Contract Types, Institutional Distance and Operational Performance: Evidence from Global Trade Flows in the LNG Industry
| Published date | 01 October 2023 |
| Author | Georgios Batsakis,Andreas Robotis,Christos Koulamas,Fotios Zeritis |
| Date | 01 October 2023 |
| DOI | http://doi.org/10.1111/1467-8551.12672 |
British Journal of Management, Vol. 34, 1832–1850 (2023)
DOI: 10.1111/1467-8551.12672
Contract Types, Institutional Distance and
Operational Performance: Evidence from
Global Trade Flows in the LNG Industry
Georgios Batsakis,1,2 Andreas Robotis,3Christos Koulamas4
and Fotios Zeritis5
1Alba Graduate Business School, The American College of Greece, Athens, 11 528, Greece, 2Brunel Business
School, Brunel University London, Uxbridge, UB8 3PH, UK, 3Dublin City University Business School, Dublin
City University, Whitehall, Dublin 9, Ireland, 4Department of Information Systems and Business Analytics,
Florida International University, Miami, FL, 33199, USA, and 5NAKILAT(Qatar Gas Transport Company),
Doha, 22271, State of Qatar
Corresponding author email: gbatsakis@alba.acg.edu
In this study, we examine the relationship between contract types, institutional distance
and operational performance in the context of cross-border trade in the liqueed natural
gas (LNG) industry.Drawing on the buyer–supplier long-term relationships literature, we
argue for a negativelink between short-term contractual agreements and operational per-
formance. Further,drawing insights from institutional theory, wecontend thata high level
of formal and informal institutional distance between the origin (i.e. supplier) and desti-
nation (i.e. buyer) countries reduces operational performance. Wealso argue that formal
and informal institutional distance mitigates the negative effect of short-term contracts
on operational performance. Finally, we draw on the role of ‘asymmetry in distance’ by
examining the direct and moderating effect of both the relevance and direction of formal
institutional distance. We test our assumptions using LNG global trade ows from 39
source countries to 44 destination countries over the 2008–2017 period (a total of 17,447
shipments). Our study extends our knowledge on the operational performance implica-
tions of buyer–supplier relationships and stresses the important role formal and informal
institutional distance plays as a direct and moderating effect on this relationship.
Introduction
In the last couple of decades, a proliferation of
academic research on cross-border buyer–supplier
relationships is being observed (Autry and Goli-
cic, 2010; Roh, Whipple and Boyer, 2013; Squire,
Wewould like to express our gratitude to Kpler for grant-
ing us access to its database in order to processtheir data
and conduct this research study. The views in this paper
are solely the responsibility of the authors and should not
be interpreted as reecting the views of their institutions
and organizations.
[Correction added on 7th of November 2022, after rst
online publication:Figure 1 and hypotheses numbers have
been updated in this version.].
Cousins and Brown, 2009; Um and Oh, 2020).
Extant research has primarily focused on factors
affecting the quality and effectiveness of buyer–
supplier relationships (Cousins and Lawson,2007;
Lui and Ngo, 2012; Stuart, 1997). For example,
research has stressed the positive role trust and
commitment play in this relationship (Ketkar
et al., 2012; Lane and Bachmann, 1996; Squire,
Cousins and Brown, 2009; Xie et al., 2010). Re-
cently, research has shifted its attention to the
adverse effect conict and opportunism seem to
have on determining the effectiveness of buyer–
supplier relationships (Bai, Sheng and Li, 2016).
The aforementioned factors have been found
to be compromised by the use and enforcement
© 2022 The Authors.British Journal of Management published by John Wiley & Sons Ltd on behalf ofBritish Academy
of Management.
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distri-
bution and reproduction in any medium, provided the original work is properlycited.
