Drivers and Outcomes of Long‐term Orientation in Cooperative Relationships
| Date | 01 March 2012 |
| Published date | 01 March 2012 |
| Author | Hang‐yue Ngo,Steven S. Lui |
| DOI | http://doi.org/10.1111/j.1467-8551.2010.00719.x |
Drivers and Outcomes of Long-term
Orientation in Cooperative Relationships
Steven S. Lui and Hang-yue Ngo
School of Organisation and Management, Australian School of Business, University of New South Wales,
Sydney, Australia, and Department of Management, Chinese University of Hong Kong, Hong Kong, China
Email: steven.lui@unsw.edu.au; hyngo@baf.msmail.cuhk.edu.hk
We argue in this paper that a buyer may deliberately develop long-term orientation as a
governance mechanism to deal with risks arising from exchange hazards, and to reduce
the opportunistic behaviour of a supplier. While the exchange hazards of asset
specificity pose a safeguarding problem, those of market uncertainty pose an adaptation
problem. We test our model on a sample of 221 procurement partnerships. Our results
show that satisfactory prior history of a supplier, asset specificity of the buyer and
market uncertainty are all positively related to a buyer’s long-term orientation towards
a supplier. Consistent with the idea that asset specificity and market uncertainty pose
different governance problems, we find that satisfactory prior history reduces the
positive relationship between asset specificity and a buyer’s long-term orientation, but
enhances the positive relationship between market uncertainty and a buyer’s long-term
orientation. We also find that a buyer’s long-term orientation fully mediates the
relationship between satisfactory prior history and a supplier’s opportunistic behaviour.
Finally, implications on the theory and the practices of relationship governance are
discussed.
Introduction
Cooperative relationships, such as procurement
partnerships, mutual agreements, strategic alli-
ances and joint ventures, are increasingly adopted
between independent firms to combine resources
for common goals nowadays (Contractor and
Lorange, 2002; Kale and Singh, 2009). When
studying cooperative relationships, the relational
exchange theory suggests that these relationships
are not one time economic transactions but are
embedded in a rich social context of norms and
trust (Das and Teng, 2002; Gulati, 1995; Morgan
and Hunt, 1994).
Long-term orientation is an important social
aspect of cooperative relationships. It represents
the expectation of working together in the future
held by one or both of the exchange parties
(Ganesan, 1994; Heide and John, 1990). The
commitment of the exchange parties is reflected
by providing an assurance of future business
possibility (Morgan and Hunt, 1994). As such,
long-term orientation has often been considered
as an outcome resulting from prior collabora-
tion. It has been found to be positively related to
trust (Doney and Cannon, 1997; Ganesan, 1994;
Poppo, Zhou and Ryu, 2008; Ryu, Park and
Min, 2007), joint action (Heide and John, 1990)
and cooperation between partners (Heide and
Miner, 1992). In particular, the impact of prior
exchange history on long-term orientation has
been highlighted in extant research (e.g. Doney
and Cannon, 1997; Poppo, Zhou and Ryu, 2008).
A firm is more likely to work with a partner in the
The work described in this paper was partially
supported by the Australian School of Business Re-
search Grant (PS17226) and the Competitive Earmarked
Research Grant provided by the Research Grants
Council of the Hong Kong SAR, China (CityU1433/
05H). We thank Matthew Robson, the Associate Editor,
and two anonymous reviewers for their helpful com-
ments and Jody Wong for her able research assistance.
We also are grateful to Sunghoon Kim and Simon
Restubog for their helpful comments.
British Journal of Management, Vol. *,*–*(2010)
DOI: 10.1111/j.1467-8551.2010.00719.x
r2010 The Author(s)
British Journal of Management r2010 British Academy of Management. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
British Journal of Management, Vol. 23, 80–95 (2012)
DOI: 10.1111/j.1467-8551.2010.00719.x
© 2010 The Author(s)
British Journal of Management © 2010 British Academy of Management. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
future that it has worked well with in the past
(Al-Laham, Amburgey and Bates, 2008; Barnes
et al., 2010).
