The Safeguarding Effect of Governance Mechanisms in Inter‐firm Exchange: The Decisive Role of Mutual Opportunism
| Date | 01 March 2010 |
| Author | Cees J. Gelderman,Marjolein C. J. Caniëls |
| DOI | http://doi.org/10.1111/j.1467-8551.2009.00654.x |
| Published date | 01 March 2010 |
The Safeguarding Effect of Governance
Mechanisms in Inter-firm Exchange: The
Decisive Role of Mutual Opportunism
Marjolein C. J. Canie
¨ls and Cees J. Gelderman
Open University of the Netherlands, Faculty of Management Sciences, PO Box 2960, 6401 DL Heerlen,
The Netherlands
Corresponding author email: marjolein.caniels@ou.nl
This study empirically investigates the safeguarding effect of (1) administrative control,
(2) a dominant power position and (3) relational norms, on opportunistic behaviour of
suppliers, by means of a survey among 624 information and communication technology
professionals in Dutch municipalities. The findings indicate that individual effectiveness
of relational norms, particularly in terms of flexibility and solidarity, was most
prominent. Administrative control and power did not show a significant impact on
supplier opportunism in our sample. Research into the simultaneous use of several
safeguards against opportunism generated the finding that different relational norms
fortify each other’s safeguarding effect. Furthermore, we demonstrate that supplier
opportunism is only mitigated by a dominant power position when the buyer does not
exploit its favourable position and the buyer does not behave opportunistically. Hence,
power seems to have a safeguarding effect only when it is not used.
Introduction
Despite the often-proclaimed advantages of
cooperative long-lasting buyer–supplier relation-
ships, parties in such relationships frequently
experience opportunistic behaviour (Jap and
Anderson, 2005). Opportunism is a concept that
stems from transaction cost theory and is defined
as ‘self interest seeking with guile’ (Williamson,
1975, p. 6). Opportunism includes all kinds of
deceitful behaviour, such as subtle forms of
violation of agreements, wilful deception, lying,
stealing and cheating, which are all geared
towards achieving one’s own objectives despite
the possible damage that is done to others
(Williamson, 1985, p. 47). Previous research has
demonstrated the destructive and devastating
impact of opportunism on the performance of a
strategic alliance (Gassenheimer, Baucus and
Baucus, 1996; Parkhe, 1993), satisfaction (Gas-
senheimer, Baucus and Baucus, 1996), trust
(Morgan and Hunt, 1994) and conflict (Joshi
and Stump, 1996). Obviously, opportunistic
behaviour has a detrimental impact on buyer–
supplier relationships.
Parties can utilize a variety of governance
mechanisms in order to reduce or prevent
opportunism. This idea stems from transaction
cost theory, which proposes that transaction-
specific investments must be safeguarded against
opportunism. Jap and Ganesan (2000, p. 230)
define governance mechanisms as ‘safeguards that
firms put in place to govern interorganizational
exchange, minimize exposure to opportunism
and protect transaction specific investments’.
Broadly speaking we can identify three kinds of
governance mechanisms in the literature: (1)
administrative control, through explicit contrac-
tual agreements (e.g. Lusch and Brown, 1996;
Stinchcombe, 1985); (2) exchange governance
through power and self-interested commitment
(e.g. Nooteboom et al., 2000); and (3) social/
relational control, through relational norms (e.g.
Heide and John, 1992; Macneil, 1980). Each of
British Journal of Management, Vol. 21, 239–254 (2010)
DOI: 10.1111/j.1467-8551.2009.00654.x
r2009 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford
OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
these mechanisms is alleged to reduce opportu-
nism. However, the literature is not conclusive
on the effectiveness of each of these safeguards,
nor is there consensus on the interrelationship
between them (Achrol and Gundlach, 1999;
Ghoshal and Moran, 1996).
Prior empirical research has focused primarily
on finding evidence for the efficient operation of
one or two of these safeguards in isolation (Heide
and John, 1988, 1992; Lusch and Brown, 1996) or
interdependences between several instruments for
one of these governance mechanisms (Stump and
Heide, 1996). Although these contributions pro-
vide constructive insights about the effectiveness
of several governance mechanisms, still there are
important gaps in the knowledge about them that
have yet to be addressed adequately.
Studies commonly focus on the mitigating
effect of safeguards on the opportunistic beha-
viour of the other party, without controlling for
the effect of their own opportunistic behaviour
(e.g. Jap and Ganesan, 2000; Joshi and Arnold,
1997). Improper behaviour by one party is likely
to provoke a similar reaction of the other party.
Hence, the opportunistic behaviour of the party
that employs the safeguards could moderate the
effectiveness of the use of its safeguards. There-
fore, there is a need to include the opportunistic
behaviour of both buyers and suppliers in a study
on the effectiveness of safeguards.
Additionally, the isolated use of governance
mechanisms is not representative of a real-world
situation in which several safeguarding measures
will be employed in combination (Bradach and
Eccles, 1989). Only few studies take up research
into the simultaneous use of several safeguards
against opportunism (Achrol and Gundlach,
1999; Jap and Ganesan, 2000). However, these
contributions have certain limitations. For ex-
ample, Achrol and Gundlach (1999) mainly base
their research on a simulation study, not using
real-life data. Jap and Ganesan (2000) concen-
trate on the interaction of several safeguards with
transaction-specific investments of the supplier.
Neither study includes power as a variable that
mitigates opportunistic behaviour. Thus, both
studies fall short of investigating the simulta-
neous use of administrative control, governance
through a dominant power position and rela-
tional norms. Consequently, there is a need for
empirical research that will determine the relative
effectiveness of the simultaneous use of these
safeguards against opportunism. Furthermore,
there is a need for empirical evidence regarding
whether the use of a combination of safeguards
can successfully reduce opportunistic behaviour.
In other words, are different safeguards comple-
mentary or not?
In this study we seek to extend the knowledge
about safeguards against opportunism by em-
pirically investigating the individual and com-
bined impact of (1) administrative control, (2)
power and (3) relational norms on opportunistic
behaviour. Furthermore, we study whether the
effectiveness of these safeguards, particularly
power, is conditioned by opportunistic beha-
viour. Data were obtained in a survey among 624
information and communication technology pro-
fessionals in Dutch municipalities, resulting in
140 valid responses (22.4% response rate).
The organization of the paper is as follows. In
the next section we will synthesize the literature
about safeguards against opportunism and derive
hypotheses. Subsequently, we will give the details
about our research methodology and we will
present and discuss the results of our analysis.
Finally, we will present the main conclusions of
the paper and derive key implications for
management and future research.
Conceptual background and hypotheses
Administrative control
Transaction cost theory posits that as soon as
transaction-specific investments are made in a
buyer–supplier relationship, firms need to devel-
op adequate controls to restrain the opportunistic
behaviour of the other party (Geringer and
Hebert, 1989; Parkhe, 1993; Williamson, 1985).
Transaction-specific investments refer to produc-
tion facilities, tools and/or specific knowledge
that is required in the transaction with a certain
exchange partner, and that will lose a large part
of its value if the exchange relationship is
terminated. Williamson (1985) proposes that
protection of specific assets against opportunistic
behaviour of the exchange partner can be
achieved by moving away from an arm’s length
market relationship toward a vertically integrated
relationship. Obviously, this traditional safe-
guard is not always feasible or desirable, as
vertical integration will imply considerable costs
in terms of administration and management of
240 M. C. J. Canie
¨ls and C. J. Gelderman
r2009 British Academy of Management.
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