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Value Creation and Appropriation in Buyer-Supplier Relationships: Governance, Competition and Cultures
Abstract
The productive relationship between buyer and supplier is often subject to opportunistic behaviors of the supplier. When selecting a supplier, firms have to balance between benefits of production efficiency and costs of transactional integrity. To minimize the supplier's opportunism, firms devise formal and informal governance mechanisms that match with characteristics of the relationship at the firm level, sourcing strategy of the buyer, at the industry level, competition among suppliers, and at the country level, national culture where the supplier's operations are located. While concurrently employing both formal and informal governance mechanisms may be more effective in suppressing the supplier's opportunism, it may be too costly in the design and implementation. The best strategy for the buyers is to adopt the governance mechanism that matches with characteristics of the relationship at different levels.
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