Trust and Commitment in Relationships among Medical Equipment Suppliers: Transaction Cost and Social Exchange Theories

Article excerpt

Successful supply chain management provides corporations with competitive advantages. A complete supply chain must be in place to meet the related needs of medical products. In 1994, Taiwan implemented a national health insurance policy. The Bureau of National Health Insurance (BNHI) granted a completely free choice of health care providers and therapies to all insured citizens. Most hospital funding is disbursed from the BNHI. Consequently, the medical industry has gradually become competitive. Building effective ongoing supply chain relationships is critical for hospitals intending to minimize operating costs.

Trust and commitment between and among partners has become a crucial element for supply chain management (Chen, Yen, Rajkumar, & Tomochko, 2011). Effective supply chain planning based on information sharing and trust among partners is an essential requirement of successful supply chain management (Kwon & Suh, 2004; Nyaga, Whipple, & Lynch, 2010; Vijayasarathy, 2010). Commitment involves continuity or long-term cooperation between parties to maintain the relationship, and helps increase the efficiency and effectiveness of relationships among supply chain members (Johnston, McCutcheon, Stuart, & Kerwood, 2004). Morgan and Hunt (1994) found that the presence of both commitment and trust raises efficiency, productivity, and effectiveness.

Two theories that have been adopted to understand, explain, and study supply chain management are transaction cost theory (TCT; Cai, Jun, & Yang, 2010; Chen et al., 2011; Kwon & Suh, 2004) and social exchange theory (SET; Griffith, Harvey, & Lusch, 2006; Kwon, 2008; Kwon & Suh, 2004; Narasimhan, Nair, Griffith, Arlbj0rn, & Bendoly, 2009). The TCT has been applied in vertical and cross-organizational integration, whereas the SET provides a foundation for studying organizational relationships. Both theories offer a comprehensive explanation of the strategic alliances of nonprofit organizations in cross-hospital supplier management studies (Chang, Hwang, Hung, Kuo, & Yen, 2009). Although researchers have focused on the relationship between related variables and the level of trust, empirical studies in the context of supply chains in which the relationship between trust and commitment--the ultimate facilitator of supply chain success--has been examined, are absent. Therefore, in this study we aimed to bridge this gap in knowledge about trust and commitment in supply chain management.

We determined the specific factors that affect the level of trust and commitment in relationships among medical equipment suppliers. Several constructs related to trust have been discussed and tested in the literature, such as those comprising the TCT (asset specificity, behavioral uncertainty, and information sharing) and SET (communication, perceived benefits, and relationship tenure). Kwon and Suh (2004) proposed a research model based on the TCT and SET to investigate the primary determinants affecting trust. Although the current study is similar to that of Kwon and Suh because TCT and SET were adopted in both studies to investigate the primary determinants affecting trust, differences between the studies exist. In this study, we investigated the partnership between hospitals and suppliers, and used communication, perceived benefits, and relationship tenure as variables for the SET. In addition, the primary contributions in this research include an investigation of the integration of TCT, SET, trust, and commitment in explaining the partnership between hospitals and suppliers, and an empirical evaluation of the factors that critically affect this partnership. This study is expected to provide a reference for management decision variables, (referring to the transaction cost theory constructs and social exchange theory constructs mentioned above), for supporting partner relationships, and building successful supplier management.

Literature Review and Hypotheses

Transaction Cost Theory

TCT originates in transaction cost economics (Coase, 1937), which is extensively applied in the economic and social domains (Rindfleisch & Heide, 1991), and is used to explain the reason corporations exist and how corporate boundaries are determined (Coase, 1937; Williamson, 1989). …