of supply chain integration have been confirmed by a lot of research results, including the maximisation of supply chain performance (Frohlich and Westbrook, 2001), and the reduction of ordering cost (Scanell et al., 2000), cycle time and inventory level (Stank et al., 1999), and business uncertainty (Childerhouse et al., 2003). There is another stream of research that attempts to discover factors that may affect supply chain integration.

 Corresponding author. Tel.: +66 2 6132201; fax: +66 2 2264516.

E-mail address: [email protected] (S. Boon-itt). 0925-5273/$ - see front matter & 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.ijpe.2008.05.012

Environmental uncertainty has been identified as one of these factors by economic, manufacturing and supply chain literature. As explained by the Transaction Cost Theory, high level of business uncertainty tends to drive companies towards a vertical integration strategy (Williamson, 1983). In the manufacturing strategy literature, environmental uncertainty is proved to affect performances such as quality, dependability, and cost; thus, the literature suggests manufacturers to increase flexibility to cope with high level of environmental uncertainty (Swamidass and Newell, 1987; Pagell and Krause, 1999). Finally, the supply chain literature suggests a closer coordination or integration between supply chain members especially when there is high business uncertainty or the lack of supply and demand information (Lee and Billington, 1992, Lee et al., 1997). To summarise, clarification of the roles of environmental uncertainty will be useful in understanding means to achieve supply chain integration (Chang et al., 2002). Another factor, though less researched, is institutional norms. Institutional norms refer to the expectations of behaviour or practice that are acceptable within an

ARTICLE IN PRESS C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

institutional environment (e.g. an industry or a supply chain). Institutional norms can therefore affect industrial standards and practices including supply chain integration. In practice, institutional norms can be considered as a means to improve supply chain integration because companies can exert normative pressures on other supply chain members to influence their processes and practices. On the other hand, for companies to survive, they may have to conform to institutional norms within their industries in order to increase their legitimacy to continue supply their products to the industries (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). The above pockets of anecdotes and theories are indicative but inadequate in explaining the roles of environmental uncertainty and institutional norms in affecting supply chain integration. This paper aims to extend the understanding of their roles based on a multiple case studies of seven automotive companies in Thailand. This paper is further divided into three sections: the first section reviews literature and develops a framework which relates supply chain integration, environmental uncertainties, and institutional norms; the second section explains the research methodology in detail; and the final section provides empirical evidences from the seven case studies, and discusses the major findings and their implications in understanding supply chain integration; and offers some managerial implications. 2. Literature review and theoretical framework This section reviews current literate on supply chain integration, environmental uncertainty and institutional norms. The aim is to develop suitable definitions, constructs and theoretical framework relating these three constructs. 2.1. Supply chain integration In a supply chain context, integration is defined as a process of interaction and collaboration in which companies in supply chain work together in a cooperative manner to arrive at mutually acceptable outcomes (Pagell, 2004). Most supply chain literature considers supply chain integration as the collaborative effort in linking functions and supply chain networks in terms of process, information and physical flow (Sabath, 1995; Spekman et al., 1994; Lambert et al., 1998; Frohlich and Westbrook, 2001; Mentzer et al., 2001; Romano, 2003; Pagell, 2004; Zailani and Rajagopal, 2005). Therefore, ‘‘collaboration’’, ‘‘interaction’’, ‘‘information flow linkage’’, and ‘‘business process linkage’’ become the key components of supply chain integration for this research. An integrated supply chain is dissimilar from a traditional supply chain. According to Sabath (1995), a traditional supply chain is not integrated as it relies on discrete or disconnected information flows. A traditional (non-integrated) supply chain has at least two critical disadvantages. First, at each echelon backwards in the supply chain, forecast accuracy will decrease because of the increase in demand uncertainty as a result of the

401

disconnected information flows. Inaccurate forecast usually creates excess inventory for both manufacturers and suppliers. Second, a traditional supply chain usually reacts slowly to demand changes because business processes across supply chain members are not seamlessly linked. Consequently, a traditional supply chain often faces higher level of environmental uncertainty; thus the supply chain literature has been advocating the need for increased integration to cope with the environmental uncertainty (Morash and Clinton, 1997; Lambert et al., 1998; Frohlich and Westbrook, 2001; Gimenez, 2004). The supply chain literature seems to have arrived at an agreement that supply chain integration is required internally within and across functions, as well as externally across suppliers and customers (Steven, 1989; Morash and Clinton, 1997; Frohlich and Westbrook, 2001). To consider all different types of supply chain integration, this research has included internal integration, supplier integration and customer integration. The definitions and constructs of these three types of supply chain integration are established in the following sub-sections. 2.1.1. Internal integration Internal integration (labelled as II) is defined as a process of inter-departmental interaction and inter-departmental collaboration that brings departments together into a cohesive organisation (Kahn and Mentzer, 1998). Moreover, internal integration is characterised by a full system visibility from the point of purchasing to distribution within an organisation to achieve customer satisfaction. In practice, special attention must be given to the interactions between functional areas such as procurement, production, logistics, marketing, sales, and distribution (Steven, 1989; Morash and Clinton, 1997; Birou et al., 1998). An organisation is considered having high level of integration when its information systems used by different functions are linked together and all functions are able to access to accurate and real-time information from other functions and there are effective means of communication across functions (Sabath, 1995; Frohlich and Westbrook, 2001). Furthermore, there should be seamless links between functions in terms of business processes as well as strong relationships which support interaction and collaboration across functions (Steven, 1989; Morash et al., 1997; Morash and Clinton, 1997). 2.1.2. Supplier integration Supplier integration (labelled as SI) refers to the process of interaction and collaboration between an organisation with its suppliers to ensure an effective flow of supplies. It is also called ‘‘backward’’ integration (Frohlich and Westbrook, 2001). An organisation is considered having high level of supplier integration when its information systems are linked with the suppliers and both parties are able to access to accurate and real-time information and there are effective means of communication across the two parties (Liker et al., 1996; Ragatz et al., 2002; Koufteros et al., 2005). Furthermore, there should be seamless links between them in terms of business processes as well as strong supplier–customer relationships which support interaction and collaboration

