Behind the length of contract during market transitions

Abstract

Purpose The purpose of this paper is to examine an important yet underexplored research question in the literature: What determines the length of contract governing buyer–supplier relationships during market transitions? The length of contract is a solid indicator of the comprehensiveness of a contract. By integrating transaction costs economics, the embeddedness perspective and the institution-based view, the paper develops a model that incorporates specific investments and perceived opportunism, strategies to select suppliers and buyer firms’ confidence in the institutional environment. It further posits how buyer firms’ dependence on suppliers moderates these relationships. Design/methodology/approach Data were collected nationwide via face-to-face interviews with 328 executives in 164 Chinese firms who shared information pertaining to 774 buyer–supplier contracts. A fine-grained mixed-empirical method was designed to test the proposed hypotheses, to confirm the reliability and to generalize the research findings. Findings All the proposed factors significantly influence the length of the contract. Results obtained through a moderated mediating model suggest that buyers with supplier-specific investments and that choose market-based selection relative to a relationship-based tend to perceive more opportunism in buyer–supplier relationships, which will lead to shortening the length of the contract. However, the buyer’s perception of opportunism will decrease when buyers perceive higher levels of confidence in their legal institutions. Practical implications The study discusses several practical implications for B2B managers who typically involve in interfirm exchanges as well as for emerging economies’ institutions. Originality/value Leveraging theoretical insights from transaction cost economics, the institution-based view and buyer–supplier relationships literature, this empirical study adds unique contributions to B2B research in general and emerging economies’ institutional literature in particular.

In the eye of the beholder: A configurational exploration of perceived deceptive supplier behavior in negotiations

“…Findings from Study 1 and the literature (e.g., Cheng et al, 2021; Kim et al, 2005) highlight the importance of power in business negotiations. Moreover, “relative dependence” is among the most relevant antecedents of opportunistic behavior (Wang & Yang, 2013) and has been found to influence the perception of opportunism (Chen et al, 2020). In the SCM context, power can be assessed based on the independence of each party and the parties' ability to influence one another (Cheng et al, 2021; Emerson, 1962; Pfeffer & Salancik, 1978).…”

“…Six of the seven articles identified focus on firm-level attributes as antecedent factors of opportunism. Chen et al (2020) and Morgan et al (2007) found the buying firm's dependence on the supplier to be a relevant factor; meanwhile, Sako and Helper (1998) identified information asymmetry, uncertainty, asset specificity, long-term commitment, and customer reputation as firm-level factors that influence the supplier's perception of customer opportunism. Moreover, Villena and Craighead (2017) found that asymmetries in relational capital and size asymmetries influence perceived opportunism.…”

Guest editorial

“…The article titled "Behind the length of contract during market transitions" by Chen et al (2019) contribute to transaction cost economics and institutional theories by studying what factors determine the length of contract in B2B relationships in emerging economies such as China. Results highlight buyers that choose a market-based strategy to select suppliers and buyers with supplier-specific investments are likely to perceive more potential opportunism, which will result in shorter contracts.…”

Enhancing supply chain competences through supply chain digital embeddedness: an institutional view

“…Institutional theory is the ideal frame of reference for analyzing the influence of these environmental pressures on business decision-making (DiMaggio and Powell, 1983; Spina et al , 2016; Chen et al , 2020). As Liu et al (2010, p. 381) suggest, “Firms are not only economically rational entities but also socially rational ones.” In our case, SCs are related to other chains, end customers, professional associations and other interest groups that compose these firms’ environment and pressure in both their decision-making process in general and decisions related to digitalization in particular.…”

“…Institutional theory is the ideal frame of reference for analyzing the influence of these environmental pressures on business decision-making (DiMaggio and Powell, 1983;Spina et al, 2016;Chen et al, 2020). As Liu et al (2010, p. 381) suggest, "Firms are not only economically rational entities but also socially rational ones."…”