Buyer-supplier relationship | Papers
Buyer-supplier relationship

Alliance experience and governance flexibility

Prior work has mapped the transaction at the heart of an alliance to the risks of opportunism inherent in that alliance and, ultimately, to how the alliance is structured and governed. We extend this approach by noting that the parties in an alliance do not necessarily perceive the same hazards as predominant and thus may have different preferences for how the alliance is structured. Nevertheless, it is in each party’s best interest to find a structure that protects its interests, while also allowing its partner to protect its interests sufficiently. Drawing from the alliance management capabilities literature, we argue that firms with more alliance experience are better able to protect their interests under any given alliance structure, making the choice of structure less consequential to them. The resulting governance versatility provides a competitive advantage by enabling firms to form advantageous alliances that are less available to inexperienced competitors. Our study of innovative alliances in biopharmaceutical industry lends support to the hypotheses, allowing us to advance the literature on governance choice in alliances, the literature on alliance management, and their intersection.

Lee J, Hoetker G, Qualls W. 2015. “Alliance experience and governance flexibility”. Organization Science 26(5): 1536–1551 View and download

Configuration of value chain activities: The effect of pre-entry capabilities, transactions hazard and industry evolution on the decision to internalize

We integrate insights from organizational capabilities, organizational economics, and industry evolution to examine industry entrants’ boundary choices about value chain activities, and test hypotheses in 1978–2009 data from a sample of U.S. bioethanol producers. We find support for our predictions that transaction hazards, decomposed as either enduring or transient over the stages of industry evolution, are positively associated with the choice to internalize value chain activities. Pre-entry experience in an activity increases the likelihood of its internalization and reduces the effect of enduring transaction hazards on the internalization choice. Importantly, we also distinguish between firm- and founder-level pre-entry capabilities (that is, the capabilities of firms versus those of founders). Diversifying entrants with firm-level integrative capabilities are more likely to internalize value chain activities than start-ups, and this effect persists over the industry’s life cycle. The relationship between pre-entry experience with an activity and the likelihood of internalizing it is also stronger for diversifying entrants. Findings improve understanding of the relationships among capability development, boundary choice, and industry evolution.

Qian, L., Agarwal, R., & Hoetker, G. P. 2012. Configuration of value chain activities: the effect of pre-entry capabilities, transaction hazard and industry evolution on the decision to internalize. Organization Science, 23(5): 1330-1349.
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Same rules, different games: Variation in the outcomes of "Japanese-style" supply relationships

This paper debunks the myth of a monolithic model of “Japanese-style” supply relationships and illustrates how idiosyncratic elements of an industry’s environment interact with a country’s institutional environment.Our understanding of Japanese supply relationships comes primarily from studying the automobile industry. This paper identifies three elements of the automobile industry that, although generally assumed to be widespread, are largely absent in the notebook computer industry, leading to a different pattern of supply relationships: a sizable pool of external suppliers; the feasibility of shukko and cross-shareholding to strengthen supply relationships; and the adequacy of these means to manage external supply relationships. This finding debunks the myth of a monolithic model of “Japanese-style” supply relationships and illustrates the importance of idiosyncratic elements of an industry’s environment on its supply relationships. View and download

Governing inter-organizational relationships: Balancing formal governance mechanisms and trust

Alliances allow firms to “pool imperfectly tradable resources in order to gain greater efficiency in the use of existing resources as well as opportunities to create new re-sources” (Dussauge/Garrette/Mitchell 2000: 207). Not surprisingly, firms often engage in interorganizational relationships as a means of solving complex problems. Indeed, the formation rate of interorganizational relationships has increased dramaticallyin recent years. Accompanying the increasing number of relationships has been adramatic increase in their variety and the means by which they are governed. This special issue aims at exploring firms’ investment decisions related to alliances as well as the design and management of collaborative agreements.To be successful, a relationship must accomplish two goals, namely identifyingthe optimal combination of productive knowledge across parties and mitigating the risks of opportunistic behavior (Mitchell/Dussauge/Garrette 2002; Nickerson/Zenger 2004). The performance of the alliance thus depends critically on the selection of appropriate governing and coordinating mechanisms. Work drawing primarily on transaction cost economics has argued that increases in exchange hazards will lead to the greater use of formal governance mechanisms (Mayer/Argyres 2004; Williamson 1991). At the same time, a parallel literature has put its focus on more relational governance mechanisms based largely on trust and social identification, e.g., establishing teams, frequent direct managerial contact, shared decision making and joint problem solving (Gulati 1998; Uzzi 1997).The appropriate balance of formal and relational governance mechanisms in managing relationships is the topic of considerable ongoing research. This special is-sue contributes to this research stream by exploring a set of innovative ideas on the management of inter-organizational relationships. Each of the four articles collected in this issue puts a special focus on governance mechanisms and factors which may determine the monitoring and coordination of these relationships. They reflect the actual variety of inter-organizational relationships, because this issue includes papers on explorative R&D alliances, asymmetric alliances and relationships between industrial buyers and suppliers. The articles also illustrate the theoretical and methodological variety in this field.

Mellewigt, T., Hoetker, G., Weibel, A., "Governing inter-organizational relationships: Balancing formal governance mechanisms and trust (Guest editor's introduction to the special issue)", Management Revue, Vol. 17, No. 1, January, 2006, pp. 5-9. View and download

Modularity and the impact of buyer-supplier relationships on the survival of suppliers

Modularity in product design and flexible supply chains is increasingly common in buyer–supplier relationships. Although the benefits of supply chain flexibility and component modularity for end-product manufacturers are accepted, little is known about their impact on suppliers. We advance the literature on modularity by exploring how three aspects of a supplier’s relationships with its customers affect the supplier’s survival: duration of buyer–supplier relationships, autonomy from customers, and links to prominent buyers. We compared the effects of these aspects of buyer–supplier relationships for low- and high-modularity components. Using data on U.S. carburetor and clutch manufacturers from 1918 to 1942, we found that suppliers of high-modularity components benefited more from autonomy provided by potential customers, whereas suppliers of low-modularity components benefited more from ties to higher status customers. Both benefited from autonomy generated by existing customers. Thus, relationships that require trust and extensive sets of inter-firm routines, as do those for low-modularity components, led to both greater relationship benefits and greater constraints.

Hoetker, G., Swaminathan, A., Mitchell, W., "Modularity and the impact of buyer-supplier relationships on the survival of suppliers", Management Science, Vol. 53, No. 2, 2007, pp. 171-191. View and download