ARTICLE IN PRESS 402

C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

(Handfield, 1993; Gilbert and Ballou, 1999). Integration with suppliers represents a change in attitude away from one of adversary to one of cooperation, commencing with product development, the supply of high-quality products, processing and incorporating changes in specifications, technology exchange, and design support. 2.1.3. Customer integration Customer integration (labelled as CI) refers to the process of interaction and collaboration between an organisation with its customers to ensure an effective flow of supplies. To achieve a high level of customer integration, a company needs to penetrate deep into the customer organisation to understand its product, culture, market and organisation so that it can respond rapidly to the customer’s needs and requirements. Another important goal of customer integration is the improvement of demand planning and visibility in supply chains (Fisher et al., 1994); without information sharing from one end of the supply chain to the other, tremendous inefficiencies in terms of customer service can occur (Lee et al., 1997). An organisation is considered having high level of customer integration when its information systems are linked with the customers and both parties are able to access to accurate and real-time information and there are effective means of communication across the two parties (Daugherty et al., 1999; Frohlich and Westbrook, 2001). Furthermore, there should be seamless links between them in terms of business processes as well as strong supplier–customer relationships that support interaction and collaboration. To achieve high level of customer integration there is a need to change from a product orientation to a customer orientation because customer integration requires close interaction and collaboration between a supplier and its customers. 2.2. Factors affecting supply chain integration So far, literature has revealed several factors that affect supply chain integration. Since integration requires seamless and effective linkages of information, the revolution of information technology has become an important enabler (Handfield and Nicholas, 1999). This is further supported by the deregulation of global telecommunication and transportation systems (Stonebraker and Liao, 2004). Other than these obvious factors, environmental uncertainty has been identified as another possible factor. The roles of environmental uncertainty is also supported by the Transaction Cost Theory (Williamson, 1983), the manufacturing strategy literature (Swamidass and Newell, 1987; Pagell and Krause, 1999), as well as the supply chain literature (Lee and Billington, 1992; Lee et al., 1997). Another factor, though less researched, is institutional norms. Institutional norms have been used by (usually powerful) institutes to affect the practices of other institutions or individuals. A strong supply chain member may apply institutional norms to achieve higher level of organisational integration (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). Since the roles of environmental uncertainty and institutional norms have been less

researched, this research focuses on understanding their roles in affecting the implementation of supply chain integration. 2.2.1. Environmental uncertainty The concept of uncertainty has been defined in various ways by several studies (Duncan, 1972). Decision theorists define uncertainty as the situation where the probability of the outcome of an event is unknown, as opposed to a risk situation where each outcome has a calculated probability (Luce and Raiffa, 1957). In the narrow sense of the term, information theorists, including Garner (1962), argue that uncertainty can be defined as the logarithm of the number of possible event outcomes. Lawrence and Lorsch (1967) and Duncan (1972) view uncertainty as consisting of three components: (a) a lack of information regarding the environmental factors associated with a given decision-making situation; (b) not knowing the outcome of a specific decision in terms of how much the organisation would lose if the decision were incorrect; and (c) inability to assign with any degree of confidence as to how environmental factors are going to affect the success or failure of a decision unit in performing its function. Though uncertainty sounds threatening, it also provides opportunities to an organisation. According to Lenz (1980) and Turner (1993), environmental uncertainty can be defined as the sources of events and changing trends that create opportunities and threats for individual organisations. Applying the above definitions to the contexts in a supply chain, environmental uncertainty (labelled as EU) occurs when information about the environment becomes unreliable for effective decision-making or prediction of the outcome of a decision. Environmental uncertainty also occurs when there are unpredictable changes in the environment. These characteristics form the basic components of the constructs of environmental uncertainty for this research. Consistent with the approach, we classify environmental uncertainty based on its three sources, i.e., supply uncertainty, customer uncertainty, and technology uncertainty. Similar classification of environmental uncertainty is adopted in Li’s (2002) study of an integrated model for supply chain management. Consequently, supply uncertainty (labelled as SU) is defined as the level of unreliability and unpredictability in terms of information, design, quality, and delivery performance from the suppliers. A low-supply uncertainty means that the suppliers provide reliable information, design, quality, and delivery performance; even if there are some changes they are highly predictable. Likewise, customer uncertainty (labelled as CU) is defined as the level of unreliability and unpredictability of customer’s information, needs and demands, and technology uncertainty (labelled as TU) is defined as the level of unpredictable changes and complexity of product and process technologies. 2.2.2. Institutional norms According to institutional theory, institutions are part of a network of socio-economic relationships and they shape the so-called ‘‘institutional norms’’ in their

ARTICLE IN PRESS C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

environments. Institutional norms refer to the expectations of behaviour that are acceptable within an institutional environment. In a business environment, companies exert normative pressures to influence the structures and practices in that environment. Since the ultimate goal of a company is survival, companies conform to institutional norms to increase their legitimacy and survival capabilities (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). Therefore, there is no doubt that the journey towards supply chain integration in any part of the world will be affected to some degrees by institutional norms. Specifically for this research, we used a construct called ‘‘institutional norms to integrate’’ because we intend to identify if institutional norms had any influence on supply chain integration. In general, we operationalised this construct by referring to the various supports, incentives, initiatives and policies from the government, suppliers and customers which may influence supply chain integration. Institutional norms can also be observed by referring to the use of power to influence the practices of other parties, for example, a company might use its purchasing power to ask its suppliers to install information system that connects to the company. Most institutional theory research applied to an international context has shown that differences in the institutional environment between countries affect the transfer and implementation of management practices previously developed in a different institutional environment (Rosenzweig and Singh, 1991; Gooderham et al., 1999; Kostova and Roth, 2002). Therefore, we expect to observe different institutional norms related to supply chain integration practice in a developing country when compared with other developed countries. 2.3. Theoretical framework Overall the literature review indicates that environment uncertainty, and institutional norms do potentially affect the level of supply chain integration. The key question to answer is how these different factors (or perhaps there are other contextual factors) play a role in the integration of supply chain. Fig. 1 depicts our proposed theoretical framework, which is based on two tenants: (a) supply chain integration is directly influenced