As long-term orientation has been studied as
an outcome of cooperative relationships, the
notion that the extent of long-term orientation
can be deliberately manipulated to influence
other relationship outcomes has received limited
attention. However, this notion could be parti-
cularly relevant within business contexts where
social relationships are considered to be crucial
transaction lubricants. For example, Chung,
Sternquist and Chen (2006) argue that Japanese
retailers use long-term orientation to build trust
in their partners rather than the other way round.
Similarly, Dyer, Cho and Chu (1998) find that
Japanese automobile manufacturers build long-
term orientation with strategic suppliers to entice
their commitment, and lower opportunistic be-
haviour. These two examples indicate that a firm
may develop long-term orientation towards a
partner to reduce trading difficulties. However, it
has remained unclear as to (1) what factors a firm
would consider when developing long-term or-
ientation towards a partner, (2) how the interac-
tion among these factors might enhance or
undermine the role of long-term orientation,
and (3) the effectiveness of long-term orientation
in reducing a partner’s opportunistic behaviour.
In this paper, we investigate the above men-
tioned research gaps by conceptualizing long-
term orientation as a governance mechanism to
limit the risks arising from exchange hazards. A
model of long-term orientation as a governance
mechanism is developed. We evaluate how the
nature of exchange hazards (i.e. buyer asset
specificity and market uncertainty) and satisfac-
tory prior history directly and interactively affect
the long-term orientation of a buyer. We subse-
quently consider how long-term orientation
works as a governance mechanism in mitigating
opportunistic behaviour, and mediating the path
between satisfactory prior history and opportu-
nistic behaviour. A sample of procurement
relationships from China is used to test the
model, as long-term orientation is likely to have a
profound effect in a relationship-rich and weak
regulatory context.
This paper first lays out the theoretical back-
ground of the model. We then propose some
hypotheses regarding the antecedents of the long-
term orientation of a buyer firm towards a
supplier firm. Specific hypotheses about the
moderating role of satisfactory prior history
and the mediating role of long-term orientation
are then developed. The Research methods sec-
tion describes the sample and the study variables,
followed by the statistical analyses and results.
The final section evaluates the main findings and
discusses the study limitations and contributions
to the wider literature.
Theoretical background and hypotheses
development
We investigate long-term orientation as a govern-
ance mechanism within an overall framework of
transaction cost economics. Transaction cost
economics assumes the exchange partners to be
opportunistic, and will seek self-interest at the
expense of the common interests of a relationship
(Williamson, 1985). The problem of opportunism
accelerates when exchange hazards increase. This
raises trading difficulties in cooperative relation-
ships (Dahlstrom and Nygaard, 1999; Das and
Rahman, 2002; Wathne and Heide, 2000). As
opportunism reduces partnership performance
(Crosno and Dahlstrom, 2008; Lado, Dant and
Tekleab, 2008), an appropriate governance for
cooperative relationships is required to cope with
the risk from exchange hazards posted by a
transaction (David and Han, 2004; Rindfleisch
and Heide, 1997).
By representing an expectation towards a
future commitment, long-term orientation can
be seen as an orientation towards relational
exchange, which offers more informal safeguards
and greater contractual flexibility than arm’s-
length orientation (Kaufman, Wood and Theyel,
2000; Zhou, Poppo and Yang, 2008). Thus, long-
term orientation may be used to regulate the risks
arising from the opportunism of a partner (Das,
2006; Heide and Miner, 1992). When the ex-
change hazards of a transaction increase, a firm
will shift to relational exchange governance by
developing a higher level of long-term orientation
(Ganesan, 1994; Heide and John, 1990; Poppo,
Zhou and Ryu, 2008).
To understand further how long-term orienta-
tion works as a governance mechanism, we com-
plement the overall framework of transaction
cost economics with arguments based on relatio-
nal exchangetheory. In particular, theeffectiveness
2S. S. Lui and H.-Y. Ngo
r2010 The Author(s)
British Journal of Management r2010 British Academy of Management.
Long-term Orientation in Cooperative Relationships 81
© 2010 The Author(s)
British Journal of Management © 2010 British Academy of Management.
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