Adding Value To Buyer‐Supplier Relationships In China
| Pages | 1-11 |
| DOI | https://doi.org/10.1108/15587890880000486 |
| Published date | 01 September 2008 |
| Date | 01 September 2008 |
| Author | Brenda Sternquist,Carol A. Finnegan,Zhengyi Chen |
| Subject Matter | Strategy |
Journal of Asia Business Studies FALL 2008 1
INTRODUCTION
What a difference competition makes. For almost 40 years, the
Chinese government has gradually introduced market incentives and
increased access to differentiated goods and services. Wang and
Zhang (2005) describe the profound changes in Shanghai’s retail
economy as a result of deregulation and liberal government policies,
encouraging the entry of international retailers with more sophisti-
cated retail management systems. As state control receded, private
market infrastructure has developed, including various sources of
information about supply markets and new sources of domestic and
foreign suppliers. During this transition, retailer buyers relied upon
guanxi as the most efficient and credible means to gain access to hard
to obtain resources and information and to reduce the likelihood of
supplier opportunism (Yang 1994). Accordingly, many of the trade
and scholarly works in the last decade have emphasized the impor-
tance of guanxi ties for successful business performance (e.g., Am-
bler, Styles and Xiucun 1999; Peng and Luo 2000).
The present research adds to the understanding of how supplier
selection strategies may have evolved. Based upon our personal inter-
views with Chinese businesses and theoretical support, we argue that
the need for guanxi has declined over time. This supports Lihong and
Goffin’s (2001) study of international joint ventures in China. The key
reasons for this change are market efficiency improvements motivated
by a need to compete with foreign suppliers and a growing sophistica-
tion of Chinese consumers (Taylor 2003). Competitive supply markets
shift the basis of supplier evaluation from social criteria (i.e., guanxi) to
more economic criteria (i.e., ability to add value). As markets become
more competitive and transparent, the need for partners with special
or additional access to controlled resources should recede.
In summary, we seek to make several contributions to the litera-
ture. In terms of theory, we empirically test competing hypotheses
about retail buyer-supplier relationships in China. If guanxi is neces-
sary to procure the appropriate mix of goods and services, retailers
should expect reasonably effective capabilities from their guanxi sup-
pliers. However, if retail procurement has transitioned sufficiently
from the planned economy to competitive markets, we should see no
relationship between guanxi relationship and supplier credibility. In-
stead, we should see a strong positive relationship between a sup-
plier’s provision of value-added products and services and a retailer’s
perception of their credibility. In addition, channels research has
typically taken a manufacturer perspective. However, Cannon and
Perreault (1999) suggested that distributors also play a crucial role
and the buyer’s view is more likely to be the determinant of the type
of channel relationships formed. As pinpointed by Frazier (1999),
what is missing is research that examines channel interactions from
the distributor’s point of view. Accordingly, our research examines
the retail buyer’s perspective of its relationship with its suppliers. In
terms of methodology, we offer empirical evidence to advance chan-
nel literature in the Chinese context. In addition, we use a structural
equation modeling technique (i.e., PLS) that is particularly useful
with smaller datasets. Finally, we offer some managerial insights about
supplier selection in the rapidly evolving Chinese retail industry.
The paper is organized in following manner. First, a literature re-
view will develop the conceptual framework and hypotheses. Sec-
ond, the model will be tested. Finally, we will discuss our findings
and their implications about business in China.
Adding Value To Buyer-Supplier Relationships In China
Brenda Sternquist
Michigan State University
Carol A. Finnegan
University of Colorado at Colorado Springs
Zhengyi Chen
Michigan State University
absTRaCT
China’s economy is transforming at a brisk pace. A partially dismantled command economy and introduction of competition
have fueled consumer demand for a greater selection of innovative new products in the retail market. The challenge for retail
buyers is to adjust their procurement processes to respond to consumer needs in an efficient and effective manner. This study
examines factors influencing buyer-supplier relationships in a transition economy. We present a model to explain the factors driving
retail buyer dependence on suppliers. We find that retailer evaluation of supplier credibility mediates the relationship between retailer
perceptions of a supplier ability to add value to its business and the ability to achieve its desired goals. In part, this is due to the sup-
plier’s market orientation. Interestingly, guanxi ties have no impact on the retailer perceptions of the supplier credibility, but have a
positive affect on retailer dependence on its supplier partners.
Keywords: China, Buyer-supplier relationships, Dependence
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