403

by environmental uncertainty and (b) institutional norms act as the moderator to the relationship between environmental uncertainty and supply chain integration. These two tenants are further explained as follows. Using the theory of transaction cost economy, Stonebraker and Liao (2004) have related environmental turbulence to the stage, degree, and breadth of supply chain integration. Thus the key tenant of this research is that environmental uncertainty directly affect the level of supply chain integration. In another word, companies seek to higher level of supply chain integration especially when they are operating in a highly uncertain business environment. Of course, it is also possible to find companies with low level of supply chain integration but operating in a highly uncertain business environment; in our view, these companies must have difficulty in achieving supply chain integration. Since Stonebraker and Liao (2004) in their study have not empirically proved this relationship, this research aims to collect more empirical evidences to further support their hypothesis. The second key tenant of this research concerns the moderating roles of the institutional norms. Consistent with the studies of Wu et al. (2004) and Cagliano et al. (2006), environmental uncertainty seems to be the main trigger for the initiatives to integrate while institutional norms (supports) from other institutes will encourage (moderate) companies to work together by providing information and other resources that enhanced supply chain integration. Therefore, various supports, incentives, initiatives and policies from the government, supplier and customers (institutional norms) are considered as the mitigating measures to promote integration in a supply chain especially when the environment becomes more uncertain. Higher level of integration becomes a need when business environment becomes more uncertain and therefore institutional norms can be used to promote efforts in improving supply chain integration. Even though there are some strong theoretical foundations and logical arguments that support the above theoretical framework, there is limited empirical evidence and therefore further empirical research is required (Chang et al., 2002). This framework is therefore developed to guide this research and it is open to alteration as more empirical evidences are collected.

Environmental Uncertainty

Supply Chain Integration

• Supply uncertainty • Customer uncertainty • Technology uncertainty

• Internal integration • Supplier integration • Customer integration

Institutional Norms Fig. 1. Theoretical framework.

ARTICLE IN PRESS 404

C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

3. Research methodology As mentioned in the previous section, our objective is to explore and understand the effects of environmental uncertainty and institutional norms on supply chain integration. Due to limited empirical evidence it is too early to develop testable hypotheses; thus, this research is exploratory in nature. Since we know that institutional norms may differ from country to country (Rosenzweig and Singh, 1991; Gooderham et al., 1999; Kostova and Roth, 2002) it is therefore advisable to focus on one industry in one country before moving on to crossindustry and cross-country studies. For all these reasons, we have chosen to conduct case studies of companies within an automotive industry in Thailand. According to Perry (1998) and Rowley (2002), case study approach is most valuable when the boundaries of a phenomenon are not only still unclear but there is also no control over behavioural events. In this research the boundaries (factors which may influence supply chain integration) are still relatively unclear. Furthermore, at this early stage of research, it is better to cover the different tiers within a supply chain so that we can discover the roles of environmental uncertainty and institutional norms comprehensively. This will assist further development of the theoretical framework (see Fig. 1). Thus, a multiple case study approach has been adopted. According to Handfield and Melynk (1998), a multiple case study offers the possibility of providing indepth understanding when the research aim includes the identification of the patterns that link variables, as in the case of this research. While case study research has been frequently criticised for its lack of rigour, we have followed suggestions from the previous studies to increase the validity and reliability of the research (Eisenhardt, 1989; Yin, 1994; Voss et al., 2002). The first challenge was to identify the appropriate number of cases with respect to the desired level of validity, reliability, and generalisation. Eisenhardt (1989) suggested about seven cases as being ideal for theory-building purposes, if less, the study might face a generalisability problem. The intention of this research is not to select an extreme or deviant case, but to cover as many cases as possible so that we could identify the various characteristics within a chosen supply chain to further refine the research methodology for future research. In Thailand, there are approximately 1100 second-tier and third-tier suppliers providing tooling and equipment

to first-tier suppliers. All are local suppliers and are identified as replacement equipment manufacture (REM) businesses (Pantumsinchai, 2002; TAPMA, 2003). This case research investigated seven manufacturing companies within the Thai automotive industry; five automotive suppliers, and two assemblers. According to Miles and Huberman (1984), we established the boundaries for the study to ensure that selection criteria connected directly to research question. The choice of research sample was not random but a theoretical sampling in an attempt to select different cases that were polar types in terms of supply chain integration, environmental uncertainty, and institutional norms. In other words, these selected companies were deemed to be different enough to provide significantly different evidences to extend the level of generalisation. Table 1 summarises the profiles according to product lines, position in supply chain, company size, and ownership type for the seven manufacturers. The research on supply chain integration in a developing country (Thailand) can provide valuable insights. Whilst there has been extensive research on the implementation of supply chain integration and its benefits in the USA and Europe, there is little published research about developing countries (Luo et al., 2001; Sachan and Datta, 2005), or about comparisons between different continents (Zailani and Rajagopal, 2005). The Thai automotive industry is moving towards higher level of maturity because many major international automakers have set up automotive assembly plants and supply bases in Thailand. There are currently 18 assemblers including Japanese automakers (Toyota, Honda, Isuzu, Nissan, Mitsubishi, and Hino), the US ‘Big Three’ (Ford, General Motors, and Daimler-Chrysler), and the remaining European companies (BMW and a joint Thai–Swedish assembly plant), all are either joint ventures or foreignowned (Office of Industrial Economics, 2003). Arguably, there will be different levels of supply chain integration in the supply chains due to different levels of environmental uncertainty and institutional norms. This research provides an excellent opportunity for us to understand how a best practice (supply chain integration) from a developed may be transferred to a developing country by understanding the roles of environmental uncertainty and institutional norms. 3.1. Data collection The data collection for this research is carried out through semi-structured interviews. In order to increase

