Buyer Dependency and Relational Capital Formation: The Mediating Effects of Socialization Processes and Supplier Integration

Article excerpt

INTRODUCTION

Organizations increasingly rely on members of their supply chain to help drive cost reduction, process improvement and quality in order to achieve a competitive advantage. Attaining these benefits, however, requires commitments of physical assets, intellectual property and problem-solving routines, which may leave a firm exposed to a loss of control and potential opportunism. A balance of trust and power exists within a supply chain relationship, enabling each party to commit appropriate resources required to operate an effective and efficient supply chain. Nonetheless, relative levels of power and trust will vary across an organization's supply chain.

Many characteristics of the relationship between buyer and supplier are influenced by buyer-supplier power dynamics (Kale, Singh and Perlmutter 2000; Maloni and Benton 2000; Benton and Maloni 2005; Ireland and Webb 2008). Although power issues have been discussed, the literature provides little indication of the influence of power on these relationship dynamics. In particular, asymmetrical power levels can serve as a powerful mediator for any buyer-supplier relationship (Lambert, Emmelhainz and Gardner 1999). Where one party exploits their power in the supply chain, suboptimal outcomes may occur; while withholding potential power is often likely to provide benefit to both parties (Maloni and Benton 2000). By managing these power dynamics, organizations can strategically adjust social relationships with their suppliers to achieve required outcomes.

Major shifts in power from one party to another are evident in the press. Wal-Mart is the most often cited example. In oil and gas, power has shifted in the last 4 years from the "Big Five" national oil companies, to the Engineering Procurement Construction (EPC) companies, who design and construct pipeline, chemical and refining plants. In this instance, the balance of power has shifted dramatically, as suppliers now have the authority to "call the shots." Similarly, the power shift in healthcare has moved away from the large pharmaceutical manufacturers to the pharmacy benefits managers and governments that determine what price point will be paid. Finally, a shift in power from the OEM's to Tier 1 suppliers is also evident in the automotive industry (Ro, Liker and Fixson 2008). In all of these examples, the specific nature of major shifts in bases of power on buyer-supplier socialization, trust, and relational capital is an important parameter that we hope to shed light on in this research.

We use resource dependency theory (RDT) to explore the circumstance in which a supplier has increasing levels of power over the buyer, such that the supplier may have little motivation to yield control or withhold the exercise of this potential power. We then explore managerial strategies that a buyer may implement to mitigate the impact of supplier power on the formation of relational capital within the relationship. Specifically, we posit that the degree to which a buyer is dependent on a supplier may affect the use of socialization processes and supplier integration, such these variables both directly and indirectly affect the development of "goodwill between buyers and suppliers," described as "relational capital" (Dyer and Singh 1998; Burt 2000; Dyer and Nobeoka 2000). The dynamics of these processes is explored in light of differentiated positions of relative power (dependence) in the relationship, and the associated outcomes. We explore the question of what happens when degrees of power (dependence) are modified? Does a shift in power lead to variation in socialization processes or level of supplier integration? We maintain the extent to which power is used (or not used) is an important parameter for managers to consider in their sourcing strategies. Buyer-supplier relationships are never at parity; there is always a dependence trade-off.

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