Business relationship framework in Indonesia: relationship marketing vs transaction cost
| Pages | 61-77 |
| Date | 04 January 2016 |
| Published date | 04 January 2016 |
| DOI | https://doi.org/10.1108/JABS-06-2014-0043 |
| Author | Anton Agus Setyawan,Bernardinus Maria Purwanto,Basu Swastha Dharmmesta,Sahid Susilo Nugroho |
| Subject Matter | Strategy,International business |
Business relationship framework in
Indonesia: relationship marketing vs
transaction cost
Anton Agus Setyawan, Bernardinus Maria Purwanto, Basu Swastha Dharmmesta and
Sahid Susilo Nugroho
Anton Agus Setyawan is
Lecturer at Faculty of
Economics and Business,
Muhammadiyah
University of Surakarta,
Sukoharjo, Indonesia.
Bernardinus Maria Purwanto
is Vice Dean for Academic
and Student Affairs at
Faculty of Economics and
Business, Universitas
Gadjah Mada, Yogyakarta,
Indonesia.
Basu Swastha Dharmmesta
and Sahid Susilo Nugroho
are both based at Faculty
of Economics and
Business, Gadjah Mada
University, Yogyakarta,
Indonesia.
Abstract
Purpose –This paper aims to explore business relationship framework between two companies. In this
research, relationship marketing and transaction cost were used as frameworks to analyze business
relationship of two different kinds of companies in Indonesia, oil company and hypermarket. Gronroos
(1994) defines relationship marketing is establishing, maintaining and enhancing relationships with
customers and other partners, at a profit, so that the objectives of the parties involved are met. This is
achieved by a mutual exchange and fulfillment of promises. This definition is a key to analyze the
relationship of retailer and their supplier. In contrast, Williamson (1980) argued that relationship in
business organization is based on their economic interest, and this approach is known as transaction
cost approach. In this kind of relationship, business organizations consider cost and benefit of business
relationship.
Design/methodology/approach –The design of this study is triangulation. Two approaches were
used to answer the research questions. A survey involving 204 respondents was conducted. These are
companies in Indonesia oil and gas and retail industries. The types of power of those companies were
analyzed using descriptive statistic and paired ttest. Also, case study was conducted to gain depth
information of two companies, with a large number of business partners among the respondents. The
design of case study is holistic case study.
Findings –The result shows that, in the oil company, the relationship between a company and their
supplier is tied on a strict contract. In fact, the relationship of supplier and company in a fuel company
based on transaction cost theory. In the retail company, the relationship of supplier and retailer based
on trust, commitment and satisfaction. Those three construct are the foundation of relationship
marketing. Companies in those two industries tend to use non-coercive power to influence their
business partners.
Originality/value –This study analyzes type of business relationship in industries in emerging markets.
It also discusses type of influence strategy used by companies to control their business partners to gain
mutual benefit.
Keywords Coercive power, Relationship marketing, Non-coercive power, Transaction cost
Paper type Research paper
Introduction
Business relationship of a company with their supplier contributes to its business value.
Hunt and Morgan (1994) views modern industrial competition as no longer based on
company-to-company competition but network competition. It means that a company
which has a strong network or business relationship, will succeed in its business
competition. Scholars classify two different kinds of business relationship: relationship
marketing and transaction marketing (Paulin et al., 2000;Chaston and Baker, 1998).
Alexander and Colgate (2000) suggest a company to transform itself from transaction cost
approach to relationship marketing. Hunt and Morgan (1994) suggest that companies must
develop their relationship marketing strategies because it will guarantee them long-term
Received 30 June 2014
Revised 13 January 2015
31 May 2015
Accepted 2 June 2015
DOI 10.1108/JABS-06-2014-0043 VOL. 10 NO. 1 2016, pp. 61-77, © Emerald Group Publishing Limited, ISSN 1558-7894 JOURNAL OF ASIA BUSINESS STUDIES PAGE 61
benefits. Gonroos (1994), on the other hand, states that relationship marketing is the future
of marketing paradigm.
Transaction cost approach in business relationship stresses on efficiency. Business
relationship with transaction cost approach establishes cost-efficiency in business process
with business partners (Buvik, 2001). Following Williamson’s (1981) terminology, the basic
value of this kind of business relationship is that a business partner has two weakness: they
are bounded rationality and opportunism. It means that a company should believe that its
business partners will take opportunity from the weakness in a business relationship
mechanism. Powell (2004) shows that a company could prevent opportunity loss by making
a strategy execution with transaction cost framework. Powell (2004) executes three
scenarios in different approach, perfect rationality, bounded rationality and idle rationality.
The result shows transaction cost in perfect rationality assure efficiency in strategic
decision-making.
Mysen et al. (2012) and Hausman and Johnston (2010) find the role of power in business
relationship. Companies involve in a business relationship have their own mechanism to
influence their partners. This influence strategy is related with the power of a company.
Hausman and Johnston (2010) identify two kinds of power uses by company in their
influence strategy: coercive and non-coercive power. Coercive power is related with the
use of sanction to business partner, while non-coercive power in a business relationship
involves a reward and long-term relationship with partners (Maloni and Benton, 2000).
Mysen et al. (2012) found that power balance in business partnership ensures that each
company involved in the partnership have a positive perception of business results
(business performance, capabilities and business integration).
This study analyzes business relationship framework in Indonesia, a country which is
considered as an emerging market. In this study, we analyze oil and retail company as two
different cases. We choose these two industries, based on their contributions to Indonesian
economic performance. Oil industry in Indonesia has shown major earnings for the country
since the 1960s. In 2012, the Indonesian Government has receive US$34.4 million from the
oil industry. On the other hand, the retail industry is an emerging industry in Indonesia. This
industry contributes more than US$105 million to Indonesia’s gross domestic product
(GDP). There are several major companies in both industries. Kurniati and Yanfitri (2010)
classifies oil and retail in Indonesia into an oligopoly industry. It means that there few
companies exist in both industries.
These two industries have opposite characteristic based on business regulation.
Indonesia’s oil industry has been bounded by the 22nd/2001 Oil and Gas Act, which
controlled the oil company’s relationship with their suppliers. This condition forced oil
company in Indonesia to arrange a straight contract and standard with their suppliers. Oil
and gas is an important industry in Indonesia, as it is related with energy supply for
industries and households. Omogoroye and Oke (2007) emphasize the importance of
safety model for oil and gas as a performance evaluation. It shows other important
characteristics of the oil and gas industry, it is safe in all aspects. This safety aspect
accentuates the oil and gas company to control their suppliers to follow safety standards.
On the other hand, the retail industry in Indonesia has less strict regulation, compared to
the oil and gas industry. Recent regulations on the retail industry in Indonesia include the
Government Regulation 112/2007. This law arranges the technical aspects of the retail
business, such as location, store administration and business hours, as well as supplier–
retailer relationships.
In relation with their suppliers, there are different aspects of these two industries. Since the
1990s Indonesia has attracted many modern retailers due to the large size of its domestic
market (Walker, 1996;Alexander and Myers, 1999). Rapid growth of modern retailers is
seen in the country, and it replaces traditional outlets in the domination of consumer
purchasing patterns (Walker, 1996). AC Nielsen notes that, in 2003-2008, the growth of
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