Table 1 Profiles of the seven case companies Company

Product lines

Position in supply chain

Company size

Ownership

A B C D E F G

Complete Seats and door panels Suspensions, transmissions, and brake systems Muffler and exhaust systems, engine parts, body parts Engine parts (i.e. connectors, fittings) Electrical parts Passenger cars, small trucks Passenger cars, Small trucks

First-tier supplier Second-tier supplier Second-tier supplier First-tier supplier First-tier supplier Assembler (automaker) Assembler (automaker)

1200 employees 450 employees 500 employees 80 employees 400 employees 1500 employees 1400 employees

US 49%, Thai 51% Thai 100% Thai 100% Japanese17%, Thai 83% Japanese 35%, Thai 65% Japanese 70%, Thai 30% US 70%, Thai 30%

ARTICLE IN PRESS C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

the reliability of this study, five key semi-structured interview questions was also created (see Appendix A) based on the definitions and components of the relevant constructs and theoretical framework (Fig. 1) established at the literature review. Semi-structure questions are appropriate because we wanted to focus on the three key constructs at the mean time providing space for interviewees to provide other insights. Since everyone was asked the same questions, we were able to compare the levels of supply chain integration, environmental uncertainty, and institutional norms across all case companies. The interview questions were reviewed and pre-tested by a group of researchers and practitioners in the automotive industry. A pilot study, used to review the interview questions, helped to improve the conceptual understanding of the research issues. The interviewees also made suggestions to improve the interview when the on-site interviews and observations were conducted. Interview data were further triangulated by other data from the available archival documents and direct observations. In all cases, company names are withheld in accordance with the general request for company confidentiality. Each interview was conduced with the plant or supply chain managers because they have the most knowledge regarding the supply chain integration, environmental uncertainty and institutional norms. Each interview was completed within 4 h on average. All the interviews were tape recorded and documented. The pure interview data are documented according to the five key questions (see Appendix B for an example of the interview data for case company A). In addition, data collected include archival documents related to supply chain integration implementation and evidences related to environmental uncertainty (such as demand forecast, demand data, supply performance, etc.).

3.2. Data analysis The case data were analysed to seek for any ‘‘pattern matching’’ which may explain the roles of environmental uncertainty and institutional norms in affecting supply chain integration. This involved the scoring of the levels of supply chain integration, environmental uncertainty, and institutional norms based on the pure interview data (see an example in Appendix B). The scoring task involved a set of pre-defined interpretation rules (see Appendix C). For example, the score of the component ‘‘information system links across suppliers’’ for the construct ‘‘supply integration (SI)’’ would be ‘‘+’’ if the interviewee said ‘‘this seldom occur’’ or ‘‘it is not happening in the case company’’. As the strength of agreement to this statement increased, the score was increased to ‘‘++’’, and then ‘‘+++’’ until ‘‘++++’’ accordingly. This scoring task is repeated for all the components of the three constructs for all the seven case companies. This method is similar to the approach applied by Pagell’s (2004) multiple case studies, which investigated the factors that enable and inhibit the internal integration. The next stage of analysis attempted to conclude aggregated score (or the levels) of each construct by

405

referring to the scores for all of its components based on another set of pre-defined rules (see Appendix C). The level of a construct would be considered as ‘‘low’’ when most of its components scored around ‘‘+’’ and ‘‘++’’. Alternately, the majority scores of ‘‘+++’’ and ‘‘++++’’ would lead to a ‘‘high’’ overall score for the construct. Based on these interpretation rules and the interview data and other collected documents, the level of each construct for each case company are concluded in Appendix C. Finally, by analysis the final scores across the seven case studies (Appendix C), the possible relationships among supply chain integration, environmental uncertainty and institutional norms were revealed. 4. Findings and discussion The discussion of the findings will begin with environmental uncertainty and then move on to supply integration and finally institutional norms. Overall, all the seven case companies had experienced high levels of supply uncertainty. Six out of the seven companies (except D) experienced high levels of customer uncertainty; and only three companies (E, F, and G) experienced high level of technology uncertainty. At aggregated levels, the data showed that companies E, F, and G experienced high level of environmental uncertainty while companies A, B, C, and D experienced medium-high level of environmental uncertainty. In terms of supply chain integration, there were two groups—those with high level of supply chain integration (A, E, F, and G) and those with low level of supply chain integration (B, C, and D). The above data appeared to indicate that high level of environmental uncertainty is associated with high level of supply chain integration (for A, E, F, and G), and medium level of environmental uncertainty is associated with low level of supply chain integration (for B, C, and D). Fig. 2 clearly illustrates this indication. To further explain the above findings, case companies A and D are discussed here. Faced with unstable orders from the customers,

F, G High E

A D

B

Medium

C Low Environmental Uncertainty

Supply Chain Integration Fig. 2. Cross case analysis.

