Governance mechanisms are a key element of business relationships. However, little is known about the possible differences between their uses in domestic versus international business relationships. Drawing on empirical data, we investigate three issues. First, we compare the use of five governance mechanisms (contracts, value-creating norms, value-claiming norms, specific investments, and trust) in purely domestic relationships as opposed to relationships with an international component. We also investigate whether customer satisfaction and commitment differ in these two settings. Second, we extend the model of Palmatier, Dant, and Grewal (2007) by adding two distinct types of governance norms—value-claiming norms and value-creating norms—and analyze the interrelationship between the five governance mechanisms as well as their impacts on business customer satisfaction and commitment. Finally, we analyze the moderating role of internationality on relationships between governance mechanisms and customer commitment. Data from a survey of 296 companies support most of the hypothesized relationships.
In exchanges with international business partners in industrial markets, firms increasingly encounter specific challenges. Even in domestic markets, firms may face international issues, such as those related to their foreign business partners’ corporate cultures or employees of foreign origin. Purely domestic relationships and relationships with an international component are both part of a company's relationship portfolio. Relationships can be described in various ways, for example, in terms of the actors, activities, and resources involved in the exchange (Håkansson & Snehota, 1995). One characterization, the interaction model (Håkansson, 1982), emphasizes that any relationship is embedded in an atmosphere, that it depends on environmental factors, and that the activities of the actors are mutually interdependent. Because mutual interdependence is a source of risk, economic actors must safeguard their interests against opportunistic behavior (Wathne & Heide, 2000). To this end, they put governance mechanisms in place.
Governance mechanisms are safeguards that firms use to control inter-firm exchange, minimize exposure to opportunism (Wathne & Heide, 2000), protect transaction cost investment, and promote the continuance of relationships (Jap & Ganesan, 2000). Among the governance mechanisms typically used in business-to-business relationships are formal written contracts, relational norms, specific investments, and pledges (Cannon et al., 2000, Heide and John, 1992, Heide et al., 2007, Jap and Ganesan, 2000, Macaulay, 1963, Macneil, 1980 and Williamson, 1975). The design of the governance structure for a given exchange relationship represents a strategic decision that requires both parties to work together to reach their ultimate goals. The extant literature on the management of industrial buyer–supplier relationships comprises a series of contributions providing a clear picture of the individual governance mechanisms, their relative importance for the performance of a relationship, and the conditions under which certain governance mechanisms should be used (Bello and Gilliland, 1997, Ferguson et al., 2005, Gassenheimer et al., 1995, Kaufmann and Dant, 1992, Lusch and Brown, 1996, Palmatier et al., 2007 and Palmatier et al., 2006).
Research provides evidence that relationships involving partners from different countries are generally complex and subject to high levels of uncertainty. Consequently, implementing relationship management becomes more challenging (Homburg, Krohmer, Cannon, & Kiedaisch, 2002), and crafting an appropriate governance structure is even more important than it is in a purely domestic setting. Thus far, however, most empirical studies have analyzed domestic business relationships, chiefly in the US and Europe. Research on governance mechanisms in international business relationships is sparse.
This paper aims to provide a better understanding of governance issues in business relationships with an international component. More precisely, this study makes three contributions:
(1)
We analyze whether the use of governance mechanisms and relationship outcomes (customer satisfaction and customer commitment) differ in relationships with an international component compared with domestic relationships.
(2)
We retest the relationships between governance mechanisms and relationship outcomes currently developed in the literature (Palmatier et al., 2007) in an international context. We propose a model that accounts for the interrelationships between governance mechanisms (formal contract, value-claiming norms, value-creating norms, relationship-specific investments, and trust) and customer commitment and satisfaction as relationship outcomes.
(3)
We examine the moderating role of internationality on the relationships between governance mechanisms and customer commitment.
Our analyses reveal significant differences in the use of governance mechanisms between purely domestic relationships and relationships with an international component. We also find support for the model based on Palmatier et al.'s (2007) work. Finally, we observe a moderating effect of internationality, in particular, on the relationships between both formal contracts and commitment and trust and commitment.
The remainder of this paper has the following structure. The next section reviews the extant literature on governance mechanisms, international business relationships, and the governance of international business relationships. In Section 3, we derive hypotheses concerning the relationships between governance mechanisms, customer commitment, and customer satisfaction, including the direct and indirect effects as well as the assumed moderator effects of internationality. Section 4 describes the design of our empirical study, and Section 5 details the results of the statistical analysis of 296 inter-firm relationships comprising both purely domestic dyads and cases with an international component.3Section 6 concludes by discussing the managerial and theoretical implications, limitations of the study, and suggestions for future research.
