Building on economic and social exchange theories, this study investigates the different roles transactional and relational mechanisms have in hindering opportunism and improving relationship performance in an emerging economy. Our study applied to manufacturer–distributor dyads in China and used matched survey data (225 paired sample firms) to test our hypotheses. Our hierarchical multivariate regression and semipartial correlation analyses suggest that transactional mechanisms are more effective in restraining opportunism while relational mechanisms are more powerful in improving relationship performance. This performance is improved more significantly when both contracts and relational norms are used jointly than when used separately. Likewise, opportunism is curbed more effectively when both contracts and trust are used jointly than when used individually.
Restraining opportunism and improving relationship performance are central to any repeated economic exchange, such as alliances or partnerships. Opportunism is defined by Williamson as self-interest seeking with guile (1985). It is commonly held that governing interorganizational exchanges entails both transactional and relational mechanisms (Heide, 1994, Jap and Anderson, 2003 and Poppo and Zenger, 2002). Transactional mechanisms are those that govern interparty exchanges, avoiding uncertainties through legal stipulations and economic incentive systems. Conversely, relational mechanisms emphasize inherent and moral control, governing exchanges through consistent goals and cooperative atmospheres. Previous research has documented that transactional and relational mechanisms are both important in mitigating opportunism and improving relationship performance for participating organizations (Barclay and Brock, 1997, Dahlstrom and Nygaard, 1999, Cannon et al., 2000, Cavusgil et al., 2004, Heide and John, 1992, Jap and Ganesan, 2000, Lusch and Brown, 1996, Poppo and Zenger, 2002 and Wuyts and Geyskens, 2005). However, the relative effectiveness of transactional and relational mechanisms in curtailing opportunism and enhancing relationship performance has yet to be addressed. Empirical comparison within a unified analysis of the two effects side by side will help us understand the relative contribution of varying mechanisms to the governing of buyer–supplier relationships.
Research on interfirm exchange governance argues that participating firms should employ multiple mechanisms for governing interorganizational relationships. However, scholars have opposing views on whether transactional and relational mechanisms act as complementary (Poppo and Zenger, 2002) or substitutive forces (Wuyts and Geyskens, 2005). An interesting question is whether the joint use of transactional and relational mechanisms is altogether more effective in curbing opportunism and fostering relationship performance than individual use. If the joint effect is confirmed, it follows that there will be some additional or synergetic effect of using relational and transactional mechanisms together.
This study intends to address the questions above. Since the governance effectiveness of transactional and relational mechanisms is not context-free (Jap and Anderson, 2003), we investigate these questions in a specific context—namely, manufacturer–distributor channel partnerships in China, a leading emerging market and a primary producer of consumer products for the world. Most previous studies have investigated only the single party perception and assume that this perception is mutually shared across the relationship, but some recent studies caution that this may not be the case for all relationships (Kim, 2000, Sollner, 1999 and Zaheer and Zaheer, 2006). To fill this void, we conducted a survey of 225 paired manufacturers (suppliers) and distributors (buyers) in China's household appliance industry to verify our premise and test our hypotheses. Our analysis generally supports our arguments that (1) transactional mechanisms are relatively more effective in curtailing opportunism while relational mechanisms are more effective in enhancing relationship performance and (2) there is a significant and positive joint effect on restraining opportunism and nourishing cooperation when transactional and relational mechanisms are employed together.
This study demonstrates three major findings. First, transactional mechanisms (contracts and transaction-specific investments) and relational mechanisms (inter-organizational trust and relational norms) are both important in curtailing opportunism and improving relationship performance in buyer–supplier dyads. Second, transactional mechanisms, including both contracts and TS investments, are more statistically powerful in alleviating opportunism than are relational mechanisms. However, relational mechanisms, such as trust and norms, are more profound in enhancing relationship performance than transactional mechanisms. Third, when transactional and relational mechanisms are used together, there will be greater benefits in terms of opportunism mitigation and performance enhancement than when they are used separately.
Overall, these findings suggest the importance of concurrently and interactively employing both transactional and relational mechanisms together in order to effectively govern buyer–supplier relationships. The findings also unveil empirical comparisons between two types of governance mechanisms side by side within the same analysis, which advances our understanding of relative effectiveness of varying governance mechanisms in different aspects of governance concerns (e.g., reducing unilateral opportunism vs. improving joint returns). Although we used the secondary data collected from an emerging market (China) to empirically verify our hypotheses, we anticipate that our key premises and theoretical model can be generalized in other contexts. The empirical findings may be applicable to other countries as well, especially emerging markets, to the extent that the external environment in which buyer–supplier dyads operate is similar to that in our empirical setting. This still requires further verification. We also note that prior research has investigated the roles of various control or governance mechanisms from the perspective of one party. To fill this void, this study explored these mechanisms from the perspective of both sides and presented the above findings using matched dyadic data.