Institutional Norms

ARTICLE IN PRESS 406

C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

company A had to implement a high level of customer integration to achieve full downstream visibility and better joint planning by installing an integrated information system with customers. In contrast, company D, which had relatively more stable demand (low customer uncertainty), had implemented only a low level of customer integration because they did not need real-time information sharing of product and market information. Furthermore, all case companies considered the needs for higher level of supply chain integration as a result of underdeveloped local suppliers as well as unpredictable changes of customer needs. These findings further support the first tenant of the proposed theoretical framework, i.e., companies will implement a high level of supply chain integration when the environmental uncertainty increases. This research also found that it is useful to differentiate environmental uncertainty in terms of its sources-supply, customer or technology uncertainty. In addition to the customer and supply uncertainties, the study found that technology uncertainty could be associated with the level of supply chain integration. The complexity of product technology for products such as electrical and electronic components, passenger cars, and mini trucks made it necessary for companies E, F, and G to share their information with suppliers and customers. The main purpose of information sharing was to reduce technology uncertainty, and sharing of information was found to be more effective under close relationship and connected information systems. However, for relatively less complicated product technology, supply chain integration becomes less necessarily. For example, managers from companies A, B, C, and D reported that their companies normally worked on common parts which did not require high product innovation, and therefore less needs for communication with their customers. Another tenant of this research concerns with the moderating role of institutional norms. The multiple case studies in this research found out that institutional norms in the Thai automotive supply chain were collectively created by the automakers, supplier associations, local government, and possibly local culture such that each automotive supply chain has its unique practices. Among others, supply chain integration is a practice influenced by the institutional norms. Especially those large companies (especially those automakers and important first-tier suppliers such as companies A, F, and G), they led their suppliers by developing information sharing practices and providing training, which aimed at facilitating the implementation of supply chain integration upstream. The initiatives to influence the supply chain integration practices of the suppliers and customers were particularly effective at high level of environmental uncertainty. This finding supports the second tenant of this research, i.e., institutional norms can moderate the relationships between environmental uncertainty and supply chain integration. In addition, suppliers (companies B, C, and D) which were less important received relatively lower incentive (level of institutional norms) to integrate with the customers. This is partly due to the low level of

technology uncertainty. However, in a developing country such as Thailand the government has been playing an important role in creating institutional norms, which promote supply chain integration. Several government institutions tried to assist the case companies by providing training and resources to help them improving their performance and to adopting supply chain integration practices. However, from the case data, only companies A and E (suppliers) who received support from automakers in addition to the governmental institutions could fully adopt supply chain integration. Therefore, it seems that governmental intervention could be a moderator in addition to the supplier or customer initiatives. Next, the research found some differences between the supply chains led by automakers from different countries. Since all the automakers in Thailand are mostly joint ventures between foreign automakers and Thai companies, each automaker would continue developing their supply base locally whenever possible. In some cases, it was necessary for the automakers to increase the level of supply integration with some of its strategic suppliers. However, the case data indicated that the US and Japanese companies employed different relational approaches with their suppliers. The Japanese companies employed a longterm relational approach and the US companies preferred a short-term contractual approach. These two approaches did influence the institutional norms of the two different supply chains (i.e. the means to achieve supplier integration seemed to differ). Even though both companies encouraged their suppliers to increase their internal and external integration by installing integrated information and planning systems, the Japanese company seemed to apply a more personal approach in handling cross-border business processes. These differences between Japanese and US companies were consistent with the empirical results from a survey by Wu et al. (2004) and Zailani and Rajagopal (2005). The above findings are consistent with the studies of Wu et al. (2004) and Cagliano et al. (2006), which concluded that environmental uncertainty seems to be the main trigger for the initiatives to integrate while institutional norms become the moderating factor for the relationship between environmental uncertainty and supply chain integration. From the case study, institutional norms originated from the automakers, supplier associations, and local government, and local business culture did enable supply chain integration especially under a high level of environmental uncertainty. This research extends our understanding of the different factors that could affect supply chain integration in addition factors such as deregulation and globalisation previously suggested by Stonebraker and Liao (2004). The practical contributions of this research are twofold. First, in finding the relationship between institutional norms and the adoption of supply chain integration, it provides managers with the understanding that the adoption of supply chain integration in emerging countries, especially Thailand, is likely to require facilitation from government agencies. In unstable political and economic environments, companies are able to integrate when they develop not only the process-based trust but

ARTICLE IN PRESS C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

also institutional-based trust, which enable them to reduce the risk in coordinated joint activities. Second, the findings highlight the importance of environmental uncertainty in implementing supply chain integration. Although companies have tended to focus on integrative supply chain practices, managers have not given enough attention to the effect of external factors such as environmental uncertainty. The findings from this study demonstrate to the practitioners that high level of supply chain integration requires investment in time and effort to understand types of uncertainty and nature of supply chains. The implementation of supply chain integration should not be rigid. Rather, any success is attributable to the way in which supply chain integration practices are combined and organised based on the factors such as uncertainty and institutional norms. 5. Conclusion and further research This paper explores the relationships between environmental uncertainty and supply chain integration and the moderating roles of environmental uncertainty. Based on seven case studies of automotive companies in Thailand, the level of supply chain is found to be associated with environmental uncertainty. Companies attempted to achieve higher level of supply chain integration especially when they faced high levels of supply uncertainty, customer uncertainty and technology uncertainty. Furthermore, the research found out that institutional norms (e.g. associational network, local government, and local business culture) could improve the level of supply chain integration especially when there is high level of environmental uncertainty. At low level of environmental uncertainty, companies were less motivated to invest in supplier relationships or supply chain integration. The above results support a proposed framework relating the level of supply chain integration, environmental