Contract Types, Institutional Distance and Operational Performance1833
of contracts. In general, contracts are an effective
mechanism for providing safety and clarity when
it comes to interorganizational conict resolution
(Zhou and Xu, 2012). Existing research – mainly
drawing on transaction cost economics – has
stressed the crucial role contractual agreements
play in alleviating opportunistic behaviour in
interorganizational relationships (Williamson,
1985; Zhou and Xu, 2012). More specically,
with respect to logistics and transportation costs,
rms tend to rely on long-term contracts to secure
stability and hedge against market volatility and
high prices. Yet, this logic is nowadays challenged
as more and more rms opt for shorter-term solu-
tions. This phenomenon is particularlyobserved in
the liqueed natural gas (LNG) trade. Although
the majority of LNG trade utilizes long-term
contracts, it is observed that nowadays rms also
opt for shorter-term and spot trades, which now
account for over one-third of the global LNG
trade. This phenomenon is attributed to the ongo-
ing review and revision process of contract price
formulas (especially in the Asia Pacic region),
as well as to escalating arbitrations to resolve dis-
putes between parties on pricing terms (Finizio,
Trenor and Tan, 2020). These ongoing revisions
and disputes over long-term contracts have given
rise to a debate on whether shorter-term or spot
solutions are more efcient with respect to the
operational performance of buyers andsuppliers.
The explanation of the aforementioned phe-
nomenon can be facilitated by the instrumentation
of another body ofliterature which has acknowl-
edged the important role institutions – formal and
informal – play in constraining acceptable actions
in economic exchanges (Christopoulou et al.,
2021; North, 1990; Peng, Lee and Wang, 2005;
White et al., 2013) and in supporting contract
enforcement (Greif, 2005). The preference for
long-term contracts over shorter-term solutions
can be explained by the relative strength or weak-
ness of buyer and supplier home country institu-
tional regimes. While there has been a particular
emphasis on widening the scope of applications
of institutional theory in the supply chain man-
agement discipline in general, and in causal effects
of operational performance in particular (Gupta
and Gupta, 2019; Kauppi, 2013), there has been
no clear evidence of how formal and informal
institutional differences at the country level affect
important operational characteristics pertaining
to the buyer–supplier dyad. Most importantly,
there is no evidence of how formal and informal
institutional distance moderates the relationship
between contractual agreements and operational
performance in cross-border trade.
Aiming at lling the aforementioned gaps in the
literature, we explore a so far under-researched
question, pertaining to the contingent effect of
contract type on operational performance.1Our
rst contribution is that we examine the effect
of different contract types on the operational
performance in the buyer–supplier dyad. Our
ndings are of signicance for the supply chain
management literature because not only do we
clarify the different types of contracts and their
related changing dynamics, but we also examine
their impact on a novel measure of operational
performance (i.e. capacity utilization), which is
both relevant and important forthe industry under
examination and beyond. Further, drawing on the
increasingly important role of institutions in cre-
ating and sustaining rm competitive advantage
(Peng et al., 2009), we examine the effect of formal
institutional distance (i.e. the extent of dissimilar-
ity among the formal institutions of two countries)
and informal institutional distance (i.e. cultural
dissimilarity) in buyer–supplier cross-border rela-
tionships; we also assess the moderating effect in-
stitutional distance plays in the link between con-
tract type and operational performance. Our sec-
ond contribution is that we elucidate the differen-
tial effects of formal and informal institutions on
the operational performance in the buyer–supplier
dyad, which is a rather under-researched phe-
nomenon in the supply chain management disci-
pline.Our longitudinal,cross-country research set-
ting adds further signicance to the supply chain
management discipline given that the majority of
contract studies either treat institutions in a static
manner or conduct their empirical examination in
highly similar contexts (Bai, Sheng and Li, 2016).
We view our research contributions as novel,
among others, because our study is contextualized
in an industry substantially different from those
in past studies that have tested similar research
questions. Compared to other industries, the LNG
industry is unique, but also appropriate to test
such questions, as it is characterized by several
1In the context of our research, we measure operational
performance as the tanker’s capacity utilization, that is
the extent to which a tanker uses its maximum storage
capacity.
© 2022 The Authors.British Journal ofManagement published by John Wiley & Sons Ltd on behalf of British
Academy of Management.
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