Governance and social capital formation in buyer‐supplier relationships

Abstract

Purpose-Building social capital within buyer-supplier relationships is often associated with high performing supply chains. However, little research has examined the mechanisms by which social capital is formed. Our paper examines the effects of relational and contractual governance mechanisms on the formation of social capital under varying levels of demand and supply uncertainty. Approach-A conceptual framework is developed, grounded in the literature on supply chain management and social capital theory. Findings-We develop a series of propositions showing that relational governance leads to the formation of social capital under conditions of supply uncertainty, but is subject to opportunism when customer product demand is uncertain. By contrast, in conditions of high demand uncertainty, contractual governance is associated with social capital formation. Practical implications-Our study illustrates the need for managers to consider both the way in which their choice of governance mechanisms (contractual and relational) contributes to social capital, as well as highlighting the contingent nature of these mechanisms depending on the environmental context. Originality/value-This work is a novel contribution, applying social capital theory to the literature on supply chain management.

Effect of Information Access through Social Capital on Mitigating Business Opportunism of Small Enterprises in Sri Lanka

“…Table 3 illustrates that the information accessed through SSC has a significant negative effect on the opportunistic behaviour of the exchange partners (β = -0.238 or 24 percent and t-value = -5.79) supporting hypothesis H1. Similar results were provided by the studies of Carey andLawson (2011), Lu (2007) and Mysen et al (2011) confirming that information access through the network structure mitigates the opportunistic behaviour of exchange partners. Okten and Osili (2004) and Ting, Chen, and Bartholomew (2007) explained that the network size helps to tap information in the external environment successfully and reduce information asymmetry.…”

“…Dyer (1997) empirically observed that information exchange between the exchange partners reduced information asymmetry. Thus, many scholars (Carey & Lawson, 2011;Gulati & Singh, 1998;Joskow, 1985;Lu, 2007) have provided empirical evidences supporting that the RSC has an effect on the reduction of the tendency for opportunistic behaviour of exchange partners due to exchange of information. Table 3 further shows that the CSC has a negative significant effect on opportunism.…”

“…A network structure enables SEs to gather information, and is important to identify each other's reliabilities (Gulati, 1995). Thus, the network structure helps to access information about exchange partners leading the decrease of the potential risk of opportunistic behaviour of exchange partners (Carey & Lawson, 2011;Granovetter, 1985). Frequent and close interactions between exchange partners permit them to know one another and to develop a relationship with good faith between them.…”

“…SEs can access information through their network to see whether they have selected the right exchange partner to carry out a transaction (Gulati & Singh, 1998). Thus, relational ties can be used to reduce the potential risk of opportunistic behaviour of exchange partners (Carey & Lawson, 2011;Granovetter, 1985). Morgan and Hunt (1994) suggest that trust exists when a firm has confidence of the reliability and integrity in exchange partners.…”

Can Supplier Governance Improve Sustainable Performance of Manufacturing Firms?

“…Wathne and Heide (2004) argue that where there is no governance exercised in upstream relationships it will negatively influence the manufacturer's ability to respond to uncertainty in the downstream market. Carey and Lawson (2011) too share a similar view when they say that the performance of the supply chain can be improved with the social capital built up through enhanced supplier relationships (Nahapiet and Ghoshal, 1998). The implication is that without mitigating the uncertainty in the relationships with the suppliers a firm is unable to meet the expectations of their customers (Carey and Lawson, 2011).…”