407

uncertainty, and institutional norms. In a narrow sense, such qualitative or case-based methods can provide a perspective on the process of implementing supply chain integration in an emerging business environment. This finding is essential for the theory building for the theory of supply chain integration because it supports the roles of environmental uncertainty and institutional norms—two factors that were often ignored in most theoretical framework of supply chain integration. However, the research findings are tempered by several shortcomings. First, the research has explored the automotive supply chain and we do not attempt to suggest that the findings are universally applicable across different sectors in various countries. The findings and framework in this study cannot be generalised across other industries or institutional environments (e.g. developed economies). Unlike agricultural industry, the automotive industry in Thailand is a growing sector in which the growth of Thailand’s exports and imports in this industry has increased sharply. There is a possibility that different sectors might have other different factors (industry characteristics or institutional norms) that influence supply chain integration. Future research could investigate whether different environments or industries may signify dissimilarities in institutional contexts where business dealings are conducted. Thus, further study could involve replicating our study in other Asian countries, and in developing countries. In addition, it is likely that supply chain relationship quality factors, especially trust affect supply chain integration. The study of this relationship is a rich research area that remains unexplored in developing countries. Furthermore there is a need to further empirically test the validity of the framework, future researchers should collect large samples of empirical data on supply chain integration, environmental uncertainty and institutional norms, and perhaps other factors across industries or countries.

Appendix A. Interview questions The following are the key questions asked during the interviews with the seven manufacturing companies. 1. Tell us about the products, position in the supply chain (tier), number of employees, ownership, major suppliers and customers of your company. 2. Tell us about the levels of uncertainty (in terms of low, medium, and high) your company facing for the following: a. Supply uncertainty—for example uncertainty due to unreliable quality, unreliable lead time, unreliable supply information, or low level of flexibility provided by your most of your suppliers. b. Customer uncertainty—for example uncertainty due to fluctuation in demand volume and product specification, changes in lead-time requirements, or inaccurate demand forecast provided by the customers. c. Technology uncertainty—for example uncertainty due to changes in product and process technology, complexity in product and process technology. 3. Tell us about the levels of integration (in terms of low, medium, and high) your company facing for the following: a. Internal integration–information system links across functions? Real-time information sharing? Standardised means of communication? Processes are linked across functions? Relationships across functions? b. Supply integration–information system links across suppliers? Real-time information sharing? Standardised means of communication? Processes are linked across suppliers? Long-term relationships with suppliers? c. Customer integration–information system links across customers? Real-time information sharing? Standardised means of communication? Processes are linked across customers? Long-term relationships with customers?

ARTICLE IN PRESS 408

C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

4. To what extent the external environment such as government, supplier, customer, or other institutes are influencing your effort in integrating your supply chain? a. Government—Any support, incentive or policy that promote supply chain integration? b. Supplier—Any initiative, incentive or pressure to increase the level of integration? c. Customers—Any initiative, incentive or pressure to increase the level of integration? d. Other institutes—please specify and explain further. 5. Based on the following factors, select several most significant factors that have primarily lead to the level of integration of in your supply chain today? a. Government support, incentive or policy. b. Supplier initiative, incentive or pressure. c. Customer initiative, incentive or pressure. d. Others—please specify.

Appendix B. Interview data for case company A Interview questions

Data (from interview)

1 Product Position Employee Ownership

Design and assembly of seats and door panels First tier (integrated supplier) of automakers A large supplier in terms of employee number (1200 employees) Joint venture with 49% US and 51% Thai

2 Supply uncertainty (SU)

Overall: high Technology and manufacturing processes changing because they are under early development; quality problems (+++), unreliable led time(+++), inflexibility (+++) and difficulty in changing production (+++) occur frequently because suppliers are small and have relatively less experience Overall: high Changes in customers’ production schedules often (++++) Overall: low Seats and door panels are not significantly complex; technology does not change rapidly (+)

Customer uncertainty (CU) Technology uncertainty (TU)

3 Internal integration (II)

Supplier integration (SI) Customer integration CI)

4 Institutional norms to integrate (IN)

Overall: high Utilised information system across functions (+++), each function can access to real-time information (sharing demand information) from other functions through a MRP system (+++) Overall: high Integrated information system with suppliers (+++) to provide visibility to company A and the suppliers Overall: high Increase visibility to customer demand by connecting to customers with EDI system (+++) Overall: high Felt the need to integrate with the customers to gain legitimacy (legitimate to become an integrated supplier) (+++); also automakers pressured company to increase integration with them (+++); company A also needed to register as a member of the automaker supplier association with the Japanese automakers (+++)

5 Significant factors affecting integration

Customer uncertainty, supply uncertainty, and customer initiatives

Appendix C. Aggregated interview data Constructs

Case company and aggregated scores A

B

C

D

E

F

G

Supply uncertainty (SU) SU1. Unreliable quality SU2. Unreliable lead time SU3. Unreliable supply information SU4. Low level of flexibility

High +++ +++ +++ +++

High +++ ++++ +++ ++++

High +++ ++++ +++ ++++

High +++ +++ ++++ ++++

High +++ +++ +++ ++++

High +++ +++ ++ +++

High +++ +++ +++ +++

Customer uncertainty (CU) CU1. Unreliable demand information CU2. Changing demand volume CU3. Change specification CU4. Change lead time CU5. Need high flexibility

High +++ ++++ +++ +++ +++

High +++ +++ ++ +++ +++

High +++ +++ ++ +++ +++

Low + + + + ++

High ++++ +++ +++ +++ +++

High ++++ +++ +++ +++ +++

High ++++ ++++ +++ +++ ++++

ARTICLE IN PRESS C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

409

Technology uncertainty (TU) TU1. Change in product technology TU2. Change in process technology TU3. Complex product technology TU4. Complex process technology

Low + + + +

Low + + + +

Low + + + +

Low + + + +

High +++ +++ ++++ ++++

High +++ +++ ++++ ++++

High +++ +++ ++++ ++++

Institutional norms to integrate (IN) IN1. Government support, incentive, or policy IN2. Supplier initiative, incentive or pressure IN3. Customer initiative, incentive or pressure

High + + +++

Low + + +

Low + + +

Low + + +

High ++ ++ ++++

High ++++ +++ +

High ++++ +++ +

Pre-determined rules of scoring components for each construct + ++ +++ ++++

Seldom occur (or strongly disagree) Sometimes (partly disagree) Often (partly agree) Every time (or strongly agree)

Pre-determined rules for the overall scoring of each construct High Mostly +++ or ++++ Medium Mostly ++ or +++ Low Mostly + or ++

Constructs

Case company and aggregated scores A

B

C

D

E

F

G

Internal integration (II) II1. Information system link across functions II2. Real-time information across functions II3. Standardised means of communication across functions II4. Processes are linked across functions II5. Strong relationships across functions

High +++ +++ +++ +++ ++

Low + + ++ ++ +

Low + + ++ ++ +

Low ++ + + + +

High ++++ ++++ +++ +++ +++

High ++++ ++++ +++ ++++ ++++

High ++++ +++ +++ ++++ ++++

Supplier integration (SI) SI1. Information system link across suppliers SI2. Real-time information across suppliers SI3. Standardised means of communication across suppliers SI4. Processes are linked across suppliers SI5. Strong relationships with suppliers

High +++ +++ +++ +++ ++

Low + + + + +

Low + + + + +

Low + + + + +

High ++++ ++++ +++ ++++ +++

High ++++ +++ +++ ++++ ++++

High +++ +++ +++ +++ ++

Customer integration (CI) CI1. Information system link across customers CI2. Real-time information across customers CI3. Standardised means of communication across customers CI4. Processes are linked across customers CI5. Strong relationships with customers

High +++ +++ +++ +++ ++

Low + + ++ + +

Low + + ++ + +

Low + + + + +

High +++ ++++ +++ +++ +++

High +++ ++++ +++ +++ +++

High ++++ ++++ +++ +++ +++

Pre-determined rules of scoring components for each construct + ++ +++ ++++

Seldom occur (or strongly disagree) Sometimes (partly disagree) Often (partly agree) Every time (or strongly agree)

Pre-determined rules for the overall scoring of each construct High Mostly +++ or ++++ Medium Mostly ++ or +++ Low Mostly + or ++

ARTICLE IN PRESS 410

C.Y. Wong, S. Boon-itt / Int. J. Production Economics 115 (2008) 400–410

References Birou, L.M., Fawcett, S.E., Magnan, G.M., 1998. The product life cycle: A tool for functional strategic alignment. International Journal of Purchasing and Materials Management 34 (2), 37–51. Cagliano, R., Caniato, F., Spina, G., 2006. The linkage between supply chain integration and manufacturing improvement programmes. International Journal of Operations and Production Management 26 (3/4), 282–299. Chang, S.C., Lin, N., Sheu, C., 2002. Alignment manufacturing flexibility with environmental uncertainty: Evidence from high-technology component manufacturers in Taiwan. International Journal of Productions Research 40 (18), 4765–4780. Childerhouse, P., Hermiz, R., Mason-Jones, R., Popp, A., Towil, D.R., 2003. Information flow in automotive supply chains: Identifying and learning to overcome barriers to change. Industrial Management and Data Systems 103 (7), 491–502. Daugherty, P.J., Myers, M.B., Autry, C.W., 1999. Automatic replenishment programs: An empirical examination. Journal of Business Logistics 20 (2), 63–82. DiMaggio, P.J., Powell, W.W., 1983. The iron cage revisited: Institutional isomorphism and collective reality in organizational fields. American Sociological Review 48, 147–160. Duncan, R.B., 1972. Characteristics of organizational environments and perceived environmental uncertainty. Administrative Science Quarterly 17, 313–327. Eisenhardt, K.M., 1989. Building theories from case study research. Academy of Management Review 14 (4), 532–550. Fisher, M.L., Hammond, J.H., Obermeyer, W.R., 1994. Making supply meet demand in an uncertain world. Harvard Business Review 72 (3), 83–93. Frohlich, M.T., Westbrook, R., 2001. Arcs of integration: An international study of supply chain strategies. Journal of Operations Management 19, 185–200. Garner, W., 1962. Uncertainty and Structure as Psychological Concepts. Wiley, New York. Gilbert, S.M., Ballou, R.H., 1999. Supply chain benefits from advanced customer commitments. Journal of Operations Management 18 (1), 61–73. Gimenez, C., 2004. Supply chain management implementation in the Spanish grocery sector: an exploratory study. International Journal of Integrated Supply Management 1 (1), 98–114. Gooderham, P.N., Nordhaug, O., Ringdal, K., 1999. Institutional and rational determinants of organizational practices: Human resource management in European firms. Administrative Science Quarterly 44 (3), 507–531. Handfield, R.B., 1993. A resource dependence perspective of just-in-time purchasing. Journal of Operations Management 11, 289–311. Handfield, R., Melynk, S., 1998. The scientific theory-building process: A primer using the case of TQM. Journal of Operations Management 16 (4), 321–340. Handfield, R.B., Nicholas, E.L., 1999. Introduction to Supply Chain Management. Prentice-Hall, Englewood Cliffs, NJ. Kahn, K.B., Mentzer, J.T., 1998. Marketing’s integration with other departments. Journal of Business Research 42 (1), 53–62. Kostova, T., Roth, K., 2002. Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. The Academy of Management Journal 45 (1), 215–233. Koufteros, X., Vonderembse, M., Jayaram, J., 2005. Internal and external integration for product development: The contingency effects of uncertainty, equivocality, and platform strategy. Decision Science 36 (1), 97–133. Lambert, D.M., Cooper, M.C., Pagh, J.D., 1998. Supply chain management: Implementation issues and research opportunities. The International Journal of Logistics Management 9 (2), 1–19. Lawrence, P., Lorsch, J., 1967. Organization and Environment: Managing Differentiation and Integration. Irwin, Illinois. Lee, H.L., Billington, C., 1992. Managing supply chain inventory: Pitfalls and opportunities. Sloan Management Review 33 (3), 65–73. Lee, H.L., Padmanabham, V., Whang, S., 1997. The bullwhip effect in supply chains. Sloan Management Review 38 (3), 93–102. Lenz, R.T., 1980. Environment, strategy, organization structure and performance: Patterns in one industry. Strategic Management Journal 1, 209–226. Li, S., 2002. An integrated model for supply chain management practices, performance and competitive advantage. Unpublished Doctoral Dissertation, University of Toledo, Toledo. Liker, J.K., Kamath, R.R., Watsi, S.N., Nagamachi, M., 1996. Supplier involvement in automotive component design: Are there really large US–Japan differences? Research Policy 25, 59–89. Luce, R.D., Raiffa, H., 1957. Games and Decisions. Wiley, New York.

Luo, W., van Hoek, R.I., Roos, H.H., 2001. Cross-cultural logistics research: A literature review and propositions. International Journal of Logistics: Research and Applications 4 (1), 57–78. Mentzer, J.T., DeWitt, W., Keebler, J.S., Min, S., Nix, N.W., Smith, C.D., Zacharia, Z.G., 2001. Defining supply chain management. Journal of Business Logistics 22 (2), 1–25. Meyer, J.W., Rowan, B., 1977. Institutionalized organizations: Formal structure as myth and ceremony. The American Journal of Sociology 83 (2), 340–363. Miles, M.B., Huberman, A.M., 1984. Qualitative Data Analysis: A Sourcebook of New Methods. Sage Publication, Beverly Hills. Morash, E.A., Clinton, S.R., 1997. The role of transportation capabilities in international supply chain management. Transportation Journal Spring, 5–17. Morash, E.A., Droge, C., Vickery, S., 1997. Boundary-spanning interfaces between logistics, production, marketing and new product development. International Journal of Physical Distribution and Logistics Management 27 (5/6), 350–369. Office of Industrial Economics, 2003. Thailand Automotive Industry Directory 2003, Bangkok. Pagell, M., 2004. Understanding the factors that enable and inhibit the integration of operations, purchasing and logistics. Journal of Operations Management 22 (5), 459–487. Pagell, M., Krause, D.R., 1999. A multiple-method study of environmental uncertainty and the manufacturing environment. Journal of Operations Management 17 (3), 307–325. Pantumsinchai, P., 2002. Greening the Supply Chain. Automotive Handbook and Directory. Society of Automotive Engineers of Thailand, pp. 43–45. Perry, C., 1998. Process of a case study methodology for postgraduate research in marketing. European Journal of Marketing 32 (9/10), 785–802. Ragatz, G.L., Handfield, R.B., Peterson, K.J., 2002. Benefits associated with supplier integration into new product development under conditions of technology uncertainty. Journal of Business Research 55, 389–400. Romano, P., 2003. Co-ordination and integration mechanisms to manage logistics processes across supply networks. Journal of Purchasing and Supply Chain Management 9, 119–134. Rosenzweig, P.M., Singh, J.V., 1991. Organisational environments and the multinational enterprise. Academy of Management Review 16 (2), 340–361. Rowley, J., 2002. Using case studies in research. Management Research News 25 (1), 16–27. Sabath, R., 1995. Volatile demand calls for quick response: The integrated supply chain. Logistics Information Management 8 (2), 49–52. Sachan, A., Datta, S., 2005. Review of supply chain management and logistics research. International Journal of Physical Distribution and Logistics Management 35 (9), 664–705. Scanell, T.V., Vickery, S.K., Droge, C.L., 2000. Upstream supply chain management and competitive performance in the automotive supply chain industry. Journal of Business Logistics 21 (1), 23–48. Spekman, R., Salmond, D., Kamauff, J., 1994. At last procurement becomes strategic. Long Range Planning 27 (2), 76–84. Stank, T.P., Crum, M., Arango, M., 1999. Benefits of interfirm coordination in food industry supply chain. Journal of Business Logistics 20 (2), 21–41. Steven, G.S., 1989. Integrating the supply chain. International Journal of Physical Distribution and Material Management 19 (8), 3–8. Stonebraker, P.W., Liao, J., 2004. Environmental turbulence, strategic orientation modeling supply chain integration. International Journal of Operations and Production Management 24 (9/10), 1037–1048. Swamidass, P.M., Newell, W.T., 1987. Manufacturing strategy, environmental uncertainty and performance: A path analytic model. Management Science 33, 509–524. Thai Auto-Parts Manufacturers Association: TAPMA, 2003. Thailand Automotive Industry Directory 2003, Bangkok (in Thai). Turner, J.R., 1993. Integrated supply chain management: What’s wrong with this picture? Industrial Engineer 14, 190–202. Voss, C., Tsikriktsis, N., Frohlich, M., 2002. Case research in operations management. International Journal of Operations and Production Management 22 (2), 195–219. Williamson, O.E., 1983. Markets and Hierarchies: Analysis and Antitrust Implications. Free Press, New York. Wu, W.Y., Chiag, C.Y., Wu, Y.J., Tu, H.F., 2004. The influencing factors of commitment and business integration on supply chain management. Industrial Management and Data Systems 104 (3/4), 322–333. Yin, R.K., 1994. Case study Research: Design and Methods. Sage Publication, USA. Zailani, S., Rajagopal, P., 2005. Supply chain integration and performance: US versus East Asian companies. Supply Chain Management 10 (5), 379–393.